SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 For the quarterly period ended December
31, 1993, or
Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 For the transition period from
________ to ________
Commission File Number 0-16588
OCTEL COMMUNICATIONS CORPORATION
__________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 77-0029449
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
890 Tasman Drive
Milpitas, California 95035-7439
(Address of principal executive offices)
Registrant's telephone number, including area code, is (408)321-2000
____________________
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90
days.
Yes X No
The number of shares outstanding of the registrant's
Common Stock on January 31, 1994 was 18,142,050.
This document consists of 83 pages of which this is Page 1.
<PAGE>
OCTEL COMMUNICATIONS CORPORATION
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance
Sheets - December 31, 1993 and
June 30, 1993 3
Condensed Consolidated Statements
of Income - three and six months ended
December 31, 1993 and 1992 4
Condensed Consolidated Statements
of Cash Flows - six months ended
December 31, 1993 and 1992 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
PART II. OTHER INFORMATION
Item 4. Matters Submitted to Vote of Security
Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURE 14
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
OCTEL COMMUNICATIONS CORPORATION
Condensed Consolidated Balance Sheets
(Dollars in thousands, except share data,unaudited)
Dec. 31, June 30,
1993 1993
ASSETS
Current assets:
Cash and equivalents $ 12,628 $19,569
Short-term investments 52,330 61,841
Accounts receivable net of allowance
for doubtful accounts of $1,582 at
December 31, 1993 and $1,351 at
June 30, 1993 53,83 54,294
Accounts receivable from related parties 11,148 8,589
Inventories 24,545 24,554
Prepaid expenses and other 9,639 4,273
Total current assets 164,124 173,120
Property and equipment, net of accumulated
depreciation and amortization of $46,256
at December 31, 1993 and $39,299 at
June 30, 1993 60,530 48,211
Deposits and other assets 30,704 26,047
Total $255,358 $247,378
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $ 10,564 $ 11,592
Accrued compensation and employee
benefits 14,754 16,690
Income taxes payable 1,266 941
Accrued and other liabilities 26,570 25,195
Total current liabilities 53,154 54,418
Long-term obligations 1,241 1,318
Stockholders' equity:
Preferred stock, $.001 par value -
authorized, 5,000,000 shares;
none outstanding -- --
Common stock, $.001 par value -
authorized, 50,000,000 shares;
outstanding: December 31, 1993,
18,102,350 shares, and June 30, 1993,
18,045,844 shares 113,986 111,077
Deferred compensation -- (55)
Retained earnings 87,266 80,875
Accumulated translation adjustments (289) (255)
Stockholders' equity 200,963 191,642
Total $255,358 $247,378
See notes to condensed consolidated financial statements.
<PAGE>
OCTEL COMMUNICATIONS CORPORATION
Condensed Consolidated Statements of Income
(In thousands, except per share amounts -unaudited)
Three Months Ended Six Months Ended
Restated
Dec. 31,Dec. 31, Dec.31,Dec. 31,
1993 1992 1993 1992
Net revenues:
Systems $53,487 $46,367 $102,172 $85,661
Service and support 21,620 14,380 41,649 23,613
Total revenues 75,107 60,747 143,821 109,274
Costs and expenses:
Cost of systems 17,453 14,975 33,472 26,471
Cost of service and
support 13,025 8,232 25,421 13,837
Research and development11,328 7,705 22,360 15,148
Selling, general and
administrative 25,703 22,537 50,162 43,002
Total costs and
expenses 67,509 53,449 131,415 98,458
Operating income 7,598 7,298 12,406 10,816
Interest and other
income, net 507 1,302 1,196 2,325
Income before income taxes
and cumulative effect of
accounting change 8,105 8,600 13,602 13,141
Provision for income taxes 2,300 2,900 3,100 4,325
Income before cumulative
effect of accounting
change 5,805 5,700 10,502 8,816
Cumulative effect of
accounting change -- -- -- 115
Net income $ 5,805 $ 5,700 $ 10,502 $8,701
Net income per common
and equivalent share
before cumulative
effect ofaccounting
change $ 0.30 $ 0.30 $ 0.55 $0.47
Cumulative effect
of accounting
change -- -- -- 0.01
Net income per common
and equivalent share $ 0.30 $ 0.30 $ 0.55 $0.46
Weighted average number of
common shares and equivalents
used in computation 19,177 19,068 18,991 19,112
See notes to condensed consolidated financial statements.
<PAGE>
OCTEL COMMUNICATIONS CORPORATION
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands - unaudited)
Six Months Ended
________________
Restated
Dec. 31, Dec. 31,
1993 1992
INCREASE (DECREASE) IN CASH AND
EQUIVALENTS:
Cash flows from operating activities:
Net income $10,502 $8,701
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 12,508 7,042
Deferred income taxes (4,232) (9,160)
Goodwill adjustment upon adoption
of SFAS 109 -- 6,773
Deferred compensation 55 108
Changes in assets and liabilities:
Accounts receivable (2,274) (1,618)
Inventories (38) (1,068)
Prepaid expenses and other (2,971) (784)
Trade payables (194) (5,127)
Accrued compensation and
employee benefits (1,814) (1,044)
Accrued and other liabilities 1,757 (1,264)
Net cash provided by operating
activities 13,299 2,559
Cash flows from financing activities:
Sales of common stock 3,800 3,114
Repurchases of common stock (5,143) (4,633)
Repayments of long-term obligations (108) (162)
Net cash used by financing
activities (1,451) (1,681)
Cash flows from investing activities:
Purchases of short-term investments (70,791) (156,721)
Sales and maturities of short-term
investments 80,302 159,808
Property and equipment additions (19,328) (16,955)
Changes in deposits and other assets (9,175) (3,483)
Net cash used to acquire business -- (9,391)
Net cash used for investing
activities (18,992) (26,742)
Effect of exchange rate changes on cash 203 315
Net decrease in cash and equivalents (6,941) (25,549)
Cash and equivalents:
Beginning of period 19,569 41,685
End of period $12,628 $16,136
See notes to condensed consolidated financial statements.
<PAGE>
OCTEL COMMUNICATIONS CORPORATION
Notes to Condensed Consolidated Financial Statements
(December 31, 1993 and 1992 - Unaudited)
1. In the opinion of management, the accompanying
unaudited condensed consolidated financial statements contain
all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the
financial position as of December 31, 1993, the
results of operations for the three and six months
ended December 31, 1993 and 1992 and cash flows for
the six months ended December 31, 1993 and 1992.
The financial statements and notes are presented as
permitted by Form 10-Q and do not contain certain
information included in the Company's annual financial
statements and notes.
The condensed consolidated statements of income for
the six months ended December 31, 1992 and cash flows
for the six months ended December 31, 1992 have
been restated for the effect of adopting
Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes.
SFAS No. 109 was adopted by the Company in the
third fiscal quarter of 1993, with effect from July 1,
1992.
2. Inventories consist of (in thousands):
Dec. 31, June 30,
1993 1993
Finished goods $ 4,214 $4,570
Work-in-process 10,882 10,036
Raw materials 9,449 9,948
Total inventories $24,545 $24,554
3. Net income per common and equivalent share is computed
using
the weighted average number of common and dilutive
common equivalent shares from stock options (using
the treasury stock method) and shares subscribed
under the Employee Stock Purchase Plan.
4. Interest and other income consists of the
following (in
thousands):
Three Months Ended Six Months Ended
Dec. 31,Dec. 31, Dec. 31, Dec. 31,
1993 1992 1993 1992
Interest and investment income$744 $ 814 $1,553 $ 1,928
Gain (loss) on sale of
short-term
investments, net (31) 212 112 926
Foreign exchange gains
(losses), net (50) 368 (95) 178
Other expense (156) (92) (374) (707)
Total other income $507 $1,302 $1,196 $ 2,325
<PAGE>
OCTEL COMMUNICATIONS CORPORATION
Notes to Condensed Consolidated Financial Statements
(December 31, 1993 and 1992 - Unaudited)
5. In October 1992, the Company acquired
Tigon
Corporation (Tigon) which was accounted for as a
purchase. In the second quarter of fiscal 1994, the
Company made the final adjustment to the purchase price
allocation which had the effect of increasing the
purchase reserve $2.2 million, goodwill $1.3
million and current deferred income tax asset $.9
million.
<PAGE>
OCTEL COMMUNICATIONS CORPORATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
NET REVENUES
Net revenues increased to $75.1 million in the
second quarter of fiscal 1994, a 24 percent
increase from net revenues of $60.7 million in the
second quarter of fiscal 1993. In the first six
months of fiscal 1994 net revenues increased to
$143.8 million as compared to $109.3 million in the
corresponding period of fiscal 1993, representing
growth of 32 percent. Systems revenues in the
second quarter of fiscal 1994 were $53.5 million, an
increase of 15 percent from $46.4 million in the same
quarter of fiscal 1993, and for the first six months
of fiscal 1994 systems revenues were $102.2
million, an increase of 19 percent compared to $85.7
million in the first six months of fiscal 1993.
The growth in
systems revenues was primarily
attributable to the sale of systems to new and
existing customers and the sale of upgrades,
expansions and new features, including the Company's
fax products, to existing customers in the Customer
Premise Equipment (CPE) sector. CPE revenues for
both the second quarter and first six months of
fiscal 1994 increased over the same periods in fiscal
1993 in both the domestic and international markets,
although growth was more significant internationally
than domestically. Voice Information Service (VIS)
revenues in total for both the second quarter and
first six months of fiscal 1994 increased over the
same periods in fiscal 1993; however, international
VIS revenues, which were exceptionally high in
the second quarter of fiscal 1993 due to two large
orders from customers, decreased in the second quarter
of fiscal 1994 compared to the second fiscal
quarter of 1993. Revenue in future quarters
could be affected by the extent and timing of new
orders from VIS providers and such orders are
typically significant in size and, therefore, could
impact the revenue volume and mix in any given
quarter.
Service and support revenues in the second
quarter of fiscal 1994 increased to $21.6 million, or
50 percent from $14.4 million in the same quarter of
fiscal 1993, and for the first six months of fiscal
1994 service and support revenues increased to $41.6
million, or 76 percent compared to $23.6 million in
the first six months of fiscal 1993. In addition,
service and support revenues continue to grow as a
percentage of total net revenues and accounted for 29
percent of net revenues for the second quarter and
first six months of fiscal 1994 as compared to 24
percent and 22 percent for the second quarter and
first six months of fiscal 1993, respectively.
The increase in service and support revenues is
primarily due to the inclusion of service revenues
from Tigon which have been included since its
acquisition on October 21, 1992. In addition, service
and support revenues grew in the second quarter and
first six months of fiscal 1994 as compared to the
same periods of the prior year as a result of the
Company's larger installed base of customers and
systems.
<PAGE>
OCTEL COMMUNICATIONS CORPORATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
COST OF SALES
As a percentage of net revenues, total cost of
sales increased to 41 percent in the second quarter
and first six months of fiscal 1994 compared to 38
percent and 37 percent in the second quarter and
first six months of fiscal 1993, respectively. The
majority of this increase is a result of the higher
percentage of total revenues attributable to
service. The service revenue increase is primarily
due to the inclusion of Tigon which has a
traditional service industry cost structure of
lower gross margins as a percentage of revenue.
Cost of systems sales were 33 percent of net
systems revenues in the second quarter and first six
months of fiscal 1994. Cost of system sales were 32
percent and 31 percent in the second quarter and
first six months of fiscal 1993, respectively. The
increases as a percentage of net systems revenues
in fiscal 1994 were due to
reduced list prices of certain products and
increased sales promotions offered in fiscal 1994
which were offset by the effects of reduced
manufacturing costs and a favorable change in
product mix evidenced by the fact that sales volume
of the Company's higher end, higher margin
systems increased at a higher rate than lower end,
lower margin systems. Cost of service and support
revenues were 60 percent and 61 percent of net
service and support revenues in the second quarter
and first six months of fiscal 1994,
respectively. Cost of service and support revenues
were 57 percent and 59 percent in the second
quarter and first six months of fiscal 1993,
respectively. The increases in the second quarter
and the first six months of fiscal 1994
compared to fiscal 1993 were primarily due to
the inclusion of Tigon revenues, which continue to
become a higher percentage of consolidated
revenue. Tigon cost of sales have increased
as a percentage of net revenues in the second
quarter and the first six months of fiscal 1994
compared to the same periods in fiscal 1993 as a
result of a change in service product mix
with an increase in revenue from
the
residential market which traditionally has lower
gross
margins than the commercial market. On a
quarter-toquarter basis, the channel and product mix
of sales can fluctuate significantly. Such
fluctuations can have a positive or negative
impact on operating margins. These
fluctuations are difficult to predict.
RESEARCH AND DEVELOPMENT
Research and development expenses were $11.3
million in the second quarter of fiscal 1994, an
increase of 47 percent over the $7.7 million
expended in the second quarter of fiscal 1993.
For the first six months of fiscal 1994 and 1993,
research and development costs were $22.4 million
and $15.1 million, respectively, representing an
increase of 48 percent in fiscal 1994. As a
percentage of net revenues, research and
development expenses were 15 percent and 13
percent in the second quarters of fiscal 1994 and
1993, respectively, and 16 percent and 14 percent for the first six
months of fiscal 1994 and 1993,
respectively. The increase in research and
development expenses is due to the Company's
increased spending on projects to meet customer
commitments such as clustering
and the adaptation of existing products and
technology for international markets, as well as the
continued commitment to the development of new
products and enhancements to existing products.
The Company believes that additional research and
development expenses will be required to maintain
market position and expects that expenses will
increase in absolute terms and could increase
as a percentage of net revenues.
<PAGE>
OCTEL COMMUNICATIONS CORPORATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses
were $25.7 million in the second quarter of fiscal
1994, a 14 percent increase over the second quarter
of fiscal 1993 of $22.5 million. For the first six
months of fiscal 1994, these expenses were $50.2
million, an increase of 17 percent over the $43.0
million expended in the same period of fiscal
1993. Selling, general and administrative
expenses decreased as a percentage of net revenues in
both the second quarter and six months ended
December 31, 1994, decreasing from 37 percent and 39
percent in the second quarter and first six
months of fiscal 1993, respectively, to 34 percent
and 35 percent in the corresponding periods of
fiscal 1994. The increase in absolute dollars
resulted from the Company's continuing efforts to
develop and manage its organization, train new and
existing personnel and the commitment of
resources to support international
opportunities. In addition, the inclusion of
Tigon's selling, general and administrative
expenses, which were included for only
approximately two and one-half months in the first
six months of fiscal 1993, contributed to the
increase. ^Two expense items contributed to the
increase in absolute terms of selling, general and
administrative expenses in the second quarter of
fiscal 1994. First,
approximately $750,000 of non-recurring expense
was incurred related to the departure of the former
President and Chief Executive Officer from the
Company. Robert Cohn, a founder of the Company
and its President and Chief Executive Officer from
1982 to 1990, was appointed to fill this position.
The second item, approximating an
incremental $500,000, was incurred in the second
quarter of fiscal 1994 for legal expenses related
to ongoing patent litigation. The
Company estimates legal expenses related
to ongoing patent litigation will be approximately
$600,000 in the last six months of fiscal 1994. The Company
believes that additional selling, general
and administrative expenses will be required to
maintain its competitiveposition, including
expanded international
sales activities, and expects that these expenses
will increase in absolute terms and could
increase as a percentage of net revenues.
INTEREST AND OTHER INCOME, NET
Interest and other income, net for the second
quarter of fiscal 1994 decreased $795,000 from the
same period of fiscal 1993 and decreased in the
first six months of fiscal 1994 by $1.1 million from
the same period last year. The decrease in the
second quarter and first six months of fiscal 1994
was primarily attributable to smaller net gains on
sales of short-term investments and lower
interest
income due to lower interest rates and lower
cash and equivalent and short-term investment
balances, offset by the effect of the Compass
acquisition expenses which were incurred in the
first quarter of fiscal 1993.
<PAGE>
OCTEL COMMUNICATIONS CORPORATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
INCOME TAXES
The Company's effective tax rate was 28 percent
and 23 percent in the second quarter and first
six months of fiscal 1994, respectively, as
compared to 34 percent and 33 percent in the
corresponding periods of fiscal 1993. This decrease
was primarily attributable to the retroactive
reinstatement of the U.S. research and development
credit for the fiscal year ended June 30, 1993, which
amounted to $200,000 and $1.1 million for the
three- and six-month periods ended December 31,
1993, respectively. Prior to any effects of the
proposed merger discussed in "Factors That May
Effect Future Results of Operations", the effect of
the reinstatement is expected to be a three
percent reduction to the effective tax rate for the
1994 fiscal year and the Company expects its
effective tax rate to be approximately 32 percent
for the remaining quarters of fiscal 1994.
FACTORS THAT MAY EFFECT FUTURE RESULTS OF OPERATIONS
The Company believes that in the future its
results of operations could be affected by factors
such as market acceptance of new products and
upgrades, growth in the worldwide voice
processing market, the success of the Company's
customers in marketing voice information products and
adverse changes in general economic conditions in
any of the countries in which the Company does
business. The
Company's ability to develop and market
products and services that successfully adapt to
current market needs may also have an impact on
the results of operations., A portion of future
revenues will come from new products and services.
The Company cannot determine the ultimate effect that
new products and services will have on revenues,
earnings or stock price.
Because of the factors noted herein, the
Company's future earnings and stock price may
be subject to
significant volatility, particularly on a quarterly
basis. 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 the Company's
common stock in any given period. Additionally, the
Company 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 the Company's common
stock. Further, the Company participates in a
highly dynamic industry which often results in
volatility of the Company's common stock price.
In January 1994, the Company entered into a
definitive agreement to merge with VMX, Inc.
(VMX). VMX provides integrated messaging and call
processing systems, software and services that
combine voice, data and images for business
communications, internationally. The terms of the
merger provide for the issuance of one share
of the Company's common stock for every five shares
of outstanding VMX common stock.
Therefore, the Company would issue
approximately 5.3 million shares of common
stock in accordance with this agreement. The
Company intends to account for this transaction
using the pooling of interests method.
The Company expects the merger to be completed
late in April 1994, which is subject to
regulatory and stockholder approval.
<PAGE>
OCTEL COMMUNICATIONS CORPORATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Because Octel and VMX intend to continue to
support the product lines of both companies
following the
completion of the merger, the Company does not
anticipate that the announcement of the merger will
have a significant effect on sales of its
systems in the near future. However, 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 Company's
near-term business and results of operations.
The Company anticipates that total non-recurring
transaction costs associated with the merger during
the third and fourth fiscal quarters of 1994 will
total approximately $3.4 million. The Company's
estimated portion of the merger related
costs is approximately $2.2 million. In the event
that the merger is not completed for certain
reasons specified in the agreement with VMX
governing the merger, a portion of these expenses
could be offset by payments from VMX or the
Company could be obligated to make expense
reimbursement or damages payments to VMX. In
addition, the Company expects to record a
restructuring reserve in the accounting records in
the fourth quarter of fiscal 1994 related to
costs associated with the worldwide integration
of the two organizations following the completion
of the merger.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and equivalents and
short-term investments in the first six months
of fiscal 1994 decreased $16.5 million from June
30, 1993. The primary
uses of cash during the first six months of fiscal
1994 were the repurchase of common stock for
approximately $5.1 million under the Company's stock
repurchase plan, which aims to increase return to
investors as compared to the return which would
be made by investing the cash and generating
interest at the current low rates, and
investment in property and equipment of $19.3
million. Cash flows from operations resulted in a net
source of cash of $13.3 million in the first six
months of fiscal 1994.
During fiscal 1993, the Company invested $16
million in the purchase of land and the
development of the Company's new corporate offices
on that land. In the first six months of fiscal
1994, the Company spent approximately
$9.8 million on this project and the Company
expects to spend approximately $16.3
million during the remainder of
fiscal 1994 and $3 million in fiscal 1995 in
connection with the construction of the
Company's new corporate offices. The Company also
expects to purchase additional equipment and make
certain leasehold improvements during the remainder
of fiscal 1994. The Company anticipates that its
property and equipment investments will
eventually result in reduced operating expenses,
greater efficiencies and increased flexibility for
the Company.
The Company anticipates that cash flow from
operations and existing cash and equivalents and
short-term investment balances will be adequate to
meet the Company's cash requirements through the
end of fiscal 1994. After completion of the
proposed merger discussed in "Factors That May
Effect Future Results of Operations", the Company
believes that cash flow from operations and existing
cash and equivalents and short-term investment
balances will be adequate to meet the combined
Company's cash requirements through the end of fiscal
1994.
<PAGE>
PART II
OTHER INFORMATION
Item 4. Matters Submitted to Vote of Security Holders
Octel Communications Corporation held its
regular Annual Meeting of Stockholders on
November 18, 1993.
The following individuals were elected to serve
on the Company's Board of Directors:
Douglas C. Chance
Robert Cohn
Leo J. Chamberlain
John Freidenrich
Robert C. Hawk
Dag Tellefsen
The following matters were voted upon at the
meeting:
1.Approval of proposal regarding the 1985 Incentive
Stock Plan to
increase shares reserved.
2.Approval of proposal regarding the 1987 Employee
Stock Purchase Plan to increase shares reserved
3.Appointment of KPMG Peat Marwick as independent
public accountants.
The votes of the stockholders on these amendments were as
follows:
Proposal Number of Number of Number of Number of
Number affirmative votes negative votes abstentions broker non-votes
1. 7,335,805 4,721,114 181,410 3,393,226
2. 9,941,019 2,481,281 178,093 3,031,162
3. 15,518,113 56,751 56,691 -
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2.0--Agreement and Plan of Reorganization by and
among Octel Communications Corporation, Octel Acquisition
Corporation and VMX, Inc. dated as of January 29, 1994.
10.3--Fiscal Year 1993 Executive Bonus Plan.
(b) Report on Form 8-K
No report on Form 8-K was filed by the
Company during its fiscal quarter ended
December 31, 1993.
-14-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned thereunto duly
authorized.
OCTEL COMMUNICATIONS CORPORATION
Dated: February 11, 1994
/s/ GARY A. WETSEL
Gary A. Wetsel
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT 2.0
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
OCTEL COMMUNICATIONS CORPORATION,
OCTEL ACQUISITION CORPORATION
AND
VMX, INC.
TABLE OF CONTENTS
Page
ARTICLE I - THE MERGER 1
1.1 The Merger 1
1.2 Effective Time .......................................... 2
1.3 Effect of the Merger .................................... 2
1.4 Certificate of Incorporation; Bylaws .................... 2
1.5 Directors and Officers .................................. 2
1.6 Effect on Capital Stock ................................. 2
1.7 Surrender of Certificates ............................... 4
1.8 No Further Ownership Rights in Company Capital Stock...... 5
1.9 Lost, Stolen or Destroyed Certificates.................. 5
1.10 Tax and Accounting Consequences ......................... 6
1.11 Taking of Necessary Action; Further Action .............. 6
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY..... 6
2.1 Organization of the Company ............................ 6
2.2 Company Capital Structure .............................. 7
2.3 Obligations With Respect to Capital Stock .............. 7
2.4 Authority .............................................. 8
2.5 SEC Filings; Company Financial Statements .............. 9
2.6 No Undisclosed Liabilities .............................. 10
2.7 Absence of Certain Changes or Events .................... 10
2.8 Tax .................................................... 11
2.9 Restrictions on Business Activities .................... 12
2.10 Title of Properties; Absence of Liens and
Encumbrances; Condition of Equipment .................. 12
2.11 Intellectual Property ................................... 13
2.12 Agreements, Contracts and Commitments ................... 14
2.13 Governmental Authorization .............................. 14
2.14 Litigation .............................................. 15
2.15 Environmental Matters ................................... 15
2.16 Brokers' and Finders' Fees .............................. 16
2.17 Labor Matters. .......................................... 16
2.18 Employee Benefit Plans .................................. 16
2.19 Insurance ............................................... 18
2.20 Compliance With Laws ................................... 18
2.21 Pooling of Interests ................................... 19
2.22 Compensation ........................................... 19
2.23 Registration Statements; Proxy Statement/Prospectus .... 19
2.24 Complete Copies of Materials ............................ 20
2.25 Representations Complete ............................... 20
-i-
TABLE OF CONTENTS
(continued)
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB 20
3.1 Organization of Parent ..............................20
3.2 Capital Structure ...................................21
3.3 Authority ...........................................22
3.4 SEC Documents; Parent Financial Statements ..........22
3.5 No Undisclosed Liabilities ..........................23
3.6 Absence of Certain Changes or Events ................24
3.7 Taxes ...............................................24
3.8 Restrictions on Business Activities .................25
3.9 Title of Properties; Absence of Liens and
Encumbrances; Condition of Equipment ...........25
3.10 Intellectual Property ...............................26
3.11 Litigation ..........................................27
3.12 Environmental Matters ...............................28
3.13 Agreements, Contracts and Commitments ...............28
3.14 Labor Matters. ......................................29
3.15 Compliance With Laws ................................29
3.16 Pooling of Interests ................................29
3.17 Broker's and Finders' Fees ..........................29
3.18 Registration Statement; Proxy Statement/Prospectus ..29
3.19 Complete Copies of Materials .........................30
3.20 Representations Complete ............................30
ARTICLE IV - CONDUCT PRIOR TO THE EFFECTIVE TIME ...............30
4.1 Conduct of Business of the Company ...................30
4.2 Conduct of Business of Parent ........................34
4.3 No Solicitation .....................................36
ARTICLE V - ADDITIONAL AGREEMEN................................ 37
5.1 Proxy Statement/Prospectus; Registration Statement ..37
5.2 Meeting of Stockholders .............................38
5.3 Access to Information ................................38
5.4 Confidentiality .....................................38
5.5 Expenses ............................................39
5.6 Public Disclosure ....................................40
5.7 Pooling Accounting ...................................40
5.8 Consents .............................................40
5.9 Affiliate Agreements ................................40
5.10 FIRPTA ..............................................41
5.11 Legal Requirements ...................................41
5.12 Blue Sky Laws ......................................41
5.13 Best Efforts and Further Assurances .................41
5.14 Stock Options .......................................41
-ii-
TABLE OF CONTENTS
(continued)
Page
5.15 Form S-8 .......................................... 42
5.16 Certain Benefit Plans.......................... 42
5.17 Indemnification................................ 42
5.18 Tax-Free Organization .............................. 43
5.19 Agreement to Vote Shares....................... 43
5.20 Update to Disclosures.......................... 43
5.21 NMS Listing.................................... 44
5.22 Company Stockholder Rights Plan................ 44
ARTICLE VI - CONDITIONS TO THE MERGER ......................... 44
6.1 Conditions to Obligations of Each Party to Effect
the Merger............................. 44
6.2 Additional Conditions to Obligations of Company.. 45
6.3 Additional Conditions to the Obligations of Parent
and Merger Sub................................. 46
ARTICLE VII - TERMINATION, AMENDMENT AND WAIVER .............47
7.1 Termination .................................... 47
7.2 Effect of Termination........................... 49
7.3 Amendment....................................... 49
7.4 Extension; Waiver............................... 49
ARTICLE VIII - GENERAL PROVISIONS ......................... 50
8.1 Non-Survival of Agreement at Effective Time .....50
8.2 Notices .........................................50
8.3 Interpretation ..................................51
8.4 Counterparts ....................................51
8.5 Entire Agreement ................................51
8.6 Severability ....................................52
8.7 Other Remedies .................................... 52
8.8 Governing Law ...................................52
8.9 Rules of Construction ...........................52
-iii-
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 Communica
tions Corporation, a Delaware corporation ("Parent"), Octel Acqui
sition 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 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
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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 imme
diately 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.
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1.7 Surrender of Certificates.
(a) Exchange Agent. Chemical Trust Company of California
shall act as exchange agent (the "Exchange Agent") in the Merger.
(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
DMP2HY.R4(5P3)
01/29/94 -4-
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 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
DMP2HY.R4(5P3)
01/29/94 -5-
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 Consequences1.10 Tax and Accounting
Consequences 10 Tax and Accounting Consequences . It is intended by
the parties hereto that the Merger shall (a) constitute a reorganiza
tion 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 Taking of
Necessary Action; Further Action 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 incorpo
ration of each subsidiary. Except as set forth in the Company SEC
Reports (as defined below in Section 2.5), the Company does not
DMP2HY.R4(5P3)
01/29/94 -6-
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 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
DMP2HY.R4(5P3)
01/29/94 -7-
agreements or understandings with respect to the shares of capital
stock of the Company.
2.4 Authority4 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
DMP2HY.R4(5P3)
01/29/94 -8-
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.
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
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01/29/94 -9-
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 Liabilities6 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 Events7 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 pre
sumption 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 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
DMP2HY.R4(5P3)
01/29/94 -10-
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.
DMP2HY.R4(5P3)
01/29/94 -11-
(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 Sec
tion 341(f)(2) of the Code apply to any disposition of a subsec
tion (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.
(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 Activities9 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.
DMP2HY.R4(5P3)
01/29/94 -12-
(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 Property11 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, sub
license 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
DMP2HY.R4(5P3)
01/29/94 -13-
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.
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 Commitments12 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 Authorization13 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
DMP2HY.R4(5P3)
01/29/94 -14-
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 Litigation14 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 Matters15 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.
(b) Hazardous Materials Activities. At no time prior to
the date hereof has the Company transported, stored, used, manu
factured, 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.
DMP2HY.R4(5P3)
01/29/94 -15-
(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' Fees16 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.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 Plans18 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
DMP2HY.R4(5P3)
01/29/94 -16-
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 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
DMP2HY.R4(5P3)
01/29/94 -17-
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 recently-
ended 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 Insurance19 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 Laws20 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.
DMP2HY.R4(5P3)
01/29/94 -18-
2.21 Pooling of Interests21 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.
2.22 Compensation22 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/Prospectus23
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
DMP2HY.R4(5P3)
01/29/94 -19-
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, or 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 Materials24 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 Complete25 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.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB RTICLE 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 Parent1 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
DMP2HY.R4(5P3)
01/29/94 -20-
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 Structure2 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.
DMP2HY.R4(5P3)
01/29/94 -21-
3.3 Authority3 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, 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 Statements4 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
DMP2HY.R4(5P3)
01/29/94 -22-
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 Liabilities5 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 (iii) are not normal or recurring liabilities
incurred
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since December 31, 1993 in the ordinary course of business consistent
with past practices.
3.6 Absence of Certain Changes or Events6 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 Taxes7Taxes .
(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
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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.
(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 Activities8 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 Equipment9 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
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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 Property10 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
DMP2HY.R4(5P3)
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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, 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 Litigation11 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.
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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 Commitments13 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. 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 Laws15 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 Interests16 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' Fees17 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/Prospectus18
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
DMP2HY.R4(5P3)
01/29/94 -29-
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 Materials19 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 Complete20 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.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company1 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
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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;
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(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;
(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
DMP2HY.R4(5P3)
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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.
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4.2 Conduct of Business of Parent2 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), 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;
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(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% of the outstanding Common Stock of Parent
and provided further that Parent agrees to disclose all such transac
tions 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
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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
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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 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 Statement1 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
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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 Information3 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 Confidentiality4 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.
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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 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 Sec
tion 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 the 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, the
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
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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 Disclosure6 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 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
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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
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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.
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
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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.
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5.21 NMS Listing. The Company agrees to
continue the listing of the Company Capital Stock on the NASDAQ
National Market Systemduring 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 Stockhollder 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 Represeantion. Parent agrees to appoint one
director of the Company to its Board of Directors as of the Effective
Time.
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 consum
mation 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,
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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
(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.
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(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 contem
plated 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.
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(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 consider
ation 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.
(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:
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(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
DMP2HY.R4(5P3)
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(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; 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
DMP2HY.R4(5P3)
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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.
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
DMP2HY.R4(5P3)
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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 under
standings, 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 possi
ble, 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.
DMP2HY.R4(5P3)
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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.
VMX, INC. OCTEL COMMUNICATIONS CORPORATION
By: /s/ PATRICK S. HOWARD By: /s/ ROBERT COHN
Patrick S. Howard, President Robert Cohn, President and
and Chief Executive Officer Chief Executive Officer
OCTEL ACQUISITION CORPORATION
By: /s/ ROBERT COHN
Robert Cohn, President and
Chief Executive Officer
DMP2HY.R4(5P3)
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PARENT SCHEDULE
PURSUANT TO ARTICLE III
3.1 Organization of the Company.
1. Octel has entered into a memorandum of understanding with
Bell Canada International, Inc. for the formation of a limited
liability company in the Netherlands. A copy of the proposed
Unanimous Shareholders Agreement has been provided to the Company.
2. Octel has formed two additional wholly owned subsidiaries:
- Octel Communications K.K. (Japan)
- Octel Communications Pacific, Ltd (Hong Kong)
3.2 Capital Structure.
1. 45,632 shares of Common Stock remain in an escrow account per
the terms of an acquisition agreement between Octel and Compass
Technology, Inc.
3.5 No Undisclosed Liabilities.
1. Penalties. Parent has numerous International Voice
Information Service contracts which include penalties, limited to 20%
of the contract value, for late or non-delivery of product which at
times Parent has or may become liable for. However, Parent has to
date negotiated mutually satisfactory agreements with such customers
such that there was no Material Adverse Effect. Parent believes that
these types of commitments are normal in the course of business in the
international marketplace.
2. Brazil. Parent has negotiated and is in the process of
finalizing a 6-year sales transaction for approximately US$ 3.6
Million in Brazil. Parent has extended credit in connection with this
transaction. Due to the volatile nature of the business and
political climate in Brazil, there is a significant risk that Parent
will be unable to collect all or a part of the amounts owed it
pursuant to this transaction.
3. Customs Reclassification. United States Customs has
reclassified Parent disk drives transferred back into the United
States. The initial liability is estimated at approximately US$
175,000 should the reclassification be successful. Parent is
preparing a formal protest in objection to this reclassification.
3.6 Absence of Certain Changes or Events.
1. The transaction contemplated by the Agreement, to which this
schedule is attached, will cause changes to the consolidated balance
sheet of the Parent.
2. In the event Parent determines it is in its best interest to
settle the Theis litigation, there may be an impact on the results of
operations or financial condition of Parent in the quarter in which
the settlement is entered into, depending on the structure of any
potential settlement arrangement.
3.7 Taxes.
The status of the various Federal, State , Local and Foreign Tax
matters as of January 28, 1994 is as follows:
AUDIT AND/OR LITIGATION:
A. Federal:
1. Federal:
a. Year(s): 6/90, 6/91, 6/92
b. Issue: Income Tax - Large Case
c. Amount: Various Notices of Proposed Adjustments
received but no Revenue Agent Reports.
d. Waiver(s): 6/90 to expire 12/31/94
B. State:
1. California:
a. Year(s): 6/88, 6/89, 6/90
b. Issue: California Franchise Tax
c. Amount: No assessment has been issued
d. Waiver(s): 6/88, 6/89 to 6/15/94
2. Connecticut:
a. Year(s): 6/90,6/91,6/92
b. Issue: Income Tax
c. Amount: To be determined.
d. Waiver(s): 6/30/90 to expire 6/30/94.
3. Massachusetts:
a. Year(s): 4/90 - 9/93.
b. Issue: Sales and Use Tax Audit
c. Amount: To be determined.
d. Waiver(s): 4/90 - 3/91 extended through 7/20/94.
4. Minnesota:
a. Year(s): Not Determined.
b. Issue: Income Tax
c. Amount: Scheduled for March 1994.
d. Waiver(s): None.
DMP2HY.R4(5P3)
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5. Minnesota:
a. Year(s): Not Determined.
b. Issue: Sales and Use Tax
c. Amount: Scheduled for May 1994.
d. Waiver(s): None.
6. New York:
a. Year(s): 9/89 - 8/93.
b. Issue: Sales and Use Tax
c. Amount: To be Determined
d. Waiver(s): 9/89 - 11/90 extended through 3/20/94.
7. New York City:
a. Year(s): 6/89, 6/90, 6/91, 6/92.
b. Issue: Income Tax.
c. Amount: To be Determined.
d. Waiver(s): 6/90 extended through 12/94.
8. Virginia:
a. Year(s): 6/91, 6/92.
b. Issue: Income Tax.
c. Amount: To be determined.
d. Waiver(s): None.
C. Foreign - None.
3.9 Title of Properties; Absence of Liens and Encumbrances;
Condition of Equipment
In August 1992, Parent purchased 22 acres of real property in
Milpitas, California and obtained a policy of title in connec tion
with the purchase. In May of 1993 the Company commenced
construction of a 368,000 square foot headquarters facility which
is due to be completed in August of 1994. The head quarters
project may involve construction or mechanics liens which Parent
believes are in the ordinary course of business. Parent has no long-
term debt obligation associated with the purchase of this
property.
3.10 Intellectual Property.
1. Patents
Gilbarco Patent: Complaint filed in District Court in
Colorado claiming Octel's infringement of a voice,
store & forward patent.
Neudofer Patent: Letter claiming infringement of a
fax, store & forward patent; no formal compliant filed.
Tsakanikas Patent: Letter from Nynex requesting
indemnification under the terms of their contract with
Parent against a claim that products infringe a
DMP2HY.R4(5P3)
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patent related to the use of the phone key pad as a user
interface.
Other: Parent is aware of other patents in the
voicemail industry, such as those held by Comverse and
Brooktrout. In Parent's business judgment, Parent does
not believe it infringes any such patents although,
based on other patent claims brought within the
voicemail industry, it believes that such patents could
entail the risk of a claim.
2. Trade Secrets
VMX has contacted Parent threatening to sue based on
Tigon's reverse engineering of the VMX networking
protocol.
3. Trademarks
Sierra. Octel has received letters from Sierra On-Line
and Sierra Semiconductor regarding alleged infringement
of trademarks by use of the name Sierra.
Octel. Octel entered into settlement with Octal
regarding infringement of their trademark. The parties
are negotiating a final settlement payment.
Dialect. Dialog claims that Compass' use of the mark
"dialect" infringes their trademark.
4. Confidentiality Agreements, Employees and Consultants.
It is Parent's standard practice to use best efforts to
assure that all employees and consultants sign Parent's
standard agreement regarding Proprietary Rights and
Confidentiality Agreement or Consultant's Agreement.
3.11 Litigation
1. Gilbarco - described under 3.10 disclosures.
2. Yates - Julian and Peter Yates, former shareholders of
Compass, have engaged counsel to negotiate an amendment to
their employment agreements including accelerated rights to
exercise outstanding stock options. The claim is based on
their belief that the Parent made misrepresentations during
the acquisition of Compass Technologies relative to
distribution strategies.
3. Other employment claims. Parent and its subsidiaries
have various other employment related claims outstanding,
none of which individually or taken as a whole are expected to
have a Material Adverse Effect on the Parent or its subsidiaries.
DMP2HY.R4(5P3)
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3.13 Labor Matters
1. Parent and its subsidiaries have fewer than ten EEOC claims
outstanding which are not expected, individually or in the aggregate,
to have a Material Adverse Effect on the business of Parent.
2. Parent and its subsidiaries have fewer than ten Workers
Compensation and long-term disability claims outstanding which are
not expected, individually or in the aggregate, to have a Material
Adverse Effect on the business of Parent.
DMP2HY.R4(5P3)
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PRIVATE & CONFIDENTIAL
Annual Senior Personnel Incentive Plan
July 1, 1993
PRIVATE AND CONFIDENTIAL
Octel Communications Corporation
ANNUAL SENIOR PERSONNEL INCENTIVE (ASPIN) PLAN
1.0 Purpose
The purpose of the Annual Senior Personnel Incentive ("ASPIN
Plan") is to provide performance incentives for those
members of the management of Octel Communications (the
"Company") and other senior level employees who, in the
execution of their responsibilities, are in a position to
significantly influence the performance level for the
Company. The ASPIN Plan is designed to encourage the
achievement of overall Company objectives as well as to
recognize and reward individual accomplishment.
2.0 Term
The term of the ASPIN Plan is 1 year, to coincide with the
Fiscal Year, commencing July 1, and ending June 30. The
ASPIN Plan will be subject to review, modification, and
renewal by the Board of Directors of the Company (the
"Board") on an annual basis.
3.0 Plan Administration
The ASPIN Plan will be administered by an Executive
Compensation Committee (the "Committee") composed of
designated Executive Staff members. Subject to the review
and approval of the Chief Executive Officer of the Company
(the "CEO"), the Committee will have responsibility to
review and approve: (a) participation levels, (b) target
bonuses, and (c) individual performance objectives, (d) year-
end individual performance evaluations, and (e)
communications to employees regarding the ASPIN Plan.
4.0 Eligibility
4.1 Employees of the Company, designated by the Committee,
will be eligible to participate in the ASPIN Plan.
Employees hired or promoted into such positions during
the fiscal year will be eligible to participate, with
the target bonus for such participants determined
according to the provisions of Section 5.0 below.
4.2 To be eligible to receive a bonus under the ASPIN Plan,
the participant must be employed by the Company on the
last working day of the fiscal year for which the bonus
is to be paid. No bonus will be payable if the
participant is not so employed, provided, however, that
where termination of employment is due to death or
disability of the participant, or normal retirement as
defined by the Company's retirement plan then in
effect, a pro-rata payment of the bonus may be made, at
the discretion of the Committee. The Company also
reserves the right to withhold payment of any or all of
the bonus if the employee is on a leave of absence for
longer than nine months during the fiscal year (to be
reviewed on a case-by-case basis).
5.0 Target Bonuses
5.1 General: At the start of the ASPIN Plan term a target
bonus will be set for each participant, based upon the
responsibility level and appropriate target total
compensation level for the participant. All target
bonuses are subject to the review and approval of the
Committee.
5.2 Percentage of Base Salary: Target bonuses for all
participants will be expressed as a percentage of gross
base salary paid during the fiscal year. For purposes
of the Plan, "gross base salary" includes base salary
actually paid to the employee in the current fiscal
year (before taxes and other deductions). Excluded
from earnings will be bonus payments made in the
current fiscal year for performance in the previous
fiscal year.
5.3 New Hires/Promotions: Employees hired or promoted into
an eligible position during the fiscal year will
normally have a target bonus set at the minimum of the
appropriate target bonus range. Since the target bonus
percentage applies only to base salary paid during the
eligibility period, the bonus will be automatically
prorated.
5.4 Demotions or Reclassifications: Employees downgraded
to non-eligible positions during the fiscal year will
have their bonus participation reviewed on a case-by-
case basis. Since the reason for the downgrade could
be voluntary or involuntary due to individual
performance or business necessity, the handling of the
bonus will be subject to review and approval of the
Committee.
6.0 Company Performance Objectives
Company performance objectives for purposes of the ASPIN
Plan will be recommended by the President/CEO, subject to
the review and approval of the Board.
7.0 Individual Performance Objectives
Individual performance objectives will be set for each
participant by the participant's immediate supervisor,
department director, or above, subject to the review and
approval of the cognizant Executive Staff member.
Performance objectives will normally be goals that are
strategic in nature and measurable.
8.0 Performance Monitoring
During the ASPIN Plan year, Company and individual
performance will be monitored. Adjustments to performance
objectives may be made where appropriate, subject to the
review and approval of the Executive Staff member, with
respect to individual performance objectives.
9.0 Performance Criteria Weightings
For all participants, 50% of the bonus will be based upon
Company performance and 50% will be based upon individual
performance.
10.0 Bonus Determination Process
10.1 Portion of Bonus Based on Company Performance: At the
end of the fiscal year, Company performance against
objectives will be determined according to the audited
financial statements of the Company. The portion of
the target bonus based upon Company performance will be
adjusted as illustrated in Exhibit A.
10.2 Portion of Bonus Based on Individual Performance: At
the end of the ASPIN Plan year, an evaluation of
performance versus plan goals will be made by the
participant's management. Such evaluations will be
subject to the review and approval of the Committee.
The portion of the target bonus based upon individual
performance will be adjusted between 0% and 100% based
upon achievement of performance against measurable
objectives.
10.3 Total Bonus: The Company and individual performance
factors operate independently. The participant's total
bonus will be the sum of the portion earned based on
Company performance and the portion earned based on
individual performance.
10.4 Minimum Required Performance Levels: Notwithstanding
the foregoing, no company-performance bonus will be
payable to any participant unless the minimum Company
performance level is achieved. The Company also
reserves the right to withhold payment of the
individual portion of the bonus if the Company is not
profitable (to be determined at year end).
Further, regardless of Company performance, no bonus
will be paid to the participant if the participant is
not meeting general job requirements (a rating of
"good" or better) as determined by management at the
end of the fiscal year. If the participant does not
receive a bonus because the foregoing minimum
requirements are not met, the participant may
nevertheless be eligible to receive an incentive
payment under the Company's Profit Sharing Plan,
provided that the eligibility requirements of that plan
are met.
11.0 Bonus Distribution
Bonuses will be distributed to participants as soon as
practical after the close of the fiscal year for which the
bonus has been earned. Such distribution will be subject to
the eligibility requirements specified in Section 4.0 above.
12.0 Miscellaneous
12.1 The ASPIN Plan may be amended or terminated by the
Company at any time, except that amendment or
termination will not affect bonus payments made prior
to such amendment or termination.
12.2 All Bonus payments under the ASPIN Plan are subject to
the discretion of the Company, and prior to
distribution, pursuant to the provisions of the ASPIN
Plan, bonus payments may be reduced or eliminated
entirely if business considerations of the Company so
require.
12.3 Participation in the ASPIN Plan does not constitute an
agreement to employ the participant for any length of
time, and shall not restrict the Company's right to
terminate the employment of the participant for any
reason and at any time.
12.4 The Board of Directors may, at its discretion,
partially fund the ASPIN Plan if in its judgment
factors causing under-achievement vis-a-vis company
goals were due to circumstances not fully related to
the performance of the ASPIN participants. In such
cases, pro-rata bonuses for all or some of the ASPIN
participants would be authorized.
