<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 1994
REGISTRATION NO. 33-52313
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
OCTEL COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3661 77-0029449
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
</TABLE>
------------------------
OCTEL COMMUNICATIONS CORPORATION
890 TASMAN DRIVE
MILPITAS, CALIFORNIA 95035-7439
(408) 321-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
GARY A. WETSEL
CHIEF FINANCIAL OFFICER
OCTEL COMMUNICATIONS CORPORATION
890 TASMAN DRIVE
MILPITAS, CALIFORNIA 95035-7439
(408) 321-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
BARRY E. TAYLOR, ESQ. ERIC J. LAPP, ESQ.
DONNA M. PETKANICS, ESQ. DIANE HOLT FRANKLE, ESQ.
MARK E. BONHAM, ESQ. HEAYOON WOO, ESQ.
TYLER J. GOLDMAN, ESQ. GRAY CARY WARE & FREIDENRICH
WILSON, SONSINI, GOODRICH & ROSATI 400 HAMILTON AVENUE
PROFESSIONAL CORPORATION PALO ALTO, CALIFORNIA 94301-1809
TWO PALO ALTO SQUARE PHONE: (415) 328-6561
PALO ALTO, CALIFORNIA 94306 FAX: (415) 327-3699
PHONE: (415) 493-9300
FAX: (415) 858-4485
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE AND
CERTAIN
OTHER CONDITIONS UNDER THE REORGANIZATION AGREEMENT ARE MET OR WAIVED.
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. / /
------------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Proposed
Proposed maximum
Amount maximum aggregate Amount of
Title of each class of to be offering price offering registration
securities to be registered registered per unit(1) price(1) fee(1)
- --------------------------------------------------------------------------------------------------
Common Stock, $0.001 par
value....................... 290,705 $28.63 $8,322,884 $2,870
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee, based on the average of the high and low prices for the Common Stock as
reported on The Nasdaq National Market on February 24, 1994 in accordance
with Rule 457 under the Securities Act of 1933. Filing fees with respect to
5,309,295 additional shares were paid in connection with the Registration
Statement filed on February 17, 1994.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING THE LOCATION IN THE PROSPECTUS OF THE
INFORMATION REQUIRED BY PART I OF FORM S-4
<TABLE>
<CAPTION>
S-4 ITEM NUMBER AND CAPTION PROSPECTUS
---------------------------------------------------- -----------------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus............................ Facing Page; Cross Reference Sheet;
Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Table of Contents; Available
Information; Incorporation of
Certain Documents by Reference
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information................................... Summary; Selected Historical and
Unaudited Pro Forma Financial Data;
Risk Factors; The Merger; The
Reorganization Agreement
4. Terms of the Transaction............................ Summary; The Merger; The
Reorganization Agreement; Rights of
Holders of Octel Common Stock and
VMX Common Stock
5. Pro Forma Financial Information..................... Selected Historical and Unaudited
Pro Forma Financial Data; Unaudited
Pro Forma Combined Condensed
Financial Information
6. Material Contacts With the Company Being Acquired... Summary; The Merger; The
Reorganization Agreement
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to Be Underwriters....... *
8. Interests of Named Experts and Counsel.............. *
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... *
B. INFORMATION ABOUT THE REGISTRANT
10. Information With Respect to S-3 Registrants......... Available Information;
Incorporation of Certain Documents
by Reference; Summary; The Merger;
Octel Communications Corporation;
Market Price and Dividend
Information
11. Incorporation of Certain Information by Reference... Incorporation of Certain Documents
by Reference
12. Information With Respect to S-2 or S-3
Registrants......................................... *
13. Incorporation of Certain Information by Reference... *
14. Information With Respect to Registrants Other Than
S-3 or S-2 Registrants.............................. *
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
S-4 ITEM NUMBER AND CAPTION PROSPECTUS
---------------------------------------------------- -----------------------------------
<C> <S> <C>
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information With Respect to S-3 Companies........... Available Information;
Incorporation of Certain Documents
by Reference; The Merger; VMX,
Inc.; Market Price and Dividend
Information
16. Information With Respect to S-2 or S-3 Companies.... *
17. Information With Respect to Companies Other Than S-2
or S-3 Companies.................................... *
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
Are to Be Solicited................................. Facing Page; Outside Front Cover
Page; Summary; The Meetings; The
Merger; The Reorganization
Agreement; Octel Communications
Corporation; VMX, Inc.; Additional
Matters for Consideration by Octel
Stockholders
19. Information if Proxies, Consents or Authorizations
Are not to Be Solicited or in an Exchange Offer..... *
</TABLE>
- ---------------
* Omitted because inapplicable or answer is negative.
<PAGE> 4
(LETTERHEAD)
OCTEL COMMUNICATIONS CORPORATION
890 TASMAN DRIVE
MILPITAS, CA 95035-7439
March 1, 1994
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders of
Octel Communications Corporation ("Octel") to be held at 9:00 a.m., local time,
on March 31, 1994, at the Santa Clara Marriott Hotel, 2700 Mission College
Blvd., Santa Clara, California 95052.
At this meeting, you will be asked to consider and vote upon the following
proposals:
1. To approve the Agreement and Plan of Reorganization (the
"Reorganization Agreement"), dated as of January 29, 1994, among Octel,
Octel Acquisition Corporation ("Merger Sub") and VMX, Inc. ("VMX"), and to
approve the merger (the "Merger") of Merger Sub with and into VMX pursuant
to the Reorganization Agreement and the issuance of shares of Octel Common
Stock in the Merger. As a result of the Merger, VMX stockholders will
receive one share of Octel Common Stock for every five shares of their VMX
Common Stock, and VMX will become a wholly owned subsidiary of Octel.
2. To approve an amendment to Octel's 1985 Incentive Stock Plan
increasing the number of shares of Common Stock reserved for issuance by
2.3 million shares. As of the date of this Joint Proxy
Statement/Prospectus, all shares of Common Stock currently reserved for
issuance under Octel's 1985 Incentive Stock Plan are subject to outstanding
options.
3. To transact such other business as may properly come before the
meeting or any postponements or adjournments thereof.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND RECOMMENDS
THAT YOU VOTE FOR THE APPROVAL OF THE REORGANIZATION AGREEMENT, THE MERGER AND
ISSUANCE OF SHARES OF OCTEL COMMON STOCK AND FOR THE RESERVATION OF ADDITIONAL
SHARES FOR ISSUANCE PURSUANT TO THE 1985 INCENTIVE STOCK PLAN. THE ACTIONS
PROPOSED HEREIN ARE NOT MATTERS THAT CAN BE VOTED ON BY BROKERS HOLDING SHARES
FOR BENEFICIAL OWNERS WITHOUT THE OWNER'S SPECIFIC INSTRUCTIONS. ACCORDINGLY,
ALL BENEFICIAL OWNERS OF OCTEL COMMON STOCK ARE URGED TO RETURN THE ENCLOSED
PROXY CARD MARKED TO INDICATE THEIR VOTES.
Details of the proposed Merger and other important information concerning
Octel and VMX appear in the accompanying Joint Proxy Statement/Prospectus.
Please give this material your careful attention.
Whether or not you plan to attend the Special Meeting, please complete,
sign and date the accompanying proxy card and return it in the enclosed prepaid
envelope. You may revoke your proxy in the manner described in the accompanying
Joint Proxy Statement/Prospectus at any time before it has been voted at the
Special Meeting. If you attend the Special Meeting, you may vote in person even
if you have previously returned your proxy card. Your prompt cooperation will be
greatly appreciated.
Sincerely,
(SIG)
Robert Cohn
Chairman, President and Chief
Executive Officer
<PAGE> 5
OCTEL COMMUNICATIONS CORPORATION
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 31, 1994
TO THE STOCKHOLDERS OF OCTEL COMMUNICATIONS CORPORATION:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Octel
Communications Corporation ("Octel"), a Delaware corporation, will be held at
9:00 a.m., local time, on March 31 , 1994, at the Santa Clara Marriott Hotel,
2700 Mission College Blvd., Santa Clara, California 95052, to consider and vote
upon the following proposals:
1. To approve the Agreement and Plan of Reorganization (the "Reorganization
Agreement"), dated as of January 29, 1994, among Octel, Octel
Acquisition Corporation ("Merger Sub") and VMX, Inc. ("VMX"), and to
approve the merger (the "Merger") of Merger Sub with and into VMX
pursuant to the Reorganization Agreement and the issuance of shares of
Octel Common Stock in the Merger. As a result of the Merger, VMX
stockholders will receive one share of Octel Common Stock for every five
shares of their VMX Common Stock, and VMX will become a wholly owned
subsidiary of Octel. Based upon the number of shares of Octel and VMX
Common Stock outstanding as of February 28, 1994, there will be
approximately 23.6 million shares of Octel Common Stock outstanding upon
consummation of the Merger.
2. To approve an amendment to Octel's 1985 Incentive Stock Plan increasing
the number of shares of Common Stock reserved for issuance by 2.3
million shares. As of the date of this Joint Proxy Statement/Prospectus,
all shares of Common Stock currently reserved for issuance under Octel's
1985 Incentive Stock Plan are subject to outstanding options.
3. To transact such other business as may properly come before the meeting
or any postponements or adjournments thereof.
The foregoing items of business are more fully described in the Joint Proxy
Statement/Prospectus accompanying this Notice.
Only stockholders of record at the close of business on February 28, 1994
are entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to sign and
return the enclosed proxy card as promptly as possible in the postage-prepaid
envelope enclosed for that purpose. The actions proposed herein are not matters
that can be voted on by brokers holding shares for beneficial owners without the
owner's specific instructions. Accordingly, all beneficial owners of Octel
Common Stock are urged to return the enclosed proxy card marked to indicate
their votes. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE
ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS AT ANY TIME BEFORE IT HAS BEEN
VOTED AT THE SPECIAL MEETING. ANY STOCKHOLDER ATTENDING THE SPECIAL MEETING MAY
VOTE IN PERSON EVEN IF SUCH STOCKHOLDER HAS RETURNED A PROXY.
Sincerely,
(SIG)
Derek S. Daley
Secretary
Milpitas, California
March 1, 1994
<PAGE> 6
(LETTERHEAD)
VMX, INC.
2115 O'NEL DRIVE
SAN JOSE, CA 95131-2032
March 1, 1994
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders of
VMX, Inc. ("VMX") to be held at 9:00 a.m., local time, on March 31, 1994, at
VMX's headquarters, 2115 O'Nel Drive, San Jose California 95131-2032.
At this meeting, you will be asked to consider the following proposals:
1. To approve the Agreement and Plan of Reorganization (the
"Reorganization Agreement"), dated as of January 29, 1994, among Octel
Communications Corporation ("Octel"), Octel Acquisition Corporation
("Merger Sub") and VMX, and to approve the merger (the "Merger") of Merger
Sub with and into VMX pursuant to the Reorganization Agreement. As a result
of the Merger, VMX stockholders will receive one share of Octel Common
Stock for every five shares of their VMX Common Stock, and VMX will become
a wholly owned subsidiary of Octel.
2. To transact such other business as may properly come before the
meeting or any postponements or adjournments thereof.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND RECOMMENDS
THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE
MERGER. THE ACTIONS PROPOSED HEREIN ARE NOT MATTERS THAT CAN BE VOTED ON BY
BROKERS HOLDING SHARES FOR BENEFICIAL OWNERS WITHOUT THE OWNER'S SPECIFIC
INSTRUCTIONS. ACCORDINGLY, ALL BENEFICIAL OWNERS OF VMX COMMON STOCK ARE URGED
TO RETURN THE ENCLOSED PROXY CARD MARKED TO INDICATE THEIR VOTES.
Details of the proposed Merger and other important information concerning
Octel and VMX appear in the accompanying Joint Proxy Statement/Prospectus.
Please give this material your careful attention.
Whether or not you plan to attend the Special Meeting, please complete,
sign and date the accompanying proxy card and return it in the enclosed prepaid
envelope. You may revoke your proxy in the manner described in the accompanying
Joint Proxy Statement/Prospectus at any time before it has been voted at the
Special Meeting. If you attend the Special Meeting, you may vote in person even
if you have previously returned your proxy card. Your prompt cooperation will be
greatly appreciated.
Sincerely,
(SIG)
Patrick S. Howard
President and Chief Executive Officer
<PAGE> 7
VMX, INC.
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 31, 1994
TO THE STOCKHOLDERS OF VMX, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of VMX, INC.
("VMX"), a Delaware corporation, will be held at 9:00 a.m., local time, on March
31, 1994, at VMX's headquarters, 2115 O'Nel Drive, San Jose, California
95131-2032, to consider and vote upon the following proposals:
1. To approve the Agreement and Plan of Reorganization (the
"Reorganization Agreement"), dated as of January 29, 1994, among Octel
Communications Corporation ("Octel"), Octel Sub, Inc. ("Merger Sub") and
VMX, and to approve the merger (the "Merger") of Merger Sub with and into
VMX pursuant to the Reorganization Agreement. As a result of the Merger,
VMX stockholders will receive one share of Octel Common Stock for every
five shares of their VMX Common Stock and VMX will become a wholly owned
subsidiary of Octel. Based upon the number of shares of Octel and VMX
Common Stock outstanding as of February 28, 1994, there will be
approximately 23.6 million shares of Octel Common Stock outstanding upon
consummation of the Merger.
2. To transact such other business as may properly come before the
meeting or any postponements or adjournments thereof.
The foregoing items of business are more fully described in the Joint Proxy
Statement/Prospectus accompanying this Notice.
Only stockholders of record at the close of business on February 28, 1994
are entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting. However, to
assure your representation at the meeting, you are urged to mark, sign, date and
return the enclosed proxy card as promptly as possible in the postage-prepaid
envelope enclosed for that purpose. The actions proposed herein are not matters
that can be voted on by brokers holding shares for beneficial owners without the
owner's specific instructions. Accordingly, all beneficial owners of VMX Common
Stock are urged to return the enclosed proxy card marked to indicate their
votes. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING
JOINT PROXY STATEMENT/PROSPECTUS AT ANY TIME BEFORE IT HAS BEEN VOTED AT THE
SPECIAL MEETING. ANY STOCKHOLDER ATTENDING THE SPECIAL MEETING MAY VOTE IN
PERSON EVEN IF SUCH STOCKHOLDER HAS RETURNED A PROXY.
Sincerely,
(SIG)
Bruce C. Pollock
Secretary
San Jose, California
March 1, 1994
<PAGE> 8
[OCTEL LOGO] [VMX LOGO]
OCTEL COMMUNICATIONS CORPORATION
AND
VMX, INC.
------------------------
JOINT PROXY STATEMENT
------------------------
OCTEL COMMUNICATIONS CORPORATION
------------------------
PROSPECTUS
------------------------
This Joint Proxy Statement/Prospectus is being furnished to holders of
Common Stock ("Octel Common Stock"), par value $0.001 per share, of Octel
Communications Corporation ("Octel"), a Delaware corporation, in connection with
the solicitation of proxies by the Board of Directors of Octel (the "Octel
Board") for use at the special meeting of stockholders of Octel (the "Octel
Special Meeting") to be held at 9:00 a.m., local time on March 31, 1994, or at
any adjournments or postponements thereof, for the purposes set forth herein and
in the accompanying Notice of Octel Special Meeting of Stockholders. The Octel
Special Meeting will be held at the Santa Clara Marriott Hotel, 2700 Mission
College Blvd., Santa Clara, California 95052.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
common stock ("VMX Common Stock"), par value $0.05 per share, of VMX, Inc.
("VMX"), a Delaware corporation, in connection with the solicitation of proxies
by the Board of Directors of VMX (the "VMX Board") for use at the special
meeting of the stockholders of VMX (the "VMX Special Meeting") to be held at
9:00 a.m., local time, on March 31, 1994, or at any adjournments or
postponements thereof, for the purposes set forth herein and in the accompanying
Notice of VMX Special Meeting of Stockholders. The VMX Special Meeting will be
held at VMX's headquarters, 2115 O'Nel Drive, San Jose, California 95131-2032.
This Joint Proxy Statement/Prospectus constitutes a prospectus of Octel
with respect to approximately 5.6 million shares of Octel Common Stock to be
issued in connection with the merger (the "Merger") of Octel Acquisition
Corporation ("Merger Sub"), a Delaware corporation, with and into VMX pursuant
to the Agreement and Plan of Reorganization, dated as of January 29, 1994 among
Octel, Merger Sub and VMX (the "Reorganization Agreement"). All information
contained in this Joint Proxy Statement/Prospectus relating to Octel has been
supplied by Octel, and all information contained herein relating to VMX has been
supplied by VMX.
SEE "RISK FACTORS" FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY
BOTH OCTEL AND VMX STOCKHOLDERS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Joint Proxy Statement/Prospectus and the accompanying form of proxy
are first being mailed to stockholders of Octel and VMX on or about March 3,
1994.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS MARCH 1, 1994.
<PAGE> 9
AVAILABLE INFORMATION
Octel and VMX are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference room of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the public reference facilities in the New York
Regional Office, 75 Park Place, New York, New York 10007, and the Chicago
Regional Office, 500 West Madison Street, Chicago, Illinois 60661. Copies of
such material can be obtained at prescribed rates by writing to the Securities
and Exchange Commission, Public Reference Section, Washington, D.C. 20549. In
addition, material filed by Octel and material filed by VMX can be inspected at
the offices of the National Association of Securities Dealers, Inc., Market
Listing Section, 1735 K Street, N.W., Washington, D.C. 20006.
Octel has filed with the Commission a Registration Statement on Form S-4
(together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the securities to be issued pursuant to the Reorganization
Agreement and the Merger. This Joint Proxy Statement/Prospectus does not contain
all the information set forth in the Registration Statement. Such additional
information may be obtained from the Commission's principal office in
Washington, D.C. Statements contained in this Joint Proxy Statement/Prospectus
as to the contents of any contract or other document referred to herein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other documents filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Octel with the Commission are incorporated
by reference in this Joint Proxy Statement/Prospectus:
1. Octel's Annual Report on Form 10-K for the fiscal year ended June 30,
1993.
2. Octel's Quarterly Reports on Form 10-Q for the fiscal quarters ended
September 30, 1993 and December 31, 1993.
3. The description of Octel's capital stock contained in Octel's
Registration Statement on Form 8-B filed with the Commission on February
12, 1990.
4. The description of Octel's Common Share Purchase Rights associated with
Common Stock contained in Octel's Registration Statement on Form 8-A
filed with the Commission on August 1, 1990.
All documents filed by Octel pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this Joint Proxy Statement/Prospectus and
prior to the date of the Special Meeting of Stockholders of Octel shall be
deemed to be incorporated by reference in this Joint Proxy Statement/Prospectus
and to be a part hereof from the dates of filing of such documents or reports.
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Joint 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, except as so
modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATED TO OCTEL
(WITHOUT EXHIBITS) ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM OCTEL
COMMUNICATIONS CORPORATION, 890 TASMAN DRIVE, MILPITAS, CALIFORNIA 95035-7439
ATTN: INVESTOR RELATIONS (TELEPHONE (408) 321-6571). IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY REQUEST SHOULD BE
MADE PRIOR TO MARCH 24, 1994.
The following documents filed by VMX with the Commission are incorporated
by reference in this Joint Proxy Statement/Prospectus:
1. VMX's Annual Report on Form 10-K for the fiscal year ended June 30,
1993.
2. VMX's Quarterly Reports on Form 10-Q for the fiscal quarters ended
September 30, 1993 and December 31, 1993.
i
<PAGE> 10
3. The description of VMX's capital stock contained in VMX's Registration
Statement on Form 8-A filed with the Commission on October 25, 1984, as
amended on December 27, 1984.
4. The description of VMX's Common Stock Purchase Rights associated with
Common Stock contained in VMX's Registration Statement on Form 8-A filed
with the Commission on February 27, 1990.
All documents filed by VMX pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this Joint Proxy Statement/Prospectus and
prior to the date of the Special Meeting of the stockholders of VMX shall be
deemed to be incorporated by reference in this Joint Proxy Statement/Prospectus
and to be a part hereof from the dates of filing of such documents or reports.
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Joint 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, except as so
modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATED TO VMX
(WITHOUT EXHIBITS) ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM VMX, INC.,
2115 O'NEL DRIVE, SAN JOSE, CALIFORNIA 95131-2032 ATTN: INVESTOR RELATIONS
(TELEPHONE (408) 441-1144). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS
PRIOR TO THE SPECIAL MEETINGS, ANY REQUEST SHOULD BE MADE PRIOR TO MARCH 24,
1994.
------------------------
FOR NEW HAMPSHIRE RESIDENTS: NEITHER THE FACT THAT A REGISTRATION STATEMENT
OR AN APPLICATION FOR A LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE
NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED
IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE DIRECTOR OF THE
OFFICE OF SECURITIES REGULATION THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE,
COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN
EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT
THE DIRECTOR OF THE OFFICE OF SECURITIES REGULATION HAS PASSED IN ANY WAY UPON
THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY
PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO
ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT
WITH THE PROVISIONS OF THIS PARAGRAPH.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED OR INCORPORATED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE MATTERS REFERRED TO HEREIN AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN SO AUTHORIZED BY OCTEL OR BY VMX. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN
THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS JOINT
PROXY STATEMENT/PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
------------------------
TRADEMARKS
Octel(R), Octel Communications(R), the Octel logo, Aspen(R), Branch(R),
Maxum(R), OctelNet(R), Sierra(R) and Smooth Operator(R) are registered
trademarks of Octel, and OctelForms(TM), TransAct(TM), FaxCall(TM), InfoTex(TM),
VTrees(TM), RTG (Ready-To-Go)(TM) and Co-Operator(TM) are trademarks of Octel.
VMX(R), D.I.A.L.(R), VMX/16(R), VMXoffice(R), Voice Message Exchange(R), Voice
Message Service(R), Voicenet(R) and D.I.A.L.PRO(R) are registered trademarks of
VMX, and VMXworks(TM), Message Desk(TM), Worksolutions(TM), VMX Desktop(TM) for
Windows, VMXmail(TM), e-Mailworks(TM), Fax Mail Plus(TM), Toolworks(TM),
IntraMessaging(TM), Teamworks(TM), Adaptive Integration(TM), Application
Controlled Messaging(TM), Call Flow Language(TM), Asyncworks(TM),
Entryworks(TM), Hostworks(TM), SNAworks(TM), Helpworks(TM) and Personal
Assistance(TM) are trademarks of VMX. This Joint Proxy Statement/Prospectus also
contains registered and unregistered trademarks of persons and entities other
than Octel and VMX.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION................................................................. i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... i
TRADEMARKS............................................................................ ii
SUMMARY............................................................................... 1
The Companies....................................................................... 1
Operations Following the Merger..................................................... 3
Date and Place of the Meetings...................................................... 3
Purpose of the Meetings; The Merger................................................. 3
Stockholders Entitled to Vote....................................................... 3
Vote Required....................................................................... 4
Dissenters' Rights of Dissenting VMX Stockholders................................... 4
Recommendations; Fairness Opinions.................................................. 4
Reasons for the Merger.............................................................. 5
Interests of Certain Persons........................................................ 5
Effective Time of the Merger........................................................ 5
Regulatory Matters.................................................................. 5
Conditions to the Merger............................................................ 6
Termination......................................................................... 6
Surrender of Certificates........................................................... 6
Accounting Treatment................................................................ 6
Certain Federal Income Tax Consequences............................................. 6
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA............................ 7
Selected Historical Financial Data.................................................. 7
Selected Unaudited Pro Forma Financial Data......................................... 8
Comparative Per Share Data.......................................................... 9
RISK FACTORS.......................................................................... 10
Uncertainties Relating to the Merger................................................ 10
Risks Relating to Both Octel and VMX................................................ 10
Risk Factors Concerning Octel's Business............................................ 13
Risk Factors Concerning VMX's Business.............................................. 13
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THE MEETINGS.......................................................................... 15
General............................................................................. 15
Matters to be Considered at the Meetings............................................ 15
Record Dates; Voting at the Meetings; Vote Required................................. 15
Proxies............................................................................. 17
THE MERGER............................................................................ 18
Description......................................................................... 18
Background of the Merger............................................................ 18
Reasons for the Merger; Recommendations of the Boards of Directors.................. 20
Operations Following the Merger..................................................... 22
Fairness Opinions................................................................... 23
Certain Federal Income Tax Considerations........................................... 29
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Accounting Treatment................................................................ 31
Interests of Certain Persons........................................................ 31
Regulatory Matters.................................................................. 31
Rights of Dissenting VMX Stockholders............................................... 32
THE REORGANIZATION AGREEMENT.......................................................... 33
Effective Time of the Merger........................................................ 33
Conversion of Shares................................................................ 33
Treatment of VMX Stock Options and Employee Stock Purchase Plan..................... 33
Resale of Octel Common Stock by VMX Affiliates...................................... 34
Business of VMX Pending the Merger.................................................. 34
Solicitation of Alternative Transactions............................................ 35
Business of Octel Pending the Merger................................................ 35
Corporate Structure and Related Matters After the Merger............................ 35
Certain Covenants................................................................... 36
Conditions to the Merger............................................................ 36
Termination; Amendment.............................................................. 36
Fees and Expenses................................................................... 37
Confidentiality Agreement........................................................... 37
OCTEL COMMUNICATIONS CORPORATION...................................................... 38
Business of Octel................................................................... 38
Security Ownership of Certain Beneficial Owners and Management...................... 46
Directors and Executive Officers.................................................... 47
Option Grants to Certain Additional Directors and Executive Officers Since June 30,
1993............................................................................. 48
VMX, INC. ............................................................................ 49
Business of VMX..................................................................... 49
Security Ownership of Certain Beneficial Owners and Management...................... 56
Options Granted to Certain Executive Officers Since June 30, 1993................... 57
Certain Transactions Since June 30, 1993............................................ 57
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.......................... 58
Octel-VMX Unaudited Pro Forma Combined Condensed Balance Sheet...................... 59
Octel-VMX Unaudited Pro Forma Combined Condensed Statements of Income............... 60
Octel-VMX Notes to Unaudited Pro Forma Combined Condensed Financial Statements...... 61
RIGHTS OF HOLDERS OF OCTEL COMMON STOCK AND VMX COMMON STOCK.......................... 64
Rights Plan......................................................................... 64
Comparison of Rights................................................................ 64
Indemnification of Directors and Officers........................................... 65
MARKET PRICE AND DIVIDEND INFORMATION................................................. 66
Octel............................................................................... 66
VMX................................................................................. 67
ADDITIONAL MATTERS FOR CONSIDERATION BY OCTEL STOCKHOLDERS: APPROVAL OF AMENDMENT TO
THE 1985 INCENTIVE STOCK PLAN....................................................... 68
General............................................................................. 68
Vote Required....................................................................... 68
Purposes............................................................................ 69
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Administration...................................................................... 69
Eligibility......................................................................... 69
Terms of Options.................................................................... 69
Options Outstanding................................................................. 71
Capital Changes..................................................................... 71
Amendment and Termination of the Plan............................................... 71
Tax Information..................................................................... 71
EXPERTS............................................................................... 72
LEGAL MATTERS......................................................................... 72
OTHER MATTERS......................................................................... 72
ANNEX A -- Agreement and Plan of Reorganization
ANNEX B -- Fairness Opinion of Hambrecht & Quist Incorporated
ANNEX C -- Fairness Opinion of Unterberg Harris
</TABLE>
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/Prospectus and is qualified in its entirety by
reference to the full text of this Joint Proxy Statement/Prospectus, the
exhibits hereto and the documents incorporated by reference herein. Stockholders
are urged to read this Joint Proxy Statement/Prospectus and the accompanying
exhibits in their entirety. See "Risk Factors" for certain information that
should be considered by the stockholders of both Octel and VMX.
THE COMPANIES
Octel. Octel Communications Corporation designs, manufactures and markets
voice information processing systems that use the touch-tone telephone as the
terminal and the fax machine as the printer. These multi-functional, specialized
computers and personal computer-based systems allow users to access, manage and
integrate multiple forms of information -- voice, image and data -- across the
world-wide telephone network in a single call from any touch-tone telephone in
the world. Users with a mailbox on a voice information processing system,
referred to as subscribers, can send or retrieve voice messages, receive and
forward faxes, and send or retrieve data stored in computers. Octel sells its
systems to organizations of all sizes and to providers of voice information
services. Through Tigon Corporation ("Tigon"), a wholly owned subsidiary
acquired in October 1992, Octel also provides voice information
processing-related services to telephone companies and large corporations.
Octel's customers use voice information processing technology as an
information resource to address a number of objectives, including enhanced
business competitiveness, improved customer service, increased operating
flexibility, greater employee productivity, higher revenues, and reduced
operating costs. Organizations can realize specific hard-dollar savings from the
technology because voice messages tend to be shorter than normal telephone
conversations and the need for callbacks is reduced by the ability of callers to
leave detailed messages. Further, users may retrieve data and documents without
human intervention, 24 hours per day. In addition, the staff required for
telephone answering and message taking may be reduced, routine inquiries and
requests can be handled automatically and callers may route their own calls to
desired extensions, even after hours, rather than relying on a company operator
to handle calls. Octel's proprietary OctelNet software allows customers to
network a large number of systems together and send messages seamlessly across
systems. Finally, with the recently announced fax processing capabilities,
subscribers can efficiently store, retrieve and redirect fax documents using any
touch-tone telephone. Telephone companies and cellular providers purchase Octel
systems to provide some of these same features to their business and residential
customers.
Octel focuses on two principal customer markets: Customer Premise Equipment
("CPE") customers and Voice Information Services ("VIS") providers. Octel
addresses these markets both in the United States and internationally. Octel's
voice information processing system product line has a number of characteristics
that Octel believes are important to organizations of all sizes:
- Integration of multimedia (voice, fax and data) technologies
- Broad range of features
- Broad product line
- Upgradability
- Reliability and maintenance
- Broad range of PBX and Centrex integration
- Networking
- Simple system management
Octel provides a broad family of voice information processing systems, with
extensive features, telephone switch integrations and networking capabilities.
Products range from two-port systems for as few as 20 subscribers to 432-port
systems for up to 60,000 subscribers in certain VIS applications. Octel's
products provide customers with the flexibility to configure a voice information
processing system to meet their particular needs for ports and message storage
capacity.
Octel Communications Corporation is located at 890 Tasman Drive, Milpitas,
California 95035-7439 and its telephone number at that address is (408)
321-2000. References to Octel include Octel and its subsidiaries.
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<PAGE> 15
VMX. VMX, Inc. was incorporated in Delaware in 1978 under the name
Electronic Communications Systems, Inc. In 1982, its name was changed to VMX,
Inc. In July 1988, VMX acquired all of the outstanding capital stock of OPCOM, a
California corporation. In March 1993, VMX acquired all of the outstanding
capital stock of Rhetorex, Incorporated ("Rhetorex"), a California corporation.
In April 1993, utilizing technology rights acquired from The Vmail Company,
Ltd., VMX formed its Client/Server Software Division. VMX designs and
manufactures Integrated Voice Processing ("IVP") systems which provide customer
solutions that combine voice, data and image for business communications.
VMX focuses on CPE applications with a broad range of voice processing
systems and software products that permit the creation of communication
solutions specifically designed to each particular organization's requirements.
VMX's objective is to integrate several communications technologies such as
voice mail, voice response, audiotext, fax, text-to-speech and speech
recognition with computers in a way that gives users flexibility in both the
choice of media (voice, fax, e-mail) and choice of the access method (telephone
or computer terminal).
VMX sees an opportunity to leverage its experience in developing voice
processing solutions, and its expertise in bridging the gap between voice and
data, into the emerging market of IVP at the desktop. As more and more customers
have selected VMX's high-performance VMX 200/300 IVP platform and sophisticated
applications, VMX has launched the next stage in its product evolution, bringing
IVP functionality to the desktop and the client/server platform.
VMX's products consist of hardware and software and provide a broad range
of call and message processing features that integrate with most PBXs and offer
worldwide networking capabilities. VMX's product line of voice processing
systems consists of the VMX 300 system, the VMX 200 system, and the VMX 100
system, each of which utilizes VMX's D.I.A.L. voice processing software.
Additionally, VMX offers VMXworks, a family of software products including
packaged applications, templates and other software development tools for
creating customer specific applications. Through its Rhetorex subsidiary, VMX
designs and produces high-performance voice processing components and software
for PC computers.
Depending on the system and combination of feature options chosen, VMX
systems are designed to achieve some or all of the following functions:
- Call processing
- Call answering
- Voice mail
- Voice response
- Fax processing
- Mixed media applications
VMX's business and marketing strategy emphasizes the use of VMX systems as
a primary means by which organizations communicate with their customers. A key
component of this strategy is effective implementation of VMX systems to provide
customer-specific communication solutions. Consequently, VMX has established
direct sales and application support offices in major metropolitan centers and
has developed a broad network of specialized value-added resellers (VARs) who
are responsible for the sale, implementation and application support of VMX
systems in other assigned territories.
VMX, Inc. is located at 2115 O'Nel Drive, San Jose, California 95131-2032
and its telephone number at that address is (408) 441-1144. References to VMX
include VMX and its subsidiaries.
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<PAGE> 16
OPERATIONS FOLLOWING THE MERGER
Following the Merger, Octel and VMX intend to integrate certain operations
of the two companies, which is expected to create more efficient operations. The
combined company expects to continue offering the full product lines of both
Octel and VMX subsequent to the Merger. Research and development, marketing and
administrative operations will be co-located. In the near term, however, certain
research and development activities focused on future products or new
technologies will operate independently. The companies expect that the
distribution channels for the products of the two companies will remain
unchanged subsequent to the Merger. Certain direct sales activities will be
combined and some management consolidation will occur subsequent to the Merger.
DATE AND PLACE OF THE MEETINGS
The Octel Special Meeting will be held on March 31, 1994 at 9:00 a.m.,
local time, at the Santa Clara Marriott Hotel, 2700 Mission College Blvd., Santa
Clara, California 95052.
The VMX Special Meeting will be held on March 31, 1994, at 9:00 a.m., local
time, at VMX's headquarters, 2115 O'Nel Drive, San Jose, California 95131-2032.
PURPOSE OF THE MEETINGS; THE MERGER
The Octel Special Meeting. At the Octel Special Meeting, the stockholders
of Octel will be asked to consider and vote upon the proposals (i) to approve
the Reorganization Agreement (included as Annex A to this Joint Proxy
Statement/Prospectus and incorporated herein by reference), pursuant to which,
among other things, Merger Sub will be merged with and into VMX, with VMX as the
surviving corporation, and VMX will become a wholly owned subsidiary of Octel,
and to approve the Merger and the issuance of shares of Octel Common Stock in
the Merger; (ii) to approve an amendment to Octel's 1985 Incentive Stock Plan
increasing the number of shares of Common Stock reserved for issuance by 2.3
million shares (as of the date of this Joint Proxy Statement/Prospectus, all
shares of Common Stock currently reserved for issuance under Octel's 1985
Incentive Stock Plan are subject to outstanding options); and (iii) to transact
such other business as may properly come before the Octel Special Meeting or any
adjournments or postponements thereof.
As a result of the Merger, each five shares of VMX Common Stock will be
converted into the right to receive one share of Octel Common Stock (the right
to receive one share of Octel Common Stock for every five shares of VMX Common
Stock is referred to herein as the "Exchange Ratio") and VMX will become a
wholly owned subsidiary of Octel. No fractional shares of Octel Common Stock
will be issued, and cash will be paid in lieu of any such fractional shares.
The VMX Special Meeting. At the VMX Special Meeting, the stockholders of
VMX will consider and vote upon the proposals (i) to approve the Reorganization
Agreement and the Merger and (ii) to transact such other business as may
properly come before the VMX Special Meeting or any adjournments or
postponements thereof.
STOCKHOLDERS ENTITLED TO VOTE
The close of business on February 28, 1994 is the record date for
determination of holders of Octel Stock entitled to vote at the Octel Special
Meeting (the "Record Date"). At that date, approximately 18.2 million shares of
Octel Common Stock were outstanding and held by approximately 2,100 holders of
record. As of such date, directors and executive officers of Octel and their
affiliates may be deemed to be beneficial owners of approximately 6.0% of the
outstanding shares of Octel Common Stock.
The close of business on February 28, 1994 is the record date for
determination of holders of VMX Common Stock entitled to vote at the VMX Special
Meeting (the "Record Date"). At that date, approximately 26.8 million shares of
VMX Common Stock were outstanding and were held by approximately
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<PAGE> 17
1,350 holders of record. As of such date, directors and executive officers of
VMX and their affiliates may be deemed to be beneficial owners of approximately
8.5% of the outstanding shares of VMX Common Stock.
The directors and executive officers of Octel and VMX have indicated that
they intend to vote the shares of Common Stock of their respective companies
held by them for approval of the Merger.
VOTE REQUIRED
Octel. Approval of the Reorganization Agreement and the Merger and approval
of the amendment to Octel's 1985 Incentive Stock Plan will each require the
affirmative vote of the holders of a majority of the outstanding shares of Octel
Common Stock present (in person or by proxy) at the Octel Special Meeting that
are entitled to vote on the proposal and are voted for or against the proposal.
The approval of the Reorganization Agreement and the Merger by Octel's
stockholders is required by the rules of the National Association of Securities
Dealers, Inc. governing corporations with securities listed on The Nasdaq
National Market.
VMX. Approval of the Reorganization Agreement and the Merger under Delaware
law will require the affirmative vote of the holders of a majority of the
outstanding shares of VMX Common Stock entitled to vote at the VMX Special
Meeting.
Effect of Abstentions and "Broker Non-Votes." Shares that abstain from the
vote will not be counted as votes for or against the respective proposals. With
respect to broker non-votes, there is case law to the effect that, while such
shares may be counted for determining the presence or absence of a quorum for
the transaction of business at a meeting, broker non-votes should not be counted
for purposes of determining the number of shares voting with respect to the
particular proposal(s) on which the broker has expressly not voted. Accordingly,
broker non-votes will not be counted as voting shares with respect to the
proposals. The actions proposed herein are not matters that can be voted on by
brokers holding shares for beneficial owners without the owner's specific
instructions. Accordingly, all beneficial owners of Octel and VMX Common Stock
are urged to return the enclosed proxy card marked to indicate their votes.
DISSENTERS' RIGHTS OF DISSENTING VMX STOCKHOLDERS
Section 262 of the Delaware General Corporation Law provides appraisal
rights (sometimes referred to as "dissenters' rights") to stockholders of
Delaware corporations in certain situations. However, Section 262 appraisal
rights are not available to stockholders of a corporation, such as VMX, whose
securities are listed on a national securities exchange or are designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. Because VMX's Common Stock is
traded on such a system, The Nasdaq National Market, stockholders of VMX will
not have appraisal rights with respect to the Merger.
RECOMMENDATIONS; FAIRNESS OPINIONS
The Board of Directors of Octel has approved the Reorganization Agreement
and recommends that holders of Octel Common Stock vote for the approval of the
Reorganization Agreement, approval of the Merger and the issuance of Octel
Common Stock in the Merger. In making its recommendation with respect to the
Merger, the Board has considered, among other things, the opinion of Hambrecht &
Quist Incorporated ("Hambrecht & Quist"), Octel's financial advisor, delivered
on January 29, 1994 and updated as of the date of this Joint Proxy
Statement/Prospectus to the effect that the Exchange Ratio is fair from a
financial point of view to Octel.
The Board of Directors of VMX has approved the Reorganization Agreement and
recommends that holders of VMX Common Stock vote for the approval of the
Reorganization Agreement and approval of the Merger. In making its
recommendation, the Board has considered, among other things, the oral opinion
of Unterberg Harris ("Unterberg Harris"), VMX's financial advisor, delivered on
January 29, 1994 and updated in writing as of the date of this Joint Proxy
Statement/Prospectus to the effect that the consideration to be
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<PAGE> 18
received by the stockholders of VMX pursuant to the Merger is fair from a
financial point of view to the VMX stockholders.
Copies of the opinions of Hambrecht & Quist and Unterberg Harris which set
forth the assumptions made, matters considered and scope of their review are
attached to this Joint Proxy Statement/Prospectus as Annexes B and C,
respectively, and should be read in their entirety. The Reorganization Agreement
does not require that such opinions be updated prior to the Effective Time of
the Merger. See "The Merger -- Fairness Opinions," which also contains a
discussion of the fees to be paid to Hambrecht & Quist and Unterberg Harris and
the conditions under which such fees are payable. Hambrecht & Quist and
Unterberg Harris assisted in negotiating the Exchange Ratio, but the Exchange
Ratio was established by the Boards of Directors of Octel and VMX. With the
exception of $200,000 paid to Hambrecht & Quist and $25,000 paid to Unterberg
Harris, the fees to be paid to each of Hambrecht & Quist and Unterberg Harris
are generally contingent upon the consummation of the Merger.
REASONS FOR THE MERGER
The Boards of Directors of Octel and VMX considered a number of potential
joint benefits resulting from the Merger, including broader distribution
capabilities domestically and internationally with a combined presence in 42
countries, a combined installed base of over 30,000 systems providing potential
incremental revenue opportunities, the ability to focus resources on emerging
technologies and the potential for improving operational expertise and
efficiency.
The VMX Board believes that the Merger will provide the VMX stockholders
with the opportunity to receive, on a tax-free basis, Octel Common Stock that
will enable them to participate in opportunities for growth in the combined
company after the Merger.
Each Board of Directors has recognized that the potential benefits of the
Merger may not be realized. Risks associated with the Merger include the need to
integrate certain of the operations, facilities and personnel of the two
companies, and the dilution caused by the issuance of shares of Octel Common
Stock in the Merger. See "Risk Factors."
For a discussion of the factors considered by the respective Boards of
Directors in reaching their decisions to recommend the Merger, see "The
Merger -- Reasons for the Merger; Recommendations of the Boards of Directors."
INTERESTS OF CERTAIN PERSONS
In December 1993, VMX entered into two-year Employment Agreements with ten
of its senior executives. These Agreements provide for severance payments to
such employees upon termination by VMX without cause, including upon termination
without cause following a change of control such as the Merger. Octel has
expressed an interest in negotiating new employment agreements with such
persons. If such new agreements are not negotiated, the current agreements will
be assumed by Octel at the Effective Time.
Pursuant to the terms of the Reorganization Agreement, upon consummation of
the Merger, Octel has agreed to appoint a member of the Board of Directors of
VMX to the Board of Directors of Octel.
EFFECTIVE TIME OF THE MERGER
As promptly as practicable after the satisfaction or waiver of the
conditions set forth in the Reorganization Agreement, Merger Sub and VMX will
file certificates of merger with the Secretary of State of Delaware. The Merger
will become effective upon such filings (the "Effective Time"). It is
anticipated that, assuming all conditions are met, the Merger will occur on
March 31, 1994.
REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the United States
Federal Trade Commission (the "FTC"), the Merger
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<PAGE> 19
may not be consummated until notifications have been given and certain
information has been furnished to the FTC and the Antitrust Division of the
United States Justice Department (the "Antitrust Division") and specified
waiting period requirements have been satisfied. On February 8, 1994, Octel and
VMX each filed with the FTC and the Antitrust Division their respective
Notification and Report Forms under the HSR Act with respect to the Merger. The
waiting period required by the HSR Act will expire at 11:59 p.m. on March 10,
1994, unless extended by a request for additional information or documentary
material or unless early termination of the waiting period is granted. Based on
information available to them, Octel and VMX believe that the Merger will not
violate federal or state antitrust laws.
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to the satisfaction of a number of
conditions, including but not limited to (i) the approval of the Reorganization
Agreement by the requisite vote of the stockholders of both Octel and VMX; (ii)
the absence of any restrictive court orders, legal restraints or prohibitions,
or pending governmental proceedings (including approval under the HSR Act),
preventing or making illegal the consummation of the Merger; (iii) the
continuing accuracy of the representations and warranties made in the
Reorganization Agreement on and as of the Effective Time; (iv) the absence of
any material adverse change in the operations of either Octel or VMX; and (v)
the receipt of Octel and VMX of certain opinions regarding legal, tax and
accounting matters. See "The Reorganization Agreement -- Conditions to the
Merger."
TERMINATION
The Reorganization Agreement may be terminated and the Merger may be
abandoned prior to the Effective Time either before or after its approval by the
stockholders of Octel or VMX or both, under the circumstances specified in the
Reorganization Agreement, including by mutual written agreement of Octel and VMX
and termination by either party if the Merger is not consummated by June 30,
1994.
Under certain circumstances either Octel or VMX may be required to pay a
termination fee and to reimburse the other party for its expenses if the
Reorganization Agreement is terminated. See "The Reorganization
Agreement -- Termination; Amendment" and "-- Fees and Expenses."
SURRENDER OF CERTIFICATES
If the Merger becomes effective, Octel will mail a letter of transmittal
with instructions to all holders of record of VMX Common Stock as of the
Effective Date for use in surrendering their stock certificates in exchange for
certificates representing Octel Common Stock and a cash payment in lieu of
fractional shares, if any. Certificates should not be surrendered until the
letter of transmittal is received.
ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a pooling of interests, and
it is a condition to Octel's obligation to consummate the Merger that Octel
shall have received an opinion of KPMG Peat Marwick to the effect that such
accounting treatment is appropriate.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger will qualify as a tax-free reorganization under Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly,
holders of VMX Common Stock will not recognize gain or loss for federal income
tax purposes by reason of the conversion of VMX Common Stock to Octel Common
Stock, except for cash received in lieu of fractional shares, if any. See "The
Merger -- Certain Federal Income Tax Consequences."
The Merger will not have any tax consequences to holders of Octel
securities.
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SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The following selected historical financial information of Octel and VMX
gives effect to the Merger and has been derived from their respective historical
consolidated financial statements. This information should be read in
conjunction with such consolidated financial statements and the notes thereto,
certain of which are incorporated by reference in this Joint Proxy
Statement/Prospectus. No dividends have been declared or paid on Octel Common
Stock or VMX Common Stock.
SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JUNE 30, ENDED
--------------------------------------------------- DECEMBER 31,
1989 1990 1991 1992 1993 1993
------- -------- -------- -------- -------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
OCTEL STATEMENT OF INCOME DATA:
Net revenue..................... $87,179 $127,815 $160,327 $188,848 $249,549 $143,821
Operating income................ 16,048 21,783 21,816 24,696 29,680 12,406
Net income...................... 11,798 17,684 17,714 21,356 22,553 10,502
Net income per share............ $ 0.78 $ 1.04 $ 1.00 $ 1.14 $ 1.18 $ 0.55
Shares used to compute net
income per share............. 15,142 16,964 17,705 18,771 19,137 18,991
OCTEL BALANCE SHEET DATA:
Working capital................. $49,502 $100,316 $116,507 $139,252 $118,702 $110,970
Total assets.................... 79,679 144,335 168,366 208,860 247,378 255,358
Long-term obligations........... 39 127 -- -- 1,318 1,241
Stockholders' equity............ 61,806 121,245 142,718 171,648 191,642 200,963
</TABLE>
<TABLE>
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SIX MONTHS
YEAR ENDED JUNE 30, ENDED
--------------------------------------------------- DECEMBER 31,
1989 1990 1991 1992 1993 1993
------- -------- -------- -------- -------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
VMX STATEMENT OF OPERATIONS DATA:
Net revenue..................... $46,308 $ 59,589 $ 58,413 $ 75,214 $ 90,463 $ 49,524
Income (loss) from operations... (2,831) 830 (5,074) 4,854 7,464 4,775
Net income (loss)............... (1,551) 2,123 (4,211) 5,051 7,036 3,982
Net income (loss) per share..... $ (0.06) $ 0.08 $ (0.17) $ 0.19 $ 0.26 $ 0.14
Shares used to compute net
income (loss) per share...... 24,515 25,816 25,311 26,669 27,541 27,943
VMX BALANCE SHEET DATA:
Working capital................. $20,903 $ 24,465 $ 18,579 $ 22,919 $ 28,321 $ 31,284
Total assets.................... 34,028 38,473 36,414 43,095 50,050 54,292
Long-term obligations........... 928 648 1,057 1,072 667 566
Stockholders' equity............ 25,745 29,216 25,206 30,783 38,084 42,791
</TABLE>
7
<PAGE> 21
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
The following selected unaudited pro forma financial information of Octel
and VMX is derived from the unaudited pro forma combined condensed financial
statements and should be read in conjunction with such pro forma statements and
the notes thereto which are included in this Joint Proxy Statement/Prospectus.
For pro forma purposes, Octel's financial statements for the three fiscal years
ended June 30, 1991, 1992 and 1993 and the six-month period ended December 31,
1993, have been combined with the financial statements of VMX for the three
fiscal years ended June 30, 1991, 1992 and 1993 and the six-month period ended
December 31, 1993. 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 future operating results or financial
position.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JUNE 30, ENDED
------------------------------ DECEMBER 31,
1991 1992 1993 1993
-------- -------- -------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
UNAUDITED STATEMENT OF INCOME DATA:
Net revenue....................................... $218,309 $262,262 $337,984 $192,839
Operating income.................................. 16,560 29,131 36,726 17,360
Net income........................................ 13,321 25,988 29,171 14,800
Net income per share.............................. $ 0.57 $ 1.06 $ 1.17 $ 0.60
Shares used to compute net income per share....... 23,204 24,424 24,869 24,749
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993
------------------ PRO FORMA
OCTEL VMX ADJUSTMENTS(1) COMBINED
-------- ------- ----------- --------
<S> <C> <C> <C> <C>
UNAUDITED BALANCE SHEET DATA:
Working capital.................................... $110,970 $31,284 $ (13,164) $129,090
Total assets....................................... 255,358 54,292 4,614 314,264
Long-term obligations.............................. 1,241 566 -- 1,807
Total stockholders' equity......................... 200,963 42,791 (15,084) 228,670
</TABLE>
- ---------------
(1) Octel and VMX estimate that they will incur direct transaction costs of
approximately $3.4 million associated with the Merger, which will be charged
to operations during the quarter in which the Merger is consummated. In
addition, it is expected that following the Merger, Octel will incur an
additional charge to operations, currently estimated to be between $15 and
$20 million, to reflect costs associated with integrating the two companies.
The Unaudited Pro Forma Combined Condensed Balance Sheet, from which the
above selected balance sheet data is derived, gives effect to estimated
direct transaction costs and a $20 million charge to operations relating to
integrating the two companies, before related tax benefits of approximately
$8.0 million, as if such costs and charge had been incurred as of December
31, 1993. These costs and charge are not reflected in the Unaudited Pro
Forma Combined Condensed Statements of Income. See Octel and VMX Pro Forma
Combined Condensed Financial Information and the accompanying notes thereto.
8
<PAGE> 22
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Octel
and VMX and combined per share data on an unaudited pro forma basis after giving
effect to the Merger on a pooling of interests basis assuming that one share of
Octel Common Stock is issued in exchange for each five shares of VMX Common
Stock in the Merger. This data should be read in conjunction with the selected
financial data, the unaudited pro forma combined condensed financial statements
and the separate historical financial statements of Octel and VMX and notes
thereto, incorporated by reference herein or included elsewhere in this Joint
Proxy Statement/Prospectus. The unaudited pro forma combined financial data are
not necessarily indicative of the operating results 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 future operations.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JUNE 30, ENDED
----------------------- DECEMBER 31,
1991 1992 1993 1993
------ ----- ------ ------------
<S> <C> <C> <C> <C>
HISTORICAL -- OCTEL
Net income............................................... $ 1.00 $1.14 $ 1.18 $ 0.55
Book value............................................... $ 8.31 $9.72 $10.62 $11.10
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JUNE 30, ENDED
----------------------- DECEMBER 31,
1991 1992 1993 1993
------ ----- ------ ------------
<S> <C> <C> <C> <C>
HISTORICAL -- VMX
Net income (loss)........................................ $(0.17) $0.19 $ 0.26 $ 0.14
Book value............................................... $ 0.99 $1.20 $ 1.46 $ 1.62
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JUNE 30, ENDED
------------------------ DECEMBER 31,
1991 1992 1993 1993
------- ----- ------ ------------
<S> <C> <C> <C> <C>
UNAUDITED PRO FORMA COMBINED NET INCOME PER SHARE:
Pro forma net income per Octel share.................... $ 0.57 $1.06 $ 1.17 $ 0.60
Equivalent pro forma net income per VMX share........... $ 0.11 $0.21 $ 0.23 $ 0.12
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, 1993 1993
------------- ------------
<S> <C> <C>
UNAUDITED PRO FORMA COMBINED BOOK VALUE PER SHARE:
Pro forma book value per Octel share............................... $ 9.85 $ 9.78
Equivalent pro forma book value per VMX share...................... $ 1.97 $ 1.96
</TABLE>
On January 28, 1994, the last full trading day preceding the public
announcement by Octel and VMX of the execution of the Reorganization Agreement,
the closing price of Octel Common Stock on The Nasdaq National Market was $27.75
and the closing price of VMX Common Stock on The Nasdaq National Market was
$4.19. The equivalent market price per share of VMX Common Stock, based upon the
Exchange Ratio, would have been $5.55.
9
<PAGE> 23
RISK FACTORS
The following risk factors should be considered by holders of VMX Common
Stock in evaluating whether to approve the Reorganization Agreement and the
Merger and thereby become holders of Octel Common Stock and by holders of Octel
Common Stock in evaluating whether to approve the Reorganization Agreement and
the issuance of Octel Common Stock in the Merger. These factors should be
considered in conjunction with the other information included and incorporated
by reference in this Joint Proxy Statement/Prospectus.
UNCERTAINTIES RELATING TO THE MERGER
Integration of Certain Operations. The integration of certain operations
following the Merger will require the dedication of management resources which
will temporarily distract attention from the day-to-day business of the combined
company. Following the Merger, Octel intends to reduce expenses by eliminating
duplicate facilities, employees, marketing programs and other expenses. There
can be no assurance that Octel will be able to reduce expenses in this fashion,
that there will not be high costs associated with such activities, that such
reductions will not result in a decrease in revenues or that there will not be
other material adverse effects of such activities. While Octel and VMX intend to
continue to enhance and support the product lines of both companies subsequent
to the Merger, both companies anticipate that the announcement of the Merger
will have some adverse effect on sales of their systems in the near term. There
can be no assurance that distributors and potential customers will continue
their current buying patterns without regard to the announced Merger, and any
significant delay or reduction in orders could have an adverse effect on the
combined Company's near-term business and results of operations. Octel and VMX
estimate that they will incur direct transaction costs of approximately $3.4
million associated with the Merger, which will be charged to operations during
the quarter in which the Merger is consummated. In addition, it is expected that
following the Merger, Octel will incur an additional charge to operations,
currently estimated to be between $15 and $20 million, before related tax
benefits, to reflect costs associated with integrating the two companies. This
amount is a preliminary estimate only and is therefore subject to change. There
can be no assurance that Octel will not incur additional charges in subsequent
quarters to reflect costs associated with the Merger or that management will be
successful in its efforts to integrate the operations of the two companies.
RISKS RELATING TO BOTH OCTEL AND VMX
Fluctuations in Operating Results. A variety of factors may cause
period-to-period fluctuations in the operating results of Octel, VMX and the
combined company. Such factors include, but are not limited to, the integration
of the operations of Octel and VMX noted above, product sales mix, competitive
pricing pressures, materials costs, revenue and expenses related to new products
and new versions or upgrades of existing products, as well as delays in customer
purchases in anticipation of the introduction of new products or new versions or
upgrades of existing products by Octel, VMX or their competitors. Octel's and
VMX's customers generally order on an as-needed basis, and therefore backlog at
the beginning of a fiscal period represents only a small percentage of the
product sales anticipated in the period. This lack of backlog impairs Octel's
and VMX's ability to plan production and inventory levels. In addition, a
majority of revenue in each quarter generally results from orders received and
shipments made during the last month of the quarter, with a disproportionate
amount occurring in the latter half of that month. As a result, Octel and VMX
establish their respective production, inventory and operating expenditure
levels based on anticipated revenue levels. Thus, if sales do not occur when
expected, expenditure levels could be disproportionately high and operating
results for that quarter and potentially future quarters would be adversely
affected. In addition, both Octel and VMX have from time-to-time experienced
certain seasonal slow-downs which have typically affected the operating results
of both companies in the quarters ending September 30 and March 31. Both
companies believe these factors, together with the effect of the Merger, will
have a somewhat negative impact on operating results in the near term, including
in the quarter ending March 31, 1994. Furthermore, VMX's operating results have
occasionally been affected by the timing and amount of technology license fees
received.
Competition. The voice processing industry is highly competitive and
competition is expected to intensify. Principal existing competitors of Octel
and VMX include American Telephone and Telegraph, Inc.
10
<PAGE> 24
("AT&T"), Northern Telecom, Inc. ("Northern Telecom"), ROLM Systems, a Siemens
company ("ROLM"), Active Voice, AVT, Boston Technology, Inc., Centigram
Communications Corporation ("Centigram") and Digital Sound Corporation. AT&T,
Northern Telecom and ROLM have considerably greater financial, technical,
marketing and sales resources than Octel and VMX. New or enhanced products can
be expected from these and other companies, including large domestic and
international telecommunications and computer hardware and software companies,
as well as smaller independent voice processing companies. Octel and VMX expect
to continue to encounter substantial competition from existing competitors, as
well as from new market entrants.
Octel and VMX expect some of the Regional Bell Operating Companies to begin
offering competitive voice information processing products and systems if, as
expected, the "line of business" restrictions on manufacturing
telecommunications equipment are lifted. Such companies would be significant
competitors and would likely enjoy competitive advantages arising out of their
position in the telephone industry. Also, personal computer voice information
processing applications are converging with Octel's and VMX's traditional
Customer Premise Equipment (CPE) business. PC-based solutions offer increasingly
competitive functionality and price performance to many of the companies'
current system products, and competition from PC-based voice and fax processing
companies is expected to intensify. The companies also expect that computer
software vendors such as Novell, Inc., Lotus Development Corporation and
Microsoft Corporation will continue to develop enhanced messaging and networking
software with voice and data information processing applications.
Technological Changes. The market for voice processing products is subject
to rapid technological change and therefore requires a high level of
expenditures for research and development. Current competitors or new market
entrants may introduce new products with features that could adversely affect
the competitive position of Octel's or VMX's systems with respect to some or all
of their current applications. Octel and VMX may be required to incur
significant expenditures to develop new products or enhance existing products or
features, especially within the area of integrated mixed-media applications
which is new to both companies' customers. Although there is evidence of market
acceptance of the integration of voice, fax and data, and Octel and VMX believe
that their applications are competitive with offerings by other companies, there
can be no assurance of a high level of customer demand for these applications.
In order to maintain a competitive position, Octel and VMX must continue to
enhance their existing products and to develop and market new products
successfully, and there is no assurance that they will be able to do so.
Octel's and VMX's ability to develop and market products and services that
successfully adapt to current market needs may have an impact on the results of
operations. A portion of future revenues will come from new products and
services. Octel and VMX have spent significant funds on research and development
and believe that additional research and development expenses will be required
to maintain market position. Accordingly, the combined company's research and
development expenses are expected to increase in absolute terms and such
expenses could increase as a percentage of net revenues. Octel cannot determine
the ultimate effect that new products and services from Octel and VMX will have
on revenues, earnings or stock price.
Octel and VMX release performance enhancements and new features for their
products on an ongoing basis. Because of the increasing complexity of such
products, these efforts have continued to increase in technical difficulty.
Products as complex as Octel's and VMX's often contain undetected errors or
"bugs" when first released which are discovered only after the product has been
used by many different customers and in varying applications. Because of the
importance of product reliability, Octel and VMX have from time to time
temporarily delayed product shipments to complete "debugging" efforts.
Identifying and correcting errors and making required design modifications
typically is expensive, can be time-consuming and can be expected to become more
difficult as products increase in complexity. Despite intensive testing, there
can be no assurance that errors will not be discovered in the future, causing
delays in product introductions and shipments or requiring design modifications
which could adversely affect operating results.
11
<PAGE> 25
International Business. Except for Canada and Australia, most countries are
behind the United States in the degree of development of their CPE voice
processing market. The sale of voice information processing systems and services
in most countries is subject to various regulatory requirements, including
electrical equipment safety requirements, telephone network connection
regulations and integration with PBXs. Meeting these regulatory requirements can
require modifications to system hardware and software. Additional software and
documentation changes, such as conversion of voice prompts to foreign languages,
are also required in non-English-speaking countries. The process of making
necessary system modifications and obtaining government approvals in countries
outside of the United States is often complex and time-consuming. Subject to
such regulations and required product changes, as well as to differences in
culture and business practices and the availability of touch-tone telephones,
Octel and VMX believe that the international market will experience growth
similar to that of North America. The speed and extent of this eventual
development are difficult to predict.
Product Protection and Intellectual Property. While Octel and VMX attempt
to protect their proprietary technology through patents, copyrights and trade
secrets, both Octel and VMX believe that their success will depend more upon
innovation, technological expertise and distribution strength. There can be no
assurance that Octel and VMX will be able to protect their technology or that
competitors will not be able to develop similar technology independently. No
assurance can be given that patents will issue from any applications filed by
Octel or VMX or that, if patents do issue, the claims allowed will be
sufficiently broad to protect Octel's and VMX's technology. In addition, no
assurance can be given that any patents issued to Octel and VMX will not be
challenged, invalidated or circumvented or that the rights granted thereunder
will provide competitive advantages to Octel and VMX.
In addition, Octel and VMX from time to time receive letters from third
parties, including some of their competitors, alleging infringement of such
parties' patent rights by the products of Octel or VMX. While such letters are
prevalent in their industry and Octel and VMX have generally been able to
license necessary patents or technology on commercially reasonable terms in the
past, there can be no assurance that Octel or VMX would prevail in any
litigation to enjoin Octel or VMX from selling their products on the basis of
such alleged infringement or that Octel or VMX would be able to license any
valid and infringed patents on reasonable terms. Octel is currently engaged in
patent litigation with Theis Research, Inc. See "Octel Communications
Corporation -- Business of Octel -- Patents, Copyrights, Trademarks and
Technology Licenses" and "VMX, Inc. -- Business of VMX -- Patents, Trademarks
and Licenses."
Dependence on Key Personnel and Management of Change. Octel's and VMX's
success depends upon the continued contributions of key personnel, many of whom
would be difficult to replace. If certain of these people were to leave Octel or
VMX, operating results could be adversely affected. The success of the combined
companies depends on the ability of Octel and VMX to attract and retain skilled
employees, and on the ability of their officers and key employees to manage
change successfully through the implementation of appropriate management
information systems and controls. Additionally, the management of the combined
companies must continue to motivate the employees, particularly those in sales,
in light of organizational and structural changes in connection with the Merger.
Volatility of Stock Prices. As is frequently the case with the stock of
high technology companies, the market prices of Octel's and VMX's stock have
been, and, following the Merger, Octel's stock may continue to be, volatile.
Factors such as quarterly fluctuations in results of operations, announcements
of technological innovations or the introduction of new products by Octel, VMX
or their competitors, and macroeconomic conditions generally, may have a
significant impact on the market price of the stock of Octel. In addition, 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 been unrelated to the
operating performance of such companies. 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. Any
shortfall in revenue or earnings from the levels anticipated by securities
analysts could have an immediate and significant effect on the trading price of
Octel's Common Stock in any given period. Additionally, Octel may not learn of
such shortfalls until late in a fiscal quarter, which could result in an even
more immediate and adverse effect on the trading price of Octel's Common
12
<PAGE> 26
Stock. These broad market fluctuations may adversely affect the market price of
the stock of Octel. Such stock price volatility may provoke the initiation of
securities litigation, which may divert substantial management resources and may
have an adverse affect on the management of business operations. See "Market
Price and Dividend Information."
RISK FACTORS CONCERNING OCTEL'S BUSINESS
Dependence on Distributors. Octel sells, markets and supports its products
through distributors and a direct sales force. Octel believes that its network
of distributors represents an important part of its overall sales strategy and
that the loss of, or changes in the relationship with or performance by, one or
more distributors could have a material adverse effect on its revenues and
operating results. There can be no assurance that Octel will be able to continue
relying on several major distributors which are affiliated with or controlled by
Northern Telecom, one of Octel's principal competitors. In September 1992,
Octel's distribution agreement with Tel Plus (an entity owned by Siemens)
expired, and as a result, Tel Plus no longer distributes Octel's products.
Octel's distributors purchase products at discounts and, accordingly, Octel's
operating margins can vary depending upon the mix between distributor and direct
sales in any particular period. Octel anticipates this mix will fluctuate in
future operating periods.
International VIS Business. Deployment of voice information services in
countries outside the United States and Canada has been limited. While there can
be no assurance that Octel's products will receive the same response
internationally that they have received in the United States and Canada, sales
in countries outside the United States increased as a percentage of total
revenue in fiscal 1993 principally due to large, multi-system purchases by
telephone companies in Canada and Italy. Octel believes that an important factor
in continuing its success will be its ability to increase sales to customers in
the international market. The sale of voice information processing systems to
international VIS customers is subject to various regulatory requirements and
the development of hardware and software components compatible with local
specifications in areas such as language support and telephone network
connectivity. Moreover, the process of making necessary system modifications and
obtaining government approvals in countries outside the United States is often
complex and time-consuming.
Manufacturing. Although Octel generally uses standard parts and components
for its products, certain components, including power supplies, disk drives and
certain semiconductors, are presently available only from a single source or
from limited sources. Octel has been able to obtain adequate supplies of these
components in a timely manner from existing sources or, when necessary, from
alternative sources. There can be no assurance, however, that such supplies will
be available in the future or, if such supplies are available, that they will be
available at reasonable prices. The inability to develop alternative sources if
and as required in the future, or to obtain sufficient sole unlimited source
components as required, would adversely affect Octel's net operating results.
RISK FACTORS CONCERNING VMX'S BUSINESS
Dependence on Distributors. In the U.S. and Canada, VMX sells, markets and
supports its products through value added resellers (VARs), its own direct sales
force and OEMs. VMX believes that its VAR network represents an important part
of its overall sales and distribution strategy. While VMX is not dependent on
any single VAR, the loss of, or changes in the relationship with or performance
by several VARs could, nevertheless, have a material adverse effect on VMX's
revenues and operating results.
Internationally, VMX sells its products through distributors and through
its direct sales force in the United Kingdom. VMX's international distributors
represent an important part of its overall international sales strategy and the
loss of, or changes in the relationship with or performance by, one or more
international distributors could have a material adverse effect on its revenues
and operating results.
Manufacturing. VMX has an agreement with Matsushita-Kotobuki Electronics
Industries, Ltd. ("MKE") whereby MKE manufactures the VMX 100 system for VMX.
This agreement expires on January 27, 1995 and can be extended by mutual written
agreement. Although MKE is currently the single source supplier for the VMX 100
system, VMX retains manufacturing rights in the event MKE is unable to
13
<PAGE> 27
supply VMX's requirements of VMX 100 systems. Furthermore, VMX has not
experienced and has no reason to expect any significant delays in delivery of
materials from either subcontractors, components vendors or MKE. However, there
can be no assurance that interruption in the supply will not occur in the
future. Any such interruptions could adversely affect VMX's business.
Emerging Market. VMX has identified client/server voice messaging using
LAN-based e-mail networks as an emerging opportunity. Significant resources have
been spent and are planned for the future in the areas of research and
development, distribution channel development and support and training relating
to this opportunity. Identification of and relationships with distributors of
these products are in their initial stages. There can be no assurance that the
demand for client/server based voice messaging capabilities will develop at the
rate anticipated by VMX. Furthermore, there can be no assurance that VMX will be
successful in developing the specialized distribution channel it believes is
required to achieve its revenue and profit objectives in this area.
14
<PAGE> 28
THE MEETINGS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of
Octel Common Stock in connection with the solicitation of proxies by the Octel
Board for use at the Octel Special Meeting to be held at the Santa Clara
Marriott Hotel, 2700 Mission College Blvd., Santa Clara, California 95052 at
9:00 a.m., local time, on March 31, 1994, or at any adjournments or
postponements thereof, for the purposes set forth herein and in the accompanying
Notice of Octel Special Meeting of Stockholders.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
VMX Common Stock in connection with the solicitation of proxies by the VMX Board
for use at the VMX Special Meeting to be held at VMX's headquarters, 2115 O'Nel
Drive, San Jose, California 95131-2032 at 9:00 a.m., local time, on March 31,
1994, or at any adjournments or postponements thereof, for the purposes set
forth herein and in the accompanying Notice of Special Meeting of Stockholders.
MATTERS TO BE CONSIDERED AT THE MEETINGS
Octel. At the Octel Special Meeting, stockholders of record of Octel as of
the close of business on February 28, 1994 will be asked to consider and vote
upon proposals (i) to approve the Reorganization Agreement and the Merger and
the issuance of shares of Octel Common Stock in the Merger; (ii) to approve an
amendment to Octel's 1985 Incentive Stock Plan increasing the number of shares
of Common Stock reserved for issuance by 2.3 million shares (as of the date of
this Joint Proxy Statement/Prospectus, all shares of Common Stock currently
reserved for issuance under Octel's 1985 Incentive Stock Plan are subject to
outstanding options) and (iii) to transact such other business as may properly
come before the Octel Special Meeting or any adjournments or postponements
thereof.
VMX. At the VMX Special Meeting, stockholders of record of VMX as of the
close of business on February 28, 1994 will be asked to consider and vote upon
proposals (i) to approve the Reorganization Agreement and the Merger and (ii) to
transact such other business as may properly come before the VMX Special Meeting
or any adjournments or postponements thereof.
RECOMMENDATIONS OF BOARDS OF DIRECTORS. THE OCTEL BOARD HAS UNANIMOUSLY
APPROVED THE REORGANIZATION AGREEMENT, THE MERGER AND THE ISSUANCE OF SHARES OF
OCTEL COMMON STOCK IN THE MERGER AND RECOMMENDS A VOTE BY THE STOCKHOLDERS OF
OCTEL FOR APPROVAL OF THE REORGANIZATION AGREEMENT AND THE MERGER AND THE
ISSUANCE OF SHARES OF OCTEL COMMON STOCK IN THE MERGER. THE OCTEL BOARD HAS ALSO
UNANIMOUSLY APPROVED THE AMENDMENT TO THE 1985 INCENTIVE STOCK PLAN AND
RECOMMENDS A VOTE BY STOCKHOLDERS OF OCTEL FOR APPROVAL OF SUCH AMENDMENT.
THE VMX BOARD HAS UNANIMOUSLY APPROVED THE REORGANIZATION AGREEMENT AND THE
MERGER, AND RECOMMENDS A VOTE BY THE STOCKHOLDERS OF VMX FOR APPROVAL OF THE
REORGANIZATION AGREEMENT AND APPROVAL OF THE MERGER BY THE STOCKHOLDERS OF VMX.
RECORD DATES; VOTING AT THE MEETINGS; VOTE REQUIRED
Octel. The Octel Board has fixed February 28, 1994 as the Record Date for
the determination of the stockholders of Octel entitled to vote at the Octel
Special Meeting. Only holders of record of Octel Stock on the Record Date will
be entitled to notice of, and to vote at, the Octel Special Meeting. As of the
Record Date, there were approximately 18.2 million shares of Octel Common Stock
outstanding and entitled to vote which were held by approximately 2,100 holders
of record. Each record holder of Octel Common Stock on the Record Date is
entitled to cast one vote per share, exercisable in person or by properly
executed proxy, on each matter properly submitted for the vote of the
stockholders of Octel at the Octel Special Meeting. The presence, in person or
by properly executed proxy, of the holders of shares of Octel Stock entitled to
vote at the Octel Special Meeting representing a majority of the outstanding
voting stock of Octel is necessary to constitute a quorum at the Octel Special
Meeting.
15
<PAGE> 29
Approval of the Reorganization Agreement and the Merger and approval of the
amendment to Octel's 1985 Incentive Stock Plan will require the affirmative vote
of the holders of a majority of the outstanding shares of Octel Common Stock
present (in person or by proxy) at the Octel Special Meeting that are entitled
to vote on the proposals and are voted for or against the proposals. The
approval of the Reorganization Agreement and the Merger by Octel's stockholders
is required by the rules of the National Association of Securities Dealers, Inc.
governing corporations with securities listed on The Nasdaq National Market.
As of the Record Date, directors, executive officers and affiliates of
Octel may be deemed to be beneficial owners of approximately 6.0% of the
outstanding voting shares of Octel Common Stock. Each of the directors and
executive officers of Octel plans to vote or direct the vote of all shares of
Octel Common Stock over which he or she has voting control in favor of the
Reorganization Agreement, the Merger and the issuance of shares of Octel Common
Stock in the Merger.
As of the date of this Joint Proxy Statement/Prospectus, VMX owns no shares
of Octel Common Stock.
VMX. The VMX Board has fixed February 28, 1994 as the Record Date for the
determination of the stockholders of VMX Common Stock entitled to vote at the
VMX Special Meeting. Only holders of record of VMX Stock on the Record Date will
be entitled to notice of, and to vote at, the VMX Special Meeting. As of the
Record Date, there were approximately 26.8 million shares of VMX Common Stock
outstanding and entitled to vote which were held by approximately 1,350 holders
of record. Each record holder of VMX Common Stock on the Record Date is entitled
to cast one vote per share, exercisable in person or by properly executed proxy,
on each matter properly submitted for the vote of the stockholders of VMX at the
VMX Special Meeting. The presence, in person or by properly executed proxy, of
the holders of a majority of the outstanding shares of VMX Common Stock entitled
to vote at the VMX Special Meeting is necessary to constitute a quorum at the
VMX Special Meeting.
The approval of the Reorganization Agreement and the Merger will require
the affirmative vote of the holders of a majority of the outstanding shares of
VMX Common Stock entitled to vote at the VMX Special Meeting.
As of the Record Date, directors and executive officers of VMX and their
affiliates may be deemed to be beneficial owners of approximately 8.5% of the
outstanding voting shares of VMX Common Stock. Pursuant to the Reorganization
Agreement, each of the directors and executive officers of VMX has granted Octel
a proxy to vote, with some limitations, all shares of VMX Common Stock over
which he or she has voting control in favor of the Reorganization Agreement and
the Merger.
As of the date of this Joint Proxy Statement/Prospectus, Octel owns no
shares of VMX Common Stock.
At each of the Octel Special Meeting and the VMX Special Meeting, shares
that abstain from the vote will not be counted as votes for or against the
proposals. With respect to broker non-votes, there is case law to the effect
that, while such shares may be counted for determining the presence or absence
of a quorum for the transaction of business at a meeting, broker non-votes
should not be counted for purposes of determining the number of shares voting
with respect to the particular proposal(s) on which the broker has expressly not
voted. Accordingly, broker non-votes will not be counted as voting shares with
respect to the proposals.
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PROXIES
This Joint Proxy Statement/Prospectus is being furnished to holders of
Octel Common Stock and holders of VMX Common Stock in connection with the
solicitation of proxies by and on behalf of the Boards of Directors of Octel and
VMX for use at the Octel Special Meeting and the VMX Special Meeting,
respectively (each, a "Meeting").
All shares of Octel Common Stock and shares of VMX Common Stock that are
entitled to vote and are represented at the respective Meeting by properly
executed proxies received prior to or at the respective Meeting and not duly and
timely revoked will be voted at such Meeting in accordance with the instructions
indicated on such proxies. If no instructions are indicated, such proxies will
be voted:
(i) in the case of the Octel Special Meeting, FOR the approval of the
Reorganization Agreement and the Merger and the issuance of shares of Octel
Common Stock in the Merger and FOR the amendment to Octel's 1985 Incentive
Stock Plan;
(ii) in the case of the VMX Special Meeting, FOR the approval of the
Reorganization Agreement and the Merger.
If any other matters are properly presented for consideration at either
Meeting (or any adjournments or postponements thereof) including, among other
things, consideration of a motion to adjourn or postpone either Meeting to
another time or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting 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 Secretary of Octel or VMX, as the case may be, at or before the taking
of the vote at the relevant 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 Secretary of Octel or VMX, as the case
may be, before the taking of the vote at the relevant Meeting or (iii) attending
the relevant Meeting and voting in person (although attendance at the 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,
in the case of holders of Octel Common Stock, to Octel Communications
Corporation, 890 Tasman Drive, Milpitas, California 95035-7439, Attention:
Secretary, and in the case of holders of VMX Common Stock, to VMX, Inc., 2115
O'Nel Drive, San Jose, California 95131-2032, Attention: Secretary, or
hand-delivered to the Secretary of Octel or VMX, as the case may be, at or
before the taking of the vote at the relevant Meeting.
All expenses of this solicitation, including the cost of preparing and
mailing this Joint Proxy Statement/Prospectus, will be borne equally by Octel
and VMX. In addition to solicitation by use of the mails, proxies may be
solicited by directors, officers and employees of Octel and VMX in person or by
telephone, telegram or other means of communication. Such directors, officers
and employees will not receive any additional compensation for such services,
but may be reimbursed for reasonable out-of-pocket expenses in connection with
such solicitation. Octel has retained Chemical Bank at an estimated cost of
$6,500, plus reimbursement of expenses, to assist in its solicitation of proxies
from brokers, nominees, institutions and individuals. VMX has also retained
Chemical Bank at an estimated cost of $4,500, plus reimbursement of expenses, to
assist in its solicitation of proxies from brokers, nominees, institutions and
individuals. 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 Octel
and VMX will reimburse such custodians, nominees and fiduciaries for reasonable
expenses incurred in connection therewith.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
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THE MERGER
DESCRIPTION
Under the Reorganization Agreement, Merger Sub, a wholly owned subsidiary
of Octel formed for this purpose, will merge with and into VMX, and VMX will
continue as the surviving corporation. At the Effective Time of the Merger, (i)
each five outstanding shares of VMX Common Stock (other than those shares to be
canceled) will be converted into the right to receive one share (the "Exchange
Ratio") of Octel Common Stock, (ii) each share of VMX Common Stock owned by
Merger Sub, Octel or any wholly owned subsidiary of Octel or of VMX will be
canceled and (iii) each outstanding share of Common Stock of Merger Sub will be
converted into one share of Common Stock of VMX, as the surviving corporation.
VMX will become a wholly owned subsidiary of Octel.
BACKGROUND OF THE MERGER
The relationship between Octel and VMX dates back to 1984 when, as part of
its initial entry into the voice processing industry, Octel obtained a license
for certain patents held by VMX. Subsequently, Octel and VMX have been involved
in a variety of disputes regarding patent rights.
During the fall and winter of 1990, discussions took place between the
executive officers of Octel and VMX concerning the strategic benefits of a
business combination. The parties explored, on a preliminary basis, the
acquisition of VMX by Octel, but no agreements or understandings were reached
with respect to such an arrangement and the discussions terminated.
In December 1992 Octel and VMX commenced negotiations to settle one patent
right dispute, a declaratory relief action which had been filed by Octel against
VMX in 1987. During the course of these negotiations, in April 1993, Robert
Cohn, then Chairman of Octel, Derek Daley, General Counsel of Octel, David Ladd,
Executive Vice President of VMX and Bruce Pollock, Executive Vice President and
Chief Financial Officer of VMX, met to discuss possible terms of settlement.
Following that meeting, a brief discussion was held among Messrs. Cohn, Ladd and
Pat Howard, President and Chief Executive Officer of VMX, as to the possibility
and desirability of reopening discussions about potential partnerships between
the two companies. Both parties agreed that, in concept, such discussions were
desirable. However, the parties also agreed that any discussions should be
postponed until the declaratory relief action was resolved. Settlement
discussions continued through October 1993 and resulted in an agreement,
effective September 24, 1993, in which the companies agreed to cross license
their respective patent portfolios and terminate the litigation.
In early October 1993, Mr. Howard contacted Doug Chance, then President and
Chief Executive Officer of Octel. They agreed to begin discussions about the
possibility of a business combination. Mr. Chance advised the Octel Board of
such matters at a regularly scheduled Octel Board meeting on October 14, 1993
and, with their agreement, authorized Gary Wetsel, Executive Vice President and
Chief Financial Officer of Octel, to open preliminary discussions with VMX. On
October 26, 1993, Mr. Wetsel and Mr. Pollock met to discuss the format for these
discussions and agreed that to facilitate the exchange of relevant information,
the two companies should enter into a confidentiality agreement. Octel and VMX
entered into a confidentiality agreement providing for the exchange of nonpublic
information. VMX also agreed not to hold other acquisition discussions with
other entities for a period of one month. At this time, Octel engaged Hambrecht
& Quist as a financial advisor.
From November 1, 1993 through November 8, 1993, the senior management of
the two companies held three formal meetings and had a number of telephone
conversations. The parties made presentations to each other concerning each
company's business and their respective views of the strategic benefits of a
combination. The management of the two companies also discussed the potential
impact of a combination on their respective businesses and the risks it would
pose. Participating in these discussions at various times were, on behalf of
Octel: Mr. Chance, Mr. Wetsel, Michael West, Executive Vice President, Dennis
McGinn, Executive Vice President and Peter Olson, Executive Vice President; on
behalf of VMX were: Mr. Howard, Mr. Pollock, Mr. Ladd, Ed Mattiuz, Executive
Vice President and Chief Operating Officer, Raymond Glynn, Executive Vice
President and John Niedermaier, Vice President and Corporate Controller.
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<PAGE> 32
On November 11, 1993, as part of a regularly scheduled board meeting, Mr.
Howard briefed the VMX Board regarding the possibility of combining with Octel
and recommended that the Board authorize VMX management to continue the
discussions with Octel. Following discussions, the VMX Board gave its approval
for further discussions.
On November 18, 1993, the Octel Board of Directors, as part of a regularly
scheduled board meeting, heard presentations from management, supported by their
financial and legal advisors, Hambrecht & Quist and Wilson, Sonsini, Goodrich &
Rosati, respectively, concerning the results of their evaluation of VMX and the
status of the discussions. Following discussion, the Board authorized management
to continue discussions with VMX. It was also agreed that, given the return of
Mr. Cohn to the positions of President and Chief Executive Officer, the pace of
the discussions would be somewhat slowed.
From that time, through the first two weeks of January, a number of
additional meetings were held between the managements of the two companies.
These discussions were similar in nature to those held in late October and early
November. Mr. Cohn participated directly in these discussions in his new role.
Preliminary discussions also commenced among Wilson, Sonsini, Goodrich & Rosati,
Hambrecht & Quist, Gray Cary Ware & Freidenrich, legal advisors of VMX, and
Unterberg Harris, financial advisors of VMX. During this time, Wilson, Sonsini,
Goodrich & Rosati prepared and provided to VMX and its legal and financial
advisors an initial draft of the Reorganization Agreement.
On December 22, 1993, at a telephonic meeting with the VMX Board of
Directors, Mr. Howard reported to the VMX Board on the status of preliminary
discussions with Octel concerning a possible acquisition but indicated that
serious negotiations were not expected to commence until January 1994. The VMX
Board also considered and approved employment agreements for ten senior
executives which provided severance payments in various circumstances, including
a termination without cause following a change in control.
During the third week of January, preliminary discussions regarding the
Exchange Ratio and terms of the Reorganization Agreement were held between
Hambrecht & Quist and Unterberg Harris.
On the evening of January 21, 1994, Messrs. Cohn, Wetsel, and West for
Octel and Messrs. Howard, Ladd and Pollock for VMX, along with their respective
financial advisors, met to begin negotiation of the Exchange Ratio. Discussions
between the financial advisors and managements of the two companies continued
from time to time through January 26, 1994. No agreement as to the Exchange
Ratio or the final terms of the Reorganization Agreement were reached during
these discussions. During this period, Mr. Howard communicated with the VMX
Board on a regular basis through the use of VMX's voice mail system and through
telephone conversations.
On January 27, 1994, Messrs. Cohn and Howard had a telephone conversation
and reached tentative agreement on the Exchange Ratio to be recommended to their
respective Board of Directors. Also on January 27, 1994, the Octel Board, as
part of a regularly scheduled board meeting, heard presentations from management
and their financial and legal advisors concerning the results of the further
evaluation of VMX, the status of the Merger discussions, the proposed terms of
the Reorganization Agreement and the potential impact of the Merger on Octel.
The Octel Board then authorized management to complete the negotiations and
enter into a definitive Reorganization Agreement with VMX on the terms presented
and discussed at the Octel Board meeting.
Also on January 27, 1994, the VMX Board of Directors, as part of a special
board meeting, heard extensive presentations from senior management concerning
the potential risks and benefits from a merger with Octel and the status of
discussions. The Company's financial advisors reviewed with the Board their
preliminary financial analysis regarding a proposed merger and the Company's
legal advisors reviewed the terms of the Reorganization Agreement. The VMX Board
authorized management to continue discussions with Octel.
On January 28, 1994, Messrs. Wetsel and Pollock, along with their
respective legal and financial advisors, met in the offices of Wilson, Sonsini,
Goodrich & Rosati and reached agreement on the remaining terms of the
Reorganization Agreement, subject to VMX Board approval.
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On January 29, 1994, the VMX Board of Directors met and VMX's senior
management reported on the status of discussions. Management again made
presentations to the VMX Board regarding the risks and benefits of the Merger
along with other alternatives that had been considered. The Company's legal
advisors reviewed the terms of the Reorganization Agreement as agreed the
previous day, and the Company's financial advisors provided the Board with the
financial analysis which formed the basis of their oral opinion that the
proposed transaction was fair to the stockholders of VMX from a financial point
of view. The VMX Board authorized management to enter into the Reorganization
Agreement with Octel on the terms presented and discussed at the meeting. Later
that day, the parties executed the definitive Reorganization Agreement.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The Boards of Directors of VMX and Octel each recommend that the
stockholders of the respective companies vote FOR the approval and adoption of
the Reorganization Agreement and approval of the Merger, for the reasons set
forth below.
Joint Reasons for the Merger
Octel and VMX have identified several potential benefits of the merger that
they believe will contribute to the success of the combined company. These
potential benefits include:
- Broader distribution both domestically and internationally, resulting in
a combined presence in 42 countries, which increases the potential
market for each company's products.
- A combined installed base of more than 30,000 systems and over 17,000
customers providing incremental revenue opportunities from upgrades,
replacements, increased usage of two-way messaging, value added services
and new software applications.
- The ability to share technical expertise and focus resources on emerging
technologies.
- The ability to improve marketing efforts in the CPE market through
concentration of resources.
- The ability to improve efficiency through consolidation of duplicative
functions.
Octel's Reasons for the Merger
The Octel Board of Directors believes that the following are additional
reasons for stockholders of Octel to vote FOR approval and adoption of the
Reorganization Agreement and approval of the Merger:
- Octel has been working to provide worldwide product availability to its
multi-national customers. VMX currently has products approved for sale
in approximately 20 countries in which Octel products are not approved.
The Merger is expected to provide Octel's customers broader product
availability, and with the addition of Octel's networking protocols to
the VMX products, aid customers in networking VMX systems with Octel's.
- Octel provides customer-specific application solutions to its customers.
VMX provides similar solutions to its customers through the VMXworks
application development tools and associated applications. VMXworks has
capabilities Octel's products do not, such as a broader set of pre-
programmed applications, application templates and an ability to
customize features. VMX has also developed greater specialized sales and
support capabilities for these applications than has Octel. The merger
is expected to facilitate access to these products and capabilities for
Octel customers once the VMXworks product is provided on Octel systems.
- With the Merger, Octel will gain participation in two potentially fast
growing product areas, component voice boards and voice-integrated
e-mail.
In the course of its deliberations during two Board meetings held on
November 18, 1993 and January 27, 1994, the Octel Board of Directors reviewed
with Octel's management a number of additional factors relevant to the Merger,
including the strategic overview and prospects for Octel, its products and its
finances. The Octel Board also considered, among other matters, (i) information
concerning Octel's and VMX's respective
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<PAGE> 34
businesses, prospects, financial performance and condition, operations,
technology, management and competitive position; (ii) the financial condition,
results of operations and businesses of VMX and Octel before and after giving
effect to the Merger, (iii) current financial market conditions and historical
market prices, volatility and trading information with respect to Octel Common
Stock and VMX Common Stock; (iv) the consideration to be received by VMX
stockholders in the Merger and the relationship between the market value of
Octel Common Stock to be issued in exchange for each share of VMX Common Stock
and Octel's per share reported earnings, earnings before interest and taxes and
certain other measures; (v) a comparison of selected recent acquisition and
merger transactions in the telecommunications and other technology industries;
(vi) the belief that the terms of the Reorganization Agreement, including the
parties' mutual representations, warranties and covenants, and the conditions to
their respective obligations, are reasonable; (vii) the ability of Octel to
devote management time and energy to the integration and assimilation of VMX's
business and organization should the Merger be consummated; (viii) the fact that
the Merger is expected to be accounted for as a pooling of interests and that no
goodwill is expected to be created on the books of Octel as a result thereof;
(ix) a financial presentation by Hambrecht & Quist, including the oral opinion
of Hambrecht & Quist rendered on January 27, 1994 stating that the transaction
was fair from a financial point of view to Octel (which was subsequently
delivered in writing on January 29, 1994); (x) the impact of the Merger upon
Octel's customers and employees and (xi) reports from management, financial
advisors and legal advisors as to the results of their due diligence
investigation of VMX. The Board of Directors of Octel also considered a number
of potentially negative factors in its deliberations concerning the Merger,
including, but not limited to (i) the risk that the benefits sought to be
achieved in the Merger will not be achieved and (ii) the other risks described
above under "Risk Factors."
In view of the wide variety of factors considered by the Octel Board, the
Octel Board did not find it practicable to quantify or otherwise assign relative
weights to the specific factors considered in approving the Reorganization
Agreement and Merger. However, after taking into account all of the factors set
forth above, the Board of Directors of Octel determined unanimously that the
Reorganization Agreement and Merger were in the best interests of Octel and its
stockholders and that Octel should proceed with the Reorganization Agreement and
the Merger.
VMX's Reasons for the Merger
The business reasons described in "Joint Reasons for the Merger" above were
highly significant to the VMX Board because VMX stockholders will have the
opportunity to participate in the future operations of Octel after the Merger.
The VMX Board believes that the following are additional reasons for
stockholders of VMX to vote FOR approval and adoption of the Reorganization
Agreement and approval of the Merger:
- VMX has been working to introduce client/server voice processing
products to be integrated with
e-mail and other software-intensive applications. VMX believes this is
an emerging opportunity with substantial growth potential. The VMX Board
believes that the Merger will permit the combined company to provide
greater resources dedicated to this and other emerging opportunities.
- VMX has had increased success in selling to Fortune 500 enterprise
accounts. Octel has built a stronger position with enterprise account
customers and the Merger is expected to facilitate the increased
penetration of those accounts with VMX products, especially VMXworks
application development tools for customer-specific integrated voice
processing solutions.
- Finally, VMX has exclusively focused on products which serve the
Customer Premise Equipment (CPE) segment of the voice processing
industry and has not directly participated in the Voice Information
Services segment of this industry. Octel has successfully participated
in both market segments and has begun to develop relationships with key
public telephone service providers ("PTTs") in many countries worldwide.
In many emerging international markets, VMX believes these relationships
will be of increasing importance, even when competing for CPE
opportunities. The Merger is expected to provide VMX with an opportunity
for enhanced CPE sales based on Octel's relationships with the local
PTTs in many emerging international markets.
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<PAGE> 35
In the course of its deliberations during two Board meetings held on
January 27 and January 29, 1994, the VMX Board of Directors reviewed with VMX's
management a number of additional factors relevant to the Merger, including the
strategic overview and prospects for VMX, its products and its finances. The VMX
Board also considered, among other matters, (i) information concerning Octel's
and VMX's respective businesses, prospects, financial performance and condition,
operations, technology, management and competitive position; (ii) the financial
condition, results of operations and businesses of Octel and VMX before and
after giving effect to the Merger, (iii) current financial market conditions and
historical market prices, volatility and trading information with respect to
Octel Common Stock and VMX Common Stock; (iv) the consideration to be received
by VMX stockholders in the Merger and the relationship between the market value
of Octel Common Stock to be issued in exchange for each share of VMX Common
Stock and VMX's per share reported earnings, earnings before interest and taxes
and certain other measures; (v) a comparison of selected recent acquisition and
merger transactions in the telecommunications and electronics industries; (vi)
the belief that the terms of the Reorganization Agreement, including the
parties' mutual representations, warranties and covenants, and the conditions to
their respective obligations, are reasonable; (vii) the ability of VMX to
consider and negotiate other acquisition proposals and to terminate the
Reorganization Agreement for a superior proposal, subject to the payment of a
fee to Octel; (viii) the fact that the Merger is expected to be accounted for as
a pooling of interests and that no goodwill is expected to be created on the
books of Octel as a result thereof; (ix) a financial presentation by Unterberg
Harris, including the oral opinion of Unterberg Harris rendered at the January
29, 1994 meeting of the VMX Board that the consideration to be received by VMX
stockholders pursuant to the Merger was fair to VMX stockholders from a
financial point of view as of such date; (x) the commitment by Unterberg Harris
to supplement such oral opinion with a written opinion dated as of the date of
this Joint Proxy Statement/Prospectus; (xi) that VMX would be represented on the
Octel Board; (xii) the impact of the Merger upon VMX's customers and employees
and (xiii) reports from management, financial advisors and legal advisors as to
the results of their due diligence investigation of Octel.
The Board of Directors of VMX also considered a number of potentially
negative factors in its deliberations concerning the Merger, including, but not
limited to, (i) the loss of control over the future operations of VMX following
the Merger; (ii) the risk that the benefits sought to be achieved in the Merger
will not be achieved and (iii) the other risks described above under "Risk
Factors." The Board of Directors of VMX discussed with management the prospects
for combinations with companies other than Octel and the possibility that the
benefits described above could be achieved through any such combination, as well
as the risks and benefits of a stand-alone strategy.
In view of the wide variety of factors considered by the VMX Board, the VMX
Board did not find it practicable to quantify or otherwise assign relative
weights to the specific factors considered. However, after taking into account
all of the factors set forth above, the Board of Directors of VMX determined
unanimously that the Reorganization Agreement and Merger were in the best
interests of VMX and its stockholders and that VMX should proceed with the
Merger and the Reorganization Agreement.
OPERATIONS FOLLOWING THE MERGER
Following the Merger, Octel and VMX intend to integrate certain operations
of the two companies, which is expected to increase efficiency. The combined
company expects to continue offering the full product lines of both Octel and
VMX subsequent to the Merger. Research and development, marketing and
administrative operations will be co-located. In the near term, however, certain
research and development activities focused on future products or new
technologies will operate independently. The companies expect that the
distribution channels for the products of the two companies will remain
unchanged subsequent to the Merger. Certain direct sales activities will be
combined and some management consolidation will occur subsequent to the Merger.
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<PAGE> 36
FAIRNESS OPINIONS
Octel. Octel engaged Hambrecht & Quist to act as its financial advisor in
connection with the Merger and to render an opinion as to the fairness from a
financial point of view to Octel of the consideration to be paid to VMX's
shareholders in connection with the Merger. Hambrecht & Quist rendered its oral
opinion (subsequently confirmed in writing) on January 27, 1994 to Octel's Board
of Directors that, as of such date, the consideration to be paid by Octel is
fair to Octel from a financial point of view. A COPY OF HAMBRECHT & QUIST'S
OPINION DATED JANUARY 29, 1994, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED, THE SCOPE AND LIMITATION OF THE REVIEW UNDERTAKEN AND THE PROCEDURES
FOLLOWED BY HAMBRECHT & QUIST IS ATTACHED AS ANNEX B TO THE JOINT PROXY
STATEMENT/PROSPECTUS. OCTEL STOCKHOLDERS ARE ADVISED TO READ THE OPINION IN ITS
ENTIRETY. No limitations were placed on Hambrecht & Quist by the Board of
Directors of Octel with respect to the investigation made or the procedures
followed in preparing and rendering its opinion.
In its review of the Merger, and in arriving at its opinion, Hambrecht &
Quist, among other things: (i) reviewed the publicly available financial
statements of Octel for recent years and interim periods to date and certain
other relevant financial and operating data of Octel made available to Hambrecht
& Quist from published sources and the internal records of Octel; (ii) discussed
with certain members of the management of Octel and Octel's Board of Directors
the business, financial condition and prospects of Octel; (iii) reviewed certain
financial and operating information, including certain projections, relating to
Octel; (iv) discussed with certain members of the management of Octel and
Octel's Board of Directors the proposed Merger; (v) reviewed the publicly
available financial statements of VMX for recent years and interim periods to
date and certain other relevant financial and operating data of VMX made
available to Hambrecht & Quist from published sources and the internal records
of VMX; (vi) reviewed certain financial and operating information, including
certain projections, provided by the management of VMX and discussed such
projections with certain members of the management of VMX; (vii) reviewed the
recent reported prices and trading activity for Octel's and VMX's Common Stock
and compared such information and certain financial information of Octel and VMX
with similar information for certain other companies engaged in businesses
Hambrecht & Quist considered comparable to those of Octel and VMX; (viii)
reviewed the financial terms, to the extent publicly available, of certain
comparable merger and acquisition transactions; (ix) reviewed the Reorganization
Agreement and (x) performed such other analyses and examinations and considered
such other information, financial studies, analyses and investigations and
financial, economic and market data as Hambrecht & Quist deemed relevant.
Hambrecht & Quist did not independently verify any of the information
concerning Octel or VMX considered in connection with their review of the Merger
and, for purposes of its opinion, Hambrecht & Quist assumed and relied upon the
accuracy and completeness of all such information. In connection with its
opinion, Hambrecht & Quist did not prepare or obtain any independent evaluation
or appraisal of any of the assets or liabilities of Octel or VMX, nor did it
conduct a physical inspection of the properties and facilities of Octel or VMX.
With respect to the financial forecasts and projections made available to
Hambrecht & Quist and used in its analyses, Hambrecht & Quist, on the advice of
the management of Octel and VMX, assumed that their projections reflected the
best currently available estimates and judgments of the expected future
financial performance of Octel and VMX. Hambrecht & Quist also assumed that
neither Octel nor VMX was a party to any pending transactions, including
external financings, recapitalizations or merger discussions, other than the
Merger and those in the ordinary course of conducting their respective
businesses or disclosed in this Joint Proxy Statement/Prospectus. Hambrecht &
Quist's opinion is necessarily based upon market, economic, financial and other
conditions as they exist and can be evaluated as of the date of the opinion and
any subsequent change in such conditions would require a reevaluation of such
opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The summary
of the Hambrecht & Quist analyses set forth below does not purport to be a
complete description of the presentation by Hambrecht & Quist to Octel's Board
of Directors. In arriving at its opinion, Hambrecht & Quist did not attribute
any particular weight to any analysis or factor considered by it, but rather
made qualitative judgments as to the significance and relevance of each analysis
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<PAGE> 37
and factor. Accordingly, Hambrecht & Quist believes that its analyses and the
summary set forth below must be considered as a whole and that selecting
portions of its analyses, without considering all analyses, or of the above
summary, without considering all factors and analyses, could create an
incomplete view of the processes underlying the analyses set forth in the
Hambrecht & Quist presentation to the Octel Board of Directors and its opinion.
In performing its analyses, Hambrecht & Quist made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Octel and VMX. The
analyses performed by Hambrecht & Quist (and summarized below) are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses.
Additionally, analyses relating to the values of businesses do not purport to be
appraisals or to reflect the prices at which businesses actually may be
acquired.
Analysis of Publicly Traded Comparable Companies. Hambrecht & Quist
compared selected historical and projected financial, operating and stock market
data of Octel and VMX to publicly traded companies that Hambrecht & Quist deemed
to be comparable to Octel and VMX. Such data and ratios included market
capitalization, market capitalization to historical revenue, market
capitalization to historical and projected net income, market capitalization to
historical book value, price per share to historical and projected earnings per
share, and earnings per share growth rates. Hambrecht & Quist also examined the
ratio of the enterprise value (market value plus debt less cash) to the earnings
before interest and taxes ("EBIT"). Companies used for such comparisons included
Aspect Telecommunications, Boston Technology, Brite Voice Systems, Brooktrout
Technology, Centigram Communications, Comverse Technology, Digital Sound
Corporation, Intervoice Inc. and Microlog Corp. Based on the analysis of
publicly traded comparable companies, VMX's implied equity value ranged from
approximately $171 million to approximately $309 million.
Discounted Cash Flow Analysis. Hambrecht & Quist analyzed the theoretical
valuation of VMX based on the unlevered discounted cash flow of the projected
financial performance estimates of VMX. To estimate the total present value of
VMX's business, before giving effect to its capital structure, Hambrecht & Quist
discounted to present value the business as reflected in the financial
performance estimates using discount rates ranging from 15% to 25%. The terminal
value was based on multiples of 12, 14 and 16 times projected EBIT for fiscal
1999. These multiples were based on multiples resulting from analysis of
publicly traded comparable companies and analysis of selected merger and
acquisition transactions. Based on the discounted cash flow analysis, VMX's
implied equity value ranged from approximately $149 million to approximately
$309 million.
Analysis of Selected Merger and Acquisition Transactions. Hambrecht & Quist
compared the proposed Merger with selected comparable merger and acquisition
transactions. Hambrecht & Quist determined that the exchange ratio of five
shares of VMX for each one share of Octel represented a 32.5% premium over the
last sale price of VMX as of the market close on January 28, 1994. This analysis
included 12 comparable communication and computer company transactions and 14
other technology transactions. In examining these transactions, Hambrecht &
Quist analyzed certain income statement and balance sheet parameters of the
acquired company relative to the consideration offered. Multiples analyzed
included consideration offered to historical revenue, to historical cash flow
from operations, to historical earnings before depreciation, interest and taxes,
to historical net cash flow from operations, to historical income, to historical
book value and to historical net operating assets. Based on the analysis of
selected merger and acquisition transactions, VMX's implied equity value ranged
from approximately $141 million to approximately $196 million.
Pro Forma Analysis. Hambrecht & Quist analyzed the pro forma impact of the
proposed Merger on Octel earnings per share, consolidated capitalization and
financial ratios using the exchange ratio of one share of Octel for each five
shares of VMX. In conducting its analysis, Hambrecht & Quist relied upon the
financial projections provided by the management of Octel and VMX, respectively,
including potential benefits resulting from the Merger as estimated by the
management of Octel. The analysis indicated that the pro forma ownership
percentage of VMX shareholders (adjusted to take into account options assumed to
be exercised as a result of the Merger) would be approximately 23%. The analysis
indicated that earnings per share of the pro forma combined company would be
lower in the first fiscal year after the Merger and higher thereafter than
comparable projections for Octel as a stand-alone company.
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Contribution Analysis. Hambrecht & Quist analyzed the contribution of each
of Octel and VMX to certain financial statement categories of the pro forma
combined company, including revenue, gross profit, operating income, and net
income. This contribution analysis was then compared to the above stated pro
forma ownership percentage of VMX's shareholders (adjusted to take into account
options assumed to be exercised as a result of the Merger) in the pro forma
combined company.
Stock Trading History Analysis. Hambrecht & Quist examined the trading
history in terms of both price and volume for Octel and VMX during the periods
from January 19, 1993 to January 26, 1994 for the Common Stock of Octel and VMX.
No company or transaction used in the above analyses is identical to Octel
or VMX or the Merger. Accordingly, an analysis of the results of the foregoing
is not purely quantitative; rather it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading values of
the companies or company to which they are compared.
The foregoing description of Hambrecht & Quist's opinion is qualified in
its entirety by reference to the full text of such opinion which is attached as
Annex B to this Joint Proxy Statement/Prospectus.
Hambrecht & Quist, as part of its investment banking services, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, corporate restructurings, strategic alliances,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
Hambrecht & Quist is familiar with Octel, having acted as managing underwriter
of its initial public offering in February 1988 and its secondary public
offering in August 1989. In the ordinary course of business, Hambrecht & Quist
acts as a market maker and broker in the publicly traded securities of Octel and
receives customary compensation in connection therewith, and also provides
research coverage for Octel. In the ordinary course of business, Hambrecht &
Quist actively trades in the equity and derivative securities of Octel for its
own account and for the accounts of its customers and, accordingly, may at any
time hold a long or short position in such securities. Hambrecht & Quist may in
the future provide additional investment banking or other financial advisory
services to Octel.
Based upon Octel's existing relationship with Hambrecht & Quist and
Hambrecht & Quist's reputation as an investment bank and financial advisor,
Octel and Hambrecht & Quist entered into an engagement letter dated October 28,
1993. Octel has agreed to pay Hambrecht & Quist a fee equal to one percent of
all consideration paid in the Merger (equal to approximately $1.7 million) in
connection with its services as financial advisor to Octel in connection with
the Merger, including the rendering of a fairness opinion. Such transaction fee,
with the exception of $200,000 previously paid to Hambrecht & Quist at the time
of the delivery of its fairness opinion, is payable upon consummation of the
Merger. Octel also has agreed to reimburse Hambrecht & Quist for its reasonable
out-of-pocket expenses and to indemnify Hambrecht & Quist against certain
liabilities, including liabilities under the federal securities laws or relating
to or arising out of Hambrecht & Quist's engagement as financial advisor.
VMX. Unterberg Harris has delivered its written opinion to the VMX Board to
the effect that, as of March 1, 1994, the consideration to be received by
holders of shares of VMX Common Stock pursuant to the Reorganization Agreement
is fair from a financial point of view of such holders. Such opinion confirmed
the oral opinion given by Unterberg Harris to the VMX Board on January 29, 1994.
No limitations were imposed by the VMX Board upon Unterberg Harris with respect
to the investigations made or the procedures followed by it in rendering its
opinions.
THE FULL TEXT OF THE OPINION OF UNTERBERG HARRIS, DATED MARCH 1, 1994, IS
ATTACHED HERETO AS ANNEX C. VMX STOCKHOLDERS ARE URGED TO READ THE OPINION IN
ITS ENTIRETY FOR THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, OTHER MATTERS
CONSIDERED AND LIMITS OF THE REVIEW BY UNTERBERG HARRIS. THE SUMMARY OF THE
OPINION OF UNTERBERG HARRIS SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
UNTERBERG HARRIS' OPINION WAS PREPARED FOR THE VMX BOARD AND IS DIRECTED ONLY TO
THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE CONSIDERATION TO BE RECEIVED
BY HOLDERS OF SHARES OF VMX COMMON STOCK PURSUANT TO THE REORGANIZATION
AGREEMENT AND MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY VMX
STOCKHOLDER AS TO HOW TO VOTE AT THE VMX SPECIAL MEETING.
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In arriving at its opinion, Unterberg Harris reviewed the Reorganization
Agreement and financial and other information that was publicly available or
furnished to Unterberg Harris by VMX and Octel and their respective
representatives, including financial forecasts and other information provided
during discussions with the management and representatives of VMX and Octel. In
addition, Unterberg Harris compared certain financial and securities data of VMX
and Octel with various other publicly traded companies in the telecommunications
industries, reviewed the historical stock prices and trading volumes of VMX
Common Stock and Octel Common Stock, reviewed prices and premiums, if any, paid
in other business combinations and conducted such other financial studies,
analyses and investigations as Unterberg Harris deemed appropriate for purposes
of rendering its opinions.
In rendering its opinions, Unterberg Harris assumed, without independent
verification, the accuracy, completeness and fairness of all of the financial
and other information that was available to it from public sources and that was
provided to it by VMX and Octel or their representatives. With respect to the
financial projections supplied to it, Unterberg Harris assumed that such
projections were reasonably prepared and that they reflected the most accurate
currently available estimates and judgments of the management and
representatives of VMX and Octel as to the future operating and financial
performance of their respective companies. Unterberg Harris did not make any
independent evaluation or appraisal of the assets, liabilities, patents or
intellectual property of VMX or Octel, nor was any such appraisal or evaluation
provided to Unterberg Harris. Unterberg Harris assumed that the Merger would be
accounted for as a pooling of interests in rendering its opinions.
Unterberg Harris' opinion is necessarily based on economic, market,
financial and other conditions as they existed on, and on the information made
available to it as of, the dates of its opinions. It should be understood that,
although subsequent developments may affect its opinion, Unterberg Harris does
not have any obligation to update, review or reaffirm its opinion.
The following presentation summarizes certain financial analyses performed
by Unterberg Harris in arriving at its opinion dated March 1, 1994, which
analyses Unterberg Harris discussed with the Board of Directors of VMX.
Comparable Companies Analyses. Unterberg Harris compared selected
historical and projected operating information, stock market data and financial
ratios for VMX (based on the financial terms of the Merger) to selected
historical and projected operating information, stock market data and financial
ratios of Octel and of certain other publicly traded communications companies.
These companies included Aspect Telecommunications Corporation, Boston
Technology, Inc., Centigram Communications Corporation, Comverse Technology,
Inc., Digital Sound Corporation, Digital Systems International, Inc., Electronic
Information Systems, Inc., InterVoice, Inc. and Syntellect, Inc. Such data and
ratios include multiples of net market value (defined as market value of equity
adjusted by adding long-term debt and subtracting cash and short-term
investments) to historical revenues, market value to historical and projected
net income and earnings per share and market value to book value. An analysis of
net market value to latest twelve months revenues yielded a range of 0.29 times
to 4.48 times revenues with a median of 2.32 times revenues compared to 1.52
times for VMX in this transaction. An analysis of current stock price to latest
twelve months earnings per share yielded a range of 13.4 times to 60.0 times
earnings with a median of 21.3 times earnings, compared to 19.8 times earnings
for VMX in this transaction. An analysis of current stock price to projected
fiscal 1994 earnings per share yielded a range of 11.6 times to 33.3 times
earnings with a median of 19.5 times earnings, compared to 15.4 times earnings
for VMX in this transaction. An analysis of current stock price to projected
calendar 1994 earnings per share yielded a range of 10.0 times to 30.6 times
earnings with a median of 17.2 times earnings, compared to 13.2 times earnings
for VMX in this transaction. An analysis of market value to book value yielded a
range of 0.59 times to 8.05 times book value with a median of 2.96 times book
value, compared to 3.79 times book value for VMX. Unterberg Harris indicated
that the multiples calculated for VMX based on the financial terms of the Merger
were within the range of multiples for the comparable companies analyzed and
below the median for both multiples of revenue and earnings per share and above
the median for multiples of book value. Prior to the proposed Merger, VMX stock
was trading at the low end of the range of comparable companies.
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Unterberg Harris compared selected historical and projected operating and
financial ratios for Octel to the corresponding data and ratios of the same
comparable group of publicly traded voice processing companies. An analysis of
net market value to latest twelve months revenues yielded a range of 0.29 times
to 4.48 times revenues with a median of 2.32 times revenues, compared to 1.65
times revenues for Octel. An analysis of current stock price to latest twelve
months earnings per share yielded a range of 13.4 times to 60.0 times earnings
with a median of 21.3 times earnings, compared to 21.0 times earnings for Octel.
An analysis of current stock price to projected fiscal 1994 earnings per share
yielded a range of 11.6 times to 33.3 times earnings with a median of 19.5 times
earnings, compared to 19.5 times earnings for Octel. An analysis of current
stock price to projected calendar 1994 earnings per share yield a range of 10.0
times to 30.6 times earnings with a median of 17.2 times earnings, compared to
17.9 times earnings for Octel. An analysis of market value to book value yielded
a range of 0.59 times to 8.05 times book value with a median of 2.96 times book
value, compared to 2.65 times book value for Octel. Unterberg Harris indicated
that the multiples calculated for Octel were within the range of multiples for
comparable companies and close to the median in terms of multiples of earnings
per share but below the median for multiples of revenue and of book value.
Comparable Transaction Analysis. Unterberg Harris reviewed certain mergers
and acquisitions involving technology companies. In examining these
transactions, Unterberg Harris analyzed certain income statement and balance
sheet parameters of the acquired companies relative to the consideration paid.
Multiples analyzed included net transaction value (defined as transaction value
adjusted by adding long-term debt and subtracting cash and short-term
investments) to latest twelve month revenues and transaction value to latest
twelve months net income and book value. Merger and acquisition transactions
analyzed by Unterberg Harris included the acquisition by Chipcom Corporation of
Artel Communications Corp., ECI Telecom, Inc.'s acquisition of Telematics
International, Inc., Network Systems Corporation's acquisition of Bytex
Corporation, Welsh, Carson, Anderson & Stowe's acquisition of DCA, Inc.,
Electronic Information Systems, Inc.'s acquisition of International Telesystems
Corp., VMX's acquisition of Rhetorex, Inc., Silicon Graphics, Inc.'s acquisition
of MIPS Computer Systems, Inc. and Network Systems Corporation's acquisition of
Vitalink Communications Corporation. In certain cases, complete financial data
was not publicly available for these transactions and only partial information
was used in such instances. An analysis of market value to latest twelve months
revenues yielded a range of 0.17 times to 6.30 times revenues with a median of
1.19 times revenues, compared to 1.52 times revenues for VMX in this
transaction. An analysis of market value to latest twelve months net income
yielded a range of 11.2 times to 116.2 times net income with a median of 21.8
times, compared to 19.8 times net income for VMX in this transaction. An
analysis of market value to book value yielded a range of 0.26 times to 12.11
times book value with a median of 3.15 times book value, compared to 3.79 times
book value for VMX in this transaction. Unterberg Harris indicated that the
multiples calculated for VMX based on the financial terms of the Merger were
within the range for multiples of comparable transactions analyzed, above the
median for multiples of revenues and book value and slightly below the median
for multiples of net income.
Acquisition Premiums Analysis. Unterberg Harris analysis also indicated
that the average percentage premium of offer prices to trading prices one day
prior to the announcement date was 37.6% for the group of public technology
merger and acquisition transactions reviewed and the average percentage premium
of offer prices to trading prices one month prior to the announcement date was
47.6%. Unterberg Harris also looked at premiums paid in selected technology
transactions where the consideration paid was in the form of the acquiring
company's stock. This analysis indicated an average percentage premium of offer
prices to trading prices one day prior to the date of announcement of such
transactions was 26.2% and an average percentage premium to trading prices one
month prior to the announcement date was 41.7%. The offer price for VMX based on
the Exchange Ratio and Octel's closing stock price as of January 28, 1994 (one
day prior to the date of announcement) represented a premium to VMX's closing
stock price one day prior to the date of announcement of 32.5%. The offer price,
as calculated above, represented a 41.6% premium to VMX's closing stock price
one month prior to the date of announcement.
Stock Price Analysis. Unterberg Harris also examined the history of the
trading prices and volume for VMX Common Stock and Octel Common Stock
separately, in relation to each other, in relation to The
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Nasdaq National Market composite index and in relation to certain other publicly
traded companies. The analysis showed that, when evaluated on an indexed basis,
the daily per share price of VMX Common Stock for the last 90-day trading period
ranged from 96.7 to 124.1 while the daily price per share for Octel over the
same period ranged from 94.0 to 114.0. The composite daily per share price of a
selected group of comparable companies, when evaluated on an indexed basis, for
the same period ranged from 88.6 to 102.4 while The Nasdaq National Market
composite ranged from 95.4 to 102.7 during that period. For the last two years,
the analysis showed that, on an indexed basis, the weekly per share price of VMX
Common Stock ranged from 71.4 to 171.4 while the weekly per share price of Octel
Common Stock over the same period ranged from 59.6 to 120.8. The composite
weekly price of a selected group of comparable companies, when evaluated on an
indexed basis, ranged from 79.0 to 194.1 while The Nasdaq National Market Weekly
composite ranged from 88.3 to 128.1. Unterberg Harris indicated that for the
last 90 days of trading, VMX's stock price, on an indexed basis, showed a
greater percentage increase than Octel's stock price and the indices analyzed.
For the last two years, VMX's stock price, on an indexed basis, showed a greater
percentage increase than The Nasdaq National Market composite index and Octel,
but a lower percentage increase than the comparable group index.
Pro Forma Analysis. Unterberg Harris analyzed certain pro forma effects
(excluding transaction costs) resulting from the Merger. Although the analysis
indicated, absent potential synergies, approximately 1.5% dilution on the
earnings per share of Octel (adjusted to exclude non-operating charges to
income) for the latest twelve months ending December 31, 1993, the analysis
indicated that the Merger would have no dilutive effect for the fiscal year
ending June 30, 1994. The results of such pro forma combination analysis are not
necessarily indicative of future operating results or financial condition for
the combined company. Unterberg Harris also analyzed the contribution of VMX and
Octel to the pro forma combined company in light of the VMX stockholders'
ownership of the combined company being approximately 23.1%. This analysis
showed VMX contributing 25.4% of revenues for the latest twelve-month period and
26.6% for the June 1993 fiscal year, 20.9% in pretax income for the latest
twelve-month period and 18.9% for the June 1993 fiscal year, 23.9% in net income
for the latest twelve-month period and 23.8% for the fiscal year ended June 1993
(21.3% for the latest twelve-month period and 18.9% for fiscal 1993 when net
income is adjusted to assume both companies pay a comparable tax rate). Based on
projections for the year ending June 30, 1994, VMX's relative contribution to
revenues is projected to be 25.5%, contribution to pretax 24.1% and net income
26.5% (24.1% of net income when adjusted for comparable tax rates). In addition,
VMX contributed 19.2% of the combined company's cash balances, 17.5% of total
assets and 17.6% of stockholders' equity as of December 31, 1993.
The summary above does not purport to be a complete description of the
analyses performed by Unterberg Harris in connection with its fairness opinion.
The preparation of a fairness opinion involves various subjective business
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances,
and therefore such an opinion is not readily susceptible to partial analysis or
summary description. Accordingly, notwithstanding the separate factors
summarized above, Unterberg Harris believes that its analyses must be considered
as a whole and that selecting portions of its analyses and considering
individual factors without considering all analyses and factors could create an
incomplete and misleading view of the evaluation process underlying its opinion.
With respect to comparable companies analyses and comparable transactions
analyses, a particular analysis performed by Unterberg Harris is not necessarily
indicative of actual values, which may be significantly higher or lower than
suggested by such analyses. The analyses are not appraisals and do not
necessarily reflect the prices for which businesses actually could be sold or
actual values or future results that might be achieved. Unterberg Harris'
analyses were prepared solely as part of Unterberg Harris' review of the
fairness of the consideration to be received by VMX's stockholders in connection
with the Merger from a financial point of view and were provided to the VMX
Board in connection with the delivery of Unterberg Harris' opinion. In addition,
Unterberg Harris' opinion and presentation to the VMX Board was only one of many
factors taken into consideration by the VMX Board in making its determination to
approve the Merger.
Pursuant to the terms of the engagement by VMX of Unterberg Harris as its
financial advisor in connection with the Merger, upon consummation of the
Merger, Unterberg Harris will receive a fee based on a percentage of the
aggregate value of the consideration received by VMX stockholders plus the fair
market
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value of the options outstanding at the date of the Merger based on the closing
price of Octel's Common Stock at the closing date of the transaction. This fee
is expected to be approximately $1.0 million. Unterberg Harris has received a
retainer of $25,000 which will be credited against the total fee to be paid at
closing and Unterberg Harris will be reimbursed for out-of-pocket expenses in
connection with the engagement. In the event the Reorganization Agreement is
terminated due to a material adverse change to Octel or other breach of the
representations and warranties or covenants by Octel, Unterberg Harris shall be
paid a fee equal to 25% of the fee payable upon consummation of the Merger.
The terms of the fee arrangement were negotiated at arm's length between
VMX and Unterberg Harris and approved by the VMX Board. The VMX Board, in making
its recommendation with respect to the Merger and the Merger Agreement, was
aware of the foregoing fee arrangement. The VMX Board believed that the
contingent nature of Unterberg Harris' fee with respect to the Merger is not an
uncommon manner in which financial advisors are compensated in corporate merger
and acquisition transactions and also believe that any financial incentive that
could be viewed to exist as a result did not preclude Unterberg Harris from
rendering independent and objective advice.
Unterberg Harris has provided various financial advisory and investment
banking services to VMX since 1990 for which it has received customary
compensation. Unterberg Harris is a market maker for VMX Common Stock. Unterberg
Harris, as part of its investment banking business, is engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
underwriting, private offerings of securities and valuations for corporate
reorganization and other purposes. The VMX Board selected Unterberg Harris to
act as financial advisor on the basis of Unterberg Harris' reputation as an
investment bank, VMX's prior relationship with Unterberg Harris and Unterberg
Harris' familiarity with VMX.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following addresses the material federal income tax considerations of
the Merger that are applicable to holders of VMX Common Stock, and can be relied
upon by such holders. This section reflects the opinions of counsel attached as
Exhibits 8.1 and 8.2 to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part (the "Exhibit Opinions"). The Exhibit Opinions
each include an opinion to the effect that the Merger will constitute a
"reorganization" within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code") (a "Reorganization"). The Exhibit Opinions,
which are based on certain assumptions and subject to certain limitations and
qualifications as noted in the opinions, were delivered by Wilson, Sonsini,
Goodrich & Rosati, Professional Corporation and Gray Cary Ware & Freidenrich, A
Professional Corporation.
VMX stockholders should be aware that this section does not deal with all
federal income tax considerations that may be relevant to particular VMX
stockholders in light of their particular circumstances, such as stockholders
who are dealers in securities, who are subject to the Code's alternative minimum
tax provisions, who are foreign persons or who acquired their VMX Common Stock
through stock option or stock purchase programs or in other compensatory
transactions. In addition, the following discussion does not address the tax
consequences of transactions effectuated prior to or after the Merger (whether
or not such transactions are in connection with the Merger) including, without
limitation, the exercise of options or rights to purchase VMX Common Stock in
anticipation of the Merger. Finally, no foreign, state or local tax
considerations are addressed herein. Accordingly, VMX STOCKHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES TO THEM OF THE MERGER.
The following discussion is based on the companies' respective counsels'
interpretation of the Code, applicable Treasury Regulations, judicial authority
and administrative rulings and practice, all as of the date hereof. The Internal
Revenue Service (the "IRS") is not precluded from adopting a contrary position.
In addition, there can be no assurance that future legislative, judicial or
administrative changes or interpretations will not adversely affect the accuracy
of the statements and conclusions set forth herein. Any such changes or
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interpretations could be applied retroactively and could affect the tax
consequences of the Merger to Octel, VMX and their respective stockholders.
Subject to the limitations and qualifications referred to herein, and as a
result of the Merger's qualifying as a Reorganization, the companies' respective
counsels are of the opinion that:
(a) No gain or loss will be recognized by the holders of VMX Common
Stock upon the receipt of Octel Common Stock solely in exchange for such
VMX Common Stock in the Merger (except to the extent of cash received in
lieu of fractional shares).
(b) The aggregate tax basis of the Octel Common Stock so received by
VMX stockholders in the Merger (including any fractional share of Octel
Common Stock not actually received) will be the same as the aggregate tax
basis of the VMX Common Stock surrendered in exchange therefore.
(c) The holding period of the Octel Common Stock so received by each
VMX stockholder in the Merger will include the period for which the VMX
Common Stock surrendered in exchange therefor was considered to be held,
provided that the VMX Common Stock so surrendered is held as a capital
asset at the time of the Merger.
(d) Cash payments received by holders of VMX Common Stock in lieu of a
fractional share will be treated as if such fractional share of Octel
Common Stock had been issued in the Merger and then redeemed by Octel. A
VMX stockholder receiving such cash will recognize gain or loss, upon such
payment, measured by the difference (if any) between the amount of cash
received and the basis in such fractional share.
(e) None of Octel, Merger Sub or VMX will recognize material amounts
of gain solely as a result of the Merger.
Neither Octel nor VMX has requested a ruling from the IRS in connection
with the Merger. However, it is a condition of the respective obligations of
Octel and VMX to consummate the Merger that such parties receive confirming tax
opinions from their respective legal counsel to the effect that for federal
income tax purposes, the Merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Code. The Exhibit Opinions are not intended to
satisfy this closing condition. These closing opinions, which are collectively
referred to herein as the "Tax Opinions," neither bind the IRS nor preclude the
IRS from adopting a contrary position. As with the Exhibit Opinions, the Tax
Opinions will be subject to certain assumptions and qualifications and will be
based on the truth and accuracy of certain representations of Octel, VMX, Merger
Sub and stockholders of VMX, including representations in certain certificates
to be delivered to counsel by the respective managements of Octel, VMX and
Merger Sub and certain stockholders of VMX. Of particular importance will be
certain assumptions and representations relating to the "continuity of interest"
requirement.
To satisfy the "continuity of interest" requirement, VMX stockholders must
not, pursuant to a plan or intent existing at or prior to the Merger, dispose of
or transfer so much of either (i) their Common Stock of VMX in anticipation of
the Merger or (ii) the Octel Common Stock to be received in the Merger
(collectively, "Planned Dispositions"), such that the VMX stockholders, as a
group, would no longer have a significant equity interest in the VMX business
being conducted by Octel after the Merger. VMX stockholders will generally be
regarded as having a significant equity interest as long as the Octel Common
Stock received in the Merger (after taking into account Planned Dispositions),
in the aggregate, represents a substantial portion of the entire consideration
received by the VMX stockholders in the Merger. No assurance can be made that
the "continuity of interest" requirement will be satisfied, and if such
requirement is not satisfied, the Merger would not be treated as a
Reorganization.
A successful IRS challenge to the Reorganization status of the Merger (as a
result of a failure of the "continuity of interest" requirement or otherwise)
would result in a VMX stockholder recognizing gain or loss with respect to each
share of Common Stock of VMX surrendered equal to the difference between the
stockholder's basis in such share and the fair market value, as of the Effective
Time of the Merger, of the Octel Common Stock received in exchange therefor. In
such event, a stockholder's aggregate basis in the
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Octel Common Stock so received would equal its fair market value, and the
stockholder's holding period for such stock would begin the day after the
Merger.
Even if the Merger qualifies as a Reorganization, a recipient of shares of
Octel Common Stock would recognize gain to the extent that such shares were
considered to be received in exchange for services or property (other than
solely Common Stock of VMX). All or a portion of such gain may be taxable as
ordinary income. Gain would also have to be recognized to the extent that a VMX
stockholder was treated as receiving (directly or indirectly) consideration
other than Octel Common Stock in exchange for the stockholder's Common Stock of
VMX. Such other consideration is generally referred to as "boot."
ACCOUNTING TREATMENT
The Merger is expected to be treated as a "pooling of interests" for
accounting purposes. This accounting method permits the recorded assets and
liabilities of both Octel and VMX to be carried forward to the surviving
corporation at their recorded historical amounts and no recognition of goodwill
in the combination is required of either Octel or VMX.
It is a condition of Octel's obligation to consummate the Merger that,
among other things, Octel receive an opinion from KPMG Peat Marwick, the
independent auditors of Octel and VMX, to the effect that, based upon certain
material facts and certain representations and warranties described in such
opinion, the Merger will qualify for treatment as a pooling of interests.
INTERESTS OF CERTAIN PERSONS
Employment Agreements. In December 1993, the VMX Board approved two-year
Employment Agreements with 10 executives, including Patrick S. Howard, the
President and Chief Executive Officer, four Executive Vice Presidents, two
Corporate Vice Presidents and three other Vice Presidents (the "VMX Employment
Agreements").
The VMX Employment Agreements provide varying amounts of severance pay to
such employees depending on the respective employees' position with VMX upon
termination by VMX without cause, including a termination without cause
following a change of control of VMX. Such severance pay ranges up to a maximum
of 12 to 36 times the respective employee's monthly base salary, in lieu of all
other post-termination severance payments upon a change of control such as the
Merger. The VMX Employment Agreements limit the amount payable such that the
amount cannot exceed the amount which would subject VMX to special federal
excise taxes for "parachute payments." Furthermore, no acceleration of vesting
of options is provided in the event of a termination following a change of
control.
Following a change of control, constructive termination giving rise to the
obligation to pay severance is deemed to have occurred if, without the
employee's written consent, the employee is assigned duties, responsibilities,
position or salary and benefits substantially inconsistent with such employee's
position and compensation prior to the change of control.
Octel has expressed an interest in negotiating new employment agreements
with such persons. If such new agreements are not negotiated, the current
agreements will be assumed by Octel at the Effective Time.
In addition, pursuant to the terms of the Reorganization Agreement, upon
consummation of the Merger, Octel has agreed to appoint a member of the Board of
Directors of VMX to the Board of Directors of Octel.
REGULATORY MATTERS
Under the HSR Act and the rules promulgated thereunder by the FTC, the
Merger may not be consummated until notifications have been given and certain
information has been furnished to the FTC and the Antitrust Division, and
specified waiting period requirements have been satisfied. On February 8, 1994,
Octel and VMX each filed Premerger Notification and Report Forms pursuant to the
HSR Act with the Department of Justice and the FTC with respect to the Merger.
The waiting period required by the HSR Act will expire at 11:59 p.m. on March
10, 1994, unless extended by a request for additional information or
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documentary material or unless early termination of the waiting period is
granted. At any time before or after consummation of the Merger, the FTC, the
Antitrust Division, state attorneys general or others could take action under
the antitrust laws with respect to the Merger, including seeking to enjoin the
consummation of the Merger or seeking divestiture of substantial assets of Octel
or VMX.
Based on information available to them, Octel and VMX believe that the
Merger will not violate federal or state antitrust laws. However, there can be
no assurance that a challenge to the consummation of the Merger on antitrust
grounds will not be made or that, if such a challenge were made, Octel and VMX
would prevail or would not be required to accept certain conditions, possibly
including certain divestitures or hold-separate arrangements, in order to
consummate the Merger.
RIGHTS OF DISSENTING VMX STOCKHOLDERS
Section 262 of the Delaware General Corporation Law provides appraisal
rights (sometimes referred to as "dissenters' rights") to stockholders of
Delaware corporations in certain situations. However, Section 262 appraisal
rights are not available to stockholders of a corporation, such as VMX, whose
securities are listed on a national securities exchange or are designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. Because VMX's Common Stock is
traded on such a system, The Nasdaq National Market, stockholders of VMX will
not have appraisal rights with respect to the Merger.
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THE REORGANIZATION AGREEMENT
The following paragraphs summarize, among other things, the material terms
of the Reorganization Agreement, which is attached hereto as Annex A and
incorporated by reference herein. The summary should be read in conjunction
with, and is qualified in its entirety by, the Reorganization Agreement.
Stockholders of Octel and VMX are urged to read the Reorganization Agreement in
its entirety for a more complete description of the Merger.
EFFECTIVE TIME OF THE MERGER
As promptly as practicable after the satisfaction or waiver of the
conditions set forth in the Reorganization Agreement, the parties thereto will
file a certificate of merger with the Secretary of State of Delaware. The Merger
will become effective upon such filing (the "Effective Time").
CONVERSION OF SHARES
At the Effective Time, each five outstanding shares of VMX Common Stock
(other than shares owned by Merger Sub, Octel or any subsidiary of Octel or VMX)
will be converted into the right to receive one share (the "Exchange Ratio") of
Octel Common Stock. Merger Sub will merge with and into VMX, and VMX will be the
surviving corporation and a wholly owned subsidiary of Octel. Each share of
Merger Sub Common Stock issued and outstanding immediately prior to the
Effective Time will be converted into one share of Common Stock of the surviving
corporation.
As promptly as practicable after the Effective Time, Octel will send to
each stockholder of record of VMX as of the Effective Time transmittal materials
for use in exchanging certificates of VMX Common Stock for certificates of Octel
Common Stock. The transmittal materials will contain information and
instructions with respect to the surrender of VMX Common Stock certificates in
exchange for new certificates representing Octel Common Stock and cash in
payment for any fractional shares resulting from the exchange. Certificates
should not be surrendered until the Letter of Transmittal is received. Pending
delivery to Octel of VMX Common Stock certificates, any dividends on the Octel
Common Stock to be issued as a result of the Merger that are payable prior to
the delivery of such certificates will be held by Octel. Such dividends will be
paid, without interest, to the persons entitled thereto upon delivery of such
VMX Common Stock certificates to Octel.
No fraction of a share of Octel Common Stock will be issued, but in lieu
thereof each holder of shares of Octel Common Stock who would otherwise be
entitled to a fraction of a share of Octel Common Stock (after aggregating all
fractional shares of Octel Common Stock to be received by such holder) shall
receive from Octel an amount of cash (rounded to the nearest whole cent) equal
to the product of (i) such fraction, multiplied by (ii) the average closing
price of a share of Octel Common Stock for the ten most recent days that Octel
Common Stock has traded ending on the trading day immediately prior to the
Effective Time, as reported on The Nasdaq National Market.
TREATMENT OF VMX STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN
At the Effective Time, each outstanding option to purchase shares of VMX
Common Stock (each a "VMX Stock Option") under VMX's 1981 ECS Stock Option Plan,
1983 Stock Option Plan, Employee Stock Purchase Plan, 1986 Stock Option Plan,
VMX Inc./OPCOM 1982 Stock Option Plan, 1989 Stock Option Plan, 1989 Restated
Nonstatutory Stock Option Plan and Nonstatutory Stock Option Plan and any other
plan pursuant to which, as of January 27, 1994, options to purchase 5,438,266
shares of VMX Common Stock were outstanding (the "VMX Stock Option Plans"),
whether vested or unvested, will be assumed by Octel. Each VMX Stock Option so
assumed by Octel under the Reorganization Agreement shall continue to have, and
be subject to, the same terms and conditions set forth in VMX Stock Option Plans
immediately prior to the Effective Time, except that (i) such VMX Stock Option
will be exercisable for that number of whole shares of Octel Common Stock equal
to the product of the number of shares of VMX Common Stock that were issuable
upon exercise of such VMX Stock Option immediately prior to the Effective Time
multiplied by the Exchange Ratio (1:5), rounded down to the nearest whole number
of shares of Octel
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Common Stock, and (ii) the per share exercise price for the shares of Octel
Common Stock issuable upon exercise of such assumed VMX Stock Option will be
equal to the quotient determined by dividing the exercise price per share of VMX
Common Stock at which such VMX Stock Option was exercisable immediately prior to
the Effective Time by the Exchange Ratio (1:5), rounded up to the nearest whole
cent.
After the Effective Time, Octel will issue to each holder of an outstanding
VMX Stock Option a document evidencing the foregoing assumption of such VMX
Stock Option by Octel.
It is the intention of the parties that VMX Stock Options assumed by Octel
qualify following the Effective Time as incentive stock options as defined in
Section 422 of the Code to the extent the VMX Stock Options qualified as
incentive stock options prior to the Effective Time.
RESALE OF OCTEL COMMON STOCK BY VMX AFFILIATES
Rule 145 promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), regulates the disposition of securities of "affiliates" of
VMX in connection with the Merger.
VMX has delivered to Octel a letter (the "Affiliate Letter") identifying
all persons who are, at the Record Date of the VMX Special Meeting, believed to
be "affiliates" of VMX for purposes of Rule 145 under the Securities Act. Such
Affiliate Letter may be further updated prior to the Effective Time. VMX has
also agreed to use its best efforts to cause each person who is identified as an
Affiliate (an "Affiliate") in the Affiliate Letter to deliver to Octel, prior to
the Effective Time, a written agreement (an "Affiliate Agreement").
Under the Affiliate Agreement, such Affiliate will be advised that the
Affiliate may not sell, transfer or otherwise dispose of Octel Common Stock
issued to the Affiliate in the Merger unless such sale, transfer or other
disposition (i) has been registered under the Securities Act, (ii) is made in
compliance with the requirements of Rule 145 under the Securities Act or (iii)
in the opinion of counsel reasonably acceptable to Octel, is otherwise exempt
from registration under the Securities Act. Octel is under no obligation to
register under the Securities Act the sale, transfer or other disposition of
Octel Common Stock issued to the Affiliate in the Merger or to take any other
action necessary to make compliance with an exemption from such registration
available.
Under the Affiliate Agreement, Octel is entitled to issue appropriate stock
transfer instructions to the transfer agent for the shares of Octel Common Stock
that are to be received by such Affiliate and to place restrictive legends on
the certificates evidencing Octel Common Stock. Unless the transfer by the
Affiliate of its Octel Common Stock has been registered under the Securities Act
or is a sale made in compliance with the provisions of Rule 145 under the
Securities Act, Octel has the right to insert restrictive legends on the
certificates issued to any transferee of the Affiliate.
The foregoing restrictions apply with respect to Affiliates to all
purported sales, transfers and other conveyances of Octel Common Stock received
or to be received by such Affiliate pursuant to the Reorganization Agreement and
Merger and to all purported reductions in the interest in or risks relating to
such Octel Common Stock, whether or not such Affiliate shall have exchanged
following the Effective Time such VMX Common Stock certificates for Octel Common
Stock certificates.
The Affiliate Agreement also prohibits the Affiliate from any sale,
transfer or other disposition or any other reduction of the Affiliate's risk of
ownership of or investment in any securities of Octel and VMX from the date of
the Affiliate Agreement and until Octel publicly releases results including at
least 30 days of its combined operations after the Effective Time.
BUSINESS OF VMX PENDING THE MERGER
Pending the consummation of the Merger, and except as otherwise consented
to or approved in advance by Octel in writing, VMX has agreed that VMX will
operate its business in accordance with the ordinary course of business and in a
manner consistent with past practices, and use reasonable commercial efforts to
preserve substantially intact its business organization, to keep available the
services of its present officers,
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employees and consultants and to preserve its present relationships with
customers and suppliers and other persons with which it has significant business
relations. In particular, with minor limitations, VMX has agreed not to take any
of the following actions, among others, without the prior written consent of
Octel: accelerate, amend or change the period of exercisability of options,
violate, amend or modify the terms of certain material contracts, grant
severance pay (except pursuant to existing written agreements), declare or pay
any dividends, issue any shares (except in connection with the exercise of
options or stock purchase agreements under the VMX Stock Option Plans), sell any
material assets or properties, or incur any material indebtedness (other than
pursuant to an existing credit facility).
SOLICITATION OF ALTERNATIVE TRANSACTIONS
The Reorganization Agreement prohibits VMX or its representatives from
soliciting alternative proposals regarding a merger or a similar transaction
between VMX and third parties other than Octel, except as required by law. In
the event VMX shall receive a written offer or proposal, directly or indirectly,
oral or written, to acquire all or substantially all of VMX's business, assets
or properties or to purchase all of VMX's capital stock, VMX shall immediately
inform Octel as to all material facts relating to any such offer or proposal
(including the identity of the party making such offer or proposal and the
specific terms thereof) and will cooperate with Octel by furnishing any
information it may reasonably request.
BUSINESS OF OCTEL PENDING THE MERGER
Pending the consummation of the Merger, and except as otherwise consented
to or approved in advance by VMX in writing, Octel has agreed to operate its
business in accordance with its ordinary and usual course of business and to use
all reasonable efforts consistent with past practices and policies to preserve
intact Octel's present business organizations, keep available the services of
its present officers and key employees and preserve its relationships with
customers, suppliers, distributors, licensors, licensees and others having
business dealings with Octel, to the end that Octel's goodwill and ongoing
business shall be unimpaired at the Effective Time. In particular, with minor
limitations, Octel has agreed not to take any of the following actions, among
others, without the prior written consent of VMX: accelerate, amend or change
the period of exercisability of options, grant severance pay (except pursuant to
existing written agreements), declare or pay any dividends, issue any shares
(except in connection with the exercise of options), sell or acquire any
material assets or properties, or incur any material indebtedness (other than
pursuant to an existing credit facility).
CORPORATE STRUCTURE AND RELATED MATTERS AFTER THE MERGER
At the Effective Time, Merger Sub will be merged with and into VMX, and VMX
will be the surviving corporation and a wholly owned subsidiary of Octel. Each
share of Merger Sub Common Stock issued and outstanding immediately prior to the
Effective Time will be converted into and exchanged for one validly issued,
fully paid and nonassessable share of Common Stock of the surviving corporation.
Each stock certificate of Merger Sub evidencing ownership of any such shares
shall continue to evidence ownership of such shares of capital stock of the
surviving corporation.
Unless otherwise determined by Octel prior to the Effective Time, at the
Effective Time the Certificate of Incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, will be the Certificate of
Incorporation of the surviving corporation, except that the name of the
surviving corporation will be VMX, Inc. The Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, will be the Bylaws of the surviving
corporation.
The directors of Merger Sub immediately prior to the Effective Time will be
the initial directors of the surviving corporation, and the officers of the
Merger Sub immediately prior to the Effective Time will be the initial officers
of the surviving corporation, in each case until their respective successors are
duly elected or appointed and qualified.
After the Effective Time, all shares of VMX Common Stock will cease to be
quoted on The Nasdaq National Market, and the surviving corporation will
undertake to terminate registration of VMX Common Stock under the Exchange Act.
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CERTAIN COVENANTS
Director Nominees. Pursuant to the terms of the Reorganization Agreement,
upon consummation of the Merger, Octel agrees to appoint a member of the Board
of Directors of VMX to the Board of Directors of Octel.
VMX Stockholder Rights Plan. VMX has agreed to amend or terminate its
Stockholder Rights Plan, dated as of February 5, 1990 (the "Rights Plan"), and
any similar plan, or take other action to redeem any rights thereunder pursuant
to such Rights Plan so that the Rights Plan and any similar plan will not apply
to the transactions contemplated by the Reorganization Agreement.
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to the satisfaction of various
conditions, including (i) the approval and adoption of the Reorganization
Agreement and the Merger by the requisite vote of the stockholders of both Octel
and VMX; (ii) the extinction of any rights any holder of VMX capital stock may
have under the Rights Plan or any similar plan as a result of the transactions
contemplated by the Reorganization Agreement; (iii) the expiration or
termination of any waiting period and any extension thereof applicable to the
consummation of the Merger under the HSR Act; (iv) the absence of any
restrictive court orders or any other legal restraints or prohibitions, and of
any governmental proceedings preventing the consummation of the Merger; (v) the
receipt of an officer's certificate by each of Octel and VMX from the other
party to the effect that certain representations and warranties made by the
respective party are true and correct in all material respects on and as of the
Effective Time; (vi) the receipt of an officer's certificate by Octel and VMX
from the other party to the effect that the respective party has performed or
complied in all material respects with all agreements and covenants required by
the Reorganization Agreement on or prior to the Effective Time; (vii) the
obtaining by Octel and VMX, respectively, of all material consents, waivers,
approvals, authorizations or orders required to be obtained for the
authorization, execution and delivery of the Reorganization Agreement and the
consummation of the transactions contemplated thereby; (xiii) the receipt by
Octel and VMX of opinions from Hambrecht & Quist and Unterberg Harris as to the
fairness of the consideration to be paid by Octel and received by VMX
stockholders, respectively; (ix) the receipt by Octel and VMX, respectively, of
certain opinions regarding legal, tax and accounting matters; (x) the receipt by
Octel and VMX of the Affiliate Agreements and (xi) the lack of any material
adverse change in the business of Octel or VMX since the date of the
Reorganization Agreement. Octel's obligation to consummate the Merger is also
conditioned on the receipt of an opinion from its independent auditors to the
effect that the Merger will be accounted for as a pooling of interests. Neither
party intends to waive any of the conditions to the Merger.
TERMINATION; AMENDMENT
The Reorganization Agreement may be terminated and the Merger may be
abandoned prior to the Effective Time either before or after its approval by the
stockholders of Octel or VMX or both, under the circumstances specified therein,
including: (i) by mutual written agreement of Octel and VMX; (ii) by either
Octel or VMX, if the Merger shall not have been consummated by June 30, 1994;
(iii) by either Octel or VMX if a court or a governmental agency prohibits, by a
final or non-appealable order, decree, ruling or any other action, the
transactions contemplated by the Reorganization Agreement; (iv) by either Octel
or VMX if there shall be any final action taken, or any statute rule, regulation
or order deemed applicable to the Merger by any governmental entity which would
make consummation of the Merger illegal; (v) by either Octel or VMX, if the
stockholders of either Octel or VMX fail to approve the Reorganization
Agreement; (vi) by either Octel or VMX, in the event of a material breach by the
other party of any representation, warranty, covenant, term or provision of the
Reorganization Agreement which is not cured promptly after notice thereof; (vii)
by either Octel or VMX if there has been any government action taken or any
statute or rule deemed applicable which would prohibit Octel's or VMX's
ownership of all or a material portion of VMX's business operations or assets as
a result of the Merger; (viii) by either Octel or VMX if there has been a
material breach by the other party of any representation, warranty, covenant or
agreement contained in the Reorganization Agreement which has not been properly
cured; (ix) by Octel if a third party commences or
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announces a tender offer to acquire 20% or more of the voting stock of VMX or
solicits or receives proxies or consents sufficient to elect a majority of the
directors of VMX or block the Merger and (x) by Octel if VMX cooperates with any
third party concerning the acquisition of VMX.
The Reorganization Agreement may be amended by an agreement in writing
among the parties thereto at any time prior to the Effective Time; provided,
however, that, after approval of the Merger by the stockholders of VMX, no
amendment may be made which would reduce the amount or change the type of
consideration into which each share of VMX Common Stock will be converted upon
consummation of the Merger.
FEES AND EXPENSES
Except as described below, all fees and expenses incurred in connection
with the Reorganization Agreement and the transactions contemplated thereby will
be paid by the party incurring such expenses, whether or not the Merger is
consummated.
Octel and VMX will share equally all fees and expenses, other than
attorneys' fees, incurred in relation to the printing and filing of the Joint
Proxy Statement/Prospectus, the Registration Statement and any amendments or
supplements thereto, including the preparation of financial statements to be
included therein.
VMX has agreed to pay Octel up to $1.5 million as reimbursement for
expenses actually incurred by Octel in connection with the Reorganization
Agreement and the Merger if the Reorganization Agreement is terminated because
VMX has materially breached its representations, warranties or obligations under
the Reorganization Agreement, and such breach has not been properly cured,
provided Octel is not in material breach of its representations, warranties or
obligations under the Reorganization Agreement. Octel has agreed to pay VMX up
to $1.5 million as reimbursement for expenses actually incurred by VMX in
connection with the Reorganization Agreement and the Merger if the
Reorganization Agreement is terminated because Octel has materially breached its
representations, warranties or obligations under the Reorganization Agreement,
and such breach has not been properly cured, provided VMX is not in material
breach of its representations, warranties or obligations under the
Reorganization Agreement. VMX shall pay Octel $5.0 million in connection with
the Reorganization Agreement and Merger if VMX enters into or completes an
acquisition agreement with a party other than Octel, as liquidated damages,
prior to termination of the Reorganization Agreement and such payment shall be
Octel's exclusive remedy for such event.
In addition, if VMX stockholders do not approve the Merger on or before
June 30, 1994, VMX shall pay Octel out-of-pocket expenses, not to exceed
$250,000. If Octel's stockholders do not approve the Merger by such date, Octel
shall pay VMX out-of-pocket expenses, not to exceed $250,000. Neither of these
two payments shall be required if any other payment described in this section is
otherwise made.
CONFIDENTIALITY AGREEMENT
Each party to the Reorganization Agreement has agreed to keep confidential,
pursuant to the Confidentiality Agreement effective as of October 19, 1993 (the
"Confidentiality Agreement") between Octel and VMX, information provided to the
other party in contemplation of and pursuant to the Reorganization Agreement
with respect to the business, properties and personnel of the party furnishing
such information. The Confidentiality Agreement contains terms restricting the
disclosure and use of confidential information exchanged between the two parties
in evaluating the Merger and otherwise.
In addition, the Confidentiality Agreement provides, among other things,
that for a period of three years after the date of the Confidentiality Agreement
neither party will (i) use the other party's confidential information for any
purpose other than for the purpose of exploring, evaluating and negotiating
potential business alliances between VMX and Octel or (ii) disclose the other
party's confidential information to any third party. The Confidentiality
Agreement also provides that each party will use the same degree of care in
safeguarding the other party's confidential information as the first party
accords its own proprietary or confidential information.
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OCTEL COMMUNICATIONS CORPORATION
BUSINESS OF OCTEL
Octel Communications Corporation designs, manufactures and markets voice
information processing systems that use the touch-tone telephone as the terminal
and the fax machine as the printer. These multi-functional, specialized
computers and personal computer-based systems allow users to access, manage and
integrate multiple forms of information -- voice, image and data -- across the
telephone network in a single call from any touch-tone telephone in the world.
Users with a mailbox on a voice information processing system, referred to as
subscribers, can send or retrieve voice messages, receive and forward faxes, and
send or retrieve data stored in computers at any time from any touch-tone
telephone. Octel sells its systems to organizations of all sizes and to
providers of voice information services. Through Tigon Corporation, a wholly
owned subsidiary acquired in October 1992, Octel also provides voice information
processing-related services to telephone companies and large corporations.
Octel's customers use voice information processing technology as an
information resource to address a number of objectives, including enhanced
business competitiveness, improved customer service, increased operating
flexibility, greater employee productivity, higher revenues, and reduced
operating costs. Organizations can realize specific hard-dollar savings from the
technology because voice messages tend to be shorter than normal telephone
conversations and the need for callbacks is reduced by the ability of callers to
leave detailed messages. Further, users may now retrieve data and documents
without human intervention, 24 hours per day. In addition, the staff required
for telephone answering and message taking may be reduced, routine inquiries and
requests can be handled automatically and callers may route their own calls to
desired extensions, even after hours, rather than relying on a company operator
to handle calls. Finally, with the recently announced fax processing
capabilities, subscribers can efficiently store, retrieve and redirect fax
documents using any touch-tone telephone.
Markets and Product Strategy. Octel focuses on two principal customer
markets: Customer Premise Equipment (CPE) customers and VIS providers. Octel
addresses these markets both in the United States and internationally. Although
Octel's voice information processing technologies address both the CPE and VIS
markets, there are some differences between these markets in terms of product
characteristics, services requirements, distribution channels and competition.
Octel initially focused its product development, sales and marketing
efforts on providing voice processing products to large corporate customers. In
the ensuing years, Octel has expanded its markets to include telephone
companies, cellular operators and service bureaus; small and medium-sized
businesses; federal, state and local governments; medical organizations; and
universities and other non-profit organizations. Geographically, Octel has
expanded its sales activities from the United States to Australia, Austria,
Bahrain, Brazil, Belgium, Canada, Finland, France, Germany, Hong Kong, Italy,
Japan, Malaysia, Mexico, New Zealand, the People's Republic of China, Portugal,
Singapore, Taiwan and the United Kingdom.
A significant market opportunity in the voice information processing market
is in selling voice information processing systems to large and medium-size
organizations and their branch locations and small, single-site organizations.
In this customer market, the system is installed on the customer's premise and
connected to a company's PBX, Centrex or other telephone system. Some of Octel's
voice information processing systems may also interface with the customer's
computer systems to access various forms of information, such as databases.
Octel has been particularly successful in penetrating the CPE markets in the
U.S. and Canada, and believes that this market continues to offer a significant
opportunity for future sales of products, applications and services. Through the
acquisition of Compass Technology ("Compass"), a supplier of PC-based voice
information processing software, Octel is also participating in the small
business market which is among the fastest growing areas of voice information
processing. Octel believes that, in addition to sales to new customers, its
continued success in the U.S. and Canadian CPE markets will be increasingly
dependent upon purchases by large organizations that have already adopted
voicemail technology switching to or increasing their purchases of Octel's
products, purchases by large organizations of new, multimedia
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applications such as fax and interactive voice response (IVR) access to computer
databases, and sales to smaller entities of less expensive voice information
processing equipment.
Most countries are behind the United States in the degree of development of
their CPE market. The sale of voice information processing systems and services
in most countries is subject to various regulatory requirements. Subject to such
regulations and required product changes, as well as to differences in culture
and business practices and the availability of touch-tone telephones, Octel
believes that the international CPE market will experience growth similar to
that of North America. The speed and extent of this eventual development is
difficult to predict, although Octel believes that organizations and individuals
in many countries outside of North America generally face communication problems
similar to those which Octel is addressing in its North American CPE market.
Octel's voice information processing system product line has a number of
characteristics that Octel believes are important to organizations of all sizes:
- Integration of multimedia (voice, fax and data) technologies
- Broad range of features
- Broad product line
- Upgradability
- Reliability and maintenance
- Broad range of PBX and Centrex integration
- Networking
- Simple system management
Octel works closely with its CPE customers to understand product
requirements. Octel may be required to incur significant expenditures to develop
new or enhance existing products or features especially within the area of
integrated multimedia applications which is new to Octel's customers. Although
there is evidence of market acceptance of the integration of voice, fax and
data, and Octel believes that its applications are competitive with offerings by
other companies, there can be no assurance of a high level of customer demand
for these applications.
Voice information service (VIS) providers purchase voice information
processing systems and provide services to their customers, including
residential customers, small businesses and users of cellular telephones. These
services are generally available for a monthly charge for rental of a voice
mailbox. Service providers gain direct revenue through rental income as well as
indirect revenue such as increased cellular telephone connect time.
Telephone companies in the U.S. and Canada, including both Regional Bell
Operating Companies (RBOCs) and independent telephone companies, are offering
voice processing services, such as telephone answering and voicemail, as
"enhanced" or "information" services to their residential, small business and
Centrex customers. All of the RBOCs and many of the independent telephone
companies in the United States have begun the deployment of certain of these
services. Some of these telephone companies have limited the availability of
these services to more densely populated areas, while others have made the
services available to a large portion of their customer base. Although the
deployment of voice services in countries outside the United States has been
limited, Octel has had some early successes in penetrating the international VIS
market. While there can be no assurance that Octel's products will receive the
same response internationally that they have received in the United States and
Canada, sales in countries outside the United States increased as a percentage
of total revenue in fiscal 1993 principally due to large, multi-system purchases
by telephone companies in Canada and Italy. Octel believes that an important
factor in continuing its success will be its ability to increase sales to
customers in the international market. As in the international CPE market, the
sale of voice information processing systems to international VIS customers is
subject to various regulatory requirements and the development of hardware and
software components compatible with local specifications.
Octel's primary product for the VIS market is Sierra, a multi-application
voice information processing system specifically designed to meet the special
needs of telephone companies and other VIS customers. Single Sierra systems are
expandable from 48 ports to 144 ports. A high speed fiber optic backbone enables
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clustering of up to 3 Sierra systems for a total of 432 ports and 2,016 hours of
message storage. The expandability of this system allows for cost-effective
system growth to serve up to 60,000 users. The Sierra system was designed by
Octel with specific telephone company central office standards in mind. The
product meets Bellcore's Network Equipment Building Systems (NEBS) standards.
Backup processor cards within the system minimize downtime caused by failure of
a primary component. Line cards and telephone interface cards as well as power
supplies are replaceable without a service interruption (hot plugability).
In fiscal 1993, Octel made its first sales in the international market for
"virtual telephone" applications. Such applications use the voice mailbox as a
substitute for simultaneous communication in those countries in which basic
telephone service is difficult or costly to obtain. Since widescale deployment
of virtual telephone has not yet occurred, there is no assurance that a market
for such applications will develop. However, Octel believes that virtual
telephone applications may represent a significant opportunity in the
international VIS market segment in the future.
Products. Octel provides a broad family of voice information processing
systems, with extensive features, telephone switch integrations and networking
capabilities. Products range from two-port systems for as few as 20 subscribers
to 432-port systems for up to 60,000 subscribers in certain VIS applications.
The number of ports determines the number of simultaneous telephone calls a
system can handle. Octel's products provide customers the flexibility to
configure a voice information processing system to meet their particular needs
for ports and message storage capacity. The applications solutions that are
available to the user include the following:
- Voice Mail enables any subscriber to send a message to any other
subscriber 24 hours per day without calling the subscriber directly.
- Telephone answering answers any busy or unanswered telephone day or
night and takes a detailed voice message.
- Outcalling initiates a call to a user-specified number to notify him
that a message has been received.
- Automated attendant answers incoming calls to a PBX or Centrex and
allows callers to direct calls to telephone extensions without the use
of a human operator.
- Enhanced Call Processing ("ECP") uses an interactive customized menu
function to provide sophisticated call routing.
- OctelForms provides a way to collect detailed information from callers
by presenting a "form" in voice and enabling callers to fill out the
form using verbal responses or touch-tone inputs.
- TransAct, Octel's IVR application, allows the user to access data within
IBM-compatible host environments or from a locally stored database via a
touch-tone phone.
- FaxCall, Octel's fax publishing application, allows callers to use
traditional voice processing features to access the pre-stored text or
graphic information that the caller desires and to have that information
delivered to them via fax to any caller-selected location.
- InfoTex, Octel's audiotex product, collects, processes and distributes
information via the telephone.
- FaxAgent allows fax images to be received and managed within a standard
mailbox in the same manner as voice messages.
- FaxBroadcast allows a fax to be automatically sent to many fax machines.
- FaxStation provides fax overflow capability allowing incoming faxes to
be redirected when a fax machine is busy or out of service.
40
<PAGE> 54
Voice processing software and hardware sold by Compass are integrated into
standard personal computer platforms to create full-featured, cost effective
voice information processing systems for small, single-site businesses and
branch offices of larger organizations. These systems support several products
and applications, including the following:
- Voice Mail enables any subscriber to send a message to any other
subscriber 24 hours per day without calling the subscriber directly.
- Telephone Answering answers any busy or unanswered telephone day or
night and takes a detailed voice message.
- Outcalling initiates a call to a user-specified number to notify a
subscriber that a message has been received.
- Automated Attendant answers incoming calls to a PBX or Centrex and
allows callers to direct calls to telephone extensions without the use
of a human operator.
- V-Trees allows the creation of multi-level voice menus able to collect
information from or distribute information to callers.
- Fax-on-Demand allows the quick retrieval of needed documents through the
fax machine.
- Fax Mail allows subscribers to receive and resend fax documents using
their mailbox.
Octel sells service products for use with Octel's voice information
processing systems. Customers may purchase these service products at the time
they purchase a system or thereafter. These service products include the
following:
- Hardware Spares are purchased to replace any system components which do
not conform to Octel's performance specification.
- Installation services are sold to end-user customers that require Octel
to perform the initial emplacement of the system.
- Maintenance Contracts extend the term of the warranty periods.
- Training Classes, which are held at various Octel locations or at
customer sites, are purchased by both end-user customers and third-party
maintenance providers.
- Technical Documentation, in the form of manuals and bulletins, is
purchased by both end-user customers and third-party maintenance
providers.
- Application Consulting services are purchased by end-user customers to
handle complicated system implementations or develop advanced
applications such as TransAct.
With its acquisition of Tigon, Octel expanded its service offerings. Tigon
offers its voice information processing services to corporate customers in the
United States. Customers include a number of large U.S.-based corporations which
provide voice mailboxes and other voice information processing capabilities to
employees using Tigon services. Tigon also provides services to Ameritech, the
RBOC in the midwestern section of the United States.
Product Technology. Octel utilizes two main product technologies, the voice
information processing system and personal computer-based software. Octel's
voice information processing system has a flexible system architecture
specifically designed to handle the requirements of voice information processing
applications. The system is a specialized computer that handles information
differently than does a conventional data processing system. Commands and verbal
messages enter the voice information processing system as sounds and are
converted to a digital format. A digitized voice message contains vast
quantities of raw data. Storage of a 200-word message in text form requires
approximately 1,500 bytes of data, while the same 200-word voice message
requires almost 250,000 bytes of storage, even when digitized at a compressed
rate. The system is optimized to process and store voice and other
high-bandwidth media.
Octel's voice information processing system is designed to provide the
benefits of an open architecture without sacrificing the advantages of Octel's
optimized hardware and software. The Octel Command Language, the system's
applications programming interface, and new application development tools allow
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<PAGE> 55
Octel's customers control over the application software and help ensure rapid
implementation of their customized applications. Octel's system architecture
uses distributed processors, each of which handles a particular part of the
total processing task, rather than one large central processor. This allows
Octel significant flexibility to configure systems with larger or smaller
numbers of ports and hours of message storage to meet a specific customer's
capacity and price requirements. Distributed processors also make it easier to
implement new technology and achieve high system performance. A single Sierra
system can have over 60 distributed processors. This architecture has also
facilitated Octel's development of additional product capabilities, including
telephone switch integrations, networking and connectivity to computer systems.
System models and specifications include the following:
<TABLE>
<CAPTION>
NUMBER OF HOURS OF
SUBSCRIBERS NUMBER MESSAGE
MODEL SERVED(1) OF PORTS STORAGE
------------------------------- ------------- ---------- ----------
<S> <C> <C> <C>
Sierra S....................... up to 7500 24 to 144 48 to 672
Sierra(2)...................... up to 30,000 24 to 144 48 to 672
Branch......................... up to 150 4 or 8 6 to 12
Branch XP...................... up to 275 4 to 16 6 to 30
Aspen.......................... up to 2,000 4 to 24 6 to 143
Maxum SE....................... up to 10,000 12 to 72 19 to 304
Maxum.......................... up to 10,000 16 to 72 19 to 304
Octel XC1000................... up to 30,000 24 to 144 48 to 672
</TABLE>
- ---------------
(1) The number of users actually supported will depend upon the specific
customer application.
(2) The Sierra can be linked into 3-node clusters for up to 432 ports, 2,016
hours of storage and capacity for up to 60,000 mailboxes, and is currently
available for shipment in this configuration.
OctelNet networking is a powerful software feature that can link a large
number of Octel's systems over standard telephone lines. These systems can be
geographically dispersed and can include any of Octel's server product
offerings. With networking, an Octel subscriber can record a voice message on a
local system and request that it be sent to one or more subscribers on other
Octel systems included in the network. The message is automatically routed
between systems over analog or digital telephone lines, taking advantage of the
telephone switch's low cost routing alternatives. In addition, normal priority
inter-location messages can be transmitted overnight at lower long distance
rates while urgent messages can be given priority and transmitted immediately.
Octel provides network access security using a proprietary encryption system.
Networked systems have been installed by customers throughout the United States
and in international markets.
The voice information processing system is also compatible with the AMIS
(Audio Messaging Interchange Specification) analog intervendor networking
standard. This capability allows subscribers on Octel systems to exchange voice
messages with subscribers on voice processing systems from other vendors also
supporting the standard. Although Octel's implementation of AMIS analog
networking has more capabilities than the AMIS standard prescribes, Octel AMIS
analog networking is not as fully featured as the OctelNet product.
Compass' specialized voice processing software is integrated into standard
personal computer platforms which utilize the DOS and Windows operating system
with either '386SX, '386 or '486 CPUs.
System models and specifications for Octel's PC-based product include the
following:
<TABLE>
<CAPTION>
NUMBER PC-PLATFORM
MODEL OF PORTS INCLUDED
----------------------------------------------- -------- -----------
<S> <C> <C>
Smooth Operator................................ 4 to 24 No
RTG (Ready-To-Go).............................. 4 to 24 Yes
Co-Operator.................................... 4 to 8 Yes
Call Performer................................. 4 to 8 Yes
</TABLE>
The Smooth Operator software is sold to dealers and distributors in a "kit"
which includes standard voice boards from third party vendors. Dealers and
distributors then integrate these kits with standard personal computers for sale
to their end-users. The RTG and Co-Operator products are sold to dealers and
distributors
42
<PAGE> 56
as "turnkey" systems which include the PC platform as well as the specialized
software and standard voice boards. The Call Performer product, which was
developed to address the specific needs of small branch locations of major
corporations, is sold to Octel's larger distributors and directly to larger CPE
customers. Sales to date of Call Performer have not been significant. Octel's
PC-based software products have the capability to be compatible with, and to
communicate directly with, a wide range of small PBX systems, Centrex systems
and hybrid telephone key systems. These products also support the AMIS
networking standard, and may support OctelNet in the future.
Sales and Customer Support. Octel sells and supports its voice
information processing systems through both independent distributors and direct
sales. This strategy reduces Octel's dependence on any single sales channel or
distributor and improves market coverage for Octel's products. Octel's domestic
CPE sales force is structured into five geographic areas, with each group
responsible for sales -- distributor, direct, and national account -- within its
area. A separate sales force is focused on opportunities in the domestic VIS
market segment. Sales outside the United States are structured into three world
territories -- Canada, Europe and Intercontinental, which includes the remainder
of the globe.
Independent distributors are major contributors to Octel's sales in the
United States as well as in foreign markets. These distributors include, Adam
Net (Japan), BC Tel (Canada), Bell Atlantic Meridian Systems, Bell Canada,
Cincinnati Bell, CSK Corporation (Japan), Enhanced Communications Group (Puerto
Rico), Exicom (Australia), Folec Communications (Singapore), GTE Contel Material
Management Company, Intercom Inc., KLF Business Communications, Jardine
Metrolink (Hong Kong), Maritime Telephones and Telegraph (Canada), NEC America,
Norstan Inc., Puerto Rico Telephone Company, Mitel Telecommunication Systems,
Inc., SNET Systems, Southwestern Bell Telecom, Telesis (Brazil), Univendor
(Mexico), WilTel Communications Systems and US West. Distributors are
responsible for sales, installation, support, service and maintaining an
inventory of spare parts. Octel invests heavily in training its distributors and
in providing support. Octel maintains sales, customer support and technical
service personnel around the United States and in Canada for the sole purpose of
supporting the distributor organizations, including training, making joint sales
calls and assisting in servicing and customer support.
Sales outside the United States were in the aggregate approximately 15%,
24%, and 26% of net revenues for fiscal 1991, 1992, and 1993, respectively.
Prior to fiscal 1992, the majority of sales in each year were made in Canada
where Octel has formed a wholly owned subsidiary, Octel Communications Canada
Inc. In fiscal 1992 and 1993, Octel had substantial sales in Italy and the U.K.,
as well as Canada.
Until 1991, Hewlett-Packard Company had an OEM agreement to distribute
Octel's products in Europe. In November 1990, Octel formed a wholly owned
subsidiary, Octel Communications Limited, to sell Octel's products direct in the
United Kingdom. In July 1991, Octel formed a wholly owned subsidiary in France,
Octel Communications S.A., to sell direct in that country. Hewlett-Packard
continues to provide customer service and support in the U.K. and France as a
subcontractor of warranty services and an authorized service provider for
post-warranty support. Octel is negotiating with several companies who are
interested in becoming distributors of Octel's products in the U.K., France and
other countries in Western Europe.
Customers. Octel has sold and installed over 15,000 systems to over 9,000
different customers, primarily in the United States and Canada, but also in
Australia, Austria, Bahrain, Brazil, Belgium, Finland, France, Germany, Hong
Kong, Italy, Japan, Malaysia, Mexico, New Zealand, the People's Republic of
China, Portugal, Singapore, Taiwan and the United Kingdom. Customers include
approximately 35 companies in the Fortune 50 industrial group, all seven of the
RBOCs and all of the major telephone companies in Canada. In addition, Octel's
customers include cellular telephone companies, voice processing service
bureaus, industrial manufacturing concerns, technology and computer companies,
financial and life insurance companies and government, medical, education and
non-profit organizations. Many customers have purchased multiple systems. Among
Octel's largest end-user customers are US West, General Electric,
Hewlett-Packard, Prudential, Coldwell-Banker, BellSouth, McCaw, New York Life,
McDonalds and NYNEX. Over 1,100 end-user customers have purchased multiple
systems. Octel's top five end-user customers through June 30, 1993 averaged 208
systems each and the top 25 end-user customers averaged 95 systems each. US West
accounted for approximately 11% of net revenues during fiscal 1993, 10.6% of net
revenues in fiscal 1992 and less than 10% of net revenues in fiscal 1991.
BellSouth, an RBOC, accounted for approximately 13% of net revenues in fiscal
1991.
Competition. The voice information processing industry is highly
competitive and Octel believes that competition from new and existing
competitors will continue to intensify. The primary competition to date
43
<PAGE> 57
with respect to Octel's CPE products has been from two kinds of competitors: the
PBX manufacturers and the independent manufacturers of voice information
processing systems. PBX manufacturers include AT&T, Northern Telecom and ROLM,
each of which sell voice processing products that integrate principally with
their own PBXs. These companies have considerably greater financial, technical,
marketing and sales resources than Octel, and may have a competitive advantage
when customers are purchasing a voice processing system at the same time they
are purchasing a new PBX. Octel believes that it competes favorably with these
PBX manufacturers because of its multi-application voice information processing
system, the broad set of features incorporated into Octel's products, including
its multimedia applications such as fax processing, a more friendly user
interface, the ability to integrate with the PBXs of multiple manufacturers and
networking. Independent voice processing manufacturers include Centigram
Communication Corporation, VMX and Digital Sound, who also offer multiple
integrations with PBXs. AVT, Active Voice, Natural Microsystems and other firms
have successfully developed personal computer-based solutions for voice
processing applications which are directly competitive with Octel's proprietary
systems. Octel believes that it competes favorably with these companies because
of its strong balance sheet, substantial cumulative investment in research and
development, large installed base, strong support organization and broad set of
features, including its multimedia applications. Octel also believes that
Octel's direct and distributor channels of distribution allow it to compete
favorably with companies with only one channel of distribution.
In 1993, Dialogic Corp., the leading manufacturer of voice processing
boards for use in microcomputers, announced Signal Computing System Architecture
(SCSA) for building call processing systems with multiple technologies and
standard interfaces. Over one-hundred firms, including IBM, Northern Telecom,
Siemens, Active Voice and Boston Technology, have publicly announced their
support of SCSA. Octel expects adoption of SCSA to intensify existing
competition from open-system microcomputer-based voice processing systems.
Octel's principal competitors for sales to VIS providers include Boston
Technology, Comverse, Centigram, Digital Sound and Unisys. Other
telecommunications and computer companies, including some large companies that
currently supply equipment to the RBOCs and some companies with greater
financial and technical resources than Octel, are expected to enter this market
segment. In addition, although currently barred from such activities by
governmental regulations stemming from the breakup of AT&T in 1984, the RBOCs
are expected to be allowed to manufacture their own voice processing equipment
at some time in the future.
Manufacturing. Octel's manufacturing operations consist primarily of
final assembly and extensive test and quality control of materials, components,
subassemblies and systems. Most of Octel's hardware and software product designs
are proprietary, except for some peripheral products and products designed by
Compass. Octel presently uses third parties to perform printed circuit board
assembly and sheet metal fabrication.
Research and Product Development. Octel believes that the continued
timely development of new products and enhancements to its existing products is
essential to maintaining Octel's market position, and this effort requires a
high level of expenditures by Octel for research and development. Following the
Merger, the combined company's research and development expenses are expected to
increase in absolute terms and could increase as a percentage of net revenues.
Octel has continued to improve the features, capabilities, capacity and
price/performance of its product line while maintaining compatibility with its
customers' existing installations. Octel is currently involved in the
development of further enhancements to its products to increase performance,
reliability and manufacturability. During fiscal 1991, 1992 and 1993, Octel
spent $20.7 million, $25.4 million and $35.0, respectively, on research and
development.
Government Regulation. The seven RBOCs are subject to ongoing regulation
by the United States District Court under the terms of the consent decree
governing the breakup of AT&T in 1984. The consent decree imposed certain "line
of business" restrictions which, among other things, bar the RBOCs from
providing "information services" such as voice messaging and from manufacturing
telecommunications equipment. The consent decree also prohibited the RBOCs, as a
line of business restriction, from manufacturing telecommunications equipment.
As a result, the RBOCs may only offer these information services through voice
information processing equipment purchased from companies such as Octel. The
United States Congress is considering legislation which would lift the ban on
manufacturing. The consent decree does not restrict the activities of the
non-RBOC telephone and cellular companies, which may also offer voice processing
services directly to their subscribers.
44
<PAGE> 58
Patents, Copyrights, Trademarks and Technology Licenses. Octel relies on
a combination of patent, copyright, trade secret and trademark law, licensing
and technical measures to protect its intellectual property. There can be no
assurance that Octel's efforts to protect its intellectual property will be
successful.
Octel holds twelve United States patents and has nine patent applications
pending in the United States. Octel's issued patents expire on dates ranging
from 2002 to 2010. Octel also has patent applications pending in foreign
countries throughout the world. While Octel believes that the pending
applications relate to patentable devices or concepts, there can be no assurance
the patents will be issued or that any patent issued can be successfully
defended. In spite of the possible strength of Octel's existing and future
patents, Octel believes that patents are of less significance in its industry
than such factors as innovation, technological expertise and distribution
strength.
In April 1992, Octel filed suit in California against Theis Research, Inc.
(Theis) for a declaratory judgment that Octel's products do not infringe three
patents of Theis and that those patents are invalid. In November 1992, Theis
filed a counterclaim against Octel alleging infringement of seven of Theis'
patents. Subsequently, Theis dismissed with prejudice the claims as to all but
four of the patents. In May 1993, two other voice mail vendors, Northern Telecom
and Boston Technology, filed suit in California for declaratory judgment that
their products do not infringe the same Theis patents at issue in the Octel
suit. In June 1993, the California court consolidated this suit and Theis filed
a counterclaim for infringement against, among others, one of Octel's telephone
company customers, Pacific Telesis. This customer tendered defense of this
action to various of its vendors, including Octel. As a result of these actions,
the California case involved counterclaims by Theis against Octel, Boston
Technology, Northern Telecom, AT&T, Digital Sound, and, possibly, other vendors
of voice mail products and Pacific Telesis. In August 1993, the court severed
trial of the counterclaims against all defendants except Octel, Northern Telecom
and Boston Technology. In December 1993, the court, in a ruling that Theis has
asked it to reconsider, granted Octel summary judgment that it did not infringe
one of the four patents at issue in the California case. In January 1994, Theis
dismissed its claims against Boston Technology as part of a confidential
settlement, yet to be disclosed to Octel, in which Boston Technology reportedly
took a license to one or more patents owned by Theis. From January 31 to
February 9, 1994, the court conducted a court trial on the equitable defenses of
laches and inequitable conduct asserted by Octel and Northern Telecom as to
which the parties have subsequently submitted post-trial briefs and proposed
findings. The court's decision on the equitable defenses is expected in the near
future. The court has advised the parties that a jury trial on the remaining
issues of infringement, validity and damages, if necessary, will not commence
before March 7, 1994.
In March 1993, Theis filed a complaint in Virginia for infringement of the
four Theis patents, and two other Theis patents, against one of Octel's
customers, Bell Atlantic. Bell Atlantic tendered defense of this action to
various of its vendors including Octel. The Virginia court stayed the Virginia
action pending resolution of the pending consolidated suit in California.
Octel believes, based upon information currently available, including
consultations with patent counsel, that Octel is not infringing any valid
patents of Theis. Octel will vigorously defend the patent infringement claims
and any related claims for compensatory damages. Octel estimates legal expenses
related to ongoing patent litigation will be approximately $1,000,000 in the
last six months of fiscal 1994. While litigation is inherently uncertain, Octel
believes that the ultimate resolution of these matters will not have a material
adverse effect on Octel's financial position.
Employees. Octel's success depends upon the continued contribution of its
officers and key personnel, many of whom would be difficult to replace. If
certain of these people where to leave Octel, Octel's operating results could be
adversely affected. At January 31, 1994, Octel employed 1,636 people full-time
including 92 at Compass and 268 at Tigon. During fiscal 1994 Octel intends to
hire additional personnel, especially in the international arena. Many of
Octel's employees are highly skilled, and Octel's continued growth and success
will depend in part upon its ability to attract and retain such employees, who
are in great demand, and on the ability of Octel's officers and key employees to
manage successfully the growth of Octel through use of appropriate management
information systems and controls.
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<PAGE> 59
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Octel Common Stock as of January 31, 1994 by (i) each person who is
known by Octel to beneficially own more than five percent of Octel Common Stock,
(ii) each director, (iii) each executive officer and (iv) all executive officers
and directors as a group.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF SHARES COMMON STOCK
OF COMMON STOCK BENEFICIALLY
NAME(1) BENEFICIALLY OWNED OWNED
---------------------------------------------- ------------------ ------------
<S> <C> <C>
State of Wisconsin Investment Board........... 1,655,200 9.1%
Lake Terrace
121 East Wilson Street
Madison, WI 53707
Hewlett-Packard Company(2).................... 1,654,119 9.1
3000 Hanover Street
Palo Alto, CA 94304
Leo J. Chamberlain(3)......................... 44,303 *
Robert Cohn(4)................................ 340,728 1.9
John Freidenrich(5)........................... 73,371 *
Robert C. Hawk(6)............................. 46,705 *
Dennis McGinn(7).............................. 20,844 *
Peter D. Olson(8)............................. 368,587 2.0
Dag Tellefsen(9).............................. 27,010 *
Michael West(10).............................. 131,699 *
Gary A. Wetsel(11)............................ 27,998 *
All directors and executive officers as a
group
(9 persons)(12)............................. 1,081,245 6.0
</TABLE>
- ---------------
* Represents less than 1% of the outstanding Common Stock.
(1) The persons named in the table, to Octel's knowledge, have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable and the information contained in the footnotes hereunder.
(2) Hewlett-Packard Company ("HP") has sole voting and investment power with
respect to all shares shown as beneficially owned by it, subject to certain
provisions of a Common Stock Purchase Agreement dated as of August 10,
1988, as amended October 1, 1990, between Octel and HP. See "Certain
Transactions."
(3) Includes 42,000 shares issuable upon exercise of options exercisable within
60 days of January 31, 1994.
(4) Includes shares held of record by a trust for the benefit of Mr. Cohn and
his family. Also includes 90,798 shares issuable upon exercise of options
exercisable within 60 days of January 31, 1994.
(5) Represents holdings by the Freidenrich Family Trust of 42,396 shares and by
the Freidenrich Family Partnership (of which the Freidenrich Family Trust
is a 50% beneficial owner) of 3,975 shares. Includes 27,000 shares issuable
upon exercise of options which are exercisable within 60 days of January
31, 1994.
(6) Includes 17,000 shares issuable upon exercise of options exercisable within
60 days of January 31, 1994.
(7) Includes 20,000 shares issuable upon exercise of options exercisable within
60 days of January 31, 1994.
(8) Includes 86,200 shares issuable upon exercise of options exercisable within
60 days of January 31, 1994.
(9) Includes 27,000 shares issuable upon exercise of options exercisable within
60 days of January 31, 1994.
(10) Includes 48,279 shares issuable upon exercise of options exercisable within
60 days of January 31, 1994.
(11) Includes 27,000 shares issuable upon exercise of options exercisable within
60 days of January 31, 1994.
(12) Includes 385,277 shares issuable upon exercise of options exercisable
within 60 days of January 31, 1994.
46
<PAGE> 60
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of Octel and their respective ages as
of January 31,1994 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- ---------------------------------------------------------------
<S> <C> <C>
Robert Cohn(1)(3) 44 Chairman of the Board, President and Chief Executive Officer
Peter D. Olson 51 Executive Vice President
Michael West 43 Executive Vice President
Gary A. Wetsel 48 Executive Vice President and Chief Financial Officer
Dennis McGinn 48 Executive Vice President
Leo J. Chamberlain(1)(2)(3) 63 Director
John Freidenrich(2)(3) 56 Director
Robert C. Hawk 54 Director
Dag Tellefsen(1)(3) 51 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Nominating Committee.
Mr. Cohn, a founder of Octel, served as its President and Chief Executive
Officer from Octel's inception in 1982 until October 1990, and then resumed
those positions in November 1993. Mr. Cohn has served as a director from Octel's
inception and, in June 1990, the Board of Directors appointed Mr. Cohn Chairman
of the Board. Prior to founding Octel, he was employed by Acurex Corporation, a
manufacturer of microprocessor-based measurement and control systems, from 1979
to 1982. From 1976 to 1979, he was employed by McKinsey & Co., Inc., a
management consulting company. Mr. Cohn holds a B.S. in Mathematics and Computer
Science from the University of Florida and an M.B.A. from Stanford University.
Mr. Cohn is also a director of Electronic Arts, a publisher of entertainment
software, and Global Village Communication, Incorporated, a manufacturer of
devices for Apple Computers.
Mr. Olson, a founder of Octel, has served as its Executive Vice President
from its inception and was responsible for Octel's early technology development.
He is currently Octel's chief scientist. Prior to founding Octel, Mr. Olson was
self-employed, from 1974 to 1982. From 1969 to 1974 Mr. Olson served as
Executive Vice President of System Industries, a supplier of large disk systems,
which he co-founded. Mr. Olson holds a B.S. in Mathematics and an M.B.A. from
the University of Minnesota.
Mr. West joined Octel in September 1986 as Executive Vice President and is
responsible for sales and customer service. From 1979 to September 1986, Mr.
West was employed by ROLM, serving for three years during this period as
President of an operating subsidiary of ROLM and most recently as General
Manager of its National Sales Division. Mr. West attended Southern Illinois
University.
Mr. Wetsel joined Octel in October 1990 as Vice President and Chief
Financial Officer and is responsible for finance, treasury, investor relations,
business development, corporate information services, the Octel capital leasing
division and real estate. He was elected Executive Vice President in August
1993. Mr. Wetsel joined Octel from American President Companies, a shipping and
transportation company, where he served as Vice President, Financial Plans and
Controls from 1989 to October 1990. From 1986 to 1989, he was Vice President,
Finance and Chief Financial and Administrative Officer at Ungermann-Bass, Inc.
In 1981 he was Vice President of Finance for ROLM, Texas (a ROLM subsidiary) and
advanced from this role in 1982 to serve for five years as Group Controller for
the Business Communications Group in ROLM Corporation. Mr. Wetsel also worked in
public accounting, including seven years with KPMG Peat Marwick. Mr. Wetsel
holds a B.S. in Accounting from Bentley College and is a Certified Public
Accountant.
47
<PAGE> 61
Mr. McGinn joined Octel in February 1993 as Executive Vice President of the
Business Systems Division (BSD). As the head of BSD, he is responsible for
engineering and marketing activities in support of Octel's sales efforts in the
worldwide customer premise equipment market. Mr. McGinn was formerly Executive
Vice President of Strategic Alliances and Business Development for The ASK
Group. Prior to joining the ASK Group in 1990 as Vice President of Field
Operations, he was employed by Hewlett-Packard Company, where he held various
executive positions in general management, computer networks and field
operations. Mr. McGinn holds a B.S. in engineering physics and an M.B.A. from
the University of Arizona.
Mr. Chamberlain has served as a director of Octel since March 1989. Until
ROLM's acquisition by IBM in 1984, Mr. Chamberlain served on the Board of
Directors of ROLM, where he had been employed as Executive Vice President until
his retirement in 1982. Mr. Chamberlain is also a director of KLA Instruments
Corporation, a manufacturer of semiconductor inspection equipment.
Mr. Freidenrich has served as a director of Octel since January 1986. He
has been active in venture capital investments since 1976 and is currently a
general partner of Bay Partners III and Bay Partners IV, each of which is a
venture capital fund. From January 1987 to April 1992, Mr. Freidenrich was of
counsel to the law firm of Ware & Freidenrich. From 1969 to January 1987, Mr.
Freidenrich was a partner of that firm. Mr. Freidenrich is also a director of
Protocol Systems, Inc., a manufacturer of patient monitoring instruments and
systems, and Chairman of the Board of Directors of Stanford University.
Mr. Hawk has served as a director of Octel since March 1987. He is
President of the Carrier and Information Provider Division of U.S. West
Communications, a division of U.S. West, a regional Bell operating company,
which position he has held since January 1988. From April 1986 to December 1987,
he was Vice President of Marketing of Mountain Bell. From August 1983 to March
1986, he served as Vice President of Strategic Planning and Product Marketing of
CXC Corp., a startup manufacturer of PBX systems. Prior to that, Mr. Hawk served
in various positions with AT&T.
Mr. Tellefsen has served as a director of Octel since September 1982. He is
a general partner of Glenwood Management and Glenwood II Management Corporation,
investment management firms and the general partners of Glenwood Ventures I and
Glenwood Ventures II, respectively, which are venture capital funds. He has been
with Glenwood Management since 1982. Mr. Tellefsen is also a member of the Board
of Directors of KLA Instruments Corporation, a manufacturer of semiconductor
inspection equipment.
All officers serve at the discretion of the Board of Directors. There are
no family relationships between directors or executive officers of Octel.
OPTION GRANTS TO CERTAIN ADDITIONAL DIRECTORS AND EXECUTIVE OFFICERS SINCE JUNE
30, 1993
In July 1993, pursuant to existing stock option plans, four executive
officers of Octel were granted options to purchase an aggregate of 127,500
shares of Octel Common Stock at an exercise price of $24.00 per share, which was
the fair market value on the date of such grants. Each such option is subject to
Octel's usual exercisability restrictions.
In November 1993 Mr. Cohn was appointed to the position of President and
Chief Executive Officer of Octel and in connection therewith was granted stock
options to purchase 350,000 shares of Octel Common Stock at $25.00 per share,
200,000 shares of Octel Common Stock at $35.00 per share and 200,000 shares of
Octel Common Stock at $50.00 per share. These options are subject to Octel's
usual exercisability restrictions, and contain acceleration provisions
consistent with other stock purchases and options Mr. Cohn has made and
received.
In connection with the Annual Meeting of Stockholders held in November
1993, the other four directors of Octel were granted options to purchase an
aggregate of 12,000 shares of Octel Common Stock at an exercise price of $25.00
per share pursuant to the automatic grant provisions of Octel's 1988 Directors'
Stock Option Plan.
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VMX, INC.
BUSINESS OF VMX
Introduction. VMX, Inc. was incorporated in Delaware in 1978 under the
name Electronic Communications Systems, Inc. In 1980, its name was changed to
ECS Telecommunications, Inc. and in 1982, its name was changed to VMX, Inc. In
July 1988, VMX acquired all of the outstanding capital stock of OPCOM, a
California corporation (the "OPCOM Merger"). In March 1993, VMX acquired all of
the outstanding capital stock of Rhetorex, Incorporated, a California
corporation (the "Rhetorex Merger"). Rhetorex's largest customer is Compass
Technology, Inc., a subsidiary of Octel. In April 1993, utilizing technology
rights acquired from The Vmail Company, Ltd., VMX formed its Client/Server
Software Division. VMX designs and manufactures Integrated Voice Processing
("IVP") systems which provide customer solutions that combine voice, data and
image for business communications.
VMX focuses on CPE applications with a broad range of voice processing
systems and software products that permit the creation of communication
solutions specifically designed to each particular organization's requirements.
VMX's objective is to integrate several communications technologies such as
voice mail, voice response, audiotext, fax, text-to-speech and speech
recognition with computers in a way that gives users flexibility in both the
choice of media (voice, fax, e-mail) and choice of the access method (telephone
or computer).
VMX sees an opportunity to leverage its experience in developing voice
processing solutions, and its expertise in bridging the gap between voice and
data, into the emerging market of IVP at the desktop. As more and more customers
have selected VMX's high-performance VMX 200/300 IVP platform and sophisticated
applications, VMX has launched the next stage in its product evolution, bringing
IVP functionality to the desktop and the client/server platform.
Product Description. VMX's products consist of hardware and software and
provide a broad range of call and message processing features which integrate
with most PBXs and offer worldwide networking capabilities. VMX's product line
of voice processing systems consists of the VMX 300 system, the VMX 200 system,
and the VMX 100 system, each of which utilizes VMX's D.I.A.L. voice messaging
software. Additionally, VMX offers VMXworks, which is a family of software
products including packaged applications, templates and other software
development tools for creating customer specific applications. Through its
Rhetorex subsidiary, VMX designs and produces high-performance voice processing
components and software for PC computers.
Depending on the system and combination of feature options chosen, VMX
systems are designed to achieve some or all of the following functions:
- - Call processing: provides the "automated attendant" role of initially
answering telephone calls when they are received by an organization,
providing instructional information and menus to the caller, and permitting
the caller to select and be connected to the desired telephone extension or
information source. It also provides an organized method for handling
incoming calls in situations where there are predictably more calls than
there are people to receive them, such as in a customer service department
or in the mail order department for a catalog sales business.
- - Call answering: the "call coverage" role is to assist the caller if the
extension first selected does not answer. Assistance generally consists of
taking a voice message or allowing the caller to select another person or
extension.
- - Voice mail: allows the use of the telephone to transmit information via
recorded voice messages. This functionality is analogous to electronic mail
but involves oral communication using the telephone as a "terminal" rather
than text information using a computer terminal. This functionality allows
users, in a single call, to send, receive, reply to and redirect voice
messages to other users, and to transmit information to multiple users
simultaneously from any touchtone telephone, 24 hours a day, even when the
intended recipients are not available.
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- - Voice response: provides the caller with the ability to access computer
databases utilizing a tone generating telephone. Information from the
computer database is received by the caller in spoken form and data can be
entered by the caller using the touchtone telephone as a terminal.
- - Fax processing: provides a mixed-media mailbox to store and forward fax
documents in the same mailbox in which voice messages are stored. Users can
control when and where faxed documents are printed. Enables callers to
select and receive faxed information from any touchtone telephone and
provides the ability to automatically send documents to everyone on a
distribution list with only a single call.
- - Mixed media applications: the integration of various combinations of the above
capabilities with computer data bases and other information systems to
provide customer-specific communications solutions.
The typical user of VMX's systems is assigned a private voice or mixed
media mailbox, accessible worldwide from virtually any touchtone telephone or
other telephones when used in conjunction with a commonly available hand-held
tone generator. The mailbox is a portion of the system dedicated to a particular
user and is accessed by a confidential security code. VMX systems digitize the
speaker's voice for storage on computer disks for later retrieval by a user or
for delivery to telephone numbers of users or nonusers as specified by the
sender. The systems can also activate a recipient's pager as notification of
message waiting. VMX systems are designed to operate 24 hours a day, seven days
a week.
VMX 300, VMX 200 and VMX 100 Systems
The VMX 300, VMX 200 and VMX 100 systems are integrated voice processing
platforms used by business organizations aimed at increasing revenues and
controlling expenses through improved customer service and enhanced employee
productivity. With VMX's powerful platform architecture, organizations can
integrate multiple communications capabilities--including call processing, voice
messaging, voice response, electronic mail, facsimile and access to computer
databases--in a single system to build applications that meet customer-specific
requirements.
VMX systems provide practical cost-effective solutions for both internal
and external callers. They are designed for broad market application in
businesses ranging from as few as ten employees to tens of thousands. VMX
markets these systems to corporate, professional and government organizations of
all sizes, colleges and universities, and voice message service providers.
The systems provide the application processors, software and hardware for
integrated voice processing. They can be integrated with most PBXs available for
purchase or currently installed. These systems operate using the D.I.A.L.,
time-proven, easy-to-use software and user interface that has been implemented
successfully for nearly a decade, in over 12,000 systems worldwide.
The systems may be purchased for single location implementation or, by use
of multiple modules, for use in multiple locations connected with VMX's
networking software. VMX's voice messaging/call processing options include:
intra-Messaging, DID Interface Adaptor, Single Digit Menus, Scripted Prompting,
FIFO Queuing, Incoming Call Restriction, Redundancy (three types), Multilocation
Networking, Adaptive Integration, Personal Assistance, Names Directory, MIS
Reports and various PBX integration support packages.
The VMX 300 is designed to meet the needs of large organizations, corporate
headquarters and campus environments. The VMX 200 suits medium-sized
organizations, regional offices and company divisions. The VMX 100 is designed
for small businesses, branch offices and company departments.
The VMX 300 and VMX 200 were developed by VMX. The VMX 100 was jointly
developed by VMX and Matsushita-Kotobuki Electronics Industries, Ltd. (MKE) and
is manufactured by VMX exclusively by MKE in Japan. The VMX 100 was introduced
in September 1989, the VMX 300 was introduced in March 1991 and the VMX 200 was
introduced in September 1991.
The predecessor system to these systems, the VMX D.I.A.L. system, was first
shipped in November 1984. D.I.A.L. software has since been enhanced with six
major software releases, and continues in use on the VMX platform as the system
and application software that supports voice and fax processing. The main
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system platform of VMX prior to the OPCOM Merger was the VMX 5000/1000 systems,
which VMX continues to sell and support, primarily to serve existing 5000/1000
customer needs.
The size and capacity of VMX IVP systems (measured in number of ports and
hours of voice storage), along with their range of end-user list prices are:
<TABLE>
<CAPTION>
HOURS OF
NO. OF PORTS STORAGE END USER PRICE RANGE
------------ ------------ --------------------
<S> <C> <C> <C>
VMX 300 System............ 16 to 96 8 to 550 $90,000 to $650,000
VMX 200 System............ 4 to 32 3.5 to 102.5 $28,000 to $200,000
VMX 100 System............ 2 to 8 4 to 12 $10,000 to $45,000
</TABLE>
D.I.A.L. Voice And Fax Messaging Software
D.I.A.L. software, the first software layer supported on the VMX platform,
is both system and application software that supports voice and fax messaging,
call answering and call processing. This software layer is the foundation for
IVP and provides a consistent user interface for VMXwork solutions. Fax Mail
Plus software integrates fax processing with voice processing in a single VMX
system, and is a cost-effective way to provide flexible fax capabilities to
employees inside organizations.
VMXworks
VMXworks, the next layer of software on the VMX platform, forms the
operating and development environment for Worksolutions applications. VMXworks
is a family of software products consisting of Entryworks system software.
Hostworks connectivity software and Toolworks application development tools.
Introduced in May 1990, VMXworks can greatly expand the performance of VMX
systems while enhancing their integration with already installed or planned
company telephone systems, computer systems, voice networks, facsimile
transmission systems and databases. VMXworks combines in a single platform the
advantages of call processing, local and host single database access, voice
messaging, facsimile and e-mail integration and live interaction to best serve
each company's needs. The VMXworks open development environment features
extensive programming and debugging tools for creating and managing
sophisticated applications. The end-user price to add VMXworks to an installed
VMX 300, VMX 200 or D.I.A.L. system ranges from approximately $6,000 to $20,000
plus application development as needed.
A unique capability of VMXworks, Application Controlled Messaging (ACM),
lets Worksolutions applications manage voice and fax communications for system
users and callers. Other capabilities of VMXworks include local and host
database access and application control of external, third-party text-to-speech
and speech recognition devices.
Worksolutions Applications
VMX offers three types of Worksolutions applications: prepackaged
off-the-shelf software products, template software products that can be easily
modified to meet customer-specific needs and completely customized applications
designed to the unique specifications of individual customers.
Prepackaged Worksolutions applications are "shrink-wrapped" software
products that solve common communication problems with a common solution that
can be applied across different businesses and industries. They include VMX
Desktop for Windows that gives PC users visual access to voice and fax messages
from their personal computers; e-Mailworks, which bridges the communication gap
between VMX IVP systems and popular e-mail systems; Helpworks, which allows
organizations to provide efficient communication between callers and help
agents; and Message Desk, which provides convenient two-way messaging between
employees and callers who do not have their own voice messaging system.
Template Worksolutions applications include: Benefits Enrollment, Data
Entry, Survey Automation and Time Reporting, which all take advantage of the
telephone to enable callers to exchange information directly with databases; Fax
Access, which enables callers to select and receive faxed information about an
organization anywhere, anytime; and Fax Broadcast, which allows organizations to
send documents to
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everyone on a distribution list by placing a single fax telephone call. Template
Worksolutions applications are used by multinational corporations, restaurant
chains, manufacturers and many other types of organizations.
Custom Worksolutions applications are made in order to meet the unique
needs of organizations. They are developed with VMX's Teamworks partners to
bring entirely new solutions to businesses. Custom Workstations are found in
mortgage banking firms, insurance companies, utility companies, computer firms
and many other types of businesses.
VMX believes its installed base of approximately 5,700 D.I.A.L.
software-based IVP systems represents an excellent customer base in which to
market VMXworks applications, VMXworks applications initially have been marketed
primarily through VMX's D.I.A.L.PRO distributors.
VMXmail
VMXmail, developed by VMX's Client/Server Software Division using
technology acquired from The Vmail Company, is a product that integrates voice
mail into an organization's existing LAN-based e-mail system. With VMXmail,
users have visual access to voice, fax and e-mail message from their networked
PCs and full integration of voice and fax with cc:Mail and Microsoft Mail.
Voice Processing System Components
High-performance voice processing components for PC computers are designed
and manufactured by VMX's Rhetorex subsidiary located in Campbell, CA. These
components are board-level hardware and operating system software that enable PC
computers to provide voice messaging and call processing functionality. Rhetorex
products are primarily marketed directly to system integrators and also through
distributors. In addition to its headquarters location, Rhetorex has sales
offices in New Jersey, Atlanta and London, England.
Networking
As owner of the patent for voice messaging systems networking and the first
to network voice messages internationally, VMX has extensive knowledge of
linking voice processing systems. VMX believes its networking capability,
demonstrated in 1982 and released in 1983, provides an important dimension and
substantially increases the attractiveness of its systems to companies with more
than one location or exceptionally large single campus sites. VMX's proprietary
networking software permits remote systems to be linked, regardless of the type
of telephone equipment installed at each location. Voice messages may be sent
immediately from one system to another or batched and sent during hours of
lowest telephone transmission rates. VMX has been a leading participant in the
industry group (Audio Messaging Interchange Specifications, or "AMIS") that
established inter-vendor networking standards to allow networking of messages
between systems from a variety of manufacturers. In May 1992, VMX introduced its
AMIS analog networking software, which allows inter-vendor networking of voice
messages between VMX systems and other voice processing systems. VMX systems now
support AMIS networking with systems provided by other vendors such as AT&T,
Northern Telecom, ROLM and Octel.
Marketing, Support and Customers. VMX's business and marketing strategy
emphasizes the use of VMX systems as a primary means by which organizations
interface with their customers. A key component of this strategy is effective
implementation of VMX systems to provide customer-specific communication
solutions. Consequently, VMX has established direct sales and application
support offices in major metropolitan centers (New York, Los Angeles, Chicago,
Atlanta, Detroit, Dallas, Columbus and Washington, D.C.) and has developed a
broad network of specialized value-adding resellers (VARs) who are responsible
for sale, implementation and application support of VMX systems in other
assigned territories. These VARs also provide installation, training and some
post-implementation support services to certain VMX direct customers with
locations in their assigned territories.
Highlighting VMX's distribution network, in the United States and Canada,
are the D.I.A.L.PRO Systems Companies. These VARs have committed resources
exclusively to the pursuit of business with
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VMX's products and do not carry competitors' products. As of June 30, 1993,
there were 32 D.I.A.L.PRO Systems Companies with 54 locations covering many of
the major metropolitan markets in the U.S. and Canada.
VMX and its D.I.A.L.PRO VARs pursue the voice processing business as
systems integrators, selling and supporting VMX systems and providing their
expertise to individual customer applications. VMX, in turn, has devoted a large
portion of its product support resources to this value-adding distribution
network. The contractual arrangements between VMX and the D.I.A.L.PRO VARs
establish stringent customer support standards and also require extensive
training and support of the D.I.A.L.PRO VARs on the part of VMX.
The second tier of VMX's North America distribution network consists of
Authorized Distributors. VMX provides support to the Authorized Distributors and
their customers upon request. As of June 30, 1993, there were 26 Authorized
Distributors serving portions of the U.S. and Canadian market.
In addition to the D.I.A.L.PRO VARs and the Authorized Distributors,
individuals or companies with a particular vertical market or customer interest
and expertise may be appointed as Market Specialists. They work as sales agents
for local D.I.A.L.PRO distributors on certain assigned accounts and are paid a
fee for sales generated.
VMX's Teamworks partners assist customers in implementing powerful VMX
Worksolutions. Teamworks partners are major contributors to the rapid growth of
VMX's increasingly comprehensive library of customer-specific IVP applications.
Included as Teamworks partners are Systemhouse, DRT Systems, Science
Applications, International Corporation (SAIC) and Computer Sciences Corporation
(CSC) Europe. The Teamworks partnership adds value to an organization's
investment in VMX's IVP hardware and software by ensuring a reliable source for
high-quality customized applications. The program encourages the development of
business communication solutions that span both vertical and horizontal markets
to solve important customer-specific problems. VMX certifies every one of its
Teamworks partners. The certification process is one of the industry's most
thorough and rigorous training programs.
VMX's systems are sold outside the United States and Canada in more than 42
other countries, both directly and through distributors in the United Kingdom
and by distributors in Europe, Japan, Australia, New Zealand, Hong Kong,
Singapore and by original equipment manufacturers (OEMs) in Europe and Japan.
Internationally, VMX has sales offices in London, Paris, Milan, Munich, Mexico
City, Sydney, Tokyo and Toronto. Additionally, VMX has distribution alliances
with nearly 20 organizations, including Siemens, Italtel, Mercury, J.S. Telecom,
Bull S.A., Ericsson, Toshiba and Hitachi. VMX's products are certified in
numerous countries outside of the U.S. and applications are pending for
certifications in several other countries.
No customer or distributor accounted for more than 10% of VMX's total
revenues during the years ended June 30, 1993, 1992 or 1991.
Manufacturing. Assembly and testing of VMX systems are performed in
Dallas, Texas. The Dallas facility has over 40,000 square feet dedicated to
manufacturing and is well suited to flexible, high-quality manufacturing for a
full range of products. Rhetorex voice boards are assembled by third-party
contract manufacturers and are inspected and tested at its facility in Campbell,
CA., which has approximately 1,200 square feet dedicated to this purpose.
In December 1992, VMX became the first U.S.-based independent voice
processing company to be certified to the International Standards Organizations
(ISO) 9002 requirements. The certification covers VMX's Dallas manufacturing
facility and means that VMX is recognized by the Standards Organization as a
company with a well-defined functioning quality system. By meeting the
requirements of ISO 9002, VMX customers are assured that its products are
manufactured in a controlled, high-quality environment.
VMX has implemented extensive testing and inspection procedures at the raw
material, subassembly and finished product levels for all systems. At present,
VMX either has multiple sources of supply or carries what it believes to be
adequate levels of inventory for all critical components for the VMX 300, VMX
200 and 5000/100 systems, as well as Rhetorex board-level components. VMX's
agreement with MKE for the
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manufacture of the VMX 100 expires on January 27, 1995 and can be extended by
mutual written agreement. Although MKE is currently the single source supplier
for the VMX 100 system, VMX retains manufacturing rights in the event MKE is
unable to supply VMX's requirements of VMX 100 systems. Furthermore, VMX has not
experienced nor does it expect any significant delays in delivery of materials
from either subcontractors, component vendors or MKE. However, there can be no
assurance that interruption in the supply due to supply shortages will not occur
in the future. Any such delays could adversely affect the business of VMX.
Research and Development. VMX believes that its success depends
significantly on its continuing ability to develop new hardware and software
technology. Accordingly, VMX is continually seeking to develop new products and
enhance the features of its existing products. Expenditures for research and
development in fiscal 1993, 1992, and 1991 were $9,407,000, $6,881,000, and
$7,975,000, respectively. Expenditures relating to software development costs
capitalized amounted to $550,000, $536,000, and $515,000, respectively, in
fiscal 1993, 1992 and 1991. In fiscal 1993, 1992 and 1991, amortization expense
of $571,000, $535,000, and $822,000, respectively, relating to capitalized
software development costs was charged to cost of revenues.
Current research and development programs include development and
enhancement of VMXMail and VMX Desktop for Windows, digital signal processor and
other enhancements to Rhetorex voice boards, future release enhancements of
VMXworks, development of additional VMX 200/300 platform system features, and
customized interfaces to the PBX and voice and data switching systems of OEM
customers. VMX's ability to accomplish these developments on a timely basis will
depend, in part, on the availability of qualified personnel, particularly
hardware and software engineers who are, at times, in short supply.
Patents, Trademarks and Licenses. VMX was awarded U.S. Patent No.
4,371,752 covering voice message methods and systems (the "Voice Messaging
Patent"), by the U.S. Patent Office on February 1, 1983, and currently has
twelve (12) additional patents issued in the U.S. with respect to other voice
messaging features. The Voice Messaging Patent, which will expire by its terms
on February 1, 2000, has fifty-one claims covering VMX's voice messaging system
and method of operation. VMX has two issued Canadian patents, one issued
Australian patent, one issued Spanish patent, and one issued European Patent
Convention patent with designated countries comprising France, West Germany, the
Netherlands and the United Kingdom. VMX has granted non-exclusive licenses under
its Voice Messaging Patent, including certain related patents, to numerous
parties, including substantially all of its major competitors.
VMX was awarded U.S. Patent No. 4,747,124 and U.S. Patent No. 4,783,796
covering automated attendant methodology and systems (the "Automated Attendant
Patents") by the U.S. Patent Office on May 24, 1988 and November 8, 1988,
respectively. VMX has an agreement with the owner of U.S. Patent No. 4,696,028
entitled "PBX Interactive and Attendant Bypass System" which permits VMX to
grant non-exclusive licenses under U.S. Patent No. 4,696,028. VMX has granted
several non-exclusive licenses under the Automated Attendant Patents.
VMX views the licensing of its patented technology as an integral part of
its total business and an important source of income. VMX conducts a systematic
licensing program intended to maintain and increase the income derived from that
source. VMX currently has eight (8) patent applications pending before the U.S.
Patent and Trademark Office, two (2) patent applications pending before the
Canadian Patent Office, six (6) patent applications pending before the European
Patent Office and five (5) patent applications pending before the Japanese
Patent Office.
VMX has periodically received letters from third parties asserting their
patent rights. Following technical and legal analysis, VMX generally has
responded to such letters by stating its products do not infringe the asserted
patents. VMX to date has not believed it necessary to license any of the patent
rights referred to in such letters. Although there can be no assurance, VMX
believes that any necessary licenses or other rights under patents to products
or features could be obtained on conditions that would not have a materially
adverse financial effect on VMX.
VMX is or has been a party to the following recent litigation:
Voice Systems and Services, Inc. ("VSSI") filed an action against VMX in
February 1991 in the United States District Court for the Northern District of
Oklahoma, seeking a declaratory judgment that VSSI's
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products do not infringe the VMX patents. VMX filed counterclaim for patent
infringement. On November 20, 1992, VMX obtained a preliminary injunction
against VSSI and its principal, Peter Zuyus, Sr., enjoining further infringement
by VSSI. In addition, the Court upheld VMX's voice messaging patent and declared
it the pioneer patent in voice processing and found that VMX was likely to
succeed on the merits. VSSI's voluntary petition under Chapter 11 of the
Bankruptcy Code has been converted to a Chapter 7 proceeding. On January 12,
1994, the court denied a motion by Mr. Zuyus to dissolve the injunction as to
him.
In August 1991, Centigram filed an action against VMX in the United States
District Court for the Northern District of California seeking a declaratory
judgment that Centigram's products do not infringe certain of VMX's patents or
that such patents are invalid, and seeking damages resulting from an alleged
attempt by VMX to disrupt Centigram's initial public offering of stock. VMX
brought a patent infringement action against Centigram in the United States
District Court for the Northern District of Texas. These cases have been
transferred to and consolidated in the United States District Court for the
Northern District of California. Centigram amended its complaint in August 1993
to add certain alleged violations of the antitrust laws and challenging VMX's
ownership of the Ladd patents. Discovery is continuing, and the case is set for
trial on May 16, 1994.
An action for patent infringement was brought against VMX in June 1992 by
Elk Industries, Inc. ("Elk") in the United States District Court for the
Southern District of Florida, seeking unspecified damages. VMX has filed a
counterclaim against Elk for patent infringement. Discovery is nearing
completion and VMX expects the case to be set for trial in the spring of 1994.
In March 1993, a lawsuit was brought against VMX in the Circuit Court for
the Ninth Judicial Circuit in and for Orange County, Florida, by Members Service
Corporation ("MSC") for Communications Enhancement Corporation ("CEC") as a
derivative shareholder of CEC, and for Interwest Communications Corporation
("IWC") as a shareholder of IWC, alleging breach of a distribution agreement,
intentional interference with contractual relations, business defamation,
misappropriation of trade secrets, and interference with prospective economic
advantages as causes of action. MSC filed an Amended Complaint adding causes of
action for theft of trade secrets and breach of contract. Discovery is currently
underway, and the case has not yet been set for trial.
Dialogic Corporation ("Dialogic") filed an action against VMX in April 1993
in the United States District Court for the District of New Jersey alleging
certain violations of the antitrust laws and seeking a declaration of patent
invalidity. VMX filed a counterclaim for patent infringement. Dialogic has moved
for a preliminary injunction seeking an order prohibiting VMX from continuing to
offer licenses under certain of VMX's patents in connection with voice
processing boards manufactured by its wholly owned subsidiary, Rhetorex
Incorporated. A hearing was held on the preliminary injunction, but the Court
has not yet rendered a decision. No date is set for trial.
On March 18, 1992, the United States Patent and Trademark Office declared
an interference between U.S. Patent No. 4,696,028, allowed by Dytel, Inc., and a
pending patent application assigned to VMX. The issues raised by the
interference were determined by arbitration. VMX won the arbitration award, and
as a result, expects to receive in the near future a new patent based upon the
award.
Competition. Competition in the voice processing segment of the
telecommunications industry is intense. VMX cannot accurately predict the size
of the market or VMX's market share. In marketing its products, VMX currently
competes directly with, among other firms, AT&T, Northern Telecom, Octel, ROLM,
Applied Voice Technology, Centigram Communications Corporation, and Digital
Sound Corporation and expects to continue to encounter significant competition
from some or all of these companies. VMX also competes with, and anticipates
greater competition in the future from interactive voice response systems
providers such as Syntellect, Inc. and InterVoice, Inc. Some of VMX's
competitors have longer operating histories, greater name recognition and
significantly greater resources and thus can expend considerably larger amounts
than VMX for research and development, marketing and distribution.
The voice processing market is characterized by rapid technological change,
which will require that VMX continue to incur substantial research and
development expenditures to remain competitive. VMX believes
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that reliability, ease of use, product features, product serviceability, service
and support, experience, name recognition, innovation and price are the
significant competitive factors. VMX further believes that its products compare
favorably with products currently marketed by its competitors.
Employees. As of January 31, 1994, VMX had 574 full-time employees, of
whom 338 were engaged in marketing, sales, service and training; 57 in
manufacturing; 110 in research and development; and 69 in general and
administrative positions. None of VMX's employees are subject to collective
bargaining agreements.
VMX considers its ability to attract and retain competent employees and to
motivate such employees to meet its objectives essential to its future success
and profitability. To date, VMX has not experienced significant difficulties in
hiring such personnel. However, there is no assurance that VMX will not
experience such difficulties in the future.
Export Revenues. The aggregate revenues of VMX attributable to export
sales were approximately $15,000,000, $14,400,000 and $9,700,000 during the
fiscal years ended June 30, 1993, 1992 and 1991, respectively.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of VMX Common Stock as of January 31, 1994, by (i) each person who is
known by VMX to beneficially own more than five percent of VMX Common Stock,
(ii) each director, (iii) each executive officer and (iv) all executive officers
and directors as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENT OF
COMMON STOCK COMMON STOCK
NAME(1) BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------- ------------------
<S> <C> <C>
Kopp Investment Advisors, Inc............... 1,488,589 5.6%
6600 France Avenue South, Suite 672
Edina, MN 55435
Patrick S. Howard(2)........................ 597,438 2.2
David J. Ladd(3)............................ 781,522 2.9
Deborah A. Coleman(4)....................... 40,000 *
Allen W. Dawson(5).......................... 136,500 *
Herbert W. Funk(6).......................... 40,000 *
William A. Hasler(7)........................ 30,000 *
Henry R. Nothhaft(8)........................ 142,000 *
Raymond V. Glynn............................ 162,652 *
Edward J. Mattiuz........................... 162,500 *
Bruce C. Pollock............................ 279,006 1.0
All executive officers and directors as a
group (10 persons)(9)..................... 2,371,618 8.7
</TABLE>
- ---------------
* Represents less than 1% of the outstanding Common Stock.
(1) Certain of the shares shown in this table or referred to in the footnotes
hereof are shares of which the persons named in this table have the right to
acquire beneficial ownership as specified in Rule 13d-3(d)(1) promulgated
under the Securities Exchange Act of 1934. Except as otherwise noted, each
person named in this table possesses sole voting and investment power with
respect to the shares of Common Stock shown as owned by such person.
(2) Includes 150,000 shares subject to options held by Mr. Howard, all of which
are vested. Pursuant to the regulations of the Commission, Mr. Howard is
deemed to beneficially own such shares.
56
<PAGE> 70
(3) Includes 56,250 shares subject to options held by Mr. Ladd, all of which are
vested, and 725,272 shares owned by the Ladd Family Trust. Mr. Ladd, as a
Trustee of such trust, shares voting and investment power with respect to
these shares.
(4) Consists of shares subject to options held by Ms. Coleman, all of which are
vested. Pursuant to the regulations of the Commission, Ms. Coleman is deemed
to beneficially own such shares.
(5) Includes 135,500 shares subject to options held by Mr. Dawson which he is
deemed to beneficially own under the regulations of the Commission. Also
includes 1,000 shares owned by the Mr. Dawson's wife, as to which Mr. Dawson
disclaims beneficial ownership.
(6) Consists of shares subject to options held by Mr. Funk, all of which are
vested. Pursuant to the regulations of the Commission, Mr. Funk is deemed to
beneficially own such shares.
(7) Consists of shares subject to options held by Mr. Hasler, all of which are
vested. Pursuant to the regulations of the Commission, Mr. Hasler is deemed
to beneficially own such shares.
(8) Includes 50,000 shares subject to options held by Mr. Nothhaft, which he is
deemed to beneficially own under the regulations of the Commission. Also
includes 2,000 shares owned by the H.R. Nothhaft Trust. Mr. Nothhaft, as a
Trustee of such Trust, shares voting and investment power with respect to
these shares.
(9) Includes 890,000 shares subject to options deemed to be beneficially owned
under the regulations of the Commission and 3,000 shares owned of record by
other persons (as described in notes (2) through (8) above).
OPTIONS GRANTED TO CERTAIN EXECUTIVE OFFICERS SINCE JUNE 30, 1993
On November 11, 1993, pursuant to existing stock option plans, VMX granted
options to purchase 150,000 shares of VMX Common Stock to Patrick Howard,
President, Chief Executive Officer and Director; options to purchase 150,000
shares of VMX Common Stock to David Ladd, Executive Vice President and Director;
options to purchase 100,000 shares of VMX Common Stock to Edward Mattiuz,
Executive Vice President and Chief Operating Officer; options to purchase
100,000 shares of VMX Common Stock to Bruce Pollock, Executive Vice President,
Chief Financial Officer and Secretary; and options to purchase 50,000 shares of
VMX Common Stock to Raymond Glynn, Executive Vice President. All such options
were granted with an exercise price of $4.38 per share, which was the fair
market value on the date of grant.
CERTAIN TRANSACTIONS SINCE JUNE 30, 1993
On November 15, 1993, VMX loaned $100,000 to David Ladd. The loan is
secured by 50,000 shares of VMX Common Stock owned by Mr. Ladd. The full
principal amount is due in a single balloon payment five years from the date of
the loan, or by November 15, 1998. The interest rate on the loan is the prime
rate plus one percent. Interest payments are on a quarterly basis.
57
<PAGE> 71
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial statements
have been prepared to give effect to the Merger. The unaudited pro forma
combined condensed financial statements give effect to the Merger using the
pooling of interests method of accounting.
The unaudited pro forma combined condensed financial statements reflect
certain assumptions deemed probable by management regarding the proposed Merger
(e.g. that share information used in the unaudited pro forma information
approximates actual share information at the Effective Date). No adjustments to
the unaudited pro forma combined condensed financial information have been made
to account for different possible results in connection with the foregoing, as
management believes that the impact on such information of the varying outcomes,
individually or in the aggregate, would not be materially different.
The unaudited pro forma combined condensed balance sheet as of December 31,
1993 gives effect to the Merger as if it had occurred on December 31, 1993, and
combines the unaudited condensed consolidated balance sheets of Octel and VMX as
of December 31, 1993.
The unaudited pro forma combined condensed statements of income combine the
historical consolidated statements of income of Octel and VMX for each of the
three fiscal years ended June 30, 1993 and the unaudited six months ended
December 31, 1993, in each case as if the Merger had occurred at the beginning
of the earliest period presented.
The number of pro forma Octel Common and Common Equivalent Shares used in
computing net income per share in respect of the Merger for all periods
presented in the unaudited combined condensed statements of income is based upon
the number of outstanding Octel Common Shares and Octel Common Equivalent
Shares, and for each such unaudited pro forma combined condensed presentation
gives effect to the proposed issuance of one Octel Common Share and one Octel
Common Stock Option for every five outstanding VMX Common Shares and Common
Stock Options, respectively.
Octel and VMX estimate that they will incur direct transaction costs of
approximately $3.4 million associated with the Merger which will be charged to
operations during the quarter in which the Merger is consummated. In addition,
it is expected that following the Merger, Octel will incur an additional charge
to operations, currently estimated to be between $15 and $20 million, before
estimated related tax benefits, to reflect costs associated with integrating the
two companies. This range is a preliminary estimate only and is therefore
subject to change. There can be no assurance that Octel will not incur
additional charges in subsequent quarters to reflect costs associated with the
Merger or that management will be successful in their efforts to integrate the
operations of the two companies.
Such unaudited pro forma combined condensed information is presented for
illustrative purposes only and is not necessarily indicative of the financial
position or results of operations that would have actually been reported had the
Merger occurred at the beginning of the periods presented, nor is it necessarily
indicative of future financial position or results of operations. These
unaudited pro forma combined condensed financial statements are based upon the
respective historical consolidated financial statements of Octel and VMX and
should be read in conjunction with the respective historical consolidated
financial statements and notes thereto of Octel and VMX, incorporated by
reference herein, and do not incorporate any benefits from cost savings or
synergies of operations of the combined company.
58
<PAGE> 72
OCTEL-VMX
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTEL VMX
DECEMBER 31, DECEMBER 31, PRO FORMA PRO FORMA
1993 1993 ADJUSTMENTS COMBINED
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents............. $ 12,628 $ 5,403 -- $ 18,031
Short-term investments........... 52,330 10,081 -- 62,411
Accounts receivable, net......... 64,982 20,587 $ 337(3a) 85,721
(185)(3b)
Inventories...................... 24,545 4,658 (81)(3a) 29,065
(57)(3b)
Prepaid expenses and other
assets........................ 9,639 1,490 (200)(2b) 17,649
6,720(2b)
------------ ------------ ----------- ---------
Total current assets..... 164,124 42,219 6,534 212,877
Property and equipment, net........ 60,530 7,110 (900)(2b) 66,740
Deposits and other assets.......... 30,704 4,963 (2,300)(2b) 34,647
1,280(2b)
------------ ------------ ----------- ---------
Total.................... $255,358 $ 54,292 $ 4,614 $ 314,264
------------ ------------ ----------- ---------
------------ ------------ ----------- ---------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Trade payables................... $ 10,564 $ 4,090 $ (185)(3b) $ 14,469
Accrued compensation and employee
benefits...................... 14,754 3,029 -- 17,783
Income taxes payable............. 1,266 39 (137)(3c) 1,168
Accrued and other liabilities.... 26,570 3,777 3,400(2a) 50,367
16,600(2b)
20(3a)
------------ ------------ ----------- ---------
Total current
liabilities............ 53,154 10,935 19,698 83,787
Long-term obligations.............. 1,241 566 -- 1,807
Commitments and contingencies
Stockholders' equity:
Preferred stock
Authorized.................... 5,000shares 1,000shares (1,000) shares 5,000shares
Common stock..................... $113,986 $ 46,582 -- $ 160,568
Authorized.................... 50,000shares 50,000shares (50,000) shares 50,000shares
Issued and outstanding........ 18,102shares 26,407shares (26,407) shares 23,383shares
5,281shares
Retained earnings (deficit)...... $ 87,266 $ (3,526) $ 373(3) $ 68,656
(57)(3b)
(3,400)(2a)
(20,000)(2b)
8,000(2b)
Employee notes receivable........ -- (56) -- (56)
Accumulated translation
adjustments................... (289) (209) -- (498)
------------ ------------ ----------- ---------
Total Stockholders'
equity................. 200,963 42,791 (15,084) 228,670
------------ ------------ ----------- ---------
Total.................... $255,358 $ 54,292 $ 4,614 $ 314,264
------------ ------------ ----------- ---------
------------ ------------ ----------- ---------
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
59
<PAGE> 73
OCTEL-VMX
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------ SIX MONTHS ENDED
1991 1992 1993 DECEMBER 31, 1993
-------- -------- -------- -----------------
<S> <C> <C> <C> <C>
Net revenues:
Systems (Note 3).............................. $182,409 $215,625 $260,074 $ 143,092
Service and license........................... 35,900 46,637 77,910 49,747
-------- -------- -------- -----------------
Total net revenues.................... 218,309 262,262 337,984 192,839
Cost and expenses:
Cost of systems (Note 3)...................... 56,913 66,882 83,950 46,474
Cost of service............................... 23,211 25,824 43,362 29,141
Research and development...................... 28,661 32,285 44,420 27,688
Selling, general and administrative (Note
3)......................................... 92,964 108,140 129,526 72,176
-------- -------- -------- -----------------
Total costs and expenses.............. 201,749 233,131 301,258 175,479
-------- -------- -------- -----------------
Operating income................................ 16,560 29,131 36,726 17,360
Interest and other income, net.................. 6,163 6,596 4,294 1,474
-------- -------- -------- -----------------
Income before income taxes and cumulative effect
of accounting change.......................... 22,723 35,727 41,020 18,834
Provision for income taxes (Note 3)............. 9,402 9,739 11,734 4,034
-------- -------- -------- -----------------
Income before cumulative effect of accounting
change........................................ 13,321 25,988 29,286 14,800
Cumulative effect of accounting change.......... -- -- (115) --
-------- -------- -------- -----------------
Net income...................................... $ 13,321 $ 25,988 $ 29,171 $ 14,800
-------- -------- -------- -----------------
-------- -------- -------- -----------------
Income per common and equivalent share before
cumulative effect of accounting change........ $ 0.57 $ 1.06 $ 1.18 $ 0.60
Cumulative effect of accounting change.......... -- -- (0.01) --
-------- -------- -------- -----------------
Net income per common and equivalent share...... $ 0.57 $ 1.06 $ 1.17 $ 0.60
-------- -------- -------- -----------------
-------- -------- -------- -----------------
Weighted average number of common and equivalent
shares used in computation.................... 23,204 24,424 24,869 24,749
-------- -------- -------- -----------------
-------- -------- -------- -----------------
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
60
<PAGE> 74
OCTEL-VMX
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. PRO FORMA BASIS OF PRESENTATION
These unaudited pro forma combined condensed financial statements reflect
the issuance of 5,281,475 Octel Common Shares in exchange for an aggregate of
26,407,377 VMX Common Shares (outstanding as of December 31, 1993) in connection
with the Merger based on the Exchange Ratio of one Octel Common Share for every
five VMX Common Shares.
The following table details the pro forma share issuances in connection
with the Merger:
<TABLE>
<CAPTION>
COMMON NUMBER OF
SHARES EXCHANGE OCTEL
OUTSTANDING RATIO COMMON SHARES
------------ --------- --------------
<S> <C> <C> <C>
VMX....................................... 26,407,377 5:1
Octel Common Shares to be issued.......... 5,281,475
Octel Common Shares outstanding at
December 31, 1993....................... 18,102,350
--------------
Total Octel Common Shares outstanding
after completion of the Merger.......... 23,383,825
--------------
--------------
</TABLE>
The actual number of Octel Common Shares to be issued will be determined at
the effective time of the Merger based on the number of VMX Common Shares
outstanding.
2. TRANSACTION COSTS AND OTHER CHARGES
(a) Octel and VMX estimate they will incur direct transaction costs of
approximately $3.4 million associated with the Merger consisting of transaction
fees for investment bankers, attorneys, accountants, financial printing and
other related charges. At December 31, 1993, no transaction-related costs had
been incurred. These nonrecurring transaction costs will be charged to
operations during the quarter in which the Merger is consummated.
(b) In addition, it is expected that following the Merger, Octel will incur
an additional charge to operations, currently estimated to be between $15 and
$20 million to reflect costs associated with integrating the two companies. The
Unaudited Pro Forma Combined Condensed Balance Sheet gives effect to estimated
direct transaction costs and a $20 million charge to operations relating to
integrating the two companies, before related tax benefits of approximately $8
million, as if such costs and charge had been incurred as of December 31, 1993.
This charge consists primarily of the following: (i) the elimination of
duplicate facilities and equipment; (ii) severance, moving and relocation costs;
(iii) incremental operations consulting and other costs associated with
anticipated internal and customer-related integration activities; (iv) customer
and employee notifications and programs; (v) incremental training costs; (vi)
cancellation and continuation of certain contractual obligations; and (vii)
other asset impairments arising from the Merger, including purchased software
and other intangibles.
The direct transaction costs and additional charge are not reflected in the
Unaudited Pro Forma Combined Condensed Statements of Income.
61
<PAGE> 75
OCTEL-VMX
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
3. CONFORMING ADJUSTMENTS AND INTERCOMPANY ELIMINATIONS
The following is a summary of conforming adjustments and intercompany
eliminations which reflect the Merger, as if it were effected for all periods
presented below.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------- SIX MONTHS ENDED
1991 1992 1993 DECEMBER 31, 1993
-------- -------- -------- ------------------
<S> <C> <C> <C> <C>
SYSTEMS REVENUE:
Octel............................. $133,641 $156,443 $188,170 $102,172
VMX............................... 49,199 60,982 73,932 41,426
-------- -------- -------- ------------------
182,840 217,425 262,102 143,598
Adjustment(a)..................... (185) (470) (502) 337
Adjustment(b)..................... (246) (1,330) (1,526) (843)
-------- -------- -------- ------------------
Adjusted................ $182,409 $215,625 $260,074 $143,092
-------- -------- -------- ------------------
-------- -------- -------- ------------------
COST OF SYSTEMS:
Octel............................. $ 36,709 $ 44,642 $ 58,824 $ 33,472
VMX............................... 20,442 23,593 26,706 13,707
-------- -------- -------- ------------------
57,151 68,235 85,530 47,179
Adjustment(a)..................... (13) (47) (106) 81
Adjustment(b)..................... (225) (1,306) (1,474) (786)
-------- -------- -------- ------------------
Adjusted................ $ 56,913 $ 66,882 $ 83,950 $ 46,474
-------- -------- -------- ------------------
-------- -------- -------- ------------------
SELLING, GENERAL AND
ADMINISTRATIVE:
Octel............................. $ 63,905 $ 75,159 $ 90,736 $ 50,162
VMX............................... 29,070 33,009 38,820 21,994
-------- -------- -------- ------------------
92,975 108,168 129,556 72,156
Adjustment(a)..................... (11) (28) (30) 20
-------- -------- -------- ------------------
Adjusted................ $ 92,964 $108,140 $129,526 $ 72,176
-------- -------- -------- ------------------
-------- -------- -------- ------------------
PROVISION FOR INCOME TAXES:
Octel............................. $ 9,400 $ 9,152 $ 10,925 $ 3,100
VMX............................... 2 587 809 1,071
-------- -------- -------- ------------------
9,402 9,739 11,734 4,171
Adjustment(c)..................... -- -- -- (137)
-------- -------- -------- ------------------
Adjusted................ $ 9,402 $ 9,739 $ 11,734 $ 4,034
-------- -------- -------- ------------------
-------- -------- -------- ------------------
NET INCOME:
Octel............................. $ 17,714 $ 21,356 $ 22,553 $ 10,502
VMX............................... (4,211) 5,051 7,036 3,982
-------- -------- -------- ------------------
13,503 26,407 29,589 14,484
Adjustments (a, b and c).......... (182) (419) (418) 316
-------- -------- -------- ------------------
Adjusted................ $ 13,321 $ 25,988 $ 29,171 $ 14,800
-------- -------- -------- ------------------
-------- -------- -------- ------------------
</TABLE>
62
<PAGE> 76
OCTEL-VMX
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(a) Pro forma adjustments have been made to conform revenue recognized by
VMX to Octel's revenue recognition policy, which provides for the recording of
revenue on the basis of installation for first time customers in the CPE market
rather than upon shipment.
(b) Adjustments have been recorded to eliminate intercompany sales and cost
of sales for the years ended June 30, 1991, 1992 and 1993, and for the unaudited
six-month period ended December 31, 1993. The related intercompany profit in
ending inventory of approximately $57,000 and the net intercompany receivables
and payables of $185,000 as of December 31, 1993 have also been eliminated.
(c) The tax effects relating to the pro forma adjustments for fiscal years
1991 through 1993 have been offset by changes in the valuation allowance in
those fiscal years due to the uncertainty of realization. The tax effect of the
cumulative pro forma adjustments has been reflected in the financial statements
for the six months ended December 31, 1993 due to a change in the valuation
allowance attributable to full utilization of operating loss carryforwards and
realization of other deferred tax assets.
(d) Retained earnings in these unaudited pro forma combined condensed
financial statements has been adjusted to reflect the unaudited pro forma
adjustments.
(e) Certain VMX historical consolidated balance sheet and statement of
operations amounts have been reclassified to conform with the unaudited pro
forma combined condensed presentation.
63
<PAGE> 77
RIGHTS OF HOLDERS OF
OCTEL COMMON STOCK AND VMX COMMON STOCK
COMPARISON OF RIGHTS
The following is a summary of material differences between the rights of
holders of Octel Common Stock and the rights of holders of VMX Common Stock. As
each of Octel and VMX is organized under the laws of Delaware, these differences
arise from various provisions of the Certificate of Incorporation and Bylaws of
each of Octel and VMX and Octel's Common Shares Rights Agreement and VMX's
Shareholder Rights Plan.
Cumulative Voting. Octel's Certificate of Incorporation provides for
cumulative voting in director elections.
VMX's Bylaws prohibit cumulative voting.
Special Meetings of Stockholders; Stockholder Action by Written
Consent. Octel's Bylaws provide that a special meeting of stockholders may be
called at any time by the board of directors, or by the chairman of the board,
by the president, or by the chief executive officer, or by one or more
stockholders holding shares in the aggregate entitled to cast not less ten
percent of the votes at that meeting. Octel's Certificate of Incorporation and
Bylaws provide that any action required or able to be taken at any meeting of
Octel stockholders may be taken without a meeting, without prior notice, and
without a vote if a consent in writing, setting forth the action so taken, is
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voting.
VMX's Bylaws provide that special meetings of stockholders may be called by
the Chairman of the Board of Directors, the President, the Board of Directors,
or the holders of more than fifty percent (50%) of all shares entitled to vote
at the meeting. VMX's Certificate of Incorporation and Bylaws prohibit
stockholder action by written consent in lieu of a meeting.
Removal of Directors. Octel's Certificate of Incorporation and Bylaws
provide that any director or directors may be removed, with or without cause, by
the holders of a majority of the shares then entitled to vote at an election of
directors; provided, however, that so long as the stockholders are entitled to
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 or her removal would
be sufficient to elect him if then cumulatively voted at an election of the
entire Board of Directors.
VMX's Bylaws provide that any director may be removed with or without cause
by the affirmative vote of a majority of the entire Board of Directors or by an
affirmative vote of the holders of a majority of the shares represented at any
stockholders' meeting at which a quorum is present, provided that such proposed
removal is stated in the notice of the stockholders' meeting.
Written Reports to Stockholders. VMX's Bylaws provide that the Board of
Directors must, when requested by the holders of at least one-third of the
outstanding shares of the corporation, present written reports of the situation
and amount of business of the corporation.
RIGHTS PLAN
Octel Common Shares Rights Agreement. In July 1990, Octel's Board of
Directors approved a common shares rights agreement and declared a dividend
distribution, payable to stockholders of record on August 15, 1990, of one
Common Stock purchase right for each outstanding share of its Common Stock.
Initially, each right entitles the stockholder to buy one newly issued share of
Octel's Common Stock at an exercise price of $80. The rights become exercisable
(unless postponed by action of the disinterested directors) on the earlier of:
1) ten days following a public announcement that a person or group has acquired,
or obtained the right to acquire, beneficial ownership of 21 percent or more of
the outstanding Common Stock or 2) ten days following the commencement or
announcement of a tender offer or exchange offer, the consummation of which
would
64
<PAGE> 78
result in the beneficial ownership by a person or group of 21 percent or more of
Octel's outstanding Common Stock.
If Octel is acquired in a merger or other business combination transaction
without approval by Octel's Board of Directors, each right not held by the
acquiring person would entitle its holder to purchase $160 worth of the Common
Stock of the acquiring company for $80. If any person or group acquires 21
percent or more of Octel's Common Stock without approval by Octel's Board of
Directors, each right not held by the acquiring person would entitle its holder
to purchase $160 worth of Octel's Common Stock for $80.
The rights are redeemable at Octel's option for $.01 per right.
Additionally, the exercise price, number of rights and number of common shares
that may be acquired are subject to adjustment from time to time to prevent
dilution. The rights expire on July 31, 2000.
VMX Shareholder Rights Plan. Pursuant to the Shareholder Rights Plan dated
as of February 5, 1990, each share of VMX Common Stock is associated with a VMX
Right. Each VMX Right, when it is distributed and becomes exercisable, entitles
the owner to purchase from VMX one half of one share of Common Stock at a price
of $12.00 per common share, subject to adjustment (the "Purchase Price"). Upon
the occurrence of any Trigger Event (as defined in the Shareholder Rights Plan),
each two VMX Rights not owned by an Acquiring Person (as defined in the
Shareholder Rights Plan (or certain of its transferees)) will enable the holder
to purchase, at the then current Purchase Price, VMX Common Stock or Common
Stock of an acquiring company, as the case may be, having a calculated value of
twice the Purchase Price.
Pursuant to the terms of the Merger Agreement, VMX agreed to amend the
Shareholder Rights Plan to provide that the execution and delivery of the
Reorganization Agreement, and the consummation of the Merger provided for in the
Reorganization Agreement, will not cause Octel or Merger Sub to be an Acquiring
Person and will not constitute a Trigger Event and will therefore not cause the
distribution or exercisability of the VMX Rights.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Octel has entered into separate indemnification agreements with its
directors and executive officers, which may require Octel, among other things,
to indemnify them against certain liabilities that may arise by reason of their
status or service as directors or officers (other than liabilities arising from
willful misconduct of a culpable nature), to advance their expenses incurred as
a result of any proceeding against them as to which they could be indemnified
and obtain directors' and officers' insurance if available on reasonable terms.
To the extent Octel may be required to make substantial payments under the
indemnification agreements that are not covered by insurance, Octel's available
cash and shareholders' equity would be adversely affected.
65
<PAGE> 79
MARKET PRICE AND DIVIDEND INFORMATION
OCTEL
Octel's Common Stock is traded on the over-the-counter market and is quoted
on The Nasdaq National Market under the symbol OCTL. The following table sets
forth for the periods indicated the high and low closing prices for Octel's
Common Stock as reported by The Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH ($) LOW ($)
-------- -------
<S> <C> <C>
Fiscal Year 1992
Quarter ended September 30, 1991....................... 28 1/2 20
Quarter ended December 31, 1991........................ 23 1/2 16 1/2
</TABLE>
<TABLE>
<S> <C> <C>
Quarter ended March 31, 1992........................... 37 1/2 21 3/4
Quarter ended June 30, 1992............................ 33 1/4 17 3/4
Fiscal Year 1993
Quarter ended September 30, 1992....................... 27 1/2 18 3/4
Quarter ended December 31, 1992........................ 24 14 1/2
Quarter ended March 31, 1993........................... 30 20
Quarter ended June 30, 1993............................ 25 1/4 19
Fiscal Year 1994
Quarter ended September 30, 1993....................... 24 3/4 19 1/4
Quarter ended December 31, 1993........................ 28 1/2 23 1/4
Quarter ended March 31, 1994 (through February 25)..... 30 23
</TABLE>
On February 25, 1994, the last reported sale price of the Octel Common
Stock as reported on The Nasdaq National Market was $29 per share. On January
28, 1994, the last business day prior to the public announcement of the Merger,
the last reported sale price of the Common Stock as reported on The Nasdaq
National Market was $27.75. As of the Record Date, there were approximately
2,100 holders of record of Octel's Common Stock.
Octel has not paid cash dividends on its Common Stock since inception, and
its Board of Directors presently plans to reinvest Octel's earnings in its
business. Accordingly, it is anticipated that no cash dividends will be paid to
holders of Octel Common Stock in the foreseeable future.
66
<PAGE> 80
VMX
VMX's Common Stock is traded on the over-the-counter market and is quoted
on The Nasdaq National Market under the symbol VMXI. The following table sets
forth for the periods indicated the high and low closing prices for VMX's Common
Stock as reported by The Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH ($) LOW ($)
-------- -------
<S> <C> <C>
Fiscal Year 1992
Quarter ended September 30, 1991....................... 2 1 7/16
Quarter ended December 31, 1991........................ 2 9/16 1 3/8
</TABLE>
<TABLE>
<S> <C> <C>
Quarter ended March 31, 1992........................... 3 1/16 1 15/16
Quarter ended June 30, 1992............................ 2 5/8 1 5/8
Fiscal Year 1993
Quarter ended September 30, 1992....................... 2 9/16 1 13/16
Quarter ended December 31, 1992........................ 3 1/2 2 1/16
Quarter ended March 31, 1993........................... 4 5/16 2 15/16
Quarter ended June 30, 1993............................ 3 7/8 2 5/8
Fiscal Year 1994
Quarter ended September 30, 1993....................... 4 2 1/2
Quarter ended December 31, 1993........................ 4 9/16 3 1/8
Quarter ended March 31, 1994 (through February 25)..... 5 11/16 3 7/16
</TABLE>
On February 25, 1994, the last reported sale price of the VMX Common Stock
as reported on The Nasdaq National Market was $5.31 per share. On January 28,
1994, the last business day prior to the public announcement of the Merger, the
last reported sale price of the Common Stock on The Nasdaq National Market was
$4.19. As of the Record Date, there were approximately 1,350 holders of record
of VMX's Common Stock.
VMX has not paid cash dividends on its Common Stock since inception, and
its Board of Directors presently plans to reinvest VMX's earnings in its
business. Accordingly, it is anticipated that no cash dividends will be paid to
holders of VMX Common Stock in the foreseeable future. Additionally, certain
financial covenants set forth in VMX's bank lines of credit limit VMX's ability
to pay cash dividends.
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ADDITIONAL MATTERS FOR CONSIDERATION BY OCTEL STOCKHOLDERS:
APPROVAL OF AMENDMENT TO THE 1985 INCENTIVE STOCK PLAN
GENERAL
The 1985 Incentive Stock Plan (the "Option Plan") was amended by the Board
of Directors on January 31, 1994, subject to approval by Octel's stockholders,
to reserve an additional 2.3 million shares for issuance thereunder. All of the
shares currently reserved for issuance are subject to outstanding options.
Octel believes that the ability to grant stock options to employees is an
important factor in attracting and retaining skilled personnel. Each year Octel
reviews the number of shares available for issuance under the Option Plan and
considers the possible grant of additional options to new and existing
employees. Based on Octel's estimates of the incentive value of stock options,
the degree of market competition in attracting and retaining skilled employees
and other relevant factors, management presents to the Board of Directors a
recommendation for the addition of shares to the pool reserved for issuance
under the Option Plan. The Board then reviews this recommendation and presents a
proposal such as this one to the stockholders for approval.
Octel uses options as an incentive to employees so the employees' interests
are aligned with those of stockholders. Options are also used by Octel to reward
performance and motivate employees to stay with Octel and improve stockholder
value.
Although the Company has a significant number of shares subject to option
as a percentage of shares outstanding, it should be recognized that many of
these options were granted pursuant to unanticipated events. These events
included the recent change in Chief Executive Officers, the hiring of an
Executive Vice President and the granting of options to senior managers who
joined Octel in connection with recent business acquisitions.
In particular, pursuant to the change in Chief Executive Officers, Octel
granted options for 750,000 shares to Mr. Cohn, Octel's Chief Executive Officer
and President. Under these options, 350,000 shares have an exercise price equal
to the fair market value on the date of grant. The remaining options were
granted with exercise prices significantly "under water," including 200,000
shares with an exercise price of $35.00 per share and 200,000 shares with an
exercise price of $50.00 per share. Octel believes this method of granting
options to Mr. Cohn should align his motivations strongly with the overall
objective of increasing stockholder value.
Octel is requesting stockholders to approve the addition of 2.3 million
shares to the Option Plan for the following reasons:
- In order to provide added incentives consistent with Octel's
philosophy mentioned above, Octel recently granted options for an aggregate
of approximately 800,000 shares to key Octel employees whose direct
contributions are critical to Octel meeting the challenges of building its
business and integrating with VMX.
- In order to provide for the possibility of additional grants to
existing Octel employees and new employees. The additional shares will also
provide a reserve of shares that could be made subject to options granted
to individuals currently employed by VMX. Octel has, in the past, granted
options to employees who joined the Company in connection with a business
acquisition.
- The unanticipated events mentioned above have resulted in all shares
currently reserved under the Option Plan being subject to outstanding
options.
VOTE REQUIRED
The affirmative votes of the holders of a majority of the shares of Common
Stock present or represented and "voting" on the proposed amendment will be
required to approve the increase in shares reserved under the Option Plan. Votes
that are cast against the proposal are counted for purposes of determining the
total number of Voting Shares with respect to this proposal. While there is no
definitive statutory authority or case law in Delaware as to the proper
treatment of abstentions, Octel believes that abstentions should also be counted
for purposes of determining the number of voting shares with respect to the
proposal. In the absence of controlling precedent to the contrary, Octel intends
to treat abstentions on this proposal in this manner. With respect to
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broker non-votes, there is case law to the effect that, while such shares may be
counted for determining the presence or absence of a quorum for the transaction
of business at a meeting, broker non-votes should not be counted for purposes of
determining the number of shares voting with respect to the particular
proposal(s) on which the broker has expressly not voted. Accordingly, broker
non-votes will not be counted as voting shares with respect to this proposal.
OCTEL'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE ADDITION
OF SHARES TO THE POOL RESERVED FOR ISSUANCE UNDER THE OPTION PLAN.
The essential features of the Option Plan are outlined below.
PURPOSES
The purposes of the Option Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to the employees and consultants of Octel and to promote
the success of Octel's business.
ADMINISTRATION
With respect to grants of options to employees who are also officers or
directors of Octel, the Option Plan, as amended, shall be administered by (i)
the Board of Directors of Octel if the Board may administer the Option Plan in
compliance with Rule 16b-3 under the Exchange Act ("Rule 16b-3"), with respect
to a plan intended to qualify under Rule 16b-3 as a discretionary plan or (ii) a
committee designated by the Board of Directors to administer the Option Plan,
which committee shall be constituted in such a manner as to permit the Option
Plan to comply with Rule 16b-3 with respect to a plan intended to qualify
thereunder as a discretionary plan. With respect to grants of options to
employees or consultants who are neither officers nor directors of Octel, the
Option Plan shall be administered by (i) the Board of Directors or (ii) a
committee designated by the Board, which committee shall be constituted in such
a manner as to satisfy the legal requirements relating to the administration of
incentive stock option plans, if any, of Delaware corporate law, federal and
state and securities laws and the Tax Code. If permitted by Rule 16b-3, the
Option Plan may be administered by different bodies with respect to directors,
non-director officers and employees who are neither officers nor directors and
consultants who are not directors.
ELIGIBILITY
The Option Plan provides for the granting of options and sale of shares to
employees of and consultants to Octel. Only employees may be granted incentive
stock options. The Board or a committee of the Board selects the purchasers and
optionees and determines the number of shares to be sold or made subject to
option. As of the date of this Proxy Statement, directors who are not also
employees of Octel are not eligible to participate in the Option Plan. However,
prior to March 10, 1988, such directors were eligible to participate in the
Option Plan and they may still exercise options granted to them prior to that
date.
At January 31, 1994, Octel employed 1,636 people, 1,620 of whom were
eligible to participate in the Option Plan.
TERMS OF OPTIONS
Each option granted under the Option Plan is evidenced by a written stock
option agreement between Octel and the optionee. Options are generally subject
to the terms and conditions set forth below, but specific terms may vary.
(a) Exercise of the Option. The Board or its committee determines
when options may be exercised. In no event may any incentive stock option
granted under the Option Plan be exercised more than ten years after the
date of grant. Incentive stock options currently being granted generally
expire after five years and six months. An option is exercised by giving
written notice of exercise to Octel specifying the number of full shares of
Common Stock to be purchased and by tendering payment of the purchase
price. Payment for shares purchased upon exercise of an option shall be in
such form of
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consideration as is authorized by the Option Plan and determined by the
Board, and such form of consideration may vary for each option.
(b) Exercise Price. The exercise price of options granted under the
Option Plan is determined by the Board or its committee and may not be less
than 100% of the fair market value of the Common Stock on the date the
option is granted. In the case of incentive stock options granted to an
optionee who owns more than 10% of the voting power or value of all classes
of stock of Octel, the exercise price must not be less than 110% of the
fair market value on the date of grant. The fair market value of the Common
Stock is the closing sale price on The Nasdaq National Market on the date
of grant.
(c) Termination of Employment. If the optionee's employment or
association with Octel terminates for any reason (other than death or
disability), the optionee may, but only within 30 days (or such other
period as may be determined by the Board, but not exceeding three months
for incentive stock options) following the date of such termination,
exercise any option granted under the Option Plan, but only to the extent
such option was exercisable on the date of termination. To the extent that
the option is not exercised within such 30-day (or other) period, the
option terminates.
(d) Disability. In the event that an employee or consultant is
unable to continue his employment or consulting relationship with Octel as
a result of his total and permanent disability (as defined in Section
22(e)(3) of the Tax Code), exercisability is accelerated from the usual
five-year period to a three-year period, and the optionee may, but only
within six months (or such other period of time not exceeding one year as
is determined by the Board at the time of grant of the option) from the
date of termination, exercise the option to the extent it was otherwise
exercisable at the date of such termination. To the extent that the option
is not exercised within such period, the option terminates.
(e) Death. If an optionee should die while employed by Octel,
exercisability of options granted under the Option Plan is accelerated from
the usual five-year period to a three-year period, and the option may be
exercised at any time within six months after death by the optionee's
estate to the extent the option would have been exercisable if the optionee
had continued living and remained an employee of Octel for six months after
the date of death. If an optionee should die within one month after
termination of employment with Octel, exercisability of options granted
under the Option Plan is accelerated from the usual five-year period to a
three-year period, and the option may be exercised by the optionee's estate
at any time within six months following the date of death, but only to the
extent such options were exercisable on the date of termination.
(f) Liquidation or Acquisition. In the event of a proposed
dissolution or liquidation of Octel, options under the Option Plan
terminate unless otherwise provided by the Board. In such event, the Board,
in its sole discretion, may determine to make options immediately
exercisable as to all shares.
Current option agreements provide that in the event of a proposed sale
of all or substantially all of the assets of Octel, or the merger of Octel
with or into another corporation, options shall be assumed or equivalent
options shall be substituted by such successor corporation or its
affiliate. If such successor corporation refuses to assume an option or to
substitute an equivalent option, the Board shall provide for the optionee
to have the right to exercise the option as to all of the Common Stock
subject to the option. Most options granted before December 1987 allowed
the Board the right to accelerate the exercisability of options whether or
not a successor corporation was willing to assume such options.
Option agreements for officers and certain key employees provide for
full acceleration of exercisability in the event that, following a change
in control of Octel, the optionee's employment is terminated or his
compensation and benefits are reduced. The Board may, in its discretion,
provide in individual option agreements for an optionee to have the right
to return an option to Octel for a cash payment equal to the net value of
the option upon the occurrence of a merger, sale of all or substantially
all assets of Octel, tender offer or other transaction or series of related
transactions resulting in a change of ownership of more than 50% of the
voting securities of Octel.
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(g) Non-transferability of Options. An option is not transferable by
the optionee, other than by will or the laws of descent and distribution,
and is exercisable during the optionee's lifetime only by the optionee.
(h) Withholding of Shares to Pay Tax Liability. The Option Plan
allows Octel to withhold shares as to which an option has been exercised in
order to comply with regulations requiring Octel to withhold taxes upon
certain exercises of options. See "Tax Information -- Nonstatutory
Options."
(i) Other Provisions. The option agreement may contain such other
terms, provisions and conditions not inconsistent with the Option Plan as
may be determined by the Board or its committee.
OPTIONS OUTSTANDING
Options granted under the Option Plan generally become exercisable in
installments. Most options become exercisable as to 20% of the total shares
under option one year after the date of beginning employment (for new employees)
or the date of option grant (for existing employees), and as to an additional
20% after each subsequent twelve-month period so long as the optionee remains an
employee of Octel. Exercisability is accelerated in the case of death or
disability or, in certain cases, by termination of employment or reduction in
compensation following a change in control, as described above. Exercisability
is delayed by leaves of absence or temporary reductions in work hours. Options
being granted at this time generally expire five years and six months from the
date of grant.
At January 31, 1994, 690,070 shares had been sold directly, options to
purchase 1,945,364 shares of Octel's Common Stock had been exercised, options to
purchase 6,314,741 shares were outstanding, and 1,339,895 shares remained
available for future sale or grant under the Option Plan (including 2.3 million
shares to be approved pursuant to this Joint Proxy Statement/Prospectus). The
range of exercise prices per share for options outstanding under the Option Plan
at January 31, 1994 was from $0.75 to $50.00, and the weighted average exercise
price per share was approximately $22.32. Expiration dates for outstanding
options range from May 1994 to July 1999.
CAPITAL CHANGES
In the event any change is made in Octel's capitalization which results in
an exchange of Common Stock for a greater or lesser number of shares without
receipt of consideration, appropriate adjustment will be made in the exercise
price and in the number of shares subject to options outstanding under the
Option Plan, as well as in the number of shares reserved for issuance under the
Option Plan.
AMENDMENT AND TERMINATION OF THE PLAN
The Board may at any time amend, alter, suspend or discontinue the Option
Plan, but no amendment, alteration, suspension or discontinuation shall be made
which would impair the rights of any optionee under any grant theretofore made,
without such optionee's consent. In addition, to the extent necessary and
desirable to comply with Rule 16b-3 or with Section 422 of the Tax Code (or any
other applicable law or regulation, including the requirements of the NASD or an
established stock exchange), Octel shall obtain stockholder approval of any Plan
amendment in such a manner and to such a degree as required.
TAX INFORMATION
Options granted under the Option Plan may be either "incentive stock
options," as defined in Section 422 of the Tax Code, or nonstatutory options.
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two years after grant of the
option and one year after exercising the option, any gain or loss will be
treated as long-term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the exercise price and the lower of (i)
the fair market value of the shares at the date of the option exercise or (ii)
the sale price of the shares. A different rule for measuring ordinary income
upon such a premature disposition may apply if the optionee is also an officer,
director, or 10% stockholder of Octel. Octel will be entitled to a deduction in
the same amount as the ordinary income
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recognized by the optionee. Any gain or loss recognized on such a premature
disposition of the shares in excess of the amount treated as ordinary income
will be characterized as long-term or short-term capital gain or loss, depending
on the holding period.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory options. An optionee will not recognize any taxable
income at the time he is granted a nonstatutory option. However, upon its
exercise, the optionee will recognize taxable income generally measured as the
excess of the then fair market value of the shares purchased over the purchase
price. Any taxable income recognized in connection with an option exercise by an
optionee who is also an employee of Octel will be subject to tax withholding by
Octel. Upon resale of such shares by the optionee, any difference between the
sales price and the optionee's purchase price, to the extent not recognized as
taxable income as described above, will be treated as long-term or short-term
capital gain or loss, depending on the holding period.
Octel will be entitled to a tax deduction in the same amount as the
ordinary income recognized by the Optionee with respect to shares acquired upon
exercise of a nonstatutory option.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON THE OPTIONEE AND OCTEL WITH RESPECT TO THE GRANT AND EXERCISE OF OPTIONS
UNDER THE OPTION PLAN, DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE
INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH AN
OPTIONEE MAY RESIDE.
EXPERTS
The consolidated financial statements and schedules of Octel Communications
Corporation as of June 30, 1993 and 1992, and for each of the years in the
two-year period ended June 30, 1993, incorporated by reference in this Form S-4
of Octel Communications Corporation and in the related Joint Proxy
Statement/Prospectus, have been incorporated by reference in reliance upon the
reports of KPMG Peat Marwick, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
The consolidated financial statements and schedules of Octel Communications
Corporation at June 30, 1991 and for the year then ended, which have been
incorporated by reference in this Registration Statement on Form S-4 and the
related Joint Proxy Statement/Prospectus, have been audited by Deloitte &
Touche, independent auditors, as stated in their report which is incorporated by
reference herein, and has been so incorporated in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements and schedules of VMX, Inc. as of June
30, 1993 and 1992, and for each of the years in the three-year period ended June
30, 1993, incorporated by reference in this Form S-4 of Octel Communications
Corporation and in the related Joint Proxy Statement/Prospectus, have been
incorporated by reference in reliance upon the reports of KPMG Peat Marwick,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Octel Common Stock issuable pursuant to the Merger will
be passed upon for Octel by Wilson, Sonsini, Goodrich & Rosati, Professional
Corporation, California. Gray Cary Ware & Freidenrich, A Professional
Corporation, California is acting as counsel for VMX in connection with certain
legal matters relating to the Merger and the transactions contemplated thereby.
As of the date of this Joint Proxy Statement/Prospectus, certain members of
Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, or investment
partnerships of which such persons are partners, beneficially owned 4,000 shares
of Octel Common Stock.
OTHER MATTERS
Neither the Octel Board nor the VMX Board intends to bring any matters
before the meetings other than those specifically set forth in the notices of
meetings and neither knows of any matters to be brought before the respective
meetings by others. If any other matters properly come before the meetings, it
is the intention of the persons named in the accompanying proxies to vote such
proxies in accordance with the judgment of the Octel Board and VMX Board,
respectively.
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ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
OCTEL COMMUNICATIONS CORPORATION,
OCTEL ACQUISITION CORPORATION
AND
VMX, INC.
<PAGE> 87
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE I -- THE MERGER............................................................... A-1
1.1 The Merger.................................................................. A-1
1.2 Effective Time.............................................................. A-1
1.3 Effect of the Merger........................................................ A-1
1.4 Certificate of Incorporation; Bylaws........................................ A-1
1.5 Directors and Officers...................................................... A-2
1.6 Effect on Capital Stock..................................................... A-2
1.7 Surrender of Certificates................................................... A-2
1.8 No Further Ownership Rights in Company Capital Stock........................ A-3
1.9 Lost, Stolen or Destroyed Certificates...................................... A-4
1.10 Tax and Accounting Consequences............................................. A-4
1.11 Taking of Necessary Action; Further Action.................................. A-4
ARTICLE II -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................... A-4
2.1 Organization of the Company................................................. A-4
2.2 Company Capital Structure................................................... A-4
2.3 Obligations With Respect to Capital Stock................................... A-5
2.4 Authority................................................................... A-5
2.5 SEC Filings; Company Financial Statements................................... A-6
2.6 No Undisclosed Liabilities.................................................. A-6
2.7 Absence of Certain Changes or Events........................................ A-6
2.8 Taxes....................................................................... A-7
2.9 Restrictions on Business Activities......................................... A-8
Title of Properties; Absence of Liens and Encumbrances; Condition of
2.10 Equipment................................................................... A-8
2.11 Intellectual Property....................................................... A-8
2.12 Agreements, Contracts and Commitments....................................... A-9
2.13 Governmental Authorization.................................................. A-9
2.14 Litigation.................................................................. A-9
2.15 Environmental Matters....................................................... A-9
2.16 Brokers' and Finders' Fees.................................................. A-10
2.17 Labor Matters............................................................... A-10
2.18 Employee Benefit Plans...................................................... A-10
2.19 Insurance................................................................... A-11
2.20 Compliance With Laws........................................................ A-11
2.21 Pooling of Interests........................................................ A-11
2.22 Compensation................................................................ A-12
2.23 Registration Statements; Proxy Statement/Prospectus......................... A-12
2.24 Complete Copies of Materials................................................ A-12
2.25 Representations Complete.................................................... A-12
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB................
A-13
3.1 Organization of Parent...................................................... A-13
3.2 Capital Structure........................................................... A-13
3.3 Authority................................................................... A-13
3.4 SEC Documents; Parent Financial Statements.................................. A-14
3.5 No Undisclosed Liabilities.................................................. A-14
3.6 Absence of Certain Changes or Events........................................ A-15
3.7 Taxes....................................................................... A-15
3.8 Restrictions on Business Activities......................................... A-16
Title of Properties; Absence of Liens and Encumbrances; Condition of
3.9 Equipment................................................................... A-16
3.10 Intellectual Property....................................................... A-16
3.11 Litigation.................................................................. A-17
3.12 Environmental Matters....................................................... A-17
3.13 Agreements, Contracts and Commitments....................................... A-17
3.14 Labor Matters............................................................... A-18
3.15 Compliance With Laws........................................................ A-18
3.16 Pooling of Interests........................................................ A-18
3.17 Broker's and Finders' Fees.................................................. A-18
3.18 Registration Statement; Proxy Statement/Prospectus.......................... A-18
3.19 Complete Copies of Materials................................................ A-18
3.20 Representations Complete.................................................... A-18
ARTICLE IV -- CONDUCT PRIOR TO THE EFFECTIVE TIME..................................... A-19
4.1 Conduct of Business of the Company.......................................... A-20
4.2 Conduct of Business of Parent............................................... A-20
4.3 No Solicitation............................................................. A-22
ARTICLE V -- ADDITIONAL AGREEMENTS.................................................... A-23
5.1 Proxy Statement/Prospectus; Registration Statement.......................... A-23
5.2 Meeting of Stockholders..................................................... A-23
5.3 Access to Information....................................................... A-23
5.4 Confidentiality............................................................. A-23
5.5 Expenses.................................................................... A-23
5.6 Public Disclosure........................................................... A-24
5.7 Pooling Accounting.......................................................... A-24
5.8 Consents.................................................................... A-24
5.9 Affiliate Agreements........................................................ A-24
5.10 FIRPTA...................................................................... A-25
5.11 Legal Requirements.......................................................... A-25
5.12 Blue Sky Laws............................................................... A-25
5.13 Best Efforts and Further Assurances......................................... A-25
5.14 Stock Options............................................................... A-25
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
5.15 Form S-8.................................................................... A-26
5.16 Certain Benefit Plans....................................................... A-26
5.17 Indemnification............................................................. A-26
5.18 Tax-Free Organization....................................................... A-26
5.19 Agreement to Vote Shares.................................................... A-26
5.20 Update to Disclosures....................................................... A-26
5.21 NMS Listing................................................................. A-26
5.22 Company Stockholder Rights Plan............................................. A-26
5.23 Board Representation........................................................ A-26
ARTICLE VI -- CONDITIONS TO THE MERGER................................................ A-27
6.1 Conditions to Obligations of Each Party to Effect the Merger................ A-27
6.2 Additional Conditions to Obligations of Company............................. A-27
6.3 Additional Conditions to the Obligations of Parent and Merger Sub........... A-28
ARTICLE VII -- TERMINATION, AMENDMENT AND WAIVER...................................... A-29
7.1 Termination................................................................. A-29
7.2 Effect of Termination....................................................... A-30
7.3 Amendment................................................................... A-30
7.4 Extension; Waiver........................................................... A-30
ARTICLE VIII -- GENERAL PROVISIONS.................................................... A-30
8.1 Non-Survival of Agreement at Effective Time................................. A-30
8.2 Notices..................................................................... A-31
8.3 Interpretation.............................................................. A-31
8.4 Counterparts................................................................ A-31
8.5 Entire Agreement............................................................ A-31
8.6 Severability................................................................ A-32
8.7 Other Remedies.............................................................. A-32
8.8 Governing Law............................................................... A-32
8.9 Rules of Construction....................................................... A-32
</TABLE>
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of January 29, 1994 among Octel Communications Corporation, a
Delaware corporation ("Parent"), Octel Acquisition Corporation, a Delaware
corporation ("Merger Sub") and a wholly-owned subsidiary of Parent, and VMX,
Inc., a Delaware corporation (the "Company").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger Sub
believe it is in the best interests of each company and their respective
stockholders that the Company and Merger Sub combine into a single company
through the merger of Merger Sub with and into the Company (the "Merger") and,
in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, the outstanding shares of
Common Stock of the Company ("Company Capital Stock") shall be converted into
shares of Common Stock of Parent ("Parent Common Stock") at the rate determined
herein.
C. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, and a Merger
Agreement (the "Merger Agreement") and the applicable provisions of the Delaware
General Corporations Law ("Delaware Law"), Merger Sub shall be merged with and
into the Company, the separate corporate existence of Merger Sub shall cease and
the Company shall continue as the surviving corporation. The Company as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation."
1.2 Effective Time. As promptly as practicable after the satisfaction or
waiver of the conditions set forth in Article VI, the parties hereto shall cause
the Merger to be consummated by filing the Merger Agreement with the Secretary
of State of the State of Delaware, in accordance with the relevant provisions of
Delaware Law (the time of such filing being the "Effective Time"). The Closing
of the transaction contemplated hereby (the "Closing") shall take place at 1:00
p.m. at the offices of Wilson, Sonsini, Goodrich & Rosati, Professional
Corporation on April 27, 1994, or at such other time, date and location as the
parties hereto agree (the "Closing Date").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, the Merger Agreement and the applicable
provisions of Delaware Law. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time all the property, rights, privileges,
powers and franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the Effective Time, at
the Effective Time the Certificate of Incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the
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Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation; provided,
however, that Article I of the Certificate of Incorporation of the Surviving
Corporation shall be amended to read as follows: "The name of the corporation is
VMX, Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 Directors and Officers. The directors of Merger Sub shall be the
initial directors of the Surviving Corporation, until their respective
successors are duly elected or appointed and qualified. The officers of the
Merger Sub shall be the initial officers of the Surviving Corporation, in each
case until their respective successors are duly elected or appointed and
qualified.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, the Company or the
holders of any of the following securities:
(a) Conversion of Company Capital Stock. Each share of Common Stock,
$0.05 par value, of the Company (the "Company Capital Stock") issued and
outstanding immediately prior to the Effective Time (other than any shares
of Company Capital Stock to be canceled pursuant to Section 1.6(b) will be
canceled and extinguished and be converted automatically into the right to
receive .20 of a share of Common Stock, $0.001 par value, of the Parent
(the "Parent Common Stock"), (the "Exchange Ratio").
(b) Cancellation of Parent-Owned Stock. Each share of Company Capital
Stock owned by Merger Sub, Parent or any direct or indirect wholly owned
subsidiary of Parent or of the Company immediately prior to the Effective
Time shall be canceled and extinguished without any conversion thereof.
(c) Stock Options. At the Effective Time, all options to purchase
Company Capital Stock then outstanding under the Company's 1981 ECS Stock
Option Plan, 1983 Stock Option Plan, Employee Stock Purchase Plan, 1986
Stock Option Plan, VMX Inc./OPCOM 1982 Stock Option Plan, 1989 Stock Option
Plan, 1989 Restated Nonstatutory Stock Option Plan and Nonstatutory Stock
Option Plan and any other plan pursuant to which options set forth in
Section 2.2 have been issued (the "Company Stock Option Plans") shall be
assumed by Parent in accordance with Section 5.14 hereof.
(d) Capital Stock of Merger Sub. Each share of Common Stock, $.001
par value, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly
issued, fully paid and nonassessable share of Common Stock, no par value,
of the Surviving Corporation. Each stock certificate of Merger Sub
evidencing ownership of any such shares shall continue to evidence
ownership of such shares of capital stock of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock or Company Capital Stock),
reorganization, recapitalization or other like change with respect to
Parent Common Stock or Company Capital Stock occurring after the date
hereof and prior to the Effective Time.
(f) Fractional Shares. No fraction of a share of Parent Common Stock
will be issued, but in lieu thereof each holder of shares of Company
Capital Stock who would otherwise be entitled to a fraction of a share of
Parent Common Stock (after aggregating all fractional shares of Parent
Common Stock to be received by such holder) shall receive from Parent an
amount of cash (rounded to the nearest whole cent) equal to the product of
(i) such fraction, multiplied by (ii) the average closing price of a share
of Parent Common Stock for the ten most recent days that Parent Common
Stock has traded ending on the trading day immediately prior to the
Effective Time, as reported on the NASDAQ National Market System.
1.7 Surrender of Certificates.
(a) Exchange Agent. Chemical Trust Company of California shall act as
exchange agent (the "Exchange Agent") in the Merger.
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(b) Parent to Provide Common Stock. Promptly after the Effective Time,
Parent shall make available to the Exchange Agent for exchange in accordance
with this Article I, through such reasonable procedures as Parent may adopt, the
shares of Parent Common Stock issuable pursuant to Section 1.6 in exchange for
outstanding shares of Company Capital Stock.
(c) Exchange Procedures. Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each holder of record of a certificate
or certificates (the "Certificates") which immediately prior to the Effective
Time represented outstanding shares of Company Capital Stock whose shares were
converted into the right to receive shares of Parent Common Stock pursuant to
Section 1.6, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Parent may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of Parent Common Stock and payment in lieu of fractional shares which
such holder has the right to receive pursuant to Section 1.6, and the
Certificate so surrendered shall forthwith be canceled. Until so surrendered,
each outstanding certificate that, prior to the Effective Time, represented
shares of Company Capital Stock will be deemed from and after the Effective
Time, for all corporate purposes, other than the payment of dividends, to
evidence the ownership of the number of full shares of Parent Common Stock into
which such shares of Company Capital Stock shall have been so converted and the
right to receive an amount in cash in lieu of the issuance of any fractional
shares in accordance with Section 1.6.
(d) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the date of this Agreement with
respect to Parent Common Stock with a record date after the Effective Time will
be paid to the holder of any unsurrendered Certificate with respect to the
shares of Parent Common Stock represented thereby until the holder of record of
such Certificate shall surrender such Certificate. Subject to applicable law,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Parent Common Stock
issued in exchange therefor, without interest, at the time of such surrender,
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Parent
Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Parent Common
Stock is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this Section
1.7, none of the Exchange Agent, the Surviving Corporation or any party hereto
shall be liable to a holder of shares of Parent Common Stock for any amount
properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
1.8 No Further Ownership Rights in Company Capital Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of Company
Capital Stock in accordance with the terms hereof (including any cash paid in
respect thereof) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Company Capital Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of Company Capital Stock which were
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outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event any certificates
evidencing shares of Company Capital Stock shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed certificates, upon the making of an affidavit of that fact by the
holder thereof, such shares of Parent Common Stock and cash for fractional
shares, if any, as may be required pursuant to Section 1.6; provided, however,
that Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Parent or the Exchange Agent with respect to the
certificates alleged to have been lost, stolen or destroyed.
1.10 Tax and Accounting Consequences. It is intended by the parties hereto
that the Merger shall (a) constitute a reorganization within the meaning of
Section 368 of the Code and (b) qualify for accounting treatment as a pooling of
interests.
1.11 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action, so long as such action is consistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub, subject to
the exceptions specifically disclosed in writing in the schedules supplied by
the Company to Parent (the "Company Schedules") and dated as of the date hereof
or as otherwise disclosed in the Company SEC Reports (as defined below) or,
subject to the subsequent approval in writing by Parent of updated Company
Schedules, as of the Closing Date, as set forth below. Unless specified
otherwise, all references to the Company herein shall include the Company and
all of its subsidiaries.
2.1 Organization of the Company. Each of the Company and its subsidiaries
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has the corporate power to own,
lease and operate its property and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and in good standing as a foreign corporation in each jurisdiction in which the
failure to be so qualified would have a material adverse effect on the business,
assets (including intangible assets), financial condition, results of operations
or prospects ("Material Adverse Effect") of the Company. The Company has
delivered to Parent a true and complete list of all of the Company's
subsidiaries, together with the jurisdiction of incorporation of each
subsidiary. Except as set forth in the Company SEC Reports (as defined below in
Section 2.5), the Company does not directly or indirectly own any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for, any corporation, partnership, joint venture or other business
association or entity. The Company has delivered a true and correct copy of its
Certificate of Incorporation and Bylaws or other charter documents of the
Company and its subsidiaries, each as amended to date, to counsel for Parent.
2.2 Company Capital Structure. The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock, $0.05 par value, of which there
are 26,479,327 shares issued and outstanding as of January 28, 1994, and
1,000,000 shares of Preferred Stock, $1.00 par value, of which there are no
shares issued and outstanding. All outstanding shares of Company Capital Stock
are duly authorized, validly issued, fully paid and non-assessable and are not
subject to preemptive rights created by statute, the Certificate of
Incorporation or Bylaws of the Company or any agreement to which the Company is
a party or by which it is bound. The Company has reserved 6,039,574 shares of
Common Stock, net of exercises, for issuance to employees and consultants
pursuant to the Company Stock Option Plans, under which options are outstanding
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for 5,438,266 shares. All shares of Company Capital Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, shall be duly authorized,
validly issued, fully paid and nonassessable. The Company has provided to Parent
a schedule which sets forth for each outstanding option, the name of the holder
of such option, the number of shares subject to such option, the exercise price
of such option, the number of shares as to which such option will have been
vested at January 31, 1994 and, if the exercisability of such option will be
accelerated in any way by the transactions contemplated by this Agreement or for
any other reason, an indication of the extent of such acceleration. Such list
also describes any repricing of options which has taken place since January 1,
1992.
2.3 Obligations With Respect to Capital Stock. Except as set forth in
Section 2.2, there are no equity securities of any class of the Company, or any
security exchangeable into or exercisable for such equity securities, issued,
reserved for issuance or outstanding. Except as set forth in Section 2.2, there
are no options, warrants, equity securities, calls, rights, commitments or
agreements of any character to which the Company is a party or by which it is
bound obligating the Company to issue, deliver or sell, or caused to be issued,
delivered or sold, additional shares of capital stock of the Company or
obligating the Company to grant, extend, accelerate the vesting of or enter into
any such option, warrant, equity security, call, right, commitment or agreement.
To the best knowledge of the Company, except for the proxy agreement to be
entered into by certain Company stockholders in connection with the Merger,
there are no voting trusts, proxies or other agreements or understandings with
respect to the shares of capital stock of the Company.
2.4 Authority. The Company has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Company, subject only to
the approval of the Merger by the Company's stockholders as contemplated by
Section 6.1(a). This Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding obligation of the Company,
enforceable in accordance with its terms. The execution and delivery of this
Agreement by the Company does not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of any benefit under (i) any provision of the Certificate of Incorporation,
as amended, or Bylaws of the Company or (ii) any material mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or its properties or assets other than any such
conflicts, violations, defaults, terminations, cancellations or accelerations
which would not have a Material Adverse Effect on the Company. The Company has
prepared and delivered to Parent a full and complete list of all necessary
consents, waivers and approvals ("Consents") of third parties material to the
operations of the Company that are required to be obtained by the Company in
connection with the execution and delivery of this Agreement or the Merger
Agreement and the performance of the Company's obligations hereunder or
thereunder prior to the Closing. Prior to the Closing Date, Company will obtain
all such Consents.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity"), is
required by or with respect to the Company in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) The filing of the pre-merger notification report under
the Hart-Scott-Rodino Act ("HSR Act"), (ii) the filing of a Form S-4
Registration Statement with the Securities and Exchange Commission ("SEC") in
accordance with the Securities Act of 1933, as amended (the "Securities Act"),
(iii) the filing of the Merger Agreement with the Delaware Secretary of State,
(iv) the filing of the Proxy Statement with the SEC in accordance with the
Exchange Act, (v) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and the laws of any foreign country and (vi)
such other consents, authorizations, filings, approvals and registrations which,
if not obtained or made, would not have a Material Adverse Effect on the
Company.
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2.5 SEC Filings; Company Financial Statements.
(a) The Company has filed all forms, reports and documents required to be
filed with the SEC since June 30, 1991, and has made available to Parent (i) its
Annual Reports on Form 10-K for the fiscal years ended June 30, 1991, 1992 and
1993, respectively, (ii) its Quarterly Reports on Form 10-Q for the periods
ended September 30, 1993 and December 31, 1993, (iii) all proxy statements
relating to the Company's meetings of stockholders (whether annual or special)
held since June 30, 1991, (iv) all other reports or registration statements
(other than Reports on Form 10-Q not referred to in clause (ii) above and
Reports on Form SR) filed by the Company with the SEC since June 30, 1991 and
(vi) all amendments and supplements to all such reports and registration
statements filed by the Company with the SEC (collectively, the "Company SEC
Reports"). The Company SEC Reports (i) were prepared in accordance with the
requirements of the Securities Act or the Exchange Act of 1934, as amended (the
"Exchange Act"), as the case may be, and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to made the statements therein, in the light of the
circumstances under which they were made, not misleading. None of the Company's
subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Company SEC Reports, including
any Company SEC Reports filed after the date hereof until the Closing, was
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods involved (except as may be indicated
in the notes thereto) and each fairly presented the consolidated financial
position of the Company and its subsidiaries as at the respective dates thereof
and the consolidated results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments which were not or are not
expected to be material in amount. The unaudited balance sheet of the Company,
as of December 31, 1993 is hereinafter referred to as the "Company Balance
Sheet."
(c) The Company has heretofore furnished to Parent a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by the Company with the SEC pursuant
to the Securities Act or the Exchange Act.
2.6 No Undisclosed Liabilities. Except as disclosed in writing to Parent
or as otherwise provided in the Company SEC Reports, the Company does not have
any material liabilities, either accrued or contingent (whether or not required
to be reflected in financial statements in accordance with generally accepted
accounting principles), and whether due or to become due, which individually or
in the aggregate, (i) have not been reflected in the Company Balance Sheet, (ii)
have not been specifically described in this Agreement or in the Company
Schedules or (iii) are not normal or recurring liabilities incurred since
December 31, 1993 in the ordinary course of business consistent with past
practices.
2.7 Absence of Certain Changes or Events. Since the date of the Company
Balance Sheet, the Company and its subsidiaries have conducted their businesses
only in the ordinary course and in a manner consistent with past practice and,
since such date, there has not been (i) any material adverse change in the
financial condition, results of operations or business of the Company or any of
its subsidiaries, or any other event that would have a material negative impact
on the Company's strategic or competitive position, its organization or its
customer base (together, a "Material Adverse Change"), or any development that
could reasonably be expected to cause a Material Adverse Change; provided,
however, that a Material Adverse Change of the Company shall be presumed not to
have occurred as to results of operations, so long as (x) revenues and net
income in the quarter ending March 31, 1994 exceed revenues and net income in
the quarter ending March 31, 1993 and (y) if the interim period from April 1,
1994 until the Closing includes one or more full months of operations and
revenues for such full month(s) during such interim period exceed revenues in
the comparable period of the preceding quarter and operating expenses have grown
by 10% or less as compared to operating expenses in the similar period of the
preceding quarter (collectively the "Safe Harbor"); provided further that there
shall be no presumption that a Material Adverse Change did occur if
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the results of operations for such periods do not meet the Safe Harbor
requirements; (ii) any damage, destruction or loss (whether or not covered by
insurance) with respect to any of its subsidiaries having a Material Adverse
Effect on the Company; (iii) any material change by the Company in its
accounting methods, principles or practices to which Parent has not previously
consented in writing; (iv) any revaluation by the Company of any of its assets
having a Material Adverse Effect on the Company, including, without limitation,
writing down the value of capitalized software or inventory or writing off notes
or accounts receivable other than in the ordinary course of business, unless
Parent has previously consented in writing; or (v) except as disclosed in the
Company Disclosure Schedule, any other action or event that would have required
the consent of Parent pursuant to Section 4.1 had such action or event occurred
after the date of this Agreement and has a Material Adverse Effect on the
Company.
2.8 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement, "Taxes" or,
collectively, a "Tax," means any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
(b) Tax Returns and Audits.
(i) The Company has accurately prepared and timely filed all required
federal, state, local and foreign returns, estimates, information
statements and reports ("Returns") relating to any and all Taxes concerning
or attributable to the Company or its operations and such Returns are true
and correct and have been completed in accordance with applicable law.
(ii) The Company as of the Effective Time: (A) will have paid all
Taxes it is required to pay prior to the Effective Time and (B) will have
withheld with respect to its employees all federal and state income taxes,
FICA, FUTA and other Taxes required to be withheld.
(iii) The Company has not been delinquent in the payment of any Tax
nor is there any Tax deficiency outstanding, proposed or assessed against
the Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of
any Tax.
(iv) No audit or other examination of any Return of the Company is
presently in progress, nor has the Company been notified of any request for
such an audit or other examination.
(v) The Company does not have any liabilities for unpaid federal,
state, local and foreign Taxes which have not been accrued for or reserved
on the Company Balance Sheet, whether asserted or unasserted, contingent or
otherwise.
(vi) None of the Company's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(vii) There is no contract, agreement, plan or arrangement, including
but not limited to the provisions of this Agreement, covering any employee
or former employee of the Company that, individually or collectively, could
give rise to the payment of any amount that would not be deductible
pursuant to Sections 280G, 404 or 162 of the Code.
(viii) The Company has not filed any consent agreement under Section
341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to
any disposition of a subsection (f) asset (as defined in Section 341(f)(4)
of the Code) owned by the Company.
(ix) The Company is not, and has not been at any time, a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
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(x) The Company's tax basis in its assets for purposes of determining
its future amortization, depreciation and other federal income tax
deductions is accurately reflected on the Company's tax books and records.
2.9 Restrictions on Business Activities. There is no material agreement,
judgment, injunction, order or decree binding upon the Company which has or
could reasonably be expected to have the effect of prohibiting or materially
impairing any business practice of the Company, any acquisition of property by
the Company or the conduct of business by the Company as currently conducted or
as proposed to be conducted by the Company.
2.10 Title of Properties; Absence of Liens and Encumbrances; Condition of
Equipment.
(a) The Company has provided Parent with a true and complete list of all
real property owned or leased by the Company, and, in the case of leased real
property, the name of the lessor, the date of the lease and each amendment
thereto and the aggregate annual rental or other fee payable under any such
lease. All such leases are in good standing, valid and effective in accordance
with their respective terms, and there is not, under any of such leases, any
existing material default or event of default (or event which with notice or
lapse of time, or both, would constitute a material default and in respect of
which the Company has not taken adequate steps to prevent such default from
occurring), except where the lack of such good standing, validity and
effectiveness or the existence of such default or event of default would not
have a Material Adverse Effect on the Company.
(b) The Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its material
tangible properties and assets, real, personal and mixed, used in its business,
free and clear of any Liens except as reflected in the Company Financial
Statements and except for such imperfections of title and encumbrances, if any,
which are not substantial in character, amount or extent, and which do not
materially detract from the value, or interfere with the present use, of the
property subject thereto or affected thereby.
(c) All the equipment owned or leased by the Company is, taken as a whole,
(i) adequate for the conduct of the business of the Company consistent with its
past practice, (ii) suitable for the uses to which it is currently employed,
(iii) in good operating condition, subject to normal wear and tear, (iv)
reasonably maintained, and (v) not obsolete, dangerous or in need of renewal or
replacement, except for renewal or replacement in the ordinary course of
business.
2.11 Intellectual Property. Except as set forth in the Company SEC
Reports, the Company owns, or is licensed or otherwise possesses legally
enforceable rights to use all patents, trademarks, trade names, service marks,
copyrights, and any applications therefor, maskworks, net lists, schematics,
technology, know-how, computer software programs or applications (in both source
code and object code form), and tangible or intangible proprietary information
or material that are used or proposed to be used in the business of the Company
as currently conducted or as proposed to be conducted by the Company (the
"Company Intellectual Property Rights"). The Company is not, nor will it be as a
result of the execution and delivery of this Agreement or the performance of its
obligations hereunder, in violation of any material license, sublicense or other
intellectual property agreement. Except as set forth in the Company SEC Reports,
no claims with respect to the Company Intellectual Property Rights, any trade
secret material to the Company, or any third party intellectual property rights
to the extent arising out of any use, reproduction or distribution of such third
party intellectual property rights by or through the Company, have been asserted
or, are threatened by any person that could have a Material Adverse Effect on
the Company, nor does the Company know of any valid grounds for any bona fide
claims that could have a Material Adverse Effect on the Company (i) to the
effect that the manufacture, sale, licensing or use of any product as now used,
sold or licensed or proposed for use, sale or license by the Company infringes
on any copyright, patent, trademark, service mark or trade secret; (ii) against
the use by the Company of any trademarks, trade names, trade secrets,
copyrights, patents, technology, know-how or computer software programs and
applications used in the Company's business as currently conducted or as
proposed to be conducted by the Company; (iii) challenging the ownership,
validity or effectiveness of any of the Company Intellectual Property Rights or
other trade secret material to the Company; or (iv) challenging the Company's
license or legally enforceable right to use, or the validity or effectiveness of
any third party intellectual property rights.
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All patents, registered trademarks, service marks and copyrights held by
the Company are valid and subsisting. To the Company's knowledge, there is no
material unauthorized use, disclosure, infringement or misappropriation of any
of the Company Intellectual Property Rights, any trade secret material to the
Company, or any third party intellectual property rights to the extent licensed
by or through the Company, by any third party, including any employee or former
employee of the Company. The Company (i) has not been sued or charged in writing
as a defendant in any claim, suit, action or proceeding which involves a claim
of infringement of any patents, trademarks, service marks, copyrights or
violation of any trade secret or other proprietary right of any third party;
(ii) has no knowledge of the basis for any such charge or claim; and (iii) has
no knowledge of any infringement liability with respect to, or infringement or
violation by, the Company of any patent, trademark, service mark, copyright,
trade secret or other proprietary right of another.
No Company Intellectual Property Right, trade secret material to the
Company, or third party intellectual property right is subject to any
outstanding order, judgment, decree, stipulation or agreement restricting in any
manner the licensing thereof by the Company. Each employee of, and consultant to
the Company has signed a Proprietary Rights and Confidentiality Agreement, or
Consultant Agreement, respectively, in the Company's standard forms.
2.12 Agreements, Contracts and Commitments. The Company has not breached,
or received in writing any claim or threat that it has breached, any of the
terms or conditions of any material agreement, contract or commitment filed as
an exhibit to the Company SEC Reports ("Material Contracts") in such a manner as
would permit any other party to cancel or terminate the same or would permit any
other party to seek material damages from the Company thereunder. Each Material
Contract is in full force and effect and, except as otherwise disclosed, is not
subject to any material default thereunder of which the Company is aware by any
party obligated to the Company pursuant thereto. The Company has provided Parent
with an opportunity to review true and complete copies of all Material Contracts
to which it is a party or by which it may be bound.
2.13 Governmental Authorization. The Company has provided Parent with an
accurate list of each material federal, state, county, local or foreign
governmental consent, license, permit, grant, or other authorization issued to
the Company by a Governmental Entity (i) pursuant to which the Company currently
operates or holds any interest in any of its properties or (ii) which is
required for the operation of its business or the holding of any such interest
(herein collectively called "Company Authorizations"), which Company
Authorizations are in full force and effect and constitute all Company
Authorizations required to permit the Company to operate or conduct its business
or hold any interest in its properties.
2.14 Litigation. Except as described in the Company SEC Reports, there is
no action, suit or proceeding, claim, arbitration or investigation pending, or
as to which the Company has received any notice of assertion nor, to the
Company's knowledge, is there a reasonable basis to expect such notice of
assertion against the Company which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay any of the transactions contemplated
by this Agreement or which could reasonably be anticipated to have a Material
Adverse Effect on the Company and its subsidiaries, taken as a whole.
2.15 Environmental Matters.
(a) Hazardous Material. As of the date hereof, no underground storage tanks
and no amount of any substance that has been designated by any Governmental
Entity or by applicable federal, state or local law to be radioactive, toxic,
hazardous or otherwise a danger to health or the environment, including, without
limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances
listed as hazardous substances pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, or defined as a
hazardous waste pursuant to the United States Resource Conservation and Recovery
Act of 1976, as amended, and the regulations promulgated pursuant to said laws,
(a "Hazardous Material"), but excluding office and janitorial supplies, is
present, as a result of the actions of the Company, or, to the Company's
knowledge, as a result of any actions of any third party or otherwise, in, on or
under any property, including the land and the improvements, ground water and
surface water thereof, that the Company has at any time owned, operated,
occupied or leased.
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(b) Hazardous Materials Activities. At no time prior to the date hereof has
the Company transported, stored, used, manufactured, disposed of, released or
exposed its employees or others to Hazardous Materials in violation of any law
in effect on or before the Closing Date, nor has the Company disposed of,
transported, sold, or manufactured any product containing a Hazardous Material
(collectively "Hazardous Materials Activities") in violation of any rule,
regulation, treaty or statute promulgated by any Governmental Entity in effect
prior to or as of the date hereof to prohibit, regulate or control Hazardous
Materials or any Hazardous Material Activity.
(c) Permits. The Company currently holds all environmental approvals,
permits, licenses, clearances and consents (the "Environmental Permits")
necessary for the conduct of the Company's Hazardous Material Activities and
other businesses of the Company as such activities and businesses are currently
being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending or
threatened concerning any Environmental Permit or any Hazardous Materials
Activity of the Company. The Company is not aware of any fact or circumstance
which could involve the Company in any environmental litigation or impose upon
the Company any environmental liability which would have a Material Adverse
Effect on the Company.
2.16 Brokers' and Finders' Fees. Except for fees payable to Unterberg
Harris as disclosed to Parent as of the date hereof, the Company has not
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
2.17 Labor Matters. Except as to matters which could not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect on
the Company, the Company is in compliance with all currently applicable laws and
regulations respecting employment, discrimination in employment, terms and
conditions of employment, wages, hours and occupational safety and health and
employment practices, and is not engaged in any unfair labor practice. The
Company has not received any notice from any Governmental Entity, and there has
not been asserted before any Governmental Entity, any claim, action or
proceeding to which the Company is a party or involving the Company, and there
is neither pending nor threatened any investigation or hearing concerning the
Company arising out of or based upon any such laws, regulations or practices.
There are no pending claims against the Company under any workers compensation
plan or policy or for long term disability. The Company has fully complied with
all applicable provisions of COBRA and has no obligations with respect to any
former employees or qualifying beneficiaries thereunder. The Company has not
given to or received from any current employee of the Company notice of
termination of employment.
2.18 Employee Benefit Plans.
(a) The Company has identified to Parent all employee benefit plans (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) and all bonus, stock option, stock purchase, incentive,
deferred compensation, supplemental retirement, severance and other similar
employee benefit plans, programs or arrangements, and any current or former
employment or executive compensation or severance agreements, written or
otherwise, for the benefit of, or relating to, any current or former employee of
the Company or any trade or business (whether or not incorporated) which is a
member or which is under common control with the Company (an "ERISA Affiliate")
within the meaning of Section 414 of the Code, or any subsidiary of the Company
(together, the "Employee Plans").
(b) (i) None of the Employee Plans promises or provides retiree medical or
other retiree welfare benefits to any person except as required by applicable
law, including but not limited to COBRA; (ii) all Employee Plans are in
compliance in all material respects with the requirements prescribed by any and
all applicable statutes (including ERISA and the Code), orders, or governmental
rules and regulations currently in effect with respect thereto (including all
applicable requirements for notification to participants or beneficiaries or the
Department of Labor, Internal Revenue Service (the "IRS") or Secretary of the
Treasury), and the Company has performed all obligations required to be
performed by it under, is not in default under or violation of, and has no
knowledge of any default or violation by any other party to, any of the
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Employee Plans; (iii) each 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 either has received a favorable determination letter with respect to
each such Employee Plan from the IRS or still has a remaining period of time
under applicable Treasury Regulations or IRS pronouncements in which to apply
for such a determination letter and to make any amendments necessary to obtain a
favorable determination; and (iv) no Employee Plan is or within the prior six
(6) years has been subject to, and the Company has not incurred and does not
expect to incur any liability under, Title IV of ERISA or Section 412 of the
Code and (v) nothing in any Employee Plan precludes or interferes with Parent's
ability to cause the Company to terminate (or consolidate, at Parent's option)
any Employee Plan after the Closing; provided that (i) the Employee Plans may be
terminated prospectively only, subject to rights accrued by the Company's
employees at the time of such termination and (ii) not more than sixty days
notice may be required to terminate certain Employee Plans.
(c) None of the following now exists or has existed within the six-year
period ending on the date hereof with respect to any Employee Plan: (i) any act
or omission by the Company constituting a violation of Section 402, 403, 404 or
405 of ERISA; (ii) any act or omission by the Company which constitutes a
violation of Sections 406 and 407 of ERISA and is not exempted by Section 408 of
ERISA or which constitutes a violation of Section 4975(c) of the Code and is not
exempted by Section 4975(d) of the Code; (iii) any act or omission by the
Company constituting a violation of Section 503, 510 or 511 of ERISA; or (iv)
any act or omission by the Company which could give rise to liability under
Section 502 of ERISA or under Sections 4972 or 4975 through 4980 of the Code.
(d) Each Employee Plan has been maintained in substantial compliance with
its terms, and all contributions, premiums or other payments due from the
Company or any of its subsidiaries to (or under) any such Employee Plan have
been fully paid or adequately provided for on the audited Company Financial
Statements for the most recentlyended fiscal year. All accruals thereon
(including, where appropriate proportional accruals for partial periods) have
been made in accordance with generally accepted accounting principles
consistently applied on a reasonable basis. There has been no amendment, written
interpretation or announcement (whether or not written) by the Company with
respect to, or change in employee participation or coverage under, any Employee
Plan that would increase materially the expense of maintaining such plans or
arrangements, individually or in the aggregate, above the level of expense
incurred with respect thereto for the most recently-ended fiscal year.
(e) The Company has made available to Parent complete, accurate and current
copies of all Employee Plans and all amendments, documents, correspondence and
filings relating thereto, including but not limited to any statements, filings,
reports or returns filed with any governmental agency with respect to the
Employee Plans at any time within the three-year period ending on the date
hereof.
2.19 Insurance. The Company has provided Parent with an accurate list of
all insurance policies and fidelity bonds covering the assets, business,
equipment, properties, operations, employees, officers and directors of the
Company. There is no claim by the Company pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and the Company is otherwise in full
compliance with the terms of such policies and bonds (or other policies and
bonds providing substantially similar insurance coverage). The Company has no
knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies.
2.20 Compliance With Laws. The Company has complied in all material
respects with, is not in material violation of, and has not received any notices
of violation with respect to, any federal, state or local statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business.
2.21 Pooling of Interests. To its knowledge, neither the Company nor any
of its directors, officers or stockholders has taken any action which would
interfere with Parent's ability to account for the Merger as a pooling of
interests.
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2.22 Compensation. Since December 31, 1993, the Company has not paid or
committed itself to pay to or for the benefit of any of its directors, officers,
employees who earn more than $40,000 annually or stockholders any compensation
of any kind other than wages, salaries and benefits at times and rates in effect
on December 31, 1993, subject to wage increases of less than five percent paid
or payable to employees other than officers and directors, nor has it effected
or agreed to effect any amendment or supplement to any employee profit sharing,
stock option, stock purchase, pensions, bonus, incentive, retirement, severance,
medical reimbursement, life insurance, deferred compensation or any other
employee benefit plan or arrangement. The Company has no bonus plan or
obligations with respect to any bonus plan except as disclosed to Parent. The
Company has also provided Parent with a full and complete list of all directors,
officers, employees and consultants of the Company as of the date hereof,
specifying their names and job designations, the total amount paid or payable,
and the basis of such compensation, whether fixed or commission or a combination
thereof. The Company has disclosed on the date hereof a reasonable estimate of
all amounts (whether currently payable or payable in the future) payable as a
result of a change in control of the Company to which current or former
officers, directors or employees of the Company are entitled or would become
entitled after the Merger, under the terms of any benefit arrangements.
2.23 Registration Statements; Proxy Statement/Prospectus. The information
supplied by the Company for inclusion in the Registration Statement (as defined
in Section 3.16) shall not at the time the Registration Statement is declared
effective by the Securities and Exchange Commission (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
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 and Parent in
connection with the meeting of the Company's stockholders to consider the Merger
(the "Company Stockholders' Meeting") and in connection with the meeting of
Parent's stockholders to consider the merger (the "Parent Stockholders Meeting")
(such proxy statement/prospectus as amended or supplemented is referred to
herein as the "Proxy Statement") shall not, on the date the Proxy Statement is
first mailed to the Company's stockholders and Parent's Stockholders, at the
time of the Company Stockholders' Meeting or the Parent's Stockholder Meeting
and at the Effective Time, 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 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 Company
Stockholders' Meeting or the Parent's Stockholder Meeting which has become false
or misleading. If at any time prior to the Effective Time 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, 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 Parent
or Merger Sub which is contained in any of the foregoing documents.
2.24 Complete Copies of Materials. The Company has delivered or made
available true and complete copies of each document (or summaries of same) which
has been requested by Parent or its counsel in connection with their legal and
accounting review of the Company.
2.25 Representations Complete. None of the representations or warranties
made by the Company, nor any statement made in any Company Schedule, Exhibit or
certificate furnished by the Company pursuant to this Agreement, when all such
documents are read together in their entirety, contains or will contain any
untrue statement of a material fact at the Effective Time, or omits or will omit
at the Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company, subject to the
exceptions specifically disclosed in the schedules supplied by Parent to the
Company (the "Parent Schedules") and dated as of the date hereof or as otherwise
disclosed in the Parent SEC Reports (as defined below) or, subject to the
subsequent approval in writing by the Company of updated Parent Schedules, as of
the Closing Date, as follows:
3.1 Organization of Parent. Each of Parent and its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, has the corporate power to own, lease
and operate its property and to carry on its business as now being conducted and
as proposed to be conducted, and is duly qualified to do business and in good
standing as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have a Material Adverse Effect on Parent. Except as set
forth in the Parent SEC Reports, Parent does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for, any corporation, partnership, joint venture or other
business association or entity. Parent has delivered a true and correct copy of
the Certificate of Incorporation and Bylaws or other charter documents of
Parent, each as amended to date, to counsel for the Company.
3.2 Capital Structure.
(a) The authorized stock of Parent consists of 50,000,000 shares of Common
Stock, $0.001 par value, of which 18,131,450 shares were issued and outstanding
as of January 26, 1994, and 5,000,000 shares of undesignated Preferred Stock,
$.001 par value. No shares of Preferred Stock are issued or outstanding. The
authorized capital stock of Merger Sub consists of 1,000 shares of Common Stock,
$.001 par value, 1,000 shares of which, as of the date hereof, are issued and
outstanding and are held by Parent. All such shares have been duly authorized,
and all such issued and outstanding shares have been validly issued, are fully
paid and nonassessable and are free of any liens or encumbrances other than any
liens or encumbrances created by or imposed upon the holders thereof. As of
December 31, 1993, Parent has also reserved (i) 7,300,000 shares, net of
exercises, of Common Stock for issuance to employees and consultants pursuant to
Parent's 1985 Incentive Stock Plan under which options are outstanding for
5,587,718 shares, (ii) 200,000 shares of Common Stock for issuance to directors
under its 1988 Directors' Stock Option Plan under which options are outstanding
for 145,000 shares, and (iii) 1,250,000 shares, net of purchases, of Common
Stock for issuance under the Parent's 1987 Employee Stock Purchase Plan. All
shares of Parent Common Stock subject to issuance as aforesaid, upon issuance on
the terms and conditions specified in the instruments pursuant to which they are
issuable, shall be duly authorized, validly issued, fully paid and
nonassessable. There are no other equity securities, options, warrants, calls,
rights, commitments or agreements of any character to which Parent is a party or
by which it is bound obligating Parent to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of Parent or obligating Parent to grant, extend or
enter into any such equity security, option, warrant, call, right, commitment or
agreement.
(b) The shares of Parent Common Stock to be issued pursuant to the Merger
will be duly authorized, validly issued, fully paid, non-assessable.
3.3 Authority. Parent and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Merger Sub subject
only to the approval of the Merger by Parent's stockholders as contemplated by
Section 6.1(a). This Agreement has been duly executed and delivered by Parent
and Merger Sub and constitutes the valid and binding obligations of Parent and
Merger Sub, enforceable in accordance with its terms. The execution and delivery
of this Agreement does not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination,
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cancellation or acceleration of any obligation or loss of a benefit under (i)
any provision of the Certificate of Incorporation or Bylaws of Parent or Merger
Sub or (ii) any material mortgage, indenture, lease, contract or other agreement
or instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent or its
properties or assets other than any such conflicts, violations, defaults,
terminations, cancellations or accelerations which would not have a Material
Adverse Effect on the Parent.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity, is required by or with
respect to Parent and Merger Sub in connection with the execution and delivery
of this Agreement by Parent and Merger Sub or the consummation by Parent and
Merger Sub of the transactions contemplated hereby, except for (i) the filing of
a pre-merger notification report under the HSR Act; (ii) the filing of the Form
S-4 Registration Statement with the SEC, (iii) the filing of the Merger
Agreement with the Delaware Secretary of State, (iv) the filing of a Form 8-K
and Form 10-C with the SEC within 15 days and 10 days, respectively, after the
Closing Date, (v) listing of the Parent Shares on the NASDAQ National Market
System, (vi) any filings as may be required under applicable state securities
laws and the laws of any foreign country, and (vii) such other consents,
authorizations, filings, approvals and registrations which if not obtained or
made would not have a Material Adverse Effect on Parent.
3.4 SEC Documents; Parent Financial Statements.
(a) Parent has filed all forms, reports and documents required to be filed
with the SEC since June 30, 1991, and has heretofore delivered to the Company,
in the form filed with the SEC, (i) its Annual Reports on Form 10-K for the
fiscal years ended June 30, 1991, 1992 and 1993, respectively, (ii) its
Quarterly Reports on Form 10-Q for the periods ended September 30, 1993 and
December 31, 1993, (iii) all proxy statements relating to Parent's meetings of
stockholders (whether annual or special) held since June 30, 1991, (iv) all
other reports or registration statements (other than Reports on Form 10-Q not
referred to in clause (ii) above and Reports on Form SR) filed by Parent with
the SEC since June 30, 1991 and (v) all amendments and supplements to all such
reports and registration statements filed by Parent with the SEC (collectively,
the "Parent SEC Reports"). The Parent SEC Reports (i) were prepared in
accordance with the requirements of the Securities Act or the Exchange Act, as
the case may be, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to made the
statements therein, in the light of the circumstances under which they were
made, not misleading. None of Parent's subsidiaries is required to file any
forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Parent SEC Reports, including any
Parent SEC Reports filed after the date hereof until the Closing, was prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto) and each fairly presented the consolidated financial position
of Parent and its subsidiaries as at the respective dates thereof and the
consolidated results of its operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments which were not or are not expected to
be material in amount. The unaudited balance sheet of Parent, as of December 31,
1993 is hereinafter referred to as the "Parent Balance Sheet."
(c) Parent has heretofore furnished to the Company a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Parent with the SEC pursuant to
the Securities Act or the Exchange Act.
3.5 No Undisclosed Liabilities. Except as disclosed in writing to the
Company or as otherwise provided in the Parent SEC Reports, Parent does not have
any material liabilities, either accrued or contingent (whether or not required
to be reflected in financial statements in accordance with generally accepted
accounting principles), and whether due or to become due, which individually or
in the aggregate, (i) have not been reflected in the Parent Balance Sheet, (ii)
have not been specifically described in this Agreement or
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(iii) are not normal or recurring liabilities incurred since December 31, 1993
in the ordinary course of business consistent with past practices.
3.6 Absence of Certain Changes or Events. Since the date of the Parent
Balance Sheet, except as disclosed in the Parent SEC Reports filed since that
date to the date of this Agreement, except with respect to the actions
contemplated by this Agreement, Parent and its subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and, since such date, there has not been (i) any material adverse
change in the financial condition, results of operations or business of the
Parent or any of its subsidiaries, or any other event that would have a material
negative impact on Parent's strategic or competitive position, its organization
or its customer base (together, a "Material Adverse Change"); or any development
that could reasonably be expected to cause a Material Adverse Change; provided,
however that a Material Adverse Change of Parent shall be presumed not to have
occurred as to results of operations, so long as (x) revenues and net income in
the quarter ending March 31, 1994 exceed revenues and net income in the quarter
ending March 31, 1993 and (y) if the interim period from April 1, 1994 until the
Closing includes one or more full months of operations and revenues for such
full month(s) during such interim period exceed revenues in the comparable
period of the preceding quarter and operating expenses have grown by 10% or less
as compared to operating expenses in the similar period of the preceding quarter
(collectively, the "Safe Harbor"); provided further that there shall be no
presumption that a Material Adverse Change did occur if the results of
operations for such periods do not meet the Safe Harbor requirements; (ii) any
damage, destruction or loss (whether or not covered by insurance) with respect
to any assets of Parent or any of its subsidiaries having a Material Adverse
Effect on Parent; (iii) any material change by Parent in its accounting methods,
principles or practices, unless the Company has previously consented in writing;
or (iv) any revaluation by Parent of any of its assets having a Material Adverse
Effect on Parent, including, without limitation, writing down the value of
capitalized software or inventory or writing off notes or accounts receivable
other than in the ordinary course of business, unless the Company has previously
consented in writing.
3.7 Taxes.
(i) Parent has accurately prepared and timely filed all Returns relating to
any and all Taxes concerning or attributable to Parent or its operations and
such Returns are true and correct and have been completed in accordance with
applicable law.
(ii) Parent as of the Effective Time: (A) will have paid all Taxes it is
required to pay prior to the Effective Time and (B) will have withheld with
respect to its employees all federal and state income taxes, FICA, FUTA and
other Taxes required to be withheld.
(iii) Parent has not been delinquent in the payment of any Tax nor is there
any Tax deficiency outstanding, proposed or assessed against the Parent, nor has
the Parent executed any waiver of any statute of limitations on or extending the
period for the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of Parent is presently in
progress, nor has the Parent been notified of any request for such an audit or
other examination.
(v) Parent does not have any liabilities for unpaid federal, state, local
and foreign Taxes which have not been accrued or reserved against on the Parent
Balance Sheet, whether asserted or unasserted, contingent or otherwise.
(vi) None of Parent's assets are treated as "taxexempt use property" within
the meaning of Section 168(h) of the Code.
(vii) Parent has not filed any consent agreement under Section 341(f) of
the Code or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the
Code) owned by the Parent.
(viii) Parent is not, and has not been at any time, a "United States real
property holding corporation" within the meaning of Section 897(c)(2) of the
Code.
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(ix) Parent's tax basis in its assets for purposes of determining its
future amortization, depreciation and other federal income tax deductions is
accurately reflected on the Parent's tax books and records.
3.8 Restrictions on Business Activities. There is no material agreement,
judgment, injunction, order or decree binding upon Parent which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any business practice of Parent, any acquisition of property by the Company or
the conduct of business by the Parent as currently conducted or as proposed to
be conducted by the Company.
3.9 Title of Properties; Absence of Liens and Encumbrances; Condition of
Equipment.
(a) Parent owns no real property except as described in the Parent
Schedules. All real property leases to which Parent or its subsidiaries are
parties are in good standing, valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
material default or event of default (or event which with notice or lapse of
time, or both, would constitute a material default and in respect of which
Parent has not taken adequate steps to prevent such default from occurring),
except where the lack of such good standing, validity and effectiveness or the
existence of such default or event of default would not have a Material Adverse
Effect on the Parent.
(b) Parent has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its material
tangible properties and assets, real, personal and mixed, used in its business,
free and clear of any Liens except as reflected in the Parent Financial
Statements and except for such imperfections of title and encumbrances, if any,
which are not substantial in character, amount or extent, and which do not
materially detract from the value, or interfere with the present use, of the
property subject thereto or affected thereby.
(c) All of the equipment owned or leased by the Parent is, taken as a
whole, (i) adequate for the conduct of the business of Parent consistent with
its past practice, (ii) suitable for the uses to which it is currently employed,
(iii) in good operating condition, subject to normal wear and tear, (iv)
reasonably maintained, (v) not obsolete, dangerous or in need of renewal or
replacement, except for renewal or replacement in the ordinary course of
business.
3.10 Intellectual Property. Except as set forth in the Parent SEC Reports,
Parent owns, or is licensed or otherwise possesses legally enforceable rights to
use all patents, trademarks, trade names, service marks, copyrights, and any
applications therefor, maskworks, net lists, schematics, technology, know-how,
computer software programs or applications (in both source code and object code
form), and tangible or intangible proprietary information or material that are
used or proposed to be used in the business of Parent as currently conducted or
as proposed to be conducted by Parent (the "Parent Intellectual Property
Rights"). Parent is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations hereunder, in
violation of any material license, sublicense or other intellectual property
agreement. Except as set forth in the Parent SEC Reports, no claims with respect
to Parent Intellectual Property Rights, any trade secret material to Parent, or
any third-party intellectual property rights to the extent arising out of any
use, reproduction or distribution of such third-party intellectual property
rights by or through Parent, have been asserted or, are threatened by any person
that could have a Material Adverse Effect, nor does Parent know of any valid
grounds for any bona fide claims that could have a Material Adverse Effect (i)
to the effect that the manufacture, sale, licensing or use of any product as now
used, sold or licensed or proposed for use, sale or license by Parent infringes
on any copyright, patent, trademark, service mark or trade secret; (ii) against
the use by the Parent of any trademarks, trade names, trade secrets, copyrights,
patents, technology, know-how or computer software programs and applications
used in the Parent's business as currently conducted or as proposed to be
conducted by Parent; (iii) challenging the ownership, validity or effectiveness
of any of the Parent Intellectual Property Rights or other trade secret material
to Parent; or (iv) challenging Parent's license or legally enforceable right to
use, or the validity or effectiveness of the third-party intellectual property
rights.
Except as set forth in the Parent SEC Reports, all patents, registered
trademarks, service marks and copyrights held by Parent are valid and
subsisting. To the Parent's knowledge, there is no material unauthorized use,
disclosure, infringement or misappropriation of any of Parent Intellectual
Property Rights,
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any trade secret material to the Parent, or any third party intellectual
property right to the extent licensed by or through Parent, by any third party,
including any employee or former employee of Parent. Except as set forth in the
Parent SEC Reports, Parent (i) has not been sued or charged in writing as a
defendant in any claim, suit, action or proceeding which involves a claim of
infringement of any patents, trademarks, service marks, copyrights or violation
of any trade secret or other proprietary right of any third party; (ii) has no
knowledge of the basis for any such charge or claim; and (iii) has no knowledge
of any infringement liability with respect to, or infringement or violation by,
Parent of any patent, trademark, service mark, copyright, trade secret or other
proprietary right of another.
Except as set forth in the Parent SEC Reports, no Parent Intellectual
Property Right, trade secret material to Parent, or third-party intellectual
property right is subject to any outstanding order, judgment, decree,
stipulation or agreement restricting in any manner the licensing thereof by the
Company. Each employee of, and consultant to, Parent has signed a proprietary
rights and confidentiality agreement, or consultant agreement, respectively, in
Parent's standard forms.
3.11 Litigation. Except as described in the Parent SEC Reports, there is
no action, suit, proceeding, claim, arbitration or investigation pending, or as
to which Parent has received any notice of assertion nor, to Parent's knowledge,
is there a reasonable basis to expect such notice of assertion against Parent
which in any manner challenges or seeks to prevent, enjoin, alter or materially
delay any of the transactions contemplated by this Agreement or which could
reasonably be anticipated to have a Material Adverse Effect on Parent and its
subsidiaries, taken as a whole.
3.12 Environmental Matters.
(a) Hazardous Material. As of the date hereof, no underground storage tanks
and no Hazardous Material, but excluding office and janitorial supplies, is
present, as a result of the actions of Parent, or, to Parent's knowledge, as a
result of any actions of any third party or otherwise, in, on or under any
property, including the land and the improvements, ground water and surface
water thereof, that the Company has at any time owned, operated, occupied or
leased.
(b) Hazardous Materials Activities. At no time prior to the date hereof has
Parent transported, stored, used, manufactured, disposed of, released or exposed
its employees or others to Hazardous Materials in violation of any law in effect
on or before the Closing Date, nor has Parent disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (collectively
"Hazardous Materials Activities") in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Entity prior to or as of the date
hereof to prohibit, regulate or control Hazardous Materials or any Hazardous
Material Activity.
(c) Permits. Parent currently holds all Environmental Permits necessary for
the conduct of Parent's Hazardous Material Activities and other businesses of
Parent as such activities and businesses are currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending or
threatened concerning or relating to Parent, any Environmental Permit or any
Hazardous Materials Activity of Parent. Parent is not aware of any fact or
circumstance which could involve Parent in any environmental litigation or
impose upon Parent any environmental liability which would have a Material
Adverse Effect on Parent.
3.13 Agreements, Contracts and Commitments. Parent has not breached, or
received in writing any claim or threat that it has breached, any of the terms
or conditions of any material agreement, contract or commitment filed as an
exhibit to the Parent SEC Reports ("Material Contracts") in such a manner as
would permit any other party to cancel or terminate the same or would permit any
other party to seek material damages from Parent thereunder. Each Material
Contract is in full force and effect and, except as otherwise disclosed, is not
subject to any material default thereunder of which Parent is aware by any party
obligated to Parent pursuant thereto. Parent has provided the Company with an
opportunity to review true and complete copies of all Material Contracts to
which it is a party or by which it may be bound.
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3.14 Labor Matters. Except as to matters which could not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect on
Parent, Parent is in compliance with all currently applicable laws and
regulations respecting employment, discrimination in employment, terms and
conditions of employment, wages, hours and occupational safety and health and
employment practices, and is not engaged in any unfair labor practice. Parent
has not received any notice from any Governmental Entity, and there has not been
asserted before any Governmental Entity, any claim, action or proceeding to
which Parent is a party or involving Parent, and there is neither pending nor
threatened any investigation or hearing concerning Parent arising out of or
based upon any such laws, regulations or practices. There are no pending claims
against Parent under any workers compensation plan or policy or for long term
disability.
3.15 Compliance With Laws. Parent has complied in all material respects
with, is not in material violation of, and has not received any notices of
violation with respect to, any federal, state or local statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business.
3.16 Pooling of Interests. To Parent's knowledge, neither Parent nor any
of its subsidiaries has taken any action which would interfere with Parent's
ability to account for the Merger as a pooling of interests.
3.17 Broker's and Finders' Fees. Except for fees payable to Hambrecht &
Quist Incorporated, Parent has not incurred, and will not incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement, the Merger or any
transaction contemplated hereby.
3.18 Registration Statement; Proxy Statement/Prospectus. Subject to the
accuracy of the representations of the Company made in Section 2.23, the
registration statement (the "Registration Statement") on Form S-4 (or such other
or successor form as shall be appropriate) pursuant to which the shares of
Parent Common Stock to be issued in the Merger will be registered with the SEC
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 shall not, on the date the Proxy Statement
is first mailed to stockholders, at the time of the Company's Stockholders'
Meeting, at the time of the Parent's Stockholders' Meeting and at the Effective
Time, 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 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 solicitation of proxies for the Company Stockholders'
Meeting or the Parent's Stockholders' Meeting which has become false or
misleading. If at any time prior to the Effective Time 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,
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.
3.19 Complete Copies of Materials. Parent has delivered or made available
true and complete copies of each document (or summaries of same) which has been
requested by the Company or its counsel in order for the Company to make a
complete legal and accounting review of Parent and its subsidiaries.
3.20 Representations Complete. None of the representations or warranties
made by Parent or Merger Sub herein, nor any statement made in any Parent
Schedule, Exhibit or certificate furnished pursuant to this Agreement or the SEC
Documents, when all such documents are read together in their entirety, contains
or will contain any untrue statement of a material fact at the Effective Time,
or omits or will omit at the Effective Time to state any material fact necessary
in order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
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ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company agrees (which shall include the
Company and all of its subsidiaries) (except to the extent that Parent shall
otherwise consent in writing), to carry on its business in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted, to
pay its debts and taxes when due subject to good faith disputes over such debts
or taxes, to pay or perform other obligations when due, and, to the extent
consistent with such business, use all reasonable efforts consistent with past
practices and policies to preserve intact the Company's present business
organizations, keep available the services of its present officers and key
employees and preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with the
Company, to the end that the Company's goodwill and ongoing businesses shall be
unimpaired at the Effective Time. The Company shall promptly notify Parent of
any event or occurrence not in the ordinary course of business of the Company,
and will not enter into any agreement or take any action which could have a
Material Adverse Effect on the Company. The Company shall promptly notify Parent
if any event, agreement or occurrence could have a Material Adverse Effect on
the Company. Except as expressly contemplated by this Agreement, the Company
shall not, without the prior written consent of Parent, such consent not to be
unreasonably withheld in the case of subsections 4.1(b),(f),(i) and (l):
(a) Accelerate, amend or change the period of exercisability of
options or restricted stock granted under the employee stock plans of the
Company or authorize cash payments in exchange for any options granted
under any of such plans;
(b) Enter into long-term partnerships, joint development agreements or
strategic alliances, agreements to create standards or agreements with
"Standards" bodies;
(c) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to
standard written agreements outstanding on the date hereof and as
previously disclosed to Parent;
(d) Transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Company's Intellectual Property Rights or
enter into grants to future patent rights, networking protocols or
agreements with other voicemail vendors, other than licenses in connection
with the sale of systems, goods or services entered into in the ordinary
course of business consistent with past practices; provided, however, that
if in connection with any transaction described in this paragraph 4.1(d)
Parent does not consent, then Parent will either (i) disclose its reasons
for such refusal and the Company can elect to proceed with the transaction
or not, in its reasonable discretion and/or (ii) not disclose its reasons
for such refusal and elect to indemnify the Company with respect to the
Company's forbearance concerning the contemplated transaction if the Merger
fails to occur;
(e) Violate, amend or otherwise modify the terms of any of the
contracts set forth in the Company Schedules in a way that could have a
Material Adverse Effect;
(f) Commence a lawsuit other than (i) for the routine collection of
bills, (ii) for software piracy, or (iii) in such cases where the Company
in good faith determines that failure to commence suit would result in the
material impairment of a valuable aspect of the Company's business,
provided that the Company consults with Parent prior to the filing of such
a suit;
(g) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company, or repurchase
or otherwise acquire, directly or indirectly, any shares of its capital
stock except from former employees, directors and consultants in accordance
with agreements providing for the repurchase of shares in connection with
any termination of service to the Company;
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(h) Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of
its capital stock or securities convertible into, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities, other than the repurchase of shares of the Company's Common
Stock from terminated employees pursuant to the terms of restricted stock
purchase agreements and the issuance of shares of the Company's Common
Stock pursuant to the exercise of Company stock options or warrants
therefor outstanding as of the date of this Agreement;
(i) Cause or permit any amendments to its Certificate of Incorporation
or Bylaws;
(j) Acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to
the business of the Company, or enter into any joint ventures, strategic
partnerships or alliances or purchase any distributors;
(k) Sell, lease, license or otherwise dispose of any of its properties
or assets which are material, individually or in the aggregate, to the
business of the Company, except in the ordinary course of business;
(l) Incur any indebtedness for borrowed money (other than ordinary
course trade payables or pursuant to the existing credit facility) or
guarantee any such indebtedness or issue or sell any debt securities of the
Company or guarantee any debt securities of others;
(m) Adopt or amend any employee benefit or stock purchase or option
plan, or enter into any employment contract, pay any special bonus or
special remuneration to any director or employee, or increase the salaries
or wage rates of its employees other than in the ordinary course, except
officers who have not received increases since December 31, 1993 and who
are otherwise due for an ordinary course increase; provided however, that
the Company may amend its Management Performance Bonus Plan to exclude
expenses related to the Merger from the Company's financial results for the
third and fourth quarters of fiscal year 1994 in calculating bonuses that
are payable under such Plan, if such Plan has not been so modified with
Parent's consent prior to the date such bonuses are otherwise due;
(n) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business;
(o) Pay, discharge or satisfy in an amount in excess of $50,000 (in
any one case) or $100,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business of liabilities reflected or reserved against in
the Company Financial Statements (or the notes thereto);
(p) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, file any material Return
or any amendment to a material Return, enter into any closing agreement,
settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(q) Take any action, including the acceleration of vesting of any
options, warrants or other rights to acquire shares of the Company's
Capital Stock, which would interfere with Parent's ability to account for
the Merger as a pooling of interests; or
(r) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through (q) above, 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.
4.2 Conduct of Business of Parent. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, Parent (which shall include Parent and its subsidiaries)
agrees (except to the extent that the Company shall otherwise consent in
writing),
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to carry on its business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, to pay its debts and
taxes when due subject (i) to good faith disputes over such debts or taxes and
(ii) in the case of taxes, to the Company's consent to the filing of material
Returns if applicable, to pay or perform other obligations when due, and, to the
extent consistent with such business, use all reasonable efforts consistent with
past practices and policies to preserve intact Parent's present business
organizations, keep available the services of its present officers and key
employees and preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with
Parent, to the end that Parent's goodwill and ongoing businesses shall be
unimpaired at the Effective Time. Parent shall promptly notify the Company of
any event or occurrence not in the ordinary course of business of Parent, and
will not enter into any agreement or take any action which could have a Material
Adverse Effect on Parent. Parent shall promptly notify the Company if any event,
agreement or occurrence could have a Material Adverse Effect. Except as
expressly contemplated by this Agreement, Parent shall not, without the prior
written consent of the Company, such consent not to be unreasonably withheld in
the case of subsections (c), (d) or (j):
(a) Accelerate, amend or change the period of exercisability of
options or restricted stock granted under the employee stock plans of
Parent or authorize cash payments in exchange for any options granted under
any of such plans;
(b) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to
standard written agreements outstanding on the date hereof and as
previously disclosed to the Company;
(c) Violate, amend or otherwise modify the terms of any of the
contracts set forth in the Parent Schedules or any Material Contracts in a
way that could have a Material Adverse Effect;
(d) Commence a lawsuit other than (i) for the routine collection of
bills, (ii) for software piracy, or (iii) in such cases where Parent in
good faith determines that failure to commence suit would result in the
material impairment of a valuable aspect of Parent's business, provided
that Parent consults with the Company prior to the filing of such a suit;
(e) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of Parent, or repurchase or
otherwise acquire, directly or indirectly, any shares of its capital stock
except from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service to Parent;
(f) Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of
its capital stock or securities convertible into, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities, other than the repurchase of shares of Parent's Common Stock
from terminated employees pursuant to the terms of restricted stock
purchase agreements and the issuance of shares of Parent's Common Stock
pursuant to the exercise of Parent stock options or warrants therefor
outstanding as of the date of this Agreement;
(g) Cause or permit any amendments to its Certificate of
Incorporation, other than to increase Parent's authorized capital stock, or
Bylaws;
(h) Acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to
the business of Parent, or enter into any joint ventures, strategic
partnerships or alliances or purchase any distributors; provided, however,
that the Company's consent shall not be required for any acquisition, joint
venture, strategic partnerships or alliances so long as the aggregate
consideration for such transactions does not exceed $50 million or 10%
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of the outstanding Common Stock of Parent and provided further that Parent
agrees to disclose all such transactions to the Company;
(i) Sell, lease, license or otherwise dispose of any of its properties
or assets which are material, individually or in the aggregate, to the
business of Parent, except in the ordinary course of business;
(j) Incur any indebtedness for borrowed money (other than ordinary
course trade payables or pursuant to Parent's existing bank facility) or
guarantee any such indebtedness or issue or sell any debt securities of
Parent or guarantee any debt securities of others;
(k) Adopt or amend any employee benefit or stock purchase or option
plan (except as required to add additional shares to the existing option
plan), or enter into any employment contract, pay any special bonus or
special remuneration to any director or employee, or increase the salaries
or wage rates of its employees other than in the ordinary course;
(l) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business;
(m) Pay, discharge or satisfy in an amount in excess of $200,000 ( in
any one case) or $400,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business of liabilities reflected or reserved for in the
Parent Financial Statements (or the notes thereto);
(n) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, file any material Return
or any amendment to a material Return, enter into any closing agreement,
settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(o) Take any action, including the acceleration of vesting of any
options, warrants or other rights to acquire shares of Parent's Common
Stock, which would interfere with Parent's ability to account for the
Merger as a pooling of interests; or
(p) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.2(a) through (o) above, or any action which would
make any of the representations or warranties of Parent contained in this
Agreement untrue or incorrect or prevent Parent from performing or cause
Parent not to perform its covenants hereunder.
4.3 No Solicitation. Prior to the Effective Time, the Company will not (nor
will the Company permit any of the Company's officers, directors, agents,
representatives or affiliates to) directly or indirectly, take any of the
following actions with any party other than Parent and its designees, except as
required by law (including actions which the Company's Board of Directors
determines, after consultation with outside legal counsel, are required pursuant
to its fiduciary duties under applicable law):
(a) solicit, encourage, initiate or participate in any negotiations or
discussions with respect to, any offer or proposal to acquire all or
substantially all of the Company's or any subsidiary's business, assets or
properties or to purchase or acquire capital stock of the Company or any
subsidiary whether by merger, purchase of assets, tender offer or otherwise
(an "Acquisition"),
(b) disclose any information not customarily disclosed to any person
other than its attorneys or financial advisors concerning the Company's or
any subsidiary's business and properties or afford to any person or entity
access to its properties, books or records, or
(c) assist or cooperate with any person to make any proposal to
consummate a transaction of the type referred to in clause (a) above.
In the event the Company shall receive any such written offer or proposal,
directly or indirectly, oral or written, of the type referred to in clause (a)
or (c) above, or any request for disclosure or access pursuant to clause (b)
above, the Company shall immediately inform Parent as to all material facts
relating to any such
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offer or proposal (including the identity of the party making such offer or
proposal and the specific terms thereof) and will cooperate with Parent by
furnishing any information it may reasonably request.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement. As promptly as
practicable after the execution of this Agreement, Parent and the Company shall
prepare, and Parent shall file with the SEC, a Registration Statement on Form
S-4 (or such other or successor form as shall be appropriate), which shall
include preliminary proxy materials relating to the approval of the Merger, and
which complies in form with applicable SEC requirements. Parent and the Company
shall use all reasonable efforts to cause the Registration Statement to become
effective as soon thereafter as practicable; provided, however, that Parent
shall have no obligation to agree to account for the Merger as a "purchase" in
order to cause the Registration Statement to become effective. The Proxy
Statement shall include the recommendation of the Board of Directors of the
Company in favor of the Merger which shall not be changed unless the Board of
Directors of the Company, upon advice of its outside legal counsel, shall
determine that to include such recommendation or not withdraw such
recommendation if previously included would constitute a breach of the Board's
fiduciary duty under applicable law. The Proxy Statement shall include the
recommendation of the Board of Directors of Parent in favor of the Merger;
provided that such recommendation may not be included or may be withdrawn if
previously included if Parent has been advised by its outside legal counsel that
Parent's Board of Directors would be in breach of its fiduciary duties if it
included such recommendation or did not withdraw such recommendation if
previously included.
5.2 Meeting of Stockholders.
(a) The Company shall promptly after the date hereof take all action
necessary in accordance with Delaware Law and its Certificate of Incorporation
and Bylaws to convene the Company Stockholders' Meeting on April 27, 1994 or as
soon thereafter as is practicable. The Company shall consult with Parent and use
its best efforts to hold the Company Stockholders' Meeting on the same day as
the Parent Stockholders' Meeting. Subject to Section 5.1, the Company shall use
reasonable efforts to solicit from stockholders of the Company proxies in favor
of the Merger.
(b) Parent shall promptly after the date hereof take all action necessary
in accordance with Delaware Law and its Certificate of Incorporation and Bylaws
to convene the Parent Stockholders' Meeting on April 27, 1994 or as soon
thereafter as is practicable. Parent shall consult with the Company and shall
use all reasonable efforts to hold the Parent Stockholders' Meeting on the same
day as the Company Stockholders' Meeting. Subject to Section 5.1, Parent shall
use reasonable efforts to solicit from stockholders of Parent proxies in favor
of the Merger.
5.3 Access to Information. Each party shall afford the other party and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to all information
concerning the business, properties and personnel of such party as the other
party may reasonably request. No information or knowledge obtained in any
investigation pursuant to this Section 5.3 shall affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
5.4 Confidentiality. The parties acknowledge that Parent and the Company
have previously executed an Agreement for Mutual Disclosure of Information dated
November 1, 1993 (the "Confidentiality Agreement"), which Confidentiality
Agreement shall continue in full force and effect in accordance with its terms.
5.5 Expenses.
(a) Except as set forth in this Section 5.5, 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
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equally all fees and expenses, other than attorneys fees, incurred in relation
to the printing and filing of the Registration Statement (including financial
statements and exhibits and the proxy statement) and any amendments or
supplements thereto.
(b) If this Agreement is terminated by Parent pursuant to Section 7.1(b)(i)
and provided that (A) Parent is not then in breach of its representations and
warranties under this Agreement such that Section 6.2(a) of this Agreement would
not be satisfied and (B) Parent is not otherwise in material breach of its
obligations under this Agreement, then the Company shall pay Parent for all of
its reasonable out-of-pocket expenses, including but not limited to attorney's
fees, accounting fees, financial printer expenses, filing fees and fees and
expenses of financial advisors incurred in connection with this Agreement and
the Merger ("Out of Pocket Expenses"), not to exceed $1.5 million. If this
Agreement is terminated pursuant to Section 7.1(c)(i), and provided that (C) the
Company is not then in breach of its representations and warranties under this
Agreement such that Section 6.3(a) of this Agreement would not be satisfied and
(D) the Company is not otherwise in material breach of its obligations under
this Agreement, then Parent shall pay the Company its Out-of-Pocket Expenses,
not to exceed $1.5 million, incurred in connection with this Agreement and the
Merger. Notwithstanding the foregoing, nothing contained herein shall relieve
any party from liability for any breach of this Agreement.
(c) If the Company's stockholders do not approve the Merger on or before
June 30, 1994, the Company shall pay Parent its Out-of-Pocket Expenses, not to
exceed $250,000. If the Parent's stockholders do not approve the Merger on or
before June 30, 1994, Parent shall pay the Company its Out-of-Pocket Expenses,
not to exceed $250,000. Notwithstanding the foregoing, this provision shall not
apply in the event the Company is required to make payment to the Parent
hereunder pursuant to Section 5.5(b) or Section 5.5(d) or if Parent is required
to make payment to the Company pursuant to Section 5.5(b). Nothing contained
herein shall relieve any party from liability for any breach of this Agreement.
(d) The Company shall pay Parent $5 million in connection with this
Agreement and the Merger if the Company (A) enters into an agreement for an
Acquisition (as defined in Section 4.3 hereof) with a Third Party (as defined in
Section 7.1(b)(iii) hereof) or (B) completes an Acquisition transaction with a
Third Party.
(e) If this Agreement shall be terminated in the circumstances specified in
the foregoing subsection (d), then the payments thereunder shall be liquidated
damages for loss of the bargain hereunder and shall be the recipient's sole and
exclusive remedy in such event.
5.6 Public Disclosure. Parent and the Company shall consult with each
other before issuing any press release or otherwise making any public statement
with respect to the Merger or this Agreement and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law or any listing agreement with a national securities
exchange.
5.7 Pooling Accounting. Parent and the Company shall each use its best
efforts to cause the business combination to be effected by the Merger to be
accounted for as a pooling of interests. Each of Parent and the Company shall
use its best efforts to cause its Affiliates (as defined in Section 5.9) not to
take any action that would adversely affect the ability of Parent to account for
the business combination to be effected by the Merger as a pooling of interests.
5.8 Consents. Each of Parent and the Company shall promptly apply for or
otherwise seek, and use its best efforts to obtain, all consents and approvals
required to be obtained by it for the consummation of the Merger, and the
Company shall use its best efforts to obtain all necessary consents, waivers and
approvals under any of the Company's material agreements, contracts, licenses or
leases in connection with the Merger for the assignment thereof or otherwise.
All such necessary consents are set forth on Company Schedule 5.8.
5.9 Affiliate Agreements.
(a) Within two weeks of the date hereof, the Company will provide Parent
with a list of those persons who are, in the Company's reasonable judgment,
"affiliates" of the Company within the meaning of Rule 145 (each such person who
is an "affiliate" of Parent or Company within the meaning of Rule 145 is
referred to as
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an "Affiliate") promulgated under the Securities Act ("Rule 145"). The Company
shall provide Parent such information and documents as Parent shall reasonably
request for purposes of reviewing such list. The Company shall use its best
efforts to deliver or cause to be delivered to Parent by March 1, 1994 (and in
each case prior to the Effective Time) from each of the Affiliates of the
Company, an executed Affiliate Agreement in the usual and customary form. Parent
and Merger Sub shall be entitled to place appropriate legends on the
certificates evidencing any Parent Common Stock to be received by such
Affiliates of the Company pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for Parent Common
Stock, consistent with the terms of such Affiliates Agreements.
5.10 FIRPTA. The Company shall deliver to the Internal Revenue Service a
notice that the Company Capital Stock is not a "U.S. Real Property Interest" as
defined in and in accordance with the requirements of Treasury Regulation
Section 1.897-2(h)(2).
5.11 Legal Requirements. Each of Parent, Merger Sub and the Company will
take all reasonable actions necessary or desirable to comply promptly with all
legal requirements which may be imposed on them with respect to the consummation
of the transactions contemplated by this Agreement (including resolution of any
litigation prompted hereby) and will promptly cooperate with and furnish
information to any party hereto necessary in connection with any such
requirements imposed upon such other party in connection with the consummation
of the transactions contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement.
5.12 Blue Sky Laws. Parent shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Parent Common Stock pursuant hereto. The
Company shall use its best efforts to assist Parent as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable in connection with the issuance of Parent Common Stock pursuant
hereto.
5.13 Best Efforts and Further Assurances. Each of the parties to this
Agreement shall each use its best efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
closing under this Agreement (including resolution of any litigation prompted
hereby). Each party hereto, at the reasonable request of another party hereto,
shall execute and deliver such other instruments and do and perform such other
acts and things as may be necessary or desirable for effecting completely the
consummation of this Agreement and the transactions contemplated hereby.
5.14 Stock Options.
(a) At the Effective Time, each outstanding option to purchase shares of
Company Capital Stock (each a "Company Stock Option") under the Company Stock
Option Plans, whether vested or unvested, will be assumed by Parent. Each
Company Stock Option so assumed by Parent under this Agreement shall continue to
have, and be subject to, the same terms and conditions set forth in the Company
Stock Option Plan immediately prior to the Effective Time, except that (i) such
Company Stock Option will be exercisable for that number of whole shares of
Parent Common Stock equal to the product of the number of shares of Company
Capital Stock that were issuable upon exercise of such Company Stock Option
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole number of shares of Parent Common Stock, and
(ii) the per share exercise price for the shares of Parent Common Stock issuable
upon exercise of such assumed Company Stock Option will be equal to the quotient
determined by dividing the exercise price per share of Company Capital Stock at
which such Company Stock Option was exercisable immediately prior to the
Effective Time by the Exchange Ratio, rounded up to the nearest whole cent.
(b) After the Effective Time, Parent will issue to each holder of an
outstanding Company Stock Option a document evidencing the foregoing assumption
of such Company Stock Option by Parent.
(c) It is the intention of the parties that the Company Stock Options
assumed by Parent qualify following the Effective Time as incentive stock
options as defined in Section 422 of the Code to the extent the Company Stock
Options qualified as incentive stock options prior to the Effective Time.
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5.15 Form S-8. Parent agrees to file a registration statement on Form S-8
for the Company Stock Option Plans no later than 30 days after the Closing.
5.16 Certain Benefit Plans. Subject to compliance with pooling of
interests accounting treatment of the Merger, Parent shall take such reasonable
actions as are necessary to allow eligible employees of the Company to
participate in the benefit programs of Parent, or alternative benefit programs
substantially comparable to those applicable to employees of Parent on similar
terms, as soon as practicable after the Effective Time.
5.17 Indemnification. For a period of five (5) years from the date hereof,
in the event of any threatened or actual claim, action, suit, proceeding or
investigation, whether civil, criminal or administrative, including, without
limitation, any such claim, action, suit, proceeding or investigation in which
any of the present or former officers or directors (the "Managers") of the
Company is, or is threatened to be, made a party by reason of the fact that he
is or was a director, officer, employee or agent of the Company, or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
whether before or after the Effective Time, the parties hereto agree to
cooperate and use their best efforts to defend against and respond thereto.
Parent shall indemnify the persons who are currently officers and directors of
the Company substantially in accordance with the Bylaws of the Company as they
are currently in effect and in accordance with indemnification agreements
between such persons and the Company. In addition, the Company shall, and after
the Effective Time Parent shall, use their respective best efforts to maintain
in effect for not less than three years from the Effective Time the current
policies of directors' and officers' liability insurance maintained by the
Company, provided that the Company may substitute therefor policies providing at
least the same coverage and containing terms and conditions which are not less
advantageous with respect to matters occurring prior to the Effective Time; and,
provided further that the Parent shall only be obligated to maintain insurance
pursuant hereto to the extent such coverage may be purchased for amounts which
do not exceed $150,000 per year and that, in the event such insurance cannot be
obtained, Parent will use its best efforts to provide insurance covering such
parties on the best available terms obtained for premiums in that amount.
Notwithstanding anything herein to the contrary, Parent shall not be obligated
to provide insurance covering such parties to any greater extent than it
provides for its officers and directors.
5.18 Tax-Free Organization. Parent and the Company shall each use its best
efforts to cause the Merger to be treated as a reorganization within the meaning
of Section 368 of the Code.
5.19 Agreement to Vote Shares. Within two weeks of the date hereof, in
consideration for the execution of this Agreement and the Merger Agreement by
Parent and Merger Sub, each officer and director of the Company shall, in an
agreement in the usual and customary form, agree to vote all shares of the
Company Capital Stock held by such person entitled to vote at the Company's
Stockholders' Meeting (and at any adjournment thereof) in favor of the Merger
Agreement and the Merger.
5.20 Update to Disclosures. Without limiting either party's right to rely
on the representations and warranties as of the date of this Agreement, each
party shall provide the other party with updates to the disclosures provided or
made available to the other party as to material facts which arise between the
date of this Agreement and the Effective Date, and which, if they had occurred
and been known prior to the date of this Agreement, would have been required to
have been disclosed in order to make the representations warranties contained in
Article II true and correct as of the date of this Agreement.
5.21 NMS Listing. The Company agrees to continue the listing of the
Company Capital Stock on the NASDAQ National Market System during the term of
this Agreement so that stockholders of the Company will not receive appraisal
rights under Section 262 of the Delaware General Corporation Law.
5.22 Company Stockholder Rights Plan. The Company agrees to amend or
terminate its Stockholder Rights Plan, dated as of February 5, 1990 (the "Rights
Plan"), and any similar plan, or take other action to redeem any rights
thereunder pursuant to such Rights Plan so that the Rights Plan and any similar
plan will not apply to the transactions contemplated by this Agreement.
5.23 Board Representation. Parent agrees to appoint one director of the
Company to its Board of Directors as of the Effective Time.
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ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of the stockholders of each
of the Company, Merger Sub and Parent.
(b) Registration Statement Effective. The SEC shall have declared the
Registration Statement effective. No stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose, and no similar proceeding
in respect of the Proxy Statement, shall have been initiated or threatened
by the SEC; and all requests for additional information on the part of the
SEC shall have been complied with to the reasonable satisfaction of the
parties hereto.
(c) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall have been
issued, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending; nor shall there be any
action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Merger, which makes the consummation
of the Merger illegal.
(d) Tax Opinions. Parent and the Company shall have received
substantially identical written opinions of Wilson, Sonsini, Goodrich &
Rosati, Professional Corporation, and Gray Cary Ware & Freidenrich,
Professional Corporation, in form and substance reasonably satisfactory to
them, to the effect that the Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code. The parties to this Agreement
agree to make reasonable representations as requested by such counsels for
the purpose of rendering such opinions.
(e) Approval. Parent, the Company and Merger Sub shall have timely
obtained from each Governmental Entity all approvals, if any, necessary for
consummation of the Merger and the transactions contemplated hereby,
including without limitation termination of the waiting period under the
HSR Act.
(f) Affiliate Agreements. Each party shall have received from each of
the Affiliates of the Company an executed Affiliate Agreement.
6.2 Additional Conditions to Obligations of Company. The obligations of
the Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
(a) Representations, Warranties and Covenants. The representations and
warranties of Parent and Merger Sub in this Agreement shall be true and correct
in all material respects on and as of the Effective Time as though such
representations and warranties were made on and as of such time and Parent and
Merger Sub shall have performed and complied in all material respects with all
covenants, obligations and conditions of this Agreement required to be performed
and complied with by it as of the Effective Time.
(b) Certificate of Parent. The Company shall have been provided with a
certificate executed on behalf of Parent by its President and its Chief
Financial Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by Parent and Merger
Sub under this Agreement are true and complete in all material respects;
and
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(ii) all covenants, obligations and conditions of this Agreement to
be performed by Parent and Merger Sub on or before such date have been
so performed in all material respects.
(c) Legal Opinion. The Company shall have received a legal opinion
from Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, counsel
to Parent, in the usual and customary form.
(d) Fairness Opinion. Unterberg Harris shall have delivered an opinion
to the Board of Directors of the Company dated as of the date of the Proxy
Statement, in form reasonably satisfactory to Company, to the effect that
the consideration to be received by the stockholders of the Company in
connection with the transactions contemplated by this Agreement is fair
from a financial point of view.
(e) Material Adverse Change. There shall not have occurred any
Material Adverse Change in the business of Parent as defined in Section 3.6
hereof.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate and effect this Agreement and
the transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by Parent:
(a) Representations, Warranties and Covenants. The representations and
warranties of the Company in this Agreement shall be true and correct in
all material respects on and as of the Effective Time as though such
representations and warranties were made on and as of such time and the
Company shall have performed and complied in all material respects with all
covenants, obligations and conditions of this Agreement required to be
performed and complied with by it as of the Effective Time.
(b) Certificate of the Company. Parent shall have been provided with a
certificate executed on behalf of the Company by its President and Chief
Financial Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by the Company under
this Agreement are true and complete in all material respects; and
(ii) all covenants, obligations and conditions of this Agreement to
be performed by the Company on or before such date have been so
performed in all material respects.
(c) Third Party Consents. Parent shall have been furnished with
evidence satisfactory to it of the consent or approval of those persons
whose consent or approval shall be required to effectuate the Merger or
whose consents are necessary to assign contracts, licenses, leases or other
instruments material to the business of the Company.
(d) Injunctions or Restraints on Conduct of Business. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision challenging Parent's proposed acquisition of the
Company, or limiting or restricting Parent's conduct or operation of the
business of the Company, following the Merger shall be in effect, nor shall
any proceeding brought by an administrative agency or commission or other
Governmental Entity, domestic or foreign, seeking any of the foregoing be
pending.
(e) Fairness Opinion. Hambrecht & Quist Incorporated shall have
delivered, and reconfirmed as of the date of the Proxy Statement, an
opinion to the Board of Directors of Parent, in form reasonably
satisfactory to Parent, to the effect that the consideration to be paid by
Parent in connection with the transactions contemplated by this Agreement
is fair from a financial point of view to Parent.
(f) Legal Opinion. Parent shall have received a legal opinion from
Gray Cary Ware & Freidenrich, Professional Corporation, legal counsel to
the Company, in the usual and customary form.
(g) No Material Adverse Changes. There shall not have occurred any
Material Adverse Change in the business of the Company as defined in
Section 2.7 hereof.
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(h) Opinion of Accountants. Parent shall have received an opinion of
KPMG Peat Marwick, independent auditors, acceptable to Parent, to the
effect that the Merger qualifies for pooling of interests accounting
treatment if consummated in accordance with this Agreement.
(i) Dissenters. Holders of not more than 5% of the outstanding shares
of Company Capital Stock shall have exercised, or shall continue to have
the right to exercise, appraisal rights with respect to the transactions
contemplated by this Agreement.
(j) Stockholder Rights Plan. The holders of Company Capital Stock
shall have no rights under the Rights Plan or any similar plan as a result
of the transactions contemplated by this Agreement.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated and the Merger abandoned
at any time prior to the Effective Time:
(a) by mutual written consent of the Company and Parent;
(b) by Parent if:
(i) there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part
of the Company and such breach has not been cured within five business
days after written notice to the Company (provided that, no cure period
shall be required for a breach which by its nature cannot be cured);
(ii) there shall be any final action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable
to the Merger by any Governmental Entity, which would prohibit Parent's
or the Company's ownership or operation of all or a material portion of
the business of the Company, or compel Parent or the Company to dispose
of or hold separate all or a material portion of the business or assets
of the Company or Parent as a result of the Merger;
(iii) Any corporation, partnership, person or other entity or
group, (as defined in Section 13d) of the Exchange Act (other than
Parent or affiliate of Parent) (a "Third Party") commences or publicly
announces a tender or exchange offer to acquire more than 20% of the
outstanding voting securities of the Company;
(iv) any Third Party solicits and receives proxies or consents
sufficient to permit it to elect directors nominated by it to a majority
of the seats of the Company's Board of Directors or to block stockholder
approval of the Merger;
(v) (A) the Company advises Parent (or is obligated by Section 4.3
hereof to advise Parent but has failed to do so) that the Company has
been advised in writing by counsel that it is required to participate in
negotiations, provide information or otherwise cooperate with any Third
Party concerning an acquisition and intends to proceed with such action
or the Company (or its subsidiaries) or (B) any of their respective
directors, officers or agents, directly or indirectly, solicits or
initiates any discussions in violation of Section 4.3; or
(vi) if any condition to Parent's obligation to complete the Merger
has not been satisfied or waived by Parent.
(c) by the Company if:
(i) there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part
of Parent or Merger Sub and such breach has not been cured within five
days after written notice to Parent (provided that, no cure period shall
be required for a breach which by its nature cannot be cured);
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(ii) there shall be any final action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable
to the Merger by any Governmental Entity, which would prohibit Parent's
or the Company's ownership or operation of all or a material portion of
the business of the Company, or compel Parent or the Company to dispose
of or hold separate all or a material portion of the business or assets
of the Company or Parent as a result of the Merger; or
(iii) if any condition to the Company's obligation to complete the
Merger has not been satisfied or waived by the Company.
(d) by any party hereto if: (i) the Closing has not occurred by June
30, 1994; (ii) there shall be a final, non-appealable order of a federal or
state court in effect preventing consummation of the Merger; (iii) there
shall be any final action taken, or any statute, rule, regulation or order
enacted, promulgated or issued or deemed applicable to the Merger by any
Governmental Entity which would make consummation of the Merger illegal; or
(iv) if the Company's stockholders do not approve the Merger and this
Agreement at the Company Stockholders' Meeting or (v) if Parent's
Stockholders do not approve the Merger and this Agreement at the Parent
Stockholders' Meeting.
Where action is taken to terminate this Agreement pursuant to this Section
7.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
7.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Merger Sub, the
Company or their respective officers, directors, stockholders or affiliates,
except to the extent that such termination results from the breach by a party
hereto of any of its representations, warranties or covenants set forth in this
Agreement, and, provided that, the provisions of Sections 5.4 and 5.5 of this
Agreement shall remain in full force and effect and survive any termination of
this Agreement.
7.3 Amendment. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of each of the
parties hereto.
7.4 Extension; Waiver. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Agreement at Effective Time. The representations,
warranties and covenants of the Company and Parent contained in this Agreement
shall terminate on the Effective Time of the Merger, except that the agreements
set forth in Article I, Sections 4.3, 5.4, 5.5, 5.13, 5.14, 5.15, 5.16, 5.17 and
5.18 and Article VIII shall survive the Effective Time indefinitely. All
representations, warranties and covenants in or pursuant to this Agreement shall
be deemed to be conditions to the Merger, and in the event this Agreement and
the Merger Agreement shall be terminated in accordance with the terms thereof,
the provisions of Sections 5.4 and 5.5 of the Agreement shall survive any
termination of this Agreement or the Merger Agreement.
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8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via telecopy to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Octel Communications Corporation
890 Tasman Drive
Milpitas, California 95035-7439
Attention: Robert Cohn
Telecopy No.: (408) 321-0347
with a copy at the same address to the attention of the General
Counsel and
with a copy to:
Wilson, Sonsini, Goodrich & Rosati, P.C.
Two Palo Alto Square, Suite 900
Palo Alto, California 94306
Attention: Barry E. Taylor, Esq.
Telecopy No.: (415) 493-6811
(b) if to the Company, to:
VMX, Inc.
2115 O'Nel Drive
San Jose, California 95131-2032
Attention: Chief Executive Officer
Telecopy No.: (408) 441-7026
with a copy to:
Gray Cary Ware & Freidenrich, P.C.
400 Hamilton Avenue
Palo Alto, California 94304
Attention: Eric Lapp, Esq.
Telecopy No.: (415) 327-3699
8.3 Interpretation. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement. This Agreement and the documents and instruments and
other agreements among the parties hereto, including the Company Schedules and
the Parent Schedules (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, except for the Confidentiality Agreement, which shall
continue in full force and effect until the Closing and shall survive any
termination of this Agreement; (b) are not intended to confer upon any other
person any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided.
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8.6 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
8.7 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction of
any court within Santa Clara County, State of California, in connection with any
matter based upon or arising out of this Agreement or the matters contemplated
herein, agrees that process may be served upon them in any manner authorized by
the laws of the State of California for such persons and waives and covenants
not to assert or plead any objection which they might otherwise have to such
jurisdiction and such process.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
IN WITNESS WHEREOF, Parent, Merger Sub, the Company have caused this
Agreement to be signed by themselves or their duly authorized respective
officers, all as of the date first written above.
OCTEL COMMUNICATIONS CORPORATION
VMX, INC.
By: /s/ ROBERT COHN
By: /s/ PATRICK S. HOWARD
Robert Cohn, President and
Patrick S. Howard, President
Chief Executive Officer
and Chief Executive Officer
OCTEL ACQUISITION CORPORATION
By: /s/ ROBERT COHN
Robert Cohn, President and
Chief Executive Officer
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ANNEX B
HAMBRECHT & QUIST
ONE BUSH STREET
SAN FRANCISCO, CALIFORNIA 94104
(415)576-3300
CABLE: HAMQUIST
TELEX: 277064 HQ UP UR
FAX (415) 576-3624
Confidential
January 29, 1994
The Board of Directors
Octel Communications Corporation
890 Tasman Drive
Milpitas, California 95035-7439
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to Octel Communications Corporation ("Octel" or the "Company") of the
consideration to be paid by the Company in connection with the proposed merger
(the "Proposed Transaction") of Octel Acquisition Corporation ("Sub"), a wholly
owned subsidiary of Octel, with and into VMX, Inc. ("VMX") pursuant to the
Agreement and Plan of Reorganization dated as of January 29, 1994, among Octel,
Sub and VMX (the "Agreement"). The Agreement provides, among other things, that
holders of outstanding shares of VMX common stock, par value $0.05 per share,
will receive upon consummation of the Proposed Transaction 0.200 shares of
common stock, par value $.001 per share, of Octel (the "Common Stock") for each
share of VMX common stock in the manner more fully described in the Agreement
(the "Merger Consideration"). For purposes of this opinion, we have assumed that
the Proposed Transaction will qualify as a tax-free reorganization under the
United States Internal Revenue Code and that the Proposed Transaction will be
accounted for as a pooling of interests.
Hambrecht & Quist Incorporated ("Hambrecht & Quist"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and their securities in connection with mergers and acquisitions, corporate
restructurings, strategic alliances, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. We have acted as financial advisor
to the Board of Directors of Octel in connection with the Proposed Transaction
and will receive a fee for our services, including the rendering of this
opinion.
Hambrecht & Quist is familiar with Octel and has in the past provided
investment banking and other financial advisory services to Octel for which it
has received customary fees. In the ordinary course of business, Hambrecht &
Quist acts as a market maker and broker in the publicly traded securities of
Octel and receives customary compensation in connection therewith, and also
provides research coverage for Octel. In the ordinary course of business,
Hambrecht & Quist actively trades in the equity and derivative securities of
Octel for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
In connection with our review of the Proposed Transaction, and in arriving
at our opinion, we have, among other things:
(i) reviewed the publicly available financial statements of the
Company for recent years and interim periods to date and certain other
relevant financial and operating data of the Company made available to us
from published sources and the internal records of the Company;
(ii) discussed with certain members of the management of the Company
and the Company's Board of Directors the business, financial condition and
prospects of the Company;
<PAGE> 123
(iii) reviewed certain financial and operating information, including
certain projections, relating to the Company;
(iv) discussed with certain members of the management of the Company
and the Company's Board of Directors the Proposed Transaction;
(v) reviewed the publicly available financial statements of VMX for
recent years and interim periods to date and certain other relevant
financial and operating data of VMX made available to us from published
sources and the internal records of VMX;
(vi) reviewed certain financial and operating information, including
certain projections, provided by the management of VMX and discussed such
projections with certain members of the management of VMX;
(vii) reviewed the recent reported prices and trading activity for the
Common Stock and the VMX common stock and compared such information and
certain financial information of the Company and VMX with similar
information for certain other companies engaged in businesses we consider
comparable to those of the Company and VMX;
(viii) reviewed the financial terms, to the extent publicly available,
of certain comparable merger and acquisition transactions;
(ix) reviewed the Agreement; and
(x) performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations and
financial, economic and market data as we deemed relevant.
We have not independently verified any of the information concerning Octel
or VMX considered in connection with our review of the Proposed Transaction and,
for purposes of the opinion set forth herein, we have assumed and relied upon
the accuracy and completeness of all such information. We have not prepared or
obtained any independent evaluation or appraisal of any of the assets or
liabilities of VMX or Octel, nor have we conducted a physical inspection of the
properties and facilities of VMX or Octel. With respect to the financial
forecasts and projections made available to us and used in our analyses, we have
assumed that they reflect the best currently available estimates and judgments
of the expected future financial performance of Octel and VMX. We have assumed
that neither Octel nor VMX is a party to any pending transactions, including
external financings, recapitalizations or material merger discussions, other
than the Proposed Transaction and those activities undertaken in the ordinary
course of conducting their respective businesses. Our opinion is necessarily
based upon market, economic, financial and other conditions as they exist and
can be evaluated as of the date of this letter, and any change in such
conditions would require a reevaluation of this opinion. We express no opinion
as to the price at which the Common Stock will trade subsequent to the
consummation of the Proposed Transaction.
Based upon and subject to the foregoing, and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof
the Merger Consideration to be paid by the Company in the Proposed Transaction
is fair to the Company from a financial point of view. We express no opinion,
however, as to the adequacy of any consideration received in the Proposed
Transaction by VMX or any of its affiliates or any security holder of VMX.
Very truly yours,
HAMBRECHT & QUIST INCORPORATED
B-2
<PAGE> 124
ANNEX C
UNTERBERG HARRIS
PARK AVENUE TOWER
65 EAST 55TH STREET, 18TH FLOOR
NEW YORK, NEW YORK 10022
(212) 888-5600
FAX (212) 888-8611
Board of Directors
VMX, Inc.
2115 O'Nel Drive
San Jose, CA 95131-2032
Dear Sirs and Madam:
We understand that VMX, Inc. ("VMX" or the "Company"), Octel Acquisition
Corporation, and Octel Communications Corporation ("Octel") have entered into an
Agreement and Plan of Reorganization, dated as of January 29, 1994 (the
"Reorganization Agreement") pursuant to which VMX will become a wholly owned
subsidiary of Octel (the "Merger"). In connection with the Merger, Octel will
issue 0.20 shares of its Common Stock for each share of VMX's Common Stock (the
"Merger Consideration").
You have requested our opinion with respect to the fairness of the Merger
Consideration, from a financial point of view, to the stockholders of VMX.
In connection with our review, we have, among other things:
(i) reviewed the Reorganization Agreement;
(ii) reviewed publicly available financial information with respect to
the business operations of the Company including, but not limited to,
audited financial statements for the fiscal years ended June 30, 1991, 1992
and 1993 and unaudited financial statements for the quarterly periods ended
September 30, 1993 and December 31, 1993;
(iii) reviewed publicly available financial information with respect
to the business operations of Octel including, but not limited to, audited
financial statements for the fiscal years ended June 30, 1991, 1992 and
1993 and unaudited financial statements for the quarterly periods ended
September 30, 1993 and December 31, 1993;
(iv) reviewed certain internal financial and operating information
relating to VMX and Octel (including financial projections) prepared by the
respective managements of each company;
(v) held discussions with certain members of both VMX and Octel senior
management concerning their past and current operations, financial
condition and business prospects and the potential financial effect of the
Merger of VMX and Octel if the Merger were consummated;
(vi) reviewed a comparison of operating results and other financial
information of VMX and Octel with other companies which we deemed
appropriate;
(vii) reviewed the historical market prices and reported trading
activity of VMX and Octel shares;
(viii) compared the financial terms of the Merger with the terms of
certain other merger, acquisition and business combination transactions
which we deemed appropriate; and
(ix) considered such other information, financial studies and analyses
as we deemed relevant and performed such analyses, studies and
investigations as we deemed necessary.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us. With respect to any
financial projections, we assumed that they have been
<PAGE> 125
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the respective future financial performances of VMX and Octel
and the future financial performance of the combined company. We have also
assumed that the Merger will be accounted for as a pooling-of-interests.
We have not conducted a physical inspection of the properties or facilities
of VMX or Octel or made any independent valuation or appraisal of the assets,
liabilities, patents or intellectual property of VMX or Octel, nor have we been
furnished with any such valuations or appraisals. We were not requested to and
did not approach any parties other than Octel with respect to a business
combination involving the Company. Our opinion is necessarily based upon
economic, market and other conditions as in effect on, and the information made
available to us, as of the date of this letter.
We understand that in considering the Merger, the Board of Directors of the
Company has considered a wide range of financial and non-financial factors, many
of which are beyond the scope of this letter. This letter is not intended to
substitute for the Board's exercise of its own business judgment in reviewing
the Merger. This opinion is solely for purposes of the Board of Directors of the
Company in connection with its exercise of its business judgment, and delivery
of this opinion is not intended to confer rights on any third party, including
stockholders, employees or creditors of the Company or Octel.
It should be understood that, although subsequent developments may affect
this opinion, Unterberg Harris does not have any obligation to update, revise or
reaffirm this opinion. We are expressing no opinion herein as to the prices at
which the shares of the Company or Octel will actually trade at any time. Our
opinion does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the Merger.
Based upon and subject to the foregoing considerations, it is our opinion
as financial advisors that, as of the date hereof, the Merger Consideration is
fair from a financial point of view to the stockholders of VMX.
Very truly yours,
UNTERBERG HARRIS
C-2
<PAGE> 126
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
PROXY
OCTEL COMMUNICATIONS CORPORATION
MARCH 31, 1994 SPECIAL MEETING OF STOCKHOLDERS
The undersigned stockholder(s) of Octel Communications Corporation, a
Delaware corporation, hereby acknowledge(s) receipt of the Notice of Special
Meeting of Stockholders and the Joint Proxy Statement/Prospectus, each dated
March 1, 1994, and hereby appoints Robert Cohn and Derek S. Daley, and each of
them, Proxies and Attorneys-in-Fact, with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
Special Meeting of Stockholders of Octel Communications Corporation, to be held
on March 31, 1994, at 9:00 a.m., local time, at the Santa Clara Marriott, 2700
Mission College Blvd., Santa Clara, California 95052-8181, and at any
adjournments thereof, and to vote all shares of Common Stock which the
undersigned is entitled to vote on the matters set forth below:
THIS BALLOT WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION
IS INDICATED, WILL BE VOTED FOR APPROVAL OF THE AGREEMENT AND PLAN OF
REORGANIZATION, DATED AS OF JANUARY 29, 1994, AND THE MERGER, FOR APPROVAL OF
THE INCREASE IN THE NUMBER OF SHARES RESERVED FOR ISSUANCE UNDER THE 1985
INCENTIVE STOCK PLAN AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS
MAY PROPERLY COME BEFORE THE MEETING.
(Continued and to be signed on the other side)
------------ In their discretion the Proxies are
COMMON authorized to vote upon such other
business as may properly come
before the meeting.
/X/ Please mark
your votes This Proxy should be marked, dated,
as this signed by the stockholder(s)
exactly as the stockholder's name
appears hereon and returned promptly
1. Proposal to approve the in the enclosed envelope. Persons
Agreement and Plan of signing in a fiduciary capacity
Reorganization and the Merger. should so indicate. If shares are
held by joint tenants or as
community property, both should
FOR AGAINST ABSTAIN sign.
[ ] [ ] [ ]
-----------------------------------
2. Proposal to amend the 1985 Typed or Printed Name(s)
Incentive Stock Plan to increase
the number shares reserved for -----------------------------------
issuance thereunder. Signature
FOR AGAINST ABSTAIN
[ ] [ ] [ ] -----------------------------------
Signature
-----------------------------------
Title, if applicable
Dated: , 1994
<PAGE> 127
VMX, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR A SPECIAL MEETING
MARCH 31, 1994
The undersigned stockholder(s) of VMX, Inc., a Delaware corporation, hereby
acknowledge(s) receipt of the Notice of Special Meeting of Stockholders and the
Joint Proxy Statement/Prospectus, each dated March 1, 1994, and hereby appoints
Patrick Howard and Bruce Pollock, and each of them, Proxies and
Attorneys-in-Fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the Special Meeting of
Stockholders of VMX, Inc., to be held on March 31, 1994, at 9:00 a.m., local
time, at the Company's headquarters, 2115 O'Nel Drive, San Jose, California
95131-2032, and at any adjournments thereof, and to vote all shares of Common
Stock which the undersigned is entitled to vote on the matters set forth below:
THIS BALLOT WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR APPROVAL OF THE AGREEMENT AND PLAN OF
REORGANIZATION, DATED AS OF JANUARY 29, 1994, AND THE MERGER AND AS SAID PROXIES
DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
(Continued and to be signed on the other side)
SHARES IN YOUR NAME In their discretion the Proxies are
authorized to vote upon such other
business as may properly come
before the meeting.
/X/ Please mark
your votes This Proxy should be marked, dated,
as this signed by the stockholder(s)
exactly as the stockholder's name
appears hereon and returned promptly
1. Proposal to approve the in the enclosed envelope. Persons
Agreement and Plan of signing in a fiduciary capacity
Reorganization and the Merger. should so indicate. If shares are
held by joint tenants or as
community property, both should
FOR AGAINST ABSTAIN sign.
[ ] [ ] [ ]
-----------------------------------
Typed or Printed Name(s)
-----------------------------------
Signature
-----------------------------------
Signature
-----------------------------------
Title, if applicable
Dated: , 1994
<PAGE> 128
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933. The Registrant's Restated
Certificate of Incorporation and Bylaws provide for indemnification of its
directors, officers, employees and other agents to the maximum extent permitted
by the Delaware General Corporation Law. In addition, the Registrant has entered
into Indemnification Agreements with its executive officers and directors. The
Registrant has also purchased and maintained insurance for its officers,
directors, employees or agents against liabilities which an officer, a director,
an employee or an agent may incur in his or her capacity as such.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------------------------
<S> <C> <C> <C>
2.1 Agreement and Plan of Reorganization Among Octel Communications
Corporation, Octel Acquisition Corporation and VMX, Inc. dated as of
January 29, 1994 (included as Annex A to the Joint Proxy
Statement/Prospectus filed as part of this Registration Statement).
3.1 Certificate of Incorporation of the Registrant.(1)
3.2 Bylaws of the Registrant, as Amended.(1)
5.1 Opinion of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation,
as to the legality of the Common Stock being registered hereby.
8.1 Tax Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation.
8.2 Tax Opinion of Wilson, Sonsini, Goodrich & Rosati, Professional
Corporation.
11.1 Statement re Computation of Earnings Per Share for Octel Communications
Corporation.
11.2 Statement re Computation of Earnings Per Share for VMX, Inc.
21.1 Subsidiaries of Octel.
23.1 Consent of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation,
with respect to legality of securities being registered (contained in
Exhibit 5.1).
23.2 Consent of Gray Cary Ware & Freidenrich, A Professional Corporation, with
respect to certain tax matters (contained in Exhibit 8.1).
23.3 Consent of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation,
with respect to certain tax matters (contained in Exhibit 8.2).
23.4 Consent of KPMG Peat Marwick, independent certified public accountants,
with respect to financial statements of Octel.
23.5 Consent of KPMG Peat Marwick, independent certified public accountants,
with respect to financial statements of VMX.
*23.6 Consent of Deloitte & Touche, independent auditors, with respect to
financial statements of Octel.
24.1 Power of Attorney (see page II-4).
</TABLE>
- ---------------
(1) Incorporated by reference to the exhibit filed with Octel's Form 8-B filed
with the Securities and Exchange Commission on February 12, 1990.
* Previously filed.
II-1
<PAGE> 129
(B) FINANCIAL STATEMENT SCHEDULES
All other schedules have been omitted because the required information is
not applicable or the information is incorporated herein by reference.
ITEM 22. UNDERTAKINGS
(a) 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:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such posteffective 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.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) 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.
(c) The undersigned Registrant hereby undertakes as follows: 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
issuer 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.
(d) The Registrant hereby undertakes that every prospectus (i) that is
filed pursuant to paragraph (c) immediately preceding or (ii) that purports to
meet the requirements of Section 10(a)(3) of the 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 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.
II-2
<PAGE> 130
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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
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
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in Act and will
be governed by the final adjudication of such issue.
(f) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one (1) 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.
(g) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE> 131
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Milpitas, State of
California, on the 28th day of February, 1994.
OCTEL COMMUNICATIONS CORPORATION
By /s/ GARY A. WETSEL
Gary A. Wetsel
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------
<S> <C> <C>
ROBERT COHN* Chairman of the Board, February 28, 1994
(Robert Cohn) President and
Chief Executive Officer
(Principal
Executive Officer)
/s/ GARY A. WETSEL Executive Vice President and February 28, 1994
(Gary A. Wetsel) Chief Financial Officer
</TABLE>
<TABLE>
<S> <C> <C>
HERZEL ASHKENAZI* Controller (Principal February 28, 1994
(Herzel Ashkenazi) Accounting Officer)
LEO J. CHAMBERLAIN* Director February 28, 1994
(Leo J. Chamberlain)
JOHN FREIDENRICH* Director February 28, 1994
(John Freidenrich)
Director 1994
(Robert C. Hawk)
DAG TELLEFSEN* Director February 28, 1994
(Dag Tellefsen)
*By /s/ GARY A. WETSEL
(Gary A. Wetsel, Attorney-in-fact)
</TABLE>
II-4
<PAGE> 1
EXHIBIT 5.1
(LETTERHEAD WSG&R)
FEBRUARY 28, 1994
Octel Communications Corporation
890 Tasman Drive
Milpitas, CA 95035-7439
RE: REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
This letter is delivered to you in connection with the Registration
Statement on Form S-4 (File No. 33-52313), as amended, filed with the Securities
and Exchange Commission on February 17, 1994, by Octel Communications
Corporation, a Delaware corporation (the "Company") (the "Registration
Statement"), for registration under the Securities Act of 1933, as amended, of
an aggregate of 5.6 million shares of the Company's Common Stock, $0.001 par
value (the "Shares"), to be issued pursuant to the Agreement and Plan of
Reorganization dated as of January 29, 1994 by and among the Company, Octel
Acquisition Corp. and VMX, Inc. (the "Agreement").
In connection with this opinion, we have examined the Registration
Statement, the Agreement and such other documents, instruments and records as we
have deemed necessary or appropriate to enable us to render the opinion
expressed below. In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity to original documents of all documents submitted to us as copies.
Based upon and subject to the foregoing, it is our opinion that the Shares
have been duly authorized and, when issued in accordance with the terms of the
Agreement, will be validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement and any subsequent amendment thereto.
Sincerely,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
<PAGE> 1
EXHIBIT 8.1
(LETTERHEAD)
February 28, 1994
VMX, Inc.
2115 O'Nel Drive
San Jose, CA 95131-2032
Gentlemen:
This opinion is being delivered to you in connection with the filing of a
registration statement on Form S-4 of a Joint Proxy Statement/Prospectus of
Octel Communications Corporation, a Delaware corporation ("Octel"), Octel
Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of
Octel ("Sub"), and VMX, Inc., a Delaware corporation ("VMX") (the "Registration
Statement"). Pursuant to that certain Agreement and Plan of Reorganization dated
January 29, 1994, among Octel, Sub and VMX and the related Merger Agreement
(collectively, the "Merger Agreements"), Sub will merge with and into VMX (the
"Merger"), and VMX will become a wholly owned subsidiary of Octel.
Except as otherwise provided, capitalized terms referred to herein have the
meanings set forth in the Merger Agreements. All section references, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended (the
"Code").
We have acted as legal counsel to VMX in connection with the Merger. As
such, and for the purpose of rendering this opinion, we have examined (or will
examine on or prior to the Effective Date of the Merger) and are relying (or
will rely) upon (without any independent investigation or review thereof) the
truth and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in the following documents:
1. The Merger Agreements (including Exhibits);
2. Representations made to us by Octel and Sub;
3. Representations made to us by VMX;
4. An opinion of counsel, received by Octel from Wilson, Sonsini, Goodrich
& Rosati, P.C., substantially identical in form and substance to this opinion
(the "WSG&R Tax Opinion");
5. The Registration Statement; and
6. Such other instruments and documents related to the formation,
organization and operation of Octel, VMX and Sub or to the consummation of the
Merger and the transactions contemplated thereby as we have deemed necessary or
appropriate.
<PAGE> 2
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent investigation
or review thereof) that:
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has been
(or will be by the Effective Time of the Merger) due execution and delivery of
all documents where due execution and delivery are prerequisites to
effectiveness thereof.
2. The Merger will be effective under the applicable state law.
3. The continuity of interest requirement as specified in Treas. Reg. sec.
1.368-1(b) and as interpreted in certain Internal Revenue Service rulings and
federal judicial decisions will be satisfied.
4. After the Merger, VMX will hold "substantially all" of its and Sub's
properties within the meaning of Section 368(a)(2)(E)(i) of the Code and the
regulations promulgated thereunder.
5. To the extent any expenses relating to the Merger (or the "plan of
reorganization" within the meaning of Treas. Reg. sec. 1.368-1(c) with respect
to the Merger) are funded directly or indirectly by a party other than the
incurring party, such expenses will be within the guidelines established in
Revenue Ruling 73-54, 1973-1 C.B. 187.
6. No outstanding indebtedness of VMX, Octel or Sub has or will represent
equity for tax purposes; no outstanding equity of VMX, Octel or Sub has
represented or will represent indebtedness for tax purposes.
7. Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification.
8. The WSG&R Tax Opinion has been delivered and not withdrawn.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that for federal income tax purposes, the Merger will constitute
a "reorganization" as defined in Section 368(a) of the Code.
In addition to the assumptions set forth above, this opinion is subject to
the exceptions, limitations and qualifications set forth below.
1. This opinion represents and is based upon our best judgment regarding
the application of federal income tax laws arising under the Code, existing
judicial decisions, administrative regulations and published rulings and
procedures. Our opinion is not binding upon the Internal Revenue Service or the
courts, and the Internal Revenue Service is not precluded from successfully
asserting a contrary position. Furthermore, no assurance can be given that
future legislative, judicial or administrative changes, on either a prospective
or retroactive basis, would not adversely affect the accuracy of the conclusions
stated herein. Nevertheless, we undertake no responsibility to advise you of any
new developments in the application or interpretation of the federal income tax
laws.
2. This opinion addresses only the specific tax opinion set forth above,
and does not address any other federal, state, local or foreign tax consequences
that may result from the Merger or any other transaction (including any
transaction undertaken in connection with the Merger). In particular, we express
no opinion regarding (i) whether and the extent to which any VMX stockholder who
has provided or will provide services to VMX, Octel or Sub will have
compensation income under any provision of the Code; (ii) the effects of such
compensation income, including but not limited to the effect upon the basis and
holding period of the Octel stock received by any such stockholder in the
Merger; (iii) the potential application of the "golden parachute" provisions
(Sections 280G, 3121(v)(2) and 4999) of the Code, the alternative minimum tax
provisions (Sections 55, 56 and 57) of the Code or Sections 108, 305, 30-6, 357,
424 and 708 of the Code, or the regulations promulgated thereunder; (iv) the tax
consequences of the Merger to Octel, Sub or VMX, including without limitation
the recognition of any gain and the survival and/or availability, after the
Merger, of any of the federal income tax attributes or elections of VMX, after
application of any provision of the Code, as well as the regulations promulgated
thereunder and judicial interpretations thereof; (v) the basis of any equity
interest in VMX acquired by Octel in the Merger; (vi) the tax consequences of
any transaction in
2
<PAGE> 3
which VMX stock or a right to acquire VMX stock was received; and (vii) the tax
consequences of the Merger (including the opinion set forth above) as applied to
specific stockholders of VMX and/or holders of options or warrants for VMX stock
or that may be relevant to particular classes of VMX stockholders and/or holders
of options or warrants for VMX stock including but not limited to dealers in
securities, corporate stockholders subject to the alternative minimum tax,
foreign persons, and holders of shares acquired upon exercise of stock options
or in other compensatory transactions, including without limitation the tax
consequences to the holders of options for VMX stock of the Merger and Octel's
assumption of outstanding options for VMX stock.
3. No opinion is expressed as to any transaction other than the Merger as
described in the Merger Agreements or to any transaction whatsoever, including
the Merger, if all the transactions described in the Merger Agreements are not
consummated in accordance with the terms of such Merger Agreements and without
waiver or breach of any material provision thereof or if all of the
representations, warranties, statements and assumptions upon which we relied are
not true and accurate at all relevant times. In the event any one of the
statements, representations, warranties or assumptions upon which we have relied
to issue this opinion is incorrect, our opinion might be adversely affected and
may not be relied upon.
4. This opinion is intended solely for the purpose of including this
opinion as an exhibit to the Registration Statement. It may not be relied upon
for any other purpose or by any other person or entity, and may not be made
available to any other person or entity without our prior written consent. We
hereby consent to the filing of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement.
Very truly yours,
GRAY CARY WARE & FREIDENRICH
A Professional Corporation
3
<PAGE> 1
EXHIBIT 8.2
(LETTERHEAD WSG&R)
February 28, 1994
Octel Communications Corporation
890 Tasman Avenue
Milpitas, California 95035
Gentlemen:
This opinion is being delivered to you in connection with the filing of a
registration statement on Form S-4 of a Joint Proxy Statement/Prospectus of
Octel Communications Corporation, a Delaware corporation ("Octel"), Octel
Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of
Octel ("Sub"), and VMX, Inc., a Delaware corporation ("VMX") (the "Registration
Statement"). Pursuant to the Agreement and Plan of Reorganization, dated January
29, 1994, among Octel, Sub and VMX, and the related Merger Agreement
(collectively, the "Merger Agreements"), Sub will merge with and into VMX (the
"Merger"), and VMX will become a wholly owned subsidiary of Octel.
Except as otherwise provided, capitalized terms referred to herein have the
meanings set forth in the Merger Agreements. All section references, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended (the
"Code").
We have acted as legal counsel to Octel in connection with the Merger. As
such, and for the purpose of rendering this opinion, we have examined (or will
examine on or prior to the Effective Date of the Merger) and are relying (or
will rely) upon (without any independent investigation or review thereof) the
truth and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in the following documents:
1. The Merger Agreements (including Exhibits);
2. Representations made to us by Octel and Sub;
3. Representations made to us by VMX;
4. An opinion of counsel, received by VMX from Gray Cary Ware &
Freidenrich, substantially identical in form and substance to this opinion
(the "GCWF Tax Opinion");
5. The Registration Statement; and
6. Such other instruments and documents related to the formation,
organization and operation of Octel, VMX and Sub or to the consummation of
the Merger and the transactions contemplated thereby as we have deemed
necessary or appropriate.
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent investigation
or review thereof) that:
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has
been (or will be by the Effective Time of the Merger) due execution and
delivery of all documents where due execution and delivery are
prerequisites to effectiveness thereof.
2. The Merger will be effective under the applicable state law.
<PAGE> 2
3. The continuity of interest requirement as specified in Treas. Reg.
sec. 1.368-1(b) and as interpreted in certain Internal Revenue Service
rulings and federal judicial decisions will be satisfied.
4. After the Merger, VMX will hold "substantially all" of its and
Sub's properties within the meaning of Section 368(a)(2)(E)(i) of the Code
and the regulations promulgated thereunder.
5. To the extent any expenses relating to the Merger (or the "plan of
reorganization" within the meaning of Treas. Reg. sec. 1.368-1(c) with
respect to the Merger) are funded directly or indirectly by a party other
than the incurring party, such expenses will be within the guidelines
established in Revenue Ruling 73-54, 1973-1 C.B. 187.
6. No outstanding indebtedness of VMX, Octel or Sub has or will
represent equity for tax purposes; no outstanding equity of VMX, Octel or
Sub has represented or will represent indebtedness for tax purposes.
7. Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification.
8. The GCWF Tax Opinion has been delivered and not withdrawn.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that for federal income tax purposes, the Merger will constitute
a "reorganization" as defined in Section 368(a) of the Code.
In addition to the assumptions set forth above, this opinion is subject to
the exceptions, limitations and qualifications set forth below.
1. This opinion represents and is based upon our best judgment
regarding the application of federal income tax laws arising under the
Code, existing judicial decisions, administrative regulations and published
rulings and procedures. Our opinion is not binding upon the Internal
Revenue Service or the courts, and the Internal Revenue Service is not
precluded from successfully asserting a contrary position. Furthermore, no
assurance can be given that future legislative, judicial or administrative
changes, on either a prospective or retroactive basis, would not adversely
affect the accuracy of the conclusions stated herein. Nevertheless, we
undertake no responsibility to advise you of any new developments in the
application or interpretation of the federal income tax laws.
2. This opinion addresses only the specific tax opinion set forth
above, and does not address any other federal, state, local or foreign tax
consequences that may result from the Merger or any other transaction
(including any transaction undertaken in connection with the Merger). In
particular, we express no opinion regarding (i) whether and the extent to
which any VMX stockholder who has provided or will provide services to VMX,
Octel or Sub will have compensation income under any provision of the Code;
(ii) the effects of such compensation income, including but not limited to
the effect upon the basis and holding period of the Octel stock received by
any such stockholder in the Merger; (iii) the potential application of the
"golden parachute" provisions (Sections 280G, 3121(v)(2) and 4999) of the
Code, the alternative minimum tax provisions (Sections 55, 56 and 57) of
the Code or Sections 108, 305, 306, 357, 424 and 708 of the Code, or the
regulations promulgated thereunder; (iv) the tax consequences of the Merger
to Octel, Sub or VMX, including without limitation the recognition of any
gain and the survival and/or availability, after the Merger, of any of the
federal income tax attributes or elections of VMX, after application of any
provision of the Code, as well as the regulations promulgated thereunder
and judicial interpretations thereof; (v) the basis of any equity interest
in VMX acquired by Octel in the Merger; (vi) the tax consequences of any
transaction in which VMX stock or a right to acquire VMX stock was
received; and (vii) the tax consequences of the Merger (including the
opinion set forth above) as applied to specific stockholders of VMX and/or
holders of options or warrants for VMX stock or that may be relevant to
particular classes of VMX stockholders and/or holders of options or
warrants for VMX stock including but not limited to dealers in securities,
corporate stockholders subject to the alternative minimum tax, foreign
persons, and holders of shares acquired upon exercise of stock options or
in other compensatory transactions, including without limitation the tax
(2)
<PAGE> 3
consequences to the holders of options for VMX stock of the Meyer and
Octel's assumption of outstanding options for VMX stock.
3. No opinion is expressed as to any transaction other than the Merger
as described in the Merger Agreements or to any transaction whatsoever,
including the Merger, if all the transactions described in the Merger
Agreements are not consummated in accordance with the terms of such Merger
Agreements and without waiver or breach of any material provision thereof
or if all of the representations, warranties, statements and assumptions
upon which we relied are not true and accurate at all relevant times. In
the event any one of the statements, representations, warranties or
assumptions upon which we have relied to issue this opinion is incorrect,
our opinion might be adversely affected and may not be relied upon.
4. This opinion is intended solely for the purpose of including this
opinion as an exhibit to the Registration Statement; it may not be relied
upon for any other purpose or by any other person or entity, and may not be
made available to any other person or entity without our prior written
consent. We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and further consent to the use of our name
wherever appearing in the Registration Statement.
Very truly yours,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
(3)
<PAGE> 1
EXHIBIT 11.1
OCTEL COMMUNICATIONS CORPORATION
AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-------------------------------
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
PRIMARY NET INCOME PER SHARE
Net income.................................................... $17,714 $21,356 $22,553
------- ------- -------
------- ------- -------
Weighted average shares outstanding........................... 16,795 17,376 17,950
Dilutive effect of outstanding stock options (as determined by
the application of the treasury stock method)............... 910 1,395 1,187
------- ------- -------
17,705 18,771 19,137
------- ------- -------
------- ------- -------
Primary net income per share.................................. $ 1.00 $ 1.14 $ 1.18
------- ------- -------
------- ------- -------
FULLY DILUTED NET INCOME PER SHARE*
Net income.................................................... $17,714 $21,356 $22,553
------- ------- -------
------- ------- -------
Weighted average shares outstanding........................... 16,795 17,376 17,950
Dilutive effect of outstanding stock options (as determined by
the application of the treasury stock method)............... 1,013 1,395 1,187
------- ------- -------
17,808 18,771 19,137
------- ------- -------
------- ------- -------
Fully diluted net income per common share..................... $ 0.99 $ 1.14 $ 1.18
------- ------- -------
------- ------- -------
</TABLE>
- ---------------
* This computation is submitted in accordance with Securities Exchange Act of
1934 Release No. 9083 although not required for all periods under APB Opinion
No. 15 because it results in dilution of less than three percent.
<PAGE> 1
EXHIBIT 11.2
VMX, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30
-------------------------------
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
PRIMARY EARNINGS
Net Income.................................................. $(4,211) $ 5,051 $ 7,036
------- ------- -------
------- ------- -------
Shares:
Weighted average number of common shares outstanding........ 25,311 25,583 25,895
Dilutive effect of outstanding stock options (as determined
by the application of the treasury stock method)......... --(1) 1,086 1,646
------- ------- -------
25,311 26,669 27,541
------- ------- -------
------- ------- -------
Primary earnings (loss) per common share.................... $ (0.17) $ 0.19 $ 0.26
------- ------- -------
------- ------- -------
FULLY DILUTED EARNINGS*
Net Income.................................................. $(4,211) $ 5,051 $ 7,036
------- ------- -------
------- ------- -------
Shares:
Weighted average number of common shares outstanding........ 25,311 25,583 25,895
Dilutive effect of outstanding stock options (as determined
by the application of the treasury stock method)......... --(2) 1,129 1,993
------- ------- -------
25,311 26,712 27,888
------- ------- -------
------- ------- -------
Fully diluted earnings (loss) per common share...... $ (0.17) $ 0.19 $ 0.25
------- ------- -------
------- ------- -------
</TABLE>
- ---------------
* This computation is submitted in accordance with Securities Exchange Act of
1934 Release No. 9083 although not required by APB Opinion No. 15 because it
results in dilution of less than three percent.
(1) Due to the net loss in fiscal 1991, the effect of stock options on the
earnings per share computation is antidilutive and is not included in the
summary. The number of options assumed converted under the treasury stock
method for fiscal 1991 is 497,000 which, when factored into the per share
computation, results in a primary loss per share of $0.16.
(2) Due to the net loss in fiscal 1991, the effect of stock options on the
earnings per share computation is anti-dilutive and is not included in the
summary. The number of options assumed converted under the treasury stock
method for fiscal 1991 is 942,000 which, when factored into the per share
computation, results in a fully diluted loss per share of $0.16.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF OCTEL
Octel Communications Limited (United Kingdom)
Octel Communications S.A. (France)
Octel Communications Canada Inc.
Octel Communications (Israel) Ltd.
Octel Communications International Corporation (U.S. Virgin
Islands)
Octel Communications K.K. (Japan)
Compass Technology, Inc.
Tigon Corporation
<PAGE> 1
EXHIBIT 23.4
CONSENT OF KPMG PEAT MARWICK
We consent to incorporation by reference in this Registration Statement on
Form S-4 of Octel Communications Corporation and the related Joint Proxy
Statement/Prospectus of Octel Communications Corporation and VMX, Inc. of our
reports dated July 23, 1993 related to the consolidated balance sheets of Octel
Communications Corporation as of June 30, 1993 and 1992, and the related
consolidated statements of income, stockholders' equity, and cash flows and
related schedules for each of the years in the two-year period ended June 30,
1993, which reports appear or are incorporated by reference in the June 30, 1993
annual report on Form 10-K of Octel Communications Corporation. We also consent
to the reference to our firm under the heading "Experts."
KPMG PEAT MARWICK
Palo Alto, California
February 25, 1994
<PAGE> 1
EXHIBIT 23.5
CONSENT OF KPMG PEAT MARWICK
We consent to incorporation by reference in this Registration Statement on
Form S-4 of Octel Communications Corporation and the related Joint Proxy
Statement/Prospectus of Octel Communications Corporation and VMX, Inc. of our
reports dated July 28, 1993 related to the consolidated balance sheets of VMX,
Inc. as of June 30, 1993 and 1992, and the related consolidated statements of
operations, stockholders' equity, and cash flows and related schedules for each
of the years in the three-year period ended June 30, 1993, which reports appear
or are incorporated by reference in the June 30, 1993 annual report on Form 10-K
of VMX, Inc. We also consent to the reference to our firm under the heading
"Experts."
KPMG PEAT MARWICK
San Jose, California
February 25, 1994
