Agreement and Plan of Merger and Reorganization - VTEL Corp. and Compression Labs Inc.
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
VTEL CORPORATION,
VTEL-SUB, INC.
AND
COMPRESSION LABS, INCORPORATED
DATED AS OF JANUARY 6, 1997
CORPDAL:59869.4 22768-00022
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I -- THE MERGER.......................................................2
Section 1.01. The Merger..........................................2
Section 1.02. The Closing.........................................2
Section 1.03. Effective Time......................................2
Section 1.04. Effect of the Merger................................2
Section 1.05. Certificate of Incorporation........................2
Section 1.06. Bylaws..............................................2
Section 1.07. Directors and Officers..............................2
Section 1.08. Tax Consequences....................................3
Section 1.09. Accounting Treatment................................3
ARTICLE II -- CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES...............3
Section 2.01. Merger Consideration: Conversion and
Cancellation of Securities.......................3
Section 2.02. Exchange Agency; Surrender of Certificates..........4
Section 2.03. Stock Transfer Books................................7
Section 2.04. Dissenters' Rights..................................7
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................8
Section 3.01. Organization and Qualification: Subsidiaries........8
Section 3.02. Certificate of Incorporation and Bylaws.............9
Section 3.03. Capitalization......................................9
Section 3.04. Authority..........................................11
Section 3.05. No Conflict: Required Filings and Consents.........11
Section 3.06. Permits: Compliance................................12
Section 3.07. Reports; Financial Statements;
Undisclosed Liabilities.........................13
Section 3.08. Absence of Certain Changes or Events...............14
Section 3.09. Absence of Litigation..............................14
Section 3.10. Employee Benefit Plans; Labor Matters..............15
Section 3.11. Taxes..............................................16
Section 3.12. Affiliates. ......................................17
Section 3.13. Properties. ......................................18
Section 3.14. Intellectual Rights................................18
Section 3.15. Real Property. ....................................19
Section 3.16. Insider Interests; Transactions with Management....19
Section 3.17. Contracts and Agreements...........................20
Section 3.18. Vote Required......................................20
Section 3.19. Brokers............................................20
Section 3.20. Opinion of Financial Advisor.......................20
Section 3.21. Board Recommendations. ...........................20
Section 3.22. Distributors, Customers, or Suppliers..............21
CORPDAL:59869.4 22768-00022
i
<PAGE>
Section 3.23. Pooling of Interests...............................21
Section 3.24. Rights Plan........................................21
Section 3.25. Disclosure.........................................21
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF THE VTEL COMPANIES............21
Section 4.01. Organization and Qualification; Subsidiaries.......21
Section 4.02. Certificate of Incorporation and Bylaws............22
Section 4.03. Capitalization.....................................22
Section 4.04. Authority..........................................24
Section 4.05. No Conflict: Required Filings and Consents.........24
Section 4.06. Permits; Compliance................................25
Section 4.07. Reports: Financial Statements......................25
Section 4.08. Absence of Certain Changes or Events...............26
Section 4.09. Absence of Litigation..............................27
Section 4.10. Intellectual Rights................................27
Section 4.11. Transactions with Management.......................28
Section 4.12. Vote Required......................................28
Section 4.13. Brokers............................................28
Section 4.14. Opinion of Financial Advisor.......................29
Section 4.15. Board Recommendations..............................29
Section 4.16. Distributors, Customers, or Suppliers..............29
Section 4.17. Pooling of Interests...............................29
Section 4.18. Disclosure.........................................29
ARTICLE V -- COVENANTS........................................................29
Section 5.01. Affirmative Covenants of the Company...............29
Section 5.02. Affirmative Covenants of VTEL......................30
Section 5.03. Negative Covenants of the Company. ...............31
Section 5.04. Negative Covenants of VTEL.........................35
Section 5.05. Access and Information.............................36
ARTICLE VI -- ADDITIONAL AGREEMENTS...........................................37
Section 6.01. Presentation to Stockholders.......................37
Section 6.02. Registration Statement; Proxy Statement/Prospectus.38
Section 6.03. Appropriate Action: Consents; Filings..............39
Section 6.04. Affiliates; Tax Treatment..........................40
Section 6.05. Public Announcements...............................41
Section 6.06. NASDAQ Listing.....................................41
Section 6.07. State Takeover Statutes............................41
Section 6.08. Charter Amendment..................................42
Section 6.09. Board Seats........................................42
Section 6.10. Options............................................42
Section 6.11. Series C Preferred Stock Warrants. ................43
CORPDAL:59869.4 22768-00022
ii
<PAGE>
Section 6.12. Termination of Convertible Preferred
Stock Purchase Agreement........................43
Section 6.13. Merger Sub.........................................43
Section 6.14. Indemnification....................................43
Section 6.15. Employment Contracts...............................45
Section 6.16. Comfort Letters....................................46
Section 6.17. Sales Under Rule 145 if Applicable.................46
ARTICLE VII -- CLOSING CONDITIONS.............................................47
Section 7.01. Conditions to Obligations of Each Party
Under This Agreement............................47
Section 7.02. Additional Conditions to Obligations
of the VTEL Companies...........................48
Section 7.03. Additional Conditions to Obligations
of the Company..................................49
ARTICLE VIII -- TERMINATION, AMENDMENT AND WAIVER.............................50
Section 8.01. Termination........................................50
Section 8.02. Effect of Termination. ...........................52
Section 8.03. Amendment..........................................53
Section 8.04. Waiver. ..........................................53
Section 8.05. Fees, Expenses and Other Payments..................53
ARTICLE IX -- GENERAL PROVISIONS..............................................54
Section 9.01. Effectiveness of Representations,
Warranties and Agreements.......................54
Section 9.02. Notices............................................55
Section 9.03. Certain Definitions................................56
Section 9.04. Headings...........................................57
Section 9.05. Severability.......................................57
Section 9.06. Entire Agreement...................................57
Section 9.07. Assignment.........................................57
Section 9.08. Parties in Interest................................57
Section 9.09. Failure or Indulgence Not Waiver;
Remedies Cumulative.............................58
Section 9.10. Governing Law......................................58
Section 9.11. Counterparts.......................................58
Section 9.12. Specific Performance...............................58
EXHIBIT A - Stock Option Agreement
EXHIBIT B - Company Affiliate Letter
EXHIBIT C - Acquiror Affiliate Letter
CORPDAL:59869.4 22768-00022
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of
January 6, 1997 (this "Agreement"), is by and among VTEL CORPORATION, a Delaware
corporation ("VTEL"), VTEL-SUB, INC., a Delaware corporation and direct wholly
owned subsidiary of VTEL ("Merger Sub"), and COMPRESSION LABS, INCORPORATED, a
Delaware corporation (the "Company"). VTEL and Merger Sub are sometimes
collectively referred to herein as the "VTEL Companies."
WHEREAS, Merger Sub, upon the terms and subject to the conditions of
this Agreement and in accordance with the General Corporation Law of the State
of Delaware ("DGCL"), will merge with and into the Company (the "Merger");
WHEREAS, the Board of Directors of the Company has determined that the
Merger is advisable and is fair to, and in the best interests of, the Company
and its stockholders, has approved and adopted this Agreement and the
transactions contemplated hereby, and has recommended approval and adoption of
this Agreement by the stockholders of the Company;
WHEREAS, the Board of Directors of VTEL has determined that the Merger
is advisable and is fair to, and in the best interests of, VTEL and its
stockholders, has approved and adopted this Agreement and the transactions
contemplated hereby, and its sole stockholder, VTEL, has approved the Merger by
unanimous written consent;
WHEREAS, the Board of Directors of Merger Sub has approved and adopted
this Agreement and the transactions contemplated hereby, and has recommended
approval and adoption of this Agreement by its stockholder;
WHEREAS, it is the intent of the respective Boards of Directors of the
Company and VTEL that the Merger be structured as a strategic combination
involving a "merger of equals" of the Company and VTEL and that the Surviving
Corporation (as defined herein) be governed and operated on that basis;
WHEREAS, for federal income tax purposes, it is intended that the
Merger will qualify as a reorganization under the provisions of Section 368(a)
of the United States Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, the parties intend to cause the Merger to be accounted for as
a pooling of interests pursuant to APB Opinion No. 16, Staff Accounting Series
Release 130, 135 and 146 and Staff Accounting Bulletins Topic Two;
WHEREAS, in furtherance of, and as a requirement of the VTEL Companies
to enter into this Agreement providing for, the Merger, the Company and VTEL
have entered into a Stock
CORPDAL:59869.4 22768-00022
1
<PAGE>
Option Agreement, dated of even date herewith, in the form attached as Exhibit A
(the "Stock Option Agreement"); and
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.01. The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the DGCL, at the Effective
Time (as defined in Section 1.03 of this Agreement), Merger Sub shall be merged
with and into the Company. As a result of the Merger, the separate corporate
existence of Merger Sub shall cease and the Company shall continue as the
surviving corporation of the Merger (the "Surviving Corporation"). The name of
the Surviving Corporation shall continue after the Effective Time to be
"Compression Labs, Incorporated."
Section 1.02. The Closing. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") shall take place (a) at the
offices of Jenkens & Gilchrist, a Professional Corporation, 1445 Ross Avenue,
Suite 3200, Dallas, Texas 75202-2799, at 9:00 am., local time, on the second
business day immediately following the day on which the last to be fulfilled or
waived of the conditions set forth in Article VII shall be fulfilled or waived
in accordance herewith (other than conditions with respect to actions the
respective parties hereto will take at the Closing), or (b) at such other time,
date or place as VTEL and the Company may agree. The date on which the Closing
occurs is hereinafter referred to as the "Closing Date."
Section 1.03. Effective Time. As promptly as practicable after the
satisfaction or, if permissible, waiver of the conditions set forth in Article
VII of this Agreement, the parties hereto shall cause the Merger to be
consummated by filing a Certificate of Merger with the Secretary of State of the
State of Delaware, in such form as is required by, and executed in accordance
with the relevant provisions of, the DGCL (the date and time of the completion
of such filing being the "Effective Time").
Section 1.04. Effect of the Merger. At the Effective Time, the effect
of the Merger shall be as provided in Section 259 of the DGCL. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time all
the property, rights, privileges, powers and franchises of Merger Sub and the
Company shall vest in the Surviving Corporation, and all debts, obligations,
liabilities and duties of each of Merger Sub and the Company shall become the
debts, obligations, liabilities and duties of the Surviving Corporation.
CORPDAL:59869.4 22768-00022
2
<PAGE>
Section 1.05. Certificate of Incorporation. At the Effective Time,
the Certificate of Incorporation of the Company shall be the Certificate of
Incorporation of Merger Sub as in effect immediately prior to the Effective
Time.
Section 1.06. Bylaws. At the Effective Time and without further
action on the part of the Company or VTEL, the Bylaws of the Surviving
Corporation shall be the Bylaws of Merger Sub in effect as of the Effective
Time.
Section 1.07. Directors and Officers. The directors of Merger Sub
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified.
Section 1.08. Tax Consequences. It is intended that the Merger shall
constitute a reorganization within the meaning of Section 368(a) of the Code,
and that this Agreement shall constitute a "plan of reorganization" for the
purposes of Section 368 of the Code.
Section 1.09. Accounting Treatment. It is intended that the Merger
shall be treated as a pooling-of-interests for accounting purposes by VTEL and
the Company.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 2.01. Merger Consideration: Conversion and Cancellation of
Securities. At the Effective Time, by virtue of the Merger and without any
action on the part of the VTEL Companies, the Company or the holders of any of
the Company's securities:
(a) Subject to the other provisions of this Article II, each
share of common stock, par value $.001 per share, of the Company
("Company Common Stock") issued and outstanding immediately prior to
the Effective Time (excluding any Company Common Stock described in
Section 2.01(e) of this Agreement) shall be converted into the right to
receive .46 of one fully paid and nonassessable share of common stock,
par value $.0l per share, of VTEL ("VTEL Common Stock") (the "Common
Stock Conversion Ratio").
(b) Subject to the other provisions of this Article II, each
share of Series C Preferred Stock, par value $.001 per share, of the
Company ("Series C Preferred Stock") issued and outstanding immediately
prior to the Effective Time (excluding any Series C Preferred Stock
described in Section 2.01(e) of this Agreement and any Dissenting
Shares, as herein defined) shall be converted into the right to receive
3.15 fully paid and
CORPDAL:59869.4 22768-00022
3
<PAGE>
nonassessable share of VTEL Common Stock (the "Series C Preferred Stock
Conversion Ratio").
(c) Notwithstanding the foregoing, if between the date of this
Agreement and the Effective Time the outstanding shares of VTEL Common
Stock or Company Common Stock shall have been changed into a different
number of shares or a different class, by reason of any stock dividend,
subdivision, reclassification, recapitalization, split, combination or
exchange of shares, the Common Stock Conversion Ratio and the Series C
Preferred Stock Conversion Ratio shall be correspondingly adjusted to
reflect such stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares.
(d) As a result of their conversion pursuant to Section
2.01(a) and Section 2.01(b), all shares of Company Common Stock and
Series C Preferred Stock shall cease to be outstanding and shall
automatically be canceled and retired. Each certificate previously
evidencing Company Common Stock outstanding immediately prior to the
Effective Time (other than Company Common Stock described in Section
2.01(e) of this Agreement) ("Converted Common Shares") shall thereafter
represent, subject to Section 2.02(d) of this Agreement, the right to
receive that number of shares of VTEL Common Stock into which the
shares of Company Common Stock represented by such certificate have
been converted pursuant to subsection (a) of this Section 2.01
determined pursuant to the Common Stock Conversion Ratio and, if
applicable, the right to receive cash pursuant to Section 2.02(d) of
this Agreement ("Common Stock Merger Consideration"). Each certificate
previously evidencing Series C Preferred Stock outstanding immediately
prior to the Effective Time (other than Series C Preferred Stock
described in Section 2.01(e) of this Agreement and any Dissenting
Shares) (the "Converted Series C Preferred Shares" and, together with
the Converted Common Shares, the "Converted Shares") shall thereafter
represent, subject to Section 2.02(d) of this Agreement, the right to
receive that number of shares of VTEL Common Stock into which the
shares of Series C Preferred Stock represented by such certificate have
been converted pursuant to subsection (b) of this Section 2.01
determined pursuant to the Series C Preferred Stock Conversion Ratio
and, if applicable, the right to receive cash pursuant to Section
2.02(d) of this Agreement (the "Series C Preferred Stock Consideration"
and, with the Common Stock Consideration, the "Merger Consideration").
The holders of certificates previously evidencing Converted Shares
shall cease to have any rights with respect to such Converted Shares
except the right to receive the Merger Consideration applicable thereto
and as otherwise provided herein or by law. Such certificates
previously evidencing Converted Shares shall be exchanged for
certificates evidencing whole shares of VTEL Common Stock issued in
consideration therefor upon the surrender of such certificates in
accordance with the provisions of Section 2.02 of this Agreement. No
fractional shares of VTEL Common Stock shall be issued and, in lieu
thereof, a cash payment shall be made pursuant to Section 2.02(d) of
this Agreement.
CORPDAL:59869.4 22768-00022
4
<PAGE>
(e) Notwithstanding any provision of this Agreement to the
contrary, each share of Company Common Stock or Series C Preferred
Stock held in the treasury of the Company and each share of Company
Common Stock owned by VTEL or any direct or indirect wholly owned
subsidiary of VTEL or of the Company immediately prior to the Effective
Time shall be canceled and extinguished without any conversion thereof
and no payment shall be made with respect thereto.
(f) Each share of common stock, par value $.0l per share, of
Merger Sub issued and outstanding immediately prior to the Effective
Time shall be converted into and exchanged for one newly and validly
issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
Section 2.02. Exchange Agency; Surrender of Certificates.
(a) Exchange Fund. At or prior to the Effective Time, VTEL
shall deposit, or cause to be deposited, with a bank or trust company
designated by VTEL (the "Exchange Agent"), for the benefit of the
holders of Converted Shares, for exchange in accordance with this
Article II, through the Exchange Agent (i) certificates evidencing a
number of shares of VTEL Common Stock equal to the product of the
Common Stock Conversion Ratio multiplied by the number of Converted
Common Shares issued and outstanding immediately prior to the Effective
Time, (ii) certificates evidencing a number of shares of VTEL Common
Stock equal to the product of the Series C Preferred Stock Conversion
Ratio multiplied by the number of shares of Series C Preferred Stock
issued and outstanding immediately prior to the Effective Time, and
(iii) cash in an amount sufficient to provide for the payments to be
made in lieu of issuing any fractional shares of VTEL Common Stock as
provided in Section 2.02(d) of this Agreement. Additionally, subject to
the provisions of subsection (e) of this Section 2.02, VTEL shall, if
and when a payment date has occurred with respect to a dividend or
distribution that has been declared subsequent to the Effective Time,
deposit with the Exchange Agent an amount in cash (or property of like
kind to that which is the subject of such dividend or distribution)
equal to the dividend or distribution per share of VTEL Common Stock
times the number of shares of VTEL Common Stock evidenced by
certificates theretofore representing Converted Shares that have not
theretofore been surrendered for exchange in accordance with this
Section 2.02. The certificates and cash (and property, if any)
deposited with the Exchange Agent in accordance with this Section
2.02(a) are hereinafter referred to as the "Exchange Fund." The
Exchange Agent shall, pursuant to irrevocable instructions, deliver
VTEL Common Stock (and any dividends or distribution related thereto)
and/or cash, as described above, in exchange for surrendered
certificates pursuant to the terms of this Agreement out of the
Exchange Fund.
(b) Exchange Procedures. As soon as practicable after
the Effective Time, VTEL shall cause the Exchange Agent to send to each
record holder of Company Common Stock and Series C Preferred Stock at
the Effective Time (i) a letter of transmittal (which
CORPDAL:59869.4 22768-00022
5
<PAGE>
shall specify that delivery shall be effected, and risk of loss and
title to the certificates theretofore representing Company Common Stock
or Series C Preferred Stock (the "Certificates") shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in such
form and contain such other provisions as VTEL and the Company shall
reasonably determine), and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing
shares of VTEL Common Stock and any cash in lieu of fractional shares,
into which the shares of Company Common Stock or Series C Preferred
Stock represented by such Certificate or Certificates shall have been
converted pursuant to this Agreement. Upon surrender of a Certificate
for cancellation to the Exchange Agent, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor, a certificate representing
that number of whole shares of VTEL Common Stock which such holder has
the right to receive pursuant to the provisions of this Article II and
cash in the amount such holder has the right to receive pursuant to
such provisions, and the Certificate so surrendered shall forthwith be
canceled. In the event of a transfer of ownership of Company Common
Stock or Series C Preferred Stock which is not registered in the
transfer records of the Company, a certificate evidencing the proper
number of shares of VTEL Common Stock may be issued to the transferee
if the Certificate evidencing the Company Common Stock or Series C
Preferred Stock shall be surrendered to the Exchange Agent, accompanied
by all documents required to evidence and effect such transfer and by
evidence that any applicable stock transfer taxes have been paid. Until
surrendered for exchange in accordance with the provisions of Section
2.02 of this Agreement, each Certificate theretofore representing
Converted Shares (other than shares of Company Common Stock and Series
C Preferred Stock to be canceled pursuant to Section 2.01(e) of this
Agreement and any Dissenting Shares) shall from and after the Effective
Time represent for all purposes only the right to receive the
applicable Merger Consideration as set forth in this Agreement. If any
holder of Converted Shares shall be unable to surrender such holder's
Certificates because such Certificates have been lost or destroyed,
such holder may deliver in lieu thereof an affidavit and indemnity bond
in form and substance and with surety reasonably satisfactory to VTEL.
No interest shall be paid on any Merger Consideration payable to former
holders of Converted Shares.
(c) Distributions with Respect to VTEL Common Stock. No
dividends or other distributions declared or made after the Effective
Time with respect to VTEL Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered
Certificate theretofore representing shares of Company Common Stock or
Series C Preferred Stock with respect to any shares of VTEL Common
Stock evidenced thereby, and no Merger Consideration shall be paid to
any such holders until the holder of such Certificate shall surrender
such Certificate theretofore representing shares of Company Common
Stock or shares of Series C Preferred Stock . Subject to applicable
laws, following surrender of any such Certificate, there shall be paid
to the holder of the certificates evidencing whole shares of VTEL
Common Stock issued in exchange therefor, without interest, (i)
promptly following the surrender of such Certificate and in addition
CORPDAL:59869.4 22768-00022
6
<PAGE>
to the amount of any cash payable with respect to a fractional share of
VTEL Common Stock to which such holder is entitled pursuant to Section
2.02(d) of this Agreement, the amount of dividends or other
distributions with a record date after the Effective Time theretofore
paid with respect to such whole shares of VTEL Common Stock and (ii) at
the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to
surrender and a payment date occurring after surrender payable with
respect to such whole shares of VTEL Common Stock.
(d) No Fractional Shares. No certificates or scrip evidencing
fractional shares of VTEL Common Stock shall be issued upon the
surrender for exchange of Certificates, and such fractional share
interests shall not entitle the owner thereof to any rights of a
stockholder of VTEL. In lieu of any such fractional shares, (i) each
holder of a Certificate previously evidencing Company Common Stock or
Series C Preferred Stock, upon surrender of such Certificate for
exchange pursuant to this Article II, shall be paid an amount in cash
(without interest), rounded to the nearest cent, determined by
multiplying (A) the Average Closing Price by (B) the fractional
interest to which such holder would otherwise be entitled (after taking
into account all shares of Company Common Stock or Series C Preferred
Stock held of record by such holder at the Effective Time). "Average
Closing Price" means the average closing sales price of the VTEL Common
Stock on The NASDAQ Stock Market (or such other quotation system or
securities exchange on which the VTEL Common Stock is then quoted or
listed) as reported by the Wall Street Journal for the 20 consecutive
trading days beginning 22 trading days prior to the scheduled Closing
Date as provided in Section 1.02 hereof.
(e) Termination of Exchange Fund. Any portion of the Exchange
Fund that remains unclaimed by the former holders of Converted Shares
on the first anniversary of the Closing Date shall be delivered to
VTEL, upon demand, and any former holders of Converted Shares who have
not theretofore complied with this Article II shall thereafter look
only to VTEL for the Merger Consideration and dividends or
distributions to which they are entitled, without any interest thereon.
Neither VTEL nor the Company shall be liable to any former holder of
Converted Shares for any Merger Consideration (or dividends or
distributions with respect thereto) or cash delivered to a public
official pursuant to any applicable abandoned property, escheat or
similar law.
(f) Withholding. VTEL (or any affiliate thereof) shall be
entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any former holder of Converted
Shares such amounts as VTEL (or any affiliate thereof) is required to
deduct and withhold with respect to the making of such payment under
the Code or any other provision of federal, state, local or foreign tax
law and VTEL agrees to remit to the proper taxing authority such
amounts so withheld. To the extent that amounts are so withheld by
VTEL, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the former holder of the Converted
Shares in respect of which such deduction and withholding was made by
VTEL.
CORPDAL:59869.4 22768-00022
7
<PAGE>
Section 2.03. Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock or Series C
Preferred thereafter on the records of the Company. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall be
canceled and exchanged for the Merger Consideration, deliverable in respect
thereof pursuant to this Agreement in accordance with the procedures set forth
in this Article II. Certificates surrendered for exchange by any person
constituting an "affiliate" of the Company for purposes of Rule 145(c) under the
Securities Act of 1933, as amended (the "Securities Act"), shall not be
exchanged until VTEL has received a written agreement from such person as
provided in Section 6.04.
Section 2.04. Dissenters' Rights.
(a) The holders of shares of Company Common Stock shall not be
entitled to appraisal rights. Notwithstanding anything in this
Agreement to the contrary, each share of Series C Preferred Stock
issued and outstanding immediately prior to the Effective Time and held
by stockholders who have not voted such shares in favor of the Merger
or consented thereto in writing and qualify under and have complied
with all of the provisions of Section 262 of the DGCL ("Dissenting
Shares") shall not, by virtue of the Merger, be converted into the
right to receive the Series C Preferred Stock Consideration but such
stockholder shall be entitled to receive payment of the appraised value
of such shares of Series C Preferred Stock held by them in accordance
with the provisions of Section 262 of the DGCL; provided, however, that
if any holder of Dissenting Shares (i) subsequently delivers a written
withdrawal of his demand for appraisal rights (with the written consent
of VTEL if such written withdrawal is not made within 60 days after the
Effective Time), or (ii) fails to perfect dissenter's rights as
provided in Section 262 of the DGCL, or (iii) if neither any holder of
Dissenting Shares nor the Surviving Corporation has filed a petition
demanding a determination of the value of Dissenting Shares within the
time provided in Section 262 of the DGCL, the Dissenting Shares held by
such holder or holders (as the case may be) shall thereupon be deemed
to have been converted into and to have become exchangeable for, as of
the Effective Time, the right to receive the Series C Preferred Stock
Consideration, as provided in this Agreement without any interest
thereon.
(b) The Company shall give VTEL (i) prompt notice of any
written demands for appraisal, withdrawal of demands for appraisal and
any other instruments served pursuant to Section 262 of the DGCL and
(ii) the opportunity to direct all negotiations and proceedings with
respect to demands for appraisal under Section 262 of the DGCL. The
Company agrees that prior to the Effective Time, it will not, without
the prior written consent of VTEL, voluntarily make or agree to make
any payment with respect to, or settle or offer to settle, any such
demands.
CORPDAL:59869.4 22768-00022
8
<PAGE>
(c) Each holder of Dissenting Shares who becomes entitled,
pursuant to the provisions of Section 262 of the DGCL, to payment of
his or its Dissenting Shares shall receive payment therefor after the
Effective Time from the Surviving Corporation (but only after the
amount thereof shall have been agreed upon or finally determined
pursuant to such provisions) and such shares shall be canceled.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the VTEL Companies that:
Section 3.01. Organization and Qualification: Subsidiaries. The Company
is a corporation, and each of the Company's subsidiaries (as such term in
defined in Section 9.03 herein) is a corporation or partnership, duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, and each of the Company and its subsidiaries has
all requisite power and authority to own, lease and operate its properties and
to conduct its business as it is now being conducted and is qualified to do
business and is in good standing in each jurisdiction in which the nature of the
business conducted by it or the ownership or leasing of its properties makes
such qualification necessary, other than where the failure to be so qualified
and in good standing could not reasonably be expected to have a Company Material
Adverse Effect. The term "Company Material Adverse Effect" as used in this
Agreement shall mean any change or effect that would be materially adverse to
the financial condition, results of operations, business, or prospects of the
Company and its subsidiaries, taken as a whole, at the time of such change or
effect; provided, however, no Company Material Adverse Effect shall be deemed to
have occurred hereunder (i) as a result of customers of the Company deferring or
delaying orders as a result of the announcement of the execution of this
Agreement, (ii) if the financial condition or results of operations of the
Company's business are not materially and adversely different from those
announced with respect to the Company's quarter ended September 30, 1996, or
(iii) as a result of the Company employee departures after the announcement of
the execution of this Agreement. Section 3.01 of the Disclosure Schedule
delivered by the Company to the VTEL Companies concurrently with the execution
of this Agreement (the "Company Disclosure Schedule") sets forth, as of the date
of this Agreement, a true and complete list of all the Company's directly or
indirectly owned subsidiaries, together with (a) the jurisdiction of
incorporation or organization of each such subsidiary and the percentage of each
such subsidiary's outstanding capital stock or other equity interests owned by
the Company or another subsidiary of the Company and (b) an indication of
whether each such subsidiary is a "Significant Subsidiary" as defined in Section
9.03 of this Agreement.
Section 3.02. Certificate of Incorporation and Bylaws. The Company
has heretofore furnished or made available to VTEL complete and correct copies
of the Certificate of Incorporation and the Bylaws or the equivalent
organizational documents, in each case as amended or restated to the date
hereof, of the Company and each of its Significant Subsidiaries. Neither
CORPDAL:59869.4 22768-00022
9
<PAGE>
the Company nor any of its subsidiaries is in violation of any of the provisions
of its Certificate of Incorporation or Bylaws (or equivalent organizational
documents).
Section 3.03. Capitalization.
(a) The authorized capital stock of the Company consists of
25,153,658 shares of Company Common Stock, par value $.001 per share,
and 4,000,000 shares of preferred stock, par value $.001 per share. At
the date hereof, 15,865,178 shares of Company Common Stock were issued
and outstanding, no shares of Company Common Stock were held by the
Company in its treasury or by the Company's subsidiaries and 8,635,185
shares of Company Common Stock were reserved for issuance as follows:
(i) 2,589,866 shares were reserved for issuance upon exercise of stock
options heretofore granted or available for grant pursuant to the
Company's 1980 Stock Option Plan; (ii) 2,506,833 shares were reserved
for issuance upon exercise of stock options heretofore granted or
available for grant pursuant to the Company's 1984 Supplemental Stock
Option Plan; (iii) 176,244 shares were reserved for issuance upon the
purchase of shares under the Company's 1984 Employee Stock Purchase
Plan; (iv) 168,000 shares were reserved for issuance upon exercise of
stock options heretofore granted or available for grant pursuant to the
Company's 1992 Non-Employee Directors' Stock Option Plan (the plans
referred to in clauses (i) through (iv) of this section being herein
collectively called the "Company Option Plans"); (v) 580,000 shares
were reserved for issuance upon the exercise of the warrants (the
"Common Stock Warrants") listed and described in Section 3.03(a) of the
Company Disclosure Schedule; (vi) 2,424,242 shares were reserved for
issuance upon conversion of the Company's Series C Preferred Stock; and
(vii) 3,120,500 shares were reserved for issuance upon exercise of the
Stock Option Agreement. At the date hereof, 350,000 shares of Series C
Preferred Stock were issued and outstanding, no other shares of
preferred stock was issued and outstanding, and no shares of preferred
stock were held by the Company in its treasury or by the Company's
subsidiaries. Except as described in this Section 3.03 or in Section
3.03(a) of the Company Disclosure Schedule, no shares of capital stock
of the Company are issued and outstanding or reserved for issuance for
any other purpose. Each of the issued shares of capital stock of each
of the Company and its subsidiaries is duly authorized, validly issued
and fully paid and nonassessable, and has not been issued in violation
of (nor are any of the authorized shares of capital stock of, or other
equity interests in, the Company or any of its subsidiaries subject to)
any preemptive or similar rights created by statute, the Certificate of
Incorporation or Bylaws (or the equivalent organizational documents) of
the Company or any of its subsidiaries, or any agreement to which the
Company or any of its subsidiaries is a party or is bound. Except as
set forth in Section 3.03(a) of the Company Disclosure Schedule, all
issued shares or other equity interests in the subsidiaries of the
Company owned by the Company or a subsidiary of the Company are owned
free and clear of all security interests, liens, claims, pledges,
agreements, limitations on the Company's or such subsidiaries' voting
rights, charges or other encumbrances of any nature whatsoever.
CORPDAL:59869.4 22768-00022
10
<PAGE>
(b) No bonds, debentures, notes or other indebtedness of the
Company or its subsidiaries having the right to vote (or convertible
into or exchangeable or exercisable for securities having the right to
vote) on any matters on which stockholders may vote ("Company Voting
Debt") are issued or outstanding. All shares of Company Common Stock
which may be issued upon exercise of stock options granted pursuant to
the Company Option Plans or Common Stock Warrants and all shares of
Company Common Stock which may be issued upon conversion of the Series
C Preferred Stock will, when issued in accordance with the terms of
such stock options, warrants, designations and the related Company
Option Plans, be validly issued, fully paid and nonassessable and not
subject to preemptive rights.
(c) Except as set forth in Section 3.03(a) above or in Section
3.03(c) of the Company Disclosure Schedule, there are no options,
warrants or other rights (including registration rights), agreements,
arrangements or commitments of any character to which the Company or
any of its subsidiaries is a party relating to the issued or unissued
capital stock of the Company or any of its subsidiaries or obligating
the Company or any of its subsidiaries to grant, issue or sell any
shares of capital stock, Company Voting Debt or other equity interests
of the Company or any of its subsidiaries. Except as set forth in
Section 3.03(c) of the Company Disclosure Schedule, there are no
obligations, contingent or otherwise, of the Company or any of its
subsidiaries (i) to repurchase, redeem or otherwise acquire any shares
of Company Common Stock or other capital stock of the Company or the
capital stock of any subsidiary of the Company or (ii) other than
advances to wholly owned subsidiaries in the ordinary course of
business, to provide funds to, or to make any investment in (in the
form of a loan, capital contribution or otherwise), or to provide any
guarantee with respect to the obligations of, any subsidiary of the
Company or any other person. Except (i) as set forth in Section 3.03(c)
of the Company Disclosure Schedule or (ii) for the subsidiaries of the
Company set forth in Section 3.01 of the Company Disclosure Schedule,
neither the Company nor any of its subsidiaries (x) directly or
indirectly owns, (y) has agreed to purchase or otherwise acquire or (z)
holds any interest convertible into or exchangeable or exercisable for
the capital stock or other equity interests representing five percent
(5%) or more of the capital stock or other equity interests of any
corporation, partnership, joint venture or other business association
or entity. Except as set forth in Section 3.03(c) of the Company
Disclosure Schedule or for any agreements, arrangements or commitments
between the Company and its wholly owned subsidiaries or between such
wholly owned subsidiaries, there are no agreements, arrangements or
commitments of any character (contingent or otherwise) pursuant to
which any person is or may be entitled to receive any payment based on,
or calculated in accordance with, the revenues or earnings of the
Company or any of its subsidiaries. Except as set forth in Section
3.03(c) of the Company Disclosure Schedule, there are no voting trusts,
proxies or other agreements or understandings to which the Company or
any of its subsidiaries is a party or by which the Company or any of
its subsidiaries is bound with respect to the voting of any shares of
capital stock or other equity interests of the Company or any of its
subsidiaries.
CORPDAL:59869.4 22768-00022
11
<PAGE>
(d) Section 3.03(d) of the Company Disclosure Schedule sets
forth a complete and correct list as of the date hereof of (i) the
number of options to purchase Company Common Stock outstanding and the
number of shares of Company Common Stock issuable thereunder, (ii) the
number of Common Stock Warrants outstanding and the number of shares of
Company Common Stock issuable thereunder, (iii) the exercise price of
each such outstanding stock option and warrant, (iv) the number of
stock options then exercisable, and (v) the number of shares of Company
Common Stock issuable upon conversion of the Series C Preferred Stock
if such Series C Preferred Stock was converted on the date hereof.
Complete and correct copies of the Company Option Plans, all forms of
stock options issued pursuant to the Company Option Plans or otherwise,
and all forms of Common Stock Warrants, including all amendments
thereto, have been made available to VTEL.
Section 3.04. Authority. The Company has all requisite corporate power
and authority to execute and deliver this Agreement and the Stock Option
Agreement, to perform its obligations hereunder and thereunder and to consummate
the transactions contemplated hereby and thereby (subject to, with respect to
the Merger, the approval and adoption of this Agreement by the stockholders of
the Company as described in Section 6.01 of this Agreement). The execution and
delivery of this Agreement and the Stock Option Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement and the Stock Option Agreement or to consummate the transactions
contemplated hereby and thereby (subject to, with respect to the Merger, the
approval and adoption of this Agreement by the stockholders of the Company as
described in Section 6.01 of this Agreement). This Agreement and the Stock
Option Agreement have each been duly executed and delivered by the Company and,
assuming the due authorization, execution and delivery hereof by the VTEL
Companies, constitute the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with their terms.
Section 3.05. No Conflict: Required Filings and Consents.
(a) Except as disclosed in Section 3.05(a) of the Company
Disclosure Schedule, the execution and delivery of this Agreement and
the Stock Option Agreement by the Company do not, and the performance
by the Company of its obligations hereunder and thereunder, including
consummation of the transactions contemplated hereby and thereby, will
not (i) conflict with or violate the Certificate of Incorporation or
Bylaws, or the equivalent organizational documents, in each case as
amended or restated, of the Company or any of its Significant
Subsidiaries, (ii) conflict with or violate any federal, state, foreign
or local law, statute, ordinance, rule or regulation (collectively,
"Laws") in effect as of the date of this Agreement or any judgment,
order or decree to which the Company or any of its subsidiaries is a
party or by or to which any of their respective properties are bound or
subject or (iii) result in any breach of or constitute a default (or an
event that with
CORPDAL:59869.4 22768-00022
12
<PAGE>
notice or lapse of time or both would become a default) under, or
impair any of the Company's or any of its Subsidiaries' rights or alter
the rights or obligations of any third party under, or give to others
any rights of termination, amendment, acceleration or cancellation of,
or require payment under, or result in the creation of a lien or
encumbrance on any of the properties or assets of the Company or any of
its subsidiaries pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any of its
subsidiaries is a party or by or to which the Company or any of its
subsidiaries or any of their respective properties are bound or subject
(including, but not limited to, any license agreement, contract or
other arrangement of any nature relating to the Company's Intellectual
Property Rights or Third Party Intellectual Property Rights (as those
terms are hereinafter defined)), excluding from the foregoing clauses
(ii) and (iii) any such conflicts, violations, breaches, defaults,
events, rights of termination, amendment, acceleration or cancellation,
payment obligations or liens or encumbrances that individually or in
the aggregate could not reasonably be expected to have a Company
Material Adverse Effect. The Board of Directors of the Company has
approved the Merger, this Agreement and the Stock Option Agreement, and
the transactions contemplated by this Agreement and the Stock Option
Agreement and such approval is sufficient to render the provisions of
Section 203 of the DGCL inapplicable to the Merger, this Agreement and
the Stock Option Agreement, and the transactions contemplated hereby
and thereby. To the best of the Company's knowledge, no other state
takeover statute or similar statute or regulation applies or purports
to apply to the Merger, this Agreement and the Stock Option Agreement,
or any of the transactions contemplated by this Agreement or by the
Stock Option Agreement.
(b) The execution and delivery of this Agreement and the Stock
Option Agreement by the Company does not, and the performance by the
Company of its obligations hereunder and thereunder, including
consummation of the transactions contemplated hereby and thereby, will
not, require the Company to obtain any consent, license, permit,
waiver, approval, authorization or order of, or to make any filing with
or notification to, any governmental or regulatory authority, federal,
state, local or foreign (collectively, "Governmental Entities"), except
(i) for (A) applicable requirements, if any, of the Securities Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
state securities or blue sky laws ("Blue Sky Laws") and (B) the
pre-merger notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (ii) the filing
and recordation of appropriate merger documents as required by the
DGCL, and (iii) where the failure to obtain such consents, licenses,
permits, waivers, approvals, authorizations or orders, or to make such
filings or notifications could not, individually or in the aggregate
reasonably be expected to cause a Company Material Adverse Effect or to
materially impair or delay the ability of the Company to perform its
obligations under this Agreement and the Stock Option Agreement or to
consummate the transactions contemplated hereby and thereby.
CORPDAL:59869.4 22768-00022
13
<PAGE>
Section 3.06. Permits: Compliance. Except as disclosed in Section 3.06
of the Company Disclosure Schedule, each of the Company and its subsidiaries is
in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, identification and
registration numbers, approvals and orders (collectively, the "Permits")
necessary to own, lease and operate their properties and to carry on their
businesses as they are now being conducted, except where the failure to possess
such Permits could not reasonably be expected to have a Company Material Adverse
Effect. Section 3.06 of the Company Disclosure Schedule sets forth, as of the
date of this Agreement, all actions, proceedings, or investigations, pending or,
to the knowledge of the Company, threatened against the Company or any of its
subsidiaries that could reasonably be expected to result in the loss,
revocation, suspension or cancellation of a Permit held by the Company or a
subsidiary of the Company, except for any suspension, loss or revocation that
could not reasonably be expected to have a Company Material Adverse Effect.
Except as set forth in Section 3.06 of the Company Disclosure Schedule, neither
the Company nor any of its subsidiaries is in conflict with, in default under or
in violation of, nor has it received, since December 31, 1993, from any
Governmental Entity any written notice with respect to possible conflicts with,
defaults under or violations of (a) any Law applicable to the Company or any of
its subsidiaries or by or to which any of their respective properties are bound
or subject, (b) any judgment, order or decree applicable to the Company or any
of its subsidiaries, or (c) any of the Permits held by the Company or a
subsidiary of the Company, except for any such conflicts, defaults or violations
that individually or in the aggregate could not reasonably be expected to have a
Company Material Adverse Effect.
Section 3.07. Reports; Financial Statements; Undisclosed Liabilities.
(a) Since December 31, 1993, except as disclosed in Section
3.07 of the Company Disclosure Schedule, the Company has filed all
forms, reports, statements and other documents required to be filed
with the Securities and Exchange Commission (the "SEC"), including,
without limitation, (i) all Annual Reports on Form 10-K, (ii) all
Quarterly Reports on Form 10-Q, (iii) all proxy statements relating to
meetings of stockholders (whether annual or special), (iv) all Current
Reports on Form 8-K and (v) all other reports, schedules, registration
statements or other documents (collectively referred to as the "Company
SEC Reports"). As of their respective dates, the Company SEC Reports
complied in all material respects with the requirements of applicable
Laws (including the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations of the SEC thereunder applicable to
such Company SEC Reports) and the Company SEC Reports, including,
without limitation, any financial statements or schedules included
therein, did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.
(b) The Company has heretofore delivered to VTEL
(i) consolidated balance sheets of the Company and its subsidiaries as
of December 31, 1993, December 31, 1994
CORPDAL:59869.4 22768-00022
14
<PAGE>
and December 31, 1995 and (ii) consolidated statements of income,
stockholders' equity and cash flows for each of the three years then
ended, certified by KPMG Peat Marwick LLP, reports thereon are included
therewith. The Company has also delivered to VTEL (i) an unaudited
consolidated balance sheet of the Company and its subsidiaries as of
September 30, 1996, and (ii) unaudited consolidated statements of
income, stockholders' equity and cash flows for the nine months then
ended. Such audited and unaudited consolidated financial statements,
including any such financial statements and schedules contained in the
Company SEC reports (or incorporated by reference therein) (i) are in
accordance with the books and records of the Company and its
subsidiaries in all material respects and were prepared in accordance
with the published rules and regulations of the SEC and generally
accepted accounting principles applied on a consistent basis throughout
the periods involved (except (A) to the extent disclosed therein or
required by changes in generally accepted accounting principles, (B)
with respect to Company SEC Reports, as may be indicated in the notes
thereto and (C) in the case of the unaudited financial statements, as
permitted by the rules and regulations of the SEC) and (ii) fairly
present in all material respects the consolidated financial position of
the Company and its subsidiaries as of the respective dates thereof and
the consolidated results of operations and cash flows for the periods
indicated (except, in the case of unaudited consolidated financial
statements for interim periods, for the absence of footnotes and
subject to adjustments, consisting only of normal, recurring accruals,
necessary to present fairly such results of operations and cash flows).
(c) Except as and to the extent set forth on the consolidated
balance sheet of the Company and its subsidiaries as of December 31,
1995, including the notes thereto, or in the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996, or other SEC
Report filed prior to the date hereof, neither the Company or any of
its subsidiaries has any liabilities or obligations material to the
Company and its subsidiaries which are not referenced on such balance
sheet or in such Quarterly Report on Form 10-Q or in such other SEC
Report filed prior to the date hereof. Except as set forth in Section
3.07 of the Company Disclosure Schedule or as set forth in the
Company's Current Report on Form 8-K filed with the SEC on October 24,
1996, since the date of the Company's most recently filed Quarterly
Report on Form 10-Q, neither the Company nor any of its subsidiaries
has incurred any liabilities except for (i) liabilities or obligations
incurred in the ordinary course of business and consistent with past
practice, (ii) liabilities incurred in connection with or as a result
of the Merger and (iii) liabilities or obligations which do not have a
Company Material Adverse Effect.
Section 3.08. Absence of Certain Changes or Events. Except as disclosed
in the Company SEC Reports filed prior to the date of this Agreement or as set
forth in Section 3.08 of the Company Disclosure Schedule, since September 30,
1996, the Company and its subsidiaries have conducted their respective
businesses only in the ordinary course and in a manner consistent with past
practice and there has not been (a) any damage, destruction or loss with respect
to any assets of the Company or any of its subsidiaries that, whether or not
covered by insurance, would
CORPDAL:59869.4 22768-00022
15
<PAGE>
constitute a Company Material Adverse Effect, (b) any change by the Company or
its subsidiaries in their significant accounting policies, (c) except for
dividends by a subsidiary of the Company to the Company or another wholly owned
subsidiary of the Company, any declaration, setting aside or payment of any
dividends or distributions in respect of shares of Company Common Stock or the
shares of stock of, or other equity interests in, any subsidiary of the Company
or any redemption, purchase or other acquisition of any of the Company's
securities or any of the securities of any subsidiary of the Company, (d) any
material increase in the benefits under, or the establishment or amendment of,
any bonus, insurance, severance, deferred compensation, pension, retirement,
profit sharing, performance awards (including, without limitation, the granting
of stock appreciation rights or restricted stock awards), stock purchase or
other employee benefit plan, or any increase in the compensation payable or to
become payable to any of the directors or officers of the Company or the
employees of the Company or its subsidiaries as a group, except for (i)
increases in salaries or wages payable or to become payable in the ordinary
course of business and consistent with past practice or (ii) the granting of
stock options in the ordinary course of business to employees of the Company or
its subsidiaries who are not directors or executive officers of the Company, or
(e) any Company Material Adverse Effect.
Section 3.09. Absence of Litigation. Except as set forth in Section
3.09 of the Company Disclosure Schedule, there is no claim, action, suit,
litigation, proceeding, arbitration or, to the knowledge of the Company,
investigation of any kind, at law or in equity (including actions or proceedings
seeking injunctive relief), pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries or any properties or
rights of the Company or any of its subsidiaries, and neither the Company nor
any of its subsidiaries is subject to any continuing order of, consent decree,
settlement agreement or other similar written agreement with, or, to the
knowledge of the Company, continuing investigation by, any Governmental Entity,
or any judgment, order, writ, injunction, decree or award of any Governmental
Entity or arbitrator, including, without limitation, cease-and-desist or other
orders.
Section 3.10. Employee Benefit Plans; Labor Matters.
(a) With respect to each employee benefit plan, program,
arrangement, contract, employment agreement, stock option, bonus,
incentive or similar plan (including, without limitation, any "employee
benefit plan" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), maintained or
contributed to by the Company or any of its subsidiaries, or with
respect to which the Company or any of its subsidiaries could
reasonably be expected to incur liability under ERISA (the "Company
Benefit Plans"), the Company has delivered or made available to VTEL a
true and correct copy of (i) such Company Benefit Plan, (ii) each trust
agreement, if any, relating to such Company Benefit Plan, (iii) the
most recent summary plan description of each Company Benefit Plan for
which a summary plan description is required, and (iv) the most recent
determination letter issued by the IRS with respect to any Company
Benefit Plan that is intended to be qualified under Section 401 of the
Code.
CORPDAL:59869.4 22768-00022
16
<PAGE>
Section 3.10 of the Company Disclosure Schedule contains a complete
list of all Company Benefit Plans.
(b) Each of the Company Benefit Plans that are subject to
ERISA is in compliance with ERISA, and except as set forth in Section
3.10 of the Company Disclosure Schedule, no Company Benefit Plan has an
accumulated or waived funding deficiency within the meaning of Section
412 of the Code. Except as set forth in Section 3.10 of the Company
Disclosure Schedule, none of the Company Benefit Plans is a
"multiemployer plan," as defined in Section 3(37) of ERISA. Neither the
Company nor any trade or business which together with the Company would
be deemed a "single employer" within the meaning of ERISA (an "ERISA
Affiliate") has incurred, directly or indirectly, any material
liability (including any material contingent liability) to or on
account of a Company Benefit Plan pursuant to Title IV of ERISA to
which the Company or an ERISA Affiliate made, or was required to make,
contributions during the five (5) years ending on December 31, 1995. As
of the date of this Agreement, no condition is known by the Company to
exist that presents a material risk to the Company or an ERISA
Affiliate of incurring such a material liability. No proceedings have
been instituted to terminate any Company Benefit Plan that is subject
to Title IV of ERISA and no "reportable event," as such term in defined
in Section 4043(b) of ERISA, is known to have occurred with respect to
any Company Benefit Plan which has not been reported.
(c) Except as set forth in Section 3.10 of the Company
Disclosure Schedule, the current value of the assets of each of the
Company Benefit Plans that are subject to Title IV of ERISA, based upon
reasonable actuarial assumptions, equals or exceeds the present value
of the accrued benefits under each such Company Benefit Plan and all
contributions or other amounts payable by the Company and each of its
subsidiaries as of the date of this Agreement with respect to each Plan
in respect of current or prior plan years has been either paid or
accrued on the latest balance sheet included in the Company's most
recent SEC Report on Form 10-Q or accrued since September 30, 1996.
There are no pending, or, to the best knowledge of the Company and each
of its subsidiaries, threatened or anticipated claims (other than
routine claims for benefits) by, on behalf of or against any of the
Company Benefit Plans or any trusts related thereto.
(d) There are no collective bargaining or other labor union
contracts to which the Company or its subsidiaries is a party and no
collective bargaining agreement is being negotiated by the Company or
any of its subsidiaries. There is no pending or, to the knowledge of
the Company, threatened labor dispute, strike or work stoppage against
the Company or any of its subsidiaries.
(e) No Company Benefit Plan provides retiree medical or
retiree life insurance benefits and neither the Company nor any of its
subsidiaries is contractually or otherwise obligated to provide life
insurance and medical benefits upon retirement or termination of
employment of employees.
CORPDAL:59869.4 22768-00022
17
<PAGE>
(f) Neither the Company nor any of its subsidiaries
contributes to or has an obligation to contribute to, or has within six
years prior to the date of this Agreement contributed to or had an
obligation to contribute to, an employee benefit plan that is or was
subject to Title IV of ERISA or Section 412 of the Code.
Section 3.11. Taxes. Except as set forth in Section 3.11 of the
Company Disclosure Schedule:
(a) (i) all returns and reports ("Tax Returns") of or with
respect to any material Tax (as defined in Section 9.03 of this
Agreement) which are required to be filed on or before the date hereof
by or with respect to the Company or any of its subsidiaries have been
duly and timely filed, (ii) all items of income, gain, loss, deduction
and credit or other items required to be included in each such Tax
Return have been so included and all information provided in each such
Tax Return is true, correct and complete in all material respects,
(iii) all material Taxes which have become due with respect to the
period covered by each such Tax Return have been or will be timely paid
in full, (iv) all withholding Tax requirements imposed on or with
respect to the Company or any of its subsidiaries have been satisfied
in all material respects, and (v) no material penalty, interest or
other charge is due with respect to the late filing of any such Tax
Return or late payment of any such Tax .
(b) Section 3.11 of the Company Disclosure Schedule lists all
federal and other material Tax Returns filed with respect to the
Company and any of its subsidiaries for taxable years ending on or
after December 31, 1992. The Company has delivered to VTEL correct and
complete copies of all such Tax Returns.
(c) There is no material claim against the Company or any of
its subsidiaries for any amount of Taxes, no assessment, deficiency or
adjustment has been asserted or proposed with respect to any Tax Return
of or with respect to the Company or any of its subsidiaries, and no
material Tax Return of or with respect to the Company or any of its
subsidiaries has been, or is being, audited by the Internal Revenue
Service or any state, local or other taxing authority other than those
disclosed (and to which are attached true and complete copies of all
audit or similar reports) in Section 3.11 of the Company Disclosure
Schedule.
(d) The total amounts set up as liabilities for current and
deferred Taxes in the financial statements referred to in Section 3.07
of this Agreement are sufficient to cover the payment of all Taxes,
whether or not assessed or disputed, which are, or are hereafter found
to be, or to have been, due by or with respect to the Company and any
of its subsidiaries up to and through the periods covered thereby.
CORPDAL:59869.4 22768-00022
18
<PAGE>
(e) Except for statutory liens for current Taxes not yet due
and for Taxes being contested in good faith which have been disclosed
in Section 3.11 of the Company Disclosure Schedule and for which
adequate provisions have been made in the financial statements referred
to in Section 3.07, no material liens for Taxes exist upon the assets
of any of the Company or any of its subsidiaries.
(f) Neither the Company nor any of its subsidiaries has waived
any statute of limitations in respect of material Taxes or agreed to
any extension of time with respect to a material Tax assessment or
deficiency.
(g) Neither the Company nor any of its subsidiaries has made
an election under Section 341(f) of the Code. Except as disclosed in
Section 3.11 of the Company Disclosure Schedule, neither the Company
nor any of its subsidiaries has made any payments, is obligated to make
any payments, or is a party to any agreement that under the
circumstances could obligate it to make any payments that will not be
deductible under Sections 162(m) or 280G of the Code.
(h) Neither the Company nor any of its subsidiaries has taken
or agreed to take any action that would prevent the Merger from
constituting a reorganization qualifying under the provisions of
Section 368(a) of the Code.
(i) Neither the Company nor any of its subsidiaries (i) has
ever been a member of an Affiliated Group (as defined in Section 1504
of the Code) other than a group the common parent of which was the
Company or (ii) has any liability for the Taxes of any person (other
than the Company or any of its subsidiaries) under Treas. Reg. ss.
1.1502-6 (or any similar provision under state, local, or foreign law),
as a transferee or successor, by contract, or otherwise.
(j) Except for the Merger, there has been no "ownership
change" (as defined in Section 382(g) of the Code) with respect to the
Company during the "testing period" (as defined in Section 382(i) of
the Code) that ends on the day on which the "owner shift" (as defined
in Section 382(g) of the Code) occurs as a result of the Merger.
Section 3.12. Affiliates. Section 3.12 of the Company Disclosure
Schedule identifies all persons who, to the knowledge of the Company, may be
deemed to be affiliates of the Company within the meaning of that term as used
in Rule 145 promulgated pursuant to the Securities Act, including, without
limitation, all directors and executive officers of the Company.
Section 3.13. Properties. Except as set forth in Section 3.13 of the
Company Disclosure Schedule or specifically described in the Company SEC
Reports, the Company and its subsidiaries have good and marketable title, free
and clear of all liens, to all their properties and assets whether tangible or
intangible, real, personal or mixed, reflected in the Company's consolidated
financial statements contained in the Company's most recent SEC Report on Form
10-Q as being owned
CORPDAL:59869.4 22768-00022
19
<PAGE>
by the Company and its subsidiaries as of the date thereof, other than (a) any
properties or assets that have been sold or otherwise disposed of in the
ordinary course of business since the date of such financial statements, (b)
liens disclosed in the notes to such financial statements and (c) liens arising
in the ordinary course of business after the date of such financial statements.
Section 3.14. Intellectual Rights.
(a) The Company owns, or is licensed or otherwise possesses
legally sufficient rights to use, all patents, trademarks, trade names,
service marks, copyrights, maskworks and any applications therefor,
technology, know-how, video and audio compression algorithms, computer
software programs or applications (in both source code and object code
form) and tangible or intangible proprietary information or material
that are used or proposed to be used in the business of the Company as
currently conducted. Section 3.14 of the Company Disclosure Schedule
lists all current patents, registered and material unregistered
copyrights, maskworks, trade names and any applications therefor owned
by the Company (the "Intellectual Property Rights"), and specifies the
jurisdictions in which each such Intellectual Property Right has been
issued or registered or in which an application for such issuance and
registration has been filed, including the respective registration or
application numbers and the names of all registered owners. Section
3.14 of the Company Disclosure Schedule includes and specifically
identifies all material third-party patents, trademarks, copyrights
(including software) and maskworks (the "Third Party Intellectual
Property Rights"), to the knowledge of the Company, which are
incorporated in, are, or form a part of, any Company product, excluding
any such intellectual property rights that are available on a commodity
basis (such as "shrink wrap" licenses) and which are non-exclusive,
terminable and available at a standard fee. Section 3.14 of the Company
Disclosure Schedule lists (i) all material licenses, sublicenses and
other agreements as to which the Company is a party and pursuant to
which any person is authorized to use any of the Company's Intellectual
Property Rights, or any trade secret material to the Company or any of
its subsidiaries; and (ii) all material licenses, sublicenses and other
agreements as to which the Company is a party and pursuant to which the
Company is authorized to use any Third Party Intellectual Property
Rights, or other trade secret of a third party in or as any product,
and includes the identity of all parties thereto, a description of the
nature and subject matter thereof and the term thereof.
(b) The Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its
obligations hereunder, in violation of any license, sublicense or
agreement described in Section 3.14(a) of the Company Disclosure
Schedule. No claims with respect to the Company's Intellectual Property
Rights, any trade secret material to the Company, or Third Party
Intellectual Property Rights to the extent arising out of any use,
reproduction or distribution of such Third Party Intellectual Property
Rights by or through the Company, are currently pending or, to the
knowledge of the Company, are threatened by any person, nor does the
Company know of any valid grounds for any bona fide claims (i) to the
effect that the manufacture, sale, licensing or
CORPDAL:59869.4 22768-00022
20
<PAGE>
use of any product as now used, sold or licensed or proposed for use,
sale or license by the Company infringes on any copyright, maskwork,
patent, trademark, service mark or trade secret; (ii) against the use
by the Company of any trademarks, trade names, trade secrets,
copyrights, maskworks, patents, technology, know-how, video and audio
compression algorithms, or computer software programs and applications
used in the Company's business as currently conducted or as proposed to
be conducted by the Company; (iii) challenging the ownership, validity
or effectiveness of any of the Company's Intellectual Property Rights
or other trade secret material to the Company; or (iv) challenging the
Company's license or legally enforceable right to use of the Third
Party Intellectual Rights. To the Company's knowledge, all material
patents, registered trademarks, maskworks and copyrights held by the
Company are valid and subsisting. To the Company's knowledge, there is
no material unauthorized use, infringement or misappropriation of any
of the Company's Intellectual Property by any third party, including
any employee or former employee of the Company or any of the its
subsidiaries. Except as set forth in Section 3.14(b) of the Company
Disclosure Schedule, neither the Company nor any of its subsidiaries
(i) has been sued or charged in writing as a defendant in any claim,
suit, action or proceeding which involves a claim or infringement of
trade secrets, any patents, trademarks, service marks, maskworks or
copyrights and which has not been finally terminated prior to the date
hereof or been informed or notified by any third party that the Company
may be engaged in such infringement or (ii) has knowledge of any
infringement liability with respect to, or infringement by, the Company
or any of its subsidiaries of any trade secret, patent, trademark,
service mark, maskwork or copyright of another.
(c) Each employee of the Company has executed a
confidentiality, invention and copyright agreement with the Company in
the forms previously delivered to VTEL.
Section 3.15. Real Property. Section 3.15 of the Company
Disclosure Schedule lists all real property that is owned or leased by the
Company (other than sales offices and shared distribution space).
Section 3.16. Insider Interests; Transactions with Management. Except
as set forth in Section 3.16 of the Company Disclosure Schedule, no officer or
director of the Company or holder of more than five percent of the Company
Common Stock currently outstanding has any interest in any material property,
real or personal, tangible or intangible, including, without limitation, any
computer software or Company Intellectual Property Assets, used in or pertaining
to the business of the Company or any subsidiary of the Company, except for the
ordinary rights of a stockholder or employee stock option holder. Except as
disclosed in the Company SEC Reports, no executive officer, director or
stockholder of the Company or any of its subsidiaries has, since December 31,
1994, engaged in any business dealings with the Company or any of its
subsidiaries, other than such business dealings as would not be required to be
disclosed in such documents or reports pursuant to the Securities Act and the
rules and regulations promulgated thereunder. No executive officer or director
of the Company or any of its subsidiaries (except in
CORPDAL:59869.4 22768-00022
21
<PAGE>
his capacity as such) has any direct or indirect material interest in (a) any
competitor, customer, supplier or agent of the Company or any of its
subsidiaries, or (b) any person which is a party to any contract or agreement
which is material to the Company or any of its subsidiaries.
Section 3.17. Contracts and Agreements. The contracts and agreements
listed in Section 3.17 of the Company Disclosure Schedule or filed as exhibits
to any of the Company SEC Reports constitute all of the written and material
oral contracts, commitments, leases, and other agreements (including, without
limitation, promissory notes, loan agreements, and other evidences of
indebtedness) to which the Company or any of its subsidiaries is a party or by
which any of their properties are bound with respect to which the obligations of
or the benefits to be received by the Company or any of its subsidiaries,
individually or in the aggregate, could reasonably be expected to have a value
(i) in the case of liabilities, in excess of $250,000, and (ii) in the case of
benefits, $1,000,000, in any consecutive 12-month period (each a "Material
Contract"). Except as set forth in Section 3.17 of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries are and, to the best
knowledge of the Company, no other party thereto is in default (and no event has
occurred which, with the passage of time or the giving of notice, or both, would
constitute a default) under any Material Contract, and neither the Company nor
any of its subsidiaries have waived any material right under any Material
Contract. Neither the Company nor any of its subsidiaries have received any
notice of default or termination (other than, in the case of notices of
termination, such termination arising out of the expiration of any Material
Contract by lapse of time or completion of performance in accordance with the
terms thereof) under any Material Contract and neither the Company nor any of
its subsidiaries has assigned or otherwise transferred any rights under any
Material Contract.
Section 3.18. Vote Required. The only votes of the holders of any class
or series of Company capital stock necessary to approve the Merger and this
Agreement are the affirmative votes of the holders of at least a majority of the
outstanding shares of the Company Common Stock. The provisions of Article Sixth
of the Company's Certificate of Incorporation do not impose any super majority
voting requirement on the transactions contemplated hereby.
Section 3.19. Brokers. No broker, finder or investment banker (other
than PaineWebber Incorporated) is entitled to any brokerage, finder's or other
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company. Prior to
the date of this Agreement, the Company has made available to VTEL a complete
and correct copy of all agreements between the Company and PaineWebber
Incorporated pursuant to which such firm will be entitled to any payment
relating to the transactions contemplated by this Agreement.
Section 3.20. Opinion of Financial Advisor. The Board of Directors of
the Company has received the written opinion of PaineWebber Incorporated to the
effect that, as of the date of this Agreement, the Merger Consideration to be
paid to the holders of the Company Common Stock is fair, from a financial point
of view, to such holders. The Company will promptly deliver a copy of such
opinion to VTEL.
CORPDAL:59869.4 22768-00022
22
<PAGE>
Section 3.21. Board Recommendations. By a unanimous vote of the
directors present at a meeting of the Company's Board of Directors (which
meeting was duly called and held and at which a quorum was present at all
times), the Board of Directors of the Company (a) approved and adopted this
Agreement, including the Merger and the Stock Option Agreement and the other
transactions contemplated herein and therein, and determined that the Merger is
fair to the stockholders of the Company, and (b) resolved to recommend approval
and adoption of this Agreement, including the Merger and the other transactions
contemplated herein, by the stockholders of the Company.
Section 3.22. Distributors, Customers, or Suppliers. The Company is not
aware that any major distributor, customer or supplier to or of the Company or
its subsidiaries intends to cease doing business, or to alter materially the
amount of business done, with the Company or its subsidiaries after the
Effective Time, due to consummation of the transactions contemplated hereunder
or any other reason, that would result in a Company Material Adverse Effect.
Section 3.23. Pooling of Interests. As of the date of this
Agreement, the Company has no reason to believe that the Merger will not qualify
as a "pooling of interests" for accounting purposes.
Section 3.24. Rights Plan. The Company has taken all action (including
amending the Company's Rights Plan, as defined in Section 5.01(h) hereof) so
that the entering of this Agreement and the Stock Option Agreement and the other
transactions contemplated hereby and thereby do not and will not result in the
grant of any rights to any person under the Company's Rights Plan or enable or
require any rights thereunder to be exercised, distributed or triggered.
Section 3.25. Disclosure. No representation or warranty hereunder
contains any untrue statement of material fact or omits to state a material fact
necessary in order to make the statements contained therein or herein not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE VTEL COMPANIES
The VTEL Companies hereby, jointly and severally, represent and warrant
to the Company that:
Section 4.01. Organization and Qualification; Subsidiaries. Each of the
VTEL Companies is a corporation, and each of VTEL's other subsidiaries is a
corporation, duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and each of the VTEL Companies and
each of VTEL's other subsidiaries has all requisite power and authority to own,
lease and operate its properties and to carry on its business as it is now being
conducted and is duly qualified and in good standing to do business in each
jurisdiction in which the nature of the business conducted by it or the
ownership or leasing of its properties makes such qualification
CORPDAL:59869.4 22768-00022
23
<PAGE>
necessary, other than where the failure to be so duly qualified and in good
standing could not reasonably be expected to have a VTEL Material Adverse
Effect. The term "VTEL Material Adverse Effect" as used in this Agreement shall
mean any change or effect that would be materially adverse to the financial
condition, results of operations, business, or prospects of VTEL and its
subsidiaries, taken as a whole, at the time of such change or effect; provided,
however, no VTEL Material Adverse Effect shall be deemed to have occurred
hereunder (i) as a result of customers of VTEL deferring or delaying orders as a
result of the announcement of the execution of this Agreement, (ii) if the
financial condition or results of operations of VTEL's business are not
materially and adversely different from those announced with respect to VTEL's
quarter ended October 31, 1996, or (iii) as a result of the Company employee
departures after the announcement of the execution of this Agreement. Section
4.01 of the Disclosure Schedule delivered by VTEL to the Company concurrently
with the execution of this Agreement (the "VTEL Disclosure Schedule") sets
forth, as of the date of this Agreement, a true and complete list of all of
VTEL's directly or indirectly owned subsidiaries, together with (a) the
jurisdiction of incorporation or organization of each such subsidiary and the
percentage of each such subsidiary's outstanding capital stock or other equity
interests owned by VTEL or another subsidiary of VTEL and (b) an indication of
whether each such subsidiary is a "Significant Subsidiary" as defined in Section
9.03 of this Agreement.
Section 4.02. Certificate of Incorporation and Bylaws. VTEL has
heretofore furnished or made available to the Company complete and correct
copies of the Certificate of Incorporation and Bylaws, in each case as amended
or restated to the date hereof, of VTEL and Merger Sub. Neither VTEL nor any of
its subsidiaries is in violation of any of the provisions of its Certificate of
Incorporation or Bylaws (or equivalent organizational documents).
Section 4.03. Capitalization.
(a) The authorized capital stock of VTEL consists of
25,000,000 shares of VTEL Common Stock, par value $.01 per share ("VTEL
Common Stock"), and 10,000,000 shares of preferred stock, par value
$.01 per share ("VTEL Preferred Stock"). As of December 1, 1996,
13,940,567 shares of VTEL Common Stock were issued and outstanding,
407,848 shares of VTEL Common Stock were held by VTEL in its treasury,
and 2,951,915 shares of VTEL Common Stock were reserved for issuance as
follows: (i) 1,973,471 shares were reserved for issuance upon exercise
of stock options heretofore granted or available for grant pursuant to
VTEL's 1989 Stock Option Plan; (ii) 700,000 shares were reserved for
issuance upon exercise of stock options heretofore granted or available
for grant pursuant to VTEL's 1996 Stock Option Plan; (iii) 195,276
shares were reserved for issuance upon the purchase of shares under the
VTEL Employee Stock Purchase Plan; and (iv) 83,168 shares were reserved
for issuance upon exercise of stock options heretofore granted or
available for grant pursuant to the VTEL 1992 Director Plan (the stock
option plans referenced in clauses (i) through (iv) of this section
being herein collectively called the "VTEL Option Plans"). No shares of
VTEL Preferred Stock are issued or outstanding. Except as described in
this Section 4.03 or in Section 4.03(a) of
CORPDAL:59869.4 22768-00022
24
<PAGE>
the VTEL Disclosure Schedule, no shares of capital stock of VTEL are
reserved for issuance for any other purpose. Each of the issued shares
of capital stock of, or other equity interests in, each of VTEL and its
subsidiaries is duly authorized, validly issued and, in the case of
shares of capital stock, fully paid and nonassessable, and have not
been issued in violation of (nor are any of the authorized shares of
capital stock of, or other equity interests in, VTEL or an of its
subsidiaries subject to) any preemptive or similar rights created by
statute, the Certificate of Incorporation or Bylaws (or the equivalent
organizational documents) of VTEL or any of its subsidiaries, or any
agreement to which VTEL or any of its subsidiaries is a party or is
bound, and, except as set forth in Section 4.03(a) of the VTEL
Disclosure Schedule, all issued shares or other equity interests in the
subsidiaries of VTEL owned by VTEL or a subsidiary of VTEL are owned
free and clear of all security interests, liens, claims, pledges,
agreements, limitations on VTEL's or such subsidiary's voting rights,
charges or other encumbrances of any nature whatsoever.
(b) No bonds, debentures, notes or other indebtedness of VTEL
having the right to vote (or convertible into or exchangeable or
exercisable for securities having the right to vote) on any matters on
which stockholders may vote ("VTEL Voting Debt") are issued or
outstanding. All shares of VTEL Common Stock which may be issued upon
exercise of stock options granted pursuant to the VTEL Option Plans
will, when issued in accordance with the terms of such stock options
and the related VTEL Option Plans, be validly issued, fully paid and
nonassessable and not subject to preemptive rights
(c) Except as set forth in Section 4.03(a) above or in Section
4.03(c) of the VTEL Disclosure Schedule, there are no options, warrants
or other rights (including registration rights), agreements,
arrangements or commitments of any character to which VTEL or any of
its subsidiaries is a party relating to the issued or unissued capital
stock of VTEL or any of its subsidiaries or obligating VTEL or any of
its subsidiaries to grant, issue or sell any shares of capital stock,
VTEL Voting Debt or other equity interests of VTEL or any of its
subsidiaries. Except as set forth in Section 4.03(c) of the VTEL
Disclosure Schedule, there are no obligations, contingent or otherwise,
of VTEL or any of its subsidiaries (i) to repurchase, redeem or
otherwise acquire any shares of VTEL Common Stock or other capital
stock of VTEL or the capital stock of any subsidiary of VTEL or (ii)
other than advances to wholly owned subsidiaries in the ordinary course
of business, to provide funds to, or to make any investment in (in the
form of a loan, capital contribution or otherwise), or to provide any
guarantee with respect to the obligations of, any subsidiary of VTEL or
any other person. Except as set forth in Section 4.03(c) of the VTEL
Disclosure Schedule, neither VTEL nor any of its subsidiaries (x)
directly or indirectly owns, (y) has agreed to purchase or otherwise
acquire or (z) holds any interest convertible into or exchangeable or
exercisable for the capital stock or other equity interests
representing 5% or more of the capital stock in equity interests of any
corporation, partnership, joint venture or other business association
or entity. Except as set forth in Section 4.03(c) of the VTEL
Disclosure Schedule or for any agreements,
CORPDAL:59869.4 22768-00022
25
<PAGE>
arrangements or commitments between VTEL and its wholly owned
subsidiaries or between such wholly owned subsidiaries, there are no
agreements, arrangements or commitments of any character (contingent or
otherwise) pursuant to which any person is or may be entitled to
receive any payment based on, or calculated in accordance with, the
revenues or earnings of VTEL or any of its subsidiaries. Except as set
forth in Section 4.03(c) of the VTEL Disclosure Schedule, there are no
voting trusts, proxies or other agreements or understandings to which
VTEL or any of its subsidiaries is a party or by which VTEL or any of
its subsidiaries is bound with respect to the voting of any shares of
capital stock or other equity interests of VTEL or any of its
subsidiaries.
(d) The authorized capital stock of Merger Sub consists of
1,000 shares of common stock, par value $.0l per share ("Merger Sub
Common Stock"). An aggregate of 1,000 shares of Merger Sub Common Stock
are issued and outstanding and held by VTEL, all of which are duly
authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights created by statute, Merger Sub's
Certificate of Incorporation or Bylaws or any agreement to which Merger
Sub is a party or is bound.
(e) The shares of VTEL Common Stock to be issued pursuant to
the Merger will be duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights created by statute,
VTEL's Certificate of Incorporation or Bylaws or any agreement to which
VTEL is a party or is bound.
Section 4.04. Authority. Each of the VTEL Companies has all requisite
corporate power and authority to execute and deliver this Agreement and the
Stock Option Agreement to which it is a party and to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Stock Option
Agreement by each of the VTEL Companies and the performance by each of the VTEL
Companies of its obligations hereunder and thereunder, including the
consummation of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action and no other corporate proceedings
on the part of either of the VTEL Companies are necessary to authorize this
Agreement and the Stock Option Agreement or to consummate the transactions
contemplated hereby and thereby (subject to, with respect to the Merger, the
approval and adoption of this Agreement by the stockholders of VTEL as set forth
in Section 6.01 of this Agreement). This Agreement and the Stock Option
Agreement have been duly executed and delivered by each of the VTEL Companies
and, assuming the due authorization, execution and delivery hereof by the
Company, constitute the legal, valid and binding obligation of each of the VTEL
Companies, enforceable against each of the VTEL Companies in accordance with
their terms.
Section 4.05. No Conflict: Required Filings and Consents.
(a) Except as otherwise disclosed in Section 4.05(a) of
the VTEL Disclosure Schedule, the execution and delivery of this
Agreement and the Stock Option Agreement
CORPDAL:59869.4 22768-00022
26
<PAGE>
by each of the VTEL Companies which are parties thereto do not, and
performance by each of them of their obligations hereunder and
thereunder, including the consummation of the transactions contemplated
hereby and thereby, will not (i) conflict with or violate the
Certificate of Incorporation or Bylaws, or the equivalent
organizational documents, in each case as amended or restated, of VTEL
or any of VTEL's Significant Subsidiaries, (ii) conflict with or
violate any Laws in effect as of the date of this Agreement or any
judgment, order or decree to which VTEL or any of VTEL's subsidiaries
is a party or by or to which any of their properties are bound or
subject or (iii) result in any breach of or constitute a default (or an
event that with or without notice or lapse of time or both would become
a default) under, or impair any of VTEL's or any of its Subsidiaries'
rights or alter the rights or obligations of any third party under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, or require payment under, or result in the creation of
a lien or encumbrance on any of the properties or assets of VTEL or any
of VTEL's subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract agreement, lease, license, permit, franchise or
other instrument or obligation to which VTEL or any of VTEL's
subsidiaries is a party or by or to which VTEL or any of VTEL's
subsidiaries or any of their respective properties is bound or subject
(including, but not limited to, any license agreement, contract or
other arrangement of any nature relating to VTEL Intellectual Property
Rights or VTEL Third Party Intellectual Property Rights (as these terms
are hereinafter defined), excluding from the foregoing clauses (ii) and
(iii) any such conflicts, violations, breaches, defaults, events,
rights of termination, amendment, acceleration or cancellation, payment
obligations or liens or encumbrances that could not reasonably be
expected to have a VTEL Material Adverse Effect.
(b) The execution and delivery of this Agreement and the Stock
Option Agreement by each of the VTEL Companies which are parties
thereto does not, and the performance by each of the VTEL Companies of
its respective obligations hereunder and thereunder, including
consummation of the transactions contemplated hereby and thereby, will
not, require either of the VTEL Companies to obtain any consent
license, permit, waiver, approval, authorization or order of, or to
make any filing with or notification to, any Governmental Entity,
except (i) for (A) applicable requirements, if any, of the Securities
Act, the Exchange Act, and Blue Sky Laws, and (B) the pre-merger
notification requirements of the HSR Act, (ii) the filing and
recordation of appropriate merger documents as required by the DGCL,
and (iii) where the failure to obtain such consents, licenses, permits,
waivers, approvals, authorizations or orders, or to make such filings
or notifications could not individually or in the aggregate reasonably
be expected to cause a VTEL Material Adverse Effect or to materially
impair or delay the ability of either of the VTEL Companies from
performing their respective obligations under this Agreement and the
Stock Option Agreement.
Section 4.06. Permits; Compliance. Except as disclosed in Section
4.06 of the VTEL Disclosure Schedule, each of VTEL and its subsidiaries
is in possession of all Permits necessary to own, lease and operate
their properties and to carry on their businesses as they are now being
CORPDAL:59869.4 22768-00022
27
<PAGE>
conducted except where the failure to possess such Permits could not reasonably
be expected to have a VTEL Material Adverse Effect. Except as disclosed in
Section 4.06 of the VTEL Disclosure Schedule, as of the date of this Agreement,
there are no actions, proceedings, or investigations pending or, to the
knowledge of VTEL, threatened against VTEL or any of its subsidiaries that could
reasonably be expected to result in the loss, revocation, suspension or
cancellation of a Permit held by VTEL or a subsidiary of VTEL, except for any
suspension, loss or revocation that could not reasonably be expected to have a
VTEL Material Adverse Effect. Except as disclosed in Section 4.06 of the VTEL
Disclosure Schedule, neither VTEL nor any of its subsidiaries is in conflict
with, or in default under or violation of, nor has it received, since December
31, 1993, from any Governmental Entity any written notice with respect to
possible conflicts with, defaults under or violations of (a) any Law applicable
to VTEL or any of its subsidiaries or by or to which any of their respective
properties are bound or subject, (b) any judgment, order or decree applicable to
VTEL or any of its subsidiaries or (c) any Permits held by VTEL or a subsidiary
of VTEL, except for any such conflicts, defaults or violations that individually
or in the aggregate could not reasonably be expected to have a VTEL Material
Adverse Effect.
Section 4.07. Reports: Financial Statements.
(a) Since December 31, 1993, VTEL and its subsidiaries have
filed all forms, reports, statements and other documents required to be
filed with the SEC, including, without limitation, (i) all Annual
Reports on Form 10-K, (ii) all Quarterly Reports on Form 10-Q, (iii)
all proxy statements relating to meetings of stockholders (whether
annual or special), (iv) all Current Reports on Form 8-K and (v) all
other reports, schedules, registration statements or other documents
(collectively referred to as the "VTEL SEC Reports"). As of their
respective dates, the VTEL SEC Reports complied in all material
respects with the requirements of applicable Law (including the
Securities Act or the Exchange Act, as the case may be, and the rules
and regulations of the SEC thereunder applicable to the VTEL SEC
Reports) and the VTEL SEC Reports, including, without limitation, any
financial statements or schedules included therein, did not at the time
they were filed contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(b) VTEL has heretofore delivered to the Company (i)
consolidated balance sheets of VTEL and its subsidiaries as of December
31, 1993, December 31, 1994 and December 31, 1995 and as of July 31,
1996 and (ii) consolidated statements of income, stockholders' equity
and cash flows for each of the three years and seven months then ended
certified by Price Waterhouse LLP, reports thereon are included
therewith. VTEL has also delivered to the Company (i) an unaudited
consolidated balance sheet of VTEL and its subsidiaries as of October
31, 1996, and (ii) unaudited consolidated statements of income,
stockholders' equity and cash flows for the three months then ended.
Such audited and unaudited consolidated financial statements, including
any such financial
CORPDAL:59869.4 22768-00022
28
<PAGE>
statements and schedules contained in the VTEL SEC reports (or
incorporated by reference therein) (i) are in accordance with the books
and records of VTEL and its subsidiaries in all material respects and
have been prepared in accordance with the published rules and
regulations of the SEC and generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except
(A) to the extent disclosed therein or required by changes in generally
accepted accounting principles, (B) with respect to the VTEL SEC
Reports filed prior to the date of this Agreement, as may be indicated
in the notes thereto and (C) in the case of the unaudited financial
statements, as permitted by the rules and regulations of the SEC) and
(ii) fairly present in all material respects the consolidated financial
position of VTEL and its subsidiaries as of the respective dates
thereof and the consolidated results of operations and cash flows for
the periods indicated (except, in the case of unaudited consolidated
financial statements for interim periods, for the absence of footnotes
and subject to adjustments, consisting only of normal, recurring
accruals, necessary to present fairly such results of operations and
cash flows).
(c) Except as and to the extent set forth on the consolidated
balance sheet of the VTEL and its subsidiaries as of December 31, 1995,
including the notes thereto, or in the Company's Annual Report Form
10-K for the transition period ended July 31, 1996, or in VTEL's
Quarterly Report on Form 10-Q for the quarter ended October 31, 1996,
neither VTEL or any of its subsidiaries has any liabilities or
obligations material to VTEL and its subsidiaries which are not
referenced on such balance sheet or in such Annual Report on Form 10-K.
Except as set forth in Section 4.07 of the VTEL Disclosure Schedule
since the date of the VTEL's Transition Report on Form 10-K for the
seven month transition period ended July 31, 1996, neither VTEL nor its
subsidiaries has incurred any liabilities except for (i) liabilities or
obligations incurred in the ordinary course of business and consistent
with past practice, (ii) liabilities incurred in connection with or as
a result of the Merger and (iii) liabilities or obligations which do
not have a VTEL Material Adverse Effect.
Section 4.08. Absence of Certain Changes or Events. Except as disclosed
in the VTEL SEC Reports filed prior to the date of this Agreement or as set
forth in Section 4.08 of the VTEL Disclosure Schedule, since December 31, 1995,
VTEL and its subsidiaries have conducted their respective businesses only in the
ordinary course and in a manner consistent with past practice and there has not
been (a) any damage, destruction or loss with respect to any assets of VTEL or
any of its subsidiaries that, whether or not covered by insurance, would
constitute a VTEL Material Adverse Effect, (b) any change by VTEL or its
subsidiaries in their significant accounting policies or (c) any VTEL Material
Adverse Effect.
Section 4.09. Absence of Litigation. Except as set forth in Section
4.09 of the VTEL Disclosure Schedule, there is no claim, action, suit,
litigation, proceeding, arbitration or, to the knowledge of VTEL, investigation
of any kind, at law or in equity (including actions or proceedings seeking
injunctive relief), pending or, to the knowledge of VTEL, threatened against
VTEL or any of its subsidiaries or any properties or rights of VTEL or any of
its subsidiaries, and
CORPDAL:59869.4 22768-00022
29
<PAGE>
neither VTEL nor any of its subsidiaries is subject to any continuing order of,
consent decree, settlement agreement or other similar written agreement with,
or, to the knowledge of VTEL, continuing investigation by, any Governmental
Entity, or any judgment, order, writ, injunction, decree or award of any
Governmental Entity or arbitrator, including, without limitation,
ceaseand-desist or other orders.
Section 4.10. Intellectual Rights.
(a) VTEL owns, or is licensed or otherwise possesses legally
sufficient rights to use, all patents, trademarks, trade names, service
marks, copyrights, maskworks and any applications therefor, technology,
know-how, video and audio compression algorithms, computer software
programs or applications (in both source code and object code form) and
tangible or intangible proprietary information or material that are
used or proposed to be used in the business of VTEL as currently
conducted. Section 4.10 of the VTEL Disclosure Schedule lists all
current patents, registered and material unregistered copyrights,
maskworks, trade names and any applications therefor owned by VTEL (the
"VTEL Intellectual Property Rights"), and specifies the jurisdictions
in which each such Intellectual Property Right has been issued or
registered or in which an application for such issuance and
registration has been filed, including the respective registration or
application numbers and the names of all registered owners. Section
4.10 of VTEL's Disclosure Schedule includes and specifically identifies
all material third-party patents, trademarks, copyrights (including
software) and maskworks (the "VTEL Third Party Intellectual Property
Rights"), to the knowledge of VTEL, which are incorporated in, are, or
form a part of, any VTEL product, excluding any such intellectual
property rights that are available on a commodity basis (such as
"shrink wrap" licenses) and which are non-exclusive, terminable and
available for a standard fee. Section 4.10 of the VTEL Disclosure
Schedule lists (i) all material licenses, sublicenses and other
agreements as to which VTEL is a party and pursuant to which any person
is authorized to use any VTEL Intellectual Property Rights, or any
trade secret material to VTEL or any of its subsidiaries; and (ii) all
material licenses, sublicenses and other agreements as to which VTEL is
a party and pursuant to which VTEL is authorized to use any VTEL Third
Party Intellectual Property Rights, or other trade secret of a third
party in or as any product, and includes the identity of all parties
thereto, a description of the nature and subject matter thereof and the
term thereof.
(b) VTEL is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligations
hereunder, in violation of any license, sublicense or agreement
described in Section 4.10(a) of the VTEL Disclosure Schedule. No claims
with respect to VTEL Intellectual Property Rights, any trade secret
material to VTEL, or VTEL Third Party Intellectual Property Rights to
the extent arising out of any use, reproduction or distribution of such
VTEL Third Party Intellectual Property Rights by or through VTEL, are
currently pending or, to the knowledge of VTEL, are threatened by any
person, nor does VTEL know of any valid grounds for any bona fide
claims (i) to
CORPDAL:59869.4 22768-00022
30
<PAGE>
the effect that the manufacture, sale, licensing or use of any product
as now used, sold or licensed or proposed for use, sale or license by
VTEL infringes on any copyright, maskwork, patent, trademark, service
mark or trade secret; (ii) against the use by VTEL of any trademarks,
trade names, trade secrets, copyrights, maskworks, patents, technology,
know-how, video and audio compression algorithms, or computer software
programs and applications used in VTEL's business as currently
conducted or as proposed to be conducted by VTEL; (iii) challenging the
ownership, validity or effectiveness of any VTEL Intellectual Property
Rights or other trade secret material to VTEL; or (iv) challenging
VTEL's license or legally enforceable right to use of the VTEL Third
Party Intellectual Rights. To VTEL's knowledge, all material patents,
registered trademarks, maskworks and copyrights held by VTEL are valid
and subsisting. To VTEL's knowledge, there is no material unauthorized
use, infringement or misappropriation of any VTEL Intellectual Property
by any third party, including any employee or former employee of VTEL
or any of the its subsidiaries. Except as set forth in Section 4.10(b)
of the VTEL Disclosure Schedule, neither VTEL nor any of its
subsidiaries (i) has been sued or charged in writing as a defendant in
any claim, suit, action or proceeding which involves a claim or
infringement of trade secrets, any patents, trademarks, service marks,
maskworks or copyrights and which has not been finally terminated prior
to the date hereof or been informed or notified by any third party that
VTEL may be engaged in such infringement or (ii) has knowledge of any
infringement liability with respect to, or infringement by, VTEL or any
of its subsidiaries of any trade secret, patent, trademark, service
mark, maskwork or copyright of another.
(c) Each employee of VTEL has executed a confidentiality,
invention and copyright agreement with VTEL in the forms previously
made available to the Company.
Section 4.11. Transactions with Management. Except as disclosed in the
VTEL SEC Reports, no executive officer, director or stockholder of VTEL or any
of its subsidiaries has, since December 31, 1994, engaged in any business
dealings with the Company or any of its subsidiaries, other than such business
dealings as would not be required to be disclosed in such documents or reports
pursuant to the Securities Act and the rules and regulations promulgated
thereunder.
Section 4.12. Vote Required. The only votes of the holders of any class
or series of VTEL capital stock necessary to approve the Merger and this
Agreement are the affirmative votes of the holders of not less than a majority
of the outstanding shares of VTEL Common Stock.
Section 4.13. Brokers. No broker, finder or investment banker
(other than Bear, Stearns & Co. Inc.) is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of VTEL.
CORPDAL:59869.4 22768-00022
31
<PAGE>
Section 4.14. Opinion of Financial Advisor. VTEL has received the
written opinion of Bear, Stearns & Co. Inc. to the effect that, as of the date
of this Agreement, the Merger Consideration to be paid by VTEL is fair, from a
financial point of view, to the holders of VTEL Common Stock. VTEL will promptly
deliver a copy of such opinion to the Company.
Section 4.15. Board Recommendations. By a unanimous vote of the
directors present at a meeting of VTEL's Board of Directors (which meeting was
duly called and held and at which a quorum was present at all times), the Board
of Directors of VTEL (a) approved and adopted this Agreement and the other
transactions contemplated herein, and determined that the Merger is fair to the
stockholders of VTEL, and (b) resolved to recommend approval and adoption of
this Agreement, including the Merger and the other transactions contemplated
herein, by the stockholders of VTEL.
Section 4.16. Distributors, Customers, or Suppliers. VTEL is not aware
that any major distributor, customer or supplier to or of VTEL or its
subsidiaries intends to cease doing business, or to alter materially the amount
of business done, with VTEL or its subsidiaries after the Effective Time, due to
consummation of the transactions contemplated hereunder or any other reason,
that would result in a VTEL Material Adverse Effect.
Section 4.17. Pooling of Interests. As of the date of this Agreement,
VTEL has no reason to believe that the Merger will not qualify as a "pooling of
interests" for accounting purposes.
Section 4.18. Disclosure. No representation or warranty
hereunder contains any untrue statement of material fact or omits to state a
material fact necessary in order to make the statements contained therein or
herein not misleading.
ARTICLE V
COVENANTS
Section 5.01. Affirmative Covenants of the Company. The Company hereby
covenants and agrees that, prior to the Effective Time, unless otherwise
expressly contemplated by this Agreement or consented to in writing by VTEL, the
Company will and will cause each of its subsidiaries to:
(a) operate its business in the usual and ordinary course
consistent with past practices;
(b) use its best efforts to preserve intact its business
organization, maintain its rights and franchises, retain the services
of its respective officers and key employees and maintain its
relationships with its respective customers and suppliers;
CORPDAL:59869.4 22768-00022
32
<PAGE>
(c) maintain and keep its properties and assets in as good a
repair and condition as at present, ordinary wear and tear excepted,
and use its best efforts to maintain supplies and inventories in
quantities consistent with its customary business practices;
(d) use its best efforts to keep in full force and effect
insurance and bonds comparable in amount and scope of coverage to that
currently maintained;
(e) promptly notify VTEL of (i) any material adverse change in
the condition (financial or otherwise), business, properties, assets,
liabilities or prospects of the Company and its subsidiaries or in the
operation of the business or the properties of the Company and its
subsidiaries, (ii) any material litigation or material governmental
complaints, investigations or hearings (or communications indicating
that the same may be contemplated) involving the Company or any of its
subsidiaries, (iii) the occurrence, or failure to occur, of any event
which occurrence or failure to occur would likely cause any
representation or warranty contained in this Agreement or the Stock
Option Agreement to be untrue or inaccurate in any material respect
when made or at any time from the date of this Agreement to the
Effective Time; (iv) any failure of the Company to comply in any
material respect with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it under this Agreement or the
Stock Option Agreement; or (v) any other event that could reasonably be
expected to result in a Company Material Adverse Effect; provided,
however, that no such notification shall affect the representations and
warranties of the Company or the conditions to the obligations of the
parties hereunder;
(f) immediately cease and cause to be terminated any
solicitation, initiating, encouragement, activity, discussions or
negotiations with any parties conducted heretofore with respect to any
Alternative Transaction (as defined in Section 5.03(g)) and take the
necessary steps to inform such parties of the obligations undertaken in
Section 5.03(g);
(g) (i) file all Tax Returns required to be filed on or before
the Closing Date by or with respect to the Company or any of its
subsidiaries, (ii) include in each such Tax Return all items of income,
gain, loss, deduction and credit or other items required to be included
in each such Tax Return, (iii) timely pay in full all material Taxes
which become due pursuant to such Tax Returns, and (iv) satisfy all
withholding requirements imposed on or with respect to the Company; and
(h) take all actions necessary to (i) ensure that the rights
issued pursuant to the Company's Preferred Share Purchase Rights Plan
(the "Rights Plan") shall not have, and will not, be granted, become
nonredeemable, exercisable, distributed or triggered pursuant to the
terms of the Rights Plan by virtue of the Company's execution and
delivery of this Agreement or the Stock Option Agreement or the
Company's performance of the transactions contemplated hereby or
thereby and (ii) terminate the Rights Plan immediately prior to the
Effective Date (but not any sooner than immediately prior to the
Effective Time).
CORPDAL:59869.4 22768-00022
33
<PAGE>
Section 5.02. Affirmative Covenants of VTEL. VTEL hereby covenants and
agrees that, prior to the Effective Time, unless otherwise expressly
contemplated by this Agreement or consented to in writing by the Company, VTEL
will and will cause each of its subsidiaries to:
(a) operate its business in the usual and ordinary course
consistent with past practices except as contemplated by this Agreement; and
(b) use its best efforts to preserve intact its business
organization, maintain its rights and franchises, retain the services
of its respective officers and key employees and maintain its
relationships with its respective customers and suppliers.
Section 5.03. Negative Covenants of the Company. Except as expressly
contemplated by this Agreement or otherwise consented to in writing by VTEL from
the date of this Agreement until the Effective Time, the Company shall not do,
and shall not permit any of its subsidiaries to do, any of the following:
(a) (i) increase the compensation payable to or to become
payable to any director; (ii) increase the compensation payable or pay
bonuses to officers or employees of the Company or any of its
subsidiaries other than in the ordinary course of business and
consistent with past practices; (iii) grant any severance or
termination pay (other than pursuant to agreements or arrangements in
effect on the date hereof and set forth in Section 5.03 of the Company
Disclosure Schedule) to, or enter into any employment or severance
agreement with, any director, officer or employee; (iv) establish,
adopt or enter into any employee benefit plan or arrangement; (v) make
any loans to any stockholders, officers, directors or employees or make
any change in its borrowing arrangements; or (vi) amend, or take any
other actions (including, without limitation, the waiving of
performance criteria or the adjustment of awards or any other actions
permitted upon a "change in control" (as defined in the respective
plans) of the Company or a filing under Section 13(d) or 14(d) of the
Exchange Act with respect to the Company) with respect to any of the
Company Benefit Plans or any of the plans, programs, agreements,
policies or other arrangements described in Section 3.10(a) of this
Agreement;
(b) declare or pay any dividend on, or make any other
distribution in respect of, outstanding shares of capital stock or
other equity interests, except dividends by a wholly owned subsidiary
of the Company to the Company or another wholly owned subsidiary of the
Company;
(c) (i) except pursuant to the redemption of rights issued
under the Rights Plan, redeem, purchase or otherwise acquire any shares
of its or any of its subsidiaries' capital stock or any securities or
obligations convertible into or exchangeable for any shares of its or
its subsidiaries' capital stock (other than any such acquisition
directly from any wholly owned subsidiary of the Company in exchange
for capital contributions or loans
CORPDAL:59869.4 22768-00022
34
<PAGE>
to such subsidiary), or any options, warrants or conversion or other
rights to acquire any shares of its or its subsidiaries' capital stock
or any such securities or obligations, (ii) effect any reorganization
or recapitalization of the Company or any of its subsidiaries, or (iii)
split, combine or reclassify any of its or its subsidiaries' capital
stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of
its or its subsidiaries' capital stock;
(d) (i) issue (whether upon original issue or out of
treasury), sell, grant, award, deliver or limit the voting rights of
any shares of any class of its or its subsidiaries' capital stock, any
securities convertible into or exercisable or exchangeable for any such
shares, or any rights, warrants or options to acquire any such shares
(except for the issuance of shares upon the exercise of outstanding
stock options or warrants in accordance with their terms and for the
issuance of shares upon the conversion of outstanding shares of Series
C Preferred Stock in accordance with the terms of the certificate of
designation, in the form now existing, governing such preferred stock),
or (ii) amend or otherwise modify the terms of any such rights,
warrants or options or terms of the Series C Preferred Stock (except
for such amendments and modifications relating to the terms of the
Series C Preferred Stock expressly contemplated by this Agreement or by
the Company Affiliate Letter in the form attached hereto as Exhibit B
executed and delivered concurrently with the execution and delivery of
this Agreement);
(e) acquire or agree to acquire (whether pursuant to a
definitive agreement, a non-binding letter of intent or otherwise), by
merging or consolidating with, by purchasing an equity interest in or a
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof, or otherwise acquire or agree to acquire any assets
of any other Person (other than the purchase of assets from suppliers
or vendors in the ordinary course of business and consistent with past
practice);
(f) sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of ("transfer"), or agree to sell, lease, exchange,
mortgage, pledge, transfer or otherwise dispose of, any of its assets
or any assets of any of its subsidiaries, except for transfers of
assets in the ordinary course of business and consistent with past
practice;
(g) initiate, solicit or encourage (including by way of
furnishing information or assistance), or take any other action to
facilitate, directly or indirectly, any inquiries or the making of any
proposal or offer relating to, or that may reasonably be expected to
lead to, any Alternative Transaction (as defined below), or enter into
discussions or negotiate with any Person or entity in furtherance of
such inquiries or to obtain an Alternative Transaction, or disclose any
nonpublic information relating to the Company or any of its
subsidiaries to, or afford access to the properties, books or records
of the Company or any of its subsidiaries, or agree to, or endorse, any
Alternative Transaction, or authorize or permit any of the officers,
directors, employees or agents of the Company or any of its
CORPDAL:59869.4 22768-00022
35
<PAGE>
subsidiaries or any investment banker, financial advisor, attorney,
accountant or other representative retained by the Company or any of
the Company's subsidiaries (the "Representatives") to take any such
action, and the Company shall notify VTEL within 24 hours of receipt by
the Company or any of its subsidiaries, or by any of their
Representatives, of all relevant terms of any such inquiries or
proposals or requests for information relating to the Company or any of
its subsidiaries or access to its properties, books or records so
received by any of them relating to any Alternative Transaction and if
such inquiry or proposal or request is in writing, the Company shall
within 24 hours of receipt by the Company or any of its subsidiaries,
or by any of their Representatives, deliver or cause to be delivered to
VTEL a copy of such inquiry or proposal or request (or a complete
summary thereof if it is not in writing) and the Company shall keep
VTEL fully informed of the status and details of any such inquiry,
proposal or request or any correspondence or communications related
thereto and shall provide VTEL with five days' advance notice of any
agreement to be entered into with any Person making such inquiry or
proposal or request; provided, however, that at any time prior to the
time that the Company's stockholders shall have voted to approve this
Agreement, the Board of Directors of the Company may cause the Company
to furnish information to, and may participate in discussions or
negotiations with, any Person who (without any solicitation,
initiation, encouragement, discussion or negotiation, directly or
indirectly, with the Company or any of its subsidiaries or their
respective Representatives) has submitted a written proposal to such
Board of Directors relating to an Alternative Transaction that is
financially superior to the transactions contemplated by this
Agreement, if, and only to the extent that, (i) the Company's Board of
Directors shall have concluded in good faith, after considering
applicable provisions of state law, on the basis of a written opinion
of independent outside counsel of nationally recognized reputation,
that such action is necessary to prevent the Company's Board of
Directors from violating its fiduciary duties to the Company's
stockholders under applicable law, (ii) if such Alternative Transaction
is an all cash or substantially all cash offer, such Alternative
Transaction shall not be subject to any financing contingency (and such
Person shall have cash or unrestricted securities on its latest balance
sheet prior to submitting such written proposal equal to at least two
times the amount of such all cash or substantially all cash offer or
legally binding commitments for the financing of such Alternative
Transaction, subject to no conditions to funding), and the Board of
Directors of the Company shall have determined (based upon the advice
of the Company's independent financial advisors or investment bankers
of nationally recognized reputation) in the proper exercise of its
fiduciary duties to the Company's stockholders that such Person is
capable of consummating such Alternative Transaction on the terms
proposed, (iii) the Board of Directors of the Company determines (based
upon the advice of the Company's independent financial advisors or
investment bankers of nationally recognized reputation) in the proper
exercise of its fiduciary duties to the Company's stockholders that
such Alternative Transaction provides greater value to the stockholders
of the Company than the Merger, (iv) the agreement relating to the
Alternative Transaction be on terms and subject to conditions no less
restrictive than the provisions contained herein, (v) such Person
enters into a Confidentiality and Standstill
CORPDAL:59869.4 22768-00022
36
<PAGE>
Agreement on terms substantially similar to and no less restrictive to
such Person than the Confidentiality and Standstill Agreement entered
into between the Company and VTEL referred to in Section 5.05(d)
hereof, and (vi) the Company may not furnish any information to such
Person if it has not prior to the date thereof notified VTEL in writing
of its intent to furnish information to such person (specifying the
nature and identity of the information to be so furnished) and provided
the same information concurrently to VTEL. For purposes of this
Agreement, "Alternative Transaction" shall mean any of the following
(other than the transactions contemplated by this Agreement) involving
the Company or any of its subsidiaries: (i) any purchase, lease,
exchange, transfer or other acquisition or assumption of all or a
material portion of the assets of the Company and its subsidiaries,
taken as a whole; (ii) any merger, consolidation, share exchange,
business combination or similar transaction involving the Company or
any of its subsidiaries; or (iii) a purchase or other acquisition
(including by way of merger, consolidation, share exchange or
otherwise) of securities representing 20% or more of the outstanding
voting of the Company;
(h) release any third party from its obligations under any
standstill agreement or arrangement relating to an Alternative
Transaction or otherwise under any confidentiality or other similar
agreement relating to information material to the Company or any of its
subsidiaries, unless the Company's Board of Directors shall have
concluded in good faith, after considering applicable provisions of
state law, on the basis of a written opinion of independent outside
counsel of nationally recognized reputation that such action is
necessary to prevent the Company's Board of Directors from violating
its fiduciary duties to its stockholders under applicable law;
provided, however, notwithstanding the foregoing, the Company shall not
release any third party from its obligations under any standstill
agreement or arrangement relating to an Alternative Transaction or
otherwise under any such confidentiality or similar agreement unless
the Company shall simultaneously release VTEL from its obligations and
restrictions under the Confidentiality and Standstill Agreement
referred to in Section 5.05(d) hereof; and further, provided, upon
receipt by the Company of any unsolicited proposal for an Alternative
Transaction, the Company shall promptly release VTEL from its
standstill obligations contained in the Confidentiality and Standstill
Agreement referred to in Section 5.05(d) hereof;
(i) unless otherwise ordered by a court of competent
jurisdiction, take or permit any action to (w) cause any Person, other
than VTEL, Merger Sub or any of VTEL's subsidiaries, to not be deemed
an "Acquiring Person" pursuant to the Rights Plan; (x) except as
contemplated by Section 5.01(h) hereof, to terminate, amend or modify
the Rights Plan; (y) redeem any rights issued under the Rights Plan; or
(z) cause the rights issuable under the Rights Plan to be redeemed or
to become redeemable, nonexercisable, nondistributed or not triggered
or triggerable pursuant to the terms of the Rights Plan, other than as
required by this Agreement;
(j) adopt or propose to adopt any amendments to its
Certificate of Incorporation or its Bylaws;
CORPDAL:59869.4 22768-00022
37
<PAGE>
(k) (i) change any of its significant accounting policies or
(ii) make or rescind any express or deemed election relating to Taxes,
settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes, or
change any of its methods of reporting income or deductions for federal
income tax purposes from those employed in the preparation of the
federal income tax returns for the taxable year ended December 31, 1995
except, in the case of clause (i) or clause (ii), as may be required by
Law or generally accepted accounting principles;
(l) incur any obligation for borrowed money or purchase money
indebtedness, whether or not evidenced by a note, bond, debenture or
similar instrument or under any financing lease, whether pursuant to a
sale-and-leaseback transaction or otherwise or guarantee or endorse the
obligations of any Person;
(m) aside from any actions contemplated by this Agreement,
take or permit any action which could prevent the Merger from
qualifying for pooling-of-interests accounting treatment in accordance
with generally accepted accounting principles and all rules,
regulations and policies of the SEC, and the Company will use its best
efforts to prevent any of its officers or directors from taking or
permitting such action;
(n) take or permit any action which could prevent the Merger
from qualifying as a tax-free reorganization under Section 368 of the
Code, and the Company will use its best efforts to prevent any of its
officers or directors from taking or permitting any such action;
(o) take or permit any action which could adversely affect or
delay the ability of either the Company or VTEL to obtain any necessary
approvals of any Governmental Entities required for the transactions
contemplated hereby or to perform its covenants and agreements under
this Agreement or the Stock Option Agreement;
(p) take any action which would make any representation
or warranty contained in Article III of this Agreement untrue or
incorrect in any material respect; or
(q) agree in writing or otherwise to do any of the
foregoing.
Section 5.04. Negative Covenants of VTEL. Except as expressly
contemplated by this Agreement or otherwise consented to in writing by the
Company, from the date of this Agreement until the Effective Time, VTEL shall
not do, and shall not permit any of its subsidiaries to do, any of the
following:
(a) take any action that would result in a failure to
maintain the eligibility of the VTEL Common Stock for quotation on the
NASDAQ National Market;
CORPDAL:59869.4 22768-00022
38
<PAGE>
(b) propose to adopt any amendments to its Certificate of
Incorporation or its Bylaws that could reasonably be expected to delay
or have an adverse effect on the consummation of the transactions
contemplated by this Agreement or would otherwise be inconsistent in
any material respect with the terms and conditions of this Agreement or
the other agreements or transactions contemplated hereby (it being
understood that this clause (b) shall not in any respect limit the
right and power of VTEL to amend its Certificate of Incorporation to
increase the authorized number of shares of any class of capital stock
of VTEL);
(c) change any of its significant accounting policies
except as may be required by Law or generally accepted accounting
principles;
(d) declare or pay any dividend on, or make any other
distribution in respect of, outstanding shares of its or its
subsidiaries capital stock or other equity interests, except dividends
by a wholly owned subsidiary of VTEL to VTEL or another wholly owned
subsidiary of VTEL;
(e) take or permit any action which would adversely affect or
delay the ability of either the Company or VTEL to obtain any necessary
approvals of any Governmental Entities required for the transactions
contemplated hereby or to perform its covenants and agreements under
this Agreement;
(f) aside from any actions contemplated by this Agreement,
take or permit any action which could prevent the Merger from
qualifying for pooling-of-interests accounting treatment in accordance
with generally accepted accounting principles and all rules,
regulations and policies of the SEC, and VTEL will use its best efforts
to prevent any of its officers or directors from taking or permitting
any such actions;
(g) take or permit any action which could prevent the Merger
from qualifying as a tax-free organization under Section 368 of the
Code, and VTEL will use its best efforts to prevent any of its officers
or directors from taking or permitting any such action;
(h) except as contemplated by this Agreement or as set forth
on the VTEL Disclosure Schedule, issue (whether upon original issue or
out of treasury), sell, grant, award, deliver or limit the voting
rights of any shares of any class of its or its subsidiaries' capital
stock, any securities convertible into or exercisable or exchangeable
for any such shares, or any rights, warrants or options to acquire any
such shares (except for issuances, grants and awards pursuant to VTEL's
employee stock purchase plans and its stock option plans and except for
the issuance of shares upon the exercise of outstanding awards, stock
options or warrants in accordance with their terms and except for
issuance, if any, necessary to enable the Merger to be treated as a
"pooling of interests" for accounting purposes), or amend or otherwise
modify in any material respect the terms of such rights, warrants and
options;
CORPDAL:59869.4 22768-00022
39
<PAGE>
(i) acquire or agree to acquire (whether pursuant to a
definitive agreement, a nonbinding letter of intent or otherwise), by
merging or consolidating with, by purchasing an equity interest in or a
portion of the assets of, or by any other manner, any business or
corporation, partnership, association or other business organization or
division thereof, or otherwise acquire or agree to acquire the assets
of any other Person (other than (i) the purchase of assets from
suppliers or vendors in the ordinary course of business and consistent
with past practice, or (ii) such purchase involving the payment of a
purchase price by VTEL not exceeding $25 million);
(j) take any action which would make any representation
or warranty contained in Article IV of this Agreement untrue or
incorrect in any material respect; or
(k) agree in writing or otherwise to do any of the
foregoing.
Section 5.05. Access and Information.
(a) The Company shall, and shall cause its subsidiaries to,
(i) afford to VTEL and VTEL's officers, directors, employees,
accountants, consultants, legal counsel, agents and other
representatives (collectively, the "VTEL Representatives") access
during ordinary business hours and at other reasonable times, upon
reasonable prior notice, to the officers, employees, accountants,
agents, properties, offices and other facilities of the Company and its
subsidiaries and to the books and records thereof and (ii) furnish
promptly to VTEL and the VTEL Representatives such information
concerning the business, properties, Intellectual Property Assets,
contracts, records and personnel of the Company and its subsidiaries
(including, without limitation, financial, operating and other data and
information) as may be reasonably requested, from time to time, by
VTEL.
(b) VTEL shall, and shall cause its subsidiaries to, (i)
afford to the Company and the Company's officers, directors, employees,
accountants, consultants, legal counsel, agents and other
representatives (collectively, the "Company Representatives") access
during ordinary business hours and at other reasonable times, upon
reasonable prior notice, to the officers, employees, accountants,
agents, properties, offices and other facilities of VTEL and its
subsidiaries and to the books and records thereof and (ii) furnish
promptly to the Company and the Company Representatives such
information concerning the business, properties, intellectual property
assets, contracts, records and personnel of VTEL and its subsidiaries
(including, without limitation, financial, operating and other data and
information) as may be reasonably requested, from time to time, by the
Company.
(c) No investigation by the parties hereto made heretofore or
hereafter shall affect the representations and warranties of the
parties that are contained herein and each such representation and
warranty shall survive such investigation.
CORPDAL:59869.4 22768-00022
40
<PAGE>
(d) All information received by any party pursuant to this
Section 5.05 shall be subject to the provisions of that certain
Confidentiality and Standstill Agreement, dated as of September 12,
1996 between VTEL and the Company.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.01. Presentation to Stockholders. The Company shall, promptly
after the date of this Agreement, take all actions necessary in accordance with
the DGCL and its Certificate of Incorporation and Bylaws to present the Merger
and this Agreement to the holders of the Company Common Stock (and, if required,
holders of the Series C Preferred Stock) for their consideration and approval by
the vote thereof at a meeting of the Company's stockholders duly called and
convened to act on the Merger and this Agreement (the "Company Stockholders'
Meeting"). In like manner, VTEL shall, promptly after the date of this
Agreement, take all actions necessary in accordance with the DGCL, VTEL's
Certificate of Incorporation and Bylaws and the rules of The NASDAQ Stock Market
to present the Merger and this Agreement to the holders of VTEL Common Stock for
their consideration and approval by the vote thereof at a meeting of VTEL's
stockholders duly called and convened to act on the Merger and this Agreement
(the "VTEL Stockholders' Meeting"). The Company and VTEL shall consult with each
other in connection with such meetings and each shall use its best efforts to
cause such meetings to occur on the same date. The Company and VTEL shall use
their reasonable best efforts to solicit from their respective stockholders
proxies in favor of the approval and adoption of this Agreement and to secure
the vote of stockholders required by the DGCL and their respective Certificates
of Incorporation and Bylaws and by the rules of The NASDAQ Stock Market to
approve and adopt the Merger and this Agreement. The Board of Directors of VTEL
and the Board of Directors of the Company shall recommend that their respective
stockholders approve and adopt this Agreement and the Merger on the terms and
conditions set forth in this Agreement. The Company shall cause its Board of
Directors (a) not to withdraw, modify or change their recommendations of this
Agreement or the Merger and (b) to continue to recommend to the respective
stockholders of the Company the approval and adoption of this Agreement and the
Merger on the terms and conditions set forth in this Agreement. Notwithstanding
any other provision hereof, no party shall be restricted from complying with
Rule 14e-2 promulgated under the Exchange Act with regard to a tender offer or
exchange offer; provided, further, that the Company shall not, and shall not
permit any of its officers, directors, employees (acting on behalf of the
Company) or other representatives to agree to or endorse or recommend any
Alternative Transaction unless the Company shall have first terminated this
Agreement pursuant to Section 8.01(i) and paid VTEL all amounts payable to VTEL
pursuant to Sections 8.01(i) and 8.05 hereof and, if VTEL shall have as of such
time exercised any of its rights under the Stock Option Agreement, the Company
shall have complied with all of its obligations under the Stock Option
Agreement.
CORPDAL:59869.4 22768-00022
41
<PAGE>
Section 6.02. Registration Statement; Proxy Statement/Prospectus.
(a) As promptly as practicable after the execution of this
Agreement, VTEL shall prepare and file with the SEC a Registration
Statement containing a joint Proxy Statement/Prospectus (the "Proxy
Statement/Prospectus") for stockholders of the Company and VTEL in
connection with (i) the registration under the Securities Act of the
offer, sale and delivery of VTEL Common Stock to be issued in the
Merger and (ii) the vote of the requisite percentage of the
stockholders of the Company and VTEL with respect to the Merger and
this Agreement. VTEL and the Company shall each use all reasonable
efforts to cause the Registration Statement to become effective as
promptly as practicable, and shall take any action required to be taken
in order to comply with any applicable federal or state securities laws
in connection with the issuance of shares of VTEL Common Stock in the
Merger. VTEL and the Company shall each furnish all information
concerning itself, its subsidiaries and the holders of its capital
stock as the other may reasonably request in connection with such
actions. As promptly as practicable after the Registration Statement
shall have become effective, the Company and VTEL shall mail (the
"Mailing Date") the Proxy Statement/Prospectus to the holders of
Company Common Stock or VTEL Common Stock, as the case may be, of
record at least 20 calendar days prior to the Company Stockholders'
Meeting and the VTEL Stockholders' Meeting. It shall be a condition to
the mailing of the Proxy Statement/Prospectus that VTEL and the Company
shall have received the comfort letters described in Section 6.16 of
this Agreement, if VTEL shall have requested such letters as described
in Section 6.16 hereof. The Proxy Statement/Prospectus shall include
the recommendation of the Board of Directors of the Company and VTEL in
favor of the Merger.
(b) None of the information supplied or to be supplied by the
Company for inclusion or incorporation by reference in (i) the
Registration Statement will, at the time the Registration Statement is
filed with the SEC and at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary
to make the statements made therein not misleading and (ii) the Proxy
Statement/Prospectus will, at the Mailing Date and at the time of the
Company Stockholders' Meeting and the VTEL Stockholders' Meeting,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they
were made, not misleading. If at any time prior to the Company
Stockholders' Meeting or the VTEL Stockholders' Meeting any event or
circumstance relating to the Company or any of its affiliates, or its
or their respective officers or directors, should be discovered by the
Company that should be set forth in an amendment to the Registration
Statement or a supplement to the Proxy Statement/Prospectus, the
Company shall promptly inform VTEL. All documents that the Company is
responsible for filing with any Governmental Entity in connection with
the transactions contemplated hereby, including, without limitation,
the Proxy Statement/Prospectus to the extent that the information
contained therein relates to the
CORPDAL:59869.4 22768-00022
42
<PAGE>
Company and its subsidiaries or the transactions contemplated hereby,
will comply as to form in all material respects with the provisions of
applicable law, including applicable provisions of the Securities Act,
the Exchange Act and the rules and regulations thereunder, and each
such document required to be filed with any Governmental Entity other
than the SEC will comply with the provisions of applicable Law as to
the information required to be contained therein.
(c) None of the information supplied or to be supplied by VTEL
for inclusion or incorporation by reference in (i) the Registration
Statement will, at the time the Registration Statement is filed with
the SEC and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading and (ii) the Proxy
Statement/Prospectus will, at the Mailing Date and at the time of the
Company Stockholders' Meeting and the VTEL Stockholders' Meeting,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances in which
they were made, not misleading. If at any time prior to the Company
Stockholders' Meeting or the VTEL Stockholders' Meeting any event or
circumstance relating to VTEL or any of its affiliates, or its or their
respective officers or directors, should be discovered by VTEL that
should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement/Prospectus, VTEL shall promptly
inform the Company. All documents that VTEL is responsible for filing
with any Governmental Entity in connection with the transactions
contemplated hereby, including, without limitation, the Registration
Statement to the extent that the information contained therein relates
to VTEL and its subsidiaries or the transactions contemplated hereby,
will comply as to form in all material respects with the provisions of
applicable law, including applicable provisions of the Securities Act,
the Exchange Act and the rules and regulations thereunder, and each
such document required to be filed with any Governmental Entity other
than the SEC will comply with the provisions of applicable Law as to
the information required to be contained therein.
Section 6.03. Appropriate Action: Consents; Filings.
(a) The Company and VTEL shall each use, and shall cause each
of their respective subsidiaries to use, all reasonable efforts
promptly (i) to take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable
under applicable Law or otherwise to consummate and make effective the
transactions contemplated by this Agreement, (ii) to obtain from any
Governmental Entities any consents, licenses, permits, waivers,
approvals, authorizations or orders required to be obtained by the
Company or VTEL, respectively, or any of their respective subsidiaries
in connection with the authorization, execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, including, without limitation, the Merger, and
(iii) to make all necessary filings, and thereafter make
CORPDAL:59869.4 22768-00022
43
<PAGE>
any other required submissions, with respect to this Agreement and the
Merger required under (A) the Securities Act and the Exchange Act and
the rules and regulations thereunder, and any other applicable federal
or state securities laws, (B) the HSR Act, and (C) any other applicable
Law; and VTEL and the Company shall cooperate with each other in
connection with the making of all such filings, including providing
copies of all such documents to the nonfiling party and its advisors
prior to filing and, if requested, shall accept all reasonable
additions, deletions or changes suggested in connection therewith. The
Company and VTEL shall furnish all information required for any
application or other filing to be made pursuant to the rules and
regulations of any applicable Law in connection with the transactions
contemplated by this Agreement.
(b) VTEL and the Company agree, and shall cause each of their
respective subsidiaries, to cooperate and to use all reasonable efforts
to contest and resist any action, including legislative, administrative
or judicial action, and to have vacated, lifted, reversed or overturned
any decree, judgment, injunction or other order (whether temporary,
preliminary or permanent) (an "Order") that is in effect and that
restricts, prevents or prohibits the consummation of the Merger or any
other transactions contemplated by this Agreement, including, without
limitation, by vigorously pursuing all available avenues of
administrative and judicial appeal and all available legislative
action.
(c) The Company and VTEL shall each promptly give (or shall
cause their respective subsidiaries to give) any notices regarding the
Merger, this Agreement or the Stock Option Agreement or the
transactions contemplated hereby or thereby to third parties required
by Law or by any material contract, license, lease or other material
agreement to which it is a party or by which it is bound, and use, and
cause its subsidiaries to use, all reasonable efforts to obtain any
third party consents (i) necessary, proper or advisable to consummate
the transactions contemplated by this Agreement or the Stock Option
Agreement, (ii) otherwise required under any contracts, licenses,
leases or other agreements in connection with the consummation of the
transactions contemplated by this Agreement or the Stock Option
Agreement, or (iii) required to prevent a Company Material Adverse
Effect or a VTEL Material Adverse Effect, respectively, from occurring;
provided, however, that this Section 6.03 shall not impose any
obligations on or confer any rights upon any person or entity other
than the parties to this Agreement or the Stock Option Agreement.
(d) If any party shall fail to obtain any third party consent
described in subsection (c) above, such party shall use all reasonable
efforts, and shall take any such actions reasonably requested by the
other parties, to limit the adverse effect upon the Company and VTEL,
their respective subsidiaries, and their respective businesses
resulting, or which could reasonably be expected to result from the
failure to obtain such consent.
CORPDAL:59869.4 22768-00022
44
<PAGE>
Section 6.04. Affiliates; Tax Treatment.
(a) The Company shall obtain and deliver to VTEL (i) on the
date that this Agreement is executed by VTEL, an executed agreement,
substantially in the form of Exhibit B hereto from each person
identified as an affiliate of the Company in Section 3.12 of the
Company Disclosure Schedule, and (ii) by the Closing Date, from any
other person who is an affiliate of the Company on the Closing Date.
(b) VTEL shall obtain and deliver to the Company (i) on the
date that this Agreement is executed by the Company, an executed
agreement, substantially in the form of Exhibit C hereto from each
person identified as an affiliate of VTEL in Section 6.04 of the VTEL
Disclosure Schedule, and (ii) by the Closing Date, from any other
person who is an affiliate of VTEL on the Closing Date.
(c) VTEL shall be entitled to place legends as specified in
such agreements on the certificates evidencing any VTEL Common Stock to
be received by such affiliates of the Company pursuant to the terms of
this Agreement, and to issue appropriate stop transfer instructions to
the transfer agent of the VTEL Common Stock, consistent with the terms
of such letter agreements.
(d) Neither the Company nor VTEL nor any of their respective
subsidiaries or other affiliates shall (i) take any action, or fail to
take any action, that would jeopardize qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code or (ii)
enter into any contract, agreement, commitment or arrangement with
respect to the foregoing.
(e) At or before the Closing, VTEL shall provide an officer's
certificate, in form and substance reasonably acceptable to VTEL, to
Shearman & Sterling to assist such counsel in rendering the written
opinion provided for in Section 7.01(e) of this Agreement and the
Company shall provide an officer's certificate, in form and substance
reasonably satisfactory to the Company, to Jenkens & Gilchrist, a
Professional Corporation, to assist such counsel in rendering the
written opinion provided for in Section 7.01(d) of this Agreement.
Section 6.05. Public Announcements. Except as otherwise required by
applicable law or the rules of The NASDAQ Stock Market, neither the Company nor
VTEL shall, or shall permit any of its subsidiaries to, issue or cause the
publication of any press release or other public announcement with respect to,
or otherwise make any public statement concerning, the transactions contemplated
by this Agreement or the Stock Option Agreement without the consent of the other
party, which consent shall not be unreasonably withheld.
CORPDAL:59869.4 22768-00022
45
<PAGE>
Section 6.06. NASDAQ Listing. VTEL shall use all reasonable efforts to
cause the shares of VTEL Common Stock to be issued in the Merger to be approved
for quotation on The NASDAQ Stock Market prior to the Effective Time.
Section 6.07. State Takeover Statutes. The Company will take all steps
necessary to exempt the transactions contemplated by this Agreement and the
Stock Option Agreement from, and if necessary challenge the validity of, any
applicable state takeover law, including, without limitation, Section 203 of the
DGCL. The Company shall take all actions necessary under the DGCL, including
approving the transactions contemplated by this Agreement and the Stock Option
Agreement, to ensure that the prohibitions on business combinations set forth in
Section 203 of the DGCL do not, or will not, apply to the transactions
contemplated by this Agreement.
Section 6.08. Charter Amendment. Consistent with applicable law, VTEL
shall cause to be presented to its stockholders and shall cause to be voted upon
at the VTEL Stockholders' Meeting referred to in Section 6.01, in addition to
the consideration and action upon this Agreement and the Merger, a proposed
amendment to the Certificate of Incorporation of VTEL increasing the authorized
shares of VTEL Common Stock to 40 million. VTEL shall use its reasonable best
efforts to solicit from its stockholders proxies in favor of the approval of the
amendment to its Certificate of Incorporation and to secure the vote required by
the DGCL and its Certificate of Incorporation to approve such amendment.
Section 6.09. Board Seats. Promptly following the Effective Time,
consistent with applicable law and its Bylaws, the Board of Directors of VTEL
shall increase the number of members of its Board of Directors from five to
seven, and shall elect T. Gary Trimm and Arthur G. Anderson to fill such
vacancies, to serve as such until the next annual meeting of VTEL stockholders
or such time as their respective successors shall have been duly elected or
appointed and qualified.
Section 6.10. Options.
(a) At the Effective Time, each option granted by the Company
to purchase shares of Company Common Stock which is outstanding and
unexercised immediately prior thereto shall cease to represent a right
to acquire shares of Company Common Stock and shall be converted
automatically into an option to purchase shares of VTEL Common Stock in
an amount and at an exercise price determined as provided below (and
otherwise subject to the terms of the Company benefit plans under which
they were issued and the agreements evidencing grants thereunder).
(i) The number of shares of VTEL Common Stock to be
subject to the new option shall be equal to the product of the
number of shares of Company Common Stock subject to the
original option and the Common Stock Conversion Ratio,
provided that any fractional shares of VTEL Common Stock
resulting from such multiplication shall be rounded to the
nearest whole share; and
CORPDAL:59869.4 22768-00022
46
<PAGE>
(ii) The exercise price per share of VTEL Common Stock
under the new option shall be equal to the exercise price per
share of Company Common Stock under the original option
divided by the Common Stock Conversion Ratio, provided that
such exercise price shall be rounded down to the nearest whole
cent.
(b) The adjustment provided herein with respect to any options
which are "incentive options" (as defined in Section 422 of the Code)
shall be and is intended to be effectuated in a manner which is
consistent with Section 424(a) of the Code. The duration and other
terms of the new option shall be the same as the original option except
that all references to the Company or any of its subsidiaries shall be
deemed to be references to VTEL and its subsidiaries.
(c) If and to the extent required by the terms of the plans
governing the original options or pursuant to the terms of any
agreements evidencing grants thereunder, the Company shall use its
reasonable efforts to obtain the consent of each holder of outstanding
options to the treatment provided in subparagraph (a) of this Section
6.10.
(d) With respect to the Assumed Options, as soon as
practicable following the Effective Time, VTEL shall use its best
efforts to file one or more registration statements on Form S-8 with
the SEC with respect to the VTEL Common Stock subject to such Assumed
Options.
Section 6.11. Series C Preferred Stock Warrants. As of the Effective
Time, each warrant to purchase Common Stock Warrant issued in conjunction with
the issuance of the Series C Preferred Stock (the "Series C Warrants") then
outstanding shall remain outstanding and, pursuant to the terms of Section 7(c)
of the Series C Warrants, shall thereafter be exercisable into the Merger
Consideration that the shares of Company Common Stock into which such Series C
Warrants could have been exercised immediately prior to the Effective Time would
have been entitled.
Section 6.12. Termination of Convertible Preferred Stock Purchase
Agreement. The Company, acting through its Board of Directors, shall prior to
the Effective Time terminate that certain Convertible Preferred Stock Purchase
Agreement, dated October 24, 1996, between the Company and Infinity Investors,
Ltd. and Seacrest Capital, Ltd. in accordance with the provisions of Section
5.2(b) and (c) thereof, in a manner sufficient to extinguish any obligation of
the Company to issue any Series D Preferred Stock or Series E Preferred Stock
pursuant to that Agreement.
Section 6.13. Merger Sub. Prior to the Effective Time, Merger Sub shall
not conduct any business or make any investments other than as specifically
contemplated by this Agreement and will not have any assets (other than the
minimum amount of cash paid to Merger Sub for the issuance of its stock to VTEL)
or liabilities.
CORPDAL:59869.4 22768-00022
47
<PAGE>
Section 6.14. Indemnification.
(a) The Company shall indemnify and hold harmless, to the
fullest extent permitted under applicable law, and after the Effective
Time VTEL and the Surviving Corporation shall indemnify and hold
harmless, to the fullest extent permitted under applicable law, each
present and former director and officer of the Company or any of its
subsidiaries, and each person who is or was then serving as a director
of the Company or any of its subsidiaries (individually, an
"Indemnified Party" and collectively, the "Indemnified Parties")
against any expenses, including reasonable attorneys' fees, fines,
losses, claims, damages, liabilities, costs, judgments and amounts paid
in settlement in connection with any threatened, pending or completed
claim, action, suit, proceeding or investigation (whether civil,
criminal or administrative) arising out of or pertaining to any action
or omission occurring prior to the Effective Time (including, without
limitation, any which arise out of or relate to the Merger and the
transactions contemplate by this Agreement) which are asserted or
commenced prior to or within six years following the Effective Time,
and the Company, VTEL or the Surviving Corporation, as the case may be,
will advance expenses to each such Indemnified Party (provided the
person to whom expenses are advanced provides an undertaking to repay
such advances if it is ultimately determined that such person is not
entitled to indemnification), provided the Indemnified Party asserting
the right to indemnification hereunder shall have acted in good faith
and in a manner such person reasonably believed to be in or not opposed
to the best interests of the Company and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
which such person reasonably believed to be in or not opposed to the
best interests of the Company, and, with respect to any criminal action
or proceeding, that such person and reasonable cause to believe that
his conduct was unlawful. In the event of any such claim, action, suit,
proceeding or investigation (whether asserted or commenced before or
after the Effective Time), the Company, VTEL or the Surviving
Corporation, as the case may be, will be entitled to participate in
and, to the extent that it may wish, to assume the defense thereof;
provided, however, that if any Indemnified Party (or group of
Indemnified Parties) reasonably believes that it is advisable for such
Indemnified Parties to be represented by separate counsel as a result
of a conflict, on any significant issue between the positions of the
Indemnified Party (or group of Indemnified Parties) and the Company,
VTEL or the Surviving Corporation, as the case may be, as determined
under applicable standards of professional conduct or if the Company,
VTEL or the Surviving Corporation shall promptly fail to assume
responsibility for such defense, such Indemnified Party (or group of
Indemnified Parties) may retain counsel satisfactory to such
Indemnified Party (or group of Indemnified Parties), who will represent
such Indemnified Party (or group of Indemnified Parities), and the
Company, VTEL or the Surviving Corporation, as the case may be, shall
pay all reasonable fees and expenses of such counsel promptly as
statements therefor are received; provided, that the
CORPDAL:59869.4 22768-00022
48
<PAGE>
Indemnified Parties and the Company, VTEL or the Surviving Corporation,
as the case may be, will use their respective best efforts to assist in
the vigorous defense of any such matter; provided, further, that
neither the Company, VTEL nor the Surviving Corporation shall be liable
for any settlement effected without their written consent, which
consent, if the Company, VTEL or the Surviving Corporation fails to
assume the defense of any such matter, shall not be unreasonably
withheld and in no event shall be withheld in bad faith; and provided,
further, that neither the Company, VTEL nor the Surviving Corporation
shall have any obligation hereunder to any Indemnified Party when and
if a court of competent jurisdiction shall ultimately determine, after
exhaustion of all avenues of appeal, that such Indemnified Party is not
entitled to indemnification hereunder (at which point such Indemnified
Party shall promptly refund, without interest, to the indemnifying
party all amounts previously paid by the indemnifying party hereunder).
Any Indemnified Party wishing to claim indemnification under this
Section 6.14, upon learning of any such claim, action, suit, proceeding
or investigation, shall promptly notify the indemnifying party thereof.
In the event the Indemnified Parties are entitled to separate counsel
pursuant to this paragraph (a), the Indemnified Parties may as a group
retain only one such law firm to represent them with respect to any
such matter unless there is, under applicable standards of professional
conduct, a conflict on any significant issue between the positions of
any two or more Indemnified Parties in which case the Indemnified
Parties may retain, at the expense of the Company, VTEL or the
Surviving Corporation, as the case may be, two additional law firms.
(b) For six years after the Effective Time, the Surviving
Corporation shall keep in effect a provision in its bylaws
substantially the same as the provision contained in Article XI of the
Company's bylaws as in effect on the date hereof.
(c) The Company and the Surviving Corporation and their
subsidiaries will perform and discharge all indemnification agreements
to which the Company or any of its subsidiaries is a party and that
have been disclosed in Section 6.14(c) of the Company Disclosure
Schedule.
(d) This Section shall survive the closing of the transactions
contemplated hereby, is intended to benefit the Company, VTEL, the
Surviving Corporation and each of the Indemnified Parties (each of whom
shall be entitled to enforce this Section against the Company or the
Surviving Corporation, as the case may be) and shall be binding on all
successors and assigns of the Surviving Corporation. The exercise by
any person of such person's rights under any of paragraphs (a), (b) or
(c) of this Section shall not preclude the exercise of such person's
rights under any such other paragraph of this section, provided that
such party shall not be entitled to multiple recoveries thereunder.
(e) For six years from the Effective Time, VTEL shall cause
the Surviving Corporation to provide to the Company's current directors
and officers liability insurance protection of the same kind and scope
as that provided by the Company's directors' and
CORPDAL:59869.4 22768-00022
49
<PAGE>
officers' liability insurance policies (copies of which have been made
available to VTEL) in effect on the date hereof; provided, however,
that in no event shall the Surviving Corporation be required to expend
in any one year an amount in excess of 150% of the annual premiums
currently paid by the Company for such insurance; and, provided,
further, that if the annual premiums of such insurance coverage exceeds
such amount, the Surviving Corporation shall be obligated to obtain a
policy with the greatest coverage available for a cost not exceeding
such amount.
(f) In the event the Surviving Corporation, VTEL or any of
their respective successors or assigns (i) consolidates with or merges
into any other person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger, or (ii)
transfers all or substantially all of its properties and assets to any
person, then, and in each such case, proper provision shall be made so
that the successors and assigns of the Surviving Corporation or VTEL,
as the case may be, assume the obligations set forth in this Section
6.14.
Section 6.15. Employment Contracts. The Company represents that it has
previously delivered or made available to VTEL all employment, retirement,
termination, severance or similar agreements with officers or other employees of
the Company and its subsidiaries which are currently in effect, all of which are
listed in the Company Disclosure Schedule. Subsection 6.15 of the Company
Disclosure Schedule lists all such agreements and plans that provide for payment
of amounts or awards upon consummation of a "change of control" of the Company,
including all those providing for payments or awards upon consummation of the
Merger. The Company has made available to VTEL true, correct and complete copies
of all such agreements and plans. The Company will not enter into any such
agreements after the date hereof without VTEL's prior written consent.
Section 6.16. Comfort Letters.
(a) If requested by VTEL, the Company shall cause KPMG Peat
Marwick LLP to deliver a letter, dated as of the date of the Proxy
Statement/Prospectus, and addressed to VTEL and its Board of Directors,
in form and substance reasonably satisfactory to VTEL and customary in
scope and substance for agreed upon procedures letters delivered by
independent public accountants in connection with registration
statements and proxy statements similar to the Proxy
Statement/Prospectus.
(b) If VTEL should make the request for the Company to cause
KPMG Peat Marwick LLP to deliver the letter referred to in subparagraph
(a) of this Section 6.16, VTEL shall then cause Price Waterhouse LLP to
deliver a letter dated as of the date of the Proxy
Statement/Prospectus, and addressed to VTEL and the Company and their
respective Boards of Directors, in form and substance reasonably
satisfactory to the Company and customary in scope and substance for
agreed upon procedures letters delivered by independent public
CORPDAL:59869.4 22768-00022
50
<PAGE>
accountants in connection with registration statements and proxy
statements similar to the Proxy Statement/Prospectus.
Section 6.17. Sales Under Rule 145 if Applicable.
(a) VTEL will use its best efforts to comply with the
reporting requirements of the Exchange Act after the Effective Time.
(b) Upon being informed in writing by any person who, at the
Effective Time, was an officer, director or a shareholder of the
Company that may be deemed to be an affiliate of the Company (within
the meaning of the Exchange Act) (the "Affiliated Shareholder"), that
such person intends to sell any shares of VTEL Common Stock acquired in
the Merger under Rule 145 under the Exchange Act, VTEL will certify in
writing to such person that it has been subject to the reporting
requirements of the Exchange Act for at least 90 days and it has filed
all of the reports required to be filed by it under the Exchange Act to
enable such person to sell such person's VTEL Common Stock acquired in
the Merger under Rule 145 (or will inform such person in writing that
it has not filed such reports). VTEL will further supply such person
with any information in its possession which he may reasonably request
in connection with any such proposed sale.
(c) If any of the certificates representing any VTEL Common
Stock acquired in the Merger is presented to VTEL's transfer agent for
registration of transfer in connection with any sale theretofore made
under paragraph (d) of Rule 145, provided such certificate is duly
endorsed for transfer or accompanied by a duly executed stock power and
is accompanied by an opinion of counsel satisfactory to VTEL that such
transfer has complied with the requirements of Rule 145, VTEL will
promptly instruct its transfer agent to register such transfer and to
issue one or more new certificates free of any stop transfer order or
restrictive legend.
Section 6.18. Stockholder Litigation. The Company shall give VTEL the
opportunity to participate in the defense or settlement of any stockholder
litigation against the Company and its directors relating to any of the
transactions contemplated by this Agreement or the Stock Option Agreement;
provided, no such settlement shall be agreed to without VTEL's consent, which
consent shall not be unreasonably withheld; and further provided, that no
settlement requiring a payment by a director of the Company shall be agreed to
without such director's consent.
ARTICLE VII
CLOSING CONDITIONS
Section 7.01. Conditions to Obligations of Each Party Under This
Agreement. The respective obligations of each party to effect the Merger and the
other transactions contemplated hereby shall be subject to the satisfaction at
or prior to the Effective Time of the following conditions
CORPDAL:59869.4 22768-00022
51
<PAGE>
(any or all of which may be waived by the parties hereto in writing, in whole or
in part, to the extent permitted by applicable Law):
(a) Effectiveness of the Registration Statement. The
Registration Statement shall have been declared effective by the SEC
under the Securities Act. No stop order suspending the effectiveness of
the Registration Statement shall have been issued by the SEC and no
proceedings for that purpose shall have been initiated by the SEC.
(b) Stockholder Approval. The Merger and this Agreement shall
have been approved and adopted by the requisite vote of the
stockholders of the Company and of VTEL in accordance with the DGCL and
the respective Certificates of Incorporation of the Company and VTEL.
(c) HSR Act. The Company and VTEL shall have made all required
filings under the HSR Act and the applicable waiting period under the
HSR Act with respect to the transactions contemplated by this Agreement
shall have expired or been terminated.
(d) VTEL Tax Opinion. VTEL shall have received from Jenkens &
Gilchrist, a Professional Corporation, a written opinion, dated as of
the Mailing Date, to the effect that the Merger, when effected in
accordance with this Agreement, will qualify as a reorganization under
Section 368(a) of the Code and VTEL, Merger Sub and the Company will
constitute parties to such reorganization, and a copy of such opinion
shall have been delivered to the Company.
(e) Company Tax Opinion. The Company shall have received from
Shearman & Sterling a written opinion, dated as of the Mailing Date, to
the effect that the Merger, when effected in accordance with this
Agreement, will qualify as a reorganization under Section 368(a) of the
Code and VTEL, Merger Sub and the Company will constitute parties to
such reorganization, and a copy of such opinion shall have been
delivered to VTEL.
(f) NASDAQ Approval. The shares of VTEL Common Stock to be
issued in the Merger shall have been approved for quotation on The
NASDAQ Stock Market, but subject to official notice of issuance.
(g) Pooling Letter. VTEL and the Company shall have received a
letter from Price Waterhouse LLP, in form and substance reasonably
satisfactory to VTEL, to the effect that the transactions contemplated
by this Agreement will be accounted for by VTEL as a "pooling of
interests" under generally accepted accounting principles and the
rules, regulations and policies of the SEC.
(h) Charter Amendment. The amendment to the Certificate
of Incorporation of VTEL referred to in Section 6.08 shall have been
duly approved and adopted by the stockholders of VTEL at the VTEL
Stockholders' Meeting in accordance with the DGCL,
CORPDAL:59869.4 22768-00022
52
<PAGE>
and such charter amendment shall have been duly filed with the Delaware
Secretary of State and shall have become effective.
(i) Rights Plan. The rights issued pursuant to the
Rights Plan shall not have become nonredeemable, exercisable,
distributed or triggered pursuant to the terms of the Rights Plan.
Section 7.02. Additional Conditions to Obligations of the VTEL
Companies. The obligations of the VTEL Companies to effect the Merger and the
other transactions contemplated by this Agreement are also subject to the
following conditions (any or all of which may be waived by the VTEL Companies in
writing, in whole or in part):
(a) Representations and Warranties. Each of the
representations and warranties of the Company contained in this
Agreement shall have been true and correct in all material respects at
and as of the date made and, except as contemplated or permitted by
this Agreement, at and as of the Effective Time as if made at and as of
such time. The VTEL Companies shall have received a certificate of the
President and the Chief Executive Officer of the Company, in his
capacity as such, dated the Closing Date, to the effect that each of
the representations and warranties of the Company contained in this
Agreement were true and correct in all material respects as of the date
made and, except as contemplated or permitted by this Agreement, at and
as of the Effective Time as if made at and as of such time.
(b) Agreements and Covenants. The Company shall have performed
or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it at or
prior to the Effective Time. The VTEL Companies shall have received a
certificate of the President and the Chief Executive Officer of the
Company, in his capacity as such, dated the Closing Date, to such
effect.
(c) Consents. All consents, authorizations, orders and
approvals of, or filings or registrations with, any Governmental Entity
required in connection with the execution, delivery and performance of
this Agreement shall have been obtained or made, except for filings
required under the DGCL in connection with the Merger and the Company
shall have obtained all consents, authorizations, waivers and approvals
required from third parties required under all Material Contracts by
reason of the Merger and the consummation of the transactions
contemplated hereby, except for such consents, authorizations, waivers
and approvals where the failure to obtain such could not reasonably be
expected to result in a Company Material Adverse Effect.
(d) No Governmental Proceedings or Litigation. There shall not
be pending or threatened any action, proceeding, claim or counterclaim
by any Governmental Entity or by any third party which seeks to or
would (i) prohibit or restrict the consummation of the Merger, (ii)
require the disposition of or the holding separate of any of the stock
or assets of the Company or its subsidiaries or impose material
limitations on the ability of VTEL to
CORPDAL:59869.4 22768-00022
53
<PAGE>
control in any material respect the business, assets or operations of
either VTEL or the Company, or (iii) have a material adverse effect on
VTEL's business or materially impair the ability of the Company or
Merger Sub to perform their obligations hereunder. There shall not be
in effect any order, decree or injunction (whether preliminary, final
or appealable) of a United States Federal or state court of competent
jurisdiction, and no statute, rule or regulation shall have been
enacted or promulgated by any Governmental Entity , which (i) prohibits
or restricts consummation of the Merger or the transactions
contemplated hereby, (ii) requires VTEL to hold separate or dispose of
any of the stock or assets of the Company or its subsidiaries or
imposes material limitations on the ability of VTEL to control in any
material respect the business, assets or operations of either VTEL or
the Company, or (iii) has a material adverse effect on the business of
VTEL and its subsidiaries or on the Company and its subsidiaries or
materially impairs the ability of VTEL or Merger Sub to perform their
obligations hereunder.
(e) Affiliate Agreements. The Company shall have
delivered to VTEL the letter agreements called for by Section 6.04.
Section 7.03. Additional Conditions to Obligations of the Company. The
obligations of the Company to effect the Merger and the other transactions
contemplated hereby are also subject to the following conditions (any or all of
which may be waived by the Company in writing, in whole or in part):
(a) Representations and Warranties. Each of the
representations and warranties of the VTEL Companies contained in this
Agreement shall have been true and correct in all material respects at
and as of the date made and, except as contemplated or permitted by
this Agreement, at and as of the Effective Time as if made at and as of
such time. The Company shall have received a certificate of the
President and the Chief Executive Officer of each of the VTEL
Companies, in their capacities as such, dated as of the Effective Time,
to the effect that each of the representations and warranties of the
VTEL Companies contained in this Agreement were true and correct in all
material respects as of the date made and, except as contemplated by
this Agreement, at and as of the Effective Time as if made at and as of
such time.
(b) Agreements and Covenants. The VTEL Companies shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with
by them at or prior to the Effective Time. The Company shall have
received a certificate of the Chairman and Chief Executive Officer of
each of the VTEL Companies, in their capacities as such, dated the
Closing Date, to that effect.
(c) Consents. All consents, authorizations, orders and
approvals of, or filings or registrations with, any Governmental Entity
required in connection with the execution, delivery and performance of
this Agreement shall have been obtained or made, except for
CORPDAL:59869.4 22768-00022
54
<PAGE>
filings required under the DGCL in connection with the Merger, and the
VTEL Companies shall have obtained all consents, authorizations,
waivers and approvals required from third parties required under all
material agreements and instruments by reason of the Merger and the
consummation of the transactions contemplated hereby, except for such
consents, authorizations, waivers and approvals where the failure to
obtain such could not reasonably be expected to result in a VTEL
Material Adverse Effect.
(d) No Regulatory Action. No statute, rule or regulation shall
have been enacted or promulgated by any Governmental Entity which seeks
to or would (i) prohibit the consummation of the Merger or the
transactions contemplated hereby or (ii) materially impair the ability
of the Company to perform its obligations hereunder; and there shall
not be in effect any order, decree or injunction (whether preliminary,
final or appealable injunction) of a United States federal or state
court of competent jurisdiction which (i) prohibits consummation of the
Merger, or (ii) materially impairs the ability of the Company to
perform its obligations hereunder.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.01. Termination. This Agreement may be terminated and
the Merger hereby contemplated may be abandoned at any time notwithstanding
approval of this Agreement by the stockholders of the Company and/or VTEL, but
prior to the Effective Time:
(a) by mutual written consent duly authorized by the
Boards of Directors of VTEL and the Company;
(b) by VTEL, if there has been a material breach of the
representations and warranties of the Company contained in this
Agreement or if the Company has failed to comply in any material
respect with any of its covenants or agreements set forth in this
Agreement or in the Stock Option Agreement, and the Company shall not
have cured such breach or failure within ten days of receipt of written
notice thereof from VTEL (or such shorter period as provided for in the
Stock Option Agreement (a "Terminating Company Breach"); provided,
however, that the failure of the Company to comply in any material
respect with any of its covenants or obligations set forth in Sections
5.01(f), 5.03(g), 5.03(h), 5.03(i), 6.01, 6.02 or 6.05 hereof, shall be
a Terminating Company Breach immediately upon receipt of written notice
thereof from VTEL; and further provided, if such breach or failure is
incapable of cure within such ten day period, such breach or failure
shall constitute a Terminating Company Breach immediately upon receipt
of written notice thereof from VTEL;
(c) by the Company, if there has been a material breach
of the representations and warranties of the VTEL Companies contained
in this Agreement or if either VTEL Company
CORPDAL:59869.4 22768-00022
55
<PAGE>
has failed to comply in any material respect with any covenant or
agreement on the part of the VTEL Companies set forth in this
Agreement, and the VTEL Companies shall not have cured such breach or
failure within ten days of receipt of written notice thereof from the
Company; provided, however, if such breach or failure is incapable of
cure within such ten day period, the ten day cure period shall not
apply;
(d) by either VTEL or the Company, if any court of competent
jurisdiction in the United States or other United States governmental
body shall have issued an order, decree or ruling or taken any other
action restraining, enjoining or otherwise prohibiting any of the
transactions contemplated hereby or by the Stock Option Agreement and
such order, decree, ruling or other action shall have become final and
non-appealable preventing the consummation of the Merger;
(e) by either VTEL or the Company, if the Effective Time shall
not have occurred on or before December 31, 1997; provided that neither
the Company nor VTEL shall be entitled to terminate this Agreement
pursuant to this paragraph if such party's material breach of this
Agreement or the Stock Option Agreement has been the cause of or
resulted in the failure of the Effective Time to occur at or prior to
such time;
(f) by either VTEL or the Company, if at the meetings of their
respective stockholders (including any adjournment thereof) called for
by Section 6.01 hereof, this Agreement and the Merger shall fail to be
approved and adopted by the affirmative vote of the stockholders of
VTEL and the Company required under the DGCL and their respective
Certificates of Incorporation.
(g) by either VTEL or the Company if there is in effect any
order, decree or injunction of a United States federal court or a court
of competent jurisdiction which shall have become final with all
opportunities to appeal having been exhausted or expired and which (i)
requires VTEL to hold separate or dispose of any of the stock or assets
of the Company or its subsidiaries, or of VTEL or its subsidiaries,
which are material to the financial condition, properties, assets,
liabilities, business, results of operations or prospects of either
VTEL and its subsidiaries or the Company and its subsidiaries, or (ii)
imposes material limitations on the ability of VTEL to control in any
material respect the business, assets or operations of either the
Company or VTEL;
(h) by VTEL, if (i) the Board of Directors of the Company
withdraws, modifies or changes its recommendation of this Agreement or
the Merger in a manner adverse to VTEL or to the likelihood of
consummation of the Merger or shall have resolved to do any of the
foregoing, or (ii) the Board of Directors of the Company shall have
approved, endorsed or recommended to the stockholders of the Company
any Alternative Transaction or resolved to do so;
CORPDAL:59869.4 22768-00022
56
<PAGE>
(i) by the Company, upon prior payment to VTEL of a fee of
$3,500,000, (which, when paid, shall be in lieu of any further
Termination Fee due under Section 8.05(c), anything contained in
Section 8.05(d) to the contrary notwithstanding) and VTEL's Expenses
(as defined in Section 8.05(b) hereof) if the Board of Directors of the
Company shall have received an offer from a Person other than VTEL or
an affiliate of VTEL to effect an Alternative Transaction which the
Board of Directors of the Company shall have determined, after
considering advice from its financial advisors, is more beneficial to
the stockholders of the Company than the Merger and the Board of
Directors of the Company shall have concluded in good faith, after
considering applicable provisions of state law, on the basis of a
written opinion of independent outside legal counsel of nationally
recognized reputation that terminating this Agreement in order to enter
into an agreement with respect to or to consummate an Alternative
Transaction is necessary to prevent the Company's Board of Directors
from violating its fiduciary duties to the Company's stockholders under
applicable law provided, however, the Company shall not be entitled to
terminate this Agreement pursuant to this subsection (i) if the Company
shall have breached or failed to comply with its covenants and
agreements contained in subsections (g), (h) or (i) of Section 5.03
hereof, in Section 6.01 or in Section 6.05 hereof with respect to the
offer in question;
(j) by VTEL, if a tender offer or exchange offer for 20% or
more of the outstanding shares of Company Common Stock is commenced
(other than by VTEL or an affiliate of VTEL), and within ten (10)
business days of such commencement the Board of Directors of the
Company shall not have recommended that the stockholders of the Company
not tender their shares in such tender or exchange offer; or
(k) by VTEL, if the Stock Option Agreement is determined by a
court of competent jurisdiction to be invalid or unenforceable, and
such determination shall have become final with all opportunities to
appeal having been exhausted or expired, but only if the Company or any
of its subsidiaries, or any of its officers, directors, employees,
agents or other representatives, instigates or otherwise voluntarily
assists, supports or cooperates with any other party instigating or
pursuing such a legal determination; or if any of the parties thereto,
other than VTEL, shall be in material breach of the Stock Option
Agreement.
Section 8.02. Effect of Termination. Except as provided in Section
5.05(d), Section 8.05 and Section 9.01 of this Agreement and in this Section
8.02, in the event of the termination of this Agreement pursuant to Section
8.01, this Agreement shall forthwith become void, there shall be no liability on
the part of the VTEL Companies or the Company or any of their respective
officers or directors to the other and all rights and obligations of any party
hereto shall cease, except that nothing herein shall relieve any party from its
obligations with respect to any breach of this Agreement. Notwithstanding the
foregoing, the Company's obligations under the Stock Option Agreement shall
survive such termination, and shall remain in full force and effect and the
duties of the Company thereunder shall not be affected by the termination of
this Agreement, and termination and abandonment of this Agreement shall have no
effect upon the Confidentiality and Standstill
CORPDAL:59869.4 22768-00022
57
<PAGE>
Agreement referred to in Section 5.05(d) (except as otherwise provided in
Section 5.03(h) hereof) .
Section 8.03. Amendment. This Agreement may be amended by the Company
and the VTEL Companies by action taken by or on behalf of their respective
Boards of Directors at any time prior to the Effective Time; provided, however,
that after approval of the Merger by the stockholders of the Company or the
stockholders of VTEL, any such amendment shall be subject to the provisions of
Section 251 of the DGCL. This Agreement may not be amended except by an
instrument in writing signed by the Company and the VTEL Companies.
Section 8.04. Waiver. At any time prior to the Effective Time, any
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other party or parties hereto, (b) waive any
inaccuracies in the representations and warranties of the other party or parties
contained herein or in any document delivered pursuant hereto and (c) waive
compliance by the other party or parties with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid only if
set forth in an instrument in writing signed by the party or parties to be bound
thereby. For purposes of this Section 8.04, the VTEL Companies as a group shall
be deemed to be one party.
Section 8.05. Fees, Expenses and Other Payments.
(a) Subject to Section 8.05(c) and (d), all Expenses (as
defined in paragraph (b) of this Section 8.05) incurred by the parties
hereto shall be borne solely and entirely by the party which has
incurred such Expenses; provided, however, that, subject to the
provisions of Sections 8.05(c) and (d) hereof, the allocable share of
each of VTEL and the Company for all expenses related to printing,
filing and mailing the Registration Statement and the Proxy Statement
and all SEC and other regulatory filing fees incurred in connection
with the Registration Statement and the Proxy Statement, and all filing
fees incurred in connection with all regulatory filings made under the
HSR Act, shall be one-half.
(b) "Expenses" as used in this Agreement shall include all
out-of-pocket expenses (including, without limitation, all fees and
expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by a party
or on its behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of this Agreement,
the preparation, printing, filing and mailing of the Registration
Statement and the Proxy Statement/Prospectus, the solicitation of
stockholder approvals and all other matters related to the consummation
of the transactions contemplated hereby.
(c) The Company agrees that:
(i) The Company shall pay to VTEL in same day
funds the aggregate amount of all Expenses incurred by VTEL
and its affiliates in connection with this
CORPDAL:59869.4 22768-00022
58
<PAGE>
Agreement and the Stock Option Agreement and the transactions
contemplated hereby or thereby (including fees and expenses of
counsel, accountants, and financial advisors incurred by VTEL)
(the "Expense Reimbursement") if any of the following events
shall have occurred and there shall be no material breach of
this Agreement by VTEL: (A) VTEL shall have terminated this
Agreement in accordance with the terms of Section 8.01(b) or
Section 8.01(h) or Section 8.01(j); or (B) the Company shall
have terminated this Agreement pursuant to Section 8.01(i).
(ii) The Company shall pay to VTEL in same day funds
a fee of $3,500,000 (the "Termination Fee") upon demand and
with the Expense Reimbursement, if (A) this Agreement shall
have been terminated; (B) there shall be no material breach of
this Agreement by VTEL continuing at the time of such
termination; and (C) any of the following events shall have
occurred: (I) the Company shall have breached in any material
respect the representations warranties, covenants or
conditions contained in this Agreement or the Stock Option
Agreement; or (II) the Board of Directors of the Company or
any committee thereof shall have withdrawn or modified or
changed its approval or recommendation of this Agreement or
the Merger, or resolved to do so, or shall have resolved to
accept, accepted or recommended a different proposal; or (III)
the Company shall have entered into an agreement with respect
to an Alternative Transaction on or prior to December 31,
1997; or (IV) the stockholders of the Company shall fail to
approve the Merger and transactions contemplated hereby and
shall approve an Alternative Transaction on or prior to
December 31, 1997; or (V) on or prior to December 31, 1997,
the Company's stockholders shall receive a proposal for an
Alternative Transaction and such proposal shall result in a
party unaffiliated with VTEL acquiring securities of the
Company representing in excess of a majority of the voting
power of the Company's then outstanding voting securities; or
(VI) this Agreement is terminated by VTEL pursuant to Section
8.01(j).
(iii) The acceptance by VTEL of a payment pursuant to
Section 8.05(c) shall not constitute a waiver of, or limit in
any way its rights to pursue any and all remedies for the
Company's material breach of this Agreement.
(d) Any payment required to be made pursuant to Section
8.05(c) of this Agreement shall be made as promptly as practicable but
not later than 5 business days after termination of this Agreement and
shall be made by wire transfer of immediately available funds to an
account designated by VTEL. Such payment shall not relieve the Company
of any obligation it may have if the agreement is terminated because of
a Terminating Company Breach.
CORPDAL:59869.4 22768-00022
59
<PAGE>
ARTICLE IX
GENERAL PROVISIONS
Section 9.01. Effectiveness of Representations, Warranties and
Agreements.
(a) Except as set forth in Section 9.01(b) of this Agreement,
the representations, warranties, covenants and agreements of each party
hereto shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any other party hereto,
any person controlling any such party or any of their officers,
directors, representatives or agents whether prior to or after the
execution of this Agreement.
(b) The representations and warranties in this Agreement shall
terminate at the Effective Time. This Section 9.01(b) shall not limit
any covenant or agreement of the parties hereto that by its terms
contemplates performance after the Effective Time.
Section 9.02. Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given upon receipt, if delivered personally, sent by nationally recognized
overnight courier service, mailed by registered or certified mail (postage
prepaid, return receipt requested) to the parties at the following addresses (
or at such other address for a party as shall be specified by like changes of
address) or sent by electronic transmission to the telecopier number specified
below:
(a) If to either of the VTEL Companies, to:
VTEL Corporation
108 Wild Basin Road
Austin, TX 78746
Attention: Chief Executive Officer
Telecopier No.: (512) 314-2542
with copies to:
Jenkens & Gilchrist
a Professional Corporation
1445 Ross Avenue
Suite 3200
Dallas, TX 75202-2799
Attention: L. Steven Leshin
Telecopier No.: (214) 855-4300
CORPDAL:59869.4 22768-00022
60
<PAGE>
(b) If to the Company, to:
Compression Labs, Incorporated
350 East Plumeria Drive
San Jose, CA 95134
Attention: President and Chief
Executive Officer
Telecopier No.: (408) 922-5574
with copies to:
Shearman & Sterling
555 California Street
San Francisco, CA 94104
Attention: Michael J. Kennedy
Telecopier No.: (415) 616-1199
Section 9.03. Certain Definitions. For the purposes of this
Agreement, the term:
(a) "Affiliate" means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is
under common control with, the first mentioned person;
(b) "Business day" means any day other than a day on which
banks in the State of New York, State of California or the State of
Texas are authorized or obligated to be closed;
(c) "Control" (including the terms "controlled," "controlled
by" and "under common control with") means the possession, directly or
indirectly or as trustee or executor, of the power to direct or cause
the direction of the management or policies of a person, whether
through the ownership of stock or as trustee or executor, by contract
or credit arrangement or otherwise;
(d) "Knowledge" or "known" shall mean, with respect to any
matter in question, the actual knowledge of an executive officer of the
Company or VTEL, as the case may be, of such matter after having made
due and diligent inquiry with respect to such matter of all appropriate
personnel of the party in question who would reasonably be expected to
be familiar with the matter involved;
(e) "Person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group
(as defined in Section 13(d) of the Exchange Act);
CORPDAL:59869.4 22768-00022
61
<PAGE>
(f) "Proxy Statement/Prospectus" or "Joint Proxy
Statement/Prospectus" shall mean a joint proxy statement/prospectus or
joint information statement/prospectus included in the Registration
Statement at the time the Registration Statement is declared effective
under the Securities Act and meeting the requirements of Schedule 14A
or Schedule 14C of the SEC's Proxy Rules promulgated pursuant to the
Exchange Act;
(g) "Registration Statement" shall mean a registration
statement of VTEL on Form S-4 filed with the SEC pursuant to the
Securities Act for the purpose of registering thereunder the offering
and sale of the VTEL Common Stock to be issued pursuant to the Merger;
(h) "Significant Subsidiary" means any subsidiary of the
Company or VTEL, as the case may be, that would constitute a
Significant Subsidiary of such party within the meaning of Rule 1-02 of
Regulation S-X of the SEC;
(i) "Subsidiary" or "subsidiaries" of the Company, VTEL, the
Surviving Corporation or any other person, means any corporation,
partnership, joint venture or other legal entity of which the Company,
VTEL, the Surviving Corporation or any such other Person, as the case
may be (either alone or through or together with any other subsidiary),
owns, directly or indirectly, 50% or more of the stock or other equity
interests the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such
corporation or other legal entity; and
(j) "Tax" or "Taxes" shall mean any and all taxes, charges,
fees, levies, assessments, duties or other amounts payable to any
federal, state, local or foreign taxing authority or agency, including,
without limitation, (i) income, franchise, profits, gross receipts,
minimum, alternative minimum, estimated, ad valorem, value added,
sales, use, service, real or personal property, capital stock, license,
payroll, withholding, disability, employment, social security, workers
compensation, unemployment compensation, utility, severance, excise,
stamp, windfall profits, transfer and gains taxes, (ii) customs,
duties, imposts, charges, levies or other similar assessments of any
kind, and (iii) interest, penalties and additions to tax imposed with
respect thereto.
Section 9.04. Headings. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 9.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to
CORPDAL:59869.4 22768-00022
62
<PAGE>
effect the original intent of the parties as closely as possible in an
acceptable manner to the end that transactions contemplated hereby are fulfilled
to the extent possible.
Section 9.06. Entire Agreement. This Agreement (together with the
Exhibits, the Company Disclosure Schedule and the VTEL Disclosure Schedule),
together with the Stock Option Agreement, constitute the entire agreement of the
parties, and supersede all prior agreements and undertakings, both written and
oral (other than the agreement referred to in Section 5.05(d) hereof) , among
the parties, with respect to the subject matter of this Agreement.
Section 9.07. Assignment. This Agreement shall not be assigned by
operation of law or otherwise.
Section 9.08. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and the beneficiaries of
the provisions of Section 6.14 herein, and nothing in this Agreement, express or
implied, is intended to or shall confer upon any other person any right, benefit
or remedy of any nature whatsoever under or by reason of this Agreement.
Section 9.09. Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are in addition to, and not exclusive of, any rights or
remedies otherwise available.
Section 9.10. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law.
Section 9.11. Counterparts. This Agreement may be executed in multiple
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
Section 9.12. Specific Performance. The parties hereby acknowledge and
agree that the failure of any party to this Agreement to perform the provisions
in accordance with their specific terms or to otherwise breach such provisions,
including its failure to take all actions as are necessary on its part to the
consummation of the Merger, will cause irreparable injury to the other parties
to this Agreement for which damages, even if available, will not be an adequate
remedy. Accordingly, each of the parties hereto hereby consents to the issuance
of injunctive relief by any court of competent jurisdiction to compel
performance of any party's obligations, including an injunction to prevent
breaches, and to the granting by any such court of the remedy of specific
performance of the terms and conditions hereof.
CORPDAL:59869.4 22768-00022
63
<PAGE>
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
CORPDAL:59869.4 22768-00022
64
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
VTEL CORPORATION
By:/s/F.H.(Dick)Moeller
Name:F.H.(Dick)Moeller
Title:Chairman and Chief
Executive Officer
VTEL-SUB, INC.
By:/s/F.H.(Dick)Moeller
Name:F.H.(Dick)Moeller
Title:Chairman and Chief
Executive Officer
COMPRESSION LABS, INCORPORATED
By:/s/Thomas Gary Trimm
Name:Thomas Gary Trimm
Title:President and Chief
Executive Officer
CORPDAL:59869.4 22768-00022
65
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>3
<DESCRIPTION>EXH. 99.2 - STOCK OPTION AGREEMENT
<TEXT>
EXHIBIT 99.2
STOCK OPTION AGREEMENT
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated January 6, 1997, between Compression
Labs, Incorporated, a Delaware corporation ("Issuer"), and VTEL Corporation, a
Delaware corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger and Reorganization of even date herewith (the "Merger Agreement"), which
agreement has been executed by the parties hereto immediately prior to this
Stock Option Agreement (the "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement
and in consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined):
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to 3,120,500
fully paid and nonassessable shares of Issuer's Common Stock, par value $.001
per share ("Common Stock"), at a price of $4.6575 per share (the "Option
Price"); provided, however, that in no event shall the number of shares of
Common Stock for which this Option is exercisable exceed 19.9% of the Issuer's
issued and outstanding shares of Common Stock without giving effect to any
shares subject to or issued pursuant to the Option. The number of shares of
Common Stock that may be received upon the exercise of the Option and the Option
Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock
are either (i) issued or otherwise become outstanding after the date of this
Agreement (other than pursuant to this Agreement) or (ii) redeemed, repurchased,
retired or otherwise cease to be outstanding after the date of the Agreement,
the number of shares of Common Stock subject to the Option shall be increased or
decreased, as appropriate, so that, after such issuance, such number equals
19.9% of the number of shares of Common Stock then issued and outstanding
without giving effect to any shares subject or issued pursuant to the Option.
Nothing contained in this Section l(b) or
CORPDAL:59868.4 22768-00022
1
<PAGE>
elsewhere in this Agreement shall be deemed to authorize Issuer or Grantee to
breach any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, and from time to time, if, but only if, both an Initial
Triggering Event (as hereinafter defined) and a Subsequent Triggering Event (as
hereinafter defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined), provided that the Holder shall have
sent the written notice of such exercise (as provided in subsection (e) of this
Section 2) within 90 days following such Subsequent Triggering Event. Each of
the following shall be an Exercise Termination Event: (i) the Effective Time (as
defined in the Merger Agreement) of the Merger; (ii) termination of the Merger
Agreement in accordance with the terms thereof prior to the occurrence of an
Initial Triggering Event except a termination of the Merger Agreement by Grantee
pursuant to Section 8.01(b) of the Merger Agreement; or (iii) the passage of 12
months after termination of the Merger Agreement if such termination follows the
occurrence of an Initial Triggering Event or is a termination of the Merger
Agreement by Grantee pursuant to Section 8.01(b) of the Merger Agreement
provided that if an Initial Triggering Event continues or occurs beyond such
termination and prior to the passage of such 12-month period, the Exercise
Termination Event shall be 12 months from the expiration of the Last Triggering
Event but in no event more than 18 months after such termination. The "Last
Triggering Event" shall mean the last Initial Triggering Event to expire. The
term "Holder" shall mean the holder or holders of the Option.
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an
"Issuer Subsidiary"), without having received Grantee's prior written consent,
shall have entered into an agreement to engage in an Acquisition Transaction (as
hereinafter defined) with any person (the term "person" for purposes of this
Agreement having the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3)
of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the
rules and regulations thereunder) other than Grantee or any of its Subsidiaries
(each a "Grantee Subsidiary") or the Board of Directors of Issuer shall have
recommended that the stockholders of Issuer approve or accept any Acquisition
Transaction. For purposes of this Agreement, "Acquisition Transaction" shall
mean (w) a merger or consolidation, or any similar transaction, involving Issuer
or any Significant Subsidiary (as defined in Rule 1-02 of Regulation S-X
promulgated by the Securities and Exchange Commission (the "SEC")) of Issuer,
(x) a purchase, lease or other acquisition or assumption of all or a substantial
portion of the assets of Issuer or any Significant Subsidiary of Issuer, (y) a
purchase or other acquisition (including by way of merger, consolidation, share
exchange or otherwise) of securities representing 10% or more of the voting
power of Issuer, or (z) any substantially similar transaction;
(ii) Issuer or any Issuer Subsidiary, without
having received Grantee's prior written consent, shall have authorized,
recommended, proposed or publicly announced its intention to authorize,
recommend or propose, to engage in an Acquisition Transaction with any person
other than Grantee or a Grantee Subsidiary, or the Board of Directors of Issuer
shall have
CORPDAL:59868.4 22768-00022
2
<PAGE>
publicly withdrawn or modified, or publicly announced its interest to withdraw
or modify, in any manner adverse to Grantee, its recommendation that the
stockholders of Issuer approve the transactions contemplated by the Merger
Agreement;
(iii) Any person other than Grantee or any Grantee
Subsidiary shall have acquired beneficial ownership or the right to acquire
beneficial ownership of 10% or more of the outstanding shares of Common Stock
(the term "beneficial ownership" for purposes of this Agreement having the
meaning assigned thereto in Section 13(d) of the 1934 Act, and the rules and
regulations thereunder);
(iv) Any person other than Grantee or any Grantee
Subsidiary shall have made a bona fide proposal to Issuer or its stockholders by
public announcement or written communication that is or becomes the subject of
public disclosure to engage in an Acquisition Transaction; or
(v) After an overture is made by a third party
to Issuer or its stockholders to engage in an Acquisition Transaction, Issuer
shall have breached any covenant or obligation contained in the Merger Agreement
and such breach (x) would entitle Grantee to terminate the Merger Agreement and
(y) shall not have been cured prior to the Notice Date (as defined below).
(c) The term "Subsequent Triggering Event" shall mean either
of the following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial
ownership of 20% or more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering
Event described in paragraph (i) of subsection (b) of this Section 2, except
that the percentage referred to in clause (y) shall be 20%.
(d) Issuer shall notify Grantee promptly in writing of the
occurrence of any Initial Triggering Event or Subsequent Triggering Event of
which it has notice (together, a "Triggering Event"), it being understood that
the giving of such notice by Issuer shall not be a condition to the right of the
Holder to exercise the Option.
(e) In the event the Holder is entitled to and wishes to
exercise the Option, it shall send to Issuer a written notice (the date of which
being herein referred to as the "Notice Date") specifying (i) the total number
of shares it will purchase pursuant to such exercise and (ii) a place and date
not earlier than three business days nor later than 60 business days from the
Notice Date for the closing of such purchase (the "Closing Date"); provided that
if prior notification to or approval of any regulatory agency is required in
connection with such purchase, the Holder shall promptly file the required
notice or application for approval and shall expeditiously process the same and
the period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which any required notification periods have expired
CORPDAL:59868.4 22768-00022
3
<PAGE>
or been terminated or such approvals have been obtained and any requisite
waiting period or periods shall have passed. Any exercise of the Option shall be
deemed to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this
Section 2, the Holder shall pay to Issuer the aggregate purchase price for the
shares of Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by wire transfer to a bank account designated by
Issuer, provided that failure or refusal of Issuer to designate such a bank
account shall not preclude the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of
immediately available funds as provided in subsection (f) of this Section 2,
Issuer shall deliver to the Holder a certificate or certificates representing
the number of shares of Common Stock purchased by the Holder and, if the Option
should be exercised in part only, a new Option evidencing the rights of the
Holder thereof to purchase the balance of the shares purchasable hereunder, and
the Holder shall deliver to Issuer a copy of this Agreement and a letter
agreeing that the Holder will not offer to sell or otherwise dispose of such
shares in violation of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the
registered holder hereof and Issuer and to resale restrictions
arising under the Securities Act of 1933, as amended. A copy
of such agreement is on file at the principal office of Issuer
and will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act"), in the above legend
shall be removed by delivery of substitute certificates) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions to this Agreement
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and (iii) the legend shall be removed
in its entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may be
required by law.
(i) Upon the giving by the Holder to Issuer of the written
notice of exercise of the Option provided for under subsection (e) of this
Section 2 and the tender of the applicable purchase price in immediately
available funds, the Holder shall be deemed to be the holder of
CORPDAL:59868.4 22768-00022
4
<PAGE>
record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Issuer shall then be closed or
that certificates representing such shares of Common Stock shall not then be
actually delivered to the Holder. Issuer shall pay all expenses, and any and all
United States federal, state and local taxes and other charges that may be
payable in connection with the preparation, issue and delivery of stock
certificates under this Section 2 in the name of the Holder or its assignee,
transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) promptly to take all action as may from time to time be required
(including complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. ss.18a and regulations promulgated
thereunder) in order to permit the Holder to exercise the Option and Issuer duly
and effectively to issue shares of Common Stock pursuant hereto; and (iv)
promptly to take all action provided herein to protect the rights of the Holder
against dilution.
4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of the Holder, upon presentation and surrender of
this Agreement at the principal office of Issuer, for other Agreements providing
for Options of different denominations entitling the holder thereof to purchase,
on the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Stock Option
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common
Stock that are purchasable upon exercise of the Option pursuant to Section 1 of
this Agreement, the number of shares of Common Stock purchasable upon the
exercise of the Option and the Option Price shall be subject to adjustment from
time to time as provided in this Section 5. In the event of any change in, or
distributions in respect of, the Common Stock by reason of stock dividends,
split-ups, mergers, recapitalizations, combinations, subdivisions, conversions,
exchanges of shares, distributions on or in respect of the Common Stock that
would be prohibited under the terms of the Merger Agreement, or the like, the
type and number of shares of Common Stock purchasable upon exercise hereof and
the Option Price shall be appropriately adjusted in such manner as shall fully
preserve the economic benefits provided hereunder and proper provision shall be
made in
CORPDAL:59868.4 22768-00022
5
<PAGE>
any agreement governing any such transaction to provide for such proper
adjustment and the full satisfaction of the Issuer's obligations hereunder.
6. Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, Issuer shall, at the request of Grantee
delivered within 90 days of such Subsequent Triggering Event (whether on its own
behalf or on behalf of any subsequent holder of this Option (or part thereof) or
any of the shares of Common Stock issued pursuant hereto), promptly prepare,
file and keep current a shelf registration statement under the 1933 Act covering
this Option and any shares issued and issuable pursuant to this Option and shall
use its reasonable best efforts to cause such registration statement to become
effective and remain current in order to permit the sale or other disposition of
this Option and any shares of Common Stock issued upon total or partial exercise
of this Option ("Option Shares") in accordance with any plan of disposition
requested by Grantee. Issuer will use its reasonable best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of 180 days from the day such registration
statement first becomes effective or such shorter time as may be reasonably
necessary to effect such sales or other dispositions. Grantee shall have the
right to demand two such registrations. The foregoing notwithstanding, if, at
the time of any request by Grantee for registration of the Option or Option
Shares as provided above, Issuer is in registration with respect to an
underwritten public offering of shares of Common Stock, and if in the good faith
judgment of the managing underwriter or managing underwriters, or, if none, the
sole underwriter or underwriters, of such offering the inclusion of the Holder's
Option or Option Shares would interfere with the successful marketing of the
shares of Common Stock offered by Issuer, the number of Option Shares otherwise
to be covered in the registration statement contemplated hereby may be reduced;
and provided, however, that after any such required reduction the number of
Option Shares to be included in such offering for the account of the Holder
shall constitute at least 25% of the total number of shares to be sold by the
Holder and Issuer in the aggregate; and provided further, however, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance as promptly as practical and no reduction shall thereafter occur. Each
such Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in secondary
offering underwriting agreements for the Issuer. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy thereof to
any other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in no event shall
Issuer be obligated to effect more than two registrations pursuant to this
Section 6 by reason of the fact that there shall be more than one Grantee as a
result of any assignment or division of this Agreement.
7. (a) Immediately prior to the occurrence of a Repurchase Event (as
defined below), (i) following a request of the Holder, delivered prior to an
Exercise Termination Event (or such later period as provided in Section 10),
Issuer (or any successor thereto) shall repurchase the Option from the Holder at
a price (the "Option Repurchase Price") equal to the amount by which
CORPDAL:59868.4 22768-00022
6
<PAGE>
(A) the Market/Offer Price (as defined below) exceeds (B) the Option Price,
multiplied by the number of shares for which this Option may then be exercised
and (ii) at the request of the owner of Option Shares from time to time (the
"Owner"), delivered within 90 days of such occurrence (or such later period as
provided in Section 10), Issuer shall repurchase such number of the Option
Shares from the Owner as the owner shall designate at a price (the "Option Share
Repurchase Price") equal to the Market/Offer Price multiplied by the number of
Option Shares so designated. The term "Market/Offer Price" shall mean the
highest of (i) the price per share of Common Stock at which a tender offer or
exchange offer therefor has been made, (ii) the price per share of Common Stock
to be paid by any third party pursuant to an agreement with Issuer entered into
subsequent to the date hereof, (iii) the highest closing price for shares of
Common Stock within the six-month period immediately preceding the date the
Holder gives notice of the required repurchase of this Option or the Owner gives
notice of the required repurchase of Option Shares, as the case may be, or (iv)
in the event of a sale of all or a substantial portion of Issuer's assets, the
sum of the price paid in such sale for such assets and the current market value
of the remaining assets of Issuer as determined by a nationally recognized
investment banking firm mutually selected by the Holder or the Owner, as the
case may be, on the one hand, and the Issuer, on the other, divided by the
number of shares of Common Stock of Issuer outstanding at the time of such sale.
In determining the Market/Offer Price, the value of consideration other than
cash shall be determined by a nationally recognized investment banking firm
mutually selected by the Holder or Owner, as the case may be, on the one hand,
and the Issuer, on the other.
(b) The Holder and the Owner, as the case may be, may exercise
its right to require Issuer to repurchase the Option and any Option Shares
pursuant to this Section 7 by surrendering for such purpose to Issuer, at its
principal office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that the Holder
or the Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 7. Within the latter to occur of (x) five business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto and (y) the time that is
immediately prior to the occurrence of a Repurchase Event, Issuer shall deliver
or cause to be delivered to the Holder the Option Repurchase Price and/or to the
Owner the Option Share Repurchase Price therefor or the portion thereof that
issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that Issuer is prohibited under applicable
law or regulation from repurchasing the Option and/or the Option Shares in full,
Issuer shall immediately so notify the Holder and/or the Owner and thereafter
deliver or cause to be delivered, from time to time, to the Holder and/or the
Owner, as appropriate, the portion of the Option Repurchase Price and the Option
Share Repurchase Price, respectively, that it is no longer prohibited from
delivering, within five business days after the date on which Issuer is no
longer so prohibited; provided, however, that if Issuer at any time after
delivery of a notice of repurchase pursuant to paragraph (b) of this Section 7
is prohibited under applicable law or regulation from delivering to the Holder
and/or the Owner, as appropriate, the Option Repurchase Price and the Option
Share Repurchase Price, respectively, in full (and Issuer hereby undertakes to
use its best efforts to obtain all required regulatory and legal approvals and
to file any required notices as promptly as practicable
CORPDAL:59868.4 22768-00022
7
<PAGE>
in order to accomplish such repurchase), the Holder or Owner may revoke its
notice of repurchase of the Option or the Option Shares either in whole or to
the extent of the prohibition, whereupon, in the latter case, Issuer shall
promptly (i) deliver to the Holder and/or the Owner, as appropriate, that
portion of the Option Repurchase Price or the Option Share Repurchase Price that
Issuer is not prohibited from delivering; and (ii) deliver, as appropriate,
either (A) to the Holder, a new Stock Option Agreement evidencing the right of
the Holder to purchase that number of shares of Common Stock obtained by
multiplying the number of shares of Common Stock for which the surrendered Stock
Option Agreement was exercisable at the time of delivery of the notice of
repurchase by a fraction, the numerator of which is the Option Repurchase Price
less the portion thereof theretofore delivered to the Holder and the denominator
of which is the Option Repurchase Price, or (B) to the Owner, a certificate for
the Option Shares it is then so prohibited from repurchasing.
(d) For purposes of this Section 7, a Repurchase Event shall
be deemed to have occurred (i) upon the consummation of any merger,
consolidation or similar transaction involving Issuer or any purchase, lease or
other acquisition of all or a substantial portion of the assets of Issuer or
(ii) upon the acquisition by any person of beneficial ownership of 50% or more
of the then outstanding shares of Common Stock, provided that no such event
shall constitute a Repurchase Event unless a Subsequent Triggering Event shall
have occurred prior to an Exercise Termination Event. The parties hereto agree
that Issuer's obligations to repurchase the Option or Option Shares under this
Section 7 shall not terminate upon the occurrence of an Exercise Termination
Event unless no Subsequent Triggering Event shall have occurred prior to the
occurrence of an Exercise Termination Event.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or one of its Subsidiaries, and shall not be the continuing
or surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee or one of its Subsidiaries, to merge into Issuer and
Issuer shall be the continuing or surviving corporation, but, in with such
merger, the then outstanding shares of Common Stock shall into or exchanged for
stock or other securities of any other person any other property or the then
outstanding shares of Common Stock shall after such merger represent less than
50% of the outstanding voting shares and voting share equivalents of the merged
company, or (iii) to sell or otherwise transfer all or substantially all of its
assets to any person, other than Grantee or one of its Subsidiaries, then, and
in each such case, the agreement governing such transaction shall make proper
provision so that the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be converted
into, or exchanged for, an Option (the "Substitute Option"), at the election of
the Holder, of either (x) the Acquiring Corporation (as hereinafter defined) or
(y) any person that controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the
continuing or surviving corporation of a consolidation or merger with Issuer (if
other than Issuer), (ii) Issuer in a merger
CORPDAL:59868.4 22768-00022
8
<PAGE>
in which Issuer is the continuing or surviving person, and (iii) the transferee
of all or substantially all of Issuer's assets.
(2) "Substitute Common Stock" shall mean the
common stock issued by the issuer of the Substitute Option upon exercise of the
Substitute Option.
(3) "Assigned Value" shall mean the Market/Offer
Price, as defined in Section 7.
(4) "Average Price" shall mean the average
closing price of a share of the Substitute Common Stock for the one year
immediately preceding the consolidation, merger or sale in question, but in no
event higher than the closing price of the shares of Substitute Common Stock on
the day preceding such consolidation, merger or sale; provided that if Issuer is
the issuer of the Substitute Option, the Average Price shall be computed with
respect to a share of common stock issued by the person merging into Issuer or
by any company which controls or is controlled by such person, as the Holder may
elect.
(c) The Substitute Option shall have the same terms as the
Option, provided, that if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as possible
and in no event less advantageous to the Holder. The issuer of the Substitute
Option shall also enter into an agreement with the then Holder or Holders of the
Substitute Option in substantially the same form as this Agreement, which shall
be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number
of shares of Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall then be equal to the Option
Price multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock for which the Option is then exercisable and the
denominator of which shall be the number of shares of Substitute Common Stock
for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs,
shall the Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than 19.9%
of the shares of Substitute Common Stock outstanding prior to exercise but for
this clause (e), the issuer of the Substitute Option (the "Substitute Option
Issuer") shall make a cash payment to Holder equal to the excess of (i) the
value of the Substitute Option without giving effect to the limitation in this
clause (e) over (ii) the value of the Substitute Option after giving effect to
the limitation in this clause (e). This difference in value shall be determined
by a nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be, and reasonably acceptable to the Acquiring
Corporation.
CORPDAL:59868.4 22768-00022
9
<PAGE>
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any person
that controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the Substitute Option Issuer shall repurchase the
Substitute Option from the Substitute Option Holder at a price (the "Substitute
Option Repurchase Price") equal to (x) the amount by which (i) the Highest
Closing Price (as hereinafter defined) exceeds (ii) the exercise price of the
Substitute Option, multiplied by the number of shares of Substitute Common Stock
for which the Substitute Option may then be exercised plus (y) Grantee's
reasonable out-of-pocket expenses (to the extent not previously reimbursed), and
at the request of the owner (the "Substitute Share Owner") of shares of
Substitute Common Stock (the "Substitute Shares"), the Substitute Option Issuer
shall repurchase the Substitute Shares at a price (the "Substitute Share
Repurchase Price") equal to (x) the Highest Closing Price multiplied by the
number of Substitute Shares so designated plus (y) Grantee's reasonable
out-of-pocket expenses (to the extent not previously reimbursed). The term
"Highest Closing Price" shall mean the highest closing price for shares of
Substitute Common Stock within the six-month period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share
Owner, as the case may be, may exercise its respective right to require the
Substitute Option Issuer to repurchase the Substitute Option and the Substitute
Shares pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Issuer, at its principal office, the agreement for such
Substitute Option (or, in the absence of such an agreement, a copy of this
Agreement) and certificates for Substitute Shares accompanied by a written
notice or notices stating that the Substitute Option Holder or the Substitute
Share Owner, as the case may be, elects to require the Substitute Option Issuer
to repurchase the Substitute Option and/or the Substitute Shares in accordance
with the provisions of this Section 9. As promptly as practicable, and in any
event within five business days after the surrender of the Substitute Option
and/or certificates representing Substitute Shares and the receipt of such
notice or notices relating thereto, the Substitute Option Issuer shall deliver
or cause to be delivered to the Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute Share
Repurchase Price therefor or, in either case, the portion thereof which the
Substitute Option Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is
prohibited under applicable law or regulation from repurchasing the Substitute
Option and/or the Substitute Shares in part or in full, the Substitute Option
Issuer following a request for repurchase pursuant to this Section 9 shall
immediately so notify the Substitute Option Holder and/or the Substitute Share
Owner and thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
portion of the Substitute Share Repurchase Price, respectively, which it is no
longer prohibited from delivering, within five business days after the date on
which the Substitute Option Issuer is no longer so prohibited; provided,
however, that if the Substitute Option Issuer is at any time after delivery of a
notice of repurchase pursuant
CORPDAL:59868.4 22768-00022
10
<PAGE>
to subsection (b) of this Section 9 prohibited under applicable law or
regulation from delivering to the Substitute Option Holder and/or the Substitute
Share Owner, as appropriate, the Substitute Option Repurchase Price and the
Substitute Share Repurchase Price, respectively, in full (and the Substitute
Option Issuer shall use its best efforts to receive all required regulatory and
legal approvals as promptly as practicable in order to accomplish such
repurchase), the Substitute Option Holder or Substitute Share Owner may revoke
its notice of repurchase of the Substitute Option or the Substitute Shares
either in whole or to the extent of the prohibition, whereupon, in the latter
case, the Substitute Option Issuer shall promptly (i) deliver to the Substitute
Option Holder or Substitute Share Owner, as appropriate, that portion of the
Substitute Option Repurchase Price or the Substitute Share Repurchase Price that
the Substitute Option Issuer is not prohibited from delivering; and (ii)
deliver, as appropriate, either (A) to the Substitute Option Holder, a new
Substitute Option evidencing the right of the Substitute Option Holder to
purchase that number of shares of the Substitute Common Stock obtained by
multiplying the number of shares of the Substitute Common Stock for which the
surrendered Substitute Option was exercisable at the time of delivery of the
notice of repurchase by a fraction, the numerator of which is the Substitute
Option Repurchase Price less the portion thereof theretofore delivered to the
Substitute Option Holder and the denominator of which is the Substitute Option
Repurchase Price, or (B) to the Substitute Share Owner, a certificate for the
Substitute Common Shares it is then so prohibited from repurchasing.
10. The 90-day period for exercise of certain rights under Sections 2,
6, 7, 9 and 13 shall be extended: (i) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights, and for the expiration of
all statutory waiting periods; and (ii) to the extent necessary to avoid
liability under Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer, and constitutes a legal and binding agreement,
enforceable against Issuer in accordance with its terms.
(b) Issuer has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all times from the date
hereof through the termination of this Agreement in accordance with its terms
will have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock at
any time and from time to time issuable hereunder, and all such shares, upon
issuance pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
12. Grantee hereby represents and warrants to Issuer that:
CORPDAL:59868.4 22768-00022
11
<PAGE>
(a) Grantee has all requisite corporate power and authority to
enter into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Grantee. This Agreement has been duly executed and delivered by Grantee, and
constitutes a legal and binding agreement, enforceable against Grantee in
accordance with its terms.
(b) The Option is not being, and any shares of Common Stock or
other securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the Securities Act.
13. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to any
other person, without the express written consent of the other party, except
that in the event a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Grantee, subject to the express provisions hereof,
may assign in whole or in part its rights and obligations hereunder within 90
days following such Subsequent Triggering Event (or such later period as
provided in Section 10).
14. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including without limitation making application to list the
shares of Common Stock issuable hereunder on the Nasdaq Stock Market upon
official notice of issuance.
15. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief.
16. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section l(a) hereof (as adjusted pursuant to Section l(b) or 5
hereof), it is the express intention of Issuer to allow the Holder to acquire or
to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
17. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement.
CORPDAL:59868.4 22768-00022
12
<PAGE>
18. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
19. This Agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
20. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
21. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors except as
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
22. Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned thereto in the Merger Agreement.
CORPDAL:59868.4 22768-00022
13
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
CORPDAL:59868.4 22768-00022
14
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
COMPRESSION LABS, INC.
By: /s/Thomas Gary Trimm
Name: Thomas Gary Trimm
Title: President and Chief Executive Officer
VTEL CORPORATION
By: /s/F.H.(Dick)Moeller
Name: F.H.(Dick)Moeller
Title: Chairman and Chief Executive Officer
CORPDAL:59868.4 22768-00022
15