SCHEDULE 14A INFORMATION
Amendment No. 3 to
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
FORGENT NETWORKS, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
NOT APPLICABLE
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(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
* Set forth the amount on which the filing fee is calculated and state
how it was determined.
[X] Fee paid previously by written preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $920*
2) Form, Schedule or Registration Statement No.: Preliminary Schedule 14A
3) Filing Party: Forgent Networks, Inc.
4) Date Filed: January 21, 2003
* Filing fee was calculated by multiplying .000092 by the proposed
cash payment to be received by the registrant. The proposed cash payment to be
received by the registrant is approximately $10,000,000.00.
FORGENT NETWORKS, INC.
108 WILD BASIN ROAD
AUSTIN, TX 78746
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD , 2003
Dear Stockholder:
You are cordially invited to attend the 2002 annual meeting of stockholders
of Forgent Networks, Inc., to be held at 108 Wild Basin Road, Austin, Texas, on
, 2003, at local time.
At the annual meeting, you will be asked to act on the following matters:
1. To elect six directors to the board of directors to hold office
until the next annual meeting of stockholders or until their respective
successors are duly elected and qualified;
2. To approve the sale of substantially all of the assets used in the
operation of our videoconferencing services business, pursuant to an asset
purchase agreement between our company, GTG Holdings, Inc. and VidCon
Holding Corp., a wholly-owned subsidiary of GTG Holdings, Inc. Pursuant to
the terms of the asset purchase agreement, VidCon will pay us approximately
$16,000,000, consisting of $8,000,000 in cash, which may be adjusted
downward if any purchase price adjustments are required, and the assumption
of substantially all of the liabilities associated with our
videoconferencing services business, which as of the date of this proxy
statement are estimated at approximately $8,000,000, but they may vary
between now and the closing date. In addition, VidCon is required to place
an additional $2,000,000 of cash in escrow. These escrowed funds are to be
distributed to us in the future pursuant to the terms of the asset purchase
agreement, less an amount of cash equaling (i) purchase price adjustments
required if the net assets transferred by us to VidCon on the closing date
are less than $3,800,000 and/or the deferred revenue assumed by VidCon on
the closing date is greater than $7,600,000, and (ii) indemnity claims
payable by us. Details of this transaction and other important information
are set forth in the accompanying proxy statement which you are urged to
read carefully;
3. To ratify the board of directors' appointment of Ernst & Young LLP,
independent accountants, as our independent auditors for the year ending
July 31, 2003;
4. To approve an adjournment or postponement of the annual meeting, in
order to solicit additional proxies, to such time and place as designated
by the presiding officer of the meeting; and
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS THAT AN
AFFIRMATIVE VOTE BE CAST IN FAVOR OF EACH OF THE PROPOSALS LISTED IN THE PROXY
CARD.
Only holders of record of common stock at the close of business on May 22,
2003, will be entitled to notice of and to vote at the annual meeting or any
adjournment thereof.
Stockholders are urged to review carefully the information contained in the
proxy statement attached hereto prior to deciding how to vote their shares at
the annual meeting. Because of the significance of the sale of our
videoconferencing services business, your participation in the annual meeting,
in person or by proxy, is especially important. We hope you will be able to
attend the annual meeting. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING,
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY. If you
attend the annual meeting, you may revoke your proxy and vote in person if you
wish, even if you have previously returned your proxy card. Simply attending the
annual meeting, however, will not revoke your proxy; you must vote at the annual
meeting. If you do not attend the annual meeting, you may still revoke your
proxy at any time prior to the annual meeting by providing a later dated proxy
or by providing written notice of your revocation to the Secretary of our
company. Your prompt cooperation will be greatly appreciated.
Sincerely,
RICHARD N. SNYDER
Chief Executive Officer
THIS PROXY STATEMENT IS DATED , 2003 AND IS FIRST BEING MAILED TO
STOCKHOLDERS ON OR ABOUT , 2003.
FORGENT NETWORKS, INC.
108 WILD BASIN ROAD
AUSTIN, TX 78746
PROXY STATEMENT
FOR 2002 ANNUAL MEETING OF STOCKHOLDERS
, 2003
The enclosed form of proxy is solicited by the board of directors to be
used at the 2002 annual meeting of stockholders to be held at 108 Wild Basin
Road, Austin, Texas, on , 2003, at local time.
We will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to you. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of our common stock beneficially owned
by others to forward to such beneficial owners. We may reimburse persons
representing beneficial owners of common stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by our directors, officers or other regular employees. No
additional compensation will be paid to directors, officers or other regular
employees for such services. In addition to the proxy solicitation material
mailed to stockholders, we have also retained the services of Mellon Investor
Services LLC to assist in the solicitation of proxies for a fee estimated at
$9,500.
VOTING SECURITIES OUTSTANDING; QUORUM
The record date for the determination of stockholders entitled to notice of
and vote at the annual meeting was the close of business on May 22, 2003. At the
close of business on May 22, 2003, there were 24,578,758 shares of our common
stock, $.01 par value, issued and outstanding, each entitled to one vote on all
matters properly brought before the annual meeting. There are no cumulative
voting rights.
The presence in person or by proxy of the holders of a majority of the
issued and outstanding shares of common stock entitled to vote as of the record
date is necessary to constitute a quorum at the annual meeting. Abstentions and
broker non-votes are treated as present at the meeting and are therefore counted
to determine a quorum. If a quorum is not present, the stockholders entitled to
vote who are present in person or represented by proxy at the annual meeting
have the power to adjourn the meeting from time to time, without notice other
than an adjournment at the meeting, until a quorum is present or represented. At
any adjourned meeting at which a quorum is present, any business may be
transacted that might have been transacted at the annual meeting as originally
notified.
Directors are elected by a plurality of the votes of the shares present in
person or represented by proxy at the annual meeting and entitled to vote on the
election of directors. The sale of our videoconferencing services business must
be approved by the holders of a majority of all the outstanding shares of common
stock on the record date, whether or not present or represented by proxy at the
annual meeting. The ratification of the appointment of independent auditors and
the approval of an adjournment or postponement of the annual meeting in order to
solicit additional proxies must be approved by holders of a majority of the
shares of common stock present in person or represented by proxy at the annual
meeting and entitled to vote thereon.
Abstentions may be specified on all proposals except the election of
directors. Abstentions, with respect to any proposal other than the election of
directors, will have the same effect as a vote against such proposal. Broker
non-votes will have no effect on the outcome of the election of directors, the
ratification of independent auditors or the approval of an adjournment or
postponement of the annual meeting in order to solicit additional proxies. With
regard to the election of directors, votes may be cast in favor of or withheld
from each nominee; votes that are withheld will be excluded entirely from the
vote and will have no effect. Since the Delaware General Corporation Law
requires the affirmative vote of the holders of a majority of the outstanding
shares of common stock entitled to vote on the proposal to approve the sale of
our videoconferencing services business, a "broker non-vote" on such proposal
will have the same effect as a vote against the approval of the sale of our
videoconferencing services business.
TABLE OF CONTENTS
PAGE
----
SUMMARY TERM SHEET OF THE SALE OF SUBSTANTIALLY ALL OF THE
ASSETS USED IN THE OPERATION OF OUR VIDEOCONFERENCING
SERVICES BUSINESS......................................... 1
QUESTIONS AND ANSWERS ABOUT THE 2002 ANNUAL MEETING......... 5
THE ANNUAL MEETING OF STOCKHOLDERS.......................... 9
Time and Place............................................ 9
Purposes.................................................. 9
Record Date; Stockholders Entitled to Vote................ 9
Quorum.................................................... 9
Vote Required............................................. 9
Board Recommendation...................................... 10
Voting Your Shares........................................ 10
Changing Your Vote by Revoking Your Proxy................. 10
How Proxies are Counted................................... 10
Cost of Solicitation...................................... 10
ELECTION OF DIRECTORS (ITEM 1).............................. 10
BOARD OF DIRECTORS AND COMMITTEES........................... 12
Audit Committee........................................... 12
Compensation Committee.................................... 12
Nominating Committee...................................... 12
Executive Committee....................................... 13
Director Compensation..................................... 13
Report of the Audit Committee............................. 13
Fees...................................................... 14
Report From the Compensation Committee Regarding Executive
Compensation........................................... 15
EXECUTIVE COMPENSATION...................................... 19
Stock Option Grants During Fiscal 2002.................... 20
Aggregated Stock Option/SAR Exercises During Fiscal 2002
and Stock Option/SAR Values as of July 31, 2002........ 21
Compensation Committee Interlocks and Insider
Participation.......................................... 21
Certain Transactions...................................... 22
Employment Contracts; Termination of Employment and Change
in Control Agreements.................................. 23
COMPARATIVE TOTAL RETURNS................................... 24
Performance Graph......................................... 24
PROPOSAL TO SELL SUBSTANTIALLY ALL OF THE ASSETS USED IN THE
OPERATION OF OUR VIDEOCONFERENCING SERVICES BUSINESS (ITEM
2)........................................................ 25
The Companies............................................. 25
Background of the Sale of Our Videoconferencing Services
Business............................................... 26
Reasons for the Sale of Our Videoconferencing Services
Business............................................... 29
Recommendation of the Board of Directors.................. 31
Opinion of Our Financial Advisor.......................... 31
Fairness Opinion Analyses................................. 34
Proceeds of the Sale of Our Videoconferencing Services
Business............................................... 40
i
PAGE
----
Stockholder Approval of the Sale of Our Videoconferencing
Services Business; Vote Required....................... 40
No Changes to the Rights of Security Holders; No Appraisal
Rights................................................. 40
Regulatory Matters........................................ 40
Accounting Treatment...................................... 40
Material United States Federal Income Tax Consequences.... 40
Voting by Our Directors and Executive Officers............ 41
Interests of Management, Directors and Significant
Stockholders in the Sale of Our Videoconferencing
Services Business...................................... 41
Our Operations Following the Sale of Our Videoconferencing
Services Business...................................... 42
Special Considerations You Should Take into Account in
Deciding How to Vote on the Proposal to Sell Our
Videoconferencing Services Business.................... 42
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING
INFORMATION............................................... 47
THE ASSET PURCHASE AGREEMENT................................ 48
Assets Sold............................................... 48
Assets Retained........................................... 48
Assumed Liabilities....................................... 49
Closing Date.............................................. 49
Consideration............................................. 49
Representations and Warranties............................ 51
Covenants................................................. 52
Conditions to Completion of Asset Purchase................ 53
Termination of the Asset Purchase Agreement............... 54
Termination Fee........................................... 54
Indemnification........................................... 55
Noncompetition and Nonsolicitation Agreements............. 56
Expenses.................................................. 56
Amendment................................................. 56
Additional Agreements Related to the Asset Purchase
Agreement.............................................. 56
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA............. 58
UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA................ 59
RATIFICATION OF APPOINTMENT OF AUDITORS (ITEM 3)............ 65
ADJOURNMENT OR POSTPONEMENT OF THE ANNUAL MEETING (ITEM
4)........................................................ 65
OTHER MATTERS............................................... 65
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 66
Section 16(a) Beneficial Ownership Reporting Compliance... 67
STOCKHOLDER PROPOSALS....................................... 67
WHERE YOU CAN FIND MORE INFORMATION......................... 68
Annexes
Annex A -- Asset Purchase Agreement......................... A-1
Annex B -- Fairness Opinion of Raymond James & Associates,
Inc....................................................... B-1
ii
SUMMARY TERM SHEET OF THE SALE OF
SUBSTANTIALLY ALL OF THE ASSETS USED
IN THE OPERATION OF OUR VIDEOCONFERENCING SERVICES BUSINESS
The following summary briefly describes the material terms of the proposed
sale of substantially all of the assets used in our videoconferencing services
business to VidCon Holding Corp., a wholly-owned subsidiary of GTG Holdings,
Inc. Subsequent to the execution of the asset purchase agreement VidCon changed
its name to Pierce Technology Services, Inc. References in this proxy statement
to "VidCon" refer to Pierce Technology Services, Inc. f/k/a VidCon Holding Corp.
This summary does not contain all the information that may be important for you
to consider when evaluating the proposed transaction. We encourage you to read
this proxy statement before voting.
Pursuant to an asset purchase agreement, we will sell and transfer to
VidCon, substantially all of the assets used in the operation of our
videoconferencing services business, which services multiple vendors'
videoconferencing related products.
REASONS FOR THE SALE OF OUR VIDEOCONFERENCING SERVICES BUSINESS (SEE PAGE 29)
We are proposing to sell our videoconferencing services business to VidCon
because we believe that the sale and the terms of the related asset purchase
agreement are in the best interests of our company and our stockholders. The
board of directors has identified various benefits that are likely to result
from the sale of our videoconferencing services business. The board of directors
believes the sale of that business will:
- allow us to devote substantially all of our energies and resources to
development of our enterprise software and technology licensing business,
thereby focusing on licensing versus service contracts, professional
services versus break/fix repairs and enterprise software offerings
versus endpoint device repair;
- provide an improved organizational focus and free up senior management
from having to oversee a remote business unit;
- allow us to direct our focus to the potentially better overall returns
from our enterprise software and technology licensing business, by
reducing our expenses and increasing our cash balances;
- allow us to have simplified financial statements by reducing the deferred
revenue associated with the videoconferencing services business; and
- allow us to increase our cash reserves from $18,250,000 at January 31,
2003, by the amount of cash we receive in this transaction and thereby
provide us with a greater ability to pursue acquisitions and withstand
business and economic slowdowns. The amount of cash we receive will vary,
depending on some future contingencies, and is described on page 2 under
"What We Will Receive" and on pages 49 through 51.
These and other reasons for approving and recommending the sale of our
videoconferencing services business are discussed further in this document.
PROCEEDS FROM THE SALE OF OUR VIDEOCONFERENCING SERVICES BUSINESS (SEE PAGE 40)
Our company will retain the proceeds of the sale of our videoconferencing
services business. We do not intend to distribute any of the proceeds to our
stockholders, but will use the proceeds, along with our other cash and cash
equivalents, in connection with our future business plan.
TERMS OF THE ASSET PURCHASE AGREEMENT (SEE PAGE 48)
WHAT WE WILL RECEIVE (SEE PAGES 49 THROUGH 51)
VidCon will pay us approximately $16,000,000 for the assets of our
videoconferencing services business, consisting of $8,000,000 in cash, which may
be adjusted downward if any purchase price
adjustments are required, and the assumption of substantially all of the
liabilities associated with our videoconferencing services business, which as of
the date of this proxy statement are estimated at approximately $8,000,000, but
they may vary between now and the closing date. In addition, VidCon is required
to place an additional $2,000,000 in escrow to cover potential purchase price
adjustments and indemnity claims payable by us arising under the asset purchase
agreement. The escrowed funds will be distributed to us, less any purchase price
adjustments and indemnity claims payable by us, as follows:
- $1,000,000 of the escrowed funds will generally be payable to us 120 days
after the closing pursuant to the terms of the escrow agreement, less an
amount equal to any purchase price adjustments pursuant to the terms of
the asset purchase agreement; and
- $1,000,000 of the escrowed funds will generally be payable to us 18
months after the closing pursuant to the terms of the escrow agreement,
less an amount equal to any indemnity claims by GTG Holdings or VidCon
pursuant to the terms of the asset purchase agreement.
While $2,000,000 is to be escrowed by VidCon and is to be distributed to
us, we may not receive the escrowed funds, or the amount we actually receive may
be less than the amount escrowed. In assessing the escrow provisions, the board
did not apply a discount for the time value of money or a discount to take into
account the potential risk of nonpayment in determining to approve this
transaction. See "Reasons for the Sale of Our Videoconferencing Services
Business" on pages 29 through 31.
A purchase price adjustment will occur if the net assets transferred to
VidCon on the closing date are less than $3,800,000 and/or the deferred revenue
assumed by VidCon on the closing date is greater than $7,600,000. An indemnity
claim will occur if VidCon or GTG Holdings suffers losses arising from or
resulting from our breaches of representations, warranties or covenants in the
asset purchase agreement or from liabilities and obligations that VidCon has not
assumed.
The initial purchase price adjustment will be made to the $8,000,000 that
we are to receive at closing, based upon our good faith estimate to be delivered
five days prior to the closing of the amount of net assets to be transferred to
VidCon and the amount of deferred revenue being assumed by VidCon on the closing
date. The asset purchase agreement provides for a post-closing reconciliation of
any pre-closing purchase price adjustments.
The purchase price adjustment escrow will be used to pay for purchase price
adjustments that have not been accounted for in any adjustment to the $8,000,000
of cash we are to receive at closing. The indemnity claim escrow will be used to
pay for the indemnifiable losses of VidCon or GTG Holdings described above. We
are required to pay any purchase price adjustments and indemnity claims that are
in excess of these escrowed amounts. To the extent that the purchase price
adjustments and the indemnity claims exceed the amounts specifically escrowed
for them, the cash we ultimately receive in this transaction would be less than
$8,000,000. As of the date of this proxy statement, we do not anticipate that
there will be any purchase price adjustments or indemnity claims. Our belief
that there will not be any purchase price adjustments is based on our review of
the most recent information available to us which indicates that neither of the
thresholds that would result in the occurrence of a purchase price adjustment
will be breached. Our belief that there will not be any indemnity claims payable
by us is based on our active negotiation of the representations and warranties
in the asset purchase agreement, our review of the representations and
warranties made by us and our related investigations to ascertain the accuracy
of these representations and warranties, together with the fact that we are not
liable for indemnity claims until the aggregate of all such claims exceeds
$150,000. Because future events are at times difficult to foresee, however, we
can give no assurances that either or both of these adjustments will not occur.
On May 6, 2003, we entered into an amendment to the asset purchase
agreement to extend the deadline for closing the transaction from May 31, 2003
to June 30, 2003. In this amendment we agreed to pay an extension fee equal to
$13,333.33 per day for each day that the closing occurs subsequent to May 31,
2003. If the closing occurs on June , 2003, the day of the annual meeting,
this fee will equal $ . This fee is payable on closing and will reduce the
net amount of cash that we receive in this transaction. The board of directors
felt that it was appropriate to agree to this extension fee in light of the
2
fact that VidCon and GTG Holdings could have terminated the asset purchase
agreement on May 31, 2003, if we had not agreed to the extension and in light of
the significant time and expense the company has already invested in this
transaction.
The company believes that the source of the cash that VidCon will use to
pay the cash consideration will be from VidCon's and/or GTG Holdings' internal
sources. VidCon and GTG Holdings have represented to us that they have the
financial capability, in the ordinary course of business and without seeking any
additional third party financing, to fulfill their commitments under the asset
purchase agreement.
WHAT IS BEING SOLD (SEE PAGE 48)
We are selling to VidCon substantially all of the assets used in the
operation of our videoconferencing services business, which services multiple
vendors' videoconferencing related products. Our videoconferencing services
business provides maintenance services, technical support, resident engineers,
total call management and training for videoconferencing equipment.
WHAT IS BEING RETAINED (SEE PAGE 48 AND PAGE 49)
We are retaining certain assets, including the following assets:
- any cash, cash equivalents or marketable securities;
- any contract or agreement relating to the videoconferencing services
business that is specifically excluded or which cannot be assigned
because we have been unable to obtain the necessary consent prior to or
after the closing of the asset purchase agreement;
- general books of account and books of original entry that comprise our's
or the videoconferencing services business' permanent accounting or tax
records and books and records that we are required to retain pursuant to
law;
- any of our software that we are unwilling or unable to transfer and that
is specifically listed out in the asset purchase agreement schedules;
- all patents, patent applications and related intellectual property owned
by us or our subsidiaries;
- the trade name "Forgent" and any of our trademarks and service and trade
names; and
- the real property leases for our offices in King of Prussia, Pennsylvania
and Austin, Texas.
ASSUMED LIABILITIES (SEE PAGE 49)
As partial consideration for the purchase of the assets, VidCon will assume
certain liabilities related to our videoconferencing services business,
including:
- all liabilities set forth on our closing statement related to the
videoconferencing services business, including trade and other accounts
payable, items received but not invoiced, accrued expenses and deferred
revenue of the videoconferencing services business;
- all obligations to customers after the closing date of the asset purchase
agreement arising from the operation of the videoconferencing services
business on or prior to the closing date, but not including any
liabilities for any breach of such obligations by us or liabilities in
excess of those which are required to be set forth on our closing
statement for future performance of the obligations to customers; and
- all liabilities, obligations and commitments incurred in the operation of
our videoconferencing services business after the closing date of the
asset purchase agreement and arising out of the contracts assumed by
VidCon, but not including any liabilities for any breach of such
obligations by us or liabilities in excess of the deferred revenue
required to be set forth on our closing statement,
3
estimated at approximately $6,000,000 as of the date of this proxy
statement, but they may vary between now and the closing date.
As of the date of this proxy statement, the total liabilities associated
with our videoconferencing services business are estimated at approximately
$8,000,000, but they may vary between now and the closing date.
CONDITIONS TO COMPLETION OF ASSET PURCHASE (SEE PAGE 53)
Each party's obligation to complete the sale of our videoconferencing
services business is subject to the prior satisfaction or waiver of certain
conditions. If any of the closing conditions are waived, we will consider the
facts and circumstances at that time and make a determination as to whether a
resolicitation of proxies from our stockholders is appropriate. No determination
can be made at this time as to which, if any, of the closing conditions are
likely to be waived by us or VidCon. The following list sets forth the material
conditions that have not yet been satisfied and therefore must be satisfied or
waived before completion of the sale of our videoconferencing services business:
- all parties must obtain certain required consents or approvals to the
assignment of specified material contracts by us to VidCon;
- we must obtain approval by our stockholders of the sale; and
- there must not be any events or conditions that have or could have a
material adverse effect on our videoconferencing services business or the
assets related to that business.
Each party's obligations are also subject to other customary closing
conditions.
ADDITIONAL AGREEMENTS RELATED TO THE ASSET PURCHASE AGREEMENT (SEE PAGE 56 AND
PAGE 57)
In conjunction with the closing of the sale of our videoconferencing
services business, we will enter into a transition services agreement whereby we
will provide, for a fee at actual cost, certain transition services for VidCon
related to the assets acquired and liabilities assumed. We will also enter into
a reseller agreement, whereby VidCon will be able to resell our software
products and a co-marketing arrangement, whereby we will receive a commission
for referring videoconferencing related service business to VidCon.
We will also enter into an escrow agreement at closing with GTG Holdings,
VidCon and an escrow agent whereby $2,000,000 will be placed with the escrow
agent by VidCon, $1,000,000 of which is for potential purchase price adjustments
and $1,000,000 of which is for potential indemnity claims, as described above on
page 2 under "What We Will Receive."
Since we are retaining the lease for the King of Prussia, Pennsylvania
facility where the videoconferencing services business is located, we have
agreed to sublease a portion of that facility to VidCon after the closing of the
asset purchase agreement.
4
QUESTIONS AND ANSWERS ABOUT THE 2002 ANNUAL MEETING
Q: WHAT IS THE PROPOSAL RELATING TO THE ELECTION OF DIRECTORS THAT I WILL BE
VOTING ON AT THE ANNUAL MEETING?
A: You will be asked to consider and vote upon a proposal to elect the following
individuals to the board of directors: Richard N. Snyder, Kathleen A. Cote,
James H. Wells, Lou Mazzucchelli, Richard J. Agnich and Raymond Miles.
Q: WHAT IS THE PROPOSAL RELATING TO THE SALE OF OUR VIDEOCONFERENCING SERVICES
BUSINESS THAT I WILL BE VOTING ON AT THE ANNUAL MEETING?
A: You will be asked to consider and vote upon a proposal to approve the sale by
us of substantially all of the assets used in the operation of our
videoconferencing services business pursuant to the asset purchase agreement,
dated January 6, 2003, between our company, GTG Holdings and VidCon, a
wholly-owned subsidiary of GTG Holdings. The asset purchase agreement is
attached to this proxy statement as Annex A.
Q: WHY IS OUR COMPANY PROPOSING TO SELL ITS VIDEOCONFERENCING SERVICES BUSINESS?
A: We are proposing to sell our videoconferencing services business because we
believe the sale will allow us to devote substantially all of our energies
and resources to development of our enterprise software and technology
licensing business, thereby focusing on licensing versus service contracts,
professional services versus break/fix repairs and enterprise software
offerings versus endpoint device repair; provide an improved organizational
focus and free up senior management from having to oversee a remote business
unit; direct our focus to the potentially better overall returns from our
enterprise software and technology licensing business, by reducing our
expenses and increasing our cash balances; have simplified financial
statements by reducing the deferred revenue associated with the
videoconferencing services business; and increase our cash reserves from
$18,250,000 at January 31, 2003, by the amount of cash we receive in this
transaction and thereby provide us with a greater ability to pursue
acquisitions and withstand business and economic slowdowns. The amount of
cash we receive in this transaction will vary, pending on some future
contingencies, and is described on page 2 under "What We Will Receive" and on
pages 49 through 51.
Q: WHAT IS THE PROPOSAL RELATING TO THE RATIFICATION OF THE BOARD OF DIRECTORS'
APPOINTMENT OF INDEPENDENT ACCOUNTANTS THAT I WILL BE VOTING ON AT THE ANNUAL
MEETING?
A: You will be voting to ratify the board of directors' appointment of Ernst &
Young LLP, independent accountants, as our independent auditors for the year
ending July 31, 2003.
Q: WHAT IS THE PROPOSAL RELATING TO THE APPROVAL OF AN ADJOURNMENT OR
POSTPONEMENT OF THE ANNUAL MEETING, IN ORDER TO SOLICIT ADDITIONAL PROXIES,
TO SUCH TIME AND PLACE AS DESIGNATED BY THE PRESIDING OFFICER OF THE MEETING?
A: You will be voting on whether to grant authority to adjourn or postpone the
annual meeting, in order to solicit additional proxies, to a later time.
Q: WILL ANY OF THE PROCEEDS FROM THE SALE OF THE VIDEOCONFERENCING SERVICES
BUSINESS BE DISTRIBUTED TO ME AS A STOCKHOLDER?
A: No. We intend to retain the proceeds and use them in connection with our
future business plan.
Q: WHO IS SOLICITING MY PROXY?
A: Your board of directors.
Q: HOW DOES THE BOARD RECOMMEND THAT I VOTE ON THE MATTERS PROPOSED?
A: Your board unanimously recommends that stockholders vote "FOR" each of the
proposals submitted at the annual meeting.
5
Q: DID WE RECEIVE A REPORT FROM A FINANCIAL ADVISOR CONCERNING THE TRANSACTION
AND ARE THERE ANY IMPORTANT ASPECTS OF THE PROCESS OF OBTAINING THAT REPORT
AND CONCLUSIONS IN THE REPORT THAT YOU SHOULD CONSIDER IN REFERRING TO THE
OPINION OF OUR FINANCIAL ADVISOR?
A: Yes. In arriving at its determination that the sale of our videoconferencing
services business is fair to, and in the best interests of our company, the
board has considered a number of factors, including a fairness opinion of our
financial advisor, Raymond James & Associates, Inc. There were, however, some
important aspects associated with the process of obtaining the report and
conclusions in the report that you should consider when considering the
opinion of Raymond James & Associates, Inc., as follows:
- In rendering its opinion, Raymond James & Associates, Inc. did not
independently review or appraise the valuation of the liabilities to be
assumed by VidCon, and accepted our management's valuation without any
review of those liabilities, which liabilities represented a majority of
the consideration that Raymond James & Associates, Inc. assumed would be
received by us in this transaction.
- In rendering its opinion, Raymond James & Associates, Inc. assumed
$11,200,000 of liabilities would be assumed in the purchase, while as of
the date of this proxy statement the total liabilities associated with our
videoconferencing services business are estimated at approximately
$8,000,000. See "Special Considerations You Should Take into Account in
Deciding How to Vote on the Proposal to Sell Our Videoconferencing Services
Business -- The fairness opinion does not address changes in the value of
the liabilities to be assumed since the date of the opinion" on page 44.
- In rendering its opinion, Raymond James & Associates, Inc. assumed that we
will receive $10,000,000 in cash, while the terms of the asset purchase
agreement call for us to receive $8,000,000 in cash at closing and an
additional $2,000,000 as contingent consideration, subject to the existence
of purchase price adjustments and indemnity claims.
- In rendering its opinion, Raymond James & Associates, Inc. did not adjust
the $2,000,000 of contingent consideration to account for the time value of
money or the possibility that these additional amounts will not get paid.
- In analyzing the fairness of the transaction, many of the valuations
derived from the analyses used by Raymond James & Associates, Inc. exceeded
the aggregate consideration to be received by us in the asset sale.
- The great bulk of Raymond James & Associates, Inc.'s consideration in this
transaction will not be paid unless this transaction is consummated.
For a full description of the opinion letter that we received from Raymond
James & Associates, Inc., see the section titled "Opinion of Our Financial
Advisor" on page 31. To review the text of this letter, see Annex B to this
proxy statement.
Q: HAS ANY MATERIAL CHANGE IN THE PURCHASE PRICE OCCURRED SINCE THE TIME THAT
THE ASSET PURCHASE AGREEMENT WAS SIGNED AND, IF SO, HOW DO WE VIEW THAT
CHANGE?
A: Yes. While the cash portion of this transaction has not changed, the amount
of liabilities to be assumed by VidCon has declined meaningfully from
$11,200,000 at the time of signing to approximately $8,000,000 as of the date
of this proxy statement, and these may continue to vary between now and the
closing date. The reduction has resulted because our deferred revenue
obligation, representing our obligation to perform our existing service
contracts, has declined as we have fulfilled those contracts without adding
new contracts to replace them at the same pace. This has reduced the deferred
revenue liability to be assumed by VidCon and, in turn, the purchase price
has declined by this same amount, since fewer liabilities are being assumed.
We do not believe this alters the determination that this transaction is in
our best interests, because we have retained the revenue and income
associated with the performed contracts, and VidCon is buying the business as
it is experiencing declines in bookings of new service contracts.
6
Q: CAN I STILL SELL MY SHARES?
A: Yes. Neither the asset purchase agreement nor the sale of our
videoconferencing services business assets will affect your right to sell or
otherwise transfer your shares of our common stock.
Q: WHAT WILL HAPPEN IF THE SALE OF OUR VIDEOCONFERENCING SERVICES BUSINESS IS
NOT APPROVED?
A: If the sale is not approved, we will not complete the proposed sale, we will
retain and continue to operate the business and continue to pursue other
buyers, however, the market price of our common stock could decline and our
ability to grow and implement our current business strategies could be
substantially limited. In the event that our board withdraws or adversely
modifies its recommendation of this transaction, or we enter into a
transaction to sell the videoconferencing services business within 12 months
of the termination of the asset purchase agreement and prior to the annual
meeting a proposal to acquire our videoconferencing services business had
been communicated to our board or publicly announced and not withdrawn, we
will pay VidCon a termination fee of $500,000.
Q: WHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING?
A: Only holders of record of our common stock as of the close of business on
, 2003 will be entitled to notice of and to vote at the annual
meeting.
Q: WHEN AND WHERE IS THE ANNUAL MEETING?
A: The annual meeting of our stockholders will be held at 108 Wild Basin Road,
Austin, Texas, on , 2003, at local time.
Q: WHERE CAN I VOTE MY SHARES?
A: You can vote your shares where indicated by the instructions set forth on the
proxy card, including by internet or by telephone, or you can attend and vote
your shares at the annual meeting of stockholders of our company to be held
on , 2003 at 108 Wild Basin Road, Austin, Texas.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker may not be permitted to exercise voting discretion with respect
to some of the matters to be acted upon. Thus, if you do not give your broker
or nominee specific instructions, your shares may not be voted on those
matters, and will not be counted in determining the number of shares
necessary for approval. You should follow the directions provided by your
broker regarding how to instruct your broker to vote your shares.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. Just send in a written revocation or a later dated, signed proxy card
before the annual meeting or simply attend the annual meeting and vote in
person. Simply attending the annual meeting, however, will not revoke your
proxy; you must vote at the annual meeting.
Q: WHAT DO I NEED TO DO NOW?
A: PLEASE VOTE YOUR SHARES AS SOON AS POSSIBLE, SO THAT YOUR SHARES MAY BE
REPRESENTED AT THE ANNUAL MEETING. You may vote by signing and dating your
proxy card and mailing it in the enclosed return envelope, or you may vote in
person at the annual meeting. Because a vote of a majority of our outstanding
shares is required to approve the sale of our videoconferencing services
business, your failure to vote is the same as your voting against the sale.
Q: WHAT ARE THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE SALE OF OUR
VIDEOCONFERENCING SERVICES BUSINESS TO THE STOCKHOLDERS?
A: The sale of our videoconferencing services business will not result in any
federal income tax consequences to our stockholders.
Q: WHAT ARE THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE SALE OF THE
VIDEOCONFERENCING SERVICES BUSINESS TO THE COMPANY?
A: The sale of our videoconferencing services business will result in a taxable
gain to the company, however, it is anticipated that our currently available
federal income tax net operating and net capital
7
loss carryforwards are in excess of the estimated amount of the gain. For a
more detailed discussion on the tax consequences see "Material United States
Federal Income Tax Consequences" on pages 40 and 41.
Q: WILL STOCKHOLDERS HAVE APPRAISAL RIGHTS?
A: No. Under Delaware law you will have no appraisal rights as a result of the
sale of our videoconferencing services business.
Q: WHOM SHOULD I CALL IF I HAVE QUESTIONS?
A: If you have questions about any of the proposals on which you are voting, you
may call Jay C. Peterson, our chief financial officer, at 512-437-2700.
8
THE ANNUAL MEETING OF STOCKHOLDERS
This proxy statement is provided in connection with the annual meeting of
stockholders of Forgent Networks, Inc., and any adjournment or postponement of
the meeting. The accompanying proxy is solicited by the board of directors. This
proxy statement and the accompanying form of proxy are first being sent or given
to stockholders beginning on or about , 2003.
TIME AND PLACE
The annual meeting of stockholders of Forgent will be held at 108 Wild
Basin Road, Austin, Texas, on , 2003, at local time.
PURPOSES
At the annual meeting, you will be asked:
- To elect six directors to the board of directors to hold office until the
next annual meeting of stockholders or until their respective successors
are duly elected and qualified;
- To approve the sale of substantially all of the assets used in the
operation of our videoconferencing services business, pursuant to an
asset purchase agreement between our company, GTG Holdings, Inc. and
VidCon Holding Corp., a wholly-owned subsidiary of GTG Holdings, Inc.;
- To ratify the board of directors' appointment of Ernst & Young LLP,
independent accountants, as our independent auditors for the year ending
July 31, 2003;
- To approve an adjournment or postponement of the annual meeting, in order
to solicit additional proxies, to such time and place as designated by
the presiding officer of the meeting; and
- To transact such other business as may properly come before the meeting
or any adjournment thereof.
The board of directors knows of no other matters to be presented for action
at the annual meeting. If any other matters properly come before the annual
meeting, however, the persons named in the proxy will vote on such other matters
in accordance with their best judgment.
RECORD DATE; STOCKHOLDERS ENTITLED TO VOTE
Holders of record of our shares of common stock at the close of business on
May 22, 2003, will be entitled to vote on all matters at the annual meeting.
Each share of common stock will be entitled to one vote. On May 22, 2003, a
total of 24,578,758 shares of common stock were outstanding.
QUORUM
A majority of the voting power of the outstanding shares of common stock
entitled to vote, represented in person or by proxy, will be required to
constitute a quorum for the annual meeting.
VOTE REQUIRED
Directors are elected by a plurality of the votes of the shares present in
person or represented by proxy at the annual meeting and entitled to vote on the
election of directors. The sale of our videoconferencing services business must
be approved by the holders of a majority of all the outstanding shares of common
stock on the record date, whether or not present or represented by proxy at the
annual meeting. The ratification of the appointment of independent auditors and
the approval of an adjournment or postponement of the annual meeting, in order
to solicit additional proxies, must be approved by holders of a majority of the
shares of common stock present in person or represented by proxy at the annual
meeting and entitled to vote thereon.
9
BOARD RECOMMENDATION
The board of directors recommends that an affirmative vote be cast in favor
of each of the proposals listed in the proxy card.
VOTING YOUR SHARES
The board of directors is soliciting proxies from our stockholders. By
completing and returning the accompanying proxy or by completing the telephone
or internet procedures, you will be authorizing Jay C. Peterson and Richard N.
Snyder to vote your shares. If your proxy is properly signed and dated, it will
be voted as you direct. If you attend the annual meeting in person, you may vote
your shares by completing a ballot at the meeting.
CHANGING YOUR VOTE BY REVOKING YOUR PROXY
Your proxy may be revoked at any time before it is voted at the annual
meeting by giving notice of revocation to us, in writing, by execution of a
later dated proxy or by attending and voting at the annual meeting. Simply
attending the annual meeting, however, will not revoke your proxy; you must vote
at the annual meeting.
HOW PROXIES ARE COUNTED
If you return a signed and dated proxy card but do not indicate how your
shares are to be voted, those shares will be voted FOR each of the listed
proposals. Votes cast by proxy or in person at the annual meeting will be
tabulated by the election inspectors appointed for the annual meeting.
Shares voted as abstentions on any matter will be counted for purposes of
determining the presence of a quorum at the annual meeting and treated as
unvoted, although present and entitled to vote, for purposes of determining the
approval of each matter as to which a stockholder has abstained. As a result,
abstentions, with respect to any proposal other than the election of directors,
will have the same effect as a vote against such proposal. If a broker submits a
proxy that indicates the broker does not have discretionary authority as to
certain shares to vote on one or more matters, those shares will be counted for
purposes of determining the presence of a quorum at the annual meeting, but will
not be considered as present and entitled to vote with respect to such matters.
Since the Delaware General Corporation Law requires the affirmative vote of the
holders of a majority of the outstanding shares of common stock entitled to vote
on the proposal to approve the sale of our videoconferencing services business,
a "broker non-vote" on such a proposal will have the same effect as a vote
against this proposal.
COST OF SOLICITATION
We will pay all expenses in connection with this solicitation. Our
officers, directors and other regular employees, who will receive no extra
compensation for their services, may solicit proxies by telephone, telegram or
personal solicitation. In addition to the proxy solicitation material mailed to
stockholders, we have also retained the services of Mellon Investor Services LLC
to assist in the solicitation of proxies for a fee estimated at $9,500.
ELECTION OF DIRECTORS
(ITEM 1)
Directors are elected annually and serve a one-year term. There are six
nominees for election this year. All of the nominees are currently serving as
directors. Each nominee has consented to serve until the next annual meeting if
elected, and until his or her successor is elected and qualified. You will find
detailed information on each nominee below. If any director is unable to stand
for re-election after distribution of this proxy statement, the board may reduce
its size or designate a substitute. If the board designates a substitute,
proxies voting on the original director candidate will be cast for the
substituted candidate. Proxies cannot be voted for a greater number of persons
than the number of nominees named
10
on the enclosed form of proxy. A plurality of the votes cast in person or by
proxy by the holders of common stock represented at the annual meeting is
required to elect a director.
DIRECTOR
NOMINEE AGE PRESENT OFFICE(S) HELD IN OUR COMPANY SINCE
------- --- ------------------------------------- --------
Richard N. Snyder......................... 58 Chairman of the Board, President and 1997
Chief Executive Officer
Kathleen A. Cote.......................... 54 None 1999
James H. Wells............................ 56 None 1999
Lou Mazzucchelli.......................... 47 None 2002
Richard J. Agnich......................... 60 None 2003
Raymond Miles............................. 50 None 2003
The following information regarding the principal occupations and other
employment of the nominees during the past five years and their directorships in
certain companies is as reported by the respective nominees:
RICHARD N. SNYDER, age 58, has served as a director of our company since
December 1997 and was elected chairman of the board in March 2000. In June 2001,
Mr. Snyder was elected as president and chief executive officer of our company.
From September 1997 until assuming the positions of president and chief
executive officer of our company, Mr. Snyder served as founder and chief
executive officer of Corum Cove Consulting, LLC, a consulting firm specializing
in providing strategic guidance to high technology businesses. From 1996 until
1997, Mr. Snyder was the senior vice president of World Wide Sales, Marketing,
Service and Support of Compaq Computer Corp., a worldwide computer company. From
1995 until 1996, Mr. Snyder was the senior vice president and general manager of
Dell Americas, a computer manufacturer and marketer. Prior to 1995, Mr. Snyder
served as group general manager of the Deskjet Products Group of Hewlett
Packard. He also serves as a director of Symmetricom, Inc., based in San Jose,
California.
KATHLEEN A. COTE, age 54, has served as a director of our company since
December 1999. She is currently the chief executive officer of WorldPort
Communications, Inc., a provider of internet managed services to the European
market. In January 1998, Ms. Cote founded Seagrass Partners, a provider of
expertise in business planning and strategic development, and served as its
president until May 24, 2001, when she began her role as chief executive officer
of WorldPort. From November 1996 to January 1998, Ms. Cote served as chief
executive officer of ComputerVision Corporation, a hardware, software and
consulting business. From November 1986 to November 1996, she held various
senior management positions with ComputerVision Corporation. In January 1998,
ComputerVision Corporation was acquired by Parametric Technology Corporation.
Ms. Cote is also a director of WorldPort Communications, Inc., based in
Lincolnshire, Illinois, Radview Corporation and Western Digital Corporation.
JAMES H. WELLS, age 56, has served as a director of our company since
December 1999. He currently consults with early stage internet start-up
companies. Mr. Wells was the senior vice president of marketing and business
development of Dazel, a Hewlett Packard enterprise software company, from
January 1999 through February 2000. From April 1995 to March 1998, Mr. Wells
served as vice president of sales and was a founding officer in the internet
streaming company, RealNetworks, Inc.
LOU MAZZUCCHELLI, age 47, has served as a director of our company since
February 2002. He is currently a venture partner at Ridgewood Capital, a venture
capital firm focusing its investments in the information technology industry.
Prior to joining Ridgewood Capital in 2001, Mr. Mazzucchelli was an investment
banker at Gerard Klauer Mattison in New York, which he joined in 1996 as their
PC and digital media technology analyst. Previously, Mr. Mazzucchelli spent 13
years leading Cadre Technologies, a pioneering computer-aided software
engineering tools company that he founded in 1982 and grew to become one of the
top 50 U.S. independent software vendors before its sale in 1986.
RICHARD J. AGNICH, age 60, has served as a director of our company since
March of this year. He is currently an advisor to technology start-ups, is a
trustee of Austin College and chair of the Entrepreneurs
11
Foundation of North Texas. Mr. Agnich is also currently serving as a director of
ST Assembly Test Services, Ltd. (STTS, NASDAQ), a leading semiconductor test and
assembly service provider headquartered in Singapore. Prior to his retirement in
2000, Mr. Agnich served as Senior Vice President, General Counsel and Secretary
and various other positions at Texas Instruments Incorporated since 1973.
RAYMOND MILES, age 50, has served as a director of our company since March
of this year. He is currently working with Rajko Associates, a company that
provides consulting services on corporate strategy. From 2001 to 2002, Mr. Miles
served as the President of Communications Services, a service line of the
Operations Solutions business of EDS, Inc. Prior to joining Communications
Services, Mr. Miles was a business manager and manager of software strategy at
Texas Instruments from 1999 to 2001. From 1996 to 1999, Mr. Miles served as a
branch manager and then Chief Operating Officer of Deutsche Telekom Alliance, a
strategic alliance between Texas Instruments Incorporated and Deutsche Telekom.
None of the nominees is related to any other nominee or to any executive
officer or director of our company by blood, marriage or adoption (except
relationships, if any, more remote than first cousin).
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR EACH OF THE SIX NOMINEES.
BOARD OF DIRECTORS AND COMMITTEES
The board of directors held eight regularly scheduled meetings and one
special meeting during the fiscal year ended July 31, 2002. In addition, the
board of directors acted two times by unanimous consent during the fiscal year
ended July 31, 2002.
The board of directors uses working committees with functional
responsibility in the more complex recurring areas where disinterested oversight
is required. Working committees of the board of directors include the Audit
Committee, the Compensation Committee, the Nominating Committee and the
Executive Committee.
AUDIT COMMITTEE
The Audit Committee is the communication link between the board of
directors and our independent auditors. In addition to recommending the
appointment of the independent auditors to the board of directors, the Audit
Committee reviews the scope of the audit, the accounting policies and reporting
practices, internal auditing and internal control, compliance with our policies
regarding business conduct and other matters as deemed appropriate. The Audit
Committee held four meetings in fiscal 2002 with the independent auditors and
our management. The members of the Audit Committee during the fiscal year ended
July 31, 2002 were Ms. Cote (Chairperson), and Messrs. Wells and Moeller. Mr.
Moeller resigned as a director of our company, effective September 9, 2002.
COMPENSATION COMMITTEE
The Compensation Committee is responsible for approving the compensation
arrangements of senior management and recommending approval by the board of
directors of amendments to our benefit plans. At four regularly scheduled
meetings during the fiscal year ended July 31, 2002, the Compensation Committee
approved stock option awards pursuant to our stock option plans, and developed
and approved a compensation plan for the chief executive officer of our company.
In addition, the Compensation Committee acted one time by unanimous consent
during the fiscal year ended July 31, 2002. The Compensation Committee was
composed of Messrs. Trimm (Chairman), Matthews, Wells and Mazzucchelli during
the fiscal year ended July 31, 2002. On February 23, 2002, Mr. Matthews passed
away. Mr. Trimm resigned as a director of our company, effective September 5,
2002.
NOMINATING COMMITTEE
The Nominating Committee is responsible for continuing studies of the size
and composition of the board of directors and for proposing nominees to the
board. The Nominating Committee did not meet during the fiscal year ended July
31, 2002. The Nominating Committee will consider nominees properly
12
recommended by security holders. In order to make a nomination, our bylaws
generally require that advance notice of such nomination be provided to our
company at least 60 days and not more than 90 days prior to the first
anniversary of the preceding year's annual stockholders' meeting, together with
additional information regarding the nominee and the stockholder making such
nominations as called for by our bylaws. During the fiscal year ended July 31,
2002, the Nominating Committee was composed of Mr. Moeller (Chairman) and Ms.
Cote. Mr. Moeller resigned as a director of our company, effective September 9,
2002.
EXECUTIVE COMMITTEE
The Executive Committee is responsible for recommending key strategic and
operational plans for our company. At seven regularly scheduled meetings during
the fiscal year ended July 31, 2002, the Executive Committee discussed the
quarterly focus for our company. The Executive Committee was composed of Messrs.
Snyder (Chairman) and Wells and Ms. Cote, during the fiscal year ended July 31,
2002. In October of 2002, the Executive Committee was disbanded.
During the fiscal year ended July 31, 2002, with the exception of two
directors who missed one regular meeting each, and one director who missed three
regular meetings, all directors attended 100% of the total number of meetings of
the board and the committees on which that director served. The director who
missed three regular meetings of the board also served on the Audit Committee
and he attended greater than 75% of the aggregate of all meetings of the board
of directors and all meetings held by the Audit Committee during the fiscal year
ended July 31, 2002.
DIRECTOR COMPENSATION
During fiscal 2002, each nonemployee director was paid a retainer of $3,000
for each quarter. Additionally, each nonemployee director was paid $1,000 for
the regularly scheduled and special meetings of the board of directors he or she
attended and $250 for participation in each telephonic meeting not considered an
official board of directors' meeting. Total director fees earned in fiscal 2002
were $94,500.
All nonemployee directors participate in our 1992 Director Stock Option
Plan. Nonemployee directors receive, upon their initial election or appointment
to the board of directors, stock options to purchase 25,000 shares of our common
stock, having an exercise price equal to the market price of our common stock on
the date of grant. Thereafter, each nonemployee director will receive options to
purchase 10,000 shares of our common stock on the anniversary date of his or her
election or appointment to the board of directors. All of these options vest in
equal amounts monthly over a three-year period but cease vesting at the time the
director ceases to be a director.
F.H. (Dick) Moeller resigned as a member of our board of directors,
effective September 9, 2002. The board of directors voted to accelerate certain
options originally issued to Mr. Moeller, as a director of our company, on
December 17, 2001. The result of the accelerated vesting was that Mr. Moeller's
options to purchase 12,500 shares were 100% vested, bringing his total vested
options on September 9, 2002 to 24,500 shares.
The compensation of our employee directors is discussed at "Executive
Compensation" below.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee is composed of two outside directors and operates under
a charter adopted by the board of directors according to the rules and
regulations of the Securities and Exchange Commission and the Nasdaq Stock
Market. The Audit Committee members during the fiscal year ended July 31, 2002
were Ms. Cote (Chairman), and Messrs. Wells and Moeller. The board of directors
believes that all of these directors, with the exception of Mr. Moeller, are
independent as defined by Nasdaq Stock Market. Under the Nasdaq Stock Market
listing requirements, a director will not be considered "independent" if he has
been employed by our company in the current year or the past three years. Mr.
Moeller was chairman of the board until March 2000, and president and chief
executive officer until he resigned in
13
September 1998. Notwithstanding that, the board of directors determined that his
prior employment did not affect his ability to exercise independent judgment.
Mr. Moeller resigned as a director of our company, effective September 9, 2002.
The following is the report of the Audit Committee with respect to our
audited financial statements for the fiscal year ended July 31, 2002, which
include our consolidated balance sheets as of July 31, 2002 and 2001, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended July 31, 2002,
and the notes thereto. The information contained in this report shall not be
deemed to be "soliciting material" or to be "filed" with the Securities and
Exchange Commission, nor shall such information be incorporated by reference
into any future filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, except to the extent that we
specifically incorporate it by reference in such filing.
REVIEW WITH MANAGEMENT
The Audit Committee has reviewed and discussed our audited financial
statements with management.
REVIEW AND DISCUSSIONS WITH INDEPENDENT ACCOUNTANTS
The Audit Committee did not hold any meetings in conjunction with the full
board of directors during the fiscal year ended July 31, 2002. The Audit
Committee has discussed with Ernst & Young LLP, our independent accountants, the
matters required to be discussed by SAS 61 (Codification of Statements on
Accounting Standards) that includes, among other items, matters related to the
conduct of the audit of our financial statements.
The Audit Committee has received the letter from Ernst & Young LLP required
by Independent Standards Board Standard No. 1, that relates to the accountant's
independence from our company and its related entities, and has discussed with
Ernst & Young LLP their independence from our company.
Based on the review and discussions referred to above, the Audit Committee
recommended to the board of directors that our audited financial statements be
included in our annual report on Form 10-K for the fiscal year ended July 31,
2002.
SUBMITTED BY THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Kathleen A. Cote
James H. Wells
Lou Mazzucchelli
FEES
AUDIT FEES
We paid fees in the amount of $182,000 for professional services rendered
for the audit of our annual financial statements for the fiscal year ended July
31, 2002 and the reviews of the financial statements included in our Forms 10-Q
for the fiscal year ended July 31, 2002.
FINANCIAL INFORMATION SERVICE DESIGN AND IMPLEMENTATION FEES
We did not pay any fees for financial information service design and
implementation services rendered by Ernst & Young LLP for the fiscal year ended
July 31, 2002.
ALL OTHER FEES
We paid $55,800 and $32,940 for audit related and other fees, respectively,
for the fiscal year ended July 31, 2002.
14
The Audit Committee has determined that the provision of services covered
by the two preceding paragraphs is compatible with maintaining the independent
auditors' independence from the company.
REPORT FROM THE COMPENSATION COMMITTEE REGARDING EXECUTIVE COMPENSATION
As members of the Compensation Committee, it is our duty to administer the
executive compensation program for our company. The Compensation Committee is
responsible for establishing appropriate compensation goals for the executive
officers of our company and evaluating the performance of our executive officers
in meeting these goals. The elements of the executive compensation program
described below are implemented and periodically reviewed and adjusted by the
Compensation Committee.
The goals of the Compensation Committee in establishing our executive
compensation program are as follows:
- To fairly compensate our executive officers for their contributions to
our company's short-term and long-term performance. The elements of our
executive compensation program are:
- annual base salaries;
- quarterly performance bonuses; and
- equity incentives.
- To allow our company to attract, motivate and retain the management
personnel necessary to our company's success by providing an executive
compensation program comparable to that offered by companies with which
we compete for such management personnel.
- To provide an executive compensation program with incentives linked to
the financial performance of our company, and thereby enhance stockholder
value. Under this program, incentive compensation for executive officers
is linked to the financial performance of our company as measured by
earnings per share and revenue.
Base Salaries. The annual base salaries of our executive officers are
determined based on individual performance, experience, duties, levels of
responsibility and a comparison with salary ranges of a representative group of
public companies within the technology sector of a similar size and similar
annual range of revenues, derived from a review of recent publicly filed proxy
statements by ten public companies. A comparison is also made with published
surveys of executive compensation paid in similar industries with comparable
revenues, which for the last fiscal year was the 2001 Radford Executive
Compensation Survey, published by Radford Associates, a provider of national
compensation surveys. The comparison groups used in these surveys are not the
same group as used by us as our new peer group for comparative total returns
purposes. The comparison groups used in these surveys are chosen on a narrower
basis using revenue size as well as industry focus, while the new peer group is
solely industry focused. The Compensation Committee believes that a narrower
focus, using revenue size as well as industry focus, provides more appropriate
comparison information on which to base salary decisions than one that does not
take into account the size of the comparison group members. The financial
performance of comparative group members relative to our financial performance
is only one of the factors used by the Compensation Committee in assessing
compensation. The Compensation Committee does not use empirical formulas based
on financial performance or other factors in setting compensation for the
company's executive officers, but instead considers comparative companies'
income, market capitalization, total assets and annualized total shareholder
returns in conjunction with individual performance and experience of the
company's officers in determining the appropriate level of compensation. The
compensation of our senior executive officers falls approximately within the
range of the 75th percentile of the two types of comparison information used to
determine executive compensation.
Quarterly Bonus. The quarterly bonuses available to our executive officers
are based upon the achievement of certain earnings per share, revenue and
operating expense goals, development milestones and other personal objectives
for our company set by the Compensation Committee prior to the beginning of such
measurement period. No quarterly bonus was paid to executive officers for the
second and fourth
15
quarters of fiscal year 2002. Three executive officers received bonuses for the
first quarter of fiscal year 2002, totaling $166,728, which was 133% of the
target bonus of $125,625, reflecting actual earnings per share results exceeding
objectives set by the Compensation Committee. Four executive officers received
bonuses for the third quarter of fiscal year 2002 totaling $134,848, which was
92% of the target bonuses of $146,875.
The potential bonus that may be earned by each of our executive officers,
other than our chief executive officer, in the aggregate is 50% of their base
salary. Our chief executive officer may earn a bonus of up to 100% of his base
salary. The potential bonus is allocated among the performance objectives which
are based upon company-wide objectives, departmental objectives and individual
performance objectives, each of which is weighted based upon relative priority.
The percentage which is attained of each objective by the applicable executive
officer determines the bonus amount, but generally no bonuses are awarded unless
the company-wide objectives are attained. During fiscal 2002, assuming all
targets were achieved by our executive officers, the officers could have
received $523,750, however, $291,814, or 56%, of the target bonuses was actually
paid out.
Equity Incentives. Equity incentives, including grants of stock options
and restricted stock, are determined based on the Compensation Committee's
assessment of the ability of such officers to positively impact our company's
future performance and enhance stockholder value as determined by their
individual performances, as opposed to our overall corporate performance. The
Compensation Committee assesses the nature and scope of the officer's
responsibilities; the officer's contribution to the company's financial results;
and the officer's effectiveness in leading our initiatives to increase
stockholder value. The Compensation Committee also considers the compensation
levels of the top four highest paid executives with a comparison group of
companies provided by Watson Wyatt & Company, a global consulting firm focused
on human capital and financial management. Restricted stock awards are granted
periodically by the Compensation Committee, principally to the company's
executive officers, and generally vest over a longer period of time than stock
options.
In fiscal 2002, options covering a total of 495,599 shares of common stock
at a weighted average exercise price of $3.87 were granted to executives. See
"Executive Compensation -- Stock Option Grants During Fiscal 2002."
In fiscal 2002, restricted stock awards of 5,000 shares were granted to
each of Jay Peterson and Kenneth Kalinoski. These restricted stock award grants
were based upon the Compensation Committee's assessment of each officer's
contribution to the company's financial results. Specifically, the Compensation
Committee considered the fact that fiscal year 2002 revenues increased
approximately 117% over fiscal year 2001, that the company's net loss was
reduced by over 80% in fiscal year 2002 when compared with fiscal year 2001 and
that the Compensation Committee believed that the company was better positioned
and in a stronger financial position as a result of the efforts of Messrs.
Peterson and Kalinoski in fiscal year 2002. Mr. Peterson was primarily
responsible for overseeing cost reductions undertaken and Mr. Kalinoski was
primarily responsible for new product introductions in fiscal year 2002, which
are central to the company's launching of its new enterprise software business.
See "Executive Compensation -- Summary Compensation Table."
Equity and cash incentives are not limited to executive officers. Grants of
stock options are made to all employees upon joining our company in amounts
determined by the Compensation Committee and are also made to selected employees
as performance related awards and as awards for certain job promotions. The
amounts of such grants are determined based on the individual employee's
position with our company and his or her potential ability to beneficially
impact the performance of our company. Stock option grants and other equity
incentives are not awarded annually, but rather as warranted by individual
performance and experience. Option awards generally vest over a 48-month period.
The amount and vesting of stock options generally are not contingent on
achievement of any performance targets. By giving all employees a stake in the
financial performance of our company, the Compensation Committee's goal is to
provide incentives to all employees of our company to enhance the financial
performance of our company and, thus, stockholder value.
16
Fiscal 2002 Compensation of the CEO. The chief executive officer's salary
was primarily based on a comparison with the compensation levels of chief
executive officers from a comparison group of companies provided by Watson Wyatt
& Company. Additionally, the Compensation Committee assessed the nature and
scope of the chief executive officer's responsibilities and the chief executive
officer's contribution to the company's financial results. Specifically, the
Compensation Committee considered favorably the increased revenues and reduced
net loss experienced by the company in fiscal year 2002 outlined above, as well
as the effectiveness of Mr. Snyder's overall management in the face of the
substantial efforts required to re-align the company's business activities. This
realignment consisted of disposing of underperforming business activities
associated with the company's videoconferencing hardware business, establishing
the company's new enterprise software and licensing business activities, and
reducing costs, while retaining key management employees needed for this
realignment. Mr. Snyder's responsibilities also included the day-to-day
management of the company, including the management and direction provided to
members of the company's senior management team, development, articulation and
supervision of the implementation of the company's business realignment and
implementation of the company's long-term business strategy and product
development plans, selection and management of the disposition of
underperforming business units and the launch of the company's two new
businesses, enterprise software and technology licensing. In the view of the
Compensation Committee, Mr. Snyder, in his second year as chief executive
officer, has continued to demonstrate highly effective leadership and vision in
the face of the current business environment and consistently delivered
financial and operating performance that meets or exceeds business objectives.
During fiscal 2002, Mr. Snyder received $300,833 in base salary, a salary that
falls approximately within the range of the top 10% of the two types of
comparison information used by the Compensation Committee to determine executive
compensation, but which the Compensation Committee believes is appropriate in
light of Mr. Snyder's expertise in the technology industry.
Mr. Snyder's potential annual bonus is 100% of his base salary. Mr. Snyder
received bonuses in the first and third quarters of fiscal year 2002 in an
aggregate amount of $173,737. Mr. Snyder's bonus was based on a set of quarterly
objectives that had to be met in order for any bonus to be awarded. The
quarterly objectives were determined by the Compensation Committee and are
primarily based on meeting or exceeding certain levels of quarterly earnings per
share and end of quarter cash balances. These objectives were met in the first
fiscal quarter of 2002 and the third fiscal quarter of 2002 resulting in bonuses
for those two periods. These objectives were not achieved in the second fiscal
quarter of 2002 and the fourth fiscal quarter of 2002, thus no bonus was awarded
for those periods. Mr. Snyder also received 250,000 stock options, as set forth
in the "Executive Compensation -- Summary Compensation Table" on page 19 of this
proxy statement, all of which vest one year after the date they were granted.
Mr. Snyder was awarded these stock options by the Compensation Committee based
on the nature and scope of his responsibilities; contribution to the company's
financial results; and his effectiveness in leading and shaping our overall
strategy and its initiative to increase stockholder value, and not as a result
of the achievement of any performance targets.
Omnibus Budget Reconciliation Act of 1993. The Omnibus Budget
Reconciliation Act of 1993 added Section 162(m) to the Internal Revenue Code.
With certain exceptions, beginning with the taxable year commencing January 1,
1994, Section 162(m) will prevent publicly held corporations, including our
company, from taking a tax deduction for compensation in excess of one million
dollars paid to our chief executive officer and the other persons named in the
Summary Compensation Table in this proxy statement. Section 162(m) will not
apply to limit the deductibility of performance-based compensation exceeding one
million dollars if:
- it is paid solely upon attainment of one or more performance goals;
- it is paid pursuant to a performance-based compensation plan adopted by
the Compensation Committee; and
- the terms of the plan are approved by the stockholders before payment of
the compensation.
17
The Compensation Committee has reviewed our compensation plans with regard
to the deduction limitation contained in Section 162(m). The Compensation
Committee believes that option grants under our equity plans meet the
requirements for deductible compensation. The Compensation Committee has decided
for the present not to alter our other compensation plans to meet the
deductibility requirements of the regulations promulgated under the Internal
Revenue Code. The Compensation Committee will continue to review the issue and
its determination under the regulations under Section 162(m) and monitor whether
our compensation plans should be amended in the future to meet the deductibility
requirements. The Compensation Committee does not anticipate that Section 162(m)
will limit the deductibility of any compensation paid in fiscal year 2002. None
of our executive officers were affected by Section 162(m) in fiscal year 2002.
COMPENSATION COMMITTEE
Kathleen A. Cote
James H. Wells
Lou Mazzucchelli
Mr. T. Gary Trimm resigned as a director of our company, effective
September 5, 2002 and Mr. Gordon Matthews passed away on February 23, 2002. Mr.
Trimm and Mr. Matthews were members of our Compensation Committee in fiscal year
2002.
Our committees will continue to monitor and review legislative, regulatory
and Nasdaq Stock Market actions in connection with corporate governance, and our
committees will adopt policies and procedures in response to such actions.
18
EXECUTIVE COMPENSATION
The following table summarizes certain information regarding compensation
paid or accrued during each of our company's last three fiscal years to our
chief executive officer and each of our other four most highly compensated
executive officers, also referred to as our named executive officers:
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
AWARDS(1)
ANNUAL COMPENSATION -------------------------
--------------------------------------- RESTRICTED SECURITIES
PERIOD BONUS AND OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL ENDED COMMISSIONS COMPENSATION AWARDS OPTIONS/SARS COMPENSATION
POSITION JULY 31 SALARY($) ($) ($)(1) ($) (#) ($)(2)
------------------ ------- --------- ----------- ------------ ---------- ------------ ------------
Richard N. Snyder............. 2002 300,833 176,552(3) -0- -0- 250,000 3,316
Chief Executive Officer 2001 98,333(6) 32,100 -0- -0- 250,000 824
and President 2000 N/A N/A -0- N/A 12,500 N/A
Jay C. Peterson............... 2002 179,860 51,956(3) -0- 19,500(4) 125,599 1,054
Chief Financial 2001 165,259 59,040 -0- -0- 40,000 745
Officer, and Vice 2000 126,667 9,751 -0- -0- 10,000 481
President, Finance
Kenneth Kalinoski............. 2002 213,333 62,867(3) -0- 19,500(4) 95,000 1,105
Chief Technology 2001 85,185(6) 34,881 -0- -0- 200,000 11,630
Officer and Vice 2000 N/A N/A N/A N/A N/A N/A
President, Engineering
Dennis Egan................... 2002 175,149 47,412(3) -0- -0- 25,000 1,454
Vice President, Services 2001 178,549 82,508 -0- -0- 15,000 1,172
2000 154,600 23,895 -0- -0- 20,000 921
Robert R. Swem(5)............. 2002 95,158(6) 2,815(3) -0- -0- -0- 1,802
Former Vice President, 2001 191,067 81,500 -0- -0- 40,000 2,977
Operations 2000 172,473 -0- -0- -0- 27,500 2,673
---------------
(1) Includes perquisites and other personal benefits if value is greater than
the lesser of $50,000 or 10% of reported salary and bonus.
(2) Represents the dollar value of any insurance premiums paid by our company
during the covered fiscal year with respect to term life insurance and long
term disability insurance for the benefit of the chief executive officer or
our named executive officers.
(3) Includes $2,815 tax preparation allowance.
(4) The closing market price on the date of grant of such awards, July 11, 2002,
was $3.90 per share. As of July 31, 2002, the aggregate number of shares and
the aggregate value of restricted stock held by our executive officers was
as follows: 5,000 shares with a value of $21,050 held by Mr. Peterson and
5,000 shares with a value of $21,050 held by Mr. Kalinoski. Fifty percent of
each of the grants to Mr. Peterson and Mr. Kalinoski will vest on July 11,
2003 and 50% will vest on July 11, 2004. The company does not anticipate
paying any dividends, however, in the event that a dividend is declared on
the company's common stock, those dividends would be paid to holders of such
restricted stock at the time that the restrictions lapse.
(5) On January 23, 2002, the products division of our company was sold to the
management team of the products division, which was led by Mr. Swem. Mr.
Swem resigned as an officer of our company, effective January 23, 2002.
(6) Represents a partial year of compensation.
19
STOCK OPTION GRANTS DURING FISCAL 2002
The following table sets forth information with respect to grants of stock
options to purchase common stock pursuant to our equity plans to our chief
executive officer and the named executive officers reflected in the Summary
Compensation Table above. No stock appreciation rights (SARs) were granted
during fiscal 2002 and none were outstanding as of July 31, 2002.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE OF ASSUMED
ANNUAL RATES OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
------------------------------------------------------ -----------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE EXPIRATION
NAME GRANTED(#) FISCAL YEAR PRICE($/SH) DATE 0%($)(4) 5%($) 10%($)
---- ------------ ------------ ----------- ---------- ---------- ------------ -------------
Richard N. Snyder.......... 250,000 9.31 4.000 5/24/2012 (263,750) 199,274 909,643
Jay C. Peterson............ 50,000 1.86 3.040 10/16/2011 -0- 95,592 242,249
25,000 0.93 3.750 7/11/2012 -0- 58,959 149,413
50,599 1.88 4.190 7/19/2012 -0- 133,332 337,889
Kenneth Kalinoski.......... 30,000 1.12 3.750 7/11/2012 -0- 70,751 179,296
65,000 2.42 4.190 7/19/2012 -0- 171,279 434,056
Dennis Egan................ 25,000 .93 3.040 10/16/2011 -0- 47,796 121,124
Robert R. Swem............. -0- -0- -0- N/A -0- -0- -0-
All employee options....... 2,636,719 100 3.278(2) N/A (263,750) 5,006,240 13,091,438
All stockholders(3)........ N/A N/A N/A N/A N/A 51,155,264 129,637,483
Optionee gains as % of all
stockholder gains........ N/A N/A N/A N/A N/A 9.79% 10.10%
---------------
(1) The dollar amounts under these columns represent the potential realizable
value of each grant of options assuming that the market price of our common
stock appreciates in value from the date of grant at the five percent and
ten percent annual rates compounded over the ten year term of the option as
prescribed by the Securities and Exchange Commission and therefore are not
intended to forecast possible future appreciation, if any, of the price of
our common stock.
(2) Weighted average grant price of all stock options granted to employees in
fiscal 2002.
(3) Appreciation for all stockholders is calculated using the average exercise
price for all employee optionees of $3.278 granted during fiscal 2002 and
using the number of shares of our common stock outstanding on July 31, 2002
of 24,814,384.
(4) Negative values in this column reflect that the exercise price of options
granted to Mr. Snyder were greater than the market price of the underlying
common stock on the date of grant. The market price on the date of grant was
$2.945.
20
AGGREGATED STOCK OPTION/SAR EXERCISES DURING FISCAL 2002 AND STOCK OPTION/SAR
VALUES AS OF JULY 31, 2002
The following table sets forth information with respect to our chief
executive officer and the named executive officers concerning the exercise of
options during fiscal 2002 and unexercised options held as of July 31, 2002:
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES(1)
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/ SARS AT IN-THE-MONEY OPTIONS/ SARS
SHARES FISCAL YEAR END(#) AT FISCAL YEAR END($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Richard N. Snyder...... 255,902 1,051,256 12,695 255,903 2,206 89,992
Jay C. Peterson........ -0- -0- 50,986 142,438 51,365 149,853
Kenneth Kalinoski...... -0- -0- 85,416 209,584 255,820 365,404
Dennis Egan............ -0- -0- 108,480 34,020 68,377 56,047
Robert R. Swem......... 23,664 49,969 -0- -0- -0- -0-
---------------
(1) All options held by our chief executive officer and the named executive
officers were granted under our 1989 Stock Option Plan or our 1996 Stock
Option Plan. All options granted under the 1989 Stock Option Plan and the
1996 Stock Option Plan are immediately exercisable. However, our company can
repurchase shares issued upon exercise of those options, at the exercise
price, to the extent of the number of shares that have not vested if the
optionee's employment terminates before all of the optionee's option shares
become vested. The amounts under the headings entitled "Exercisable" reflect
vested options as of July 31, 2002 and the amounts under the headings
entitled "Unexercisable" reflect option shares that have not vested as of
July 31, 2002.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is or has been an officer or
employee of our company or any of our subsidiaries or had any relationship
requiring disclosure pursuant to Item 404 of Securities and Exchange Commission
Regulation S-K (Certain Relationships and Related Transactions), with the
exception of Mr. Trimm, who resigned as a director of our company, effective
September 5, 2002, and who is also a principal of Strategic Management, Inc.,
and Mr. Matthews.
AGREEMENT WITH STRATEGIC MANAGEMENT, INC.
On October 5, 2000, we agreed to pay a fee to Strategic Management, Inc., a
company in which T. Gary Trimm, one of our former directors, is a principal, to
assist our company in developing a plan to establish our videoconferencing
systems products division as an independent, self-sustaining unit, and to assist
us in assessing strategic alternatives for this division as part of our
company's efforts to restructure the company's business around its video network
software and videoconferencing services business. Pursuant to this engagement,
we agreed to pay Strategic Management, Inc. an hourly rate for services
rendered, up to a maximum of $60,000. If the products division was sold, the
engagement also provided additional contingent compensation to Strategic
Management, Inc., equal to 7% of the consideration received by our company. The
engagement was approved by the disinterested directors of the company. During
fiscal 2001, we paid $69,000 related to this agreement. With the assistance of
Strategic Management, Inc., we completed the sale of our products division to
VTEL Corporation on January 23, 2002. However, since payment to Strategic
Management, Inc. was contingent upon receipt of payment from VTEL Corporation
and VTEL Corporation defaulted on payments of its notes to us and there is
uncertainty of collection of these notes, no liability was accrued for a payment
to Strategic Management, Inc. as of July 31, 2002. Mr. Trimm resigned as a
director of our company, effective September 5, 2002.
21
The board of directors determined that Mr. Trimm's relationship with Strategic
Management, Inc. did not affect his ability to exercise independent judgment as
a member of the Compensation Committee while he served on that committee.
AGREEMENT WITH MATTHEWS CONSULTING
In October 2000, we agreed to pay an hourly consulting fee to Matthews
Consulting, a company owned by the former Gordon Matthews, then a director of
the company. Matthews Consulting agreed to assist our company in developing the
company's patent portfolio through consulting services which included the
coordination and supervision of the company's engineers in the prosecution of
patent applications covering inventions developed by the company. Through the
program established with the assistance of Matthews Consulting, the company
initiated a program to file patent applications covering our developed
technology. Through the efforts of Matthews Consulting, the company obtained
additional patents covering its inventions. None of the patents issued through
these efforts have been licensed. We paid an aggregate of $101,208 and $119,508
under this agreement in fiscal 2001 and 2002, respectively. Mr. Matthews who was
one of our company's directors during the fiscal year ended July 31, 2002,
passed away on February 23, 2002. He owned Matthews Consulting during his
lifetime. We do not have any information regarding, and are unable to obtain,
the rate that Matthews Consulting charged non-affiliated customers for services
similar to those Mr. Matthews provided to our company because Mr. Matthews is
now deceased. The board of directors determined that prior to his death, Mr.
Matthews' relationship with Matthews Consulting did not affect his ability to
exercise independent judgment as a member of the Compensation Committee while he
served on that committee.
In addition, at the time of entering into the agreement with Matthews
Consulting, such fees were considered reasonable and fair compensation for the
services to be rendered and the arrangement was approved by the disinterested
members of the board. No member of the Compensation Committee served on the
compensation committee or as a director of another corporation, one of whose
directors or executive officers served on the Compensation Committee of or whose
executive officers served on our company's board of directors.
CERTAIN TRANSACTIONS
OFFICER AND DIRECTOR STOCK LOAN PROGRAM
As of July 31, 2002, under our Officer and Director Stock Loan Program, the
aggregate principal amount of stock loans outstanding was $415,029. Of this
balance, the named executive officers had stock loans outstanding in the
aggregate principal amount of $101,430. For the fiscal year ended July 31, 2002,
the following table presents the largest amount of indebtedness of each of our
executive officers who participated in the program:
Gordon Matthews............................................. $ 61,672
Richard N. Snyder........................................... $ 59,405
F.H. (Dick) Moeller......................................... $164,040*
Robert R. Swem.............................................. $ 65,566*
T. Gary Trimm............................................... $ 62,032*
---------------
* Indicates that this was the largest amount of indebtedness outstanding under
such program for such officer or director.
22
As of January 31, 2003, the following table presents the amounts
outstanding for each of our executive officers who participated in the program:
Gordon Matthews............................................. $ 63,565*
Richard N. Snyder........................................... $ 61,229*
F.H. (Dick) Moeller......................................... $162,143
Robert R. Swem.............................................. $ 14,562
T. Gary Trimm............................................... $ 0
---------------
* Indicates that this was the largest amount of indebtedness outstanding under
such program for such officer or director.
As of July 31, 2002, Messrs. Moeller and Trimm, former directors of our
company, and Mr. Swem, a former Vice President, Operations, had loans
outstanding under this program in the aggregate principal amount of $157,314,
$62,032 and $42,025, respectively.
No new loans are allowed to be made under this program. This program had
previously allowed our directors and officers to acquire shares of our common
stock with the proceeds of the loans. The interest rates charged on these loans
is fixed at 6.09%. The term of each loan is generally nine years.
DIRECTOR RESIGNATIONS
T. Gary Trimm resigned as a member of our board of directors, effective
September 5, 2002. Subsequent to his resignation, Mr. Trimm entered into a
consulting agreement with us, effective September 1, 2002 until December 31,
2002. Mr. Trimm's officer loan balance outstanding at October 31, 2002 was
$39,280.
F.H. (Dick) Moeller resigned as a member of our board of directors,
effective September 9, 2002. Certain options issued to Mr. Moeller, as a
director of our company on December 17, 2001 were accelerated at the date of his
resignation. The result of the accelerated vesting is that Mr. Moeller's options
to purchase 12,500 shares are all vested, bringing his total vested options on
September 9, 2002 to 24,500 shares. Mr. Moeller's officer loan balance
outstanding at October 31, 2002 was $159,728.
Our company also agreed to pay fees to Strategic Management, Inc., of which
Mr. Trimm was a principal, and to Matthews Consulting, a company owned by Mr.
Matthews, and both transactions are described under the heading "Compensation
Committee Interlocks and Insider Participation."
EMPLOYMENT CONTRACTS; TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS
We have not entered into any employment agreements with members of our
senior management. However, we have entered into change-in-control agreements,
also called parachute agreements, with members of our senior management, which
provide that if the officer is terminated within a specified amount of time
after a "change in control" of our company (as that term is defined in the
parachute agreements), in any of the following ways:
- by our company other than for cause, the officer's death, retirement or
disability, or
- by the officer for "good reason,"
we will pay to the officer an amount one times his or her current year's salary
and will accelerate the vesting schedule of his or her unvested stock options.
23
COMPARATIVE TOTAL RETURNS
PERFORMANCE GRAPH
The following Performance Graph shows the changes over the past five year
period in the value of $100 invested in:
- our common stock;
- the CRSP Total Return Index for NASDAQ Stock Market (U.S. Companies),
also called the NASDAQ Composite Index;
- the common stock of the historical peer group (as defined below) of
companies whose returns are weighted according to their respective market
capitalization for periods up to and including 2001; and
- a new peer group consisting of the NASDAQ CRSP Total Return Index for
Computer & Data Processing Services companies.
The values with each investment as of the beginning of each year are based
on share price appreciation and the reinvestment with dividends on the
respective ex-dividend dates. The historical peer group for the periods ended
July 31, 1998, 1999, 2000 and 2001 consists solely of PictureTel Corporation,
whose business, taken as a whole, resembled our activities. The historical peer
group for the period ended July 31, 1997 consisted of PictureTel and Compression
Labs, Incorporated. We acquired Compression Labs in May of 1997. In October of
2001, PictureTel was acquired by Polycom and thus we have determined to use a
new peer group, consisting of the NASDAQ CRSP Total Return Index for Computer &
Data Processing Services companies.
(GRAPH)
This graph above assumes $100 invested on July 31, 1997 in our common
stock, the NASDAQ Composite Index, the historical peer group, and the new peer
group, and was plotted using the following data:
JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31,
1997 1998 1999 2000 2001 2002
-------- -------- -------- --------- -------- --------
NASDAQ................... $100.00 $118.00 $169.00 $ 240.00 $129.00 $ 85.00
Forgent.................. $100.00 $ 98.00 $ 75.00 $ 53.00 $ 17.00 $ 73.00
Historical Peer Group.... $100.00 $ 86.00 $ 63.00 $ 43.00 $ 56.00 --
New Peer Group........... $100.00 $132.00 $197.00 $ 266.00 $141.00 $ 88.00
24
PROPOSAL TO SELL SUBSTANTIALLY ALL OF THE ASSETS USED IN THE
OPERATION OF OUR VIDEOCONFERENCING SERVICES BUSINESS
(ITEM 2)
This section of the proxy statement describes certain aspects of the sale
of substantially all of the assets used in the operation of our
videoconferencing services business. However, we recommend that you read
carefully the complete asset purchase agreement for the precise legal terms of
the agreement and other information that may be important to you. The asset
purchase agreement is included in this proxy statement as Annex A.
THE COMPANIES
FORGENT NETWORKS, INC.
Our company designed, manufactured, sold and serviced videoconferencing
systems from its inception in 1985 until its sale of those assets in January
2002. We currently provide visual communications services and products for
enterprise networks, offering global installation and technical support
services, products from multiple vendors and enterprise software. Our
solution-oriented sales effort is focused in the commercial marketplace, while
we maintain our reseller and channel partner relationships in our former
videoconferencing endpoints markets. Our integrated systems group also provides
solutions for customers who have required multiple voice activated cameras,
custom user-interface and other customized requirements. In addition to our
existing service and maintenance offerings, we currently intend to enhance our
network management service capabilities.
We are researching and developing technologies to provide a video network
enterprise software platform designed to provide interoperability and
compatibility standards for both traditional and internet protocol networks, as
well as drive the migration to video over internet protocol networks. We refer
to these activities as our solutions business, which is conducted under the name
"Forgent Networks." The primary focus of our solutions division is on delivering
the high-end visual communication systems that provide functionality to
customers in markets such as education, government and health care.
Upon completion of the sale of our videoconferencing services business, we
will concentrate on developing and expanding our video enterprise software and
technology licensing businesses.
Video Enterprise Software. Our video enterprise software business enables
enterprises to collaborate videoconferencing effectively and efficiently. Our
Video Network Platform, or VNP, is a network management software that improves
quality of service and cost of ownership in multi-vendor and multi-protocol
environments. We combine VNP with a Global Scheduling System, or GSS, a
state-of-the-art web-based scheduling application, which we call VideoWorks.
VideoWorks is a powerful self-contained package for managing videoconferencing.
Our company primarily delivers its capabilities directly to end users.
Technology Licensing. Our technology licensing program is currently
focused on generating license revenues relating to our data compression
technology embodied in U.S. Patent No. 4,698,672 and its foreign counterparts.
Manufacturers in various industries use still-compression technology in their
products, including digital cameras, printers, scanners, and wireless devices,
as well as new emerging products such as new cell phones and wireless sharing
networks. Since the end of fiscal 2002, we have entered into licenses and are
continuing to actively seek licenses with other users of our technology. U.S.
Patent No. 4,698,672, which has generated the licensing revenues, expires in
October 2006 and its foreign counterparts expire in September 2007. Thus, there
can be no assurance that we will be able to continue to effectively license our
technology to others after that time.
As our company develops and works to enhance its product offerings, it will
continue to adhere to the following strategies:
- Develop standards-based management tools that will allow effective and
efficient collaboration to occur, regardless of the hardware or software
brands that comprise the environment;
25
- Support Integrated Services Digital Networks, or ISDN, and IP-based
networks, as well as the transition from ISDN to IP-based networks;
- Develop industry-leading technology that makes collaboration work;
- Design software solutions that promote the ease of use, manageability and
reliability of collaboration;
- Support heterogeneous environments and alleviate the complexity
associated with them;
- Design increasing levels of automation into our software solutions; and
- Partner with leading software providers to offer best-of-breed solutions.
Subsequent to the completion of the sale of our videoconferencing services
business, our business will consist of our video enterprise software and
technology licensing businesses. Set forth below is a summary of certain
unaudited pro forma condensed financial data that gives effect to the sale of
our videoconferencing services business. Please see "Unaudited Pro Forma
Condensed Financial Data" beginning on page 59.
FISCAL YEAR ENDED
JULY 31, 2002
-------------------------------------------------
ADJUSTED
HISTORICAL SERVICES DIVISION FORGENT
CONSOLIDATED OPERATIONS NETWORKS, INC.
------------ ----------------- --------------
(IN THOUSANDS)
(UNAUDITED)
Statement of Operations Data:
Revenues............................................. $58,592 $25,206 $ 33,386
Gross margin......................................... 24,422 9,768 14,654
Income from continuing operations.................... 2,524 5,414 (2,890)
Net income (loss).................................... (6,103) 5,414 (11,517)
Our principal executive office is located at 108 Wild Basin Road Austin,
Texas 78746, and our telephone number is (512) 437-2700.
GTG HOLDINGS, INC.
GTG Holdings, Inc. is a holding company affiliated with Gores Technology
Group, a privately held international acquisition and management firm that
pursues an aggressive strategy of acquiring promising high-technology
organizations and managing them for growth and profitability. GTG Holdings and
Gores Technology Group are affiliated through common majority ownership. GTG
Holdings holds a number of the businesses acquired through transactions led by
Gores Technology Group.
The principal executive offices of GTG Holdings are located at 10877
Wilshire Boulevard, Suite 1805, Los Angeles, California 90024 and its telephone
number is (310) 209-3010.
VidCon Holding Corp. is a Delaware corporation and a wholly-owned
subsidiary of GTG Holdings. VidCon was incorporated by GTG Holdings solely for
the purpose of acquiring the assets of our company's videoconferencing services
business. Subsequent to the execution of the asset purchase agreement VidCon
changed its name to Pierce Technology Services, Inc. References in this proxy
statement to "VidCon" refer to Pierce Technology Services, Inc. f/k/a VidCon
Holding Corp.
BACKGROUND OF THE SALE OF OUR VIDEOCONFERENCING SERVICES BUSINESS
In early summer of 2002 our board of directors began evaluating the
potential sale of the company's videoconferencing services business. The board
determined to undertake this review as the board believed that there were
insufficient growth opportunities present in this business to justify keeping it
as a core business.
26
On July 12, 2002, the board of directors retained Raymond James &
Associates, Inc. as its exclusive financial advisor to assist our company in
maximizing stockholder value through an evaluation of our videoconferencing
services business. From July 13, 2002, to August 16, 2002, Raymond James &
Associates, Inc. conducted a review of our videoconferencing services business.
The board authorized management and Raymond James & Associates, Inc. to
contact potential parties who might be interested in acquiring our
videoconferencing services business. At this time the board had not made any
decision as to what course of conduct to pursue with respect to our
videoconferencing services business.
From August 19, 2002 to November 2, 2002, Raymond James & Associates, Inc.
and our management contacted 19 potential strategic acquirors and 70 potential
financial investors to gauge interest in a possible transaction involving our
videoconferencing services business. From October 30, 2002 to November 9, 2002,
our company received certain indications of interest for our videoconferencing
services business from York Telecom Corporation, Navigator Equity Partners and
Gores Technology Group. Each of the proposals was structured as an asset sale
and each contained a cash component, while each of the proposals from York
Telecom Corporation and Navigator Equity Partners also contained a contingent
consideration component, based on the performance of the videoconferencing
services business subsequent to its sale. The board of directors reviewed each
of the indications of interest received and Raymond James & Associates, Inc. and
various members of our management met with representatives of each group,
including Gores Technology Group, that had indicated an interest in our
videoconferencing services business. The board assessed the overall structure of
each proposal, including what representations and warranties our company was
likely to be required to make, the liabilities our company would be required to
retain, the amount and form of the consideration to be received and the extent
of any indemnification obligations. During this time, due diligence materials
were exchanged and various modifications to the proposals were discussed. The
board ultimately determined that the proposal from Gores Technology Group was
superior to the other two proposals. The board based this determination on the
fact that both of the other offers received contained a smaller cash component,
even when the contingent consideration was factored in, which would have
resulted in a materially diminished overall consideration to our company versus
the proposal from Gores Technology Group. In addition, both of the other offers
received provided for the assumption of fewer liabilities than did the Gores
Technology Group proposal.
On November 15, 2002, we entered into a non-binding letter of intent with
Gores Technology Group, an affiliate of GTG Holdings, to negotiate an agreement
with GTG Holdings. Subsequent to that date, representatives of our company,
Raymond James & Associates, Inc. and GTG Holdings continued their due diligence
efforts and began to work on the terms of an asset purchase agreement.
On December 5, 2002, the board met to review the GTG Holdings proposal.
Raymond James & Associates, Inc. gave a presentation to the board regarding the
fairness, from a financial point of view, of the consideration to be received by
the company under the proposal made by GTG Holdings as it existed on that date,
and delivered a written opinion to the effect that the consideration to be
received by us, as it existed on that date, was, from a financial point of view,
fair to the company. Legal counsel for the company also participated. After
carefully evaluating the proposal the board determined to accept the proposal
made by GTG Holdings subject to negotiation of definitive agreements. At this
time the material terms of the GTG Holdings proposal consisted of VidCon
acquiring substantially all of the assets of our videoconferencing services
business in exchange for cash consideration of $11,000,000, subject to
adjustments, and the assumption of substantially all of the liabilities
associated with our videoconferencing services business, which were estimated to
be approximately $11,200,000 at that time. At this time the $11,000,000 cash
portion of the purchase price was to be subject to a purchase price adjustment
based on the net assets and deferred revenue of the videoconferencing services
business at the closing date and the company was also to be subject to
indemnification obligations similar to those described in this proxy statement,
but there were no provisions for the escrow of any of the cash consideration to
pay for either of these possible obligations.
27
Between December 5, 2002 and December 11, 2002, there were numerous
telephone discussions variously involving representatives of our company,
Raymond James & Associates, Inc., and our legal counsel and representatives of
GTG Holdings and its legal counsel. The purpose of these discussions was to
attempt to come to agreement on any remaining open issues, to begin to finalize
the details of the ancillary documents and the schedules to the asset purchase
agreement and to continue movement towards execution of definitive agreements.
During these discussions, GTG Holdings insisted on a change to the cash
component of the purchase price and the possibility of escrowing some of the
cash proceeds was discussed.
On December 11, 2002, the board of directors held another meeting by
telephone to discuss the progress of the negotiations with GTG Holdings,
including the cash consideration to be received and the terms of any escrow
arrangements. The board approved a transaction to sell our videoconferencing
services business to VidCon as long as the cash proceeds to the company in the
transaction equaled or exceeded $9,000,000, even if a portion of this amount was
to be escrowed, and as long as substantially all of the liabilities of the
videoconferencing services business were assumed by VidCon. In making its
determination to approve a transaction that met these parameters the board of
directors considered the cash to be received, the liabilities to be assumed and
the overall structure of the transaction and the terms of the asset purchase
agreement. The board also considered the other proposals the company had
received from other potential purchasers, which were materially less favorable
than these parameters. The board of directors also unanimously resolved to
recommend that our stockholders approve and adopt the asset purchase agreement
and the sale of substantially all of the assets used in the operation of our
videoconferencing services business to GTG Holdings, if the final terms of the
transaction met the board's parameters set out above and upon receipt of a
fairness opinion from Raymond James & Associates, Inc. The board instructed
management to continue to negotiate with GTG Holdings to attempt to finalize the
details of the cash component of the purchase price, the escrow, the ancillary
documents and the schedules to the asset purchase agreement and to continue
movement towards execution of definitive agreements.
Between December 11, 2002 and December 19, 2002 negotiations and
discussions between our company and GTG Holdings continued. On December 19,
2002, the final economic terms of the transaction were finalized. The material
changes from the December 5, 2002, proposal were to decrease the cash
consideration from $11,000,000 to $8,000,000 and to provide for an additional
$2,000,000 to be placed into escrow, $1,000,000 to cover potential purchase
price adjustments and $1,000,000 to cover potential indemnification obligations.
These revised terms met the minimum parameters set out by the board at its
December 11, 2002 board meeting, as disclosed above. Raymond James & Associates,
Inc. orally confirmed on December 19, 2002, that this revised consideration to
be received by the company was fair, from a financial point of view, to our
stockholders. Raymond James & Associates, Inc. later confirmed its oral opinion
in writing with an opinion letter (in substantially the same form as its opinion
letter dated and delivered in writing to the board of directors on December 5,
2002) dated December 19, 2002, and delivered on April 9, 2003 in connection with
the preparation of this proxy statement. See Annex B for a copy of this letter.
From December 19, 2002 through the execution of the definitive asset
purchase agreement, GTG Holdings and its legal counsel continued their due
diligence efforts. During this time we, representatives of Raymond James &
Associates, Inc., and our legal counsel and GTG Holdings and its legal counsel
met together and participated by telephone and in person in a series of
negotiations finalizing the terms of the asset purchase agreement and the other
related agreements. These negotiations largely covered the provisions related to
the escrows, finalizing the terms of the ancillary agreements, completing the
schedules to the asset purchase agreement, completing the form of closing
statement to be delivered by us, and finalizing certain issues related to the
employees of the videoconferencing services business. The changes made to the
asset purchase agreement during this time were not material and did not alter
the consideration to be received that was finalized on December 19, 2002. The
purchase price was determined based upon arms-length negotiations.
The asset purchase agreement was executed as of January 6, 2003. We
announced the execution of the asset purchase agreement on January 7, 2003.
28
On May 6, 2003, we entered into an amendment to the asset purchase
agreement to extend the deadline for closing the transaction from May 31, 2003
to June 30, 2003. In this amendment we agreed to pay an extension fee equal to
$13,333.33 per day for each day that the closing occurs subsequent to May 31,
2003. If the closing occurs on June , 2003, the day of the annual meeting,
this fee will equal $ . This fee is payable on closing and will reduce the
net amount of cash that we receive in this transaction. The board of directors
felt that it was appropriate to agree to this extension fee in light of the fact
that VidCon and GTG Holdings could have terminated the asset purchase agreement
on May 31, 2003, if we had not agreed to the extension and in light of the
significant time and expense the company has already invested in this
transaction.
REASONS FOR THE SALE OF OUR VIDEOCONFERENCING SERVICES BUSINESS
We are proposing to sell our videoconferencing services business to VidCon
Holding Corp., a wholly-owned subsidiary of GTG Holdings, because we believe
that the sale and the terms of the related asset purchase agreement are in the
best interests of our company and our stockholders. The board of directors has
identified various benefits that are likely to result from the sale of our
videoconferencing services business. The board of directors believes the sale of
that business will:
- allow us to devote substantially all of our energies and resources to
development of our enterprise software and technology licensing business,
thereby focusing on licensing versus service contracts, professional
services versus break/fix repairs and enterprise software offerings
versus endpoint device repair;
- provide an improved organizational focus and free up senior management
from having to oversee a remote business unit;
- allow us to direct our focus to the potentially better overall returns
from our enterprise software and technology licensing business, by
reducing our expenses and increasing our cash balances;
- allow us to have simplified financial statements by reducing the deferred
revenue associated with the videoconferencing services business; and
- allow us to increase our cash reserves from $18,250,000 at January 31,
2003, by the amount of cash we receive in this transaction and thereby
provide us with a greater ability to pursue acquisitions and withstand
business and economic slowdowns. The amount of cash we receive in this
transaction will vary, depending on some future contingencies, and is
described on page 2 under "What We Will Receive," and on pages 49 through
51.
In arriving at its determination that the asset sale is in the best
interests of our company and its stockholders, the board of directors carefully
considered the terms of the asset purchase agreement as well as the potential
impacts of the asset sale on our company. As part of this process, the board of
directors considered the advice and assistance of its outside financial advisors
and legal counsel. In determining to authorize the asset sale, the board of
directors considered the factors set out above as well as the following factors:
- the oral opinion provided on December 19, 2002, which was confirmed in
writing by an opinion letter delivered on April 9, 2003 in connection
with the preparation of this proxy statement, that we received from
Raymond James & Associates, Inc., our company's financial advisor, that
the consideration to be received by our company pursuant to the asset
sale is fair to our stockholders from a financial point of view; while
our board also received an opinion letter from Raymond James &
Associates, Inc., dated December 5, 2002, relating to the terms of the
proposed consideration as it existed on that date, the board's reliance
on Raymond James & Associates, Inc.'s opinion related to the opinion
provided to the board on December 19, 2002, which was delivered when the
terms of the consideration were finalized;
- the fact that GTG Holdings' offer was superior to other offers we
received, both in terms of aggregate consideration and proposed
transaction structure;
29
- the amount of cash included in GTG Holdings' offer and the fact that
VidCon would assume substantially all of the liabilities of the
videoconferencing services business;
- the terms and conditions of the asset purchase agreement, including the
fiduciary out provision negotiated by the board, which allows the board
to consider unsolicited offers to purchase the videoconferencing services
business;
- the fact that the sale of our videoconferencing services business must be
approved by the holders of a majority of the company's common stock,
which ensures that the board will not be taking action of which the
stockholders disapprove;
- the risk that after the asset sale our company will have a less
diversified business which would leave our company dependent on the
performance of our network enterprise software and our licensing
business;
- the risk that our company could be exposed to future indemnification
payments for a breach of the representations, warranties and covenants
contained in the asset purchase agreement;
- the risk that we may not receive, or we may only receive a portion of,
the $2,000,000 to be escrowed by VidCon if we are required to cover
purchase price adjustments because of a change in the net asset value of
the assets sold or an increase in deferred revenue associated with our
videoconferencing services business, or if we are required to pay
indemnity claims; and
- the risk that the asset sale might not be consummated, which could result
in a decline in the price of our common stock, limit our ability to grow
and implement our current business strategies and, under certain
circumstances, result in our paying VidCon a termination fee of $500,000.
Although the Raymond James & Associates, Inc. opinion was delivered
December 19, 2002 and the definitive agreement was not executed until January 6,
2003, the changes made to the asset purchase agreement during this time were not
material and did not alter the consideration to be received by us that was
finalized on December 19, 2002. The board, therefore, believes it was
appropriate to rely on the December 19, 2002 opinion of Raymond James &
Associates, Inc.
In view of the variety of factors considered in connection with its
evaluation of the asset sale, the board of directors did not find it practical
to, and did not quantify or otherwise attempt to, assign relative weights to the
specific factors considered in reaching its conclusions. In considering the
opinion we received from Raymond James & Associates, Inc., the board of
directors was aware of the fact that Raymond James & Associates, Inc. will
receive a fee if this transaction is consummated and took it into account in its
deliberations. While Raymond James & Associates, Inc. would not be compensated
as significantly if the transaction is not consummated, the board was of a view
that Raymond James & Associates, Inc. would render its opinion based on its
professional judgment, unaffected by this conflict of interest. Even so,
stockholders should consider this potential conflict of interest in assessing
the importance of the fairness opinion when deciding how to vote on this
proposal. See page 39 for a description of the compensation to be paid to
Raymond James & Associates, Inc.
In arriving at its determination that the asset sale is in the best
interests of our company and its stockholders, the board did not apply a
discount factor to the $2,000,000 to be placed in escrow by VidCon to account
for the time value of money to reflect that $2,000,000 in the future is worth
less than $2,000,000 in the present. The board did not apply a time value of
money discount due to the low interest rate environment that existed then and
that currently exists, and due to the relatively short duration of the deposit
in escrow, consisting of $1,000,000 escrowed for 120 days and an additional
$1,000,000 escrowed for 18 months. Using the rate that the company currently
earns on its cash balances of 2.5% to discount the escrow deposit to present
value, a discount factor of approximately $45,000 would result, which we
consider immaterial in the context of the magnitude of this transaction.
The board also did not apply a discount factor to the $2,000,000 to be
placed in escrow to reflect the possibility that these additional escrowed funds
may not be paid to the company. The board did not apply this possibility of
non-payment discount to the escrowed amount because the information available to
the
30
board at that time indicated that all of the escrowed funds would, in all
reasonable likelihood, be disbursed to the company. This information reflected
that neither of the thresholds that would result in a purchase price adjustment
occurring would be breached. Further, when the board approved the transaction,
it did not believe that there would be any indemnity claims payable due to the
company's active negotiation of the representations and warranties in the asset
purchase agreement, the review of the representations and warranties made by the
company and the company's related investigations to ascertain the accuracy of
those representations and warranties, together with the fact that the company is
not liable for indemnity claims until the aggregate of all such claims exceeds
$150,000.
Because future events are at times difficult to foresee, however, we can
give no assurances that either or both of these adjustments will not occur.
Stockholders may decide to apply discount factors to the $2,000,000 to be placed
in escrow when assessing how to vote on the proposal to sell substantially all
of the assets of our videoconferencing services business. Using the rate the
company currently earns on cash balances of 2.5% to account for the time value
of money and discounting the $2,000,000 by 10% to account for the possibility
that there will be purchase price adjustments and/or indemnity claims exceeding
$150,000, the assumed discounted value of the $2,000,000 to be placed in escrow
would be approximately $1,762,000. Different assumptions pertaining to the
present value discount or pertaining to the possibility of non-payment discount
could provide different results. The effort to present these discounts is
designed to show the impact that these types of discounts may have on a
valuation of $2,000,000 to be received in the future, and is not intended to
represent what amount the company will actually receive. The board did not take
these discounts into account in authorizing this transaction for the reasons
noted above. Even if considered, the aggregate consideration to be received
using the assumed discounts would still exceed the minimum cash threshold
approved by the board on December 11, 2002 of $9,000,000 even if a portion was
escrowed. Nonetheless, in deciding how to vote, you may wish to value the
$2,000,000 to be received in the future using discount factors and the
discounted value of $2,000,000 may effect how you may wish to vote.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The board of directors has determined that the sale of our
videoconferencing services business is in the best interests of our company and
our stockholders. The board of directors has unanimously approved the asset
purchase agreement and unanimously recommends that the stockholders vote in
favor of the proposal to approve the sale of substantially all of the assets
used in the operation of our videoconferencing services business to VidCon, a
wholly-owned subsidiary of GTG Holdings, pursuant to the asset purchase
agreement and the transactions contemplated by the asset purchase agreement.
OPINION OF OUR FINANCIAL ADVISOR
Our company retained Raymond James & Associates, Inc. to assist in the
consideration of strategic alternatives for our videoconferencing services
business. Our company requested Raymond James & Associates, Inc. to evaluate the
fairness, from a financial point of view, of the consideration to be received by
us in the sale of our videoconferencing services business. There were some
important aspects to the process of obtaining the report and conclusions in the
report which you should consider when referring to the Raymond James &
Associates, Inc. opinion, as follows:
- In rendering its opinion, Raymond James & Associates, Inc. did not
independently review or appraise the valuation of the liabilities to be
assumed by VidCon, and accepted our management's valuation without any
review of those liabilities, which liabilities represented a majority of
the consideration that Raymond James & Associates, Inc. assumed would be
received by us in this transaction.
- In rendering its opinion, Raymond James & Associates, Inc. assumed
$11,200,000 of liabilities would be assumed in the purchase, while as of
the date of this proxy statement the total liabilities associated with our
videoconferencing services business are estimated at approximately
$8,000,000. See "Special Considerations You Should Take into Account in
Deciding How to Vote on the
31
Proposal to Sell Our Videoconferencing Services Business -- The fairness
opinion does not address changes in the value of the liabilities to be
assumed since the date of the opinion" on page 44.
- In rendering its opinion, Raymond James & Associates, Inc. assumed that we
will receive $10,000,000 in cash, while the terms of the asset purchase
agreement call for us to receive $8,000,000 in cash at closing and an
additional $2,000,000 as contingent consideration, subject to the existence
of purchase price adjustments and indemnity claims.
- In rendering its opinion, Raymond James & Associates, Inc. did not adjust
the $2,000,000 of contingent consideration to account for the time value of
money or the possibility that these additional amounts will not be paid.
- In analyzing the fairness of the transaction, many of the valuations
derived from the analyses used by Raymond James & Associates, Inc. exceeded
the aggregate consideration to be received by us in the asset sale.
- The great bulk of Raymond James & Associates, Inc.'s consideration in this
transaction will not be paid unless this transaction is consummated.
At a meeting of the board of directors on December 5, 2002 convened to
consider GTG Holdings' proposed purchase, Raymond James & Associates, Inc.
delivered an oral presentation and written opinion to the board of directors to
the effect that, as of such date and based on and subject to the matters set
forth in the opinion and as described below, the consideration to be received by
us pursuant to the asset purchase agreement, as the consideration existed on
that date, was fair, from a financial point of view, to the holders of our
company's common stock. In rendering its December 5, 2002 opinion, during the
course of our negotiations, which were not then complete, Raymond James &
Associates, Inc. assumed and considered the consideration to be received by us
to include the cash consideration of $11,000,000 plus approximately $11,200,000
of liabilities to be assumed, subject to potential adjustments for purchase
price adjustments and indemnity claims. Subsequently, however, GTG Holdings
insisted on a change to the cash component of the purchase price and to escrows
for a portion of the cash consideration.
Subsequent to the December 5, 2002 board meeting, the company,
representatives of Raymond James & Associates, Inc., and our legal counsel and
GTG Holdings and its legal counsel continued negotiations in an effort to
finalize the terms of the asset purchase agreement, including the cash component
of the consideration to be received and the escrow arrangements. On December 19,
2002, the consideration to be received by us in the transaction was finalized.
The material changes from the December 5, 2002 proposal were to reduce the cash
consideration from $11,000,000 to $8,000,000 and to provide that an additional
$2,000,000 would be placed in escrow, $1,000,000 for potential purchase price
adjustments and $1,000,000 for potential indemnity claims. On December 19, 2002,
Raymond James & Associates, Inc. orally confirmed that the consideration to be
received by us pursuant to the asset purchase agreement, as so revised, was
fair, from a financial point of view, to the holders of our company's common
stock. Raymond James & Associates, Inc. later confirmed its oral opinion of
December 19, 2002 in writing with an opinion letter (in substantially the same
form as its December 5, 2002 written opinion) dated December 19, 2002, and
delivered on April 9, 2003 in connection with the preparation of this proxy
statement. The December 19, 2002 opinion was based on total cash consideration
of $10,000,000 and liabilities to be assumed of approximately $11,200,000,
subject to potential adjustments for purchase price adjustments and indemnity
claims. In approving this transaction and recommending it to our stockholders
the board is relying on the oral opinion, since confirmed in writing, of Raymond
James & Associates, Inc. and not on the December 5, 2002 opinion, inasmuch as
the consideration to be received by us was reduced between December 5, 2002 and
December 19, 2002, the date the oral opinion was rendered.
In rendering its opinion, Raymond James & Associates, Inc. assumed that an
amount of liabilities would be assumed by VidCon and did not independently
review or appraise those liabilities. The amount of liabilities used by Raymond
James & Associates, Inc. was derived from financial information provided by the
company. No limitations were imposed by the board of directors upon Raymond
James & Associates, Inc. with respect to the investigations it made or
procedures it followed in rendering its
32
opinion. The opinion addresses only the fairness, from a financial point of
view, of the consideration to be received by us in the transaction and does not
address the overall fairness of the transaction.
The full text of the written opinion of Raymond James & Associates, Inc.,
dated December 19, 2002, which sets forth the assumptions made, matters
considered and limits on the review undertaken, is attached as Annex B to this
proxy statement. Our stockholders are urged to read the opinion in its entirety.
Raymond James & Associates, Inc.'s written opinion is addressed to the board of
directors, is directed only to the fairness, from a financial point of view, of
the consideration to be received by us pursuant to the asset purchase agreement,
not to the overall fairness of the transaction, and does not constitute a
recommendation to any of our stockholders as to how such stockholder should vote
at the annual meeting. The opinion does not express any opinion with respect to
any reasons, legal, business or otherwise, that may support the decision of the
board to approve or consummate the sale of the videoconferencing services
business. The terms of the asset purchase agreement, including the amount of the
consideration, were determined pursuant to negotiations between us and GTG
Holdings, and not pursuant to recommendations of Raymond James & Associates,
Inc.
In connection with Raymond James & Associates, Inc.'s review of the
proposed transaction and the preparation of the opinion, Raymond James &
Associates, Inc. has, among other things:
1. reviewed the financial terms and conditions as stated in the draft
of the asset purchase agreement as well as the terms made available to
Raymond James & Associates, Inc. by the company;
2. reviewed the unaudited financial statements of our
videoconferencing services business as of and for the years ended July 31,
2002, 2001 and 2000, and for the quarter ended October 31, 2002;
3. reviewed the financial projections of our videoconferencing
services business prepared by us for the years ended December 31, 2002 and
2003 and the fiscal years ended July 31, 2003, 2004 and 2005;
4. reviewed our annual and quarterly reports on Form 10-K and 10-Q for
the fiscal years ended July 31, 2002, 2001 and 2000;
5. reviewed certain other information on the videoconferencing
services business made available to Raymond James & Associates, Inc. by us;
6. discussed with members of our senior management certain information
relating to the aforementioned, and any other matters which Raymond James &
Associates, Inc. deemed relevant to the opinion inquiry;
7. reviewed selected publicly available information concerning
companies in businesses considered by Raymond James & Associates, Inc. to
be most comparable to our videoconferencing services business;
8. reviewed financial information and other information concerning
selected completed business combinations deemed to be comparable to our
videoconferencing services business; and
9. reviewed certain other information deemed by Raymond James &
Associates, Inc. to be relevant for purposes of the opinion.
In conducting its investigation and analyses and in arriving at its
opinion, Raymond James & Associates, Inc. took into account such accepted
financial and investment banking procedures and considerations as it deemed
relevant, including a review of the following: historical and projected
revenues, operating earnings, net income of our videoconferencing services
business and certain other publicly held companies in businesses it believed to
be comparable to our videoconferencing services business; the current and
projected financial position and results of operations of our videoconferencing
services business; and the general condition of the securities markets.
As described in its opinion, Raymond James & Associates, Inc. assumed and
relied upon the accuracy and completeness of all information supplied or
otherwise made available to Raymond James & Associates, Inc. by us or any other
party and did not attempt to verify independently any such information.
33
In addition, Raymond James & Associates, Inc. did not make or rely upon any
independent evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) of our company in preparing and delivering its
opinion, nor did Raymond James & Associates, Inc. assess the likelihood that
there would be any purchase price adjustments or indemnity claims. Raymond James
& Associates, Inc. assumed that the financial forecasts, estimates, projections,
and other information with respect to our videoconferencing services business
examined by Raymond James & Associates, Inc. had been reasonably prepared in
good faith on bases reflecting the best currently available estimates and
judgments of our management, and Raymond James & Associates, Inc. relied upon
each party to advise it promptly if any such information previously provided to
or discussed with Raymond James & Associates, Inc. had become inaccurate or had
been required to be updated during the period of its review. In addition,
Raymond James & Associates, Inc. has assumed that the transaction will be
consummated substantially in accordance with the terms set forth in the asset
purchase agreement.
The opinion was based on economic, market, and other conditions as in
effect on, and the information available to it as of December 19, 2002, the date
of the opinion. In rendering its opinion, Raymond James & Associates, Inc.
assumed $11,200,000 of liabilities would be assumed in the purchase. Changes in
the amount of liabilities associated with our videoconferencing services
business have left those liabilities, as of the date of this proxy statement, at
approximately $8,000,000. Raymond James & Associates, Inc. is not required to
update its opinion for these changes, we will not receive another fairness
opinion prior to the closing unless a material amendment is made to the
financial terms of the asset purchase agreement and we may not refrain from
closing the transaction based on changes in assumed liabilities. As a result,
stockholders should consider that the fairness opinion is based on aggregate
consideration of approximately $21,200,000, when the actual consideration to be
received by us is estimated, as of the date of this proxy statement, to be
approximately $16,000,000, largely as a result of the reduction of our deferred
revenue obligation since the signing of the asset purchase agreement. In
addition, VidCon is required to place an additional $2,000,000 in escrow to
cover potential purchase price adjustments and indemnity claims payable by us
under the asset purchase agreement. These funds will be distributed to us
pursuant to the terms of the asset purchase agreement, less any purchase price
adjustments and indemnity claims payable by us. See page 6 and the question
entitled "Has any material change in the purchase price occurred since the time
that the asset purchase agreement was signed and, if so, how do we view that
change?" The board of directors determined to approve the proposed transaction
and recommend it to our stockholders based on a number of factors, including the
fairness opinion analyses, with some additional emphasis on the ranges of
consideration offered to us by other bidders after conducting an extensive
auction process. Please see "Reasons for the Sale of Our Videoconferencing
Services Business" on pages 29 through 31 for a complete description of the
factors considered by the board in determining to approve and recommend the
transaction with VidCon.
FAIRNESS OPINION ANALYSES
The following is a summary of the analyses performed by Raymond James &
Associates, Inc. in connection with the delivery of Raymond James & Associates,
Inc.'s December 5, 2002 opinion, which analyses were applied by Raymond James &
Associates, Inc. in rendering its December 19, 2002 opinion. This summary is not
a complete description of the analyses underlying the opinion. Raymond James and
Associates, Inc.'s opinion regarding the fairness of the consideration to be
received by us in the transaction was not based on any one analysis or any
particular subset of these analyses but rather gave consideration of all of the
analyses taken as a whole.
Discounted Cash Flow Analysis. Raymond James & Associates, Inc. performed
a discounted cash flow analysis based on the unlevered discounted cash flow of
the projected three-year financial performance of our videoconferencing services
business. Raymond James & Associates, Inc. prepared projections for calendar
years 2003-2005 for our videoconferencing services business based on our
projections for calendar years 2003-2005 and on certain assumptions provided by
our management regarding the performance of our videoconferencing services
business. Terminal values were calculated by applying an earnings before
interest, taxes, depreciation and amortization, or EBITDA, multiple ranging from
3.5x to 5.5x to the
34
projected EBITDA of our videoconferencing services business in fiscal year 2005.
Discount rates ranging from 12% to 18% were selected to reflect the risk
inherent in our business and our projections. Based on this analysis, our
implied equity value ranged from $14.7 million to $28.6 million with a midpoint
of $21.2 million. Discounted cash flow analysis is a widely used valuation
methodology, but it relies on numerous assumptions, including assets and
earnings growth rates, terminal values, and discount rates. This analysis is not
necessarily reflective of the actual value of our videoconferencing services
business.
Analysis of Publicly Traded Comparable Companies. Raymond James &
Associates, Inc. analyzed selected historical financial, operating, and stock
market data of our videoconferencing services business and other publicly traded
companies that Raymond James & Associates, Inc. deemed to be comparable to our
videoconferencing services business. The eight public companies deemed by
Raymond James & Associates, Inc. to be reasonably comparable to our
videoconferencing services business in terms of services offered, markets
served, and business prospects were Clear One Communications Corp., Electronic
Data Systems Corp., Genesys S.A., MCSi, Inc., Perot Systems, Predictive Systems,
Raindance Communications, Inc. and Wire One Technologies, Inc.
Although we were included in the analysis for reference purposes, our
videoconferencing services business was not included in any calculation of
implied multiples for purposes of Raymond James & Associates, Inc.'s analysis.
The comparable company and comparable transaction analyses, as is typical,
were based on market data for companies deemed to be similar to our
videoconferencing services business and from previous transactions involving
companies deemed similar to our videoconferencing services business. Since no
company or transaction is precisely comparable to our videoconferencing services
business, the analyses relied on data from a group of companies and
transactions. Accordingly, an analysis of the results of the foregoing
necessarily involves complex considerations and judgments concerning the
differences in financial and operating characteristics of our videoconferencing
services business and other factors that could affect the public trading value
of the comparable companies to which they are being compared. If single company
or transaction comparisons were to be used, the implied value for our
videoconferencing services business would vary significantly depending on which
company or transaction is chosen. For this reason, the analyses present the
results for not only the highest and lowest implied values for each analysis but
also the results for the median and mean values for the entire group of
companies or transactions analyzed.
Raymond James & Associates, Inc. examined certain publicly available
financial data of the eight comparable public companies, including the ratio of
enterprise value (equity value plus total debt, including preferred stock, less
cash and cash equivalents) to the following metrics: trailing twelve months net
revenues, trailing twelve months EBITDA, and trailing twelve months earnings
before interest and taxes, or EBIT, trailing twelve months net income, calendar
year 2002 net revenues, calendar year 2002
35
EBITDA, calendar year 2002 EBIT, calendar year 2002 net income, calendar year
2003 net revenues, calendar year 2003 EBITDA, calendar year 2003 EBIT and
calendar year 2003 net income.
MARKET MULTIPLES
---------------------------
RANGE MEDIAN MEAN
---------- ------ -----
Enterprise Value/TTM(1) Net Revenue...................... 0.5x-2.5x 0.8x 1.0x
Enterprise Value/TTM EBITDA.............................. 3.7x-12.3x 4.8x 6.4x
Enterprise Value/TTM EBIT................................ 5.8x-11.6x 6.3x 7.5x
Enterprise Value/TTM Net Income.......................... 7.2x-19.8x 8.7x 11.1x
Enterprise Value/CY(2)2002 Net Revenue................... 0.5x-2.3x 0.8x 0.9x
Enterprise Value/CY2002 EBITDA........................... 3.9x-14.3x 6.1x 7.2x
Enterprise Value/CY2002 EBIT............................. 6.8x-9.7x 7.6x 7.9x
Enterprise Value/CY2002 Net Income....................... 8.2x-16.8x 10.1x 11.3x
Enterprise Value/CY2003 Net Revenue...................... 0.3x-1.8x 0.7x 0.8x
Enterprise Value/CY2003 EBITDA........................... 1.7x-7.5x 4.6x 4.8x
Enterprise Value/CY2003 EBIT............................. 1.9x-15.0x 6.8x 7.7x
Enterprise Value/CY2003 Net Income....................... 3.2x-27.7x 8.1x 11.2x
---------------
(1) "TTM" is an abbreviation for trailing twelve months.
(2) "CY" is an abbreviation for calendar year.
Raymond James & Associates, Inc. then applied the ratios derived from its
comparable public company analysis to our videoconferencing services business
unaudited operating results for its fiscal trailing twelve months, calendar year
2002 and calendar year 2003 to determine an implied enterprise value for our
videoconferencing services business. The following table summarizes the results
of this analysis.
IMPLIED ENTERPRISE VALUE
----------------------------
RANGE MEDIAN MEAN
----------- ------ -----
($, MILLIONS)
Enterprise Value/TTM Net Revenues....................... $ 8.9-$45.6 $14.6 $18.4
Enterprise Value/TTM EBITDA............................. $19.4-$64.8 $25.2 $33.9
Enterprise Value/TTM EBIT............................... $24.4-$48.9 $26.5 $31.6
Enterprise Value/CY2002 Net Revenues.................... $ 8.4-$40.7 $14.1 $16.7
Enterprise Value/CY2002 EBITDA.......................... $20.5-$75.4 $32.0 $38.1
Enterprise Value/CY2002 EBIT............................ $29.3-$41.7 $32.6 $34.1
Enterprise Value/CY2003 Net Revenues.................... $ 5.9-$31.1 $11.8 $13.5
Enterprise Value/CY2003 EBITDA.......................... $ 9.6-$41.1 $25.0 $26.5
Enterprise Value/CY2003 EBIT............................ $ 8.3-$67.0 $30.5 $34.3
Analysis of Selected Merger and Acquisition Transactions. Raymond James &
Associates, Inc. compared the proposed asset sale with selected comparable
merger and acquisition transactions. No transaction analyzed in Raymond James &
Associates, Inc.'s comparable transaction analysis was identical to the asset
sale. Accordingly, this analysis necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics and
other factors between us and the other transactions considered that could affect
the acquisition value of the companies to which our videoconferencing services
business was being compared.
36
Raymond James & Associates, Inc. performed an analysis of 35 merger and
acquisition transactions of electronic conferencing services and outsourced IT
services companies that occurred between June, 1998 and October, 2002. The 35
merger and acquisition transactions considered were:
DATE TTM TTM TTM TTM NET
ANNOUNCED TARGET TARGET DESCRIPTION REVENUES EBITDA EBIT INCOME
--------- ------ ------------------ -------- ------- ------- ---------
($, MILLIONS)
Electronic Conferencing
10/04/02 eRoom Technology Developer of document collaboration
software............................. $ 37.0 $ N/A $ N/A $ N/A
06/04/02 Global Enterprise conference room scheduling
Scheduling and resource management solutions.... 0.5 N/A N/A N/A
Solutions
01/22/02 E.mergent Provider of videoconferencing
products and services................ 22.4 1.5 0.9 0.5
05/24/01 Picture Tel Producer of PC-based video
collaboration solutions.............. 229.6 (85.1) (103.9) (97.5)
12/05/00 Accord Networks Producer of IP-based voice and video
communications solutions............. 36.6 2.8 1.5 (4.3)
10/09/00 Intellisys Provides integration and support
Group, Inc. services for audio-visual
conferencing solutions............... 149.1 (6.7) (20.3) (30.1)
10/01/00 Vialog Corp. Specialist provider of conferencing
services............................. 75.5 15.4 5.9 (8.7)
09/15/00 Westek Provides integration services for
Presentation audio- visual conferencing
Systems solutions............................ 14.0 N/A N/A N/A
07/06/00 Midwest Visual Reseller and integrator of
audio-visual conferencing
solutions............................ 45.3 N/A 2.8 1.7
02/16/00 Duocom Provides integration services for
audio-visual conferencing
solutions............................ N/A N/A 3.0 1.8
02/04/00 Fairview-AFX, Reseller and integrator of audio
Inc. visual conferencing solutions........ 16.4 N/A 0.5 0.3
01/07/00 Video Images Provides audio-visual conferencing
products and services................ N/A N/A 0.6 0.3
12/15/98 Dreher Manufacturer of audio-visual
conferencing products................ N/A N/A 4.7 2.8
08/16/99 Technical Provides integration services for
Industries audio- visual conferencing
solutions............................ N/A 1.6 1.1 0.7
07/01/99 Williams Videoconferencing, satellite, audio
Conferencing conferencing......................... 22.9 N/A N/A N/A
04/14/99 VideoWeb Operator-assisted multipoint
videoconferencing services........... 2.3 N/A N/A N/A
04/01/99 Aloha Operator-assisted teleconferencing
Conferencing services............................. 8.5 N/A N/A 1.0
12/11/98 Axidata Reseller of computer technology
solutions............................ N/A N/A 5.2 3.1
07/17/98 Consolidated Reseller and integrator of
Media Systems audio-visual conferencing
solutions............................ 69.5 3.1 2.5 1.8
06/01/98 Electronic Image Integration services for audio-visual
Systems conferencing solutions and computer
equipment............................ 12.4 N/A N/A N/A
Outsourced IT Services
09/04/01 Century Computer Provides IT services................. 379.6 (14.1) (26.7) (4.4)
Consultants
10/05/01 Renaissance Provides IT consulting services...... 338.9 (9.5) (19.7) (20.0)
Worldwide Inc
06/14/01 Aris Corp Provides computer related services... 65.7 (10.5) (9.6) (4.0)
37
DATE TTM TTM TTM TTM NET
ANNOUNCED TARGET TARGET DESCRIPTION REVENUES EBITDA EBIT INCOME
--------- ------ ------------------ -------- ------- ------- ---------
($, MILLIONS)
05/23/01 Structural Develops software, engineering
Dynamics services............................. 459.6 46.6 22.1 2.7
Research
05/14/01 Digital Island Provides IT Networks services........ 104.6 (221.2) (522.5) (1,547.2)
Inc
05/07/01 Proxicom Inc Provides IT consulting services...... 208.0 (6.2) (27.0) (59.5)
04/19/01 Mainspring Inc Provides business consulting
services............................. 37.2 (21.4) (22.6) (20.0)
04/02/01 Systematics AG Provides computer integration
services............................. 570.0 20.3 13.4 11.3
02/21/01 IMRglobal Corp Provides IT services................. 256.2 25.0 8.6 2.8
03/13/01 Cambridge Global IT services and e-solutions
Technology provider............................. 586.6 (61.3) (85.5) (73.3)
02/27/01 Planning Consulting and infrastructure
Technologies services............................. 30.0 N/A N/A N/A
09/26/00 Synet Service Consulting and systems integration
Corp. services............................. 11.0 N/A N/A N/A
08/10/00 Human Code IT and computer systems design
services............................. 20.0 N/A N/A N/A
04/13/00 Sequoia IT solutions services................ 57.0 N/A 3.8 N/A
03/31/00 SCA/Harris Technology consulting services....... 15.0 N/A N/A N/A
Chapman
The following table summarizes the results of this analysis.
SELECTED MERGER AND ACQUISITION TRANSACTIONS ANALYSIS SUMMARY
MARKET MULTIPLE
---------------------------
RANGE MEDIAN MEAN
---------- ------ -----
Enterprise Value/TTM Net Revenue......................... 0.1x- 9.4x 1.5x 1.9x
Enterprise Value/TTM EBITDA.............................. 7.3x-18.7x 15.8x 14.1x
Enterprise Value/TTM EBIT................................ 4.3x-34.4x 8.4x 11.8x
Raymond James & Associates, Inc. then applied the ratios derived from the
comparable transaction analysis to our videoconferencing services business'
unaudited operating results for the trailing twelve months to determine an
implied enterprise value. The following table summarizes the results of this
analysis.
SELECTED MERGER AND ACQUISITION TRANSACTIONS ANALYSIS SUMMARY
IMPLIED ENTERPRISE VALUE
-----------------------------
RANGE MEDIAN MEAN
------------ ------ -----
($, MILLIONS)
Enterprise Value/TTM Net Revenue....................... $ 1.6-$169 $26.7 $33.6
Enterprise Value/TTM EBITDA............................ $38.2-$ 98.4 $83.5 $74.2
Enterprise Value/TTM EBIT.............................. $18.0-$145.3 $35.6 $50.0
Auction Process. Raymond James & Associates, Inc. also considered the
results of the auction process conducted by it and the company from August 19,
2002 to November 2, 2002, during which time 89 potential purchasers were
contacted, as described on page 27 above. The company received three indications
of interest as a result of this process and Raymond James & Associates, Inc.
concluded that the proposal received from GTG Holdings was superior to the other
indications of interest received by the company. In rendering its opinion,
Raymond James & Associates, Inc. did not focus on the auction process as being
the most significant factor or the primary basis in establishing its
conclusions, but considered it to be a significant factor along with the other
analyses considered by Raymond James & Associates, Inc.
38
Opinion of Raymond James & Associates, Inc. The summary set forth above
does not purport to be a complete description of the analyses of data underlying
Raymond James & Associates, Inc.'s opinion or its presentation to the board of
directors. The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. Raymond
James & Associates, Inc. believes that its analyses must be considered as a
whole and that selecting portions of its analyses, without considering the
analyses taken as a whole, would create an incomplete view of the process
underlying the analyses set forth in its opinion. In addition, Raymond James &
Associates, Inc. considered the results of all such analyses and did not assign
relative weights to any of the analyses, so the ranges of valuations resulting
from any particular analysis described above should not be taken to be Raymond
James & Associates, Inc.'s view of the actual value of the videoconferencing
services business. In undertaking its analysis, Raymond James & Associates, Inc.
considered, among the other aspects of its analyses discussed above, those which
indicated a potential value for the videoconferencing services business greater
than the proposed asset sale consideration.
In summary, while Raymond James & Associates, Inc. based its opinion on the
totality of the analyses it conducted and not on any single analysis, Raymond
James & Associates, Inc. nonetheless examined each of the cases where the
implied value under a particular analysis exceeded the proposed asset sale
consideration and came to the opinion that in each case there were circumstances
which argued against relying solely on the results of such analysis. For
example, because the revenues of our videoconferencing services business had
declined in each of the last four years, and our EBITDA, EBIT and net income had
declined at a greater rate than revenues, Raymond James & Associates, Inc.
believed the valuation of our videoconferencing services business should be at
the low end of, or below, the ranges of values derived from the discounted cash
flow, comparable companies and comparable transactions analyses. Raymond James &
Associates, Inc. also observed that, as to the comparable companies and
comparable transactions analyses, it had more information concerning revenues
than EBITDA and EBIT, because of the absence of EBITDA and EBIT projections for
some of the public companies and because some of the companies included in the
comparable transactions analyses were private and only revenue information was
available. Raymond James & Associates, Inc. also observed that some of the
comparable transactions it analyzed occurred prior to 2001 when the market in
general, and particularly for this industry, provided higher valuations for
businesses than at the time of Raymond James & Associates, Inc.'s opinion. In
considering these circumstances, as discussed above, and in considering the
results of the complete set of analyses using a variety of methodologies,
Raymond James & Associates, Inc. formed its opinion described herein.
In performing its analyses, Raymond James & Associates, Inc. made numerous
assumptions with respect to industry performance, general business, economic and
regulatory conditions and other matters, many of which are beyond our control.
The analyses performed by Raymond James & Associates, Inc. are not necessarily
indicative of actual values, trading values or actual future results which might
be achieved, all of which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part of
Raymond James & Associates, Inc.'s analysis of the fairness of the consideration
to be received by us from a financial point of view and were provided to the
board of directors. The analyses do not purport to be appraisals or to reflect
the prices at which businesses or securities might be sold. In addition, as
described above, the opinion of Raymond James & Associates, Inc. was one of many
factors taken into consideration by the board of directors in making its
determination to approve the transaction. Consequently, the analyses described
above should not be viewed as determinative of the board of directors' opinion
with respect to the value of the videoconferencing services business.
We have paid Raymond James & Associates, Inc. a retainer fee of $50,000, as
well as an additional fee of $50,000 for rendering the fairness opinion. If the
transaction is consummated, Raymond James & Associates, Inc. will receive an
additional fee of approximately $450,000. We have also agreed to reimburse
Raymond James & Associates, Inc. for its reasonable out-of-pocket expenses and
to provide customary indemnification protection to Raymond James & Associates,
Inc. In the ordinary course of business, Raymond James & Associates, Inc. may
trade in our securities for its own account and for the
39
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities. Except as set forth here, we have not engaged in
any other material relationships with Raymond James & Associates, Inc. during
the past two years.
Raymond James & Associates, Inc. has consented to the descriptions of its
opinion in, and the inclusion of its opinion as an annex to, this proxy
statement.
Our company selected Raymond James & Associates, Inc. based on its
experience, expertise and reputation. Raymond James & Associates, Inc. is
actively engaged in the investment banking business and regularly undertakes the
valuation of businesses in connection with business combinations and similar
transactions.
PROCEEDS OF THE SALE OF OUR VIDEOCONFERENCING SERVICES BUSINESS
Our company will retain the proceeds of the sale of our videoconferencing
services business. It is the intention of the board of directors to use the
proceeds, along with our other cash and cash equivalents, in connection with our
future business plan to grow our remaining business by expanding product and
service offerings and to potentially further expand through acquisitions of
complementary businesses. At this time, however, we do not have any formal
acquisition plans or proposals outstanding or other arrangements to pursue
alternate business opportunities with potential acquisition targets.
STOCKHOLDER APPROVAL OF THE SALE OF OUR VIDEOCONFERENCING SERVICES BUSINESS;
VOTE REQUIRED
Under section 271 of the Delaware General Corporation Law, the sale by our
company of "all or substantially all" of our assets requires approval by the
affirmative vote of the holders of a majority of the voting power of all
outstanding shares of our common stock on the record date. We, in consultation
with our legal counsel, have determined that the sale of substantially all of
the assets used in the operation of our videoconferencing services business to
VidCon may constitute a sale of "all or substantially all" of our assets based
on current interpretations of that term. The asset purchase agreement provides
that, as a condition to our obligation to consummate the transactions
contemplated by the asset purchase agreement, we must obtain the consent of our
stockholders, if required under Delaware General Corporation Law. Therefore, the
affirmative vote of the holders of at least a majority of the voting power of
all outstanding shares of our common stock on the record date must be obtained.
NO CHANGES TO THE RIGHTS OF SECURITY HOLDERS; NO APPRAISAL RIGHTS
Our stockholders will not experience any change in their rights as
stockholders as a result of the sale of substantially all of the assets used in
the operation of our videoconferencing services business. We are organized under
the corporate laws of the State of Delaware. Neither Delaware law, our
certificate of incorporation nor our bylaws provides for appraisal or other
similar rights for dissenting stockholders in connection with this transaction.
Accordingly, our stockholders will have no right to dissent and obtain payment
for their shares.
REGULATORY MATTERS
No material regulatory approvals, filings or consents are required to
complete the sale of our videoconferencing services business.
ACCOUNTING TREATMENT
The proposed sale of substantially all of the assets used in the operation
of our videoconferencing services business is expected to be accounted for as a
sale of assets.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following describes the material United States federal income tax
consequences of the proposed sale of our videoconferencing services business to
VidCon that are generally applicable to our company and
40
its stockholders. The following discussion is based on the current provisions of
the Internal Revenue Code, existing, temporary, and proposed Treasury
regulations thereunder, and current administrative rulings and court decisions.
Future legislative, judicial or administrative actions or decisions, which may
be retroactive in effect, may affect the accuracy of any statements in this
summary with respect to the transactions entered into or contemplated prior to
the effective date of those changes.
The proposed sale of our videoconferencing services business to VidCon will
be a transaction taxable to our company for United States federal income tax
purposes. Our company will recognize taxable income equal to the amount realized
on the sale in excess of our tax basis in the assets sold. The amount realized
on the sale will consist of the cash our company receives in exchange for the
assets sold, including the amount of any cash subsequently received from the
amounts escrowed at closing, plus the amount of liabilities assumed by VidCon.
Although the sale of our videoconferencing services business to VidCon will
result in a taxable gain to the Company, our available federal income tax net
operating and net capital loss carry forwards, as currently reflected on the
company's consolidated federal income tax returns, are in excess of the
estimated amount of the gain. However, for purposes of computing our Alternative
Minimum Tax liability, Internal Revenue Code Section 56(d) does not permit a
corporation's net operating loss carryforwards to offset more than 90% of the
corporation's alternative taxable income. Due to this limitation and depending
upon the operating results during the remaining quarters of our fiscal year
ending July 31, 2003, we may incur Alternative Minimum Tax, which, in general,
will result in an effective tax rate of approximately two percent. The
availability and amount of tax loss carry forwards are subject to audit and
adjustment by the Internal Revenue Service. In the event that the Internal
Revenue Service adjusts the loss carry forwards, our company may incur a tax
liability.
Our stockholders will experience no federal income tax consequences as a
result of the consummation of the proposed sale of our videoconferencing
services business to VidCon.
Our company files income tax returns in more than one state. Because state
income tax laws do not necessarily follow federal law, and because state laws
themselves differ, the state income tax consequences of the sale of our
videoconferencing services business to VidCon will vary state by state. The tax
loss carry forwards in a particular state may not completely offset state
taxable income, and state income tax may be incurred on the sale. However, it is
not anticipated that the sale will result in a material amount of state income
taxes.
EACH HOLDER OF OUR COMMON STOCK IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR AS TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE SALE, AND ALSO AS TO
ANY STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES BASED ON HIS OR HER OWN
PARTICULAR FACTS AND CIRCUMSTANCES.
VOTING BY OUR DIRECTORS AND EXECUTIVE OFFICERS
As of May 22, 2003, our directors and executive officers owned of record
812,099 shares of our common stock, representing approximately 3.3% of the
outstanding shares of common stock. Directors and executive officers,
representing approximately 2.4% of the outstanding shares of common stock on the
record date, have agreed to vote at the annual meeting in favor of the proposal
to sell substantially all of the assets used in the operation of our
videoconferencing services business to VidCon, pursuant to the terms of voting
agreements entered into by such directors, executive officers and GTG Holdings
and VidCon.
INTERESTS OF MANAGEMENT, DIRECTORS AND SIGNIFICANT STOCKHOLDERS IN THE SALE OF
OUR VIDEOCONFERENCING SERVICES BUSINESS
We have entered into change-in-control agreements, also called parachute
agreements, with members of our senior management, which provide that if the
officer is terminated within a specified amount of time after a "change in
control" of our company we will pay to the officer an amount equal to one times
his or
41
her current year's salary and will accelerate the vesting schedule of his or her
unvested stock options. The definition of "change in control" contained in the
parachute agreements includes, among other things, the stockholders of the
company approving a sale of all or substantially all of the company's assets.
While not dispositive of the issue for purposes of the parachute agreements, the
consummation of the transactions set forth in this proxy statement could be
deemed to represent a change in control, as defined in those agreements. In
order to forestall any ambiguity related to this question, the members of our
senior management that have these agreements have agreed to waive any
consequences under these agreements resulting from the consummation of the sale
of our videoconferencing services business to VidCon.
Dennis Egan, our Vice President, Services, will become employed by VidCon
and enter into an employment agreement with VidCon upon the consummation of the
sale of our videoconferencing services business to VidCon. Dennis Egan has also
agreed to waive his rights under his parachute agreement with the company, to
terminate such agreement and to waive all claims against us in connection with
the parachute agreement, effective as of the closing of the asset purchase
agreement, in exchange for our agreement to extend the exercise period for his
options and to pay him a cash payment of $170,000.
OUR OPERATIONS FOLLOWING THE SALE OF OUR VIDEOCONFERENCING SERVICES BUSINESS
Following the sale of our videoconferencing services business, we will no
longer engage in that business. Our remaining business operations will consist
primarily of the sale of network management and scheduling software and patent
and intellectual property licensing.
SPECIAL CONSIDERATIONS YOU SHOULD TAKE INTO ACCOUNT IN DECIDING HOW TO VOTE ON
THE PROPOSAL TO SELL OUR VIDEOCONFERENCING SERVICES BUSINESS
You should carefully consider the special considerations described below as
well as other information provided to you in this document in deciding how to
vote on the proposal to sell our videoconferencing services business. The
special considerations described below are not the only ones facing our company.
Additional considerations not presently known to us or that we currently believe
are immaterial may also impair our business operations. If any of the following
special considerations actually occur, our business, financial condition or
results of operations could be materially adversely affected, the value of our
common stock could decline, and you may lose all or part of your investment.
SPECIAL CONSIDERATIONS REGARDING THE PROPOSAL TO SELL OUR VIDEOCONFERENCING
SERVICES BUSINESS
The amount of cash we receive in this transaction will vary, depending on some
future contingencies, so that we may not receive all of the cash provided for
in the asset purchase agreement.
Pursuant to the terms of the asset purchase agreement, we will enter into
an escrow agreement at closing with GTG Holdings, VidCon and an escrow agent,
whereby $2,000,000 will be placed with the escrow agent by VidCon, $1,000,000 of
which is for potential purchase price adjustments and $1,000,000 of which is for
potential indemnity claims. This escrow deposit is to be funded in addition to
the cash to be paid to us at closing. The purchase price adjustment escrow will
be used to pay for purchase price adjustments resulting from the final
determination that either:
- the net assets that were transferred to VidCon on the closing date were
less than $3,800,000, or
- the deferred revenue assumed by VidCon on the closing date was greater
than $7,600,000.
To the extent that these adjustments have not already been accounted for in
any adjustment to the $8,000,000 of cash we are to receive at closing, these
adjustments will initially be taken out of the $1,000,000 escrowed specifically
for this purpose. If these adjustments were to exceed that $1,000,000, then the
company would be required to pay such excess to VidCon. The cash placed in
escrow for this purpose is generally payable 120 days after the closing.
42
The indemnity claim escrow will be used to pay for losses incurred by
VidCon and/or GTG Holdings arising out of or resulting from:
- any inaccuracy in any representation or the breach of any warranty made
by us in the asset purchase agreement;
- our company's failure to duly perform or observe any covenant or
agreement in the asset purchase agreement that we are required to perform
or observe, whether prior to, at or after the date of closing; or
- liabilities and obligations that VidCon has not assumed.
These losses will initially be taken out of the $1,000,000 escrowed
specifically for this purpose. If these losses were to exceed that $1,000,000,
then the Company would be required to pay such excess to VidCon and/or GTG
Holdings. The cash placed in escrow for this purpose is generally payable 18
months after the closing.
As such, while $2,000,000 is to be escrowed by VidCon and is to be
distributed to us subject to these contingencies, we may not receive the
escrowed funds, or the amount we actually receive may be less than the amount of
the escrow.
We will be unable to compete in the videoconferencing services business for
four years from the date of closing.
We have agreed that, without the prior written consent of GTG Holdings and
VidCon, we will not,
- engage in;
- own or control any interest in (except as a passive investor of less than
two percent of the capital stock or publicly traded notes or debentures
of a publicly held company);
- act as an officer, director, partner, member or joint venturer of;
- lend credit or money for the purpose of establishing or operating; or
- allow such entity's name or reputation to be used by,
any entity that is engaged in any line of business that competes with the
videoconferencing services business as it exists on the date of closing anywhere
in the world. Our enterprise network management and scheduling software
business, the bundling and sale of our enterprise network management and
scheduling software with appropriate hardware and our patent and intellectual
property licensing businesses are not deemed to compete with the
videoconferencing services business. However, the non-compete provisions will
restrict our ability to engage in business in the videoconferencing services
business for four years from the date of closing.
There is no plan to distribute any of the proceeds of the sale of our
videoconferencing services business to our stockholders.
We do not intend to distribute any portion of the proceeds from the sale of
our videoconferencing services business to our stockholders. Currently, we
intend to use the proceeds from the sale of that business to fund and grow our
remaining businesses.
Management could spend or invest the proceeds from the sale of our
videoconferencing services business in ways with which our stockholders may
not agree, including the possible pursuit of other market opportunities.
Our management could spend or invest the proceeds from the sale of our
videoconferencing services business in ways with which our stockholders may not
agree. The investment of these proceeds may not yield a favorable return.
Furthermore, because the market for our remaining businesses is evolving, in the
future we may discover new opportunities that are more attractive. As a result,
we may commit resources to these alternative market opportunities. This action
may require us to limit or abandon our currently
43
planned focus on collaboration tools for the enterprise software market. If we
change our business focus we may face risks that may be different from the risks
associated with the enterprise software market.
The asset purchase agreement will expose us to contingent liabilities.
Under the asset purchase agreement, we have agreed to indemnify GTG
Holdings and VidCon for any breach of our representations and warranties
contained in the asset purchase agreement and for other matters, subject to
certain limitations. For example, an indemnification claim by GTG Holdings or
VidCon might result if we are inaccurate in any of our representations about the
assets comprising our videoconferencing services business. Significant
indemnification claims by GTG Holdings and VidCon could have a material adverse
effect on our business. Such claims will initially be taken out of the
$1,000,000 to be escrowed by VidCon specifically for this purpose, so that we
may never receive any of this $1,000,000. In addition, if the aggregate of all
indemnification claims were to exceed the $1,000,000 held in escrow specifically
for this purpose, the company would be required to pay any such excess to GTG
Holdings and VidCon. In addition to the $1,000,000 to be held in escrow for
indemnity claims by GTG Holdings and VidCon, VidCon is also required to place an
additional $1,000,000 in escrow for possible purchase price adjustments.
The fairness opinion was rendered by Raymond James & Associates, Inc. prior to
the execution of the definitive asset purchase agreement.
In rendering its fairness opinion of December 19, 2002, that the
consideration to be received by us was fair, from a financial point of view, to
the company's stockholders, Raymond James & Associates, Inc. based its opinion
on the proposed terms of the transaction as they existed on that date. While the
changes made to the asset purchase agreement between December 19, 2002 and
January 6, 2003 were not material and did not alter the consideration to be
received by us that was finalized on December 19, 2002, the definitive asset
purchase agreement was not executed until approximately two and a half weeks
after the delivery of the fairness opinion. When evaluating the fairness opinion
of Raymond James & Associates, Inc., stockholders should consider the fact that
a delay occurred between the delivery of the fairness opinion and the execution
of the definitive asset purchase agreement and the possibility that intervening
factors not considered could have affected the opinion.
The fairness opinion does not address changes in the value of the liabilities
to be assumed since the date of the opinion.
We do not intend to obtain an updated fairness opinion of Raymond James &
Associates, Inc. unless a material amendment is made to the financial terms of
the asset purchase agreement. Raymond James & Associates, Inc.'s fairness
opinion of December 19, 2002, assumes that as of the date of the opinion, the
liabilities to be assumed by VidCon would be approximately $11,200,000. Changes
in the amount of liabilities associated with our videoconferencing services
business have left those liabilities, as of the date of this proxy statement, at
approximately $8,000,000. Therefore, Raymond James & Associates, Inc.'s opinion
will not accurately address the fairness of the consideration at the time the
transaction is completed but only as of the date on which the opinion was
rendered. In considering the proposal and Raymond James & Associates, Inc.'s
fairness opinion, stockholders should also consider the fact that Raymond James
& Associates, Inc. has not expressed an opinion on the ultimate consideration to
be actually received by us in this transaction, after giving effect to any
change in the purchase price to be received by us.
At the time that the transaction was approved by the board, the amount of
liabilities to be assumed by VidCon was estimated at $11,200,000, consisting
largely of deferred revenue, representing our obligation to perform the backlog
of then existing service contracts. Since the signing of the asset purchase
agreement, our videoconferencing services business has continued to deteriorate
as we have continued to fulfill our existing service contracts, thus reducing
our deferred revenue liability, without correspondingly replacing the consumed
contracts with new service contracts. The reduction in the amount of deferred
revenue associated with completed work, which has not been replaced by new
contracts, has resulted in a
44
reduction in the liabilities associated with our videoconferencing services
business from approximately $11,200,000 estimated at the time the asset purchase
agreement was entered into to approximately $8,000,000 as of the date of this
proxy statement, and these may continue to vary between now and the closing
date. Because the change in the purchase price arises primarily from a reduction
in the deferred revenue liability associated with the performance of service
contracts by the company prior to the closing, for which the company retained
the associated revenues and income, the company does not believe this change in
estimated liabilities to be assumed by VidCon alters its determination that the
transaction is in the best interests of the company, particularly considering
that we have retained the revenue and income under the performed contracts and
the buyer, VidCon, is acquiring the business with declining bookings of new
service contracts. Even so, stockholders may wish to consider and take this
change of estimated liabilities into account when deciding how to vote.
Many of the valuation methodologies used by Raymond James & Associates, Inc.
in evaluating the fairness of the consideration to be received by us in this
transaction indicate mean and median valuations in excess of the aggregate
consideration we expect to receive on the closing of this transaction.
Many of the valuation methodologies used by Raymond James & Associates,
Inc. in evaluating the fairness of the consideration to be received by us in
this transaction indicate mean and median valuations for our videoconferencing
services business in excess of the aggregate consideration we expect to receive
from VidCon in this transaction. Please see "Fairness Opinion Analyses"
beginning on page 34 for a full description of these analyses. The board of
directors was aware of these analyses, and took them into account, when
considering whether to approve the proposed transaction with VidCon and
recommend it to our stockholders. The board of directors determined to approve
the proposed transaction and recommend it to our stockholders based on a number
of factors, including the fairness opinion analyses, with some additional
emphasis on the ranges of consideration offered to us by other bidders after
conducting an extensive auction process. Please see "Reasons for the Sale of Our
Videoconferencing Services Business" beginning on page 29 for a complete
description of the factors considered by the board in determining to approve and
recommend the transaction with VidCon.
The failure to complete the sale of our videoconferencing services business
may result in a decrease in the market value of our common stock and may
create substantial doubt as to our ability to grow and implement our current
business strategies.
The sale of our videoconferencing services business is subject to a number
of contingencies, including approval by our stockholders and other customary
closing conditions. Among other conditions, the closing of the asset purchase
agreement is subject to approval of the sale by our stockholders and we cannot
predict whether we will succeed in obtaining this approval. As a result, we
cannot assure you that the sale of our videoconferencing services business will
be completed. If our stockholders fail to approve the proposal at the annual
meeting or if the sale of our videoconferencing services business is not
completed for any other reason, the market price of our common stock may
decline. In addition, failure to complete the sale of our videoconferencing
services business may substantially limit our ability to grow and implement our
current business strategies.
If our stockholders do not approve the sale of our videoconferencing services
business, there may not be any other offers from potential acquirors.
If our stockholders do not approve the sale of our videoconferencing
services business, we may seek another purchaser for our videoconferencing
services business. Although we had discussions with various parties concerning
such a purchase, none of these parties may now have an interest in such a sale
or be willing to offer a reasonable purchase price.
45
SPECIAL CONSIDERATIONS RELATING TO OUR COMPANY IF OUR VIDEOCONFERENCING
SERVICES BUSINESS IS SOLD
Our success will depend on the success of our new business model.
In accordance with our current restructuring efforts, we are currently
transitioning our business and realigning our strategic focus towards a new core
market, network enterprise software and technology licensing. Internal changes
resulting from the business restructuring announced by us during 2001 and 2002
are substantially complete, but many factors may negatively impact our ability
to implement our strategic focus, including our ability or possible inability to
manage the implementation and development of our new network product business,
sustain the productivity of our workforce and retain key employees, manage
operating expenses and quickly respond to and recover from unforeseen events
associated with the restructuring. We may be required by market conditions and
other factors to undertake additional restructuring efforts in the future. Our
business, results of operations or financial condition could be materially
adversely affected if we are unable to manage the implementation and development
of our new business strategy, sustain the productivity of our workforce and
retain key employees, manage our operating expenses or quickly respond to and
recover from unforeseen events associated with any future restructuring efforts.
Our network software product is new and has limited market awareness.
Our network software product was introduced in the fall of 2001, and as
such, it has limited market awareness and, to date, limited sales. Our future
success will be dependent in significant part on our ability to generate demand
for our network software products and professional services. To this end, our
direct and indirect sales operations must increase market awareness of our
products to generate increased revenue. Our products and services require a
sophisticated sales effort targeted at the senior management of our prospective
customers. All new hires will require training and will take time to achieve
full productivity. We cannot be certain that our new hires will become as
productive as necessary or that we will be able to hire enough qualified
individuals or retain existing employees in the future. We cannot be certain
that we will be successful in our efforts to market and sell our products, and
if we are not successful in building greater market awareness and generating
increased sales, future results of operations will be adversely affected.
Development and market acceptance of our enterprise software products and
related tools are subject to significant risks.
We expect that our future financial performance will depend significantly
on revenue from existing and future enterprise software products and the related
tools that we plan to develop, which is subject to significant risks. There are
significant risks inherent in a new product introduction, such as our existing
VNP and GSS software products. Market acceptance of these and future products
will depend on continued market development for collaboration management. We
cannot be certain that our existing or future product offerings will meet
customer performance needs or expectations when shipped or that it will be free
of significant software defects or bugs. If our products do not meet customer
needs or expectations, for whatever reason, our sales would be adversely
affected and further, upgrading or enhancing the product could be costly and
time consuming.
Licensing revenues are difficult to predict and subject to risk.
Our intellectual property licensing revenues are difficult to predict. Our
licensing program involves risks inherent in technology licensing, including
risks of protracted delays, possible legal challenges that would lead to
disruption or curtailment to the program, increasing expenditures associated
with the pursuit of the program, and other risks that could adversely affect our
licensing program. Thus, there can be no assurance that we will be able to
continue to license our technology to others. If we fail to meet the
expectations of public market analysts or investors, the market price of our
common stock may decrease significantly. Quarterly operating results may fail to
meet these expectations for a number of reasons, including the inability of
licensees to pay our license and other fees, a decline in the demand for our
46
patented technology, higher than expected operating expenses, and license delays
due to legal and other factors.
Patents and other proprietary rights will provide uncertain protection of our
proprietary information and our inability to protect a patent or other
proprietary right may harm our business.
Our success and ability to compete are substantially dependent on our
proprietary technology and trademarks. We seek to protect these assets through a
combination of patent, copyright, trade secret, and trademark laws, as well as
confidentiality procedures and contractual provisions. These legal protections
afford only limited protection and enforcement of these rights may be time
consuming and expensive. Furthermore, despite our best efforts, we may be unable
to prevent third parties from infringing upon or misappropriating our
intellectual property. Also, competitors may independently develop similar, but
not infringing, technology, duplicate products, or design around our patents or
other intellectual property.
Our patent applications or trademark registrations may not be approved.
Moreover, even if approved, the resulting patents or trademarks may not provide
us with any competitive advantage or may be challenged by third parties. If
challenged, patents might not be upheld or claims could be narrowed. Any
litigation surrounding our rights could force us to divert important financial
and other resources away from business operations.
We may be unable to adequately respond to rapid changes in technology.
The market for our products is characterized by rapidly changing
technology, evolving industry standards and frequent product introductions. The
introduction of products embodying new technology and the emergence of new
industry standards may render our existing products obsolete and unmarketable if
we are unable to adapt to change. A significant factor in our ability to grow
and to remain competitive is our ability to successfully introduce new products
that embody new technology, anticipate and incorporate evolving industry
standards and achieve levels of functionality and price acceptable to the
market.
Our future success will depend on our ability to manage any growth in our
business.
If we are successful in increasing the revenues of our enterprise network
management and scheduling software business we may be required to expand our
operations. If we are required to expand our operations, those expansions will
likely result in new and increased responsibilities for management personnel and
place significant strain on our management, operating and financial systems and
other resources. To accommodate any such growth and compete effectively, we will
be required to implement improved information systems, procedures and controls,
and to expand, train, motivate and manage our work force. Our future success
will depend to a significant extent on the ability of our current and future
management personnel to operate effectively both independently and as a group.
We cannot assure you that our personnel, systems, procedures and controls will
be adequate to support our future operations.
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING INFORMATION
Certain information contained in this proxy statement that does not relate
to historical information may be deemed to constitute forward-looking
statements. The words or phrases "will likely result," "are expected to," "will
continue," "is anticipated," "estimate," "project," "believe" or similar
expressions identify "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, as amended. This proxy
statement contains certain forward-looking statements with respect to the
financial condition, results of operations, plans, objectives, future
performance and business of our company and the effect of the asset sale.
Because such statements are subject to risks and uncertainties, actual results
may differ materially from historical results and those presently anticipated or
projected. Stockholders are cautioned not to place undue reliance on such
statements, which speak only as of the date hereof. Among the factors that could
cause actual results in the future to differ materially from any opinions or
statements expressed with respect to future periods are those described under
the caption "Proposal to Sell Substantially All of the Assets Used in the
Operation of Our Videoconferencing Services
47
Business -- Special Considerations You Should Take into Account in Deciding How
to Vote on the Proposal to Sell Our Videoconferencing Services Business." We
undertake no obligation to release publicly any revisions to such
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
THE ASSET PURCHASE AGREEMENT
We believe this summary describes the material terms of the asset purchase
agreement. However, we recommend that you read carefully the complete agreement
for the precise legal terms of the asset purchase agreement and other
information that may be important to you. The asset purchase agreement is
included in this proxy statement as Annex A.
ASSETS SOLD
Subject to and upon the terms and conditions of the asset purchase
agreement, we are selling to VidCon, a wholly-owned subsidiary of GTG Holdings,
substantially all of the assets used in the operation of our videoconferencing
services business, including the following assets:
- all fixed assets, furniture, property, equipment, fixtures, leasehold
improvements, tools, machinery, office equipment, plant and other
tangible personal property related to or used in connection with the
videoconferencing services business;
- our interest in certain equipment leases pertaining to the
videoconferencing services business;
- our interest in all contracts relating to the videoconferencing services
business, except for the contracts we specifically exclude pursuant to
the terms of the asset purchase agreement, and all of the related
interests, privileges, claims, causes of action and options relating to
the contracts;
- all of our accounts receivable, notes, claims and other amounts
receivable by us as a result of ownership of the assets purchased, or
arising out the videoconferencing services business, as of the time of
closing;
- all prepaid expenses or advances to third parties relating to the
videoconferencing services business that have an economic benefit to us
at the time of closing;
- all of our videoconferencing services business accounting and financial
records, property records, contract records, personnel records,
correspondence, files, books and documents;
- all of our backlog related to the videoconferencing services business as
of the time of closing or unfilled firm orders for products manufactured
or sold or services provided by us related to the videoconferencing
services business, together with, to the extent transferable, all
fidelity, surety, bid, performance, or similar bonds relating to or
securing the backlog;
- all of our inventories of raw material, purchased parts materials, work
in process, finished products, goods, spare parts, replacement and
component parts and office and other supplies used or to be distributed,
licensed or sold in connection with the videoconferencing services
business as of the time of closing; and
- all of our business software and all other intellectual property not
specifically excluded that is used in the conduct of the
videoconferencing services business.
ASSETS RETAINED
We are retaining certain assets, including the following assets:
- any cash, cash equivalents or marketable securities;
- any contract or agreement relating to the videoconferencing services
business that is specifically excluded or which cannot be assigned
because we have been unable to obtain the necessary consent prior to or
after the closing of the asset purchase agreement;
48
- general books of account and books of original entry that comprise our's
or the services business' permanent accounting or tax records and books
and records that we are required to retain pursuant to law;
- any of our software that we are unwilling or unable to transfer and that
is specifically listed out in the asset purchase agreement schedules;
- all patents, patent applications and related intellectual property owned
by us or our subsidiaries;
- the trade name "Forgent" and any of our trademarks and service and trade
names; and
- the real property leases for our offices in King of Prussia, Pennsylvania
and Austin, Texas.
ASSUMED LIABILITIES
As partial consideration for the purchase of the assets, VidCon will assume
certain liabilities related to our videoconferencing services business,
including:
- all liabilities set forth on our closing statement related to the
videoconferencing services business, including trade and other accounts
payable, items received but not invoiced, accrued expenses and deferred
revenue of the videoconferencing services business;
- all obligations to customers after the closing date of the asset purchase
agreement arising from the operation of the videoconferencing services
business on or prior to the closing date, but not including any
liabilities for any breach of such obligations by us or liabilities in
excess of those which are required to be set forth on our closing
statement for future performance of the obligations to customers; and
- all liabilities, obligations and commitments incurred in the operation of
our videoconferencing services business after the closing date of the
asset purchase agreement and arising out of the contracts assumed by
VidCon, but not including any liabilities for any breach of such
obligations by us or liabilities in excess of the deferred revenue
required to be set forth on our closing statement, estimated at
approximately $6,000,000 as of the date of this proxy statement, but they
may vary between now and the closing date.
As of the date of this proxy statement, the total liabilities associated
with our videoconferencing services business are estimated at approximately
$8,000,000, but they may vary between now and the closing date.
CLOSING DATE
The closing of the sale of our videoconferencing services business will
take place within two days after our stockholders approve the sale of
substantially all of the assets used in the operation of the videoconferencing
services business and all other closing conditions are satisfied, unless the
parties agree upon another time. It is the intent of the parties to complete the
sale of our videoconferencing services business as soon as practicable following
approval by our stockholders of the sale of the videoconferencing services
business.
CONSIDERATION
VidCon will pay us approximately $16,000,000 for the assets of our
videoconferencing services business, consisting of $8,000,000 in cash, which may
be adjusted downward if any purchase price adjustments are required, and the
assumption of substantially all of the liabilities associated with our
videoconferencing services business, which as of the date of this proxy
statement are estimated at approximately $8,000,000, but they may vary between
now and the closing date. In addition, VidCon is required to place an additional
$2,000,000 in escrow to cover potential purchase price adjustments and
49
indemnity claims payable by us arising under the asset purchase agreement. The
escrowed funds will be disbursed to us, less any purchase price adjustments and
indemnity claims payable by us as follows:
- $1,000,000 of the escrowed funds will generally be payable to us 120 days
after the closing pursuant to the terms of the escrow agreement, less an
amount equal to any purchase price adjustments pursuant to the terms of
the asset purchase agreement; and
- $1,000,000 of the escrowed funds will generally be payable to us 18
months after the closing pursuant to the terms of the escrow agreement,
less an amount equal to any indemnity claims by GTG Holdings or VidCon
pursuant to the terms of the asset purchase agreement.
While $2,000,000 is to be escrowed by VidCon and is to be distributed to
us, we may not receive the escrowed funds, or the amount we actually receive may
be less than the amount escrowed. In assessing the escrow provisions, the board
did not apply a discount for the time value of money or a discount to take into
account the potential risk of nonpayment in determining to approve this
transaction. See "Reasons for the Sale of Our Videoconferencing Services
Business" on pages 29 through 31.
The initial purchase price adjustment will be made to the $8,000,000 that
we are to receive at closing, based upon our good faith estimate to be delivered
five days prior to the closing of the amount of net assets to be transferred to
VidCon and the amount of deferred revenue being assumed by VidCon on the closing
date. The asset purchase agreement provides for a post-closing reconciliation of
any pre-closing purchase price adjustments. Pursuant to the terms of the asset
purchase agreement, VidCon will place $1,000,000 in escrow for approximately 120
days following the closing to pay for possible purchase price adjustments, and
$1,000,000 in escrow for approximately 18 months following the closing to pay
for possible indemnity claims by GTG Holdings and VidCon.
The purchase price adjustment escrow will be used to pay for purchase price
adjustments resulting from the final determination that either:
- the net assets that were transferred to VidCon on the closing date were
less than $3,800,000, or
- the deferred revenue assumed by VidCon on the closing date was greater
than $7,600,000.
To the extent that these adjustments have not already been accounted for in
any adjustment to the $8,000,000 of cash we are to receive at closing, these
adjustments will initially be taken out of the $1,000,000 escrowed specifically
for this purpose. If these adjustments were to exceed that $1,000,000, then the
company would be required to pay such excess to VidCon.
The indemnity claim escrow will be used to pay for losses incurred by
VidCon and/or GTG Holdings arising out of or resulting from:
- any inaccuracy in any representation or the breach of any warranty made
by us in the asset purchase agreement;
- our company's failure to duly perform or observe any covenant or
agreement in the asset purchase agreement that we are required to perform
or observe, whether prior to, at or after the date of closing; or
- liabilities and obligations that VidCon has not assumed.
These losses will initially be taken out of the $1,000,000 escrowed
specifically for this purpose. If these losses were to exceed that $1,000,000,
then the company would be required to pay such excess to VidCon and/or GTG
Holdings. Please see "-- Indemnification" on pages 55 and 56 for a full
explanation of these provisions.
As of the date of this proxy statement, we do not anticipate that there
will be any price adjustments or indemnity claims. Our belief that there will
not be any purchase price adjustments is based on our review of the most recent
information available to us which indicates that neither of the thresholds that
would result in the occurrence of a purchase price adjustment will be breached.
Our belief that there will not be any indemnity claims payable by us is based on
our active negotiation of the representations and
50
warranties in the asset purchase agreement, our review of the representations
and warranties made by us and our related investigations to ascertain the
accuracy of these representations and warranties, together with the fact that we
are not liable for indemnity claims until the aggregate of all such claims
exceeds $150,000. Because future events are at times difficult to foresee,
however, we can give no assurances that either or both of these adjustments will
not occur.
On May 6, 2003, we entered into an amendment to the asset purchase
agreement to extend the deadline for closing the transaction from May 31, 2003
to June 30, 2003. In this amendment we agreed to pay an extension fee equal to
$13,333.33 per day for each day that the closing occurs subsequent to May 31,
2003. If the closing occurs on June , 2003, the day of the annual meeting,
this fee will equal $ . This fee is payable on closing and will reduce the
net amount of cash that we receive in this transaction. The board of directors
felt that it was appropriate to agree to this extension fee in light of the fact
that VidCon and GTG Holdings could have terminated the asset purchase agreement
on May 31, 2003, if we had not agreed to the extension and in light of the
significant time and expense the company has already invested in this
transaction.
The company believes that the source of the cash that VidCon will use to
pay the cash consideration will be from VidCon's and/or GTG Holdings' internal
sources. VidCon and GTG Holdings have represented to us that they have the
financial capability, in the ordinary course of business and without seeking any
additional third party financing, to fulfill their commitments under the asset
purchase agreement. While the company cannot be certain that VidCon and/or GTG
Holdings will have the necessary cash on hand to consummate the transaction, the
company believes that it is reasonable to assume that they will have the cash on
hand based upon VidCon's and GTG Holdings' representations to that effect and
based upon Gores Technology's general business reputation.
REPRESENTATIONS AND WARRANTIES
REPRESENTATIONS AND WARRANTIES OF OUR COMPANY
In the asset purchase agreement, we make customary representations and
warranties to VidCon and GTG Holdings, including with respect to the matters set
forth below and have agreed to indemnify VidCon and GTG Holdings for any breach
or default of our representations and warranties, subject to certain
limitations:
- our company is a corporation validly existing and in good standing and
has the requisite power to enter into the asset purchase agreement;
- subject to the approval of the asset purchase agreement by our
stockholders and obtaining certain third party consents, there are no
conflicts between the asset purchase agreement and our charter documents,
our contracts or applicable law;
- our company has good and valid title to, or a valid leasehold or license
interest in, the assets used in the operation of our videoconferencing
services business;
- the financial statements provided are materially complete and correct and
have been prepared in accordance with generally accepted accounting
principles and present fairly, in all material respects, the financial
condition of our videoconferencing services business;
- the accounts receivable being transferred are valid and bona fide and not
subject to defense, set-off or counterclaim;
- the inventory being transferred is of good and marketable quality and
saleable in the ordinary course;
- except as described in the asset purchase agreement, there are no legal
proceedings related to our videoconferencing services business or the
assets being purchased by VidCon;
- our company owns the rights to the intellectual property used in our
videoconferencing services business and is not infringing the rights of
any third party;
51
- the contracts to be transferred in connection with the asset purchase
agreement have not been breached by us, repudiated by us or any other
party and are legally valid and binding on us;
- the assets being transferred represent all of the assets of our
videoconferencing services business;
- our company has paid all taxes related to the assets used in the
operation of our videoconferencing services business and there are no
liens for taxes due and payable on any of such assets or such business;
- our company is in material compliance with applicable laws and possesses
all material licenses required to operate our videoconferencing services
business;
- we carry insurance on the videoconferencing services business of a type
and in amounts that are customary in the industry; and
- the videoconferencing services business is in compliance in all material
respects with all environmental laws and there is no contingent liability
relating to any environmental laws.
REPRESENTATIONS AND WARRANTIES OF VIDCON AND GTG HOLDINGS
In the asset purchase agreement, VidCon and GTG Holdings, jointly and
severally, represent and warrant to us with respect to the matters set forth
below and have agreed to indemnify us for any breach or default of these
representations and warranties, subject to certain limitations:
- each of VidCon and GTG Holdings is a corporation duly and validly
existing and in good standing and has the requisite power to enter into
the asset purchase agreement;
- there are no conflicts between the asset purchase agreement and VidCon's
or GTG Holdings' charter documents, contracts or applicable law;
- neither VidCon nor GTG Holdings is obligated to obtain any consents as a
result of entering into and performing its obligations under the asset
purchase agreement; and
- VidCon and/or GTG Holdings has the financial capability, without seeking
additional third party financing, to fulfill its obligations under the
asset purchase agreement.
COVENANTS
In the asset purchase agreement, among other things, VidCon, GTG Holdings
and our company have agreed that prior to the closing or termination of the
asset purchase agreement:
- our company will conduct the videoconferencing services business in the
ordinary course consistent with past practices;
- we will not increase the rate of pay of any employee of the
videoconferencing services business, except pursuant to regularly
scheduled time schedules in effect as of the date of the execution of the
asset purchase agreement, no other similar benefits shall be paid to such
employees other than as required by outstanding employee benefit plans,
and no other modifications of existing plans or adoptions of new plans
shall be made without VidCon's and GTG Holdings' consent;
- each party will cooperate to prepare and file all filings and secure all
necessary approvals to consummate and effect the transactions set forth
in the asset purchase agreement;
- VidCon will extend offers of employment to substantially all of our
employees who provide services primarily to our videoconferencing
services business;
- our company will provide VidCon and GTG Holdings with full access to the
premises, properties, personnel, books, records, contracts and other
documents of our videoconferencing services business and the assets to be
purchased;
52
- each party will keep confidential all information disclosed as
contemplated by the asset purchase agreement and will only release
information about the transaction publicly upon all parties' mutual
agreement;
- our company will inform VidCon and GTG Holdings of any event causing a
material breach of our representations and warranties;
- our company will not enter into or assume any mortgage, pledge,
conditional sale or other title retention agreement, or permit any lien
to attach to the assets to be purchased by VidCon; and
- our board of directors has agreed to recommend that our stockholders
approve the asset purchase agreement and the sale of our
videoconferencing services business. Our board of directors may withdraw
or modify its recommendation of the asset purchase agreement in a manner
adverse to GTG Holdings and VidCon only if:
- we receive a Superior Proposal; and
- we have notified GTG Holdings and VidCon of the Superior Proposal at
least two business days in advance of our intention to effect the
withdrawal or modification.
"Superior Proposal" means any bona fide acquisition proposal which our
board of directors concludes in good faith, after consultation with its outside
counsel and investment advisors, to be more favorable to our stockholders than
the asset purchase agreement with GTG Holdings and VidCon.
CONDITIONS TO COMPLETION OF ASSET PURCHASE
Each party's obligation to complete the sale of our videoconferencing
services business is subject to the prior satisfaction or waiver of certain
conditions. If any of the closing conditions are waived, we will consider the
facts and circumstances at that time and make a determination as to whether a
resolicitation of proxies from our stockholders is appropriate. No determination
can be made at this time as to which, if any, of the closing conditions are
likely to be waived by us or VidCon. The following list sets forth the material
conditions that have not yet been satisfied and therefore must be satisfied or
waived before completion of the sale of our videoconferencing services business:
- all authorizations, consents or approvals required by governmental
entities necessary for the consummation of the sale of our
videoconferencing services business must be filed or obtained;
- no legal restraint or prohibition against the consummation of the sale of
our videoconferencing services business may be in effect;
- no action or regulation by a governmental entity which would make the
sale illegal may have been enacted;
- all parties must obtain certain required consents or approvals to the
assignment of specified material contracts by us to VidCon;
- we must obtain approval by our stockholders of the sale;
- our representations and warranties and the representations and warranties
of GTG Holdings and VidCon must be true and correct in all material
respects as of the closing;
- we and GTG Holdings and VidCon must each perform our obligations under
the asset purchase agreement;
- there must not be any events or conditions that have or could have a
material adverse effect on our videoconferencing services business or the
assets related to that business; and
- we and GTG Holdings and VidCon must deliver certain customary closing
documents and legal opinions.
53
TERMINATION OF THE ASSET PURCHASE AGREEMENT
TERMINATION
Notwithstanding approval by our stockholders of the asset purchase
agreement and the transactions contemplated by the asset purchase agreement, the
asset purchase agreement may be terminated, and the sale of our
videoconferencing services business may be abandoned, at any time prior to the
closing, in any of the following ways:
- by the mutual written agreement of us, VidCon and GTG Holdings;
- by either us or VidCon and GTG Holdings if:
- the sale of the videoconferencing services business is not completed by
June 30, 2003, other than as a result of the failure by the party
proposing to terminate the asset purchase agreement to perform its
obligations;
- an order, decree or ruling is entered restraining, enjoining or
otherwise prohibiting the completion of the sale of our
videoconferencing services business;
- our stockholders fail to approve the sale of our videoconferencing
services business at the annual meeting; or
- the other party materially breaches its representations or agreements
so that a closing condition would not be satisfied and the breach
remains uncured 30 days following notice, as long as the party
terminating the agreement is not also in material breach of its
obligations under the asset purchase agreement.
In addition, GTG Holdings and VidCon may terminate the asset purchase
agreement if:
- our board of directors withdraws or modifies in an adverse manner its
recommendation of the sale of the videoconferencing services business
or approves or recommends another acquisition proposal for our
videoconferencing services business;
- we fail to include in this proxy statement the approval and
recommendation of our board of directors for the sale of our
videoconferencing services business; or
- our board of directors fails to publicly reaffirm its approval and
recommendation of the sale of our videoconferencing services business
within 10 calendar days after a written request from GTG Holdings or
VidCon to do so.
EFFECT OF TERMINATION
If the asset purchase agreement is terminated, we and GTG Holdings and
VidCon will have no liability or obligations to one another other than for
confidentiality, the termination fee set out below and damages for breach of the
asset purchase agreement, if any.
TERMINATION FEE
We will pay to VidCon a $500,000 termination fee if any of the following
events occur:
- GTG Holdings and VidCon terminate the asset purchase agreement due to:
- our board of directors withdrawing or modifying in an adverse manner
its recommendation of the sale of our videoconferencing services
business or approving or recommending another acquisition proposal for
our videoconferencing services business;
- our failure to include in the proxy statement the approval and
recommendation of our board of directors for the sale of our
videoconferencing services business;
54
- our board of directors' failure to publicly reaffirm its approval and
recommendation of the sale of our videoconferencing services business
within 10 calendar days after a written request from GTG Holdings or
VidCon to do so; or
- if prior to the annual meeting, an acquisition proposal for our
videoconferencing services business has been publicly announced or
communicated to our board of directors and stockholders and not
withdrawn, and within 12 months after the earlier of GTG Holdings and/or
VidCon terminates the asset purchase agreement or the asset purchase
agreement is terminated otherwise by its terms, we enter into an
agreement with respect to an alternative acquisition proposal or
consummate an alternative acquisition proposal with respect to our
videoconferencing services business.
INDEMNIFICATION
INDEMNIFICATION
Under the asset purchase agreement, we are obligated to indemnify and hold
harmless VidCon and GTG Holdings from and against all losses that any of those
parties incurs arising out of or resulting from:
- any inaccuracy in any representation or the breach of any warranty made
by us in the asset purchase agreement;
- our company's failure to duly perform or observe any covenant or
agreement in the asset purchase agreement that we are required to perform
or observe, whether prior to, at or after the date of closing;
- the liabilities and obligations that VidCon has not assumed.
The asset purchase agreement provides that VidCon and GTG Holdings will,
jointly and severally, indemnify and hold harmless our company from and against
all losses that any of those parties incurs arising out of or resulting from:
- any inaccuracy in any representation or the breach of any warranty made
by VidCon or GTG Holdings in the asset purchase agreement;
- VidCon's or GTG Holdings' failure to duly perform or observe any covenant
or agreement in the asset purchase agreement that they are required to
perform or observe, whether prior to, at or after the date of closing;
and
- the liabilities and obligations assumed by either of them.
LIMITS ON INDEMNIFICATION
Neither we, with certain limited exceptions, nor GTG Holdings and VidCon
will be obligated to indemnify the other for any losses under the asset purchase
agreement until the aggregate amount of those losses exceeds $150,000 for such
party, in which event such indemnity shall apply to all such claims. Except as
described below, we will not be obligated to indemnify either GTG Holdings or
VidCon for any losses in excess of $10,000,000, and neither VidCon nor GTG
Holdings will be obligated to indemnify us for any losses in excess of the same
amount.
No limitations on indemnification will apply for VidCon's or GTG Holdings'
losses arising from any of the following:
- fraud by us;
- breach of one of our covenants in the asset purchase agreement;
- losses suffered by VidCon and GTG Holdings from the liabilities and
obligations that neither has assumed; or
- losses suffered by VidCon and GTG Holdings from a breach of our
representations concerning title to the assets, our employee benefit
plans and taxes.
55
No limitations on indemnification will apply for our company's losses
arising from any of the following:
- fraud by either GTG Holdings or VidCon;
- breach of one of VidCon's or GTG Holdings' covenants in the asset
purchase agreement; and
- losses suffered by our company from the liabilities and obligations
assumed by either GTG Holdings or VidCon.
We will begin paying any of our indemnification obligations by offsetting
those amounts against the $1,000,000 to be placed in escrow specifically for
such claims. To the extent that $1,000,000 does not satisfy all indemnification
claims that we may ultimately be required to pay, we would have to pay VidCon
and/or GTG Holdings such excess.
NONCOMPETITION AND NONSOLICITATION AGREEMENTS
We have agreed that, without the prior written consent of GTG Holdings and
VidCon, we will not,
- engage in;
- own or control any interest in (except as a passive investor of less than
two percent of the capital stock or publicly traded notes or debentures
of a publicly held company);
- act as an officer, director, partner, member or joint venturer of;
- lend credit or money for the purpose of establishing or operating; or
- allow such entity's name or reputation to be used by,
any entity that is engaged in any line of business that competes with the
videoconferencing services business as it exists on the date of closing anywhere
in the world.
In addition, VidCon and GTG Holdings have agreed to a limited noncompete
with us and VidCon, GTG Holdings and we have all agreed not to solicit each
others' employees for employment for a period of one year after the closing of
the asset purchase agreement.
EXPENSES
Each party to the asset purchase agreement will bear its own expenses
incurred in connection with the sale of our videoconferencing services business.
Our expenses include the costs of preparing, filing with the Securities and
Exchange Commission, printing and mailing this proxy statement.
AMENDMENT
The asset purchase agreement may only be amended in a written document
signed by our company, VidCon and GTG Holdings. The asset purchase agreement was
amended on May 6, 2003 to extend the deadline for closing the transaction from
May 31, 2003 to June 30, 2003.
ADDITIONAL AGREEMENTS RELATED TO THE ASSET PURCHASE AGREEMENT
In conjunction with the closing of the sale of our videoconferencing
services business, we will enter into a transition services agreement with
VidCon whereby we will provide, for a fee at actual cost, certain transition
services for VidCon related to the assets acquired and liabilities assumed.
We will also enter into a reseller agreement, whereby VidCon will be able
to resell our software products and a co-marketing arrangement, whereby we will
receive a commission for referring videoconferencing related service business to
VidCon. Under the terms of the software reseller agreement, VidCon will receive
a discount of up to 20% on the GSS and VNP software products it resells for us.
VidCon will receive an additional 2.5% discount when it agrees to perform first
level support for the same sales. No discount or incentive is provided for the
resale of our company's software support services. The
56
software reseller agreement terminates upon the later of five months after
execution, if executed after August 1, 2003, or December 31, 2003, however it is
annually renewable with the mutual written consent of our company and VidCon.
The co-marketing agreement provides that a fee will be paid by VidCon to our
company upon the referral of qualified leads for customers who will purchase our
hardware and related services, in the amount of 8% of the hardware sold and 2%
of the related services sold. Similarly, a referral fee of 8% will be paid by
our company to VidCon for providing qualified leads resulting in the sale of our
GSS and VNP software. Related software services are excluded from the
co-marketing fee arrangement. The co-marketing agreement has a term of one year
from execution, however it is automatically renewed unless terminated by us or
VidCon pursuant to the terms of the agreement.
Since we are retaining the lease for the King of Prussia, Pennsylvania
facility where the videoconferencing services business is located, we have
agreed to sublease a portion of that facility to VidCon after the closing of the
asset purchase agreement.
We will enter into an escrow agreement at closing with GTG Holdings, VidCon
and an escrow agent, whereby $2,000,000, in addition to the $8,000,000 cash to
be received at closing, will be placed with the escrow agent by VidCon,
$1,000,000 of which is for purchase price adjustments and $1,000,000 of which is
for indemnity claims. The purchase price adjustment escrow will be used to pay
for adjustments to the purchase price resulting from the final determination
that either:
- the net assets that were transferred to VidCon on the closing date were
less than $3,800,000, or
- the deferred revenue assumed by VidCon on the closing date was greater
than $7,600,000.
To the extent that these adjustments have not already been accounted for in
any adjustment to the amount of cash we receive at closing, these adjustments
will initially be taken out of the $1,000,000 escrowed specifically for this
purpose. If these adjustments were to exceed that $1,000,000, then the company
would be required to pay such excess to VidCon. The cash placed in escrow for
this purpose is generally payable 120 days after the closing.
The indemnity claim escrow will be used to pay for losses incurred by
VidCon and/or GTG Holdings and for which the company is liable arising out of or
resulting from:
- any inaccuracy in any representation or the breach of any warranty made
by us in the asset purchase agreement;
- our company's failure to duly perform or observe any covenant or
agreement in the asset purchase agreement that we are required to perform
or observe, whether prior to, at or after the date of closing; or
- the liabilities and obligations that VidCon has not assumed.
These losses will initially be taken out of the $1,000,000 escrowed
specifically for this purpose. If these losses were to exceed that $1,000,000,
then the company would be required to pay such excess to VidCon and/or GTG
Holdings. The cash placed in escrow for this purpose is generally payable 18
months after the closing.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSED
SALE OF SUBSTANTIALLY ALL OF THE ASSETS USED IN THE OPERATION OF OUR
VIDEOCONFERENCING SERVICES BUSINESS.
57
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth consolidated financial data for our company
as of the dates and for the periods indicated. The selected consolidated balance
sheet data and the selected consolidated operations data have been derived from
the audited consolidated financial statements of our company included in our
Form 10-K for the fiscal year ended July 31, 2002. The selected consolidated
balance sheet data as of January 31, 2003 and the selected consolidated
operations data for the six months ended January 31, 2003 have been derived from
the unaudited consolidated financial statements of our company included in our
Form 10-Q for the quarter ended January 31, 2003.
FOR THE
FOR THE YEARS ENDED JULY 31, SIX MONTHS
---------------------------------------------------- ENDED
1998(A) 1999(B) 2000(C) 2001(D) 2002(E) JANUARY 31, 2003
-------- -------- -------- -------- -------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Network software & service
revenues................... $ -- $ -- $ -- $ -- $ 2,236 $ 2,245
Technology licensing
revenues................... -- -- -- -- 31,150 13,468
Service and other revenues.... 28,692 29,698 27,217 26,912 25,206 9,319
Gross margin.................. 10,823 11,261 3,400 6,999 24,422 10,606
Income (loss) from continuing
operations................. 2,185 (2,277) 22,198 (12,410) 2,701 2,240
Income (loss) from
discontinued operations.... 594 (13,288) (19,901) (20,130) (8,804) 0
Net income (loss)............. 2,779 (15,565) 2,297 (32,540) (6,103) 2,240
INCOME (LOSS) PER COMMON SHARE:
Basic income (loss) from
continuing operations...... 0.09 (0.10) 0.90 (0.50) 0.11 0.09
Diluted income (loss) from
continuing operations...... 0.09 (0.10) 0.89 (0.50) 0.11 0.09
Basic income (loss) from
discontinued operations.... 0.03 (0.57) (0.81) (0.81) (0.36) 0.00
Diluted income (loss) from
discontinued operations.... 0.03 (0.57) (0.80) (0.81) (0.35) 0.00
Basic net income (loss)....... 0.12 0.66 0.09 (1.31) (0.25) 0.09
Diluted net income (loss)..... 0.12 0.66 0.09 (1.31) (0.24) 0.09
BALANCE SHEET DATA:
Working capital............... $ 28,946 $ 12,977 $ 35,967 $ 12,921 $ 9,757 $10,679
Total assets.................. 128,895 123,697 123,139 69,340 52,222 50,007
Long-term liabilities......... 3,848 15,930 4,665 3,034 2,998 2,416
Stockholders' equity.......... 81,258 68,019 82,661 41,622 32,278 33,867
---------------
(a) Net income for the year ended July 31, 1998 includes the reversal of $1.5
million of merger and other expenses and a gain from a non-recurring real
estate transaction of $1.3 million.
(b) Net loss for the year ended July 31, 1999 includes expense for
restructuring totaling $3.1 million.
(c) Net income for the year ended July 31, 2000 includes a non-recurring gain
of $44.5 million and an expense for the write-down of impaired assets of
$14.1 million.
(d) Net loss for the year ended July 31, 2001 includes an expense of $4.0
million for the impairment of certain assets and transaction expenses in
anticipation of a segment sale and expenses for restructuring totaling $1.7
million.
(e) Net income for the year ended July 21, 2002 includes an expense of $6.0
million for the reserve of the notes receivable from VTEL Products
Corporation and an expense of $4.4 million for the impairment of certain
assets.
58
UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
The following unaudited pro forma condensed financial data gives effect to
the sale of the videoconferencing services business.
The unaudited pro forma condensed consolidated balance sheet as of January
31, 2003, and the unaudited pro forma condensed consolidated statement of
operations for the six months ended January 31, 2003, have been prepared
assuming that the sale of the videoconferencing services business occurred as of
August 1, 2002. The unaudited pro forma condensed consolidated statements of
operations for the fiscal years ended July 31, 2002, 2001 and 2000 have been
restated to reclass activity of the videoconferencing services business for the
year as discontinued operations, as shown in the Form 10-K, as amended. The
unaudited pro forma condensed financial data is presented for informational
purposes only and is not necessarily indicative of the results of future
operations of our company or the actual results of operations that would have
occurred had the sale of the videoconferencing services business been
consummated as of the dates indicated above. The unaudited pro forma condensed
financial data should be read in conjunction with our historical consolidated
financial data and notes contained in our reports filed with the Securities and
Exchange Commission.
59
FORGENT NETWORKS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JANUARY 31, 2003
(IN THOUSANDS)
(UNAUDITED)
CONSIDERATION RESTATED
BALANCE AT NET ASSETS TO BE BALANCE AT
01/31/2003 TO BE SOLD RECEIVED 01/31/2003
---------- ---------- ------------- ----------
ASSETS
Current Assets
Cash & Equivalents.................................. $ 17,383 $ $ 8,000(1) $ 25,383
Short Term Investments.............................. 1,216 1,216
Accounts Receivable, net............................ 4,057 (3,036) 1,021
Notes Receivable, net............................... 94 94
Inventories......................................... 656 (616) 40
Prepaid Expenses and Other Current Assets........... 997 (419) 1,000(3) 1,578
--------- -------- ------- ---------
Total Current Assets.................................. 24,403 (4,071) 9,000 29,332
Property and Equipment, net........................... 5,505 (2,950) 2,555
Goodwill, net......................................... 15,303 (8,939) 6,364
Capitalized Software, net............................. 4,460 4,460
Other Assets.......................................... 336 1,000(3) 1,336
--------- -------- ------- ---------
Total Assets.......................................... $ 50,007 $(15,960) $10,000 $ 44,047
========= ======== ======= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable.................................... $ 3,519 $ (1,380) $ $ 2,139
Accrued Compensation & Benefits..................... 1,484 1,484
Other Accrued Liabilities........................... 1,374 (36) 1,338
Notes Payable -- Current............................ 233 233
Deferred Revenue.................................... 7,114 (6,771) 343
Deferred Gain....................................... -- 1,000(3) 1,000
--------- -------- ------- ---------
Total Current Liabilities............................. 13,724 (8,187) 1,000 6,537
--------- -------- ------- ---------
Long-term Liabilities
Deferred Revenue.................................... 815 (751) 64
Other Long-term Obligations......................... 1,601 (36) 1,565
Deferred Gain....................................... -- 1,000(3) 1,000
--------- -------- ------- ---------
2,416 (787) 1,000 2,629
--------- -------- ------- ---------
Stockholders' Equity
Preferred Stock..................................... -- --
Common Stock........................................ 258 258
Treasury Stock...................................... (3,500) (3,500)
Additional Paid in Capital.......................... 263,505 263,505
Accumulated Deficit................................. (225,771) (6,986)(2) 8,000(2) (224,757)
Unearned Compensation............................... (89) (89)
Accumulated Other Comprehensive Income.............. (536) (536)
--------- -------- ------- ---------
Total Stockholders' Equity............................ 33,867 (6,986) 8,000 34,881
--------- -------- ------- ---------
Total Liabilities & Stockholders' Equity.............. $ 50,007 $(15,960) $10,000 $ 44,047
========= ======== ======= =========
---------------
(1) This number represents $8,000,000 that we will receive at the closing of the
sale of our videoconferencing services business.
(2) The net consideration received at closing in the amount of $8,000,000 less
the net assets sold of $6,986,000 represents the pro forma gain of
$1,014,000 at closing.
(3) These numbers represent $1,000,000 that will be escrowed for approximately
120 days after closing, and another $1,000,000 that will be escrowed for
approximately 18 months after closing. If and when the escrowed amounts are
released, we will recognize additional gain on the transaction.
60
FORGENT NETWORKS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JANUARY 31, 2003
(IN THOUSANDS)
(UNAUDITED)
SERVICES ADJUSTED
HISTORICAL DIVISION FORGENT
CONSOLIDATED OPERATIONS NETWORKS, INC.
------------ ---------- --------------
Revenues
Network Software and Solutions......................... $ 2,245 $ 0 $ 2,245
Technology Licensing................................... 13,468 0 13,468
Services and Other..................................... 9,319 9,319 0
------- ------ -------
25,032 9,319 15,713
------- ------ -------
Cost of Sales
Network Software and Solutions......................... 1,473 0 1,473
Technology Licensing................................... 6,734 0 6,734
Services and Other..................................... 6,219 6,219 0
------- ------ -------
14,426 6,219 8,207
------- ------ -------
Gross Margin............................................. 10,606 3,100 7,506
------- ------ -------
Operating Expenses
Selling, General and Administrative.................... 7,355 1,788 5,567
Research and Development............................... 1,883 0 1,883
Impairment of Assets................................... (499) 0 (499)
Restructure Expense.................................... 0 0 0
------- ------ -------
8,739 1,788 6,951
------- ------ -------
Operating Income (Loss).................................. 1,867 1,312 555
------- ------ -------
Other Income (Expense)
Interest Income........................................ 139 0 139
Gain on Investment..................................... 0 0 0
Interest Expense and Other............................. 277 0 277
------- ------ -------
416 0 416
------- ------ -------
Income (loss) from continuing operations, before income
tax................................................. 2,283 1,312 971
(Provision) benefit for income taxes................... (43) (11) (32)
------- ------ -------
Income (loss) from continuing operations............... 2,240 1,301 939
Loss from discontinued operations, net of income tax... 0 0 0
Loss on disposal, net of income tax.................... 0 0 0
------- ------ -------
Net Income (loss)...................................... $ 2,240 $1,301 $ 939
======= ====== =======
61
FORGENT NETWORKS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED JULY 31, 2002
(IN THOUSANDS)
(UNAUDITED)
SERVICES ADJUSTED
HISTORICAL DIVISION FORGENT
CONSOLIDATED OPERATIONS NETWORKS, INC.
------------ ---------- --------------
Revenues
Network Software and Solutions......................... $ 2,236 $ 0 $ 2,236
Technology Licensing................................... 31,150 0 31,150
Service and Other...................................... 25,206 25,206 0
-------- ------- --------
58,592 25,206 33,386
-------- ------- --------
Cost of Sales
Network Software and Solutions......................... 4,057 0 4,057
Technology Licensing................................... 14,675 0 14,675
Service and Other...................................... 15,438 15,438 0
-------- ------- --------
34,170 15,438 18,732
-------- ------- --------
Gross Margin............................................. 24,422 9,768 14,654
-------- ------- --------
Operating Expenses
Selling, General and Administrative.................... 12,054 3,536 8,518
Research and Development............................... 3,210 0 3,210
Impairment of Long-lived Assets........................ 8,030 0 8,030
Restructure............................................ 818 818 0
-------- ------- --------
24,112 4,354 19,758
-------- ------- --------
Operating Income (Loss).................................. 310 5,414 (5,104)
-------- ------- --------
Other Income
Interest Income........................................ 338 0 338
Gain on Investment..................................... 1,670 0 1,670
Interest Expense and Other............................. 206 0 206
-------- ------- --------
2,214 0 2,214
-------- ------- --------
Income (loss) from continuing operations, before income
tax................................................. 2,524 5,414 (2,890)
(Provision) benefit for income taxes................... 177 0 177
-------- ------- --------
Income (loss) from continuing operations............... 2,701 5,414 (2,713)
Loss from discontinued operations, net of income tax... (8,549) 0 (8,549)
Loss on disposal, net of income tax.................... (255) 0 (255)
-------- ------- --------
Net Income (loss)...................................... $ (6,103) $ 5,414 $(11,517)
======== ======= ========
62
FORGENT NETWORKS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED JULY 31, 2001
(IN THOUSANDS)
(UNAUDITED)
SERVICES ADJUSTED
HISTORICAL DIVISION FORGENT
CONSOLIDATED OPERATIONS NETWORKS INC.
------------ ---------- -------------
Revenues
Internet................................................ $ 103 $ 0 $ 103
Network Software and Solutions.......................... 0 0 0
Technology Licensing.................................... 0 0 0
Service and Other....................................... 26,809 26,809 0
-------- ------- --------
26,912 26,809 103
-------- ------- --------
Cost of Sales
Internet................................................ 376 0 376
Network Software and Solutions.......................... 0 0 0
Technology Licensing.................................... 0 0 0
Service and Other....................................... 19,537 19,537 0
-------- ------- --------
19,913 19,537 376
-------- ------- --------
Gross Margin.............................................. 6,999 7,272 (273)
-------- ------- --------
Operating Expenses
Selling, General and Administrative..................... 16,531 13,718 2,813
Research and Development................................ 7,439 0 7,439
Amortization............................................ 1,101 955 146
Asset Impairment........................................ 1,147 0 1,147
Merger and Other........................................ 0 0 0
Restructure............................................. 0 0 0
-------- ------- --------
26,218 14,673 11,545
-------- ------- --------
Operating Income (Loss)................................... (19,219) (7,401) (11,818)
-------- ------- --------
Other Income
Interest Income......................................... 1,222 0 1,222
Interest Expense........................................ (166) 0 (166)
Other................................................... 5,449 0 5,449
-------- ------- --------
6,505 0 6,505
-------- ------- --------
Income (loss) from continuing operations, before income
tax.................................................. (12,714) (7,401) (5,313)
Provision for income taxes.............................. 304 0 304
-------- ------- --------
Income (loss) from continuing operations................ (12,410) (7,401) (5,009)
Loss from discontinued operations, net of income
taxes................................................ (19,010) 0 (19,010)
Loss on disposal, net of income taxes................... (1,120) 0 (1,120)
-------- ------- --------
Net Income (loss)....................................... $(32,540) $(7,401) $(25,139)
======== ======= ========
63
FORGENT NETWORKS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED JULY 31, 2000
(IN THOUSANDS)
(UNAUDITED)
SERVICES ADJUSTED
HISTORICAL DIVISION FORGENT
CONSOLIDATED OPERATIONS NETWORKS INC.
------------ ---------- -------------
Revenues
Network Software and Solutions.......................... $ 0 $ 0 $ 0
Technology Licensing.................................... 0 0 0
Service and Other....................................... 27,217 27,217 0
-------- ------- --------
27,217 27,217 0
-------- ------- --------
Cost of Sales
Network Software and Solutions.......................... $ 5,120 $ 0 $ 5,120
Technology Licensing.................................... 0 0 0
Service and Other....................................... 18,697 18,697 0
-------- ------- --------
23,817 18,697 5,120
-------- ------- --------
Gross Margin.............................................. 3,400 8,520 (5,120)
-------- ------- --------
Operating Expenses
Selling, General and Administrative..................... 12,324 10,355 1,969
Research and Development................................ 8,456 0 8,456
Amortization............................................ 1,824 1,493 331
Asset Impairment........................................ 2,241 1,709 532
Merger and Other........................................ 0 0 0
Restructure............................................. 0 0 0
-------- ------- --------
24,845 13,557 11,288
-------- ------- --------
Operating Income (Loss)................................... (21,445) (5,037) (16,408)
-------- ------- --------
Other Income
Interest Income......................................... 1,186 0 1,186
Interest Expense........................................ (1,431) 0 (1,431)
Other and Non-recurring Event........................... 44,501 0 44,501
-------- ------- --------
44,256 0 44,256
-------- ------- --------
Income (loss) from continuing operations, before income
tax.................................................. 22,811 (5,037) 27,848
Provision for income taxes.............................. (613) 0 (613)
-------- ------- --------
Income (loss) from continuing operations................ 22,198 (5,037) 27,235
Loss from discontinued operations, net of income
taxes................................................ (19,901) 0 (19,901)
Loss on disposal, net of income taxes................... 0 0 0
-------- ------- --------
Net Income (loss)....................................... $ 2,297 $(5,037) $ 7,334
======== ======= ========
64
RATIFICATION OF APPOINTMENT OF AUDITORS
(ITEM 3)
Pursuant to the recommendation of the Audit Committee, the board of
directors has appointed Ernst & Young LLP, independent accountants, to audit our
consolidated financial statements for the year ending July 31, 2003. We are
advised that no member of Ernst & Young LLP has any direct financial interest or
material indirect financial interest in our company or any of its subsidiaries
or, during the past three years, has had any connection with our company or any
of its subsidiaries in the capacity of promoter, underwriter, voting trustee,
director, officer or employee.
A representative of Ernst & Young LLP is expected to be present at the
annual meeting of our stockholders, will have the opportunity to make a
statement if such representative desires to do so, and will be available to
respond to appropriate questions.
While stockholder ratification is not required for the selection of Ernst &
Young LLP since the board of directors has the responsibility for the selection
of our company's independent auditors, the selection is being submitted for
ratification at the annual meeting solely with a view toward soliciting the
stockholders' opinion thereon, which opinion will be taken into consideration in
future deliberations.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION BY THE
STOCKHOLDERS OF THIS APPOINTMENT.
ADJOURNMENT OR POSTPONEMENT OF THE ANNUAL MEETING
(ITEM 4)
Our board of directors is requesting that the stockholders approve an
adjournment or postponement of the annual meeting, to solicit additional
proxies, to such time and place as designated by the presiding officer of the
meeting. We may use the time from the initial convening of the annual meeting
until it is reconvened to solicit votes for the approval of any of the items for
which stockholder approval is being sought pursuant to this proxy statement. At
the adjourned meeting, the company may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, we will give notice of the adjourned meeting to each
stockholder of record entitled to vote at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADJOURNMENT OR POSTPONEMENT OF
THE ANNUAL MEETING, TO SEEK ADDITIONAL PROXIES, TO SUCH TIME AND PLACE AS
DESIGNATED BY THE PRESIDING OFFICER OF THE MEETING.
OTHER MATTERS
As of this date, the board of directors does not know of any business to be
brought before the annual meeting other than as specified above. However, if any
matters properly come before the annual meeting, it is the intention of the
persons named in the enclosed proxy to vote such proxy in accordance with their
judgment on such matters.
65
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
We have only one outstanding class of equity securities, our common stock,
par value $.01 per share.
The following table sets forth certain information with respect to
beneficial ownership of our common stock as of February 28, 2003 by:
- each person who is known by us to beneficially own more than five percent
of our common stock;
- each of our directors at that date and nominees and named executive
officers; and
- all directors and officers as a group.
SHARES BENEFICIALLY
OWNED(1)(2)
---------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
------------------------------------ --------- -------
Dimensional Fund Advisors Inc. ............................. 1,734,888 7.0%
1299 Ocean Avenue
Santa Monica, CA 90401
Corbin & Company (formerly Marathon Fund L.P.).............. 1,895,925(3) 7.7%
University Drive, Suite 500
Fort Worth, TX 76109
Royce & Associates, LLC..................................... 1,245,800 5.1%
1414 Avenue of the Americas
New York, NY 10019
Richard N. Snyder........................................... 754,542(4) 3.0%
Kathleen A. Cote............................................ 37,111(5) *
James H. Wells.............................................. 58,111(6) *
Lou Mazzucchelli............................................ 10,277(7) *
Jay C. Peterson............................................. 244,104(8) *
Kenneth Kalinoski........................................... 521,122(9) 2.1%
Dennis M. Egan.............................................. 142,500(10) *
Harry R. Caccamisi.......................................... 207,000(11) *
Robert R. Swem.............................................. -0- *
All directors and officers as a group (9
persons)(4)(5)(6)(7)(8)(9)(10)(11)........................ 1,974,767(12) 7.6%
---------------
* Indicates ownership of less than 1% of our common stock
(1) Beneficial ownership as reported in the above table has been determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended. The persons and entities named in the table have sole voting and
investment power with respect to all shares shown as beneficially owned by
them, except as noted below. Amounts shown include shares of our common
stock issuable upon exercise of certain outstanding options within 60 days
after February 28, 2003.
(2) Except for the percentages of certain parties that are based on presently
exercisable options which are indicated in the following footnotes to the
table, the percentages indicated are based on 24,690,544 shares of our
common stock issued and outstanding on February 28, 2003. In the case of
parties holding presently exercisable options, the percentage ownership is
calculated on the assumption that the shares presently held or purchasable
within the next 60 days underlying such options are outstanding.
(3) David A. Corbin, the Chairman, President and Chief Executive Officer of
Corbin & Company, has the shared power to vote and dispose of all shares
held by Corbin & Company.
(4) Consists of 488,722 shares held by Mr. Snyder directly and 265,820 shares
(250,000 of which are subject to repurchase at April 29, 2003 by our
company at the optionee's exercise prices pursuant to the option
agreements) which Mr. Snyder may acquire upon the exercise of options
within 60 days after February 28, 2003.
66
(5) Consists of 11,000 shares held by Ms. Cote directly and 26,111 shares which
Ms. Cote may acquire upon the exercise of options within 60 days after
February 28, 2003.
(6) Consists of 32,000 shares held by Mr. Wells directly and 26,111 shares
which Mr. Wells may acquire upon the exercise of options within 60 days
after February 28, 2003.
(7) Consists of 45,680 shares which Mr. Mazzucchelli may acquire upon the
exercise of options within 60 days after February 28, 2003.
(8) Consists of 45,305 shares held by Mr. Peterson directly and 198,424 shares
(110,864 of which are subject to repurchase at April 29, 2003 by our
company at the optionee's exercise prices pursuant to the option
agreements) which Mr. Peterson may acquire upon the exercise of options
within 60 days after February 28, 2003.
(9) Consists of 221,122 shares held by Mr. Kalinoski directly and 300,000
shares (126,150 of which are subject to repurchase at April 29, 2003 by our
company at the optionee's exercise prices pursuant to the option
agreements) which Mr. Kalinoski may acquire upon the exercise of options
within 60 days after February 28, 2003.
(10) Consists of 142,500 shares (22,397 of which are subject to repurchase at
April 29, 2003 by our company at the optionee's exercise prices pursuant to
the option agreements) which Mr. Egan may acquire upon the exercise of
options within 60 days after February 28, 2003.
(11) Consists of 7,000 shares held by Mr. Caccamisi directly and 200,000 shares
(170,834 of which are subject to repurchase at April 29, 2003 by our
company at the optionee's exercise prices pursuant to the option
agreements) which Mr. Caccamisi may acquire upon the exercise of options
within 60 days after February 28, 2003.
(12) All options held by our chief executive officer and the named executive
officers were granted under the 1989 Stock Option Plan or the 1996 Stock
Option Plan. Pursuant to these stock option plans, all options granted
thereunder are immediately exercisable, however, shares issued upon
exercise are subject to repurchase by our company, at the exercise price,
to the extent of the number of shares that have not vested in the event
that the optionees' employment terminates prior to all such optionees'
options becoming vested. Richard J. Agnich and Raymond Miles became
directors on March 25, 2003, and are not included in the above table. Each
of them was granted options for 25,000 shares of our common stock upon
becoming directors, pursuant to our 1992 Director Stock Option Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires our officers and
directors, and persons who beneficially own more than 10% of the our common
stock, or "10% Stockholders," to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Based solely upon
information provided to us by individual officers, directors and 10%
Stockholders, we believe that all of these filing requirements were satisfied by
our officers, directors and 10% Stockholders.
STOCKHOLDER PROPOSALS
Pursuant to various rules promulgated by the Securities and Exchange
Commission, a stockholder seeking to include a proposal in our proxy statement
and form of proxy card for our annual meeting of the stockholders to be held in
2003 must timely submit such proposal in accordance with Securities and Exchange
Commission Rule 14a-8 to Forgent Networks, Inc., addressed to Jay C. Peterson,
Secretary, 108 Wild Basin Road, Austin, Texas 78746 no later than ,
2004. Further, a stockholder may not present a proposal for inclusion in our
proxy statement and form of proxy card related to the 2003 annual meeting and
may not submit a matter for consideration at the 2003 annual meeting, regardless
of whether presented for inclusion in our proxy statement and form of proxy
card, unless the stockholder has timely complied with our bylaw requirements
which set a notice deadline after which a stockholder will not be permitted to
present a proposal at our stockholder meetings. The bylaws state that in order
for business to be properly brought before an annual meeting by a stockholder,
the stockholder must have given timely notice thereof in writing to our
secretary. To be timely, a stockholder's notice must be delivered to or
67
mailed and received at our principal executive offices not less than 60 days nor
more than 90 days prior to the first anniversary of the preceding year's annual
meeting. A stockholder's notice to the secretary must set forth as to each
matter the stockholder proposes to bring before the meeting a brief description
of the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting; the name and address, as they appear on
our books, of the stockholder proposing such business and the name and address
of the beneficial owner, if any, on whose behalf the proposal is made; the class
and number of our shares which are owned beneficially and of record by such
stockholder and by the beneficial owner, if any, on whose behalf the proposal is
being made; and any material interest of such stockholder of record and
beneficial owner, if any, on whose behalf the proposal is made in such business.
A notice given pursuant to this advance notice bylaw will not be timely with
respect to our 2003 meeting unless duly given by no later than , 2004
and no earlier than , 2004.
WHERE YOU CAN FIND MORE INFORMATION
We file quarterly and annual reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, statements or other information we file at the Securities Exchange
Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference room. Our Securities and Exchange
Commission filings are also available to the public from commercial document
retrieval services and at the internet website maintained by the Securities and
Exchange Commission at http://www.sec.gov.
The Securities and Exchange Commission allows us to "incorporate by
reference" to documents that we have previously filed with the Securities and
Exchange Commission certain information into this proxy statement. The
information incorporated by reference is deemed to be a part of this proxy
statement, except for any information modified or superseded by information
contained directly in this proxy statement. Any information so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this proxy statement. This proxy statement incorporates by
reference the documents set forth below that we have previously filed with the
Securities and Exchange Commission:
- Form 10-Q/A for the quarter ended January 31, 2003, filed on March 17,
2003, as amended on May , 2003;
- Form 10-Q/A for the quarter ended October 31, 2002, filed on December 16,
2002, as amended on May , 2003; and
- Form 10-K/A for the fiscal year ended July 31, 2002, filed on November
27, 2002, as amended on May , 2003; and
- Form 8-K Current Report filed on May , 2003.
All of the foregoing reports accompany this proxy statement. You may obtain
a copy of any of these reports and any of the other documents incorporated by
reference from us, without charge, excluding all exhibits unless we have
specifically incorporated by reference an exhibit in this proxy statement.
Requests should be made to the Secretary of our company in writing at the
following address:
Forgent Networks, Inc.
Attn: Jay Peterson
Chief Financial Officer
108 Wild Basin Road
Austin, Texas 78746
68
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY STATEMENT
OR ANNEXED HERETO TO VOTE ON THE MATTERS SET FORTH ABOVE. WE HAVE NOT AUTHORIZED
ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED
IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED , 2003. YOU
SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS
ACCURATE AS OF ANY DATE OTHER THAN THAT DATE AND THE MAILING OF THIS PROXY
STATEMENT TO STOCKHOLDERS SHALL NOT CREATE ANY IMPLICATION TO THE CONTRARY.
By Order of the Board of Directors
JAY C. PETERSON
Secretary
Austin, Texas
69
ANNEX A
--------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
FORGENT NETWORKS, INC.,
GTG HOLDINGS, INC.
AND
VIDCON HOLDING CORP.
JANUARY 6, 2003
--------------------------------------------------------------------------------
* This is a composite agreement reflecting the terms of the agreement of January
6, 2003 as amended on May 6, 2003.
A-1
TABLE OF CONTENTS
PAGE
----
ARTICLE 1 DEFINITIONS................................................. A-6
1.1 Defined Terms............................................... A-6
ARTICLE 2 PURCHASE AND SALE........................................... A-8
2.1 Commitment to Sell and Assign............................... A-8
2.2 Non-Assignable Contracts.................................... A-10
2.3 Commitment to Purchase and Accept........................... A-10
2.4 Purchase Price.............................................. A-11
2.5 Assumption of Liabilities................................... A-11
2.6 Minimum Net Assets.......................................... A-12
2.7 Power of Attorney, etc. .................................... A-13
2.8 Basic Prorations; Utilities; Taxes.......................... A-13
2.9 Allocation.................................................. A-13
2.10 Taxes....................................................... A-13
ARTICLE 3 CLOSING..................................................... A-14
3.1 Closing..................................................... A-14
3.2 Seller's Deliveries at Closing.............................. A-14
3.3 Buyer's and Parent's Deliveries............................. A-15
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER.................... A-15
4.1 Organization and Authority.................................. A-15
4.2 Authorization; Enforceability............................... A-15
4.3 No Violation or Conflict by Seller.......................... A-16
4.4 Title to Assets............................................. A-16
4.5 Financial Statements........................................ A-16
4.6 Accounts Receivable......................................... A-16
4.7 Inventory................................................... A-16
4.8 No Litigation............................................... A-17
4.9 Intellectual Property Rights................................ A-17
4.10 Real Property; Leaseholds and Improvements.................. A-17
4.11 Entire Business............................................. A-18
4.12 Contracts................................................... A-18
4.13 Certain Transactions........................................ A-19
4.14 Employees................................................... A-19
4.15 Employee Benefit Plans...................................... A-19
4.16 Licenses and Permits........................................ A-20
4.17 Insurance................................................... A-20
4.18 Taxes....................................................... A-20
4.19 Environmental Matters....................................... A-21
4.20 Compliance with Laws........................................ A-21
4.21 Transactions with Certain Persons........................... A-21
4.22 Consents.................................................... A-21
4.23 Relationships............................................... A-21
A-2
PAGE
----
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER..................... A-21
5.1 Organization................................................ A-21
5.2 Authorization; Enforceability............................... A-21
5.3 No Violation or Conflict.................................... A-22
5.4 Consents.................................................... A-22
5.5 Ability to Pay.............................................. A-22
ARTICLE 6 CERTAIN MATTERS PENDING CLOSING............................. A-22
6.1 Carry on in Regular Course.................................. A-22
6.2 Employee Compensation....................................... A-22
6.3 Hiring Employees............................................ A-22
6.4 Access...................................................... A-23
6.5 Cooperation................................................. A-23
6.6 Confidentiality............................................. A-23
6.7 Publicity................................................... A-23
6.8 Material Breach............................................. A-23
6.9 Approvals of Governmental Authorities and Third Parties..... A-23
6.10 Stockholder Approval; Affirmative Recommendation............ A-24
6.11 Mortgages; Liens............................................ A-24
6.12 Bulk Sales.................................................. A-24
6.13 Supplements to Disclosure Schedules......................... A-25
6.14 Additional Information...................................... A-25
ARTICLE 7 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER................ A-25
7.1 Compliance with Agreement................................... A-25
7.2 No Litigation............................................... A-25
7.3 Representations and Warranties.............................. A-25
7.4 No Material Adverse Effect.................................. A-25
7.5 Deliveries at Closing....................................... A-25
7.6 Consents.................................................... A-25
7.7 Stockholder Approval........................................ A-26
ARTICLE 8 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER............... A-26
8.1 Compliance with Agreement................................... A-26
8.2 No Litigation............................................... A-26
8.3 Representations and Warranties.............................. A-26
8.4 Deliveries at Closing....................................... A-26
8.5 Stockholder Approval........................................ A-26
ARTICLE 9 SURVIVAL AND INDEMNIFICATION................................ A-26
9.1 Survival of Representations and Warranties.................. A-26
9.2 Indemnification Provisions for Benefit of Buyer............. A-27
9.3 Indemnification Provisions for Benefit of Seller............ A-27
9.4 Conditions of Indemnification............................... A-27
9.5 Exclusive Remedy............................................ A-28
9.6 Indemnification Basket and Cap.............................. A-28
9.7 Indemnity Holdback.......................................... A-28
ARTICLE 10 PERSONNEL................................................... A-29
10.1 Buyer Employees............................................. A-29
10.2 Terms of Employment......................................... A-29
10.3 Certain Benefits............................................ A-29
A-3
PAGE
----
ARTICLE 11 ADDITIONAL COVENANTS........................................ A-29
11.1 Taxes and Fees.............................................. A-29
11.2 Brokers..................................................... A-29
11.3 Books and Records; Personnel................................ A-30
11.4 Non-Compete Covenant........................................ A-30
11.5 Confidential Information.................................... A-31
11.6 Non-Solicitation of Employees and Agents.................... A-31
11.7 Reasonableness of Restrictions.............................. A-31
11.8 Injunctive Relief........................................... A-31
11.9 Certain Leases.............................................. A-32
ARTICLE 12 TERMINATION................................................. A-32
12.1 Termination................................................. A-32
12.2 Rights on Termination; Waiver............................... A-33
12.3 Termination Fee............................................. A-33
12.4 Definitions................................................. A-33
ARTICLE 13 MISCELLANEOUS............................................... A-33
13.1 Entire Agreement; Amendment................................. A-33
13.2 Expenses.................................................... A-33
13.3 Attorneys' Fees............................................. A-34
13.4 Set-Offs.................................................... A-34
13.5 Governing Law............................................... A-34
13.6 Assignment.................................................. A-34
13.7 Notices..................................................... A-34
13.8 Counterparts; Headings...................................... A-35
13.9 Interpretation.............................................. A-35
13.10 Severability................................................ A-35
13.11 No Reliance................................................. A-35
13.12 Specific Performance........................................ A-35
13.13 Payment Obligations......................................... A-35
13.14 Further Assurances.......................................... A-35
EXHIBITS
EXHIBIT 2.4(b) Form of Escrow Agreement
EXHIBIT 2.6 Statement of Purchased Assets and Assumed Obligations
EXHIBIT 3.2(a) Form of Bill of Sale
EXHIBIT 3.2(b) Form of Assignment and Assumption Agreement
EXHIBIT 3.2(j) Form of Opinion of Seller's Counsel
EXHIBIT 3.2(k) Form of Transition Services Agreement
EXHIBIT 3.2(l) Sublease Terms
EXHIBIT 3.3(h) Form of Opinion of Buyer's Counsel
EXHIBIT 3.2(o) Form of Reseller Agreement
EXHIBIT 3.2(p) Form of Software Co-Marketing Agreement
A-4
SCHEDULES
SCHEDULE 1.1 Knowledge Persons
SCHEDULE 2.1(a) Equipment
SCHEDULE 2.1(b) Equipment Leases
SCHEDULE 2.1(d) Accounts Receivable
SCHEDULE 2.1 (e) Prepaids
SCHEDULE 2.1(g) Backlog/Performance and Other Bonds
SCHEDULE 2.1(h) Licenses and Permits
SCHEDULE 2.1(i) Inventory
SCHEDULE 2.1(k) Excluded Contracts; Excluded Assets
SCHEDULE 2.1(l) Excluded Business Software
SCHEDULE 2.1(m) Excluded Patents and Patent Rights
SCHEDULE 2.1(n) Real Property Leases
SCHEDULE 2.2 Non-Assignable Contracts
SCHEDULE 3.2(i) Certain Liens
SCHEDULE 4.4 Title to Assets
SCHEDULE 4.5 Financial Statements
SCHEDULE 4.7 Inventory
SCHEDULE 4.8 Litigation
SCHEDULE 4.9(a) Intellectual Property Exceptions
SCHEDULE 4.9(b) Intellectual Property Conflicts
SCHEDULE 4.9(c) Intellectual Property Listing
SCHEDULE 4.10 Real Property
SCHEDULE 4.12 Contracts
SCHEDULE 4.13 Certain Transactions
SCHEDULE 4.14 Employees
SCHEDULE 4.15 Employee Plans
SCHEDULE 4.16 Licenses and Permits
SCHEDULE 4.17 Insurance
SCHEDULE 4.18 Taxes
SCHEDULE 4.22 Seller Consents
SCHEDULE 4.23 Relationships
SCHEDULE 10.1 Buyer Employees
A-5
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of January 6, 2003 (this
"Agreement"), is made by and between Forgent Networks, Inc., a Delaware
corporation ("Seller"), GTG Holdings, Inc. a Delaware corporation ("Parent"),
and VidCon Holding Corp., a Delaware corporation ("Buyer").
WITNESSETH:
WHEREAS, Seller has developed a unique approach to the installation and
maintenance of visual communication systems (the "Business"); and
WHEREAS, Seller desires to sell and Buyer desires to purchase substantially
all of the tangible assets, and assume certain liabilities, including, without
limitation, all of the deferred revenue, of the Business on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions contained in this Agreement, and intending to be legally bound, and
on the terms and subject to the conditions herein set forth, the parties hereby
agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. When used in this Agreement, the following terms shall
have the meanings specified:
"Adverse Consequences" shall mean all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, liabilities, obligations, Taxes (as defined herein),
liens, losses, expenses and fees, including court costs and reasonable
attorneys' fees and expenses.
"Agreement" shall mean this Asset Purchase Agreement, together with all
schedules and exhibits attached hereto, as the same may be amended from time to
time in accordance with the terms hereof.
"Business" has the meaning set forth in the first recital hereof; provided,
however, that the term "Business" does not include Seller's enterprise network
management and scheduling software business or Seller's patent and intellectual
property licensing business.
"Closing Date" shall mean the date on which the Closing (as defined herein)
shall be held.
"Closing Time" shall mean 12:01 a.m. on the Closing Date.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Current Assets" shall mean the current assets of the Business (excluding
cash and cash equivalents) as of the Closing Time reflected on the Closing Date
Statement (as defined herein) (as finalized pursuant to Section 2.6), determined
in accordance with GAAP (as defined herein) consistent with Seller's past
practice (but to the extent such past practice is not consistent with GAAP, GAAP
shall apply). Current Assets shall not include any Excluded Asset (as defined
herein) or any intercompany account receivable.
"Deferred Revenue" shall mean all Assumed Obligations (as defined herein)
as of the Closing Time for deferred revenue as set forth on the Closing Date
Statement (as finalized pursuant to Section 2.6), determined in accordance with
GAAP consistent with Seller's past practice (but to the extent such past
practice is not consistent with GAAP, GAAP shall apply).
"Employee Benefit Plan" shall mean any plan, fund, program, policy,
arrangement, contract or commitment, whether or not qualified for federal income
tax purposes, whether or not funded, whether formal or informal, and whether for
the benefit of a single individual or more than one individual.
"GAAP" shall mean those generally accepted accounting principles which are
recognized as such by the American Institute of Certified Public Accountants
acting through its Accounting Principles Board or the Financial Accounting
Standards Board or through other appropriate boards or committees thereof and
which are consistently applied.
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"Intellectual Property" shall mean all of the intellectual property rights
owned by or licensed to Seller or in which Seller has any right or interest,
and, in either case, used in the Business, including, without limitation, all of
Seller's (a) common law, state, provincial, federal, international and statutory
rights in any trademarks, trademark registrations and applications, service
marks, trade names, and fictitious names; (b) copyrights and copyright
registrations; (c) industrial design registrations and applications, integrated
circuit topography applications and registrations, design rights and inventions;
(d) trade secrets, technical and confidential information (including, without
limitation, designs, plans, specifications, formulas, processes, methods, shop
rights, know-how, show-how, and other business or technical confidential
information) related to the Business; (e) computer software and hardware
programs and systems, source code, object code and documentation relating to the
foregoing used in the Business; (f) know-how, show-how, processes, formula,
specifications and designs, databases, and documentation relating to the
foregoing used in the Business; and (g) other proprietary information owned,
controlled, created, under development or used by or on behalf of Seller in the
conduct of the Business in which Seller has any interest whatsoever, whether or
not registered, including rights or obligations under any license agreement or
other agreement with any other person. Without limitation of the foregoing, the
Excluded Patents and Patent Rights (as defined herein), the Excluded Business
Software (as defined herein) and any intellectual property right developed,
acquired or used in connection with Seller's enterprise network management and
scheduling software business or Seller's patent and intellectual property
licensing business shall not constitute Intellectual Property.
"Knowledge" shall mean with respect to an individual, knowledge of a
particular fact or other matter if that individual is actually aware of that
fact or matter after having made all reasonable inquiries. A Person (other than
an individual) will be deemed to have knowledge of a particular fact or other
matter if (i) any individual who is serving, or who has at any time served, as a
director or executive officer of that Person has Knowledge of that fact or other
matter, or (ii) in the case of Seller, if any of the individuals listed on
Schedule 1.1 has Knowledge of that fact or other matter.
"Law" shall mean any federal, state, local or other law or governmental
requirement of any kind, whether legislatively, judicially or administratively
promulgated, and any rules, regulations and orders promulgated thereunder.
"Material Adverse Effect" shall mean a material and adverse effect on the
financial condition, assets, liabilities, business, property or prospects of the
Purchased Assets and/or the Business, taken as a whole; provided, however, that
a Material Adverse Effect shall not include any material and adverse effect
resulting from (A) general economic conditions, (B) conditions generally
affecting the visual communications industry (provided that the Business is not
disproportionately affected thereby), or (C) actions contemplated by the parties
in connection with, or which is attributable to, the announcement of this
Agreement and the transactions contemplated hereby which result in a loss of
revenue for the Business of not in excess of $250,000 annually.
"Net Assets" shall mean Current Assets plus spares inventory, determined in
accordance with GAAP and without duplication, of up to $1,800,000 minus Total
Liabilities (as defined herein), but excluding the Deferred Revenue.
"Person" means an individual, a corporation, a partnership, a limited
partnership, a limited liability company, an association, a trust or other
entity or organization.
"Taxation" or "Tax" shall mean all forms of taxation, including, but not
limited to, direct or indirect, levied by reference to income, profits, gains,
net wealth, net worth, asset values, turnover, added value, consumption or other
reference and statutory, governmental, state, provincial, local governmental or
municipal impositions, duties, contributions, rates and levies (including,
without limitation, social security contributions and any other payroll taxes),
real and personal property, business, sales, transfer, withholding, excise,
severance or occupation, stamp and registration duties, customs and other import
or export duties, whenever and wherever imposed (whether imposed by way of a
withholding or deduction for or on account of tax or otherwise) and in respect
of any person, and all penalties, charges, costs and interest relating thereto.
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"Tax Return" shall mean any return, report, information return or other
document (including any related or supporting information) filed or required to
be filed with any federal, state, provincial, municipal, local or foreign
governmental entity or other authority in connection with the determination,
assessment or collection of any Tax or the administration of any Laws,
regulations or administrative requirements relating to any Tax.
"Total Liabilities" shall mean all Assumed Obligations as of the Closing
Time as set forth on the Closing Date Statement (as finalized pursuant to
Section 2.6) other than Deferred Revenue, determined in accordance with GAAP
consistent with Seller's past practice (but to the extent such past practice is
not consistent with GAAP, GAAP shall apply).
ARTICLE 2
PURCHASE AND SALE
2.1 Commitment to Sell and Assign. Upon the terms and subject to the
conditions set forth in this Agreement, Seller shall sell, transfer, assign,
convey and deliver to Buyer, free and clear of all liens, claims and
encumbrances, the following assets, properties, interests, business, goodwill,
claims and other rights of Seller (and in any event excluding the Excluded
Assets) relating to the Business (collectively, the "Purchased Assets"):
(a) All fixed assets, furniture, property, equipment, fixtures,
leasehold improvements, tools, machinery, office equipment, plant and other
tangible personal property related to or used in connection with the
Business, including, but not limited to, those set forth on Schedule 2.1(a)
(the "Equipment").
(b) Seller's interest under those certain equipment leases pertaining
to the Business and set forth on Schedule 2.1(b) (the "Equipment Leases").
(c) Seller's interest in all personal property leases, rental
agreements, sales and purchase orders and acknowledgments, permits,
customer license and maintenance agreements, third party product
agreements, third party supply agreements and any and all other contracts
or binding agreements relating to the Business (the "Contracts") and all of
Seller's interests (including rights to refund and offset), privileges,
claims, causes of action and options relating to the Contracts or any
portion thereof; provided, however, that each of the Excluded Contracts (as
defined herein) shall be retained by Seller and shall not be considered a
"Contract" hereunder, but shall constitute an Excluded Asset.
(d) All of Seller's accounts receivable, notes, claims and other
amounts receivable by Seller as a result of Seller's ownership of the
Purchased Assets or arising out of the business or operations of the
Business, as of the Closing Time, including, but not limited to, amounts
due from customers and vendors, whether or not arising in the ordinary
course of business, including, but not limited to, those set forth on
Schedule 2.1(d) (the "Accounts Receivable"), other than those Accounts
Receivable that are collected by Seller in the ordinary course of business
subsequent to the date of this Agreement and prior to the Closing Time.
(e) All prepaid expenses or advances to third parties relating to the
Business that have an economic benefit to the Buyer at the Closing Time,
including, but not limited to, those set forth on Schedule 2.1(e), other
than those prepaid expenses or advances for which Seller has received the
offsetting goods or services subsequent to the date of this Agreement and
prior to the Closing Time.
(f) Except as set forth below, all business, accounting and financial
records, property records, contract records, personnel records,
correspondence, files, books and documents of Seller relating to the
Business, including, but not limited to, sales, marketing and advertising
data and materials, customer and mailing lists of any and all types, vendor
and customer invoices, credit reports, billing records, service records,
artwork, photographs, manuals and teaching aids, engineering, maintenance
and production records (the "Records").
(g) All of Seller's backlog related to the conduct of the business or
operations of the Business, as of the Closing Time, of unfilled firm orders
for products manufactured or sold or services provided
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by Seller related to the business or operations of the Business, including,
without limitation, those items set forth on Schedule 2.1(g) (the
"Backlog"), to the extent such items listed on Schedule 2.1(g) are still
Backlog as of the Closing Time, together with, to the extent transferable,
all fidelity, surety, bid, performance or similar bonds relating to or
securing Seller's Backlog, including, but not limited to, those set forth
on Schedule 2.1(g), to the extent such items listed on Schedule 2.1(g)are
still Backlog as of the Closing Time.
(h) To the extent assignable, the licenses and permits required for
the operation of the Business and the use of the Purchased Assets by Buyer,
including, but not limited to, those set forth on Schedule 2.1(h)(the
"Licenses and Permits"), to the extent such items listed on Schedule 2.1(h)
are still Licenses and Permits as of the Closing Time.
(i) All of Seller's inventories of raw material, purchased parts
materials, work in process, finished products, goods, spare parts,
replacement and component parts and office and other supplies used or to be
distributed, licensed or sold in connection with the Business as of the
Closing Time, including, but not limited to, those set forth on Schedule
2.1(i) (the "Inventory"), other than Inventory used in the ordinary course
of the Business subsequent to the date of this Agreement and prior to the
Closing Time.
(j) All of Seller's Business Software (as defined herein) and all
other of Seller's Intellectual Property used in the conduct of the Business
(the "Included Intellectual Property"), except that the Excluded
Intellectual Property (as defined herein) shall be retained by Seller and
shall each constitute an Excluded Asset.
Notwithstanding the foregoing and notwithstanding anything else contained herein
or in any other agreement to the contrary, the Purchased Assets shall not in any
event include any assets or rights not specifically set forth in Section 2.1(a)
through Section 2.1(j) above and, without limitation of the foregoing, the
Purchased Assets shall not include:
(i) any cash, cash equivalents or marketable securities;
(ii) any contract or agreement relating to the Business designated on
Schedule 2.1(k) (the "Excluded Contracts") or which constitute, prior to or
after the Closing Date, Non-Assignable Contracts (as defined herein) and
for which Seller is unable to obtain prior to the Closing Date the consents
necessary to convey to Buyer the benefit thereof;
(iii) general books of account and books of original entry that
comprise Seller's or the Business' permanent accounting or tax records and
books and records that Seller is required to retain pursuant to any
statute, rule or regulation; provided, however, Buyer shall be entitled to
copies of the foregoing;
(iv) any of the Business Software listed on Schedule 2.1(l) which
Seller is unwilling or unable to transfer (the "Excluded Business
Software");
(v) all issued patents and patent applications owned by Seller or any
of its subsidiaries, including, but not limited to, such issued patents and
patent applications listed on Schedule 2.1(m), all patents issued based on
pending applications, all continuations, divisionals or continuations in
part, all other patent rights of Seller or any of its subsidiaries, and all
rights of Seller or any of its subsidiaries to receive or recover property,
debt or damages based on a cause of action, whether pending or not,
relating to any of the foregoing patents, patent applications and/or other
patent rights (the "Excluded Patents and Patent Rights") (for purposes of
clarity and without limitation on the generality of the foregoing, in no
event shall U.S. Patent No. 4,698,672 and/or its foreign counterparts or
any of the Seller's or any of its subsidiaries other patents, patent
applications, subsequently issued patents based on or arising out of
pending patent applications or any continuations or divisions thereof, or
any other continuations, divisionals or continuations in part, or any other
rights of Seller or its subsidiaries to receive property, debt or damages
based on a cause of action, whether pending or not, relating to any of such
patents, patent applications, patents issued based on such pending
applications or any continuations, divisionals or continuations in part,
constitute any part of the Purchased Assets, and shall be retained by
Seller and its subsidiaries shall constitute Excluded Patents and Patent
Rights);
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(vi) the trade name "Forgent," any trademarks of the Seller and any
service and trade names of the Seller (the "Excluded Trademarks" and with
the Excluded Business Software and the Excluded Patents and Patent Rights,
the "Excluded Intellectual Property"); and
(vii) the real property lease described on Schedule 2.1(n) with
respect to certain real property located at 3100 Horizon, King of Prussia,
Pennsylvania 19406 or the real property lease related to certain real
property located at 108 Wild Basin Road, Austin, Texas 78746, and all of
Seller's rights thereunder, (i) through (vii) being collectively referred
to herein as the "Excluded Assets."
2.2 Non-Assignable Contracts. In the case of any Contracts, Equipment
Leases or licenses with respect to Intellectual Property that are part of the
Purchased Assets, which by their terms or by virtue of their subject matter are
not assignable without the consent of a third party (collectively, the "Non-
Assignable Contracts," all of which are listed on Schedule 2.2 attached hereto),
Seller will use its reasonable best efforts to obtain, prior to or after the
Closing Time, any written consents necessary to convey to Buyer the benefit
thereof, it being understood that such reasonable best efforts shall not include
any requirement to (a) pay any consideration or (b) offer or grant financial
accommodations to any third party with respect to any such Non-Assignable
Contract. Buyer shall cooperate with Seller, in such manner as may be reasonably
requested and at Seller's expense, in connection therewith; provided that Buyer
shall not be obligated to agree to pay any consideration or increase the
consideration payable under any such Non-Assignable Contract or to make any
other agreement that would affect adversely in any other way the economics for
Buyer under such Non-Assignable Contract, or would make the obligations intended
to be assumed by Buyer thereunder more burdensome. Nothing in this Agreement
shall be construed as an attempt or an agreement to assign or cause the
assignment of any Non-Assignable Contract included in the Purchased Assets which
is in law nonassignable without the consent of the other party or parties
thereto, unless such consent shall have been given. Notwithstanding the
foregoing, in the event that any third party to a Non-Assignable Contract has
not consented to an assignment thereof to Buyer for any reason, then Buyer shall
not have any liability or obligation to Seller, such third party or any other
party with respect to such Non-Assignable Contract except as set forth below. In
the event that Buyer consummates its purchase hereunder and any Non-Assignable
Contract has not been assigned to Buyer for any reason then Seller shall use its
reasonable best efforts to enter into an arrangement to provide Buyer the
benefits of such Non-Assignable Contract. If Seller shall have made such
arrangements with respect to any Non-Assignable Contract, Buyer will assume the
obligations of Seller to be performed on and after the Closing Date and will
perform and fulfill such obligations as though such Non-Assignable Contract has
been assigned to Buyer, and Parent and Buyer shall jointly and severally
indemnify, hold harmless and reimburse Seller for all Adverse Consequences
incurred by Seller as a result of such arrangements; such indemnification, hold
harmless payments and reimbursements to be made promptly upon the written
request of Seller. If Seller, after complying with its obligations set out
above, cannot enter into an arrangement to provide Buyer the benefits of a
Non-Assignable Contract, then Seller, upon the written consent of Buyer (such
consent not to be unreasonably withheld), shall have the right to take all
action necessary to terminate the Non-Assignable Contract in accordance with its
terms, effective as of the Closing Time, including, if so requested by Buyer,
the exercise, in the case of installment purchase Contracts or Equipment Leases,
of any purchase options available under any such Contract or Equipment Lease,
with any prepayment premiums, penalties or forfeitures associated with such
termination (or purchase option payments) to be for the account of Buyer and
settled as of the Closing Time.
2.3 Commitment to Purchase and Accept. Upon the terms and subject to the
conditions set forth in this Agreement, Buyer shall purchase, accept and acquire
the Purchased Assets, free and clear of all liens, claims and encumbrances
whatsoever, and in full payment for such purchase shall pay, or cause to be
paid, to Seller, the Purchase Price pursuant to Section 2.4.
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2.4 Purchase Price.
(a) The purchase price for the Purchased Assets (the "Purchase Price")
shall be an amount equal to $10,000,000, as adjusted pursuant to Section
2.6, payable by Buyer to Seller in immediately available funds, as follows:
(i) $8,000,000 at Closing, as adjusted pursuant to Section 2.6 (the
"Closing Cash Amount"), and
(ii) $2,000,000 (the "Holdback").
(b) At the Closing, the Buyer shall deliver on behalf of the Seller
the Holdback to the Escrow Agent, as defined in the escrow agreement (the
"Escrow Agreement") to be substantially in the form attached hereto as
Exhibit 2.4(b). The Holdback shall be released as follows:
(i) $1,000,000 of the Holdback (the "Purchase Price Adjustment
Holdback") shall be held in escrow in accordance with the terms of the
Escrow Agreement. The Escrow Agent shall release the Purchase Price
Adjustment Holdback to the Seller and/or the Buyer pursuant to the terms
of the Escrow Agreement and Section 2.6.
(ii) $1,000,000 of the Holdback (the "Indemnity Holdback") shall be
held in escrow in accordance with the terms of the Escrow Agreement. The
Escrow Agent shall release the Indemnity Holdback to the Seller and/or
the Buyer pursuant to the terms of the Escrow Agreement and Section 9.7.
2.5 Assumption of Liabilities.
(a) In connection with the acquisition of the Purchased Assets, at the
Closing, subject to the terms and conditions contained in this Agreement,
Buyer shall assume and agree to pay or perform, or cause to be paid or
performed, the following liabilities and obligations of Seller (the
"Assumed Obligations"):
(i) The liabilities of the Business set forth on the Closing Date
Statement, including, but not limited to, the Deferred Revenue but not
including any such liability to the extent it exceeds the amount with
respect thereto set forth on the Closing Date Statement (as finally
determined), but only with respect to such excess; and
(ii) Seller's obligations to customers after the Closing Date
arising from the operation of the Business on or prior to the Closing
Date, but not including (A) any liability, obligation or commitment of
Seller for any breach thereof by Seller or a predecessor-in-interest
occurring prior to, on or after the Closing Date, or (B) liabilities as
of the Closing Time of the type required by GAAP to be reflected on the
Closing Date Statement for future performance of such obligations in
excess of the amount with respect thereto as reflected on the Closing
Date Statement (as finally determined), but only with respect to such
excess; and
(iii) Liabilities, obligations and commitments incurred in the
operation of the Business after the Closing Date, and liabilities,
obligations and commitments arising out of the Contracts (other than the
Excluded Contracts), Equipment Leases and the real property lease[s]
which are part of the Purchased Assets, but not including (A) any
liability, obligation or commitment of Seller for any breach thereof by
Seller or a predecessor-in-interest occurring prior to, on or after the
Closing Date, or (B) liabilities as of the Closing Time of the type
required by GAAP to be reflected on the Closing Date Statement for
future performance under the Contracts that are in excess of the amount
thereof as reflected on the Closing Date Statement (as finally
determined), but only with respect to such excess.
(b) Except for the Assumed Obligations, Buyer shall not assume or
agree to pay, perform or discharge any liabilities or obligations of
Seller, whether accrued, absolute, contingent or otherwise (collectively,
the "Excluded Liabilities"). Excluded Liabilities shall include, without
limitation, liabilities based on or arising out of or in connection with
(i) any liability of a type required to be set forth on the Closing Date
Statement in excess of the amount actually set forth on the Closing Date
Statement (as finally determined), but only with respect to such excess,
(ii) any obligation relating to
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Seller's employees that arose prior to the Closing (other than accrued
vacation to the extent set forth on the Closing Date Statement (as finally
determined)), (iii) any liabilities or obligations for any Taxes of Seller
other than those deferred Tax obligations with respect to the Purchased
Assets set forth on the Closing Date Statement (as finally determined),
(iv) any liabilities or obligations arising under or associated with the
Excluded Contracts, (v) any intercompany account payable, or (vi) any
liabilities or obligations of Seller for borrowed money.
2.6 Minimum Net Assets.
(a) No later than five (5) business days prior to the Closing Date,
Seller shall deliver to Buyer a good faith estimate of the Purchased Assets
and the Assumed Obligations of the Business as of the Closing Time,
prepared in accordance with GAAP applied consistently with the balance
sheet furnished pursuant to Section 4.5 (provided that, to the extent that
such balance sheet was not in accordance with GAAP, GAAP shall apply), and
including a computation in accordance with such data of the estimated Net
Assets and Deferred Revenue of the Business as of the Closing Date (the
"Closing Date Statement," which shall be in substantially in the form of
Exhibit 2.6), together with the detailed work papers which support the
Closing Date Statement. The Purchase Price shall be decreased (i) by the
amount, if any, by which the Net Assets on the Closing Date are less than
$3,800,000, and (ii) by the amount, if any, by which the Deferred Revenue
on the Closing Date is greater than $7,600,000 (the "Purchase Price
Adjustment"). If the Closing Date Statement indicates that there is a
Purchase Price Adjustment, the Closing Cash Amount shall be adjusted by
such amount as indicated on the Closing Date Statement.
(b) Buyer shall have the right to review the books and records of
Seller and the Business for a period of ninety (90) days after receiving
the Closing Date Statement to verify and confirm the accuracy thereof. If,
after such review, Buyer agrees with the Closing Date Statement, Buyer
shall promptly (and in any event within ninety (90) days after receiving
the Closing Date Statement) notify Seller of its agreement. If, after such
review, Buyer objects to the Closing Date Statement, Buyer shall promptly
(and in any event within ninety (90) days after receiving the Closing Date
Statement) provide Seller with a statement indicating the basis for its
objections and the amount of the objection, and Buyer and Seller shall meet
and confer in an effort to resolve such disagreement in good faith.
(c) In the event Buyer and Seller are unable to resolve a disagreement
with respect to the Closing Date Statement within ten (10) days following
the date of Buyer's objection (or such longer period as Buyer and Seller
may agree), the Net Assets and Deferred Revenue shall be determined by
Deloitte & Touche, LLP or such other independent firm of certified public
accountants mutually agreeable to Buyer and Seller (the "Accountants").
Buyer and Seller shall direct the Accountants to make their determination
of the Net Assets and Deferred Revenue on or before the date that is one
hundred and twenty (120) days after Buyer receives the Closing Date
Statement. If issues in dispute are submitted to the Accountants for
resolution, (i) each party shall furnish to the Accountants such work
papers and other documents and information relating to the disputed issues
as the Accountants may request and are available to that party, and shall
be afforded the opportunity to present to the Accountants any material
relating to the determination and to discuss the determination with the
Accountants; (ii) the determination by the Accountants of the Net Assets
and Deferred Revenue as set forth in a notice delivered to both parties by
the Accountants, will be binding and conclusive on the parties; and (iii)
the fees and expenses of the Accountants for such determination shall be
paid by the parties based upon the degree to which the Accountants accept
the respective positions of the parties. For example, if it is Buyer's
position that the adjustment owed is $300, Seller's position that the
adjustment owed is $100 and the Accountants' finding that the adjustment
owed is $150, then Buyer shall pay 75% (300-150/300-100) of the
Accountants' fees and expenses and Seller shall pay 25% (150-100/300-100)
of the Accountants' fees and expenses. Other than the expense of retaining
the Accountants, the expense of preparing the Closing Date Statement shall
be borne by Seller.
(d) Buyer and Seller shall direct the Escrow Agent to immediately
release to the Seller any amounts in the Purchase Price Adjustment Holdback
that are not in dispute. Within three
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(3) business days of the final determination of the Purchase Price
Adjustment pursuant to either the agreement of the parties or the
determination of the Accountants, then Buyer and Seller shall direct the
Escrow Agent to immediately release to Buyer and/or Seller, as appropriate,
the remaining amounts of the Purchase Price Adjustment Holdback. If such
remaining amounts of the Purchase Price Adjustment Holdback are
insufficient to satisfy the entire Purchase Price Adjustment, then Seller
shall within three (3) business days of such final determination pay to
Buyer the Purchase Price Adjustment amount not satisfied by the Purchase
Price Adjustment Holdback by wire transfer in immediately available funds.
2.7 Power of Attorney, etc.
(a) Effective on the Closing Date, Seller hereby constitutes and
appoints Buyer and its successors, legal representatives and assigns the
true and lawful attorneys of Seller, with full power of substitution, in
the name of Seller or Buyer, but on behalf of and for the benefit of Buyer
and its successors, legal representatives and assigns: (i) to demand and
receive from time to time any and all of the Purchased Assets and to make
endorsements and give receipts and releases for and in respect of the same
and any part thereof; (ii) to institute, prosecute, compromise and settle
any and all proceedings at law, in equity or otherwise that Buyer and its
successors, legal representatives or assigns may deem proper in order to
collect, assert or enforce any claim, right or title of any kind in or to
the Purchased Assets; and (iii) to do all such acts and things in relation
to the matters set forth in the preceding clauses (i) and (ii) as Buyer and
its successors, legal representatives or assigns shall deem reasonably
necessary. Seller hereby agrees that the appointment hereby made and the
powers hereby granted are coupled with an interest and are and shall be
irrevocable by it in any manner or for any reason.
(b) After the Closing Date, Buyer shall have the right to receive and
open all mail, packages and other communications addressed to Seller and
relating to the Business or the Purchased Assets, and Seller agrees
promptly to deliver to Buyer any such mail, packages or other
communications received by Seller. Buyer shall promptly deliver to Seller
all mail, packages and other communications received by it which relate to
Seller but do not relate to the Purchased Assets or the Business.
2.8 Basic Prorations; Utilities; Taxes. On the Closing Date, or as
promptly as practicable following the Closing Date, minimum rent, percentage
rent, water, gas, electricity and other utilities, common area maintenance
reimbursements to lessors and other similar periodic charges or expenses
relating to the leased real property located at Suite 206, Building 200, 1200
Chastain Road, Kennesaw, Georgia 30144 shall be prorated with Buyer paying
Seller such prorated amount. Utility meter readings for such property shall be
determined as of the Closing Date for purposes of establishing utility costs for
the first month. All prorations shall be made on the basis of the actual number
of days in the year and month in which the Closing occurs or in the period of
computation.
2.9 Allocation. Promptly following the Closing, the final purchase price
allocation will be prepared by Buyer, and a draft delivered to Seller for
Seller's review and comment. Upon Seller's agreement with the allocation, which
shall not be unreasonably withheld, Buyer and Seller each agree (a) to report
the sale of the Purchased Assets for Tax purposes in accordance with the
allocations mutually agreed upon and to follow the allocations in determining
and reporting their liabilities for any Taxes, (b) without limitation, not to
take any position inconsistent with such allocations on any of its Tax Returns,
and (c) to timely file federal tax Form 8594 with the applicable Tax Return for
the year of this transaction reflecting such Purchase Price allocations.
2.10 Taxes.
(a) Seller and Buyer shall each report Buyer's purchase of the
Purchased Assets pursuant to Section 1060 of the Code and other applicable
Laws. Buyer and Seller agree to report such purchase in a manner consistent
with the allocation of Purchase Price provided in Section 2.9 hereof.
(b) Buyer agrees to keep and, except to the extent books and records
have been transferred to Buyer, Seller agrees to keep, or require any
successor to keep, all books and records required to be maintained by a
corporation under the Laws of any applicable government for any open
statutory
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period or any assessment or reassessment period and thereafter, each party
shall first notify the other party of its intent to destroy such books and
records and give such other party the opportunity to take the books and
records before they are destroyed. Each Party agrees to furnish or cause to
be furnished to the other party, upon request, as promptly as practicable,
such information and assistance (including access to books and records)
relating to the Purchased Assets, as is reasonably necessary for the
preparation of any Tax Return, claims for refund or audit or prosecution or
defense of any claim, suit or proceeding relating to any proposed
adjustment of Taxes paid.
ARTICLE 3
CLOSING
3.1 Closing. The consummation and closing of the transactions
contemplated in this Agreement (the "Closing") shall be held at 9:00 a.m. local
time on the date that is no later than two (2) days subsequent to the date that
Seller has satisfied all the conditions to Buyer's and Parent's obligations to
consummate the transactions contemplated herein, at the offices of Jenkens &
Gilchrist, a Professional Corporation, 1445 Ross Avenue, Suite 3200, Dallas,
Texas unless the parties hereto otherwise agree. All transactions occurring at
the Closing shall be deemed to have occurred simultaneously as of the Closing
Time, and no one transaction shall be complete until all transactions have been
completed.
3.2 Seller's Deliveries at Closing. Seller shall at the Closing execute
and deliver to Buyer or Parent, as appropriate, the following:
(a) a bill of sale conveying in the aggregate all of the Equipment and
Records, and any other personal property included in the Purchased Assets,
substantially in the form attached hereto as Exhibit 3.2(a) (the "Bill of
Sale");
(b) an Assignment and Assumption Agreement, substantially in the form
attached hereto as Exhibit 3.2(b) (the "Assignment and Assumption
Agreement");
(c) the certificate contained in Section 7.3;
(d) the Escrow Agreement;
(e) a certificate duly executed by an officer of Seller that certifies
(i) the due adoption by the board of directors and, if required by law, by
the stockholders of Seller of corporate resolutions attached to such
certificate authorizing the transactions and the execution and delivery of
this Agreement and the other agreements and documents contemplated hereby
and the taking of all actions contemplated hereby and thereby; (ii) the
incumbency and true signatures of those officers of Seller duly authorized
to act on its behalf in connection with the transactions contemplated
hereby and this Agreement and to execute and deliver this Agreement and the
other agreements and documents contemplated hereby on behalf of Seller; and
(iii) that the copy of the Bylaws of Seller attached to such certificate is
a true and correct copy of such Bylaws;
(f) original copies of all Contracts and Equipment Leases and all
amendments, supplements or modifications thereto (or if original copies are
not available, copies of the same);
(g) all of Seller's books and records constituting a part of the
Purchased Assets, including, without limitation, the Records;
(h) possession or constructive possession of the Purchased Assets;
(i) such documents as are necessary to release the Purchased Assets
from all liens, claims and encumbrances, other than those set forth on
Schedule 3.2(i);
(j) the opinion of Seller's counsel substantially in the form of
Exhibit 3.2(j) attached hereto;
(k) a Transition Services Agreement providing services to Buyer
substantially in the form of Exhibit 3.2(k) hereto (the "Transition
Services Agreement");
(l) a Sublease Agreement in form and substance reasonably satisfactory
to Seller and Buyer (the "Sublease"), consistent with the terms set forth
on Exhibit 3.2(l);
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(m) assignment and assumption of leases with respect to certain
property located at 1200 Chastain Road, Kennesaw, Georgia 30144 (the "Lease
Assignment");
(n) copies of all consents to Non-Assignable Contracts received by
Seller as of the Closing Date;
(o) a Services Reseller Agreement substantially in the form of Exhibit
3.2(o) hereto (the "Reseller Agreement"); and
(p) a Software Co-Marketing Agreement substantially in the form of
Exhibit 3.2(p) hereto (the "Co-Marketing Agreement").
3.3 Buyer's and Parent's Deliveries. Buyer and/or Parent, as appropriate,
shall at the Closing execute and deliver to Seller the following:
(a) the Closing Cash Amount in cash or by wire transfer of immediately
available funds to an account designated by Seller;
(b) the Bill of Sale;
(c) the Assignment and Assumption Agreement;
(d) the certificate contained in Section 8.3;
(e) the Escrow Agreement;
(f) a certificate duly executed by the Secretary or Assistant
Secretary of each of Buyer and Parent that certifies (i) the due adoption
of the Board of Directors of such corporation of corporate resolutions
attached to such certificate authorizing the transactions and the execution
and delivery of this Agreement and the other agreements and documents
contemplated hereby and the taking of all actions contemplated hereby and
thereby; (ii) the incumbency and true signatures of those officers of Buyer
and/or Parent, as applicable, duly authorized to act on its behalf in
connection with the transactions contemplated hereby and this Agreement and
to execute and deliver this Agreement and the other agreements and
documents contemplated hereby on behalf of Buyer and/or Parent, as
applicable; and (iii) that the copy of the Bylaws of Buyer and/or Parent,
as applicable, attached to such certificate is a true and correct copy of
such Bylaws;
(g) the Lease Assignment;
(h) the opinion of Buyer's counsel substantially in the form of
Exhibit 3.3(h) attached hereto;
(i) the Transition Services Agreement; (j) the Sublease;
(k) the Reseller Agreement; and
(l) the Co-Marketing Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer and Parent as follows:
4.1 Organization and Authority. Seller is a corporation validly existing
and in good standing under the laws of the State of Delaware and has the
requisite power to enter into and perform its obligations under this Agreement
and under all other agreements, documents and/or instruments to be executed
and/or delivered by Seller pursuant to or in connection with this Agreement.
Seller has the requisite power to own, operate and hold under lease the
Purchased Assets and Real Property as, and in the places where, such properties
and assets now are owned, operated or held.
4.2 Authorization; Enforceability. The execution, delivery and
performance by Seller of this Agreement and of all of the agreements, documents
and/or instruments to be executed and/or delivered by Seller pursuant to or in
connection with this Agreement have been duly authorized by all necessary action
of Seller, subject to the approval on or prior to the Closing Date of the sale
of the Purchased Assets in accordance with the Delaware General Corporation Law
and the Seller's Certificate of Incorporation
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and Bylaws. This Agreement is, and the other agreements, documents and
instruments required hereby will be, when executed and delivered by the parties
hereto, subject to the approval on or prior to the Closing Date of the sale of
the Purchased Assets by Seller's stockholders in accordance with the Delaware
General Corporation Law and the Seller's Certificate of Incorporation and
Bylaws, the valid and binding obligations of Seller, enforceable against Seller
in accordance with their respective terms, except to the extent that their
enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
4.3 No Violation or Conflict by Seller. The execution, delivery and
performance of this Agreement by Seller does not and will not violate, conflict
with or result in the creation or imposition of any lien, charge or encumbrance
under any Law, judgment, order or decree binding on Seller or the Certificate of
Incorporation or the Bylaws of Seller or any contract or agreement to which
Seller, is a party or by which Seller or any of the Purchased Assets are bound,
other than Non-Assignable Contracts for which consents to transfer are not
obtained prior to the Closing Date.
4.4 Title to Assets. Except as set forth on Schedule 4.4, Seller has good
and valid title to all of the Purchased Assets and a good and valid leasehold
interest in all property leased by Seller and used in connection with the
Business, in each case free and clear of all liens, claims and encumbrances.
Except as set forth on Schedule 4.4, upon delivery of the Purchased Assets at
the Closing, good and valid title to the Purchased Assets, free and clear of all
mortgages, liens, claims, pledges, security interests or other encumbrances,
will pass to Buyer. The Purchased Assets comprise all properties and assets
necessary for or used in the continued conduct of the Business as now being
conducted and are adequate for the purposes for which such properties and assets
are currently used or held for use and are in reasonably good repair and
operating condition (subject to normal wear and tear).
4.5 Financial Statements. Seller has furnished to Buyer copies of the
unaudited balance sheet of the Business at October 31, 2002, and the related
unaudited statement of operations for the period then ended (collectively, the
"October Financial Statements"). The October Financial Statements are in
accordance with the books, records and accounts of Seller maintained with
respect to the Business, were prepared pursuant to the related work papers, are
complete and correct in all material respects, have been prepared in accordance
with GAAP consistently applied and present fairly in all material respects the
financial condition of the Business as of the respective dates thereof and the
results of operations of the Business for the respective periods covered
thereby, except that such statements do not include footnotes or normal
recurring year-end adjustments (none of which is material). Seller has furnished
to Buyer copies of the statement of operations for the Business for the
twelve-month period ended July 31, 2002 (the "July Financial Statements"). The
July Financial Statements are in accordance with the books, records and accounts
of Seller maintained with respect to the Business, were prepared pursuant to the
related work papers, are complete and correct in all material respects, and
present fairly in all material respects the results of operations of the
Business for the respective periods covered thereby. The revenues shown in the
July Financial Statements are consistent with GAAP. The October Financial
Statements and the July Financial Statements are attached to Schedule 4.5. The
statements of operations included in the October Financial Statements and the
July Financial Statements do not reflect the operations of any entity or
business other than the Business. Seller has not engaged in any transaction with
respect to the Business, maintained any bank account for the Business or used
any of its funds in the conduct of the Business except for transactions, bank
accounts and funds which have been and are reflected in its normally maintained
books and records.
4.6 Accounts Receivable. All Accounts Receivable are (a) valid, bona fide
claims against debtors for sales or other charges, and (b) not subject to any
defenses, set-offs or counterclaims. Seller has performed in all material
respects all obligations with respect to such Accounts Receivable that it was
obligated to perform to the date hereof.
4.7 Inventory. After considering reserves, all Inventory (a) was acquired
and has been maintained in the ordinary course of business, (b) is of good and
merchantable quality, (c) consists substantially of a quality, quantity and
condition useable, leasable or saleable in the ordinary course of business as
the Business is conducted as of the date of this Agreement, (d) is valued at the
lower of cost or market or
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another more conservative methodology, and (e) is not subject to any proposed
write-down or write-off in accordance with GAAP consistently applied with the
past practices of Seller. Except as set forth on Schedule 4.7, Seller is under
no material liability or obligation with respect to the return of any Inventory
in the possession of distributors, wholesalers, retailers or other customers.
Except as set forth on Schedule 4.7, Seller neither holds any material amounts
of Inventory on consignment, nor holds title to or ownership of any material
amounts of Inventory in the possession of others.
4.8 No Litigation. Except as described on Schedule 4.8, there are no
actions at law or in equity, or arbitration proceedings, or claims or
investigations related to the Business or the Purchased Assets of which Seller
has received notice, pending or, to the best of Seller's Knowledge, threatened
in writing. There are no proceedings, pending or, to Seller's Knowledge,
threatened, against Seller and related to the Business by or before any
governmental board, department, commission, bureau, instrumentality or agency,
and Seller's ownership of the Purchased Assets and operation of the Business is
not in violation of any order, decree or judgment of any court or arbitration
tribunal or governmental board, department, commission, bureau, instrumentality
or agency.
4.9 Intellectual Property Rights.
(a) The Included Intellectual Property encompasses all material
proprietary rights necessary or used for the conduct of the Business as
presently conducted. Except for the Excluded Intellectual Property and
except as otherwise set forth on Schedule 4.9(a), each item of Included
Intellectual Property owned or used by the Business immediately prior to
the Closing hereunder will be owned or available for use on substantially
the same terms and conditions immediately subsequent to the Closing
hereunder. Seller owns, and will transfer and assign to Buyer pursuant to
this Agreement the entire right, title and interest in and to all of the
Included Intellectual Property, free and clear of all encumbrances. There
are no actions pending or, to Seller's Knowledge, threatened, asserting the
invalidity, misuse or unenforceability of any of the Included Intellectual
Property.
(b) Except as set forth on Schedule 4.9(b), neither the Included
Intellectual Property nor the conduct of the Business has infringed upon or
misappropriated any intellectual property, proprietary or other rights of
third parties, and none of Seller or the directors or officers (or
employees with responsibility for Intellectual Property matters) of Seller
has ever received any written charge, complaint, claim, demand or notice
alleging any such infringement or misappropriation (including any written
claim that Seller must license or refrain from using any intellectual
property rights of any third party) relating to the Included Intellectual
Property. Seller has not agreed to indemnify any Person for or against any
infringement or misappropriation with respect to any Included Intellectual
Property. To the Knowledge of Seller, no third party has infringed upon or
misappropriated any rights of Seller with respect to the Included
Intellectual Property.
(c) Schedule 4.9(c) contains an accurate and complete listing of all
software owned, marketed, licensed, used or under development in connection
with the Business ("Business Software"), including third-party readily
commercially available operating systems, but excluding general business
third-party software which is readily commercially available.
4.10 Real Property; Leaseholds and Improvements. Seller does not own any
real property used in connection with the Business or the Purchased Assets.
Seller leases the real property described on Schedule 4.10 (the "Real
Property"), used in connection with the Business pursuant to the leases
described on Schedule 4.10. Seller has made available to Buyer true and correct
copies of the leases listed on Schedule 4.10. The leases listed on Schedule 4.10
are legal, valid, binding, enforceable and in full force and effect with respect
to the Seller and, to Seller's Knowledge, with respect to the other parties
thereto. With respect to the leases listed on Schedule 4.10, (a) Seller is not,
and to Seller's Knowledge no other party to the leases is, in material breach or
default, and, to Seller's Knowledge, no event has occurred which, with notice or
lapse of time, would constitute a material breach or default or permit
termination, material modification or acceleration thereunder; (b) Seller has
all necessary rights to conduct the Business on the Real Property leased by it,
(c) the Business enjoys peaceful and undisturbed possession thereunder, and (d)
all rents and other payments due to date under each such lease have been paid in
full. With respect to each such lease, Seller has not received any written
notice of any violation of any
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applicable zoning ordinance, building code, planning law or regulation, use or
occupancy restriction, or violation of any thereof, or any condemnation action
or proceeding with respect thereto.
4.11 Entire Business. The sale of the Purchased Assets by Seller to Buyer
pursuant to this Agreement will effectively convey to Buyer the entire Business
(other than the Excluded Assets and the Excluded Contracts).
4.12 Contracts. Schedule 4.12 lists the following Contracts to which
Seller is a party:
(a) customer Contracts in respect of the sale of products or the
performance of services for the customers of the Business that represented
the largest fifty (50) customers by revenue for the twelve-month period
ended October 31, 2002;
(b) Contracts for the purchase of inventories, equipment, raw
materials, supplies or services;
(c) master services agreements;
(d) other Contracts not set out above or below which otherwise involve
payments or receipts by Seller of $100,000 or more in the current or any
ensuing fiscal year and which are not terminable by Seller at any time upon
notice of ninety (90) days or less without payment or penalty;
(e) any agreement for the lease of personal property to or from any
Person providing for lease payments in excess of $25,000 per annum;
(f) each partnership, joint venture or joint operating agreement;
(g) any loan or advance to or investment in, any Person (excluding
normal credit terms for the sales of goods and services), or any agreement,
contract or commitment relating to the making of any such loan, advance or
investment or any agreement, contract or commitment involving a sharing of
profits (excluding sales commissions);
(h) indebtedness for borrowed money, or any capitalized lease
obligation, in excess of $5,000 or under which it has imposed a mortgage,
lien, claim, pledge, security interest or other encumbrance on any of the
Purchased Assets;
(i) any deferred compensation, severance, change-in-control or other
plan or arrangement for the benefit of its directors, officers and
employees;
(j) any guarantee or other contingent liability in respect of any
indebtedness or obligation of any Person (other than in the ordinary course
of business) in excess of $10,000 or any contingent liability in excess of
$10,000;
(k) any agreement under which Seller has advanced or loaned money to
(i) directors or officers, or (ii) other employees outside the ordinary
course of business;
(l) any agreement, contract or commitment limiting the ability of
Seller to engage in the Business or to compete with any Person;
(m) any warranty, guaranty, performance bond or other similar
undertaking with respect to a contractual performance extended by Seller
other than in the ordinary course of business;
(n) any agreement, contract or commitment requiring Seller to
indemnify or hold harmless any Person other than purchase orders and
revenue earning contracts entered into in the ordinary course of business;
and
(o) any amendment, modification or supplement in respect of any of the
foregoing.
Seller has delivered or made available to Buyer a true and correct copy of
each Contract. With respect to each Contract: (i) Seller is not in material
breach or default, and no event has occurred which with notice or lapse of time
would constitute a material breach or default, or permit termination, material
modification or acceleration, under the agreement; (ii) Seller has not
repudiated any material provision of the agreement and, to Seller's Knowledge,
no other party has repudiated or terminated any material provision of the
agreement; and (iii) the agreement is legally valid and binding against Seller.
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4.13 Certain Transactions. Except as set forth on Schedule 4.13, since
October 31, 2002, Seller has conducted the Business only in the ordinary course
consistent with past practices and there has not been any Material Adverse
Effect with respect to the assets, liabilities, business or condition, financial
or otherwise, or in the results of operations or prospects, of the Business.
Without limiting the foregoing, since October 31, 2002:
(a) Seller has not increased the level of benefits under any Employee
Benefit Plan, the salary or other compensation (including severance)
payable or to become payable to any of the Buyer Employees or obligated
itself to pay any bonus or other additional salary or compensation to any
Buyer Employee, other than, with respect to employees who are not officers,
directors or senior managers of the Business, in the ordinary course of
business and consistent with past practice;
(b) Seller has not amended, rescinded or terminated (and not renewed
pursuant to its terms) any existing material Contract and no such material
Contract has expired or terminated (and not been renewed) by its terms;
(c) Seller has not entered into any material transaction related to
the Business, other than in the ordinary course of business consistent with
past practice, or waived any material right related to the Business;
(d) Seller has not sold, transferred, disposed of, or agreed to sell,
transfer, or dispose of, any of its assets, properties, Included
Intellectual Property or rights related to the Business, other than in the
ordinary course of business consistent with past practice;
(e) Seller has not made any material change in the manner of
conducting the Business, including delaying payment of any Accounts Payable
or accelerating collection of any Accounts Receivable, or changed its
method of accounting or accounting practices with respect to the Business;
(f) No assets or properties of Seller used in the Business that are
material, individually or in the aggregate, have been destroyed, damaged or
otherwise lost (whether or not covered by insurance);
(g) Seller has not made any capital expenditure (or series of related
capital expenditures) that is either material or outside of the ordinary
course of business; and
(h) Seller has not entered into any commitment (contingent or
otherwise) to do any of the foregoing.
4.14 Employees. Schedule 4.14 sets forth a complete and accurate list of
the name, age, location of employment, length of service, and current annual
rates of salary of and other compensation payments due each of the employees
identified on Schedule 10.1 as well as a list of all existing employment,
consulting contracts, severance arrangements or termination notice periods
which, for any of such items, constitute contractual obligations of Seller.
Except as specified on Schedule 4.14, none of the employees identified on
Schedule 10.1 includes any Persons who are not United States citizens. Schedule
4.14 sets forth the U.S. visa status of each such employee who is not a United
States citizen. Buyer will not incur any liability for the improper
classification by Seller of the employees identified on Schedule 10.1 as
independent contractors or leased employees prior to the Closing. Except as set
out on Schedule 4.14, no employee identified on Schedule 10.1 is on long term
disability leave, extended absence or receiving benefits pursuant to workers'
compensation legislation. All current assessments under workers' compensation
legislation in relation to the Business have been paid or accrued and Seller has
not been subject to any special or penalty assessment with respect to the
Business under such legislation which has not been paid. There is no unfair
labor practice complaint against Seller related to the Business pending before
any governmental authority, and there is no labor strike, dispute, slowdown or
stoppage, or any union-organizing effort or campaign, pending against or
involving Seller and related to the Business. Seller is not a party to a
collective bargaining agreement and no union or collective bargaining unit
represents any employees of Seller.
4.15 Employee Benefit Plans. Except as set forth in Schedule 4.15, Seller
is not obligated under or a party to any profit-sharing, deferred compensation,
bonus, equity option, equity ownership, equity purchase, phantom stock, pension,
multiemployer, employment, retirement, welfare, cafeteria or incentive
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plan, or any plan or agreement or practice providing for "fringe benefits" to
its employees or former employees, including, but not limited to, vacation, sick
leave, salary continuation, service awards, severance pay, welfare, medical,
post-retirement medical, hospitalization, disability, life insurance, other
insurance plans, or related benefits. Seller is not a member of a controlled
group of companies or a controlled group of trades or businesses as described in
Section 414(b) and 414(c), respectively, of the Code, or Section 4001 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Except as
set forth in Schedule 4.15, (a) each Employee Benefit Plan and any trust
maintained in connection therewith, intending to qualify under Sections 401 and
501 of the Code so qualifies, and no event has occurred which could cause such
plan or trust to fail to qualify under Sections 401 and 501 of the Code, (b)
there are no actions, suits or claims (other than routine claims for benefits in
the ordinary course) pending or, to Seller's Knowledge, threatened with respect
to any such plans, and (c) Seller has complied in all material respects with the
administration, reporting and substantive requirements of ERISA, the Code and
all applicable Laws with respect to each of such plans.
4.16 Licenses and Permits. Seller has all material governmental Licenses
and Permits required for the operation of the Business and the operation and use
of the Purchased Assets as presently operated or used by it. Schedule 4.16
contains a true and complete list of all such Licenses and Permits, exclusive of
any Licenses and Permits with respect to state or local sales, use or other
Taxes. Seller is not in violation of, nor has Seller received any notice of any
violation of, any material License and Permit.
4.17 Insurance. Attached hereto as Schedule 4.17 is a true, correct and
complete schedule which describes all insurance policies currently maintained by
Seller in connection with the operation of the Business and the Purchased Assets
transferred hereunder. All of said insurance policies which are now in effect
shall continue to remain in full force and effect through the Closing Date in
accordance with their respective terms. There are no pending claims against such
insurance by Seller as to which the insurers have denied coverage or otherwise
reserved rights. Seller carries insurance with respect to the Business of a type
and in such amounts as are customary in the industry of the Business. Seller has
not been refused any insurance with respect to the Business, nor has its
coverage been limited, by any insurance carrier to which it has applied for any
such insurance with which it has carried insurance since January 1, 2000.
Schedule 4.17 lists all claims of Seller related to the Purchased Assets which
are currently pending or which have been made with an insurance carrier.
4.18 Taxes.
(a) Seller has timely and properly filed all material Tax Returns
which it is or has been required to file, on behalf of the Business and
related to the Purchased Assets ("Taxes").
(b) Except as set forth on Schedule 4.18:
(i) Neither the Purchased Assets nor the Business are, nor will any
of them be as of the Closing Date, encumbered by any liens or
encumbrances arising out of any unpaid Taxes (other than Taxes not yet
due and owing) and there are no grounds for the assertion or assessment
of any liens or encumbrances against the Purchased Assets or the
Business in respect of any Taxes;
(ii) The transactions contemplated by this Agreement will not give
rise to (A) the creation of any liens or encumbrances against the
Purchased Assets or the Business in respect of any Taxes or (B) the
assertion of any additional Taxes against the Purchased Assets or the
Business;
(iii) Seller has paid all Taxes imposed with respect to the
Purchased Assets;
(iv) No written claim has ever been made or threatened by an
authority in a jurisdiction where Seller does not file Tax Returns that
the Business is or may be subject to Taxes by that jurisdiction;
(v) No action is pending or, to Seller's Knowledge, threatened by
any governmental authority for any audit, examination, deficiency,
assessment or collection from Seller of any Taxes related to the
Business, no unresolved claim for any deficiency, assessment or
collection of any Taxes related to the Business has been asserted
against Seller and all resolved assessments of Taxes related to the
Business have been paid; and
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(vi) No issues have been raised in writing by the relevant taxing
authorities on audit that are of a recurring nature and that would have
an adverse effect upon the Taxes of the Business.
4.19 Environmental Matters. With respect to the Business and the
Purchased Assets, Seller has been, and currently is, in compliance in all
material respects with all environmental laws, and there is no contingent
liability relating to any environmental laws. All past on-site generation,
treatment, storage and disposal of waste, if any (including hazardous waste), at
the Business by Seller, have been done in compliance with the currently
applicable environmental laws, and all off-site treatment, storage and disposal
of waste (including hazardous waste), if any, generated by Seller have been done
in compliance with the currently applicable environmental laws. The term (a)
"environmental laws" includes but is not limited to any federal, state or local
law, statute, charter or ordinance, and any rule, regulation, binding
interpretation, binding policy, permit, order, court order or consent decree
issued pursuant to any of the foregoing, which pertains to, governs or otherwise
regulates any of the following activities, including, without limitation, (i)
the emission, discharge, release or spilling of any substance into the air,
surface water, groundwater, soil or substrata; and (ii) the manufacturing,
processing, sale, generation, treatment, storage, disposal, labeling or other
management of any waste, hazardous substance or hazardous waste, and (b)
"waste," "hazardous substance," and "hazardous waste" include any substance
defined as such by any applicable environmental laws.
4.20 Compliance with Laws. Seller is in material compliance with all
laws, statutes, rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings and charges thereunder of federal, state, local and
foreign courts or governmental authorities applicable to the Business and the
Purchased Assets.
4.21 Transactions with Certain Persons. Except as provided in this
Agreement, at the Closing, Buyer shall not have any obligation or liability to
any current or former officer, director, stockholder or Employee of Seller or
any member of such person's immediate family or any entity in which such person
has a direct or indirect ownership interest (other than ownership of less than
five percent (5%) of the issued and outstanding stock of a corporation whose
stock is publicly traded).
4.22 Consents. Except as set forth in Schedule 4.22, no authorization,
consent, approval, permit or license of, or filing with, any governmental or
public body or authority, any lender or lessor or any other Person is required
to authorize, or is required in connection with, the execution, delivery and
performance of this Agreement or the agreements contemplated hereby on the part
of Seller.
4.23 Relationships. There are no outstanding disputes with any suppliers,
customers, resellers or partners of the Business, other than disputes that would
not be, individually or in the aggregate, material to the Business or the
Purchased Assets. No supplier, customer, reseller or partner of the Business has
refused to do business with Seller or has stated its intention not to continue
to do business or to change its relationship or arrangements with respect to the
Business, whether as a result of the transactions contemplated hereby or
otherwise, which such refusal or intention would be material to the Business or
the Purchased Assets.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT
Buyer and Parent, jointly and severally, represent and warrant to Seller as
follows:
5.1 Organization. Each of Buyer and Parent is a corporation duly and
validly existing and in good standing under the laws of its state of
incorporation and has the requisite corporate power to enter into and perform
its obligations under this Agreement and under any other agreements, documents
and/or instruments to be executed and/or delivered by each pursuant to or in
connection with this Agreement.
5.2 Authorization; Enforceability. The execution, delivery and
performance of this Agreement and of all of the agreements, documents and/or
instruments to be executed and/or delivered by Buyer and/or Parent pursuant to
or in connection with this Agreement have been duly authorized by all necessary
corporate action of Buyer and/or Parent. This Agreement is, and the other
agreements, documents and
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instruments required hereby will be, when executed and delivered by the parties
hereto, the valid and binding obligation of Buyer and/or Parent, enforceable
against Buyer and/or Parent in accordance with their respective terms, except to
the extent that their enforceability may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles.
5.3 No Violation or Conflict. The execution, delivery, and performance of
this Agreement and all of the agreements, documents, and/or instruments to be
executed and or delivered by Buyer and/or Parent in connection with this
Agreement does not and will not violate or conflict with or result in the
creation or imposition of any lien, charge or encumbrance under any Law,
judgment, order, or decree binding on Buyer and/or Parent, or the Certificate of
Incorporation or Bylaws or other charter documents of Buyer and/or Parent or any
contract or agreement to which Buyer and/or Parent is a party or by which it is
bound.
5.4 Consents. No authorization, consent, approval, permit or license of,
or filing with, any governmental or public body or authority, any lender or
lessor or any other Person is required to authorize, or is required in
connection with, the execution, delivery and performance of this Agreement or
the agreements contemplated hereby on the part of Buyer or Parent.
5.5 Ability to Pay. Buyer and/or Parent has the financial capability, in
the ordinary course of business and without seeking any additional third party
financing, to fulfill all of its obligations hereunder and to discharge all of
the Assumed Obligations, as the same may arise and/or become due and payable.
ARTICLE 6
CERTAIN MATTERS PENDING CLOSING
Seller covenants to Buyer and Parent, and Buyer and Parent each covenant to
Seller, that from and after the date of this Agreement and until the Closing
Date, without the other party's prior written consent:
6.1 Carry on in Regular Course. Except as specifically contemplated by
this Agreement, from the date hereof through the Closing Date, Seller shall
conduct the Business in the ordinary course and consistent with past practice,
and use all reasonable efforts to preserve intact its advantageous business
relationships, to keep available the services of its employees and to maintain
satisfactory relationships with its customers and other persons having a
business relationship with it. Without limiting the generality of the foregoing,
Seller shall not, without the prior written consent of Buyer, take or undertake
or incur or permit to exist any of the acts, transactions, events or occurrences
specified in Section 4.13, except to the extent that any Contract may expire by
its own terms, in which case Seller shall promptly notify Buyer of the same, and
Seller shall, promptly upon Buyer's request, use its commercially reasonable
efforts to renew or extend such Contract. Seller shall keep intact all existing
insurance and employee benefits arrangements existing as of the date hereof
until the Closing. Seller shall not engage in any transaction with any of its
affiliates without the prior written consent of Buyer, which consent may be
withheld in Buyer's sole discretion.
6.2 Employee Compensation. Seller shall not increase the rate of pay for
any employee of the Business except pursuant to a regularly scheduled time
schedule in effect as of the date hereof for increases and no bonus, profit
sharing, retirement, insurance, death, fringe benefit or other extraordinary or
indirect compensation shall accrue, be set aside or be paid to, for or on behalf
of any officers or employees of the Business other than as required by presently
existing pension, profit sharing, bonus and similar benefit plans as presently
constituted, and no agreement or plan other than those now in effect shall be
adopted or committed for, except in amounts approved in writing by Buyer. Seller
shall not increase, terminate, materially amend or otherwise materially modify
any plan for the benefit of any employee of the Business without Buyer's prior
written consent.
6.3 Hiring Employees. Prior to and at the Closing, Seller will cooperate
with all reasonable requests made by Buyer or Parent for the purpose of allowing
Buyer to hire the Buyer Employees as contemplated by Article 10.
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6.4 Access. Upon reasonable prior written notice received by Seller,
Seller will permit representatives of Buyer and/or Parent to (a) have reasonable
access during normal business hours, to the premises, properties, personnel,
books, records, contracts and documents of or pertaining to the Business and the
Purchased Assets, and (b) upon at least twenty-four (24) hours notice to Seller
(which need not be written), have reasonable access during normal business hours
to customers, suppliers, resellers and representatives of the Seller (including
accountants and counsel) pertaining to the Business and the Purchased Assets.
Seller's reasonable out-of-pocket expenses in complying with Buyer's and/or
Parent's requests under this Section 6.4 in excess of $15,000 shall be promptly
reimbursed by Buyer and/or Parent upon invoice from Seller.
6.5 Cooperation. As soon as practical after the date hereof, if they have
not previously done so, Buyer, Parent and Seller shall promptly and properly
prepare and file all filings required by all Laws relating to the transactions
contemplated hereby, and shall cooperate in all respects in connection with the
giving of any notices to any governmental authority or securing the permission,
approval, determination, consent or waiver of any governmental authority
required by Law in connection with the consummation of this Agreement.
6.6 Confidentiality. Each party recognizes that it will receive
confidential information regarding the other parties hereto during the course of
the negotiations contemplated by this Agreement. Accordingly, each of Buyer and
Parent, on the one hand, and Seller, on the other hand, shall prevent the
unauthorized disclosure of any confidential information concerning the other
party that has been disclosed previously or is disclosed during the course of
the negotiations and investigations contemplated by this Agreement. The
obligations of this paragraph do not apply to information that: (a) is or
becomes part of the public domain (other than through breach of this Agreement
or any other agreement between the parties relating to confidentiality), (b) is
received by the receiving party from a third party without breach of a
nondisclosure obligation of the third party, or (c) is independently developed.
This Section 6.6 and the Non-Disclosure Agreement, dated September 19, 2002, by
and between Seller and Gores Technology Group, shall survive the Closing and/or
any termination of this Agreement.
6.7 Publicity. All notices, releases, statements and communications to
employees, suppliers, distributors and customers and any person other than their
respective officers, directors, stockholders, representatives or agents of
Seller, Buyer and Parent and to the general public and the press relating to the
transactions contemplated by this Agreement shall be made only at such times and
in such manner as may be mutually agreed upon in writing by Seller, Buyer and
Parent; provided, however, that any party shall be entitled to make a public
announcement or statement or other public disclosure relating to the
transactions contemplated hereby if, in the opinion of its legal counsel, such
announcement or statement or other public disclosure is required to comply with
any Law (including, without limitation, federal securities laws) or any subpoena
or other process; provided, further, however, that such party gives prior
written notice of its intention to make such disclosure, the content of such
disclosure and the provision of Law, subpoena or process requiring such
disclosure and further, provided, Seller shall be permitted to file this
Agreement and to describe the transactions contemplated hereby in a Current
Report on Form 8-K, a Quarterly Report on Form 10-Q and/or a proxy statement on
Schedule 14A, filed under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), if such a filing is required to be made as a matter of law
under the Exchange Act, or if the Board of Directors of Seller deems it to be
necessary or advisable to make such a filing.
6.8 Material Breach. Prior to the Closing, Seller shall inform Buyer and
Parent in writing of the occurrence of any event causing a material breach of
any representations and warranties made in Article 4.
6.9 Approvals of Governmental Authorities and Third Parties. As soon as
practicable after the execution of this Agreement, but in any event prior to the
Closing Date, Seller, on the one hand, and Buyer and Parent, on the other hand,
will use their reasonable best efforts to secure all necessary approvals and
consents of all governmental authorities and other third parties required on the
part of Seller, on the one hand, and Buyer and Parent, on the other hand, for
the consummation of the transactions contemplated by this Agreement.
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6.10 Stockholder Approval; Affirmative Recommendation.
(a) Seller shall promptly take all action necessary to duly call, give
notice of and convene a meeting of its stockholders (the "Stockholder
Meeting") (i) on or before February 28, 2003, if the Seller's proxy
statement related to the Stockholder Meeting is not reviewed by the
Securities and Exchange Commission ("SEC"), with the right to adjourn such
meeting until no later than March 31, 2003, and (ii) on or before the date
that is thirty-five (35) days subsequent to the date that the SEC approves
the Seller's proxy statement for use, if the Seller's proxy statement
related to the Stockholder Meeting is reviewed by the SEC, with the right
to hold and/or adjourn such meeting until no later than June 30, 2003, in
order that the stockholders may consider and vote upon the adoption of this
Agreement and the approval of the transactions contemplated hereby. Seller
will promptly prepare and file with the SEC its preliminary proxy materials
relating to the Stockholder Meeting, and thereafter use its reasonable best
efforts to respond to any comments of the SEC thereon, and to make any
further filings and take any further actions necessary to file and
disseminate to its stockholders definitive proxy materials with respect to
the Stockholder Meeting. Subject to the provisions of Section 6.10(b)
below, the proxy materials will contain the affirmative recommendation of
the Board of Directors of Seller in favor of the adoption of this Agreement
and the approval of the transactions contemplated hereby (the "Affirmative
Recommendation").
(b) In the event that prior to the Stockholder Meeting the Board of
Directors of Seller receives a Superior Proposal (as defined herein), the
Board of Directors of Seller may (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to the Buyer and/or Parent its
approval or recommendation of this Agreement or the transactions
contemplated hereby, (ii) fail to reaffirm its approval or recommendation
of this Agreement within the time periods required herein after a written
request by the Buyer and/or Parent to do so, or (iii) resolve or announce
its intention to do any of the actions set forth in the preceding clauses
(i) or (ii), if (x) after consultation with outside counsel, such Board
determines by a majority vote of directors in their good faith judgment
that taking such action is necessary to comply with the fiduciary duties of
such Board under applicable Law and (y) Seller furnishes the Buyer and
Parent two (2) business days' prior written notice of the taking of such
action (which notice shall include a description of the material terms and
conditions of the Superior Proposal and identify the Person making the
same). For purposes of this Agreement, the term "Superior Proposal" means
any bona fide acquisition proposal to purchase the Business or all or
substantially all of the Purchased Assets which is on terms which the Board
of Directors of Seller determines by a majority vote of its directors in
their good faith judgment (after consultation with its outside counsel and
investment advisors of nationally recognized reputation), to be more
favorable to the stockholders of Seller than the transactions contemplated
herein (or any revised proposal made by the Buyer and Parent).
(c) In addition to the other obligations of the Seller set forth in
this Section 6.10, Seller shall promptly (and in any event within one (1)
business day) advise the Buyer and Parent orally and in writing of any
request for information with respect to any acquisition proposal, or any
inquiry with respect to or which could result in an acquisition proposal
related to the Purchased Assets or the Business, the material terms and
conditions of such request, acquisition proposal or inquiry, and the
identity of the Person making the same. Seller shall inform the Buyer and
Parent on a prompt and current basis of the status, terms and content of
any discussions regarding any acquisition proposal related to the Purchased
Assets or the Business with a third party. Nothing contained in this
Section 6.10(c) shall prevent the Board of Directors of Seller from
complying with Rule 14d-9 and Rule 14e-2 promulgated under the Exchange
Act.
6.11 Mortgages; Liens. Prior to Closing, except with Buyer's or Parent's
prior written consent, Seller will not enter into or assume any mortgage,
pledge, conditional sale or other title retention agreement, or permit any lien,
encumbrance or claim of any kind to attach to the Purchased Assets, whether now
owned or hereafter acquired.
6.12 Bulk Sales. Seller shall comply with all applicable Laws relating to
bulk transfers or bulk sales in connection with the transactions contemplated by
this Agreement.
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6.13 Supplements to Disclosure Schedules. From time to time prior to the
Closing Date, Seller shall promptly provide to Buyer and Parent proposed
supplements or amendments to the schedules to this Agreement with respect to any
matter arising or changing which, if existing or occurring as of the date of
this Agreement, would have been required to be set forth or described in such
schedules; provided, however, any such proposed supplements or amendments to the
schedules to this Agreement shall not become part of this Agreement unless and
until Buyer and Parent shall execute an instrument evidencing their agreement
thereto, and such proposals shall not be deemed a waiver by Buyer or Parent of
any representation or warranty of Seller contained in this Agreement other than
as agreed upon in such instrument.
6.14 Additional Information. Seller shall provide such information and in
such form as Buyer may reasonably request, and otherwise reasonably cooperate,
to permit Buyer to conduct payroll processing and transaction processing for the
Business on the Closing Date.
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER AND PARENT
Each and every obligation of Buyer and Parent to be performed on the
Closing Date shall be subject to the satisfaction prior to or at the Closing of
the following conditions precedent:
7.1 Compliance with Agreement. Seller shall have performed and complied
in all material respects with all of its obligations, covenants and agreements
under this Agreement which are to be performed or complied with by it prior to
the Closing.
7.2 No Litigation.
(a) No third-party investigation, suit, action, or other proceeding
that questions the validity or legality of the transactions contemplated
hereby or that seeks restraint or prohibition in connection with this
Agreement or the consummation of the transactions contemplated hereby shall
be pending before any court or governmental agency or threatened in
writing.
(b) There shall not be in effect any order, decree or injunction
(whether preliminary, final or appealable) of a federal or state court of
competent jurisdiction which (i) prohibits consummation of this Agreement
or the transactions contemplated hereby, or (ii) requires Buyer to hold
separate or dispose of any of the Purchased Assets.
7.3 Representations and Warranties. (a) The representations and
warranties of the Seller contained in this Agreement that are qualified as to
Material Adverse Effect shall be true and correct as of the date of this
Agreement and as of immediately prior to the Closing Time (other than
representations and warranties which address matters only as of a particular
date, in which case such representations and warranties shall be true and
correct, on and as of such particular date), with the same force and effect as
if then made and (b) the representations and warranties of the Seller contained
in this Agreement that are not qualified as to Material Adverse Effect shall be
true and correct as of the date of this Agreement and as of immediately prior to
the Closing Time (other than representations and warranties which address
matters only as of a particular date, in which case such representations and
warranties shall be true and correct, on and as of such particular date), with
the same force and effect as if then made, except where the failure of such
representations and warranties to be true and correct would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect; and
the Buyer and Parent shall have received a certificate to such effect signed by
the Chief Executive Officer and by the Chief Financial Officer of Seller.
7.4 No Material Adverse Effect. There shall have been no event or
circumstance which could reasonably be expected to result in a Material Adverse
Effect.
7.5 Deliveries at Closing. Seller shall have delivered to Buyer and
Parent, as applicable, the documents and items specified in Section 3.2.
7.6 Consents. Subject to Section 2.2, Seller shall have delivered to
Buyer and Parent evidence, in form and substance reasonably satisfactory to the
Buyer and Parent, that consents to the transfer of the
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Non-Assignable Contracts have been obtained, except where failure to have been
so obtained, either individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect.
7.7 Stockholder Approval. The stockholders of Seller shall have approved
the sale of the Purchased Assets in accordance with Seller's Certificate of
Incorporation and Bylaws and the Exchange Act and Delaware General Corporation
Law.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
Each and every obligation of Seller to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of the following
conditions precedent:
8.1 Compliance with Agreement. Buyer and Parent shall have performed and
complied in all material respects with the obligations, covenants and agreements
under this Agreement which are to be performed or complied with by either of
them prior to or on the Closing Date.
8.2 No Litigation.
(a) No third-party investigation, suit, action, or other proceeding
that questions the validity or legality of the transactions contemplated
hereby or that seeks restraint or prohibition in connection with this
Agreement or the consummation of the transactions contemplated hereby shall
be pending before any court or governmental agency or threatened in
writing.
(b) There shall not be in effect any order, decree or injunction
(whether preliminary, final or appealable) of a federal or state court of
competent jurisdiction which prohibits consummation of this Agreement or
the transactions contemplated hereby.
8.3 Representations and Warranties. (a) The representations and
warranties of the Buyer and/or Parent contained in this Agreement that are
qualified as to material adverse effect shall be true and correct as of the date
of this Agreement and as of immediately prior to the Closing Time (other than
representations and warranties which address matters only as of a particular
date, in which case such representations and warranties shall be true and
correct, on and as of such particular date), with the same force and effect as
if then made and (b) the representations and warranties of the Buyer and/or
Parent contained in this Agreement that are not qualified as to material adverse
effect shall be true and correct as of the date of this Agreement and as of
immediately prior to the Closing Time (other than representations and warranties
which address matters only as of a particular date, in which case such
representations and warranties shall be true and correct, on and as of such
particular date), with the same force and effect as if then made, except where
the failure of such representations and warranties to be true and correct would
not, individually or in the aggregate, reasonably be expected to have a material
adverse effect; and Seller shall have received a certificate to such effect from
an authorized officer of each of Buyer and Parent.
8.4 Deliveries at Closing. Buyer and Parent, as applicable, shall have
delivered to Seller the documents and items specified in Section 3.3.
8.5 Stockholder Approval. The stockholders of Seller shall have approved
the sale of the Purchased Assets in accordance with Seller's Certificate of
Incorporation and Bylaws and the Exchange Act and Delaware General Corporation
Law.
ARTICLE 9
SURVIVAL AND INDEMNIFICATION
9.1 Survival of Representations and Warranties. Regardless of any
investigation at any time made by or on behalf of any party, or of any
information any party may have known or had reason to know at the Closing or any
other time, the representations and warranties contained herein shall survive
the Closing and shall continue in full force and effect for a period ending on
the expiration of eighteen (18) calendar months following the Closing (the
"Survival Period"), except those representations and warranties set forth in the
second sentence of Section 4.4 (but only with respect to good and valid title),
Section 4.15 and
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4.18, which shall survive through the applicable statute of limitations or the
applicable assessment or reassessment period, as the case may be, and except
those representations and warranties set forth in Section 4.2, which shall
survive forever. No claim for indemnification may be brought against any party
hereto with respect to any representation or warranty after the expiration of
such representation or warranty. If written notice of a claim has been given
prior to the expiration of the applicable representations and warranties by a
party in whose favor such representations and warranties have been made to the
party that made such representations and warranties, the relevant
representations and warranties shall survive as to such claim until the claim
has been finally resolved.
9.2 Indemnification Provisions for Benefit of Buyer. Subject to Sections
9.5 and 9.6, following the Closing, Seller shall indemnify and save and hold
Buyer and Parent harmless from and against any Adverse Consequences suffered or
incurred by Buyer or Parent arising out of or resulting from:
(a) the inaccuracy in any representation or the breach of any warranty
made by Seller in this Agreement (for purposes of this Article 9, Seller
shall be deemed to have made the representations and warranties immediately
prior to the Closing Time (other than representations and warranties which
address matters only as of a particular date, in which case such
representations and warranties shall be true and correct, on and as of such
particular date));
(b) the failure of Seller duly to perform or observe any covenant or
agreement in this Agreement required on the part of Seller to be performed
or observed by it prior to, at or after the Closing Date; and
(c) the Excluded Liabilities.
9.3 Indemnification Provisions for Benefit of Seller. Following the
Closing, Buyer and Parent shall, jointly and severally, indemnify and save and
hold harmless Seller from and against any Adverse Consequences suffered or
incurred arising out of or resulting from:
(a) the inaccuracy in any representation or the breach of any warranty
made by Buyer or Parent in this Agreement (for purposes of this Article 9,
Buyer and Parent shall be deemed to have made the representations and
warranties immediately prior to the Closing Time (other than
representations and warranties which address matters only as of a
particular date, in which case such representations and warranties shall be
true and correct, on and as of such particular date));
(b) the failure of Buyer or Parent duly to perform or observe any
covenant or agreement in this Agreement required on the part of Buyer or
Parent to be performed or observed prior to, at or after the Closing Date;
and
(c) the Assumed Obligations.
9.4 Conditions of Indemnification. The respective obligations and
liabilities of Seller, Buyer and Parent (the "indemnifying party") to the other
(the "party to be indemnified") under Sections 9.1 and 9.2, respectively, hereof
with respect to claims resulting from the assertion of liability by third
parties shall be subject to the following terms and conditions:
(a) Within fifteen (15) days (or such earlier time as might be
required to avoid prejudicing the indemnifying party's position) after
receipt of notice of commencement of any action evidenced by service of
process or other legal pleading, or with reasonable promptness after the
assertion in writing of any claim by a third party, the party to be
indemnified shall give the indemnifying party written notice thereof
together with a copy of such claim, process or other legal pleading;
provided, however, that the failure to give notice shall not affect the
right of the indemnified party to indemnification hereunder except to the
extent that such failure prejudices the ability of the indemnifying party
to defend any claim. The indemnifying party shall have the right to
undertake the defense thereof by representatives of its own choosing and at
its own expense; provided, however, that the party to be indemnified may
participate in the defense with counsel of its own choice and at its own
expense.
(b) In the event that the indemnifying party, by the thirtieth (30th)
day after receipt of notice of any such claim (or, if earlier, by the tenth
(10th) day preceding the day on which an answer or other pleading must be
served in order to prevent judgment by default in favor of the Person
asserting
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such claim), does not elect to defend against such claim, the party to be
indemnified will (upon further notice to the indemnifying party) have the
right to undertake the defense, compromise or settlement of such claim on
behalf of and for the account and risk of the indemnifying party and at the
indemnifying party's expense, subject to the right of the indemnifying
party to assume the defense of such claims at any time prior to settlement,
compromise or final determination thereof.
(c) Anything in this Section 9.4 to the contrary notwithstanding, the
indemnifying party shall not settle any claim without the consent of the
party to be indemnified unless such settlement involves only the payment of
money and the claimant provides to the party to be indemnified a release
from all liability in respect of such claim. If the settlement of the claim
involves more than the payment of money, the indemnifying party shall not
settle the claim without the prior consent of the party to be indemnified,
such consent not to be unreasonably withheld.
(d) The party to be indemnified and the indemnifying party will each
cooperate with all reasonable requests of the other.
9.5 Exclusive Remedy. After the Closing occurs, this Article 9, including
the limitations set forth in Sections 9.5 and 9.6, shall provide the sole and
exclusive remedy for any and all Adverse Consequences sustained or incurred by a
party hereto in connection with the transactions contemplated by this Agreement,
absent fraud on the part of the party or parties against whom damages are
sought.
9.6 Indemnification Basket and Cap.
(a) Any right of a party to indemnification under Section 9.2(a) or
Section 9.3(a) of this Agreement shall not apply to any claim (other than
claims, if any, arising under the second sentence of Section 4.4 (but only
with respect to good and valid title), Section 4.15 and Section 4.18) until
the aggregate of all such claims totals $150,000 (the "Basket"), in which
event such indemnity shall apply to all such claims. For purposes of this
Article 9, wherever a representation or warranty is qualified by the use of
the word "material," such representation or warranty shall not be deemed to
be breached or inaccurate unless the Adverse Consequences resulting from
such breach or inaccuracy exceed $15,000.
(b) In no event shall the total liability of (i) Seller, for all
claims hereunder exceed the Purchase Price (the "Seller's Cap"); provided,
however, the limitations contemplated by Seller's Cap shall not apply (A)
in the event of fraud by Seller, (B) in the event of a breach of a covenant
contained in this Agreement by Seller, (C) to Adverse Consequences suffered
by Buyer and/or Parent from the Excluded Liabilities, or (D) to Adverse
Consequences suffered by Buyer and/or Parent from a breach of the
representations contained in the second sentence of Section 4.4 (but only
with respect to good and valid title), Section 4.15 or Section 4.18, and
(ii) Buyer and Parent, for all claims hereunder exceed the Purchase Price
(the "Buyer's Cap"); provided, however, the limitations contemplated by
Buyer's Cap shall not apply (A) in the event of fraud by Buyer, (B) in the
event of a breach of a covenant contained in this Agreement by Buyer or
Parent, or (C) to Adverse Consequences suffered by Seller from the Assumed
Obligations.
9.7 Indemnity Holdback.
(a) Release of Holdback Amount to the Buyer. The deposit of the
Indemnity Holdback is made to facilitate payments to the Buyer on account
of the indemnification obligations of the Seller pursuant to Section 9.2
hereof. If, from time to time and at any time on or after the Closing Date,
the Buyer notifies the Escrow Agent and the Seller in writing (the "Buyer's
Notice") that an event or circumstance has occurred that could reasonably
be expected to result in Adverse Consequences or that the Buyer has
received notice from a third party of a claim which could reasonably be
expected to result in Adverse Consequences for which the Seller has
provided indemnification to the Buyer hereunder, and, in each case, that
the Buyer intends to pay all or any portion of any such Adverse
Consequences, or that Buyer has otherwise incurred Adverse Consequences for
which the Seller has provided indemnification to the Buyer hereunder, the
Escrow Agent shall administer such claim in the manner provided in the
Escrow Agreement.
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(b) Return of Holdback Amount to Seller. On the 20th day after the
expiration of the Survival Period, the Escrow Agent shall disburse to
Seller any amount remaining in the Indemnity Holdback (including accrued
and undistributed interest thereon), after giving effect to any offsets for
payments pursuant to Section 9.7(a). The right to return of any Indemnity
Holdback shall be subordinate and junior to the rights of the Buyer thereto
pursuant to Section 9.7(a), and if the Buyer's Notice has been given, the
Buyer shall have the right to have such claim resolved prior to
distribution of such amount to the Seller.
ARTICLE 10
PERSONNEL
10.1 Buyer Employees. Buyer shall make offers of employment to Seller's
employees of the Business listed on Schedule 10.1, other than those employees
who are on long-term disability leave, extended absence or receiving benefits
pursuant to workers' compensation legislation (the "Buyer Employees"). In such
connection, immediately prior to Closing, Seller shall terminate the employment
of all of Buyer Employees as of the Closing Date and Seller shall pay all
obligations with respect to such Buyer Employees and fulfill all obligations and
applicable Employee Benefit Plans (including wages and commissions, severance,
obligations with respect to termination notice provisions and other benefits) in
respect of periods prior to the Closing. If requested by Seller, Buyer will
communicate its offer to hire Buyer Employees in conjunction with the
termination by Seller of Buyer Employees.
10.2 Terms of Employment. Buyer's employment of Buyer Employees shall be
on terms and conditions comparable in the aggregate to similarly situated
employees of Buyer, pursuant to Buyer's benefit plans and severance pay existing
on the Closing Date, it being agreed and fully understood that (a) Buyer shall
not have any obligation to provide to Buyer Employees any term, condition or
benefit of employment that is the same as or similar to those provided by Seller
to Buyer Employees prior to the Closing, including, but not limited to, those
relating to commissions, bonus, profit sharing or other additional compensation,
sick pay, severance pay, personal time or pay or pensions, (b) Seller shall not
pay any accrued vacation to Buyer Employees and that Buyer Employees shall be
permitted to carry over accrued vacation set forth on the Closing Date Statement
(as finalized) for use, not pay, while employed by Buyer, and (c) the base
salaries of Buyer Employees shall not be reduced upon their employment by Buyer.
No provision of this Agreement shall create any third party beneficiary rights
in any Buyer Employees or any beneficiary or dependent thereof with respect to
the compensation, terms and conditions of employment and benefits that may be
provided to any Buyer Employee. On the Closing Date, each of the Buyer Employees
set forth on Schedule 10.1 who accept Buyer's offer of employment shall enter
into agreements which are customarily entered into by employees of Buyer. Buyer
may, at its option, hire the Buyer Employees on an at-will employment basis and
shall have no obligation to employ such persons for a certain length of time.
Buyer shall have no obligation or liability for any Buyer Employee who does not
accept employment with Buyer.
10.3 Certain Benefits. Buyer and/or Parent, as applicable, will cause its
401(k)/profit sharing plan to accept, after the Closing Date, the rollover of
amounts distributed by Seller to any Buyer Employee who accepts employment with
Buyer from any Seller 401(k)/profit sharing plan.
ARTICLE 11
ADDITIONAL COVENANTS
11.1 Taxes and Fees. Buyer and/or Parent, on the one hand, and Seller, on
the other hand, shall share equally and pay all applicable sales, transfer,
documentary, use and filing fees and taxes that may become due or payable as a
result of the sale, conveyance, assignment, transfer or delivery of any of the
Purchased Assets; but neither Buyer nor Parent shall be liable for any federal
or state tax on any gain recognized by Seller on the sale of the Purchased
Assets.
11.2 Brokers. Except for Raymond James & Associates, Inc., which has
acted as financial adviser to Seller in connection with the transactions
contemplated in this Agreement, Seller, Buyer and Parent
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represent to each other that the transactions contemplated by this Agreement
have been negotiated directly between them and their respective counsels,
without intervention of any Person as a result of any action by them in such a
manner as to give rise to a valid claim against any of them for a brokerage
commission, finder's fee, counseling or advisory fee, or like payment, and each
agrees to indemnify the opposite party against any such liability arising from
or through it. Seller agrees to be responsible for and indemnify Buyer and
Parent against any fees owed to Raymond James & Associates, Inc. by Seller in
connection with the transactions contemplated by this Agreement.
11.3 Books and Records; Personnel. For a period of three (3) years from
the Closing Date:
(a) Neither Buyer nor Parent shall dispose of or destroy any of the
material business records and files of the Business without first offering
to turn over possession thereof to Seller by written notice to Seller at
least ten (10) days prior to the proposed date of such disposition or
destruction.
(b) Buyer and Parent shall allow Seller and its agents access to all
records, returns, work papers and other documents for the Purchased Assets
held by Buyer or Parent relating to any pre-Closing Taxes or other Taxes
for which Seller is responsible pursuant to this Agreement, during normal
working hours at Buyer's or Parent's, as applicable, principal place of
business or at any location where such records are stored, and Seller shall
have the right to make copies of any such records and files, all of the
foregoing being at Seller's expense.
(c) Buyer, Parent and Seller shall make available to each other for
reasonable periods of time Buyer's, Parent's or Seller's personnel to
assist Seller, Buyer or Parent in locating and obtaining records and files
maintained by Buyer, Parent or Seller and any of Buyer's, Parent's or
Seller's personnel whose assistance or participation is reasonably required
by Seller, Buyer or Parent, in anticipation of, preparation for, or the
conduct of any existing or future litigation, tax returns or other matters,
in which Seller, Buyer or Parent is involved in connection with the
Purchased Assets or the transactions contemplated herein.
11.4 Non-Compete Covenant. From the Closing Date until the fourth
anniversary thereof,
(a) Seller shall not either directly or indirectly without the prior
written consent of Buyer, (i) engage in; (ii) own or control any interest
in (except as a passive investor of less than two percent (2%) of the
capital stock or publicly traded notes or debentures of a publicly held
company); (iii) act as an officer, director, partner, member, or joint
venturer of; (iv) lend credit or money for the purpose of establishing or
operating; or (v) allow such entity's name or reputation to be used by any
firm, corporation, partnership, limited liability company, trust or
business enterprise that is engaged in any line of business that competes
with the Business as it exists on the Closing Date anywhere in the world;
provided, however, Buyer and Parent acknowledge that (A) Seller's
enterprise network management and scheduling software business, as it is
presently conducted, does not compete with the Business, (B) the bundling
and sale of Seller's enterprise network management and scheduling software
with appropriate hardware does not compete with the Business, and (C)
Seller's patent and intellectual property licensing business, as it is
presently conducted, does not compete with the Business;
(b) Buyer shall not either directly or indirectly without the prior
written consent of Seller, (i) engage in; (ii) own or control any interest
in (except as a passive investor of less than two percent (2%) of the
capital stock or publicly traded notes or debentures of a publicly held
company or in connection with any business acquired by Buyer or its
affiliates after the date hereof); (iii) act as a partner, member, or joint
venturer of (other than in connection with any business acquired by Buyer
or its affiliates after the date hereof); or (iv) lend credit or money for
the purpose of establishing or operating any firm, corporation,
partnership, limited liability company, trust or business enterprise (other
than in connection with any business acquired by Buyer or its affiliates
after the date hereof) that develops or sells software that competes with
the Seller's enterprise network management and scheduling software business
as it exists immediately after the Closing Date, anywhere in the world;
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(c) Seller shall not, directly or indirectly, influence or attempt to
influence any Person who is a contracting party with the Business as of the
date of this Agreement to terminate or adversely amend any written or oral
agreement that exists as of the Closing Date that relates to the Business;
and
(d) Buyer shall not, directly or indirectly, influence or attempt to
influence any Person who is a contracting party with the Seller's
enterprise network management and scheduling software business as it exists
immediately after the Closing Date, to terminate or adversely amend any
written or oral agreement that exists as of the Closing Date that relates
to the Business.
Each party acknowledges that the other party conducts and will conduct their
operations throughout the United States and worldwide and this Section therefore
shall be effective worldwide.
11.5 Confidential Information.
(a) After the Closing Date, Seller shall not at any time disclose to
any Person other than Buyer or Parent or use any of the Included
Intellectual Property, whether or not such information is embodied in
writing or other physical form. Seller recognizes and agrees that all
documents and objects containing any Included Intellectual Property,
whether developed by Seller or by someone else for Seller (except those
that are licensed to Seller), will after the Closing Date become the
exclusive property of Buyer.
(b) The preceding obligations in this Section 11.5 to maintain
information in confidence shall not apply to the extent that (i) the
information is or becomes in the future public knowledge through no fault
or omission of Seller, its representatives or affiliates, (ii) the
information is lawfully revealed to Seller by a third party having the
right to disclose it and license its use, or (iii) the information is
required to be disclosed by Law, if Buyer has been given notice of such
disclosure requirement and has had an opportunity to seek judicial relief
or protection with respect to such disclosure.
11.6 Non-Solicitation of Employees and Agents. Except as provided under
Article 10 hereof, from the Closing Date until the first anniversary thereof,
neither party nor any of their respective affiliates will (i) encourage,
solicit, induce, or attempt to encourage, solicit or induce any employee or any
independent contractor, agent or representative of the other party to leave
his/her employment (or terminate his/her relationship or devote less than full
time efforts) with the other party for any reason, (ii) hire or attempt to hire,
for any position with any other business, any person who is an employee,
contractor, agent or representative with the other party at such time or who has
been an employee, contractor, agent or representative in connection with the
other party's business at any time within six months preceding such time, except
that this provision shall not apply to Buyer's hiring of the Buyer Employees as
contemplated by Article 10 hereof, or (iii) employ or attempt to employ any of
the (A) Buyer Employees, in the case of the Seller, whether or not such Buyer
Employees accept employment with Buyer or (B) employees of Seller not employed
in the Business, in the case of the Buyer, for any position with any business.
11.7 Reasonableness of Restrictions. Each of Seller, Buyer and Parent
recognizes that the limitations set forth in Sections 11.4, 11.5 and 11.6 are
reasonable, not burdensome and are properly required by Law for the adequate
protection of Seller, Buyer and Parent, and in the event that such limitations
are deemed to be unreasonable by a court of competent jurisdiction, then Seller,
Buyer and Parent agree to submit to a modification or reduction of such
limitations as such court shall deem reasonable.
11.8 Injunctive Relief. Each party acknowledges that its expertise in
their respective businesses is of a special, unique, unusual, extraordinary and
intellectual character, which gives such expertise a peculiar value, and that a
breach by the other party of the covenants contained in Sections 11.4 through
11.6 cannot be reasonably or adequately compensated in damages and that such
breach will cause the other party irreparable injury and damage. Each party
further acknowledges that it possesses unique skills, knowledge and ability and
that competition in violation of the provisions of Sections 11.4 through 11.6
would be extremely detrimental to the other party. By reason thereof, each of
Seller and Buyer agrees that the other shall be entitled, in addition to any
other remedies it may have under this Agreement or otherwise, to temporary,
preliminary and/or permanent injunctive and other equitable relief to prevent or
curtail any breach of the provisions of Sections 11.4, 11.5 and 11.6 of this
Agreement, without proof of
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actual damages that have been or may be caused to such party by such breach or
threatened breach, and waives to the fullest extent permitted by law the posting
or securing of any bond by the other party in connection with such remedies.
11.9 Certain Leases. Seller shall be responsible for all regular
payments, including lease payments and buyout payments, whether prior to or
after the Closing Date, related to any computers or equipment set forth on
Schedule 2.1(a-1), in accordance with their terms, that are necessary to deliver
to Buyer all such personal property, free and clear of any liens, claims or
encumbrances. Seller shall not be required to make any extraordinary payments or
any payments related to damage of the equipment by Buyer.
ARTICLE 12
TERMINATION
12.1 Termination. Time is of the essence of this Agreement. This
Agreement may be terminated and the transactions contemplated hereby may be
abandoned as follows:
(a) at any time prior to the Closing by mutual written agreement of
Seller, Buyer and Parent; or
(b) by Buyer and Parent, if neither Buyer nor Parent is in material
breach of their obligations under this Agreement, and if (i) at any time
that any of the representations and warranties of Seller herein become
untrue or inaccurate such that Section 7.3 would not be satisfied (treating
such time as if it were the Closing Time for purposes of this Section
12.1(b)) or (ii) there has been a breach on the part of Seller of any of
its covenants or agreements contained in this Agreement such that Section
7.1 would not be satisfied (treating such time as if it were the Closing
Time for purposes of this Section 12.1(b)), and, in both case (i) and case
(ii), such breach (if curable) has not been cured within thirty (30) days
after notice to Seller; or
(c) by Seller, if it is not in material breach of its obligations
under this Agreement, and if (i) at any time that any of the
representations and warranties of Buyer or Parent become untrue or
inaccurate such that Section 8.3 would not be satisfied (treating such time
as if it were the Closing Time for purposes of this Section 12.1(c)) or
(ii) there has been a breach on the part of Buyer or Parent of any of their
covenants or agreements contained in this Agreement such that Section 8.1
would not be satisfied (treating such time as if it were the Effective Time
for purposes of this Section 12.1(c)), and such breach (if curable) has not
been cured within thirty (30) days after notice to Buyer and/or Parent, as
applicable; or
(d) by Seller or by Buyer and Parent on or after (i) if the Seller's
proxy statement related to the Stockholder Meeting is not reviewed by the
SEC, March 31, 2003, if by that date the Closing has not taken place or
(ii) if the Seller's proxy statement related to the Stockholder Meeting is
reviewed by the SEC, June 30, 2003, if by that date the Closing has taken
place (provided, however, no party shall be entitled to terminate this
Agreement pursuant to this clause (d) if such party is in material breach
of this Agreement at such time); or
(e) by any party if any court of competent jurisdiction in the United
States or other governmental body of the United States shall have issued an
order, decree, or ruling or taken other action restraining, enjoining or
otherwise prohibiting the purchase and sale of the Purchased Assets
contemplated hereby; or
(f) by any party if the stockholders of Seller shall not have approved
the sale of the Purchased Assets in accordance with Seller's Certificate of
Incorporation and Bylaws, the Exchange Act and Delaware General Corporation
Law at the Stockholder Meeting (including any adjournment or postponement
thereof); provided, however, that the right to terminate this Agreement
under this clause (f) shall not be available to Seller where the failure to
obtain Seller stockholder approval shall have been caused by the action or
failure to act with respect to the Stockholder Meeting and the Affirmative
Recommendation as required under this Agreement; or
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(g) by Buyer and Parent, at any time prior to the adoption and
approval of this Agreement and by the required vote of the stockholders of
Seller, if a Triggering Event (as defined in Section 12.4 below) with
respect to the Business shall have occurred.
12.2 Rights on Termination; Waiver. If this Agreement is terminated
pursuant to Section 12.1, all further obligations of the parties under or
pursuant to this Agreement shall terminate without further liability of any
party to the other parties, except for the obligations under Section 6.6, this
Article 12 and Section 13.2; provided, however, that termination pursuant to
clauses (b) or (c) of Section 12.1 shall not relieve any defaulting or breaching
party from liability to the other parties hereto. Upon any termination of this
Agreement, each party will return all documents, work papers and other material
(including all copies thereof) of the other parties hereto relating to the
transactions contemplated hereby.
12.3 Termination Fee. If (a) Buyer and Parent shall terminate this
Agreement pursuant to Section 12.1(g), or (b) (i) at any time after the date of
this Agreement and before Buyer and/or Parent shall have terminated this
Agreement an acquisition proposal to acquire all or substantially all of the
Business or the Purchased Assets shall have been publicly announced or otherwise
communicated to the Board of Directors and stockholders of Seller and not
withdrawn prior to the Stockholder Meeting having occurred, and (ii) within
twelve (12) months after the earlier of Buyer and/or Parent having terminated
this Agreement or this Agreement having terminated pursuant to its own terms
Seller enters into a definitive agreement with respect to, or consummates, any
acquisition proposal to acquire all or substantially all of the Business or the
Purchased Assets, then Seller shall promptly, but in no event later than two (2)
business days after consummation of such acquisition proposal, pay Buyer an
amount equal to $500,000 by wire transfer of immediately available funds.
12.4 Definitions. For the purposes of this Article 12, the "Triggering
Event" shall mean the occurrence of any of the following with respect to Seller:
(a) its Board of Directors or any committee thereof shall for any reason have
withdrawn or shall have amended or modified in a manner adverse to Buyer and
Parent its Affirmative Recommendation, (b) it shall have failed to include the
Affirmative Recommendation in any of its proxy materials with respect to the
Stockholder Meeting, (c) its Board of Directors fails to reaffirm (publicly, if
so requested) the Affirmative Recommendation within ten (10) calendar days after
Buyer or Parent requests in writing that such recommendation be reaffirmed, or
(d) its Board of Directors or any committee thereof shall have approved or
recommended any proposal with respect to any transaction or series of related
transactions in which any party other than Buyer and Parent shall be entitled to
purchase any substantial portion of the Business or the Purchased Assets,
whether by asset sale, sale of stock or other securities, spin-off,
contribution, merger, consolidation, reorganization, recapitalization,
liquidation or otherwise.
ARTICLE 13
MISCELLANEOUS
13.1 Entire Agreement; Amendment. This Agreement and the documents
referred to herein and to be delivered pursuant hereto constitute the entire
agreement between the parties pertaining to the subject matter hereof, and
supersede all prior and contemporaneous agreements, understandings,
negotiations, and discussions of the parties, whether oral or written, and there
are no warranties, representations, or other agreements between the parties in
connection with the subject matter hereof, except as specifically set forth
herein or therein. This Agreement may only be amended or modified by an
instrument in writing executed by Seller, Buyer and Parent. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision of this Agreement, whether or not similar, nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided.
13.2 Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, each of the parties hereto shall pay the fees and
expenses of their respective counsel, accountants, and other experts incident to
(a) the negotiation and preparation of this Agreement, (b) the filing of any
reports or notifications required of that party by Law and (c) the consummation
of the transactions contemplated hereby.
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13.3 Attorneys' Fees. If any claim, action or proceeding is commenced by
any party hereto concerning this Agreement, the prevailing party shall recover
from the losing party reasonable attorneys' fees and costs and expenses,
including those of appeal and not limited to taxable costs, incurred by the
prevailing party, in addition to all other remedies to which the prevailing
party may be entitled.
13.4 Set-Offs. Each party will have the right to set off against amounts
owed by that party under this Agreement or any arrangement entered into in
connection herewith, other than the Transition Services Agreement, any amount
that the other party is then currently obligated to pay or credit to that party
under this Agreement or any arrangement entered into in connection herewith,
other than the Transition Services Agreement.
13.5 Governing Law. This Agreement shall be construed and interpreted
according the laws of the State of Delaware, without regard to the conflicts of
laws provisions thereof.
13.6 Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties named herein and their respective successors and
permitted assigns. No party may assign either this Agreement or any rights,
interests or obligations hereunder without the prior written approval of the
other parties hereto. Notwithstanding the foregoing, Buyer may, without the
consent of Seller, assign all of its rights under this Agreement in connection
with the assignment of a security interest to any lender of Buyer, or to any
affiliate of Buyer, provided that Buyer remains liable for all of its
obligations hereunder; and, provided further, that Seller shall have the right
to terminate this Agreement prior to the Closing Date if any assignee lender
initiates foreclosure proceedings against Buyer or any affiliate of Buyer prior
to the Closing Date.
13.7 Notices. All communications, notices and disclosures required or
permitted by this Agreement shall be in writing and shall be deemed to have been
given at the earlier of the time when actually delivered to an officer of the
party to which notice is to be given or when sent by facsimile transmission,
overnight courier service or by certified or registered first-class mail,
postage prepaid, return receipt requested, addressed as follows, unless and
until any party notifies the others in accordance with this Section 13.7 of a
change of address:
If to Seller:
Forgent Networks, Inc.
108 Wild Basin Road
Austin, Texas 78746
Attention: Chief Financial Officer
Facsimile: (512) 437-2365
With a copy to:
Jenkens & Gilchrist
a Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
Attention: L. Steven Leshin
Facsimile: (214) 855-4300
If to Buyer or Parent:
Gores Technology Group
10877 Wilshire Boulevard, Suite 1805
Los Angeles, California 90024
Attention: General Counsel
Facsimile: (310) 443-2149
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With a copy to:
Gores Technology Group
6260 Lookout Road
Boulder, Colorado 80301
Attention: Chief Financial Officer
Facsimile: (303) 531-3200
13.8 Counterparts; Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute one and the same Agreement. The Table of Contents and
Article and Section headings in this Agreement are inserted for convenience of
reference only and shall not constitute a part of this Agreement.
13.9 Interpretation. Unless the context requires otherwise, all words
used in this Agreement in the singular number shall extend to and include the
plural, all words in the plural number shall extend to and include the singular,
and all words in any gender shall extend to and include all genders.
13.10 Severability. If any provision, clause, or part of this Agreement,
or the application thereof under certain circumstances, is held invalid, the
remainder of this Agreement, or the application of such provision, clause, or
part under other circumstances, shall not be affected thereby.
13.11 No Reliance. Neither Buyer, Parent or Seller assume any liability
to any Person not a party to this Agreement because of any reliance on the
representations, warranties, and agreements of Buyer, Parent or Seller contained
herein.
13.12 Specific Performance. Failure to consummate the transactions
contemplated hereby, or a breach by any party of the provisions of this
Agreement, may cause irrevocable harm to one or more other parties, for which
there may be no adequate remedy at law and for which the ascertainment of
damages would be difficult. Therefore, each party shall be entitled, in addition
to, and without having to prove the inadequacy of, other remedies at law, to
specific performance of this Agreement, as well as injunctive relief (without
being required to post bond or other security).
13.13 Payment Obligations. Parent shall be jointly and severally liable
for any and all obligations, covenants and agreements of Buyer pursuant to this
Agreement and any other agreement entered into in connection herewith. Seller
shall not be required to seek or exhaust remedies against Buyer prior to seeking
remedies against Parent.
13.14 Further Assurances. Upon and subject to the conditions contained
herein, each of the parties hereto agrees, both before and after the Closing,
(a) to use all reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement,
(b) to execute any documents, instruments or conveyances of every kind which may
be reasonably necessary or advisable to carry out any of the transactions
contemplated hereby, and (c) to cooperate with each other in connection with the
foregoing, including using their reasonable efforts (i) to obtain all consents
from other parties required to permit consummation of the transactions
contemplated hereby; provided, however, that no party shall be required to make
any payments, commence litigation or agree to any modification of the terms
thereof in order to obtain such consents, (ii) to obtain all necessary consents
as are required to be obtained under any Law to permit consummation of the
transactions contemplated hereby, (iii) to defend all litigation challenging
this Agreement or other consummation of the transaction contemplated hereby,
(iv) to lift or rescind any injunction or restraining order or other order
adversely affecting the ability of the parties to consummate the transactions
contemplated hereby, (v) to effect all necessary registrations and filings and
(vi) to fulfill all conditions to this Agreement. If, at any time after the
Closing either party receives any payment, correspondence or other property that
is intended for or belongs to the other party, or to which the other party is
legally entitled, then the party receiving such payment, correspondence or other
property shall hold it in trust and within five (5) days pay over such payment
or deliver such correspondence or other property to the other party.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
BUYER:
VIDCON HOLDING CORP.
By: /s/ ERIC R. HATTLER
------------------------------------
Name: Eric R. Hattler
Title: Vice President and
Secretary
PARENT:
GTG HOLDINGS, INC.
By: /s/ ERIC R. HATTLER
------------------------------------
Name: Eric R. Hattler
Title: Vice President and
Secretary
SELLER:
FORGENT NETWORKS, INC.
By: /s/ RICHARD N. SNYDER
------------------------------------
Name: Richard N. Snyder
Title: Chief Executive Officer
and President
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Note to Stockholders:
This letter was provided to the Board of Directors on April 9, 2003, to confirm
an oral opinion given on December 19, 2002.
ANNEX B
December 19, 2002
Board of Directors
Forgent Networks, Inc.
108 Wild Basin Road
Austin, TX 78747
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view of the consideration to be received by Forgent Networks, Inc. (the
"Company") in connection with the proposed sale (the "Sale") of the Services
Division of Forgent Networks, Inc. (the "Services Division") to Gores Technology
Group ("Gores") pursuant and subject to the draft of the Asset Purchase
Agreement between the Company and Gores Technology Group reviewed by us on
December 19, 2002 (the "Agreement"). The consideration to be offered by Gores to
the Company in exchange for the Services Division will be $10,000,000 cash plus
assumption of approximately $11,200,000 in liabilities, subject to certain
escrows for adjustments and indemnity claims contemplated in the Agreement.
In connection with our review of the Sale of the Services Division and the
preparation of our opinion herein, we have, among other things:
1. Reviewed the financial terms and conditions as stated in the draft
of the Agreement and the terms made available to us on the date hereof;
2. Reviewed the unaudited financial statements of the Services
Division as of and for the years ended July 31, 2002, 2001 and 2000 and for
the quarter ended October 31, 2002;
3. Reviewed the financial projections for the Services Division
prepared by the Company for the years ended December 31, 2002 and 2003 and
the fiscal years ended July 31, 2003, 2004 and 2005;
4. Reviewed the Company's Annual and Quarterly Reports on Form 10-K
and 10-Q for the fiscal years ended July 31, 2002, 2001 and 2000;
5. Reviewed certain other information on the Services Division made
available to us by the Company;
6. Discussed with members of the senior management of the Company and
the Services Division certain information relating to the aforementioned
and any other matters which we have deemed relevant to our inquiry;
7. Reviewed selected publicly available information concerning
companies in businesses considered by Raymond James to be most comparable
to the Services Division;
8. Reviewed financial information and other information concerning
selected completed business combinations deemed to be generally comparable
to the Sale or otherwise relevant to this opinion, in whole or in part; and
9. Performed other such financial analyses that we deemed appropriate.
We have assumed and relied upon the accuracy and completeness of all
information supplied or otherwise made available to us by the Company, or any
other party, and we have undertaken no duty or responsibility to verify
independently any of such information. We have not made or obtained an
independent appraisal of the assets or liabilities (contingent or otherwise) of
the Services Division. With respect to financial forecasts and other information
and data provided to or otherwise reviewed by or discussed with us, we have
assumed that such forecasts and other information and data have been reasonably
prepared in good faith on bases reflecting the best currently available
estimates and judgments of management, and we have relied upon each party to
advise us promptly if any information previously
B-1
provided became inaccurate or was required to be updated during the period of
our review. We have also assumed that the sale will be consummated substantially
in accordance with the terms of the draft Agreement and the terms made available
to us on the date hereof.
Our opinion is based upon market, economic, financial and other
circumstances and conditions existing and disclosed to us as of December 19,
2002 and any material change in such circumstances and conditions would require
a reevaluation of this opinion, which we are under no obligation to undertake.
We express no opinion as to the underlying business decision to affect the
Sale, the structure or tax consequences of the Agreement or the availability or
advisability of any alternatives to the Sale of the Services Division. We did
not structure the Sale or negotiate the final terms of the Sale. Our opinion is
limited to the fairness, from a financial point of view, of the consideration to
be paid to the Company in connection with the Sale. We express no opinion with
respect to any other reasons, legal, business, or otherwise, that may support
the decision of the Board of Directors to approve or consummate the Sale. We
express no opinion as to the trading price of the common stock of Forgent
Networks, Inc.
In conducting our investigation and analyses and in arriving at our opinion
expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we have deemed relevant,
including the review of (i) historical and projected revenues, operating
earnings, net income and capitalization of the Services Division and certain
other publicly held companies in businesses we believe to be comparable to the
Services Division; (ii) the current and projected financial position and results
of operations of the Services Division; (iii) financial and operating
information concerning selected business combinations which we deemed comparable
in whole or in part; and (iv) the general condition of the securities markets.
In arriving at this opinion, Raymond James did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Raymond James believes that its analyses must be considered as a
whole and that selecting portions of its analyses, without considering all
analyses, would create an incomplete view of the process underlying this
opinion.
Raymond James & Associates, Inc. ("Raymond James") is actively engaged in
the investment banking business and regularly undertakes the valuation of
investment securities in connection with public offerings, private placements,
business combinations and similar transactions. Raymond James has been engaged
to render financial advisory services to the Company in connection with the
proposed Sale and will receive a fee for such services, which fee is contingent
upon consummation of the Sale. Raymond James will also receive a fee upon the
delivery of this opinion. In addition, the Company has agreed to indemnify us
against certain liabilities arising out of our engagement.
In the ordinary course of our business, Raymond James may trade in the
securities of the Company for our own account or for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
It is understood that this letter is for the information of the Board of
Directors of the Company in evaluating the Sale and does not constitute a
recommendation to any director or shareholder of the Company regarding how said
director or shareholder should vote on the Sale. Furthermore, this letter should
not be construed as creating any fiduciary duty on the part of Raymond James to
any such party. This opinion is not to be quoted or referred to, in whole or in
part, without our prior written consent, which will not be unreasonably
withheld.
B-2
Based upon and subject to the foregoing, it is our opinion that, as of
December 19, 2002, the consideration to be received by the Company pursuant to
the Agreement is fair, from a financial point of view, to the holders of the
Company's outstanding Common Stock. This letter was prepared and delivered on
April 9, 2003 to confirm the oral opinion we provided to the Company on December
19, 2002.
Very truly yours,
/s/RAYMOND JAMES & ASSOCIATES, INC.
RAYMOND JAMES & ASSOCIATES, INC.
B-3
FORGENT NETWORKS, INC. ANNUAL MEETING
, 2003 PROXY NO. SHARES IN YOUR NAME
----------- -- ----------- ----------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jay C. Peterson or Richard N. Snyder as
proxy, and either of them, each with the power to appoint his substitute, and
hereby authorizes either of them to represent and vote, as designated on the
reverse side hereof, all of the shares of the common stock of Forgent Networks,
Inc. held of record by the undersigned at the close of business on May 22, 2003,
at the annual meeting of stockholders to be held on __________, 2003, and any
adjournment(s) thereof.
Dated , 2003
-------- --
-----------------------------
Signature
-----------------------------
Signature, if Held Jointly
Please execute this proxy as your name appears hereon. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the president or other
authorized officer. If a partnership, please sign in partnership name by an
authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE
ENCLOSED ENVELOPE.
Dear Stockholder:
Forgent Networks, Inc. encourages you to take advantage of new and convenient
ways by which you can vote your shares. You can vote your shares electronically
through the Internet or by telephone up until 11:59 P.M. Central Standard Time
the day before the annual meeting date. This eliminates the need to return your
proxy card.
1. To vote by Internet:
o Log on to the Internet and go to the web site
http://www.proxyvote.com
o Have your proxy card on hand when you access the web site and you
will be prompted to enter your 12-digit Control Number, which is
located below, to obtain your records and to create an electronic
voting instruction form.
2. To vote by telephone:
o Use any touch-tone telephone to dial 1-800-690-6903.
o Have your proxy card in hand when you call and you will be prompted
to enter your 12-digit Control Number, which is located below, to
vote. Follow the instructions that the Vote Voice provides you.
If you choose to vote your shares electronically, there is no need to mail back
your proxy card.
Your vote is important. Thank you for voting.
FORGENT NETWORKS, INC. ANNUAL MEETING
CONTINUED FROM OTHER SIDE
, 2003
----------- --
THIS PROXY, WHEN PROPERLY EXECUTED AND DATED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3 and 4 AND AT THE DISCRETION
OF THE PROXIES WITH RESPECT TO ANY MATTERS REFERRED TO IN PROPOSAL 5.
1. Proposal to elect as directors of Forgent Networks, Inc. the following
persons to hold office until the next annual meeting of stockholders or
until their respective successors are duly elected and qualified.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for
(except as marked to the contrary all nominees listed below
below)
Richard N. Snyder James H. Wells Richard J. Agnich
Kathleen A. Cote Lou Mazzucchelli Raymond Miles
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name on the space provided below.)
-------------------------------------------------------------------------------
2. Proposal to approve the sale of substantially all of the assets used in
the operation Forgent Networks, Inc.'s videoconferencing services
business pursuant to the asset purchase agreement dated January 6,
2003, between Forgent Networks, Inc., VidCon Holding Corp. and GTG
Holdings, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. The ratification of the board of directors' appointment of Ernst &
Young LLP, independent accountants, as Forgent Networks, Inc.'s
independent auditors for the year ending July 31, 2003.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to approve an adjournment or postponement of the annual
meeting, in order to solicit additional proxies, to such time and
place as designated by the presiding officer of the meeting.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment(s)
thereof.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.