<PAGE> 1
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
--------------------------------------
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:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2))
CLARIFY INC.
(Name of registrant as specified in its charter)
[ ] No fee required.
[ ] Fee computed below per Exchange Act Rule 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock of Clarify Inc., par value $0.0001 per share.
(2) Aggregate number of securities to which transaction applies:
23,967,457 shares of Common Stock.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): $71.3125
(the average of the high and low trading prices of Clarify Common Stock
on Nasdaq on October 26, 1999).
(4) Proposed maximum aggregate value of transaction: $1,709,179,277
(5) Total fee paid: $341,836
[X] Fee paid previously with 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:
(2) Form, Schedule or Registration no.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
LOGO
February 11, 2000
Dear Clarify Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Clarify Inc. which will be held on March 16, 2000, at 10:00 a.m., Pacific Time,
at Clarify's principal executive offices located at 2560 Orchard Parkway, San
Jose, California 95131.
At the meeting, you will be asked to approve the acquisition of Clarify by
Nortel Networks Corporation. The acquisition will be carried out by way of a
merger under a merger agreement between Clarify and Nortel Networks. If the
merger is approved, you will be entitled to receive 1.3 common shares of Nortel
Networks in exchange for each share of Clarify common stock that you own. The
value of 1.3 Nortel Networks common shares was $158.275 on February 9, 2000,
based on the closing price of the shares on the New York Stock Exchange on that
date, which was $121.750. Nortel Networks will apply to list the Nortel Networks
common shares to be issued in the merger on the New York and Toronto stock
exchanges.
The accompanying proxy statement/prospectus provides a detailed description
of the proposed merger and the consideration you will receive in the merger, as
well as the effects of the merger on you as a stockholder and on Clarify. I urge
you to read the enclosed materials carefully.
AFTER CAREFUL CONSIDERATION, CLARIFY'S BOARD OF DIRECTORS HAS UNANIMOUSLY
DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF CLARIFY AND
ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the special
meeting, please take the time to vote on the proposal submitted to you by
completing and mailing the enclosed proxy card to us as soon as possible.
Sincerely,
ANTHONY ZINGALE SIGNATURE
Anthony Zingale
President and Chief Executive Officer
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF MATTERS YOU
SHOULD CONSIDER IN DECIDING WHETHER TO VOTE IN FAVOR OF THE MERGER.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the Nortel Networks common shares to be
issued in the merger or determined if this proxy statement/prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
No securities commission or similar regulatory authority in Canada has in any
way passed upon the merits of the Nortel Networks common shares offered under
this proxy statement/prospectus or the disclosure contained in this proxy
statement/prospectus. Any representation to the contrary is an offense.
This proxy statement/prospectus is dated February 11, 2000 and is first being
mailed to stockholders on or about February 16, 2000.
<PAGE> 3
CLARIFY INC.
2560 ORCHARD PARKWAY
SAN JOSE, CALIFORNIA 95131
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 16, 2000
To the Stockholders of Clarify Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Clarify
Inc., a Delaware corporation, will be held on March 16, 2000, at 10:00 a.m.,
Pacific Time, at Clarify's principal executive offices located at 2560 Orchard
Parkway, San Jose, California 95131, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of October 18, 1999, among
Clarify, Nortel Networks Corporation, a corporation organized under the
laws of Canada, and a wholly owned subsidiary of Nortel Networks,
pursuant to which, among other things:
(a) Nortel Networks' subsidiary will merge with and into Clarify, with
Clarify being the surviving corporation in the merger and becoming
a wholly owned subsidiary of Nortel Networks as a result of the
merger; and
(b) each outstanding share of common stock, par value $0.0001 per
share, of Clarify will be converted into the right to receive 1.3
common shares, without par value, of Nortel Networks.
2. To transact such other business as may properly come before the
special meeting or any adjournment or postponement thereof.
Only holders of Clarify common stock of record at the close of business on
February 10, 2000 are entitled to notice of and to vote at the special meeting
or any adjournment or postponement thereof.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. TO
ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, HOWEVER, YOU ARE URGED TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN
THE ENCLOSED POSTAGE-PAID ENVELOPE. ANY STOCKHOLDER ATTENDING THE SPECIAL
MEETING MAY VOTE IN PERSON EVEN IF THAT STOCKHOLDER HAS RETURNED A PROXY.
By Order of the Board of Directors
ELIAS J. BLAWIE SIGNATURE
Elias J. Blawie
Secretary
San Jose, California
February 11, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE
MERGER.............................. 1
WHO CAN HELP ANSWER YOUR QUESTIONS.... 1
SUMMARY............................... 2
The Companies....................... 2
The Merger.......................... 2
What Clarify Stockholders Will
Receive in the Merger............ 2
Recommendation to Stockholders...... 2
Opinion of Financial Advisor to
Clarify.......................... 2
Agreement of Certain Directors and
Executive Officers............... 3
Material Federal Income Tax
Consequences..................... 3
No Appraisal Rights................. 3
Treatment of Clarify Stock
Options.......................... 3
Markets and Market Prices........... 3
Interests of Clarify's Directors and
Executive Officers in the
Merger........................... 3
Conditions to the Merger............ 4
Termination of the Merger
Agreement........................ 4
Termination Fees.................... 5
Stock Option Agreement.............. 5
SELECTED HISTORICAL FINANCIAL DATA.... 6
Nortel Networks..................... 6
Clarify............................. 8
RECENT DEVELOPMENTS................... 9
COMPARATIVE HISTORICAL UNAUDITED PER
SHARE DATA.......................... 10
RISK FACTORS.......................... 11
Because you will receive a fixed
number of Nortel Networks common
shares for each share of your
Clarify common stock, and because
the market value of Nortel
Networks common shares will vary,
you cannot be certain of the
value of the consideration you
will receive in the merger....... 11
Directors and executive officers of
Clarify have conflicts of
interest that may have influenced
their decision to approve the
merger........................... 11
The termination fee and the stock
option agreement may discourage
other companies from trying to
acquire Clarify.................. 12
Forward-looking statements may prove
inaccurate....................... 12
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
CLARIFY'S SPECIAL MEETING............. 14
Where and When Clarify's Special
Meeting Will Be Held............. 14
What You Will Vote On............... 14
Clarify's Board of Directors
Recommends a Vote FOR the
Merger........................... 14
Only Clarify Stockholders of Record
as of February 10, 2000 Are
Entitled to Vote................. 14
Majority of Outstanding Shares Must
Be Represented for a Vote to be
Taken............................ 14
Vote Required....................... 14
Voting Your Shares and Changing Your
Vote............................. 14
How Proxies Are Counted............. 15
Cost of Solicitation................ 15
THE MERGER............................ 16
Background of the Merger............ 16
Recommendation of Clarify's Board;
Reasons of Clarify for the
Merger........................... 19
Opinion of Financial Advisor to
Clarify.......................... 21
Interests of Certain Persons in the
Merger........................... 28
Accounting Treatment................ 29
Regulatory Approvals................ 29
Resale of Nortel Networks Common
Shares........................... 30
No Appraisal Rights................. 31
U.S. Federal Income Tax Consequences
of the Merger.................... 31
U.S. and Canadian Tax Considerations
Relating to Holding Nortel
Networks Common Shares........... 33
Stock Exchange Listings of Nortel
Networks Common Shares........... 35
THE MERGER AGREEMENT.................. 36
The Merger.......................... 36
Effective Time of the Merger........ 36
Conversion of Clarify Common
Stock............................ 36
No Fractional Nortel Networks Common
Shares........................... 36
Exchange of Clarify Common Stock for
Nortel Networks Common Shares.... 36
Treatment of Clarify Stock
Options.......................... 37
Employee Benefits................... 37
Representations and Warranties...... 37
Conduct of Business of Clarify...... 39
Conduct of Business of Nortel
Networks......................... 39
Covenants of Clarify................ 40
Covenants of Nortel Networks........ 40
</TABLE>
i
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Covenants of Nortel Networks,
Clarify and the Merger
Subsidiary....................... 40
Acquisition Proposals............... 41
Conditions to the Merger............ 41
Indemnification..................... 42
Waiver and Amendment................ 43
Termination of the Merger
Agreement........................ 43
Termination Fees and Expenses....... 44
OTHER AGREEMENTS...................... 46
Stock Option Agreement.............. 46
Stockholders Agreement.............. 49
MARKET PRICES AND DIVIDENDS........... 51
Nortel Networks..................... 51
Clarify............................. 52
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.... 53
BUSINESS OF NORTEL NETWORKS........... 55
DESCRIPTION OF NORTEL NETWORKS SHARE
CAPITAL............................. 55
General............................. 55
Common Shares....................... 56
Preferred Shares.................... 56
COMPARATIVE RIGHTS OF HOLDERS OF
CLARIFY COMMON STOCK AND NORTEL
NETWORKS COMMON SHARES.............. 57
Vote on Extraordinary Corporate
Transactions..................... 57
Dividends and Distributions......... 58
Amendments to Charter............... 58
Amendment to By-laws................ 59
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Interested Shareholder
Transactions..................... 59
Dissent and Appraisal Rights........ 60
Directors' Qualifications........... 61
Election of Directors............... 61
Removal of Directors................ 61
Vacancy on Boards................... 61
Directors' and Officers'
Indemnification.................. 62
Limitation of Directors' Personal
Liability for Monetary Damages... 63
Special Meeting of Stockholders..... 63
Quorum Requirements................. 63
Rights Agreement.................... 63
Inspection of Books and Records..... 64
LEGAL OPINIONS........................ 64
EXPERTS............................... 64
SERVICE OF PROCESS AND ENFORCEMENT OF
LIABILITIES......................... 64
WHERE YOU CAN FIND MORE INFORMATION... 65
ANNEX A Agreement and Plan of Merger
by and among Nortel Networks
Corporation, Northern Crown
Subsidiary, Inc. and Clarify Inc.,
dated as of October 18, 1999........ A-1
ANNEX B Stock Option Agreement, dated
as of October 18, 1999, between
Nortel Networks Corporation and
Clarify Inc......................... B-1
ANNEX C Stockholders Agreement, dated
as of October 18, 1999.............. C-1
ANNEX D Opinion of Morgan Stanley &
Co. Incorporated.................... D-1
</TABLE>
ii
<PAGE> 6
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What do I need to do now?
A: Just vote your shares as described in this document and the proxy card
included with it, so that your shares may be represented at the Clarify
special meeting. If you do not vote your shares, your failure to vote will
have the same effect as voting against the merger.
Q: Should I send in my stock certificates now?
A: No. You will receive instructions for exchanging your stock certificates
after the merger is completed.
Q: If my shares are held in street name by my broker, will my broker vote my
shares for me?
A: No. Your broker can vote your shares only if you provide instructions on how
to vote. You should instruct your broker to vote your shares, following the
directions provided by your broker. Your failure to instruct your broker on
how to vote your shares will have the same effect as voting against the
merger.
Q: Can I change my vote after I have mailed my proxy card or provided
instructions to my broker?
A: Yes. You can change your vote at any time before your proxy is voted at the
Clarify special meeting. This document contains instructions on how to
change your vote. If you have instructed your broker to vote your shares,
you must follow directions received from your broker to change those
instructions.
Q: Do I need to attend the Clarify special meeting in person?
A: No. It is not necessary for you to attend the special meeting to vote your
shares, although you are welcome to attend.
Q: When will the merger be completed?
A: Nortel Networks and Clarify are working towards completing the merger as
soon as possible, and expect to complete it shortly after the Clarify
special meeting on March 16, 2000, if Clarify stockholders approve the
merger. However, it is possible that delays in obtaining regulatory
approvals could require that the merger be completed at a later time.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the merger after reading this proxy
statement/prospectus, you should contact:
<TABLE>
<S> <C> <C>
Clarify Inc. Corporate Investor Communications, Inc.
2560 Orchard Parkway 111 Commerce Road
San Jose, California 95131 Carlstadt, New Jersey
Attn: Investor Relations or 07072-2586
Telephone: (408) 965-7000 Telephone: (201) 896-5692
E-mail: [email protected]
</TABLE>
1
<PAGE> 7
SUMMARY
This summary highlights key aspects of the merger which are described in
greater detail elsewhere in this document. It does not contain all of the
information that may be important to you. To better understand the merger, and
for a more complete description of the legal terms of the merger, you should
read this entire document carefully, including the Annexes, and the additional
documents to which we refer you. You can learn how to obtain these additional
documents in "Where You Can Find More Information" on page 65.
THE COMPANIES
NORTEL NETWORKS CORPORATION
8200 Dixie Road, Suite 100
Brampton, Ontario
Canada L6T 5P6
Telephone: (905) 863-0000
Nortel Networks is a leading global supplier of data and telephony network
solutions and services with operations in Canada, the United States, Europe, the
Caribbean and Latin America region and the Asia Pacific region. Its customers
include public and private enterprises and institutions; Internet service
providers; local, long-distance, personal communications services and cellular
mobile communications companies; cable television companies; and utilities.
Nortel Networks had revenues of $17.6 billion in 1998 and has approximately
73,000 employees.
CLARIFY INC.
2560 Orchard Parkway
San Jose, California 95131
Telephone: (408) 965-7000
Clarify is a global provider of enterprise solutions for managing customer
relationships in companies across virtually every industry. Founded in 1990,
Clarify is the world's second largest front office software provider. Clarify
pioneered the first integrated suite of front office applications, and was the
first to introduce a number of key innovations such as web self-service that
personalize every customer interaction. Clarify eFrontOffice combines customer
relationship management and eBusiness capabilities in a single solution allowing
companies to quickly deploy eBusiness sales, marketing and service initiatives.
Clarify had revenues of $130.5 million in 1998 and has over 860 employees in the
Americas, Europe and Asia.
THE MERGER
The merger agreement, which is the legal document that governs the merger,
is attached as Annex A. We encourage you to read the merger agreement carefully.
WHAT CLARIFY STOCKHOLDERS WILL RECEIVE IN THE MERGER (SEE PAGE 36)
In the merger, each share of Clarify common stock will be exchanged for
Nortel Networks common shares at an exchange ratio of 1.3 Nortel Networks common
shares for each share of Clarify common stock. The exchange ratio will not be
adjusted to reflect any changes in the market price of either Clarify common
stock or Nortel Networks common shares.
Nortel Networks will not issue fractional shares in the merger. As a
result, the total number of Nortel Networks common shares you receive in the
merger will be rounded down to the nearest whole number. You will receive a cash
payment, based on the average of the last sales prices of Nortel Networks common
shares during the five trading days prior to completion of the merger, for the
value of the remaining fraction of a Nortel Networks common share that you would
otherwise receive.
RECOMMENDATION TO STOCKHOLDERS (SEE PAGE 14)
Clarify's Board has unanimously approved the merger and recommends that you
vote FOR the merger.
OPINION OF FINANCIAL ADVISOR TO CLARIFY
(SEE PAGE 21)
On October 18, 1999, Clarify's Board received an oral opinion, later
confirmed in writing, from its financial advisor, Morgan Stanley & Co.
Incorporated, that, as of that date, and subject to and based on the
considerations set forth in its opinion, the exchange ratio pursuant to the
merger agreement was fair from a financial point of view to holders of shares of
Clarify common stock. The full text of the opinion is attached as Annex D. We
urge you to read the entire opinion carefully
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<PAGE> 8
for the assumptions made, procedures followed,
matters considered and limits of the scope of Morgan Stanley's review in
rendering its opinion. Morgan Stanley's opinion was addressed to Clarify's Board
for the purpose of the Board's evaluation of the merger and does not constitute
a recommendation to any Clarify stockholder as to how to vote with respect to
the merger.
AGREEMENT OF CERTAIN DIRECTORS AND EXECUTIVE OFFICERS (SEE PAGE 49)
A number of directors and executive officers of Clarify have entered into a
stockholders agreement with Nortel Networks. These directors and officers own
and are entitled to vote approximately 4.7% of the currently outstanding shares
of Clarify common stock. In the stockholders agreement they have agreed to vote
all of their shares of Clarify common stock in favor of the merger and against
any competing transaction. The stockholders agreement is attached as Annex C.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
(SEE PAGE 31)
The receipt of Nortel Networks common shares in the merger generally will
be tax free to Clarify stockholders for United States income tax purposes,
except for tax on cash received for fractional shares. Tax matters are very
complicated, and the tax consequences of the merger to you will depend on the
facts of your particular situation. We urge you to consult your tax advisor for
a full understanding of the tax consequences of the merger to you.
NO APPRAISAL RIGHTS
You will have no appraisal rights in connection with the merger.
TREATMENT OF CLARIFY STOCK OPTIONS (SEE PAGE 37)
Nortel Networks will assume all Clarify stock options outstanding at the
time of the merger. After the merger, Nortel Networks will treat these stock
options as options to acquire Nortel Networks common shares. The number of
shares and exercise prices of the options will be adjusted to reflect the
exchange ratio.
MARKETS AND MARKET PRICES (SEE PAGES 51-52)
Nortel Networks common shares are traded under the symbol "NT" on the New
York and Toronto stock exchanges. Clarify common stock is traded on The Nasdaq
Stock Market under the symbol "CLFY." On October 18, 1999, the last full trading
day before the public announcement of the proposed merger, the last sale price
per Nortel Networks common share on the New York Stock Exchange was $52.375 and
the closing price per share of Clarify common stock was $45.313. On February 9,
2000, the most recent date for which prices were practicably available before
the printing of this document, the last sale price per Nortel Networks common
share was $121.75 and the closing price per share of Clarify common stock was
$155.125. You will find additional historical share price information for both
Nortel Networks and Clarify on pages 51-52.
INTERESTS OF CLARIFY'S DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER (SEE PAGE
11)
You should be aware of conflicts of interest of, and the benefits available
to, directors and executive officers of Clarify when considering the
recommendation of Clarify's Board that you vote in favor of the merger. The
directors and executive officers of Clarify have interests in the merger that
are in addition to, or different from, their interests as Clarify stockholders.
These differing interests relate to, among other things:
- a significant number of options to purchase shares of Clarify common
stock held by Clarify directors and executive officers, which will
become vested and immediately exercisable on completion of the merger;
- a significant number of options held by Mr. David Stamm, Clarify's
founder and Chairman of the Board, which Clarify confirmed will vest and
remain outstanding on completion of the merger;
- an offer of employment by Nortel Networks to Mr. Anthony Zingale, the
President and Chief Executive Officer of Clarify who is also a director,
which will take effect on completion of the merger and will afford him
significant benefits;
- a significant number of new options to purchase Nortel Networks common
shares
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<PAGE> 9
which Nortel Networks intends to grant to five executive officers of
Clarify following completion of the merger; and
- directors' and officers' insurance coverage and indemnification rights
provided for in the merger agreement.
CONDITIONS TO THE MERGER (SEE PAGE 41)
Nortel Networks and Clarify will not complete the merger unless a number of
conditions are satisfied or waived, including:
- approval of the merger agreement by Clarify stockholders;
- receipt of regulatory approvals and the absence of legal restraints;
- continued accuracy of the representations and warranties of the other
party, subject to the relevant materiality standard set forth in the
merger agreement;
- performance of the agreements and covenants to be performed by the other
party in all material respects;
- the absence of events which have had or would reasonably be expected to
have a material adverse effect on the other party;
- issuance of opinions by attorneys for Nortel Networks and Clarify as to
the tax-free nature of the merger, except with respect to cash payments
for fractional shares; and
- receipt of approval for listing the Nortel Networks common shares to be
issued in the merger on the New York and Toronto stock exchanges.
TERMINATION OF THE MERGER AGREEMENT
(SEE PAGE 43)
Nortel Networks and Clarify can jointly agree to terminate the merger
agreement at any time before completing the merger. In addition, either company
can terminate the merger agreement if:
- the merger has not been completed by March 31, 2000, if all governmental
approvals required for the completion of the merger have then been
obtained;
- the merger has not been completed by June 30, 2000;
- Clarify stockholders fail to approve the merger agreement;
- any governmental approval required for the completion of the merger is
finally denied;
- the other party breaches any of its representations and warranties,
subject to the relevant materiality standard set forth in the merger
agreement, and those breaches are not or cannot be cured within 15 days
after written notice is given; or
- the other party materially breaches any of its agreements and those
breaches are not or cannot be cured within 15 days after written notice
is given.
Nortel Networks can also terminate the merger agreement if:
- any governmental agency imposes final conditions for completing the
merger that would reasonably be expected to have a material adverse
effect on Nortel Networks or on the surviving corporation in the merger
or require Nortel Networks to dispose of any assets; or
- Clarify's Board withdraws its recommendation of the merger to Clarify
stockholders.
Clarify can also terminate the merger agreement if:
- any governmental agency imposes final conditions for completing the
merger that would reasonably be expected to have a material adverse
effect on Nortel Networks or would require Nortel Networks to dispose of
any assets, except that Clarify cannot terminate the merger agreement in
the latter circumstance if Nortel Networks waives its analogous right to
do so; or
- on or before December 2, 1999, Clarify's Board elects to terminate the
merger agreement in order to approve or recommend a merger or similar
transaction that is a superior proposal. The merger agreement defines a
superior proposal as any bona fide written acquisition proposal made by
a third party that was not solicited or encouraged in violation of the
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<PAGE> 10
merger agreement and which Clarify's Board determines in its good faith
judgment, based on the opinion of a financial advisor of nationally
recognized reputation, to be materially more favorable to Clarify's
stockholders than the transactions contemplated by the merger agreement.
TERMINATION FEES (SEE PAGE 44)
Clarify could be required to pay Nortel Networks a termination fee of up to
$60,000,000 if the merger agreement is terminated under specified circumstances.
STOCK OPTION AGREEMENT (SEE PAGE 46)
Clarify has granted Nortel Networks an option to purchase a number of
shares of Clarify common stock equal to 19.9% of those outstanding at a price of
$68.09 per share, exercisable under specified circumstances. Nortel Networks'
potential profit on the option is capped at $70,000,000. The option will not be
exercisable after completion of the merger or after Nortel Networks receives the
termination fee, and the termination fee will not be payable after any exercise
of the option.
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<PAGE> 11
SELECTED HISTORICAL FINANCIAL DATA
NORTEL NETWORKS
The following selected consolidated financial data as at and for the nine
months ended September 30, 1999 and 1998 has been derived from Nortel Networks'
unaudited interim financial statements and contain all normal, recurring entries
necessary for fair presentation, but are not indicative of the results for the
entire year. The selected consolidated financial data as at and for each of the
five fiscal years in the period ended December 31, 1998 has been derived from
the consolidated financial statements of Nortel Networks. The report of Deloitte
& Touche LLP, as of December 31, 1998 and 1997, and for each of the three years
in the period ended December 31, 1998, is included in Nortel Networks' Annual
Report on Form 10-K for the year ended December 31, 1998, as amended by its Form
10-K/A dated February 10, 2000, incorporated in this proxy statement/prospectus
by reference. You should read the selected consolidated financial data in
conjunction with the financial statements and the notes to the financial
statements for Nortel Networks included in its Annual Report on Form 10-K for
the year ended December 31, 1998, as amended by its Form 10-K/A dated February
10, 2000, and its Quarterly Report on Form 10-Q for the period ended September
30, 1999, as amended by its Form 10-Q/A dated February 10, 2000. See "Where You
Can Find More Information" on page 65 to learn how you can obtain these reports.
We have adjusted per share amounts to reflect Nortel Networks' two-for-one stock
split on January 7, 1998 and the stock dividend of one common share on each
issued and outstanding Nortel Networks common share as of August 17, 1999.
Because the merger is not material to Nortel Networks, pro forma financial
statements of Nortel Networks reflecting the merger are not required to be
included in this document under the applicable rules of the Commission,
including Rule 11-01 of Regulation S-X.
<TABLE>
<CAPTION>
AS AT AND FOR THE NINE
MONTHS ENDED
AS AT AND FOR THE YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------- ------------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- ---------- ----------
(UNAUDITED)
(MILLIONS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE FIGURES AND EMPLOYEE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS AND RELATED DATA
Revenues............................... $ 8,874 $10,672 $12,847 $15,449 $17,575 $11,807 $15,224
Research and development expense....... 1,156 1,579 1,813 2,147 2,453 1,801 2,122
Amortization of plant and equipment.... 390 430 439 439 471 333 462
Income tax provision................... 161 233 321 438 601 332 446
Net earnings (loss)
Canadian GAAP........................ 408(2) 473 623 829(3) (537)(4) (205)(5) (593)(6)
U.S. GAAP............................ 362(2) 399 564 712(3) (1,250)(4) (1,107)(5) (502)(6)
Net earnings (loss) applicable to
common shares
Canadian GAAP........................ 404(2) 469 619 812(3) (569)(4) (228)(5) (614)(6)
U.S. GAAP............................ 358(2) 395 560 695(3) (1,282)(4) (1,130)(5) (523)(6)
Earnings (loss) per revenue dollar, in
cents(1)
Canadian GAAP........................ 5 4 5 5 (3) (2) (4)
U.S. GAAP............................ 4 4 5 5 (8) (10) (4)
Earnings (loss) per common share, in
dollars
Canadian GAAP........................ 0.40(2) 0.46 0.60 0.78(3) (0.50)(4) (0.21)(5) (0.46)(6)
U.S. GAAP............................ 0.36(2) 0.39 0.54 0.67(3) (1.12)(4) (1.04)(5) (0.39)(6)
U.S. GAAP, fully diluted............. 0.36(2) 0.39 0.54 0.65(3) (1.12)(4) (1.04)(5) (0.39)(6)
Dividends per common share, in
dollars.............................. 0.09 0.105 0.125 0.145 0.15 0.1125 0.1125
FINANCIAL POSITION
Working capital........................ 2,160 2,051(7) 3,099 3,664 4,424 4,394(7) 4,654
Plant and equipment (at cost).......... 3,910 4,533 4,680 4,706 5,249 5,349(7) 5,410
Accumulated amortization............... 2,205 2,610 2,645 2,666 2,986 3,054 3,054
Total assets
Canadian GAAP........................ 8,797(7) 9,480(7) 10,903 12,554 19,732 20,203(7) 20,725
U.S. GAAP............................ 9,218(7) 9,301(7) 10,820(7) 12,398(7) 21,828(7) 22,062(7) 22,409
Long-term debt......................... 1,495(7) 1,221(7) 1,663 1,565 1,648 1,673 1,470
Redeemable preferred shares............ 73 73 367 609 609 609 609
</TABLE>
6
<PAGE> 12
<TABLE>
<CAPTION>
AS AT AND FOR THE NINE
MONTHS ENDED
AS AT AND FOR THE YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------- ------------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- ---------- ----------
(UNAUDITED)
(MILLIONS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE FIGURES AND EMPLOYEE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Common shareholders' equity
Canadian GAAP........................ 3,355 3,798 4,509 4,801 10,956 11,422(7) 10,853
U.S. GAAP............................ 3,283 3,652 4,304 4,517 12,190 12,415(7) 12,280
CAPITAL EXPENDITURES(1)................ 389 577 601 575 642 479 629
EMPLOYEES AT END OF PERIOD(1).......... 57,054 59,904(8) 62,284(9) 68,341(9) 71,296(9) 75,009(9) 73,343(9)
</TABLE>
- ---------------
(1) Unaudited
<TABLE>
<CAPTION>
US GAAP
CDN GAAP (IF DIFFERENT)
-------- --------------
<S> <C> <C>
(2) Includes the following:
- one-time gains on the sale of its optical fiber and
fiber cable manufacturing facility and on the sale of
its connection, protection and optical fiber
management systems businesses........................ $ 101
(3) Includes the following:
- one-time gain on the sale of its TTS Meridian
Systems Inc. and Nortel Communications Systems Inc.
distribution businesses.............................. $ 102
- one-time charges related to the write-down of
certain investments and for the rationalization
and/or relocation of certain manufacturing
facilities........................................... $ (95)
- net tax impact...................................... $ 1
(4) Includes the following:
- acquisition-related costs which include the
amortization of intangible assets from the
acquisition of Bay Networks, Inc., and the
amortization of any purchased in-process research and
development from prior acquisitions.................. $(1,630) $(2,258)
- one-time gains on the sales of shares of Lagaradere
SCA, Netspeed Inc. and Matra Ericsson
Telecommunications, the disposition of the Advanced
Power System business and the Creedmoor, North
Carolina manufacturing facility, and gains related to
Entrust Technologies Inc., net of a loss on the sale
of the Research and Development Centre of the GSM
terminals business................................... $ 441
- one-time charges related primarily to a charge taken
by Nortel Networks plc to downsize a portion of its
Fixed Wireless Access manufacturing operation and a
write-down of certain assets and investments......... $ (447)
- net tax impact...................................... $ 2
(5) Includes the following:
- acquisition-related costs which include the
amortization of intangible assets from the
acquisition of Bay Networks, and the amortization of
any purchased in-process research and development
from prior acquisitions.............................. $ (810) $(1,691)
- one-time gains and charges net of tax............... $ (6)
- amortization of deferred taxes on Bay Networks
acquired technology.................................. $ nil $ 21
(6) Includes the following:
- acquisition-related costs which include the
amortization of intangible assets from the
acquisition of Bay Networks and from subsequent
acquisitions and the amortization of any purchased
in-process research and development from prior
acquisitions......................................... $(1,585) $(1,538)
- one-time gains and charges net of tax............... $ 1
- amortization of deferred taxes on Bay Networks
acquired technology.................................. $ nil $ 187
(7) Comparative amounts have been restated to conform with current period's
presentation.
(8) In addition, Nortel Networks' proportionate share of the employees of the Matra
Nortel Communications S.A.S joint venture was 3,811.
(9) In addition, Nortel Networks' proportionate share of the employees of all joint
ventures was 3,712 in September 1999, 3,656 in September 1998, 3,756 in December
1998, 4,555 in December 1997 and 5,300 in December 1996.
</TABLE>
7
<PAGE> 13
CLARIFY
The following selected consolidated financial data as at and for the nine
months ended September 30, 1999 and 1998 has been derived from Clarify's
unaudited interim financial statements and contain all normal, recurring entries
necessary for fair presentation, but are not indicative of the results for the
entire year. The selected consolidated financial data as at and for the five
fiscal years in the period ended December 31, 1998 has been derived from the
consolidated financial statements of Clarify. The report of
PricewaterhouseCoopers LLP, independent auditors, dated January 19, 1999, except
for Note 11 for which the date is March 12, 1999, on the consolidated financial
statements of Clarify as of December 31, 1998 and 1997 and for each of the three
years in the period ended December 31, 1998 is included in Clarify's Annual
Report on Form 10-K for the year ended December 31, 1998, which is incorporated
in this proxy statement/prospectus by reference. You should read the selected
consolidated financial data in conjunction with the consolidated financial
statements and related notes for Clarify included in its Annual Report filed on
Form 10-K for the year ended December 31, 1998 and its Quarterly Report on Form
10-Q for the period ended September 30, 1999. See "Where You Can Find More
Information" on page 65 to learn how to obtain this report.
<TABLE>
<CAPTION>
AS AT AND FOR THE NINE
MONTHS ENDED
AS AT AND FOR THE YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONAL DATA:
Revenues:
License fees...................... $ 7,001 $15,749 $39,139 $59,214 $ 84,874 $ 58,236 $ 89,780
Services.......................... 5,526 9,148 17,183 29,003 45,636 30,946 69,304
------- ------- ------- ------- -------- -------- --------
Total revenues.................... 12,527 24,897 56,322 88,217 130,510 89,182 159,084
======= ======= ======= ======= ======== ======== ========
Cost of revenues:
License fees........................ 400 759 1,409 2,400 2,424 1,592 2,598
Services............................ 3,419 5,714 10,711 18,149 26,165 18,392 38,044
------- ------- ------- ------- -------- -------- --------
Total cost of revenues............ 3,819 6,473 12,120 20,549 28,589 19,984 40,642
======= ======= ======= ======= ======== ======== ========
Gross margin.......................... 8,708 18,424 44,202 67,668 101,921 69,198 118,442
Operating expenses:
Product development and
engineering....................... 3,951 5,547 10,384 16,777 20,329 14,691 20,287
Sales and marketing................. 4,162 9,017 20,351 38,054 61,389 42,348 70,049
General and administrative.......... 1,632 2,336 4,920 7,903 10,094 7,149 10,415
Merger costs........................ -- -- 1,061 -- -- -- --
------- ------- ------- ------- -------- -------- --------
Total operating expenses.......... 9,745 16,900 36,716 62,734 91,812 64,188 100,751
======= ======= ======= ======= ======== ======== ========
Operating income (loss)............... (1,037) 1,524 7,486 4,934 10,109 5,010 17,691
Interest and other income (expense),
net................................. (57) 109 1,644 1,304 1,507 1,036 2,002
------- ------- ------- ------- -------- -------- --------
Income (loss) before income taxes..... (1,094) 1,633 9,130 6,238 11,616 6,046 19,693
Provision for income taxes............ -- 129 940 2,308 4,298 2,237 7,680
------- ------- ------- ------- -------- -------- --------
Net income (loss)..................... $(1,094) $ 1,504 $ 8,190 $ 3,930 $ 7,318 $ 3,809 $ 12,013
======= ======= ======= ======= ======== ======== ========
Basic net income (loss) per share..... $ (0.28) $ 0.09 $ 0.41 $ 0.19 $ 0.34 $ 0.18 $ 0.53
======= ======= ======= ======= ======== ======== ========
Diluted net income (loss) per share... $ (0.28) $ 0.09 $ 0.38 $ 0.18 $ 0.32 $ 0.17 $ 0.47
======= ======= ======= ======= ======== ======== ========
Shares used in per share computations:
Basic............................... 3,975 16,250 20,143 20,909 21,683 21,574 22,769
======= ======= ======= ======= ======== ======== ========
Diluted............................. 3,975 17,351 21,768 22,164 22,592 22,147 25,303
======= ======= ======= ======= ======== ======== ========
BALANCE SHEET DATA:
Working capital....................... $ 3,908 $30,129 $35,586 $40,911 $ 58,669 $ 45,658 $ 70,900
Total assets.......................... 9,884 42,283 70,684 86,831 122,600 103,526 168,684
Long-term obligations................. 654 1,047 -- -- -- -- --
Retained earnings (accumulated
deficit)............................ (7,950) (7,672) 1,565 5,492 12,810 9,301 24,823
Total stockholders' equity............ $ 4,368 $31,482 $46,945 $57,097 $ 71,319 $ 63,378 $ 98,426
</TABLE>
8
<PAGE> 14
RECENT DEVELOPMENTS
On January 28, 2000, Nortel Networks announced the completion of the
acquisition of Qtera Corporation, a privately-held company that produces
ultra-long-reach optical networking systems, for up to $3.25 billion in Nortel
Networks common shares, a portion of which is contingent upon Qtera achieving
certain business objectives. Qtera has its headquarters and about 140 employees
in Boca Raton, Florida, and about 30 employees in Richardson, Texas. As a result
of the merger, Qtera became a wholly owned subsidiary of Nortel Networks and
each outstanding share of Qtera preferred stock and common stock was converted
into a right to receive 1.3350 Nortel Networks common shares, for a total of
approximately 23 million Nortel Networks common shares. Approximately 5 million
Nortel Networks common shares were reserved for issuance in respect of Qtera
options and warrants assumed by Nortel Networks. In addition, up to $500 million
in Nortel Networks common shares may be issued to former Qtera shareholders upon
Qtera achieving certain business objectives. Nortel Networks expects the
acquisition to be neutral to Nortel Networks earnings per share in calendar year
2000 and accretive in calendar year 2001, excluding the effects of
acquisition-related charges.
On January 26, 2000, BCE Inc., which owns approximately 39.6% of Nortel
Networks' common shares, announced a plan to distribute an approximately 37%
ownership interest in Nortel Networks to BCE's shareholders. Under the proposed
plan, a new publicly traded Canadian company will be created which will own all
of the common shares of and continue as Nortel Networks. Nortel Networks' public
common shareholders will receive one common share in the new company in exchange
for each Nortel Networks common share they now hold, so that their level of
investment is retained. BCE shareholders will retain their BCE shares and
receive approximately 0.78 of a common share (subject to adjustment) in the new
company for each BCE common share held. The transaction will be subject to
various conditions, including shareholder and court approvals and rulings from
Canadian authorities. Nortel Networks and BCE have signed a definitive
agreement, approved by their respective boards of directors, to implement the
proposed transaction and expect it to be implemented by the end of the second
quarter 2000. You can find further information about BCE's plan in Nortel
Networks' Current Report on Form 8-K dated January 26, 2000. To learn how to
obtain this report, see "Where You Can Find More Information" on page 65.
On January 25, 2000, Nortel Networks reported its results for the fourth
quarter and the year 1999. Revenues for the fourth quarter of 1999 increased 21%
to $6.99 billion from $5.77 billion for the same period in 1998. Including
acquisition related costs and one-time gains and charges, Nortel Networks
recorded net earnings applicable to common shares in the fourth quarter of 1999
of $417 million or $0.30 per share. For the year 1999, revenues increased 26% to
$22.22 billion from $17.58 billion for the year 1998. Including acquisition
related costs and one-time gains and charges, Nortel Networks recorded a net
loss of $197 million, or $0.15 per share, for 1999.
On January 25, 2000, Nortel Networks' board approved a division of the
common shares of Nortel Networks on a two-for-one basis. This stock split is
subject to common shareholder and regulatory approval. Common shareholders of
Nortel Networks will be asked to approve the two-for-one stock split at the
Nortel Networks' next scheduled meeting of common shareholders. You can find
further information about the planned stock split in Nortel Networks' Current
Report on Form 8-K dated January 25, 2000. To learn how to obtain this report,
see "Where You Can Find More Information" on page 65.
The statements in this section with respect to Nortel Networks'
expectations and plans and BCE's plan are forward-looking statements that may
prove inaccurate because of a variety of risks and uncertainties, including
those described under "Risk Factors -- Forward looking statements may prove
inaccurate" on page 12.
On January 24, 2000, Clarify reported its results for the fourth quarter
and the year 1999. Revenue for the quarter ended December 31, 1999 was $71.6
million, an increase of 73% from $41.3 million in revenue reported in the fourth
quarter of 1998. Revenue for 1999 was $230.7 million, up 77% from 1998.
Including the effects of nonrecurring expenses, Clarify reported net income of
$2.7 million or $0.10 per diluted share for the fourth quarter of 1999 and net
income of $14.7 million or $0.56 per diluted share for the year.
9
<PAGE> 15
COMPARATIVE HISTORICAL UNAUDITED PER SHARE DATA
The following table sets forth historical per share financial information
as at and for the nine months ended September 30, 1999 and the year ended
December 31, 1998 relating to outstanding Nortel Networks common shares and
shares of Clarify common stock. You should read the information presented in the
table in conjunction with the financial statements and the notes to the
financial statements for Nortel Networks included in its Annual Report on Form
10-K for the year ended December 31, 1998, as amended by its Form 10-K/A dated
February 10, 2000, and Quarterly Report on Form 10-Q for the period ended
September 30, 1999, as amended on Form 10-Q/A dated February 10, 2000, and the
financial statements and notes to the financial statements for Clarify included
in its Annual Report on Form 10-K for the year ended December 31, 1998 and
Quarterly Report on Form 10-Q for the period ended September 30, 1999. See
"Where You Can Find More Information" on page 65 to learn how to obtain these
reports. We have adjusted per share amounts to reflect Nortel Networks'
two-for-one stock split on January 7, 1998 and the stock dividend of one common
share on each issued and outstanding Nortel Networks common share as of August
17, 1999.
<TABLE>
<CAPTION>
AS AT AND FOR THE AS AT AND FOR THE
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
<S> <C> <C>
NORTEL NETWORKS COMMON SHARES
Net loss per common share:
Canadian GAAP, basic................................... $ (0.50) $ (0.46)
U.S. GAAP, basic....................................... (1.12) (0.39)
U.S. GAAP, diluted..................................... (1.12) (0.39)
Cash dividends per common share:
Canadian and U.S. GAAP................................. 0.15 0.1125
Book value per common share at period end:
Canadian GAAP.......................................... 8.26 7.97
U.S. GAAP.............................................. 9.18 9.02
CLARIFY COMMON STOCK (U.S. GAAP)
Net earnings per share, basic............................ $ 0.34 $ 0.53
Net earnings per share, diluted.......................... 0.32 0.47
Cash dividends per share................................. -- --
Book value per share at period end....................... 3.22 4.21
</TABLE>
10
<PAGE> 16
RISK FACTORS
You should consider the following matters in conjunction with the other
information included or incorporated by reference in this document in deciding
whether to vote in favor of the merger.
BECAUSE YOU WILL RECEIVE A FIXED NUMBER OF NORTEL NETWORKS COMMON SHARES FOR
EACH SHARE OF YOUR CLARIFY COMMON STOCK, AND BECAUSE THE MARKET VALUE OF NORTEL
NETWORKS COMMON SHARES WILL VARY, YOU CANNOT BE CERTAIN OF THE VALUE OF THE
CONSIDERATION YOU WILL RECEIVE IN THE MERGER.
In the merger, each share of Clarify common stock will be exchanged for 1.3
Nortel Networks common shares. This exchange ratio will not be adjusted to
reflect any changes in the market price of either Clarify common stock or Nortel
Networks common shares. As a result, the value of the consideration you receive
in the merger for your shares of Clarify common stock will depend on the market
value of Nortel Networks common shares at the time the merger is completed,
which may be either lower or higher than their current market value or their
market value at the time you decide whether to vote in favor of the merger.
Neither Nortel Networks nor Clarify will have the right to terminate the
merger agreement or, in the case of Clarify, to resolicit the vote of its
stockholders, solely because of changes in the market price of Nortel Networks
common shares. You should obtain current market quotations for Nortel Networks
common shares.
In addition, the exchange of certificates representing your shares of
Clarify common stock for certificates representing Nortel Networks common shares
will not take place immediately after completion of the merger. You will thus be
unable to sell or otherwise transfer these Nortel Networks common shares for a
period following completion of the merger. The market value of the Nortel
Networks common shares you receive in the merger may be either lower or higher
at the time you receive your certificates representing Nortel Networks common
shares, and so become able to sell those shares, than at the time of the merger.
DIRECTORS AND EXECUTIVE OFFICERS OF CLARIFY HAVE CONFLICTS OF INTEREST THAT MAY
HAVE INFLUENCED THEIR DECISION TO APPROVE THE MERGER.
You should be aware of conflicts of interest of, and the benefits available
to, directors and executive officers of Clarify when considering the
recommendation of the merger by Clarify's Board. As discussed below under "The
Merger -- Interests of Certain Persons in the Merger" on page 28, the directors
and executive officers of Clarify have interests in the merger that are in
addition to, or different from, their interests as Clarify stockholders. These
interests include:
- Vesting of Options. Under the terms of Clarify's stock option plans and
applicable stock option agreements, a significant number of options held
by Clarify directors and executive officers will become vested and
immediately exercisable just prior to completion of the merger. Nortel
Networks will assume all of these options to the extent they are not
exercised before the merger and will treat them as options to purchase
Nortel Networks common shares following the merger.
- Stamm Option Arrangement. In connection with the signing of the merger
agreement and his execution of a restrictive covenant agreement, Clarify
confirmed that a significant number of stock options held by Mr. David
Stamm, Clarify's founder and the Chairman of Clarify's Board, will
become vested and immediately exercisable, and remain outstanding, on
completion of the merger.
- Zingale Employment Arrangement. Nortel Networks has offered Mr. Anthony
Zingale, Clarify's President and Chief Executive Officer who is also a
director, the position of President of the Clarify e-Business Solutions
business to be included in the Nortel Networks Enterprise Solutions line
of business, commencing on completion of the merger. The terms of the
offer of employment will afford Mr. Zingale significant benefits.
11
<PAGE> 17
- New Option Grants. Nortel Networks intends to grant to five executive
officers of Clarify, other than Mr. Zingale, options to purchase an
aggregate of 260,000 Nortel Networks common shares, as soon as
practicable following completion of the merger.
- Directors' and Officers' Insurance; Indemnification of Clarify's
Directors and Officers. Under the merger agreement, current and former
directors and officers of Clarify have significant rights to directors'
and officers' insurance coverage and to indemnification with respect to
acts and omissions in their capacities as directors and officers of
Clarify.
THE TERMINATION FEE AND THE STOCK OPTION AGREEMENT MAY DISCOURAGE OTHER
COMPANIES FROM TRYING TO ACQUIRE CLARIFY.
In the merger agreement, Clarify agreed to pay a termination fee to Nortel
Networks in specified circumstances, including where a third party acquires or
seeks to acquire Clarify. In the stock option agreement, Clarify granted Nortel
Networks an option to purchase a number of shares of Clarify common stock equal
to 19.9% of the Clarify common stock outstanding at the time of exercise,
exercisable under similar circumstances. These agreements could discourage other
companies from trying to acquire Clarify even though those other companies might
be willing to offer greater value to Clarify stockholders than Nortel Networks
has offered in the merger agreement. In addition, payment of the termination fee
would have a material adverse effect on Clarify's financial condition.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE.
This document and the documents that are incorporated by reference contain
forward-looking statements about Clarify, Nortel Networks and the combined
company after the merger which Clarify and Nortel Networks believe are covered
by the Private Securities Litigation Reform Act of 1995. Statements in this
document that are not historical facts are "forward-looking statements" for the
purpose of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as
amended. Forward-looking statements include:
- financial projections and estimates;
- statements regarding plans, objectives and expectations of Clarify or
its Board with respect to future operations, products and services;
- statements regarding future economic performance;
- statements relating to the assumptions underlying projections,
estimates, plans, objectives, expectations and performance; and
- statements relating to the estimated size and growth of relevant
markets.
When used in this document, the words "anticipates," "believes," "expects,"
"intends," and similar expressions as they relate to Clarify, Nortel Networks or
the combined company after the merger or the management of any of these
companies are intended to identify these forward-looking statements.
In making any of these statements, the expectations are believed to be
based on reasonable assumptions. However, there are numerous risks,
uncertainties and important factors that could cause actual results to differ
materially from those in forward-looking statements. These include:
- those discussed or identified from time to time in Clarify's or Nortel
Networks' public filings with the Securities and Exchange Commission,
which is referred to throughout this document as the "Commission";
- specific risks or uncertainties associated with Clarify's or Nortel
Networks' expectations with respect to:
- timing, completion or tax status of the merger;
- the value of the merger consideration;
12
<PAGE> 18
- growth prospects;
- market positions;
- distribution channels;
- earnings per share;
- cost savings;
- revenue enhancements; and
- profitability resulting from the merger; and
- general economic conditions such as:
- changes in interest rates and the performance of the markets;
- changes in domestic and foreign laws, regulations and taxes;
- changes in competition and pricing environments;
- regional or general changes in asset valuations;
- the occurrence of significant natural disasters;
- the development of major year 2000 liabilities;
- general market conditions;
- competition; and
- pricing.
The actual results, performance or achievement by Clarify or Nortel
Networks could differ materially from those expressed in, or implied by, these
forward-looking statements. Accordingly, we cannot assure you that any of the
events anticipated by the forward-looking statements will occur, or if they do,
what impact they will have on the results of operations and financial condition
of Clarify or Nortel Networks.
13
<PAGE> 19
CLARIFY'S SPECIAL MEETING
WHERE AND WHEN CLARIFY'S SPECIAL MEETING WILL BE HELD
The special meeting of Clarify stockholders will be held on March 16, 2000,
at 10:00 a.m., Pacific Time, at Clarify's principal executive offices located at
2560 Orchard Parkway, San Jose, California 95131.
WHAT YOU WILL VOTE ON
At the special meeting, Clarify stockholders will consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of
October 18, 1999, among Clarify, Nortel Networks and Northern Crown Subsidiary,
Inc. The merger agreement provides, among other things, that Northern Crown
Subsidiary will be merged with and into Clarify, and each outstanding share of
Clarify common stock will be converted into the right to receive 1.3 common
shares of Nortel Networks. As a result of the merger, Clarify will become a
wholly owned subsidiary of Nortel Networks.
Clarify is not proposing any matters other than the approval and adoption
of the merger agreement to come before the special meeting.
CLARIFY'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE MERGER
CLARIFY'S BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS
FAIR TO AND IN THE BEST INTERESTS OF CLARIFY AND ITS STOCKHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
ONLY CLARIFY STOCKHOLDERS OF RECORD AS OF FEBRUARY 10, 2000 ARE ENTITLED TO VOTE
The close of business on February 10, 2000 is the record date for
determining the holders of Clarify common stock who are entitled to receive
notice of and to vote at the special meeting or at any adjournment or
postponement of the special meeting.
MAJORITY OF OUTSTANDING SHARES MUST BE REPRESENTED FOR A VOTE TO BE TAKEN
Clarify has only one class of capital stock outstanding, which is common
stock, par value $0.0001 per share. The holders of a majority of the outstanding
shares of Clarify common stock entitled to vote must be present at the special
meeting, in person or by proxy, to constitute a quorum to transact business.
Votes cast by proxy or in person at the Clarify special meeting will be
tabulated by the election inspectors appointed for the meeting and will
determine whether or not a quorum is present. Abstentions will be treated as
shares present in determining whether Clarify has a quorum for the special
meeting. If a broker or other record holder or nominee indicates on a proxy that
it does not have direction or authority to vote certain shares, those shares
will be considered present at the special meeting for purposes of determining a
quorum.
VOTE REQUIRED
The holders of a majority of the outstanding shares of Clarify common stock
must vote for the approval and adoption of the merger agreement to approve the
merger. This means that if you do not vote your shares, your failure to vote
will have the same effect as a vote against the merger. On the record date,
24,221,275 shares of Clarify common stock were outstanding, excluding shares
held in treasury, and there were approximately 99 holders of record. Each holder
of Clarify common stock outstanding on the record date is entitled to one vote
for each share held.
VOTING YOUR SHARES AND CHANGING YOUR VOTE
Clarify's Board is soliciting your proxy. This will give you the
opportunity to vote at Clarify's special meeting if you do not attend in person.
14
<PAGE> 20
If you are a record holder of Clarify's common stock, you may vote your
shares by either of the following means:
- in person by completing a ballot at the meeting; or
- by proxy by completing, signing and dating the enclosed proxy and
returning it in the enclosed envelope.
If you have questions or requests for assistance in completing and
submitting proxy cards, please contact Corporate Investor Communications, Inc.,
a firm that provides professional proxy soliciting services that Clarify has
retained, at the following address and telephone number: 111 Commerce Road,
Carlstadt, New Jersey 07072-2586; (201) 896-5692.
If your broker holds your shares for you in street name, you should
instruct your broker to vote your shares, following the directions your broker
provides. Most brokers have procedures for telephone and Internet voting. Check
the material your broker sends you, or call your account representative for more
information.
When you deliver a valid proxy or instruct your broker to vote your shares,
your shares will be voted according to your instructions. If you do not vote in
one of these ways or attend the special meeting and vote in person, your failure
to vote will have the same effect as voting against the merger.
If you are a record holder of Clarify common stock, you may revoke your
proxy at any time before the vote at the meeting by:
- executing and returning a proxy bearing a later date;
- giving written notice of revocation to an officer of Clarify; or
- attending the special meeting and voting in person.
If your broker holds your shares for you in street name, to change your
vote you will need to give appropriate instructions to your broker, following
the directions your broker provides.
HOW PROXIES ARE COUNTED
If you return a signed and dated proxy card but do not indicate how you
want your shares to be voted, those shares represented by your proxy will be
voted as recommended by Clarify's Board. A valid proxy also gives the
individuals named as proxies authority to vote in their discretion when voting
the shares on any other matters that are properly presented for action at the
special meeting, including any proposal to adjourn the meeting. However, if
Clarify proposes to adjourn the meeting in order to have more time to solicit
proxies, any shares represented by a proxy that is voted against the merger will
be voted against the adjournment proposal.
COST OF SOLICITATION
The solicitation of the enclosed proxies from Clarify stockholders is made
on behalf of Clarify's Board. Nortel Networks and Clarify will share equally the
cost of printing and mailing the proxy statement/prospectus. The remaining cost
of soliciting proxies, including preparing, handling, printing and mailing the
proxy solicitation material, will be borne by Clarify. Solicitation will be made
by mail, by electronic telecommunications or in person. Clarify has retained the
services of Corporate Investor Communications, Inc. to assist in the
solicitation of proxies for a fee estimated at $70,000 plus out-of-pocket
expenses. Management of Clarify may also use the services of its directors,
officers and employees in soliciting proxies, who will not receive any
additional compensation for doing so, but who will be reimbursed for their
out-of-pocket expenses. Clarify will reimburse banks, brokers, nominees,
custodians and fiduciaries for their expenses in forwarding copies of the proxy
solicitation material to the beneficial owners of the stock they hold of record
and in requesting authority for the execution of proxies.
15
<PAGE> 21
THE MERGER
BACKGROUND OF THE MERGER
In recent years, the market in which Clarify competes has become
increasingly competitive and has been experiencing a consolidation trend. Given
this environment and Clarify's ongoing efforts to expand the market for its
products and services, Clarify's board of directors and management believed it
was appropriate to be responsive to third parties that independently indicated
interest in discussing strategic transactions. Although Clarify received, and
actively pursued, unsolicited indications of interest regarding potential
strategic transactions from third parties in the fall of 1998, none of these
discussions were pursued by such third parties beyond a preliminary stage.
Clarify did not engage in any further discussions with third parties
regarding potential strategic transactions until Nortel Networks indicated an
interest in beginning discussions. During the week of June 15, 1999, Mr. Wayne
Fothergill and Ms. Susan King, President and Vice-President of Nortel Networks
Enterprise Applications Solutions, respectively, met with Mr. David Stamm,
Clarify's Chairman of the Board, Mr. Anthony Zingale, its President and Chief
Executive Officer, and Ms. Jan Praisner, its Chief Financial Officer, on a
number of occasions to discuss market dynamics surrounding customer relationship
management and potential opportunities for a strategic partnership or business
combination involving Clarify and Nortel Networks. Similar discussions were
conducted on various other occasions during June and July.
On August 2, 1999, Clarify met with representatives of Morgan Stanley & Co.
Incorporated to discuss potential strategic transactions and the possibility of
engaging Morgan Stanley to act as Clarify's financial advisor. On August 12,
1999, Clarify formally engaged Morgan Stanley to act as its financial advisor in
evaluating its strategic alternatives, including the possible acquisition of
Clarify by interested parties, including Nortel Networks.
On August 17, 1999, Mr. John Roth, Chief Executive Officer of Nortel
Networks, Jim Long, then President of Nortel Networks Enterprise Solutions, and
Mr. Fothergill met with Mr. Stamm, Mr. Zingale and other members of Clarify's
senior management. During these discussions Mr. Roth expressed Nortel Networks'
preliminary interest in a potential acquisition of Clarify. Mr. Stamm and Mr.
Zingale indicated that although Clarify might be interested in entering into
discussions regarding a potential acquisition transaction, Clarify would require
additional time to analyze strategic, integration and execution issues
associated with such a transaction before proceeding with those discussions. In
late August, there were several meetings and telephone conversations between Mr.
Fothergill and Mr. Zingale regarding how the parties wished to proceed. In
addition, Clarify received, and actively pursued, an unsolicited indication of
interest in a strategic transaction from another industry participant during the
month of August.
On September 2, 1999, a meeting was held at the offices of Credit Suisse
First Boston, Nortel Networks' financial advisor, in Palo Alto, California.
Among those present for Clarify were Mr. Zingale and Ms. Praisner, and
representatives of Morgan Stanley. Among those present for Nortel Networks were
various representatives of its Enterprise Applications Solutions business, its
Mergers and Acquisitions group and its Law department, and representatives of
Credit Suisse First Boston. At this meeting, the management of Clarify and
representatives of Morgan Stanley presented a summary of Clarify's overall
business, customers, competitive positioning, alliance partnerships and
financial outlook. Clarify and Nortel Networks executed a mutual confidentiality
agreement and Clarify provided requested due diligence information to Nortel
Networks. The confidentiality agreement included provisions restricting
unsolicited purchases by either party of the other's voting securities,
requiring Clarify to give Nortel Networks notice of any acquisition proposal
received from a third party and restricting each party's ability to solicit the
other's employees, in each case for a period of one year.
On September 7, 1999, Clarify's management made a presentation regarding
its business to the party that had expressed potential interest in a strategic
transaction with Clarify during the month of August.
On September 14, 1999, another meeting was held at the offices of Credit
Suisse First Boston. Among those present for Clarify were Mr. Stamm and Mr.
Zingale, and representatives of Morgan
16
<PAGE> 22
Stanley. Among those present for Nortel Networks were Mr. Fothergill, Ms. King,
Ms. Ornella Napolitano, Nortel Networks' Vice President of Mergers and
Acquisitions, and representatives of Credit Suisse First Boston. The purpose of
the meeting was to discuss strategic, integration and execution issues in
connection with a potential business combination. At the conclusion of the
meeting, executives of both companies reaffirmed their willingness to continue
discussions regarding a potential acquisition of Clarify by Nortel Networks.
On September 15, 1999, Morgan Stanley reviewed with Clarify's Board and
management materials relating to various strategic alternatives being
considered.
On September 20, 1999, Clarify held a telephonic board meeting, in which
Morgan Stanley and Venture Law Group, Clarify's outside legal counsel,
participated, to discuss the status of ongoing interest in Clarify by various
parties and to review updated valuation and other analyses from Morgan Stanley.
At the conclusion of this meeting, Clarify's Board directed management to
continue its current strategic discussions and to contact certain other parties
believed to have a potential interest in acquiring Clarify.
On September 22, 1999, Clarify received a non-binding term sheet from
Nortel Networks which specified the material terms and conditions of Nortel
Networks' willingness to pursue the potential acquisition of Clarify. Included
in the term sheet was the requirement that, in connection with the parties'
entering definitive agreements, Clarify grant Nortel Networks an option to
purchase a specified number of shares of Clarify's common stock in the event the
proposed transaction was not completed under specified circumstances. The term
sheet also included a requirement that certain of Clarify's stockholders enter
into an agreement to vote their shares of Clarify common stock in favor of the
proposed transaction and to refrain from transferring their shares or
soliciting, initiating, encouraging or otherwise facilitating any alternative
transaction. The stock option agreement and the stockholders agreement are
described under "Other Agreements" on page 46.
On September 24, 1999, Clarify held a board meeting, at which
representatives of Morgan Stanley and Venture Law Group were present, to discuss
the term sheet received from Nortel Networks and the status of discussions with
other potential acquirers. At the conclusion of the meeting, Clarify's Board
decided that Clarify's management should continue discussions both with Nortel
Networks and other potential acquirers.
In late September 1999, Clarify contacted an industry participant from whom
Clarify had not previously received any indication of interest in a potential
strategic transaction in order to determine whether it had any interest in
discussing such a transaction. This party indicated, however, that it did not
wish to begin such discussions.
On October 1, 1999, Clarify held a telephonic board meeting to review
Clarify's preliminary revenue results for the third quarter of 1999 and to
receive an update on recent discussions with various parties concerning a
possible strategic transaction.
On October 4, 1999, Clarify held a telephonic board meeting at which
management reported that the party to whom Clarify had made a presentation
regarding a possible strategic transaction on September 7, 1999, in response to
its previous indication of interest, had indicated that it no longer expected to
make a proposal on terms that would be agreeable to Clarify. Clarify's
management also reported on Nortel Networks' continuing interest in a potential
business combination.
On October 5, 1999, Mr. Fothergill met with Mr. Zingale to discuss the
terms of a potential business combination between Clarify and Nortel Networks.
Later that same day, Mr. Roth and Mr. Zingale discussed these matters by
telephone. On October 6, 1999, Mr. F. William Conner, newly appointed President
of Nortel Networks Enterprise Solutions, effective November 1, 1999, met with
Mr. Zingale at Nortel Networks' offices in Richardson, Texas to discuss
strategy, integration and execution issues relating to a potential transaction.
17
<PAGE> 23
On October 7, 1999, Clarify held a telephonic board meeting at which
management provided an update of the recent discussions with Nortel Networks and
valuation discussions between the parties' respective financial advisors.
Following discussion of the merits of the proposed acquisition by Nortel
Networks, Clarify's Board was unanimously of the view that, if an acceptable
valuation of Clarify could be negotiated, it would be in the best interests of
Clarify and its stockholders to proceed with definitive negotiations for an
acquisition of Clarify by Nortel Networks.
During the period from October 7 to 10, Clarify and Nortel Networks
continued valuation discussions. On October 10, 1999, Credit Suisse First Boston
advised Morgan Stanley that, subject to the satisfactory completion of due
diligence and negotiation of mutually satisfactory documentation, including a
merger agreement, a stock option agreement and a stockholders agreement
reflecting the material terms and conditions specified in its term sheet, Nortel
Networks would be prepared to acquire Clarify in a stock-for-stock merger in
which each outstanding share of Clarify would be exchanged for 1.3 Nortel
Networks common shares. On the same date, Clarify and Nortel Networks entered
into an agreement in which Clarify agreed to negotiate exclusively with Nortel
Networks in connection with this acquisition proposal until October 29, 1999.
On October 11, 1999, Clarify, Nortel Networks and their respective
financial advisors met to discuss transaction timing. From October 12 to 17,
representatives of the two companies continued their respective due diligence
reviews and negotiated the terms of the merger agreement, the stock option
agreement, the stockholders agreement, a restrictive covenant agreement between
Clarify and directors and officers, including Mr. Stamm, and other
documentation. Simultaneously, Nortel Networks representatives met with Clarify
senior executives to discuss employment arrangements to become effective upon
completion of the merger.
On October 17, 1999, Clarify held a telephonic board meeting to discuss in
detail Nortel Networks' acquisition proposal. Clarify's Board had previously
reviewed copies of drafts and a summary of the proposed definitive agreements,
and at the meeting Venture Law Group summarized key terms of the proposed
transaction as well as its expected timing. Clarify's Board then engaged in a
full discussion of the terms of the proposed transaction, including the
strategic benefits of the combination and the terms and conditions of the merger
agreement and related documents. Morgan Stanley reviewed with Clarify's Board
the financial terms of the transaction, including a review of various valuation
and other analyses. After further discussion, Clarify's Board unanimously
determined that Clarify should continue final negotiations with Nortel Networks.
A special meeting of Clarify's Board was scheduled for the next day, October 18,
1999, to vote on the approval of the definitive agreements and the acquisition
transaction after the Board had further reviewed relevant documents.
On October 18, 1999, Clarify held a telephonic board meeting, in which its
senior management and financial and legal advisors participated, to review the
terms of the proposed acquisition of Clarify by Nortel Networks. Clarify's legal
advisors updated Clarify's Board on events since the last meeting and indicated
that no material changes in the transaction structure and terms had occurred
since the last meeting and that the parties had finalized the definitive
agreements. Morgan Stanley then reviewed certain additional due diligence
information regarding Nortel Networks and delivered its oral opinion, which was
subsequently confirmed in writing, that, subject to and based on the
considerations set forth in its opinion, the exchange ratio pursuant to the
merger agreement was fair from a financial point of view to holders of shares of
Clarify common stock. Following additional discussion of the presentations and
discussions of the October 17, 1999 board meeting, Clarify's Board unanimously
concluded that the proposed merger and merger agreement were fair to and in the
best interests of Clarify and its stockholders. Clarify's Board then approved
the merger and the merger agreement and related documents and authorized
management to execute the definitive transaction documents.
On October 18, 1999, after the close of financial markets in New York and
Toronto, the parties executed the definitive merger agreement and related
agreements and issued a joint press release announcing the transaction.
18
<PAGE> 24
RECOMMENDATION OF CLARIFY'S BOARD; REASONS OF CLARIFY FOR THE MERGER
CLARIFY'S BOARD, AFTER CAREFUL CONSIDERATION, HAS UNANIMOUSLY APPROVED THE
TERMS OF THE MERGER AGREEMENT. CLARIFY'S BOARD BELIEVES THAT THE TERMS OF THE
MERGER AGREEMENT ARE FAIR TO, AND IN THE BEST INTEREST OF, CLARIFY AND ITS
STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF CLARIFY COMMON STOCK
VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Clarify's Board based its approval of the merger and its determination that
the merger agreement is in the best interests of Clarify and its stockholders
upon a number of factors, including, among others, the factors listed below:
- The opportunity for Clarify stockholders, based on the exchange ratio
negotiated with Nortel Networks, to receive a significant premium over
recent and historical market prices of Clarify common stock, as well as
how this premium compared to price premiums in recent transactions
involving U.S. technology companies. As of October 15, 1999, the 1.3
exchange ratio implied a value per share of Clarify common stock of
$68.49, which represented a 58% premium over Clarify's closing share
price of $43.34 on that date. In addition, based on recent precedent
acquisition transactions involving U.S. technology companies, the 58%
premium significantly exceeds the median premium paid by the acquiring
company of 31% over the closing share price of the acquired company one
day before the announcement of the applicable transaction.
- The ability of Clarify stockholders to participate in the growth of the
businesses conducted by Clarify and Nortel Networks after the merger, as
compared with Clarify's prospects as an independent company. Although
Clarify's Board and management believe that Clarify's product and
service offerings are superior to those of many of its larger
competitors, some of these competitors have greater resources that have
enabled them to create greater market awareness with respect to their
products and to develop more extensive and long-standing relationships
with partners and executive-level decision makers that facilitate
increased sales. Clarify's Board believes that, following the merger,
Clarify will be able to access Nortel Networks' significantly greater
marketing resources to create greater market awareness of its products
and increase sales by leveraging Nortel Networks' network of partners
and business relationships and to expand Clarify's audience of
executive-level decision makers that drive the enterprise software
purchasing process. Clarify's Board also believes that the ownership
interests of Clarify stockholders in Nortel Networks following the
merger represent the opportunity to participate in the potential growth
in each of the businesses of a larger, more diversified company,
including Clarify's ongoing business.
- The fact that the merger will qualify as a tax-free reorganization,
generally enabling Clarify stockholders to exchange their Clarify common
stock for Nortel Networks common shares without having current taxes
due.
- The view of Clarify's Board that historical information concerning the
respective businesses, financial performance, condition, operations,
technology, products, properties, assets, competitive position and
trends and prospects of Nortel Networks and Clarify favored the merger.
- The determination, based on the public float and trading volume of
Nortel Networks common shares relative to the public float and trading
volume of Clarify common stock, that the Clarify stockholders would
enjoy the same or increased liquidity in their investment following the
merger.
- The review of information and advice based on the results of due
diligence investigations by members of Clarify's management and legal,
financial and accounting advisors concerning the business, financial
performance, condition, operations, technology, products, properties,
assets, competitive position and trends and prospects of Nortel
Networks, trends in Nortel Networks' business and financial results and
the capabilities of Nortel Networks' management.
- The beliefs of Clarify's management relating to the complementary nature
of the businesses of Nortel Networks and Clarify and the prospects for
successful integration of the two companies.
19
<PAGE> 25
- The assessment of Clarify's Board, based on presentations by Clarify's
legal and financial advisors, of the terms and conditions of the merger
agreement, which were the product of extensive arm's length
negotiations.
- The fairness opinion of Morgan Stanley to the effect that, as of October
18, 1999, and based upon and subject to the various considerations set
forth in the opinion, the exchange ratio pursuant to the merger
agreement was fair from a financial point of view to holders of shares
of Clarify common stock.
In addition, Clarify's Board reviewed the advantages and disadvantages of
Clarify's continuation as a stand alone company in light of external competitive
and market factors affecting its business, and considered potential strategic
transactions with other interested parties.
Clarify's Board also considered and balanced against the potential benefits
of the merger a number of potentially negative factors, including among others
the following:
- The risk that the merger would not be consummated;
- The possibility that the market value of Nortel Networks common shares
might decrease which would result in less aggregate value paid to
Clarify stockholders;
- The fact that Clarify stockholders will not receive the full benefit of
any future growth in the value of their equity that Clarify may have
achieved as an independent company, and the potential disadvantage to
Clarify stockholders in the event that Nortel Networks does not perform
as well in the future as Clarify may have performed as an independent
company;
- The substantial management time and effort that will be required to
consummate the merger and integrate the operations of the two companies;
- The possibility that certain provisions of the merger agreement,
including among others the no solicitation and termination fee payment
provisions of the merger agreement, might have the effect of
discouraging other persons potentially interested in merging with or
acquiring Clarify from pursuing such an opportunity;
- The effect of the stock option agreement on Clarify's capital structure
and that such effects may discourage other persons from pursuing
alternative transactions with Clarify; and
- The fact that, because the exchange ratio is fixed, the value of the
consideration to be received by the Clarify stockholders in the merger
will depend on the market value of Nortel Networks common shares at the
time the merger is completed, which may be lower or higher than the
market value of such shares currently or at the time Clarify
stockholders vote to approve the merger.
After detailed consideration of these factors, Clarify's Board concluded
that the potential benefits of the merger outweighed these considerations and
determined that the merger was fair to and in the best interests of Clarify and
its stockholders.
The above discussion of the information and factors considered by Clarify's
Board is not exhaustive and does not include all factors the Board considered.
Clarify's Board did not quantify or otherwise assign relative weights to the
specific factors considered in reaching its determination. Rather, Clarify's
Board made its determination based on the totality of the information it
considered. The members of the Board were aware that, as described below under
"-- Interests of Certain Persons in the Merger," directors and officers of
Clarify have interests in the merger in addition to, or different from, their
interests as Clarify stockholders, and the Board considered this in determining
to recommend the transaction.
BASED ON THE FACTORS OUTLINED ABOVE, CLARIFY'S BOARD HAS UNANIMOUSLY
DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF CLARIFY AND
ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
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<PAGE> 26
Clarify and Nortel Networks cannot, however, assure you that any of the
expected results, efficiencies, opportunities or other benefits described in
this section will be achieved as a result of the merger.
OPINION OF FINANCIAL ADVISOR TO CLARIFY
Under an engagement letter dated August 12, 1999, Clarify retained Morgan
Stanley to provide it with financial advisory services and a financial fairness
opinion in connection with the merger. Clarify's Board selected Morgan Stanley
to act as its financial advisor based on Morgan Stanley's qualifications,
expertise and reputation and its knowledge of the business and affairs of
Clarify. At the meeting of Clarify's Board on October 18, 1999, Morgan Stanley
rendered its oral opinion, subsequently confirmed in writing, that as of October
18, 1999, based upon and subject to the various considerations set forth in the
opinion, the exchange ratio pursuant to the merger agreement was fair from a
financial point of view to holders of shares of Clarify common stock.
THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY DATED OCTOBER 18,
1999 IS ATTACHED AS ANNEX D TO THIS DOCUMENT. THE OPINION SETS FORTH, AMONG
OTHER THINGS, THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY MORGAN STANLEY IN RENDERING
ITS OPINION. WE URGE YOU TO READ THE ENTIRE OPINION CAREFULLY. MORGAN STANLEY'S
OPINION IS DIRECTED TO CLARIFY'S BOARD AND ADDRESSES ONLY THE FAIRNESS OF THE
EXCHANGE RATIO PURSUANT TO THE MERGER AGREEMENT FROM A FINANCIAL POINT OF VIEW
TO HOLDERS OF SHARES OF CLARIFY COMMON STOCK AS OF THE DATE OF THE OPINION. IT
DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF CLARIFY COMMON STOCK AS TO HOW TO VOTE AT
CLARIFY'S SPECIAL MEETING. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF MORGAN STANLEY'S OPINION.
In connection with rendering its opinion, Morgan Stanley, among other
things:
- reviewed certain publicly available financial statements and other
business and financial information of Clarify and Nortel Networks,
respectively;
- reviewed certain internal financial statements and other financial and
operating data concerning Clarify prepared by Clarify's management;
- reviewed certain financial projections prepared by Clarify's management;
- discussed with senior executives of Clarify the past and current
operations and financial condition and the prospects of Clarify,
including information relating to certain strategic, financial and
operational benefits anticipated from the merger;
- discussed with senior executives of Nortel Networks the past and current
operations and financial condition and the prospects of Nortel Networks,
including a review of publicly available projections from equity
research analyst estimates and information relating to certain
strategic, financial and operational benefits anticipated from the
merger;
- analyzed the pro forma impact of the merger on the earnings per share of
Nortel Networks;
- reviewed the reported prices and trading activity for the Clarify common
stock and Nortel Networks common shares;
- compared the financial performance of Clarify and Nortel Networks and
the prices and trading activity of the Clarify common stock and Nortel
Networks common shares with the securities of certain other
publicly-traded companies that Morgan Stanley deemed comparable to
Clarify and Nortel Networks;
- reviewed the financial terms, to the extent publicly available, of
certain acquisition transactions that Morgan Stanley deemed comparable
to the merger;
- reviewed and discussed with senior management of Clarify and of Nortel
Networks their respective views of the strategic rationale for the
merger;
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<PAGE> 27
- participated in discussions and negotiations relating to the merger
agreement and related documents between representatives of Clarify and
Nortel Networks and their financial and legal advisors;
- reviewed the draft merger agreement and related documents; and
- performed such other analyses and considered such other factors as
Morgan Stanley deemed appropriate.
Morgan Stanley assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by it for the purposes
of its opinion. With respect to the internal financial statements and other
financial and operating data, and discussions relating to the strategic,
financial and operational benefits anticipated from the merger provided by
Clarify and Nortel Networks, Morgan Stanley assumed that they have, in each
case, been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the prospects of Clarify and Nortel Networks. Morgan
Stanley relied upon the assessment by the managements of Clarify and Nortel
Networks of their ability to retain key employees of Clarify. Morgan Stanley
also relied upon, without independent verification, the assessment by the
managements of Clarify and Nortel Networks of:
- the strategic and other benefits expected to result from the merger;
- the timing and risks associated with the integration of Clarify and
Nortel Networks; and
- the validity of, and risks associated with, Clarify's and Nortel
Networks' existing and future technologies, services and business
models.
Morgan Stanley was not furnished, and did not independently make, any
valuation or appraisal of the assets or liabilities or technology of Clarify and
Nortel Networks. In addition, Morgan Stanley assumed that the merger will be
completed as set forth in the merger agreement and that the merger will be
treated as a tax-free reorganization and/or exchange pursuant to Section 368(a)
of the Internal Revenue Code of 1986. Morgan Stanley's opinion is necessarily
based on financial, economic, market and other conditions as in effect on, and
the information made available to it as of, the date of its opinion.
The following is a brief summary of some of the analyses performed by
Morgan Stanley in connection with its oral opinion and the preparation of its
opinion letter dated October 18, 1999. Some of these summaries of financial
analyses include information presented in tabular format. In order to fully
understand the financial analyses used by Morgan Stanley, the tables must be
read together with the text of each summary. The tables alone do not constitute
a complete description of the financial analyses.
Clarify Stock Price Performance. Morgan Stanley reviewed the recent stock
price performance of Clarify common stock over various time periods ending on
October 15, 1999. Morgan Stanley observed the following:
<TABLE>
<CAPTION>
CLARIFY COMMON STOCK
PERIOD ENDING OCTOBER 15, 1999 CLOSING PRICE
- ------------------------------ --------------------
HIGH LOW
------- -------
<S> <C> <C>
Last twelve months................................. $ 50.31 $ 8.38
Last 90 days....................................... 50.31 31.80
October 15, 1999 closing price..................... 43.34
Implied transaction value.......................... 68.49
Implied Transaction premium........................ 58%
</TABLE>
The implied transaction value of $68.49 per share of Clarify common stock
is based on the exchange ratio of 1.3 and Nortel Networks' common share price of
$52.69 as of October 15, 1999.
Comparative Stock Price Performance. Morgan Stanley reviewed the recent
stock price performance of Clarify common stock and compared it with the
performance of stock price indices comprising three groups of companies. The
first group, referred to as the customer relationship management index,
included:
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<PAGE> 28
- Siebel Systems, Inc.
- Vantive Corp.
- Remedy Corp.
- Dendrite International, Inc.
- Silknet Software, Inc.
The second group, referred to as the high growth enterprise software index,
included:
-- i2 Technologies, Inc.
-- Peregrine Systems, Inc
The third group, referred to as the large cap enterprise software index,
included:
-- SAP AG
-- PeopleSoft, Inc.
-- Oracle Corp.
-- Baan Company N.V.
-- JD Edwards & Company
Morgan Stanley observed the following percentage changes in the price of
Clarify common stock, the level of the indices referred to above and the NASDAQ
Index, as of October 15, 1999:
PERCENTAGE PRICE CHANGE (AS OF OCTOBER 15, 1999)
<TABLE>
<CAPTION>
LAST TWELVE SINCE JANUARY 1,
MONTHS 1999
----------- ----------------
<S> <C> <C>
Clarify...................................... 418% 78%
Customer relationship management index....... 233% 120%
High growth enterprise software index........ 173% 71%
Large cap enterprise software index.......... 60% 31%
NASDAQ index................................. 70% 25%
</TABLE>
Morgan Stanley noted that Clarify's share price had outperformed most of
the specified indices on a relative basis over the last twelve months, and had
outperformed all of the indices except the customer relationship management
index since January 1, 1999.
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<PAGE> 29
Morgan Stanley also reviewed the recent stock price performance of Nortel
Networks and compared its performance with that of a stock price index
comprising a group of comparable companies. This group of companies, referred to
as the telecom equipment index, included:
- Lucent Technologies, Inc.
- Tellabs, Inc.
- Nokia Corp.
- Motorola, Inc.
- Ericsson LM Telephone Co.
- Alcatel, Inc.
- Cisco Systems, Inc.
Morgan Stanley observed the following percentage changes in the price of
Nortel Networks common shares and the level of the telecom equipment index as of
October 15, 1999:
PERCENTAGE PRICE CHANGE (AS OF OCTOBER 15, 1999)
<TABLE>
<CAPTION>
LAST TWELVE
MONTHS
-----------
<S> <C>
Nortel Networks............................................. 196%
Telecom equipment index..................................... 93%
</TABLE>
Morgan Stanley noted that Nortel Networks' share price had outperformed the
specified index over the last twelve months.
Comparable Company Trading Analysis. Morgan Stanley compared selected
financial information for Clarify with publicly available information for some
of the companies included in the indices described above. Based on estimates
from securities research analysts and using the closing price of Clarify common
stock on October 15, 1999 of $43.34, Morgan Stanley calculated, for each of
these companies, a price to earnings ratio, referred to as price/earnings or
P/E, and the ratio of the P/E to projected long term earnings per share growth
rates, referred to as P/E to growth, for calendar year 2000. The following table
shows the results of these calculations:
<TABLE>
<CAPTION>
PRICE/EARNINGS P/E TO GROWTH
CALENDAR 2000 CALENDAR 2000
-------------- -------------
<S> <C> <C>
Clarify..................................................... 38x 0.8x
i2 Technologies, Inc. ...................................... 74x 1.6x
Siebel Systems, Inc. ....................................... 70 1.6
SAP AG...................................................... 52 2.1
Dendrite International, Inc. ............................... 42 1.4
Peregrine Systems, Inc. .................................... 41 0.9
Oracle Corp. ............................................... 37 1.5
Vantive Corp. .............................................. 31 1.0
Remedy Corp. ............................................... 26 0.9
--- ---
Mean(1)................................................... 47 1.4
Median(1)................................................. 42 1.5
</TABLE>
- ---------------
Note:
(1) excludes Clarify
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<PAGE> 30
Morgan Stanley noted that Clarify's P/E was within the range of multiples
for these companies and that its P/E to growth ratio was at the low end of these
companies' ratios. Morgan Stanley further noted that the implied P/E of 60x
based on the transaction value and the implied P/E to growth ratio of 1.2x based
on the transaction value were each within the range of these companies' ratios.
Morgan Stanley also compared selected financial information for Nortel
Networks with publicly available information for the companies comprising the
telecom equipment index described above. Based on estimates from securities
research analysts and using the closing price of Nortel Networks common shares
on October 15, 1999 of $52.69, Morgan Stanley calculated the P/E ratios and the
P/E to growth for these companies for calendar year 2000. The following table
shows the results of these calculations:
<TABLE>
<CAPTION>
PRICE/EARNINGS P/E TO GROWTH
CALENDAR 2000 CALENDAR 2000
-------------- -------------
<S> <C> <C>
Nortel Networks............................................. 40x 2.1x
Cisco Systems, Inc. ........................................ 61x 2.0x
Motorola, Inc. ............................................. 39 2.0
Lucent Technologies, Inc. .................................. 39 2.0
Nokia Corp. ................................................ 39 1.6
Ericsson LM Telephone Co. .................................. 37 1.9
Tellabs, Inc. .............................................. 36 1.2
Alcatel, Inc. .............................................. 26 1.5
--- ---
Mean(1)................................................... 40 1.7
Median(1)................................................. 39 1.9
</TABLE>
- ---------------
Note:
(1) excludes Nortel Networks
Morgan Stanley noted that Nortel Networks' P/E ratio was within the range
of the specified companies and that its P/E to growth ratio was the highest
ratio compared to this group.
No company included in the peer group analyses is identical to Clarify or
Nortel Networks. In evaluating the peer group companies, Morgan Stanley made
judgments and assumptions with regard to industry performance, general business,
economic, market and financial conditions and other matters. Many of these
matters are beyond the control of Clarify and Nortel Networks, such as the
impact of competition on the businesses of Clarify and Nortel Networks and their
industries in general, industry growth and the absence of any material adverse
changes in the financial condition and prospects of Clarify, Nortel Networks,
the industry or in the financial markets in general. Mathematical analysis, such
as determining the average or median, is not in itself a meaningful method of
using peer group data.
Exchange Ratio Premium Analysis. Morgan Stanley reviewed the ratios of the
closing prices of Clarify common stock divided by the corresponding closing
prices of Nortel Networks common shares over various periods during the twelve
month period ending October 15, 1999. These ratios are referred to as period
average exchange ratios. Morgan Stanley examined the premiums represented by the
exchange ratio set forth in the merger agreement over the averages of these
daily ratios over various periods, and found them to be as follows:
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<PAGE> 31
<TABLE>
<CAPTION>
TRANSACTION
PERIOD PREMIUM TO PERIOD
AVERAGE AVERAGE EXCHANGE
PERIOD ENDING OCTOBER 15, 1999 EXCHANGE RATIO RATIO
- ------------------------------ -------------- -----------------
<S> <C> <C>
Last twelve months........................ .831x 56%
Last 120 days............................. .861 51
Last 90 days.............................. .904 44
Last 60 days.............................. .889 46
Last 30 days.............................. .933 39
Last 10 days.............................. .824 58
October 15, 1999.......................... .823 58
</TABLE>
Analysis of Selected Precedent Transactions. Morgan Stanley compared
statistics based on publicly available information for selected transactions in
the enterprise software sector to the relevant financial statistics for Clarify
based on the value of Clarify implied by the exchange ratio and the closing
share price of Nortel Networks common shares on October 15, 1999. The following
table presents the implied equity value as a multiple of the next twelve months
("NTM") earnings and aggregate value as a multiple of last twelve months ("LTM")
revenue for the selected precedent transactions:
<TABLE>
<CAPTION>
EQUITY VALUE TO AGGREGATE VALUE TO
TARGET/ACQUIRER NTM EARNINGS LTM REVENUE
- --------------- --------------- ------------------
<S> <C> <C>
Vantive Corp. / PeopleSoft, Inc............................. NM 2.2x
Genesys Telecomm Labs, Inc. / Alcatel, Inc.................. 46x 10.5x
Periphonics Corp. / Nortel Networks......................... 23x 2.8x
Saville Systems PLC / ADC Telecom, Inc...................... 22x 4.0x
Kenan Systems Corp. / Lucent Technologies, Inc.............. NM 8.5x
Scopus Technology, Inc. / Siebel Systems, Inc............... 67x 5.7x
Software Artistry, Inc. / IBM Corp.......................... 35x 4.9x
Aurum Software, Inc. / Baan Co NV........................... 55x 6.6x
-- -----
Mean...................................................... 41x 5.6x
Clarify / Nortel Networks................................... 76x 10.9x
</TABLE>
Morgan Stanley noted that based on the implied transaction value of $68.49
per share of Clarify common stock as of October 15, 1999, the ratios of
transaction equity value to estimated NTM earnings (76x) and transaction
aggregate value to LTM revenues (10.9x) are higher than those calculated by
Morgan Stanley for these selected precedent transactions. Based on the analyses
of these precedent transactions, Morgan Stanley estimated a value range for
Clarify common stock of $39-$60 per share. Morgan Stanley observed that the
implied transaction value of $68.49 per share of Clarify common stock was
greater than the implied value range based on this analysis.
No transaction included in the selected precedent transactions analysis is
identical to the merger. In evaluating the transactions listed above, Morgan
Stanley made judgments and assumptions with regard to industry performance,
general business, economic, market and financial conditions and other matters.
Many of these matters are beyond the control of Clarify and Nortel Networks,
such as the impact of competition on Clarify, Nortel Networks or their
industries or in the financial markets in general. Mathematical analysis, such
as determining the average or median, is not in itself a meaningful method of
using precedent transaction data.
Analysis of Stock Price Premiums Paid. Morgan Stanley compared certain
publicly available statistics for precedent acquisition transactions involving
public U.S. technology companies greater than $200 million from January 1, 1999
to October 15, 1999. The following table presents the indicated premiums paid
above the closing share prices one day before announcement of the transaction,
four weeks before announcement of the transaction and at its highest level
during the last twelve months before announcement of the transaction, and the
premium to the average exchange ratio during the 30 trading days before
announcement of the transaction:
26
<PAGE> 32
<TABLE>
<CAPTION>
PREMIUM TO
--------------------------------------------------------------
ONE DAY BEFORE FOUR WEEKS BEFORE 30-DAY AVERAGE
ANNOUNCEMENT ANNOUNCEMENT LTM HIGH EXCHANGE RATIO
-------------- ----------------- -------- --------------
<S> <C> <C> <C> <C>
Mean................................... 36% 52% 3% 40%
Median................................. 31% 45% 2% 38%
Clarify/Nortel Networks Premium........ 58% 37% 36% 39%
</TABLE>
Morgan Stanley noted that the premia implied by the 1.3 exchange ratio was above
the median premia found in these precedent acquisition transactions for the
three of the four ratios. Based on the analyses of these premia, Morgan Stanley
estimated a value range for Clarify common stock of $60-$75 per share. Morgan
Stanley observed that the implied transaction value of $68.49 per share of
Clarify common stock as of October 15, 1999 was within the estimated range.
Discounted Equity Value. Morgan Stanley performed an analysis of the
present value per share of the implied value of Clarify common stock on a
standalone basis based on Clarify's projected future equity value using equity
research analyst projections for Clarify's future earnings per share. Morgan
Stanley's analysis indicated that the discounted equity value of Clarify common
stock would range from $47 to $68 per share based on a discount rate of 25% and
a range of forward P/E ratios of 35 to 50. Morgan Stanley observed that the
implied transaction value of $68.49 per share of Clarify common stock as of
October 15, 1999 was slightly greater than this estimated value range.
Pro Forma Merger Analysis. Morgan Stanley analyzed the pro forma impact of
the merger on Nortel Networks' combined projected earnings per share for
calendar year 1999 and 2000. In performing this analysis, Morgan Stanley used
average earnings projections for Clarify and Nortel Networks by securities
research analysts. Morgan Stanley's analysis indicated that the merger would
result in earnings per share dilution for Nortel Networks of approximately 1%
for calendar year 1999 and 1% for calendar year 2000, excluding goodwill
amortization, purchased in-process research and development and one-time gains
and charges, and without giving effect to any synergies from the merger.
The preparation of a fairness opinion is a complex process. Because of
this, a fairness opinion is not easily summarized. In arriving at its opinion,
Morgan Stanley considered the results of all of its analyses as a whole and did
not attribute any particular weight to any analysis or factor it considered.
Morgan Stanley believes that selecting any portion of its analyses, without
considering all analyses, would create an incomplete view of the process
underlying its opinion. In addition, Morgan Stanley may have given various
analyses and factors more or less weight than other analyses and factors, and
may have deemed various assumptions more or less probable than other
assumptions. As a result, the ranges of valuations resulting from any particular
analysis described above should not be taken to be Morgan Stanley's view of the
actual value of Clarify or Nortel Networks. In performing its analyses, Morgan
Stanley made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters. Many of these matters are
beyond the control of Clarify or Nortel Networks. Any estimates contained in
Morgan Stanley's analyses are not necessarily indicative of future results or
actual values, which may be significantly more or less favorable than those
suggested by such estimates.
Morgan Stanley conducted the analyses described above solely as part of its
analysis of the fairness of the exchange ratio pursuant to the merger agreement
from a financial point of view to holders of shares of Clarify common stock and
in connection with the delivery of its opinion to Clarify's Board. These
analyses do not purport to be appraisals or to reflect the prices at which
Clarify or Nortel Networks might actually be sold.
The exchange ratio pursuant to the merger agreement was determined through
arm's-length negotiations between Clarify and Nortel Networks and was approved
by Clarify's Board. Morgan Stanley provided advice to Clarify during these
negotiations. Morgan Stanley did not; however, recommend any specific exchange
ratio to Clarify or that any specific exchange ratio constituted the only
appropriate exchange ratio for the merger.
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<PAGE> 33
In addition, Morgan Stanley's opinion and its presentation to Clarify's
Board was one of many factors taken into consideration by Clarify's Board in
deciding to approve the merger. Consequently, the analyses as described above
should not be viewed as determinative of the opinion of Clarify's Board with
respect to the exchange ratio or of whether Clarify's Board would have been
willing to agree to a different exchange ratio.
Clarify's Board retained Morgan Stanley based upon Morgan Stanley's
qualifications, experience and expertise. Morgan Stanley is an internationally
recognized investment banking and advisory firm. Morgan Stanley, as part of its
investment banking business, is continuously engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate,
estate and other purposes. In the past, Morgan Stanley and its affiliates have
provided financial advisory and financing services for Nortel Networks and have
received fees for the rendering of these services. In the ordinary course of
Morgan Stanley's trading and brokerage activities, Morgan Stanley or its
affiliates may at any time hold long or short positions, may trade or otherwise
effect transactions, for its own account or for the account of customers in the
equity securities of Clarify, Nortel Networks or any other parties involved in
the transaction.
Under the engagement letter, Morgan Stanley provided financial advisory
services and a financial fairness opinion in connection with the merger, and
Clarify agreed to pay Morgan Stanley a fee of approximately $16 million, with
the exact amount to be determined by a formula using the average of the average
price of Nortel Networks common shares over a period of time after the date of
announcement and before the date of closing. Clarify has also agreed to
reimburse Morgan Stanley for its expenses incurred in performing its services.
In addition, Clarify has also agreed to indemnify Morgan Stanley and its
affiliates, their respective directors, officers, agents and employees and each
person, if any, controlling Morgan Stanley or any of its affiliates against
certain liabilities and expenses, including certain liabilities under the
federal securities laws, related to or arising out of Morgan Stanley's
engagement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Some directors and officers of Clarify have interests in the merger that
are in addition to, or different from, their interests as stockholders in
Clarify. The members of Clarify's Board knew about these interests, and
considered them, when they approved the merger agreement and the merger. These
interests are summarized below.
Options. Under the terms of Clarify's stock option plans and applicable
stock option agreements and other arrangements, just prior to completion of the
merger, options held by Clarify directors and executive officers covering a
total of 966,437 shares of Clarify common stock will become vested and
immediately exercisable. Nortel Networks will assume all of these stock options
to the extent they are not exercised before the merger and will treat them as
options to purchase Nortel Networks common shares, as described under "The
Merger Agreement -- Treatment of Clarify Stock Options." In the event of the
involuntary termination of employment, as defined in the Clarify option plans
and agreements, of any of these executive officers during the eighteen month
period following the merger, all of the terminated officer's non-vested assumed
stock options will become vested and immediately exercisable.
Stamm Option Arrangement. In connection with the merger agreement and his
execution of a restrictive covenant agreement, Clarify confirmed that stock
options covering a total of 67,500 shares of Clarify's common stock held by Mr.
David Stamm, Clarify's founder and the Chairman of Clarify's Board, will become
vested and immediately exercisable, and remain outstanding, on completion of the
merger.
Zingale Employment Arrangement. Nortel Networks has offered Mr. Anthony
Zingale, currently Clarify's President and Chief Executive Officer, the position
of President of the Clarify e-Business Solutions business to be included in the
Nortel Networks Enterprise Solutions line of business, commencing on completion
of the merger. Mr. Zingale will be employed on substantially the same terms and
conditions as other executives of Nortel Networks in the United States. In
addition, Mr. Zingale will receive a grant of options to purchase up to 180,000
Nortel Networks common shares in accordance with
28
<PAGE> 34
the terms of the Nortel Networks Corporation 1986 Stock Option Plan as Amended
and Restated. The exercise price per share for these options will be equal to
the fair market value of Nortel Networks common shares on the date of grant.
One-third of these options will vest on the first anniversary of the date of
grant, and the remaining two-thirds will vest on the second anniversary of the
date of grant. If Mr. Zingale's employment is terminated by Nortel Networks,
other than as a result of misconduct, as defined in Nortel Networks' offer
letter to Mr. Zingale, Mr. Zingale will be entitled to receive severance
compensation consisting of one year's base salary continuation as well as a pro
rated portion of the bonus payable under Nortel Networks' executive incentive
compensation plan for the performance period during which his employment is
terminated if Nortel Networks meets the applicable performance objectives.
New Option Grants. As soon as practicable after the merger is completed,
Nortel Networks intends to grant to five executive officers of Clarify, other
than Mr. Zingale, options to purchase an aggregate of 260,000 Nortel Networks
common shares. The exercise price per share of these options will be equal to
the fair market value of Nortel Networks common shares on the date of grant,
determined in accordance with the Nortel Networks Corporation 1986 Stock Option
Plan as Amended and Restated. These options will vest on the second anniversary
of the grant date.
Directors' and Officers' Insurance; Indemnification of Clarify Directors
and Officers. The merger agreement provides that, for six years after the
merger, Nortel Networks will maintain directors' and officers' liability
insurance to cover the present and former directors and officers of Clarify and
its subsidiaries with respect to claims against these directors and officers
arising from facts or events which occurred at or before the merger. Subject to
specified limitations, this insurance will have at least the same maximum
coverage and amounts as, and terms and conditions no less advantageous than, the
coverage currently provided by Clarify.
The merger agreement requires the surviving corporation in the merger to
indemnify each present and former director and officer of Clarify and its
subsidiaries following the merger and until the expiration of any applicable
statutory limitations period against all expenses or liabilities incurred in
connection with any claim or investigation arising out of actions or omissions
occurring at or before the merger to the fullest extent permitted under the laws
of the State of Delaware and Clarify's certificate and by-laws.
ACCOUNTING TREATMENT
Nortel Networks' financial statements are currently prepared in accordance
with Canadian GAAP and then reconciled to U.S. GAAP. Nortel Networks has
announced, however, that for periods beginning after January 1, 2000, it will
provide financial reporting in accordance with U.S. GAAP as well as in
accordance with Canadian GAAP.
Under both Canadian GAAP and U.S. GAAP, the merger will be accounted for
under the purchase method of accounting. The consideration to be paid in the
merger will be allocated based on the estimated fair values of the assets
acquired and the liabilities assumed, determined as of the date of the
completion of the merger under Canadian GAAP and as of the date of the
announcement of the merger under U.S. GAAP.
REGULATORY APPROVALS
Set forth below is a summary of the regulatory approvals required to
complete the merger. While Nortel Networks and Clarify believe that they will
receive the requisite regulatory approvals for the merger which they have not
already obtained, Nortel Networks and Clarify cannot assure you that they will
obtain these approvals on satisfactory terms or otherwise.
United States. The merger is subject to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations under the act, which provide that particular transactions may
not be completed until required information and materials are furnished to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and the requisite
29
<PAGE> 35
waiting period has expired or is terminated. Early termination of the waiting
period was granted on November 23, 1999.
Germany. The merger is subject to the German Act against Restraints on
Competition (Gesetz gegen Wettbewerbsbeschrankungen). This act requires the
filing of a notification with, and the submission of specified information to,
the German Federal Cartel Office (Bundeskartellamt) and provides that the merger
may not be completed prior to clearance by the Federal Cartel Office or the
expiration of the requisite review period. The requisite clearance was granted
on December 15, 1999.
Canadian Securities Laws. The distribution by Nortel Networks of its
common shares in the merger, the assumption by Nortel Networks of the Clarify
stock options outstanding at the time of the merger and the issuance of Nortel
Networks common shares upon exercise of those options will be carried out in
reliance upon available statutory or discretionary exemptions from the
registration and prospectus requirements of applicable Canadian provincial
securities laws. A prospectus in respect of this distribution, assumption and
issuance has not been filed with any securities commission or similar regulatory
authority in any province or territory of Canada.
General. Clarify and Nortel Networks are not aware of any governmental
approvals or actions that may be required for completion of the merger other
than as described above. Should any other approval or action be required,
Clarify and Nortel Networks currently contemplate that the approval would be
sought or action taken.
The merger agreement provides that each of Nortel Networks and Clarify is
obligated to complete the merger only if:
- all requisite regulatory approvals are received;
- all statutory or regulatory waiting periods have terminated or expired;
and
- in the case of Nortel Networks' obligation to complete the merger, no
approvals are received that contain conditions or restrictions that
would reasonably be expected to (1) have a material adverse effect,
following the merger, on Nortel Networks and its subsidiaries taken as a
whole or on the surviving corporation or (2) require Nortel Networks to
dispose of any assets of Nortel Networks, Clarify or their respective
subsidiaries, or require Nortel Networks to refrain from exercising full
authority over Clarify and its subsidiaries following the merger.
RESALE OF NORTEL NETWORKS COMMON SHARES
United States. Nortel Networks common shares issuable to Clarify
stockholders upon completion of the merger, and upon exercise of the Clarify
stock options to be assumed by Nortel Networks by reason of the merger, have
been registered under the Securities Act. These securities may be traded freely
in the United States without restriction by those stockholders who are not
deemed to be "affiliates" of Nortel Networks or Clarify as that term is defined
in rules promulgated under the Securities Act.
If you are an affiliate of Clarify or Nortel Networks as that term is used
in the Securities Act, you may not use this proxy statement/prospectus in
connection with any resale by you of Nortel Networks common shares that you
receive in the merger or that you receive when you exercise a stock option that
is converted in the merger into an option to buy Nortel Networks common shares.
Clarify has agreed in the merger agreement to use its reasonable best
efforts to cause each person who may be deemed to be an affiliate of Clarify to
execute and deliver to Nortel Networks an affiliate agreement. Each person who
executes an affiliate agreement will agree not to offer to sell, transfer, or
otherwise dispose of any Nortel Networks common shares received in connection
with the merger, including upon exercise of Clarify stock options assumed by
Nortel Networks in the merger, except:
- in compliance with Rule 145 under the Securities Act;
- in a transaction that, in the opinion of counsel reasonably satisfactory
to Nortel Networks, is otherwise exempt from the registration
requirements of the Securities Act; or
30
<PAGE> 36
- in an offering which is registered under the Securities Act.
Canada. If you may wish to sell your Nortel Networks common shares in
Canada, you should consider the information below.
The Nortel Networks common shares issuable to holders of Clarify common
stock in the merger and upon the exercise of Clarify stock options assumed by
Nortel Networks in the merger will be freely resalable in or into Canada through
an appropriately registered dealer, but only if a number of conditions are met
at the time of resale, including the following:
- the selling shareholder does not hold, alone or in combination with
others, more than 20% of the outstanding voting securities of Nortel
Networks and does not otherwise hold a sufficient number of any
securities of Nortel Networks to affect materially the control of Nortel
Networks;
- if the selling shareholder is in a special relationship with Nortel
Networks, the selling shareholder has reasonable grounds to believe that
Nortel Networks is not in default of any requirement under applicable
Canadian securities laws;
- required disclosures are made by Nortel Networks to the applicable
Canadian securities regulatory authorities;
- no unusual effort is made to prepare the market or to create a demand
for the shares; and
- no extraordinary commission or consideration is paid in respect of the
transaction in the shares.
A selling shareholder is in a special relationship with Nortel Networks if,
among other things, the selling shareholder is:
- a director, officer or employee of Nortel Networks;
- a director or senior officer of a subsidiary of Nortel Networks,
including the surviving corporation in the merger; or
- a person or company, or a director or senior officer of a company, that
beneficially owns, directly or indirectly, or exercises control or
direction over, voting securities with more than 10% of the voting
rights attached to all voting securities of Nortel Networks.
NO APPRAISAL RIGHTS
Under the Delaware General Corporation Law, you will have no appraisal
rights in connection with the merger. You will find additional information under
"Comparative Rights of Holders of Clarify Common Stock and Nortel Networks
Common Shares -- Dissent and Appraisal Rights."
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
It is the opinion of Venture Law Group, A Professional Corporation, counsel
to Clarify, and of Cleary, Gottlieb, Steen & Hamilton, counsel to Nortel
Networks, that subject to the accuracy of certain customary representations made
by Clarify and Nortel Networks, and subject to certain customary assumptions:
- the merger will qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code;
- Nortel Networks will be treated as a corporation under Section 367(a)(1)
of the Internal Revenue Code with respect to each transfer of property
thereto pursuant to the merger; and
- accordingly, the following material U.S. federal income tax consequences
will result from the merger:
(1) no gain or loss will be recognized by Clarify, the merger subsidiary
or Nortel Networks as a result of the merger; and
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<PAGE> 37
(2) no gain or loss will be recognized by Clarify stockholders who
receive Nortel Networks common shares in the merger, except with
respect to cash received for any fractional share; and
(3) the tax basis of the Nortel Networks common shares received by
Clarify stockholders in the merger will be the same as the tax basis
of the Clarify common stock surrendered in exchange for those shares
reduced by the tax basis allocable to fractional shares for which
cash is received.
The opinions are based on the Internal Revenue Code, U.S. Treasury
regulations, current administrative rulings and practice and judicial authority,
all of which are subject to change, possibly with retroactive effect. Neither
opinion applies to Clarify stockholders who will own 5% or more of Nortel
Networks' common shares, measured by vote or value, either directly or
indirectly through attribution rules, immediately after the merger since those
shareholders are subject to special tax rules and may be required to recognize
gain on loss in respect of the transaction in certain circumstances. The
Internal Revenue Service, which we refer to in this document as the Service,
will not be asked to rule on the tax consequences of the merger. Instead,
Clarify will rely on the opinion of Venture Law Group and Nortel Networks will
rely on the opinion of Cleary Gottlieb. These opinions have been filed with the
Commission, and you can obtain copies of them as described under "Where You Can
Find More Information" on page 65. An opinion of counsel is not binding on the
Service and the Service could take a position different from what is reflected
in the opinions. We cannot assure you that the opinions will be upheld by the
courts if challenged by the Service. We urge you to consult your own tax and
financial advisors regarding the U.S. federal income tax consequences of the
merger for you based on your own particular facts and circumstances as well as
any state, local, foreign or other tax consequences of the merger.
If you receive cash for any fractional share interest in a Nortel Networks
common share in the merger, you will be treated as though Nortel Networks
distributed an actual fractional share interest to you and then redeemed the
fractional share interest for cash. The difference between the cash amount you
will receive for the fractional share interest and the amount of your tax basis
in the Clarify common stock allocable to that fractional share interest will
generally be capital gain or loss if you hold your Clarify common stock as a
capital asset at the time of the merger. Long-term capital gains recognized by
an individual holder on capital assets held for more than one year generally are
subject to a maximum rate of 20%. The holding period for Nortel Networks common
shares that you receive in the merger will include the holding period of your
shares of Clarify common stock if you held those shares as capital assets at the
time of the merger.
Clarify stockholders will be required to retain records and file a
statement setting forth facts relating to the merger with their U.S. federal
income tax returns.
The discussion above summarizes the material U.S. federal income tax
consequences of the merger, but may not address the particular facts and
circumstances of your situation. It does not discuss all of the consequences
that may be important to you if:
- you are entitled to special treatment under the Internal Revenue Code
(as are insurance companies, dealers in securities or currencies,
traders in securities electing to mark to market, exempt organizations
or foreign persons); or
- you acquired your Clarify common stock pursuant to the exercise of
Clarify stock options or otherwise as compensation.
The summary set forth above is not a complete analysis of all potential tax
effects of the transactions contemplated by the merger agreement or the merger
itself. No information is provided in this document regarding the tax
consequences, if any, of the merger or the exchange of shares in the merger
under state, local, foreign or other tax laws or under proposed changes in
applicable tax laws.
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<PAGE> 38
U.S. AND CANADIAN TAX CONSIDERATIONS RELATING TO HOLDING NORTEL NETWORKS COMMON
SHARES
U.S. Federal Income Tax Considerations. The following summary describes
the material U.S. federal income tax consequences of the ownership and
disposition of Nortel Networks common shares by a U.S. holder. A U.S. holder is
a person or entity that:
- is a citizen or resident of the United States;
- is a U.S. domestic corporation; or
- will otherwise be subject to U.S. federal income tax on a net income
basis in respect of Nortel Networks common shares.
Even if you are a U.S. holder, this summary is not a complete description
of all the tax considerations that may be important to your decision to hold or
dispose of Nortel Networks common shares. In particular, this summary does not
discuss certain rules of general application that are assumed to be known by
investors and does not address the tax treatment of beneficial owners that:
- will not hold Nortel Networks common shares as a capital asset;
- own 10% or more of the voting stock of Nortel Networks; or
- may be subject to special tax rules, such as:
- banks;
- dealers in securities or currencies;
- traders in securities electing to mark to market;
- tax-exempt entities;
- insurance companies;
- persons that will hold Nortel Networks common shares as a position in
a straddle or a conversion transaction; and
- persons that have a functional currency other than the U.S. dollar.
This summary is based upon tax laws and practice of the United States as in
effect on the date of this document, which are subject to change. You should
consult your own tax advisor about the U.S. tax consequences of your beneficial
ownership and disposition of Nortel Networks common shares and the effect of any
foreign, state or local tax laws.
The gross amount of any cash dividends paid by Nortel Networks with respect
to Nortel Networks common shares, including the amount of any Canadian taxes
withheld from these dividends, generally will be includible in the gross income
of a U.S. holder to the extent paid out of Nortel Networks' current or
accumulated earnings and profits, as determined under U.S. federal income tax
principles. This income will be foreign source dividend income and will not be
eligible for the dividends-received deduction allowed to U.S. corporations with
respect to stock of other U.S. corporations. Canadian withholding tax at the
legally applicable rate will be treated as foreign income tax which U.S. holders
may elect to deduct in computing their taxable income or, subject to the
limitations on foreign tax credits generally, credit against their U.S. federal
income tax liability. Dividends on Nortel Networks common shares generally will
constitute passive income or, in some cases, financial services income for U.S.
foreign tax credit purposes. Foreign tax credits will not be allowed for
withholding taxes imposed in respect of certain short-term or hedged positions
in Nortel Networks common shares or in respect of arrangements in which a U.S.
holder's expected economic profit, after non-U.S. taxes, is insubstantial. You
should consult your own advisers concerning the implications of these rules in
light of your particular circumstances.
Distributions of Nortel Networks common shares to U.S. holders that are
made by Nortel Networks as part of a pro rata distribution to all holders of
Nortel Networks common shares generally will not be subject to U.S. federal
income tax.
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Assuming that the Nortel Networks common shares are held as a capital
asset, gain or loss realized by a U.S. holder on the sale or other disposition
of Nortel Networks common shares will be subject to U.S. federal income taxation
as capital gain or loss in an amount equal to the difference between the U.S.
holder's tax basis in the Nortel Networks common shares and the amount realized
on the disposition. This gain or loss will be long-term capital gain or loss
only if the Nortel Networks common shares were held for more than one year.
Dividends paid on, and proceeds from the sale or other disposition of Nortel
Networks common shares, including gain attributable to cash received for any
fractional Nortel Networks common shares may be subject to the information
reporting requirements of the Internal Revenue Code and may be subject to backup
withholding at the rate of 31% unless the holder:
- establishes that it is a corporation or other exempt holder; or
- provides an accurate taxpayer identification number on a properly
completed Internal Revenue Service Form W-9 and certifies that no loss
of exemption from backup withholding has occurred.
The amount of any backup withholding from a payment to a holder will be
allowed as a credit against the U.S. Holder's U.S. federal income tax liability
and may entitle the holder to a refund, provided that certain required
information is furnished to the Service.
Canadian Federal Income Tax Considerations. Osler, Hoskin & Harcourt LLP,
Canadian tax counsel to Nortel Networks, has advised that the following is a
general summary of the principal Canadian federal income tax considerations
generally applicable to holders of Nortel Networks common shares who acquire
Nortel Networks common shares in the merger in exchange for Clarify common stock
and who, for purposes of the Income Tax Act (Canada), at all relevant times:
- deal at arm's length with Nortel Networks;
- alone or together with others not at arm's length with them, did not own
25% or more of any class or series of Nortel Networks shares, including
interests in or rights to shares, within the five-year period before
disposing of those shares;
- hold their Clarify common stock and Nortel Networks common shares for
their own account as capital property and do not use or hold their
Clarify common stock or Nortel Networks common shares in, or in the
course of, carrying on business in Canada;
- are not financial institutions as defined in the Income Tax Act (Canada)
for purposes of certain special provisions of the Income Tax Act
(Canada) (the mark-to-market rules) relating to securities held by
financial institutions; and
- whose Clarify common stock and Nortel Networks common shares are not
designated insurance property as defined in the Income Tax Act (Canada)
and are not effectively connected with an insurance business carried on
in Canada.
This summary is based on the current provisions of the Income Tax Act
(Canada) and the regulations under the Income Tax Act (Canada), all specific
proposals to amend the Income Tax Act (Canada) and those regulations publicly
announced by or on behalf of the Minister of Finance (Canada) prior to the date
of this document and counsel's understanding of the current administrative
practices of the Canada Customs and Revenue Agency ("Revenue Canada"). This
summary does not take into account or anticipate any other changes in law or
practice, whether by judicial, governmental or legislative decision or action,
nor does it take into account the tax legislation or considerations of any
province or territory, or any jurisdiction other than Canada. This summary is of
a general nature only, is not intended nor should it be construed to be legal or
tax advice to any particular holder of Nortel Networks common shares or shares
of Clarify common stock and in particular does not take into account or
anticipate the specific circumstances of any particular holder or address tax
considerations peculiar to any holder subject to special provisions of the
Income Tax Act (Canada). Accordingly, you should consult your own tax advisor
with respect to your particular circumstances.
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If you are not resident in Canada for purposes of the Income Tax Act
(Canada):
- you will not be subject to Canadian tax on the exchange of your shares
of Clarify common stock for Nortel Networks common shares in the merger;
- dividends on Nortel Networks common shares you receive in the merger
will generally be subject to Canadian withholding tax. If you are a
resident of the United States, the rate of this withholding tax will
generally be 15% of the gross amount of the dividends, under the terms
of the Canada-United States Income Tax Convention (1980). If you are
resident elsewhere, the rate of withholding will generally be 25%, or a
lesser rate provided under any applicable tax treaty; and
- gains realized on the disposition of Nortel Networks common shares you
receive in the merger will not generally be subject to Canadian tax if
they are listed on a stock exchange prescribed by the Income Tax Act
(Canada), which includes the New York and Toronto stock exchanges. If
you are a resident of the United States, your gains generally will not
in any event be subject to Canadian tax as long as the value of your
Nortel Networks common shares is not derived principally from Canadian
real estate, as contemplated in the Canada-United States Income Tax
Convention (1980).
If you are resident in Canada for purposes of the Income Tax Act (Canada)
and Clarify is not your foreign affiliate, as defined in the Income Tax Act
(Canada):
- you will realize a capital gain (or sustain a capital loss) on the
exchange of your shares of Clarify common stock for Nortel Networks
common shares in the merger. The amount of this gain (or loss) will be
the amount by which:
- the fair market value of the Nortel Networks common shares you receive
plus the amount of cash you receive for any fractional share, net of
any reasonable costs you incur, exceeds (or is exceeded by)
- your adjusted cost base in the shares of Clarify common stock you
exchange; and
- the adjusted cost base of your Nortel Networks common shares immediately
after the merger generally will be the average of:
- the fair market value of the Clarify common stock you exchanged less
the amount of cash you received for any fractional Nortel Networks
common share, and
- the adjusted cost base of any other Nortel Networks common shares you
then own as capital property.
STOCK EXCHANGE LISTINGS OF NORTEL NETWORKS COMMON SHARES
Nortel Networks will apply to list the Nortel Networks common shares to be
issued in the merger, or upon exercise of the stock options assumed by Nortel
Networks by reason of the merger, on the New York and Toronto stock exchanges.
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THE MERGER AGREEMENT
The following is a summary of the material provisions of the merger
agreement. A copy of the merger agreement is attached as Annex A. We encourage
you to read it in its entirety.
THE MERGER
When the merger occurs, a newly formed subsidiary of Nortel Networks will
merge with and into Clarify, the separate corporate existence of this merger
subsidiary will cease and Clarify will survive and continue to exist as a
Delaware corporation and as a wholly owned subsidiary of Nortel Networks. In
this document, the company that survives the merger is sometimes referred to as
the surviving corporation.
The merger agreement is conditioned on:
- approval of the merger by Clarify's stockholders; and
- satisfaction or waiver of the other conditions to the merger described
below under "-- Conditions to the Merger."
EFFECTIVE TIME OF THE MERGER
The merger will become effective at the time of filing of a certificate of
merger, or at a later time specified in the certificate of merger, in accordance
with Delaware law. The effective time of the merger will be the third business
day after the last of the conditions to the merger has been satisfied or waived,
or another date if so agreed by Nortel Networks and Clarify.
CONVERSION OF CLARIFY COMMON STOCK
Each share of Clarify common stock outstanding immediately prior to the
merger, other than treasury shares, will be converted in the merger into the
right to receive 1.3 common shares of Nortel Networks. Each share of Clarify
common stock held in Clarify's treasury or held by Nortel Networks or its
subsidiaries at the time of the merger will be canceled and retired without any
payment.
NO FRACTIONAL NORTEL NETWORKS COMMON SHARES
Nortel Networks will not issue fractional shares in the merger. If, upon
conversion of your Clarify common stock, you are entitled to receive a number of
Nortel Networks common shares that includes a fraction of a Nortel Networks
common share, you will instead be entitled to receive cash for that fractional
share. The amount of cash payable will equal the fraction multiplied by the
average of the last sales prices of Nortel Networks common shares on the New
York Stock Exchange Composite Transactions Reporting System (as reported in The
Wall Street Journal) for the five consecutive trading days ending on the trading
day prior to completion of the merger.
EXCHANGE OF CLARIFY COMMON STOCK FOR NORTEL NETWORKS COMMON SHARES
At or prior to the completion of the merger, Nortel Networks will create an
exchange fund by depositing with an exchange agent certificates representing the
number of Nortel Networks common shares, and an estimated amount of cash for
fractional shares, to be issued or paid in exchange for outstanding shares of
Clarify common stock.
Promptly after the merger is completed, Nortel Networks will mail to each
record holder of Clarify common stock a letter of transmittal and instructions
for use in effecting the surrender of Clarify common stock for exchange for
Nortel Networks common shares.
On surrender to the exchange agent of Clarify common stock for cancellation
together with a properly executed and completed letter of transmittal, you will
be entitled to receive the full number of Nortel Networks common shares into
which your Clarify common stock is converted as determined by the exchange
ratio, and cash for any fractional Nortel Networks common share.
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Nortel Networks will not pay you any dividends or other distributions
declared after the merger is completed until you have surrendered your Clarify
common stock. Once you have done so, Nortel Networks will pay you the amount of
any dividends or other distributions that were declared after the merger is
completed and before you surrendered your Clarify common stock, without
interest.
On completion of the merger, Clarify will close its stock transfer books
and no longer transfer Clarify common stock. After the merger is completed, you
will cease to have any rights with respect to Clarify common stock, except for
the right to convert your common stock into Nortel Networks common shares as
described above.
Any portion of the exchange fund that remains unclaimed by Clarify
stockholders for one year after the merger will be paid or delivered to Nortel
Networks. Any Clarify stockholders who have not previously surrendered their
Clarify common stock as described above must then look only to Nortel Networks
for payment of Nortel Networks common shares, cash instead of any fractional
shares and unpaid dividends and distributions on the Nortel Networks common
shares deliverable in respect of the Clarify common stock. No interest will be
paid on any of these amounts.
TREATMENT OF CLARIFY STOCK OPTIONS
Nortel Networks will assume all Clarify stock options outstanding at the
time of the merger. After the merger, Nortel Networks will treat these assumed
stock options as options to acquire Nortel Networks common shares on the terms
and conditions of the Clarify stock option plan or stock option agreement under
which they initially were granted, as amended at the time of the merger.
After the merger, the assumed stock options will entitle the option holder
to purchase a number of Nortel Networks common shares equal to 1.3 times the
number of shares of Clarify common stock covered by those options prior to the
merger, rounded down to the next lowest whole number. The exercise price for
each Nortel Networks common share covered by an assumed stock option will equal
the aggregate exercise price for the shares of Clarify common stock covered by
the option prior to the merger divided by the number of Nortel Networks common
shares that may be purchased under the assumed stock option after the merger.
Nortel Networks' board of directors or an appropriate committee of the
board of directors will succeed to the authorities and responsibilities of
Clarify's Board or any board committee under each Clarify stock option plan, and
those plans will continue to be administered in accordance with their current
terms. The conversion of Clarify stock options that are incentive stock options
as defined in Section 422 of the Internal Revenue Code will be effected in a
manner consistent with Section 424(a) of the Internal Revenue Code.
EMPLOYEE BENEFITS
During the one year period following the merger, Nortel Networks has agreed
that Clarify employees who continue in their employment:
- will receive annual salaries or hourly wage rates that are no less than
those that were in effect prior to the merger;
- will be eligible for severance benefits on substantially the same terms
and in substantially the same amounts as similarly situated Nortel
Networks employees; and
- will be provided employee benefits, other than equity based benefits,
that are substantially similar in the aggregate to those in effect prior
to the merger.
REPRESENTATIONS AND WARRANTIES
The representations and warranties of Clarify, Nortel Networks and the
merger subsidiary set forth in the merger agreement are generally subject to a
materiality standard, which means that generally a breach of a representation or
warranty will not occur unless the breach, taken together with all other
breaches of
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representation or warranty, is reasonably likely to be materially adverse to the
business, condition or results of operations of the breaching party and its
subsidiaries taken as a whole or would materially impair the ability of the
breaching party to perform its obligations under the merger agreement.
The merger agreement contains material representations and warranties of
Clarify with respect to the following:
- its corporate organization and existence;
- its capitalization;
- disclosure of its subsidiaries and their corporate organization and
existence;
- its corporate power and authority to execute, deliver and perform its
obligations under the merger agreement and the option agreement;
- the merger agreement and the option agreement and related transactions
not violating its certificate and by-laws, applicable law and specified
agreements;
- its financial statements and filings with the Commission;
- the absence of undisclosed litigation, claims or other proceedings;
- its compliance with applicable law;
- the absence of undisclosed material contracts and the absence of
defaults under its material contracts;
- brokers' and finders' fees with respect to the merger;
- its employee benefit plans and related matters;
- the inapplicability of state anti-takeover laws to the transactions
contemplated by the merger agreement and the option agreement and the
adoption of an amendment to its rights agreement;
- environmental liabilities;
- intellectual property;
- the filing and accuracy of its tax returns;
- its belief that no conditions exist that would adversely affect the
status of the merger as a reorganization for U.S. federal income tax
purposes;
- required governmental and regulatory approvals;
- its receipt of an opinion of Morgan Stanley as to the fairness of the
exchange ratio, from a financial point of view, to Clarify's
stockholders;
- year 2000 readiness; and
- the absence of materially adverse changes in its business since June 30,
1999.
The merger agreement contains material representations and warranties of
each of Nortel Networks and the merger subsidiary with respect to the following:
- its corporate organization and existence;
- its capitalization;
- its corporate power and authority to execute, deliver and perform its
obligations under the merger agreement and the option agreement;
- the merger agreement and the option agreement and related transactions
not violating its charter and by-laws, applicable law and material
agreements;
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- its financial statements and filings with the Commission;
- the absence of undisclosed litigation, claims or other proceedings;
- brokers' and finders' fees relating to the merger;
- required governmental and regulatory approvals; and
- the absence of materially adverse changes in its business since December
31, 1998.
CONDUCT OF BUSINESS OF CLARIFY
The merger agreement provides that Clarify and its subsidiaries will
conduct their businesses in the ordinary and usual course in all material
respects and will use their reasonable best efforts to keep their business
organizations and assets intact and to preserve their current business
relationships. Subject to specified exceptions, the merger agreement also
contains limitations, prohibitions and other provisions relating to Clarify's
conduct of business from the date of the merger agreement to the completion of
the merger with respect to:
- changes affecting its capital stock;
- actions relating to dividends and other distributions;
- employment arrangements;
- changes affecting employee benefit plans;
- acquisitions and disposals of assets, businesses or properties;
- amendments to its certificate or by-laws;
- changes in its accounting principles or practices;
- entry into, modification or termination of contracts or leases involving
property, services or payments with a value in excess of $2,000,000;
- settlement of claims;
- actions that would be reasonably likely to adversely affect the status
of the merger as a reorganization for U.S. federal income tax purposes;
- actions that would be reasonably likely to result in a breach of any of
its representations and warranties or cause any condition to the merger
not to be satisfied;
- incurrence of indebtedness;
- making of capital expenditures;
- changes with respect to material tax elections;
- waivers of confidentiality or standstill provisions with other
companies; and
- agreements or commitments to do any of the foregoing.
CONDUCT OF BUSINESS OF NORTEL NETWORKS
Subject to specified exceptions, the merger agreement contains limitations,
prohibitions and other provisions relating to Nortel Networks' actions during
the period from the date of the merger agreement to the completion of the merger
with respect to:
- declaration or payment of any extraordinary cash dividend on or in
respect of the Nortel Networks common shares;
- actions that would be reasonably likely to adversely affect the status
of the merger as a reorganization for U.S. federal income tax purposes;
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- actions that would be reasonably likely to result in a breach of any of
its representations and warranties or cause any condition to the merger
not to be satisfied; and
- agreements or commitments to do any of the foregoing.
COVENANTS OF CLARIFY
The merger agreement contains covenants requiring Clarify to:
- take all action necessary to convene an appropriate meeting of its
stockholders to consider and vote on the adoption of the merger
agreement and for Clarify's Board to recommend adoption, except as
described below under "-- Acquisition Proposals";
- use its reasonable best efforts to cause each person who may be deemed
an "affiliate" of Clarify under the Securities Act to execute and
deliver an agreement limiting such person's ability to sell, transfer or
dispose of his or her Nortel Networks common shares;
- provide Nortel Networks with reasonable access to information under the
condition that non-public information be subject to the terms of the
confidentiality agreement between Nortel Networks and Clarify; and
- take all further action necessary in order to render its stockholder
protection rights inapplicable to the merger.
COVENANTS OF NORTEL NETWORKS
In the merger agreement, Nortel Networks has agreed to use its reasonable
best efforts to list the Nortel Networks common shares to be issued in the
merger and upon exercise of the Clarify stock options assumed by Nortel Networks
by reason of the merger on the New York and Toronto stock exchanges prior to the
merger. Nortel Networks has also agreed to use its reasonable best efforts to
obtain all necessary approvals of Canadian securities regulatory authorities to
permit the distribution of Nortel Networks common shares in the merger.
COVENANTS OF NORTEL NETWORKS, CLARIFY AND THE MERGER SUBSIDIARY
The merger agreement also contains various covenants requiring Clarify,
Nortel Networks and the merger subsidiary:
- to use their reasonable best efforts in good faith to take all necessary
actions to effect the merger;
- to cooperate in the preparation of this proxy statement/prospectus and a
joint communications plan with respect to the transactions contemplated
by the merger agreement;
- to take all steps within their control to exempt the transactions
contemplated by the merger agreement and the option agreement from any
state anti-takeover law that purports to apply to those transactions;
- to cooperate and use their respective reasonable best efforts to:
- prepare all documentation, effect all filings and obtain all permits,
consents, approvals and authorizations of all third parties and
regulatory authorities necessary to complete the transactions
contemplated by the merger agreement, subject to specified limitations
described under "The Merger -- Regulatory Approvals -- General;" and
- cause the merger to be completed as expeditiously as reasonably
practicable; and
- to use their reasonable best efforts to cause their respective
independent public accountants to deliver to the other party customary
accountants' comfort letters.
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ACQUISITION PROPOSALS
Clarify has agreed in the merger agreement that it will not, and will cause
its subsidiaries and its officers, directors, agents and advisors and those of
its subsidiaries not to, initiate, solicit or encourage inquiries or proposals
with respect to, or engage in any negotiations concerning, or provide any
confidential information to, or have any discussions with, any person other than
Nortel Networks relating to any acquisition proposal. Under the merger
agreement, an acquisition proposal is:
- a merger or consolidation, or any similar transaction, involving
Clarify;
- a purchase or other acquisition of more than 20% of the consolidated
assets of Clarify and its subsidiaries, other than transactions
involving the sale of inventory in the ordinary course of business,
consistent with past practice;
- a purchase or other acquisition of beneficial ownership of securities
representing more than 20% of the voting power of Clarify;
- any substantially similar transaction; or
- any inquiry or indication of interest with respect to any of the
foregoing.
Notwithstanding the foregoing, the merger agreement permits Clarify to
engage in any discussions or negotiations with, or provide any information to,
any person in response to a bona fide written acquisition proposal by that
person, but only if and to the extent that:
- the proposal was not solicited or encouraged in violation of the merger
agreement;
- the meeting of Clarify's stockholders has not occurred;
- Clarify's Board determines in good faith that the acquisition proposal
would, if completed, constitute a superior proposal as defined in the
merger agreement and is reasonably likely to be completed;
- Clarify's Board determines, in good faith after consultation with
outside counsel, that such action is legally required as a matter of the
fiduciary duties of the directors under applicable law; and
- before providing any information or data to any person or entering into
discussions or negotiations with any person, Clarify receives from that
person an executed confidentiality agreement containing terms no less
restrictive with respect to that person than the terms of the
confidentiality agreement which Nortel Networks has entered into with
Clarify.
The merger agreement defines a superior proposal as any bona fide written
acquisition proposal made by a third party that was not solicited or encouraged
in violation of the merger agreement and which Clarify's Board determines in its
good faith judgment, based on an opinion to that effect by a financial advisor
of nationally recognized reputation, to be materially more favorable to the
stockholders of Clarify than the transactions contemplated by the merger
agreement.
Clarify has agreed to notify Nortel Networks within 24 hours of its receipt
of any inquiries, proposals or offers described above and to advise Nortel
Networks promptly of any material developments. As of the date of this document,
Clarify has not received any inquiries, proposals or offers of this kind.
Clarify has also agreed to cease any activities, discussions or
negotiations with any parties other than Nortel Networks with respect to any
acquisition proposal.
CONDITIONS TO THE MERGER
The obligation of each of the parties to complete the merger is conditioned
upon the satisfaction or waiver of the following conditions:
- the merger agreement has been adopted and approved by the requisite vote
of the holders of Clarify common stock;
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- all regulatory approvals required to complete the merger have been
obtained and are in full force and effect and all statutory waiting
periods have expired and, in the case of Nortel Networks, no regulatory
approval contains any conditions, restrictions or requirements that
would reasonably be expected to:
- have a material adverse effect on Nortel Networks and its subsidiaries
taken as a whole, or on the surviving corporation, after completion of
the merger; or
- require Nortel Networks to dispose of any assets of Nortel Networks,
Clarify or their respective subsidiaries, or require Nortel Networks
to refrain from exercising full authority over Clarify and its
subsidiaries after completion of the merger;
- no action by any governmental authority is in effect that enjoins or
prohibits completion of the merger and, in the case of Nortel Networks,
no action by any governmental authority is pending that is reasonably
likely to succeed and that seeks to enjoin or prohibit completion of the
merger, require the unwinding of the merger or impose substantial
penalties as a result of the merger;
- the representations and warranties of the other party contained in the
merger agreement are true and correct as of the date of the merger
agreement and as of completion of the merger, except for any
representations and warranties that by their terms speak as of the date
of the merger agreement or some other date, which are true and correct
as of such date, in each case subject to the applicable materiality
standard set forth in the merger agreement;
- each of the agreements and covenants to be performed by the other party
in accordance with the merger agreement at or prior to the time of the
merger has been duly performed in all material respects;
- no events have occurred which have had or would reasonably be expected
to have a material adverse effect on the other party;
- this proxy statement/prospectus has been declared effective and no stop
order suspending its effectiveness has been issued, and no proceedings
for that purpose have been initiated or threatened by the Commission and
not concluded or withdrawn;
- Nortel Networks has received an opinion of Cleary, Gottlieb, Steen &
Hamilton as to tax matters;
- Clarify has received an opinion of Venture Law Group, A Professional
Corporation, as to tax matters; and
- the Nortel Networks common shares issuable pursuant to the merger
agreement have received approval for listing on the New York and Toronto
stock exchanges, subject to official notice of issuance.
Other than the conditions pertaining to shareholder approvals and the
legality of the transaction, Clarify could elect to waive conditions to Nortel
Networks' performance and complete the merger. However, if Clarify determines to
waive the receipt of a tax opinion from its counsel, it will either resolicit
proxies or seek a new shareholder approval of the merger. In addition, if
Clarify determines to waive any other material condition, it will consider
whether to resolicit proxies or seek a new shareholder approval, and will do so
if, in the opinion of its counsel, this is required under applicable law.
INDEMNIFICATION
The surviving corporation will indemnify the present and former officers
and directors of Clarify and its subsidiaries to the fullest extent permitted by
Delaware law and the Clarify certificate and by-laws with respect to any claim
arising out of actions or omissions occurring at or prior to completion of the
merger. For six years following completion of the merger, Nortel Networks will
provide an insurance policy with respect to that portion of directors' and
officers' liability insurance that serves to cover the present and former
directors and officers of Clarify or its subsidiaries with respect to claims
arising from facts or events which occurred at or prior to completion of the
merger. Subject to specified limitations, this insurance
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policy will contain at least the same maximum coverage and amounts as Clarify
currently provides to its directors and officers.
WAIVER AND AMENDMENT
Nortel Networks and Clarify may amend any provision of the merger agreement
by an agreement in writing approved by their respective Boards. However, after
adoption of the merger agreement by Clarify's stockholders, the merger agreement
may not be amended without further stockholder approval if by law the amendment
would require the approval of Clarify's stockholders. Prior to the time the
merger is completed, Nortel Networks or Clarify may, with the approval of their
respective Boards:
- extend the time for the performance of any of the obligations or other
acts of the other parties;
- waive any inaccuracies in the representations and warranties contained
in the merger agreement; and
- waive compliance with any of the agreements or conditions contained in
the merger agreement.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated, and the merger may be abandoned by
the mutual consent of Nortel Networks and Clarify, or:
Termination by either party. Either party may terminate the merger
agreement if:
- the other party breaches any of its representations or warranties
contained in the merger agreement, subject to the applicable
materiality standard set forth in the merger agreement, which breach
is not capable of being cured or has not been cured within 15 calendar
days after written notice of the breach is given to the breaching
party;
- the other party materially breaches any of its covenants or agreements
contained in the merger agreement, which breach is not capable of
being cured or has not been cured within 15 calendar days after
written notice of the breach is given to the breaching party;
- the merger is not completed by March 31, 2000, if all required
approvals of governmental authorities have then been obtained, and
otherwise if the merger has not been completed by June 30, 2000,
except in either case if failure of the merger to be completed is due
to the knowing action or inaction of the party seeking to terminate
the merger agreement;
- any required approval of a governmental authority has been denied by
final nonappealable action; or
- the required stockholder approval is not obtained at the Clarify
stockholders' meeting;
Termination by Nortel Networks. Nortel Networks may terminate the merger
agreement if:
- any required approval of a governmental authority contains any final,
nonappealable conditions, restrictions or requirements that would
reasonably be expected to:
- have a material adverse effect, following the merger, on Nortel
Networks and its subsidiaries taken as a whole or on the surviving
corporation or
- require Nortel Networks to dispose of any assets of Nortel Networks,
Clarify or their respective subsidiaries, or require Nortel Networks
to refrain from exercising full authority over Clarify and its
subsidiaries following the merger; or
- Clarify's Board at any time prior to the Clarify stockholders' meeting
withdraws its recommendation of the merger, or resolves to do so;
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Termination by Clarify. Clarify may terminate the merger agreement if:
- any required approval of a governmental authority contains any final,
nonappealable conditions, restrictions or requirements that would
reasonably be expected to:
- have a material adverse effect, following the merger, on Nortel
Networks and its subsidiaries taken as a whole or
- require Nortel Networks to dispose of any assets of Nortel Networks,
Clarify or their respective subsidiaries, or require Nortel Networks
to refrain from exercising full authority over Clarify and its
subsidiaries following the merger, unless, within 30 days following
receipt by Nortel Networks of written notice of Clarify's intent to
terminate the merger agreement under these circumstances, Nortel
Networks notifies Clarify that it waives its analogous right to
terminate the merger agreement; or
- Clarify's Board, on or before December 2, 1999, elects to terminate
the merger agreement in order to approve or recommend a superior
proposal, so long as:
- Clarify has notified Nortel Networks in writing that it intends to
recommend or approve a superior proposal,
- after taking into account any modifications to the transactions
contemplated by the merger agreement that Nortel Networks has then
proposed in writing and not withdrawn, Clarify's Board has
determined that the proposal is and continues to be a superior
proposal and
- Clarify pays Nortel Networks the termination fee described under
"-- Termination Fees and Expenses."
TERMINATION FEES AND EXPENSES
Clarify may be required to pay Nortel Networks a termination fee of
$60,000,000 in each of the following five circumstances:
1. Failure to complete the merger
- Clarify terminates the merger agreement because the merger is not
completed by March 31, 2000, if all required approvals of
governmental authorities have then been obtained, and otherwise if
the merger has not been completed by June 30, 2000, unless in either
case the failure of the merger to be completed results primarily from
Nortel Networks' knowing action or inaction or from Nortel Networks'
or the merger subsidiary's inability to obtain consent or approval
of, or make any filing or registration with, any governmental
authority;
- at any time after the date of the merger agreement and at or before
the time of the event giving rise to such termination an acquisition
proposal exists; and
- within 12 months of the termination of the merger agreement, Clarify
enters into a definitive agreement with any third party with respect
to an acquisition proposal or an acquisition proposal is completed.
2. Failure of Clarify's stockholders to approve the merger
- Clarify or Nortel Networks terminates the merger agreement due to the
failure of Clarify's stockholders to approve the merger agreement;
- at any time after the date of the merger agreement and at or before
the Clarify stockholders meeting an acquisition proposal exists which
has been publicly announced or the existence of which is a matter of
public knowledge; and
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<PAGE> 50
- within 12 months of the termination of the merger agreement, Clarify
enters into a definitive agreement with any third party with respect
to an acquisition proposal or an acquisition proposal is completed.
3. Willful breach of representation or covenant
- Nortel Networks terminates the merger agreement after Clarify
willfully breaches any of its representations, warranties or
covenants;
- at any time after the date of the merger agreement and at or before
the termination of the merger agreement an acquisition proposal
exists; and
- within 12 months of the termination of the merger agreement, Clarify
enters into a definitive agreement with any third party with respect
to an acquisition proposal or an acquisition proposal is completed.
4. Withdrawal of recommendation by Clarify's Board
- Nortel Networks terminates the merger agreement after Clarify's Board
withdraws its recommendation of the merger or resolves to do so.
5. Termination by Clarify's Board in response to superior proposal
- Clarify's Board terminates the merger agreement in order to approve
or recommend a superior proposal as described under "-- Termination
of the Merger Agreement".
The merger agreement provides that the termination fee will no longer be
payable by Clarify after any exercise by Nortel Networks of the option described
below under "Other Agreements -- Stock Option Agreement."
Each party to the merger agreement will bear all expenses incurred by it in
connection with the merger, except that printing and mailing expenses and
Commission registration and filing fees will be shared equally between the
parties.
45
<PAGE> 51
OTHER AGREEMENTS
The following is a summary of the material provisions of the stock option
agreement and the stockholders agreement. A copy of the stock option agreement
is attached as Annex B and a copy of the stockholders agreement is attached as
Annex C. We encourage you to read each agreement in its entirety.
STOCK OPTION AGREEMENT
As a condition to Nortel Networks' execution of the merger agreement,
Clarify entered into the stock option agreement. In this agreement, Clarify
granted Nortel Networks an option that under specified circumstances would
permit Nortel Networks to purchase 4,707,333 shares of Clarify common stock,
subject to adjustment for the issuance of additional shares. The maximum number
of shares that Nortel Networks could purchase under the option is 19.9% of the
number of shares of Clarify common stock outstanding at the time Nortel Networks
exercises the option. The exercise price of the option is $68.09 per share,
subject to adjustment under specified circumstances. If Nortel Networks were to
exercise the option in full, it would hold approximately 16.6% of the
outstanding shares of Clarify common stock.
When Nortel Networks May Exercise the Option. Nortel Networks may exercise
the option in whole or in part if both an initial triggering event and a
subsequent triggering event occur before an exercise termination event, as these
terms are defined below in this section.
Initial triggering event means any of the following:
- Clarify or any of its subsidiaries, without Nortel Networks' prior
written consent, enters into an agreement to engage in an acquisition
transaction, as defined below, with any person other than Nortel
Networks;
- Clarify's Board recommends that Clarify's stockholders approve or accept
any acquisition transaction other than the merger;
- Clarify or any of its subsidiaries, without Nortel Networks' prior
written consent, authorizes, recommends or proposes, or publicly
announces its intention to authorize, recommend or propose, an
acquisition transaction with any person other than Nortel Networks or
its subsidiaries;
- Clarify or any of its subsidiaries, without Nortel Networks' prior
written consent, authorizes or engages in, or announces its intention to
authorize or engage in, any negotiations regarding an acquisition
transaction with any person other than Nortel Networks or its
subsidiaries;
- Clarify's Board fails to recommend that Clarify's stockholders approve
the merger;
- Clarify's Board publicly withdraws or modifies, or publicly announces
its intention to withdraw or modify, in any manner adverse to Nortel
Networks, its recommendation that Clarify's stockholders approve the
merger;
- any person other than Nortel Networks or its subsidiaries makes a
proposal to Clarify or its stockholders to engage in an acquisition
transaction and, subsequently:
- Clarify's stockholders vote and fail to approve the merger at the
meeting or any adjournment or postponement of the meeting; or
- the meeting is not held or is canceled;
- any person other than Nortel Networks, its subsidiaries or a party to
the stockholders agreement acquires beneficial ownership or the right to
acquire beneficial ownership of 20% or more of the outstanding shares of
Clarify common stock;
- any group, as defined in the Securities Exchange Act of 1934, other than
a group of which Nortel Networks or any of its subsidiaries is a member,
is formed that beneficially owns 20% or more of the outstanding shares
of Clarify common stock;
46
<PAGE> 52
- any person other than Nortel Networks or its subsidiaries makes a bona
fide proposal to Clarify or its stockholders to engage in an acquisition
transaction and the proposal becomes publicly known;
- any person other than Nortel Networks or its subsidiaries has commenced,
or publicly announced its intention to commence, a tender or exchange
offer to acquire beneficial ownership of 20% or more of the then
outstanding shares of Clarify common stock;
- Clarify willfully breaches any representation, warranty, covenant or
obligation contained in the merger agreement and the breach:
- would entitle Nortel Networks to terminate the merger agreement; and
- is not cured before Nortel Networks provides Clarify with written
notice of the breach; or
- any person other than Nortel Networks or its subsidiaries files with a
regulatory or governmental authority an application for approval of, or
notice of intention to engage in, an acquisition transaction, except in
connection with a transaction to which Nortel Networks has given its
prior written consent.
Acquisition transaction means:
- a merger or consolidation, or any similar transaction, involving Clarify
or any significant subsidiary of Clarify, as defined in SEC regulations;
- a purchase, lease or other acquisition or assumption of all or more than
20% of the consolidated assets of Clarify;
- a purchase or other acquisition of beneficial ownership of securities
representing 20% or more of the voting power of Clarify, or of
securities representing 20% or more of the voting power of any
significant subsidiary of Clarify; or
- any substantially similar transaction.
Subsequent triggering event means:
- any person other than Nortel Networks or its subsidiaries acquires
beneficial ownership of 25% or more of the outstanding Clarify common
stock;
- Clarify or any of its subsidiaries, without Nortel Networks' prior
written consent, enters into an agreement to engage in a transaction
with any person other than Nortel Networks or its subsidiaries that
would be an acquisition transaction if the references to 20% in the
definition of acquisition transaction were changed to 25%; or
- Clarify's Board recommends that the stockholders of Clarify approve or
accept any transaction, other than the merger, that would be an
acquisition transaction if the references to 20% in the definition of
acquisition transaction were changed to 25%.
Exercise termination event means the earliest of:
- the completion of the merger;
- the termination of the merger agreement at any time:
- by mutual consent, following failure to obtain a required governmental
approval,
- by Clarify in the event of a breach by Nortel Networks of its
representations, warranties or covenants in the merger agreement,
- by Nortel Networks in the event of a non-willful breach by Clarify of
its representations, warranties or covenants in the merger agreement,
or
- by Nortel Networks in the event completion of the merger is delayed
beyond the dates provided in the merger agreement;
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<PAGE> 53
- the termination of the merger agreement prior to an initial triggering
event:
- by Clarify in the event completion of the merger is delayed beyond the
dates provided in the merger agreement,
- by Nortel Networks in the event Clarify stockholders fail to approve
the merger at the Clarify stockholders' meeting, or
- by Nortel Networks in the event of a willful breach by Clarify of its
representations, warranties or covenants in the merger agreement;
- 12 months after termination of the merger agreement under any
circumstances other than those described above; and
- the receipt by Nortel Networks, at its request, of the termination fee
in accordance with the merger agreement.
The period within which Nortel Networks may exercise the option and other
specified rights under the stock option agreement will be extended as necessary
to obtain required regulatory approvals, comply with applicable regulatory
waiting periods and avoid liability under Section 16(b) of the Exchange Act. The
option price and the number of shares issuable under the option are subject to
adjustment in the event of specified changes in the capital stock of Clarify.
Registration Rights. If any subsequent triggering event occurs before an
exercise termination event, Nortel Networks will have the right for 12 months to
require Clarify to register under the Securities Act the Clarify common stock
issued and issuable pursuant to the option. This right is subject to specified
conditions and limitations.
Repurchase. At any time within 12 months after the occurrence of a
repurchase event, as defined in this section, Clarify will repurchase, at Nortel
Network's request, the option and all or any part of the shares of Clarify
common stock issued upon the full or partial exercise of the option. Clarify
will repurchase the option at a price equal to the amount by which the
market/offer price, as defined in this section, exceeds the option price,
multiplied by the number of shares for which the option may then be exercised.
Clarify will repurchase shares issued upon exercise of the option at a price
equal to the market/ offer price multiplied by the number of option shares to be
repurchased.
"Repurchase event" means either of the following events, provided that a
subsequent triggering event occurs before an exercise termination event:
- the completion of any merger or consolidation involving Clarify or any
purchase, lease or other acquisition of all or substantially all of the
assets of Clarify, except any transaction involving only Clarify and its
subsidiaries; or
- the acquisition by any person of beneficial ownership of 50% or more of
the outstanding shares of Clarify common stock.
"Market/offer price" means the highest of:
- the price per share of Clarify common stock at which a tender or
exchange offer has been made and completed or remains outstanding;
- the price per share of Clarify common stock to be paid by any third
party pursuant to an agreement with Clarify made after the option
agreement became effective;
- the highest average closing price for Clarify common stock for any 20
trading day period within the three-month period immediately before
Nortel Networks, or any other option holder or owner of Clarify shares
issued upon exercise of the option, gives notice of the required
repurchase; or
- in the event of a sale of all or substantially all of the consolidated
assets of Clarify, the sum of the net price paid in the sale for the
assets and the current market value of the remaining net assets of
Clarify, divided by the number of shares of Clarify common stock
outstanding at the time of sale.
48
<PAGE> 54
Limitation on Total Profit. The option agreement caps Nortel Networks'
potential profit on the option at $70,000,000. For purposes of this limitation
on profit, the amount realized by Nortel Networks is the aggregate, before
taxes, of:
- any amount received from Clarify for repurchase of the option, or any
portion of the option;
- any amount received from Clarify for repurchase of shares of Clarify
common stock issued upon exercise of the option, less the purchase
price;
- any net cash received from the sale to any third party of shares of
Clarify common stock issued upon exercise of the option, less the
purchase price; and
- any amounts received on transfer of the option or any portion of the
option to a third party.
Substitute Option. If, prior to an exercise termination event, Clarify
enters into specified transactions in which it is not the surviving corporation,
permits specified fundamental changes in its capital stock or sells all or
substantially all of its assets, the option will be converted into a substitute
option to purchase capital stock of the entity that is the effective successor
to Clarify. The substitute option will have terms similar to those of the
option.
Assignment. Neither party may assign its rights or obligations under the
stock option agreement without the express written consent of the other party,
except that if a subsequent triggering event occurs prior to an exercise
termination event, Nortel Networks may, subject to specified limitations, assign
its rights and obligations in whole or in part within 12 months following the
subsequent triggering event.
STOCKHOLDERS AGREEMENT
Kirsten Berg-Painter, Dean Chabrier, Dennis Cunningham, Tanya Johnson, Jan
Praisner, Senya Rahmil, David Stamm, Jay Tyler, Jeanne Urich and Anthony
Zingale, all of whom are officers or directors of Clarify and holders of Clarify
common stock or stock options, entered into the stockholders agreement as an
inducement and condition to Nortel Networks' entering into the merger agreement.
The stockholders agreement covers approximately 4.7% of the shares of Clarify
common stock outstanding as of February 9, 2000.
Voting of Shares; Proxy. Each of the ten holders who entered into the
stockholders agreement has agreed to vote his or her Clarify common stock at the
Clarify stockholders' meeting:
- in favor of the merger agreement; and
- against any alternative transaction.
An alternative transaction is:
- any tender offer, exchange offer or proposal for a merger, consolidation
or other business combination involving Clarify or any of its
subsidiaries and any person other than Nortel Networks or its
subsidiaries; or
- any proposal or offer by any person other than Nortel Networks or its
subsidiaries to acquire a substantial equity interest in, or a
substantial portion of the assets of, Clarify or any of its
subsidiaries.
Termination. The obligations of the ten holders under the stockholders
agreement will terminate at the earliest of:
- the completion of the merger;
- the termination of the merger agreement at any time:
- by mutual consent, following failure to obtain a required governmental
approval,
- by Clarify in the event of a breach by Nortel Networks of its
representations, warranties or covenants in the merger agreement,
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<PAGE> 55
- by Nortel Networks in the event of a non-willful breach by Clarify of
its representations, warranties or covenants in the merger agreement
or
- by Nortel Networks in the event completion of the merger is delayed
beyond the dates provided in the merger agreement;
- the termination of the merger agreement:
- by Clarify in the event completion of the merger is delayed beyond the
dates provided in the merger agreement, if the termination fee
described above under "The Merger Agreement -- Termination Fees and
Expenses" is not and cannot become payable by Clarify under the
circumstances then existing or
- by Nortel Networks in the event Clarify stockholders fail to approve
the merger at the Clarify stockholders' meeting or by Nortel Networks
in the event of a non-willful breach by Clarify of its
representations, warranties or covenants in the merger agreement, if
the termination fee is not and cannot become payable by Clarify under
the circumstances then existing; and
- 120 days after termination of the merger agreement under any
circumstances other than those described above.
Covenants of the Stockholders. Each of the ten holders has agreed in the
stockholders agreement that he or she will not:
- dispose of or encumber the Clarify common stock he or she owns or
controls, except to a family member or as a result of his or her death,
and only if the transferee agrees to honor the terms of the stockholders
agreement; or
- solicit, initiate or encourage or otherwise facilitate any alternative
transaction.
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<PAGE> 56
MARKET PRICES AND DIVIDENDS
NORTEL NETWORKS
The Nortel Networks common shares are traded on the New York and Toronto
stock exchanges under the symbol "NT." The following table sets forth the range
of high and low closing sales prices as reported on the New York Stock Exchange
Composite Tape, together with the dividends per common share declared by Nortel
Networks, during the periods indicated. We have adjusted the information in the
table to reflect Nortel Networks' two-for-one stock split on January 7, 1998 and
the stock dividend of one common share on each issued and outstanding Nortel
Networks common share as of August 17, 1999.
<TABLE>
<CAPTION>
PRICE RANGE
------------------ PER SHARE
HIGH LOW DIVIDENDS
------- ------- ---------
<S> <C> <C> <C>
FISCAL 1997
Quarter ended March 31, 1997................................ $19.250 $15.125 $0.0325
Quarter ended June 30, 1997................................. 22.750 15.532 0.0375
Quarter ended September 30, 1997............................ 26.938 22.563 0.0375
Quarter ended December 31, 1997............................. 28.469 20.267 0.0375
</TABLE>
<TABLE>
<CAPTION>
PER SHARE
HIGH LOW DIVIDENDS
------- ------- ---------
<S> <C> <C> <C>
FISCAL 1998
Quarter ended March 31, 1998................................ $32.719 $19.844 $0.0375
Quarter ended June 30, 1998................................. 34.625 25.688 0.0375
Quarter ended September 30, 1998............................ 31.844 15.219 0.0375
Quarter ended December 31, 1998............................. 25.844 13.406 0.0375
</TABLE>
<TABLE>
<CAPTION>
PER SHARE
HIGH LOW DIVIDENDS
-------- ------- ---------
<S> <C> <C> <C>
FISCAL 1999
Quarter ended March 31, 1999............................... $ 31.875 $25.063 $0.0375
Quarter ended June 30, 1999................................ 44.000 26.938 0.0375
Quarter ended September 30, 1999........................... 51.875 39.813 0.0375
Quarter ended December 31, 1999............................ 110.000 30.719 0.0375
FISCAL 2000
January 1, 2000 through February 9, 2000................... $121.750 $77.000
</TABLE>
On October 18, 1999, the last full trading day before Clarify and Nortel
Networks announced the merger, the closing price per Nortel Networks common
share on the New York Stock Exchange Composite Tape was $52.375. On February 9,
2000, the most recent date for which prices were practicably available before
the printing of this document, this price was $121.750. Past price performance
is not necessarily indicative of future price performance. You should obtain
current market quotations for Nortel Networks common shares.
Holders of Nortel Networks common shares are entitled to receive dividends
from legally available funds when, as and if declared by Nortel Networks' board
of directors. Although Nortel Networks currently intends to continue paying
quarterly cash dividends on Nortel Networks common shares, Nortel Networks
cannot assure you that its dividend policy will remain unchanged after
completion of the merger. The declaration and payment of dividends after the
merger will depend upon business conditions, operating results, capital and
reserve requirements and other factors considered relevant by Nortel Networks'
board of directors.
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<PAGE> 57
CLARIFY
Clarify common stock is listed on Nasdaq under the symbol "CLFY." The
following table presents the high and low closing prices of Clarify common stock
as reported by Nasdaq. The prices shown for the period that Clarify common stock
was traded on Nasdaq represent quotations among dealers without adjustments for
retail markups, markdowns, or commissions and may not represent actual
transactions. Clarify has not declared any dividends on its common stock for the
periods indicated below.
<TABLE>
<CAPTION>
PRICE RANGE
--------------------
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL 1997
Quarter ended March 31, 1997................................ $ 52.250 $ 20.375
Quarter ended June 30, 1997................................. 26.625 6.750
Quarter ended September 30, 1997............................ 18.438 10.063
Quarter ended December 31, 1997............................. 15.500 10.438
</TABLE>
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL 1998
Quarter ended March 31, 1998................................ $ 15.000 $ 11.625
Quarter ended June 30, 1998................................. 15.188 11.000
Quarter ended September 30, 1998............................ 14.813 8.250
Quarter ended December 31, 1998............................. 24.438 7.375
</TABLE>
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL 1999
Quarter ended March 31, 1999................................ $ 30.063 $ 21.375
Quarter ended June 30, 1999................................. 41.250 18.688
Quarter ended September 30, 1999............................ 50.313 31.000
Quarter ended December 31, 1999............................. 137.969 43.344
FISCAL 2000
January 1, 2000 through February 9, 2000.................... $155.125 $106.750
</TABLE>
On October 18, 1999, the last full trading day before Clarify and Nortel
Networks publicly announced the merger, the closing price per share of Clarify
common stock as reported by Nasdaq was $45.313. On February 9, 2000, the most
recent date for which prices were practicably available before the printing of
this document, this price was $155.125. Past price performance is not
necessarily indicative of future price performance. You should obtain current
market quotations for shares of Clarify common stock.
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<PAGE> 58
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 4, 2000, information with
respect to shares of Clarify common stock beneficially owned by:
- each person who is known by Clarify to be the beneficial owner of more
than five percent of the outstanding shares of Clarify common stock,
- each of Clarify's directors and executive officers and
- all directors and executive officers as a group.
Beneficial ownership has been determined in accordance with Rule 13d-3
under the Exchange Act. Under this rule, certain shares may be deemed to be
beneficially owned by more than one person (if, for example, persons share the
power to vote or the power to dispose of the shares). In addition, shares are
deemed to be beneficially owned by a person if that person has the right to
acquire shares, including upon exercise of an option or warrant, within 60 days
of the date as of which the information is provided. Shares deemed beneficially
owned by a person by reason of such right are included when computing that
person's percentage interest, but are not included when computing the percentage
interest of any other person. As a result, the percentage of outstanding shares
of any person as shown in the following table does not necessarily reflect the
person's actual voting power at any particular date.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
-----------------------------
5% STOCKHOLDERS, DIRECTORS, NAMED OFFICERS PERCENT OF
AND OFFICERS AND DIRECTORS AS A GROUP NUMBER TOTAL CLASS
- ------------------------------------------ ------ -------------
<S> <C> <C>
FMR Corporation(2).......................................... 1,561,600 6.7
82 Devonshire Street
Boston, MA 02109
American Express Financial Corp(2).......................... 1,232,350 5.3
IDS Tower 10
80 S. Eighth Street
Minneapolis, MN 55440
Navellier & Associates, Inc.(2)............................. 1,191,984 5.1
One E. Liberty St., 3rd Floor
Reno, NV 89501
David A. Stamm(3)........................................... 1,219,205 5.0
Tony Zingale(4)............................................. 315,223 *
Senya Rahmil(5)............................................. 116,169 *
Jan Praisner(6)............................................. 110,507 *
Kirsten Berg-Painter(7)..................................... 91,667 *
Tanya Johnson(8)............................................ 89,683 *
Joseph J. Tyler(9).......................................... 58,965 *
Jeanne Urich(10)............................................ 57,022 *
Thomas H. Bredt(11)......................................... 38,000 *
Joseph B. Costello(12)...................................... 30,000 *
Christopher H. Greendale(13)................................ 30,000 *
Dean Chabrier(14)........................................... 932 *
Dennis Cunningham........................................... 0 *
All officers and directors as a group(15)................... 2,157,373
(13 persons)
</TABLE>
- ---------------
* Less than 1%
53
<PAGE> 59
(1) To the Company's knowledge, the persons named in this table have sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable and the information contained in the footnotes to this table.
Unless otherwise indicated, the address of each of the named individuals is:
c/o Clarify Inc., 2560 Orchard Parkway, San Jose, California 95131.
(2) Based solely on information contained in Schedule 13G dated September 30,
1999, filed by the named stockholder with the Securities and Exchange
Commission.
(3) Based solely on the information contained in the Form 4 dated May 1999 filed
by the named stockholder with the Securities and Exchange Commission.
Includes 109,583 shares of Common Stock issuable pursuant to options
exercisable within 60 days of February 4, 2000.
(4) Based solely on the information contained in the Form 4 dated April 1999
filed by the named stockholder with the Securities and Exchange Commission
and, in addition includes shares purchased on October 29, 1999 pursuant to
the Employee Stock Purchase Plan. Includes 312,500 shares of Common Stock
issuable pursuant to options exercisable within 60 days of February 4, 2000.
(5) Based solely on the information contained in the Form 4 dated May 1999 filed
by the named stockholder with the Securities and Exchange Commission and, in
addition includes shares purchased on October 29, 1999 pursuant to the
Employee Stock Purchase Plan. Includes 112,707 shares of Common Stock
issuable pursuant to options exercisable within 60 days of February 4, 2000.
(6) Based solely on the information contained in the Form 4 dated April 1999
filed by the named stockholder with the Securities and Exchange Commission
and, in addition includes shares purchased on October 29, 1999 pursuant to
the Employee Stock Purchase Plan. Includes 107,813 shares of Common Stock
issuable pursuant to options exercisable within 60 days of February 4, 2000.
(7) Includes 91,667 shares of Common Stock issuable pursuant to options
exercisable within 60 days of February 4, 2000.
(8) Based solely on the information contained in the Form 4 dated April 1999
filed by the named stockholder with the Securities and Exchange Commission
and, in addition includes shares purchased on October 29, 1999 pursuant to
the Employee Stock Purchase Plan. Includes 83,767 shares of Common Stock
issuable pursuant to options exercisable within 60 days of February 4, 2000.
(9) Includes 58,333 shares of Common Stock issuable pursuant to options
exercisable within 60 days of February 4, 2000 and, in addition includes
shares purchased on October 29, 1999 pursuant to the Employee Stock Purchase
Plan.
(10) Based solely on the information contained in the Form 4 dated August 1999
filed by the named stockholder with the Securities and Exchange Commission.
Includes 55,833 shares of Common Stock issuable pursuant to options
exercisable within 60 days of February 4, 2000.
(11) Based solely on the information contained in the Form 4 dated June 1998
filed by the named stockholder with the Securities and Exchange Commission.
Includes 38,000 shares of Common Stock issuable pursuant to options
exercisable within 60 days of February 4, 2000.
(12) Includes 30,000 shares of Common Stock issuable pursuant to options
exercisable within 60 days of February 4, 2000.
(13) Includes 30,000 shares of Common Stock issuable pursuant to options
exercisable within 60 days of February 4, 2000.
(14) Includes 300 shares of Common Stock owned indirectly by her spouse and, in
addition includes shares purchased on October 29, 1999 pursuant to the
Employee Stock Purchase Plan.
(15) Includes 1,030,203 shares of Common Stock issuable pursuant to options
exercisable within 60 days of February 4, 2000.
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<PAGE> 60
BUSINESS OF NORTEL NETWORKS
The following is a brief description of the business of Nortel Networks.
Additional information regarding Nortel Networks is contained in its filings
with the Commission.
Nortel Networks is a leading global supplier of data and telephony network
solutions and services. Its business consists of the design, development,
manufacture, marketing, sale, financing, installation, servicing and support of
data and telephony networks for carrier and enterprise customers. Customers
include public and private institutions; local, long-distance, personal
communications services and cellular mobile communications companies; cable
television companies; Internet service providers; and utilities. Nortel Networks
has operations in Canada, the United States, Europe, the Caribbean and the Latin
America region and the Asia Pacific region. Nortel Networks employs
approximately 73,000 people.
At September 30, 1999, BCE Inc. owned approximately 39.6% of the
outstanding Nortel Networks common shares; the remaining 60.4% of the
outstanding Nortel Networks common shares were widely held by other
shareholders. After giving effect to the merger, but not to the exercise of the
assumed Clarify stock options, BCE will own approximately 39.4% of the
outstanding Nortel Networks common shares. BCE is a diversified Canadian
telecommunications company whose subsidiaries include Bell Canada and Bell
Canada International Inc. as well as other telecommunication companies. There
are currently 13 directors on Nortel Networks' board of directors, one of whom
is a senior executive and director of BCE and three others are non-employee
directors of BCE. Nortel Networks has entered into business relationships with
affiliates of BCE. Information on these relationships and the directors of
Nortel Networks is included in Nortel Networks' Proxy Circular and Proxy
Statement dated February 26, 1999 attached as Exhibit 99 to Nortel Networks'
Annual Report on Form 10-K for the year ended December 31, 1998. See "Where You
Can Find More Information" on page 65 to learn how to obtain these documents.
For more information about recent developments affecting the business of
Nortel Networks please see "Summary -- Recent Developments" on page 9. These
recent developments include:
- The approval by Nortel Networks' board of the division of the common
shares of Nortel Networks on a two-for-one basis. This plan is subject
to regulatory approvals and shareholder approval, which will be
requested at the next annual meeting of Nortel Networks' shareholders.
- The announcement by BCE, which owns approximately 39.6% of Nortel
Networks' common shares, of a plan to distribute an approximately 37%
ownership interest in Nortel Networks to BCE's shareholders. This plan
is subject to various conditions, including shareholder and court
approvals and rulings from Canadian authorities.
- The completion of the acquisition of Qtera Corporation, a privately-held
company that produces ultra-long-reach optical networking systems, for
up to $3.25 billion in Nortel Networks common shares.
Nortel Networks is a corporation organized under the Canada Business
Corporations Act. The principal executive offices of Nortel Networks are located
at 8200 Dixie Road, Suite 100, Brampton, Ontario, Canada, L6T 5P6, and Nortel
Networks' telephone number is (905) 863-0000.
DESCRIPTION OF NORTEL NETWORKS SHARE CAPITAL
GENERAL
The authorized capital of Nortel Networks includes an unlimited number of
Nortel Networks common shares and an unlimited number of Class A Preferred
Shares and Class B Preferred Shares, without nominal or par value, issuable in
series.
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COMMON SHARES
The Nortel Networks common shares are listed on the New York and Toronto
stock exchanges. Nortel Networks will apply to list the Nortel Networks common
shares issued in the merger and upon exercise of the Clarify stock options to be
assumed by Nortel Networks by reason of the merger on these stock exchanges.
There were 1,377,154,698 Nortel Networks common shares issued and
outstanding as at December 31, 1999.
Holders of Nortel Networks common shares are entitled to one vote per share
on all matters voted on at all meetings of shareholders, except meetings at
which only holders of other classes or series of shares of Nortel Networks are
entitled to vote.
Subject to the rights, privileges, restrictions, and conditions attaching
to any other class or series of shares of Nortel Networks, holders of Nortel
Networks common shares have the right to receive any dividends declared and
payable by Nortel Networks on Nortel Networks common shares and the right to
receive the remaining assets of Nortel Networks upon liquidation, dissolution or
winding-up, if any, after payment of all debts and liabilities.
Holders of Nortel Networks common shares have no pre-emptive, redemption or
conversion rights. Outstanding Nortel Networks common shares are, and shares to
be issued in the merger will be, validly issued, fully paid and non-assessable.
Repurchases of Nortel Networks Common Shares. The following table sets
forth information with respect to programs under which Nortel Networks' board of
directors has authorized the repurchase for cancellation of Nortel Networks
common shares through open market purchases. We have adjusted this information
to reflect Nortel Networks' two-for-one stock split on January 7, 1998 and the
stock dividend of one common share on each issued and outstanding Nortel
Networks common share as of August 17, 1999.
<TABLE>
<CAPTION>
NUMBER OF NORTEL NUMBER OF NORTEL
NETWORKS COMMON SHARES NETWORKS COMMON
PROGRAM PERIOD AUTHORIZED FOR REPURCHASE SHARES REPURCHASED
-------------- ------------------------- --------------------
<S> <C> <C> <C>
1997 stock repurchase
program.................. January 30, 1997 through 32,000,000 20,364,800
January 29, 1998
1998 stock repurchase
program.................. February 4, 1998 through 12,800,000 8,694,800
February 3, 1999
1999 stock repurchase
program.................. February 26, 1999 through 20,000,000 none, as of the date
February 25, 2000 of this document
</TABLE>
PREFERRED SHARES
Nortel Networks' board of directors may from time to time issue Class A
Preferred Shares and Class B Preferred Shares in one or more series and
determine for any such series, by resolution passed before issuance, its
designation, number of shares and respective rights, privileges, restrictions
and conditions. Nortel Networks has issued a number of series of preferred
shares. A detailed description of these shares may be found in Nortel Networks'
registration statement on Form 8-A, as amended, which you may obtain as
described under "Where You Can Find More Information" on page 65.
The holders of preferred shares do not have the right to receive notice of,
attend, or vote at, any meeting of shareholders except to the extent otherwise
determined by Nortel Networks' board of directors and set forth in the articles
of amendment designating any series of preferred shares or as provided in the
Canada Business Corporations Act. Holders of preferred shares have no
pre-emptive rights.
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The provisions attaching to the preferred shares may be repealed, altered,
modified or amended with approvals as may be required by the Canada Business
Corporations Act.
As of the date of this document, there are 200 cumulative redeemable Class
A Preferred Shares series 4, 16,000,000 cumulative redeemable Class A Preferred
Shares series 5 and 14,000,000 non-cumulative redeemable Class A Preferred
Shares series 7 issued and outstanding. The series 5 preferred shares are
convertible, in specific circumstances, into an equal number of cumulative
redeemable Class A Preferred Shares series 6, none of which are currently
outstanding. Once issued, the series 6 preferred shares are convertible, in
specific circumstances, into series 5 preferred shares. The series 7 preferred
shares are convertible, in specific circumstances, into an equal number of
non-cumulative redeemable Class A Preferred Shares series 8, none of which are
currently outstanding. Once issued, the series 8 preferred shares are
convertible, in specific circumstances, into series 7 preferred shares. At the
date of this document, there are no other preferred shares outstanding.
COMPARATIVE RIGHTS OF HOLDERS OF CLARIFY'S COMMON STOCK
AND NORTEL NETWORKS COMMON SHARES
Clarify's internal affairs are currently governed by the laws of the State
of Delaware, particularly the Delaware General Corporation Law, and Clarify's
certificate of incorporation and by-laws. When the merger is completed, Clarify
stockholders will become shareholders of Nortel Networks, a Canadian corporation
governed by the Canada Business Corporations Act. At that time, your rights will
be governed by the Canada Business Corporations Act, other applicable Canadian
law and Nortel Network's articles and by-laws.
The following is a summary comparison of some of the differences between
the rights of holders of Nortel Networks common shares under the Canada Business
Corporation Act and Nortel Networks articles and by-laws and the rights of
Clarify's stockholders under the Delaware General Corporation Law and Clarify's
certificate of incorporation and by-laws. This summary is not a complete
discussion of, and is qualified in its entirety by reference to, the Delaware
General Corporation Law, the Canada Business Corporations Act, the respective
common laws of Delaware and Canada and the full texts of the governing corporate
instruments of Clarify and Nortel Networks.
VOTE ON EXTRAORDINARY CORPORATE TRANSACTIONS
Clarify. Under the Delaware General Corporation Law, mergers or
consolidations, or sales or exchanges of all or substantially all of a
corporation's assets, require the affirmative vote of the Board, except in
limited circumstances. In addition, these transactions require, with specified
exceptions, the affirmative vote of a majority of the outstanding shares of the
corporation entitled to vote on the transaction. Stockholder consent is not
required:
- from the stockholders of a corporation that survives the merger if:
- the merger does not require the issuance of common shares in excess of
20% of the corporation's shares outstanding immediately prior to the
merger,
- the merger agreement does not amend in any respect the surviving
company's certificate, and
- stockholder approval is not specifically mandated in the surviving
company's certificate; and
- from either corporation where one corporation owns 90% of each class of
outstanding shares of the other corporation.
Clarify's certificate of incorporation does not require a greater
percentage vote for extraordinary corporate transactions than required under
Delaware law.
Nortel Networks. Under the Canada Business Corporations Act, extraordinary
corporate actions must be approved by a resolution passed by at least two-thirds
of the votes cast by the shareholders voting on the resolution in person or by
proxy at the annual or special meeting called for this purpose, and in some
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cases whether or not the shares are designated as voting shares in the
corporation's articles of incorporation. In some cases, extraordinary corporate
actions must also be approved by separate resolutions of each affected class or
series of shares, including classes or series that do not otherwise carry the
right to vote. Extraordinary corporate actions include some types of
amalgamations, continuances, a sale, lease or exchange of all or substantially
all the property of a corporation other than in the ordinary course of business,
liquidations and dissolutions and arrangements, if ordered by a court.
DIVIDENDS AND DISTRIBUTIONS
Clarify. Subject to restrictions contained in a corporation's certificate,
the Delaware General Corporation Law generally provides that a corporation may
declare and pay dividends out of:
- the excess, if any, of net assets over capital, as that term is defined
in the Delaware General Corporation Law; or
- when no surplus exists, out of net profits for the fiscal year in which
the dividend is declared and net profits for the preceding fiscal year.
Dividends may not be paid out of net profits if the capital of the
corporation is less than the amount of capital represented by the issued and
outstanding stock of all classes having a preference upon the distribution of
assets.
Clarify's certificate of incorporation does not have any additional
restrictions with respect to the payment of dividends.
Nortel Networks. Under the Canada Business Corporations Act, a corporation
may not declare or pay a dividend if there are reasonable grounds to believe
that:
- the corporation is, or would be after payment of the dividend, unable to
pay its liabilities as they become due; or
- the realizable value of the corporation's assets after payment of the
dividend would be less than the aggregate of its liabilities and its
stated capital of all classes.
Other than the preferential rights of the holders of Nortel Networks
preferred shares with respect to dividends and liquidations, Nortel Networks'
articles have no additional restrictions on the declaration or payment of
dividends.
AMENDMENTS TO CHARTER
Clarify. The Delaware General Corporation Law requires stockholder
approval for any amendment to a corporation's certificate. In addition, if the
amendment to the certificate adversely affects the rights of a particular class
of stock, that class is entitled to vote separately on the amendment, whether or
not it is designated as voting stock. Under the Clarify certificate, the
affirmative vote of the holders of not less than 75% of the outstanding Clarify
shares entitled to vote is required in order to amend, repeal or adopt any
provision of the Clarify certificate relating to:
- the removal and election of directors;
- classification of directors;
- action by written consent;
- the calling of special meetings of stockholders; and
- the percentage vote required for business combinations with interested
shareholders.
Clarify's certificate of incorporation does not require a greater
percentage vote to amend its certificate of incorporation than required under
Delaware law.
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Nortel Networks. Under the Canada Business Corporations Act, amendments to
the articles of incorporation of a corporation generally require approval by a
resolution passed by at least two-thirds of the votes cast by shareholders
voting on the resolution. If the amendment affects a particular class or series
of shares in a manner requiring a separate class or series vote, that class or
series is entitled to vote on the amendment whether or not it otherwise carries
the right to vote. Approval of a proposed amendment in these circumstances
requires an affirmative two-thirds vote of the holders of the shares of each
class or series entitled to vote separately.
AMENDMENT TO BY-LAWS
Clarify. The Delaware General Corporation Law states that stockholders
entitled to vote have the power to adopt, amend, or repeal the by-laws of a
corporation. The corporation in its certificate may also confer this power on
the board of directors in addition to the stockholders.
Clarify's certificate of incorporation provides that, with limited
exceptions, the board of directors may make, repeal, alter, amend, and rescind
any or all of the by-laws of the corporation. The certificate of incorporation
also permits either the board of directors or the stockholders to change the
number of directors of the corporation by adopting a bylaw, or by amending a
by-law previously adopted.
Nortel Networks. The Canada Business Corporations Act provides that,
unless the articles of incorporation or by-laws of a corporation provide
otherwise, the directors may, by resolution, make, amend or repeal any by-laws
that regulate the business or affairs of a corporation. Where the directors
make, amend or repeal a by-law, they are required to submit the by-law or
amendment or repeal of a by-law to the shareholders for confirmation at the next
annual or special meeting of shareholders. The shareholders entitled to vote at
shareholder meetings may confirm, reject or amend any by-law or amendment or
repeal of a by-law by a resolution passed by a majority of the votes cast by
shareholders entitled to vote at the annual or special meeting of shareholders
represented in person or by proxy.
INTERESTED SHAREHOLDER TRANSACTIONS
Clarify. The Delaware General Corporation Law prohibits, in certain
circumstances, a business combination between a corporation and an interested
stockholder within three years of the stockholder becoming an interested
stockholder. An interested stockholder is a stockholder who, directly or
indirectly, controls 15% or more of the outstanding voting stock or was an
affiliate of the corporation and was the owner of 15% or more of the outstanding
voting stock at any time within the prior year period. A business combination
includes a merger or consolidation, a sale or other disposition of assets having
an aggregate market value equal to 10% or more of the consolidated assets of the
corporation or of the aggregate market value of the outstanding stock of the
corporation and certain transactions that would increase the interested
stockholder's proportionate ownership in the corporation. This provision does
not apply where:
- a business combination is approved by a majority of the board of
directors and the affirmative vote of two-thirds of the votes entitled
to be cast by disinterested stockholders at an annual or special
meeting;
- a business combination is approved by the corporation's board of
directors prior to the date the interested stockholder acquired his or
her shares;
- the corporation's board of directors approved the transaction which
resulted in the stockholder becoming an interested stockholder prior to
the date the interested stockholder acquired its shares; or
- the interested stockholder acquired at least 85% of the voting stock of
the corporation in the transaction in which the stockholder became an
interested stockholder.
Clarify's certificate of incorporation does not require a greater
percentage vote to approve an interested stockholder transaction than required
under Delaware law.
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Nortel Networks. The Canada Business Corporations Act does not contain a
comparable provision with respect to business combinations. However, policies of
some Canadian securities regulatory authorities, including Policy Statement 9.1
of the Ontario Securities Commission, contain requirements in connection with
related party transactions. A related party transaction means, generally, any
transaction by which an issuer, directly or indirectly, acquires or transfers an
asset or acquires or issues treasury securities or assumes or transfers a
liability from or to, as the case may be, a related party by any means in any
one or any combination of transactions. A related party includes control parties
of the issuer, parties under common control with the issuer, parties controlled
by the issuer, holders of more than 10% of the voting securities of the issuer,
and directors and senior officers and affiliates of any of the foregoing.
Policy 9.1 requires more detailed disclosure in any proxy material required
to be sent to security holders in connection with a related party transaction.
Subject to specified exceptions, Policy 9.1 also requires the preparation of a
formal valuation of the subject matter of the related party transaction and any
non-cash consideration offered in the transaction and the inclusion of a summary
of the valuation in the proxy material. In some circumstances, Policy 9.1 also
requires that the minority shareholders of the issuer separately approve the
transaction, by a simple majority or two-thirds of the votes cast, depending on
the circumstances.
DISSENT AND APPRAISAL RIGHTS
Clarify. Stockholders of a Delaware corporation who dissent from a merger
or consolidation of the corporation for which a stockholder's vote is required
are, in specific instances, entitled to appraisal rights, and the surviving
corporation is required to purchase the dissenting shares at fair value. There
are, however, no statutory rights of appraisal with respect to stockholders of a
Delaware corporation whose shares of stock, at the record date for the
determination of stockholders entitled to notice of and to vote at the meeting
of stockholders to act upon the merger or consolidation, are either:
- listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc.; or
- held of record by more than 2,000 stockholders unless the agreement of
merger or consolidation converts such shares into anything other than:
- stock of the surviving corporation,
- stock of another corporation which is either listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc., or held of record by more than 2,000
stockholders, cash for fractional shares, or
- some combination of the above.
Appraisal rights are not available for any shares of the surviving
corporation if the merger did not require the vote of stockholders of the
surviving corporation.
Nortel Networks. Shareholders of a Canada Business Corporations Act
corporation are entitled to exercise dissent rights and to be paid the fair
value of their shares in connection with:
- an amendment to a corporation's articles of incorporation to add, change
or remove any provisions restricting or constraining the issue, transfer
or ownership of shares of the class held by those holders;
- an amendment to a corporation's articles of incorporation to add, change
or remove any restriction on the business or businesses of the
corporation;
- other amendments to a corporation's articles of incorporation that
require a separate class or series vote;
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- an amalgamation, other than an amalgamation between a parent corporation
and one or more of its wholly owned subsidiaries or between two or more
wholly owned subsidiaries;
- a continuance under the laws of another jurisdiction;
- a sale, lease or exchange of all or substantially all the property of
the corporation other than in the ordinary course of business; or
- a court order permitting a shareholder to dissent in connection with an
application to the court for an order approving an arrangement proposed
by the corporation, although a shareholder is not entitled to dissent if
an amendment to the articles of incorporation is effected by a court
order approving a reorganization or rectifying a matter that is
oppressive or unfairly prejudicial to or that unfairly disregards the
interests of any security holder, creditor, director or officer.
DIRECTORS' QUALIFICATIONS
Clarify. The Delaware General Corporation Law does not have any residency
or other director qualification requirements.
Nortel Networks. Generally, a majority of the directors of a Canada
Business Corporations Act corporation must be Canadian citizens who ordinarily
reside in Canada. The Canada Business Corporations Act also requires that a
corporation whose securities are publicly traded have not fewer than three
directors, at least two of whom are not officers or employees of the corporation
or any of its affiliates.
ELECTION OF DIRECTORS
Clarify. Delaware law permits a classified board of directors, with
staggered terms under which the directors are elected for terms of two or three
years.
Clarify's certificate of incorporation does not provide for a classified
board of directors. Clarify has one class of directors and all directors are
elected annually.
Nortel Networks. The Nortel Networks articles and by-laws do not provide
for a classified board of directors or for cumulative voting in the election of
directors.
REMOVAL OF DIRECTORS
Clarify. Delaware law permits the removal of any director or the entire
board, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, except as set forth in the
corporation's certificate of incorporation.
Clarify's certificate of incorporation does not require a greater
percentage vote to remove a director than required under Delaware law.
Nortel Networks. The shareholders of a Canada Business Corporations Act
corporation may, by resolution passed by a majority of the votes cast on the
resolution at a meeting of shareholders called for that purpose, remove any
director before the expiration of his term of office and may elect any qualified
person to serve for the remainder of the director's term.
VACANCY ON BOARDS
Clarify. The Delaware General Corporation Law provides that a vacancy on
the board of directors shall be filled as the by-laws of the corporation
provide. In the absence of such provision, a vacancy is to be filled by the
board of directors or other governing body.
Clarify's by-laws provide that a vacancy on the board of directors may be
filled by a majority of the directors then in office, or by a sole remaining
director, and the director who fills the vacancy is to hold office until the
next annual election and until a successor is duly elected and qualified, unless
sooner displaced.
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Nortel Networks. Generally under the Canada Business Corporations Act, if
there is a vacancy on the board of directors, the remaining directors, if they
constitute a quorum, may appoint a qualified person to fill the vacancy for the
remainder of the vacating director's term. In the absence of a quorum, the
remaining directors must call a meeting of shareholders to fill the vacancy. In
addition, if the articles of a corporation so provide, the directors may
increase the number of directors within the range provided in the articles and
may fill the vacancies created for a term expiring not later than the next
annual meeting of shareholders if the total number of directors so appointed
does not exceed one-third of the number of directors elected at the previous
annual meeting of shareholders. Nortel Networks' articles provide for the
filling of vacancies caused by an increase in the number of directors as
described.
DIRECTORS' AND OFFICERS' INDEMNIFICATION
Clarify. The Delaware General Corporation Law authorizes a corporation to
indemnify its current and former directors and officers against all reasonable
expenses, including attorneys' fees, and, except in actions initiated by or in
the right of the corporation, against all judgments, fines and amounts paid in
settlement, in actions brought against them, if the individual is determined to
have acted in good faith, for a purpose which he reasonably believed to be in,
or not opposed to, the best interests of the corporation and, in the case of a
criminal proceeding, had no reason to believe his conduct was unlawful. A
corporation may grant its directors, officers, employees or other agents
additional rights to indemnification, subject to public policy restrictions
included in the Delaware General Corporation Law.
Clarify's certificate of incorporation requires indemnification in excess
of the indemnification otherwise provided by Delaware law. However, the
indemnification provided for in Clarify's certificate of incorporation is
limited by the Delaware General Corporation Law in actions for breach of
fiduciary duty to the corporation, its stockholders, and others.
The Delaware General Corporation Law provides a right of mandatory
indemnification to the extent that an indemnitee is successful on the merits or
otherwise in the defense of any claim, issue or matter associated with an
action. The Delaware General Corporation Law also allows the advance payment of
an indemnitee's expenses prior to the final disposition of an action, if the
indemnitee undertakes to repay any amount advanced if it is later determined
that the indemnitee is not entitled to indemnification for the action for which
the expenses were advanced. Clarify's by-laws provide for the advance payment of
expenses incurred by indemnified parties.
Nortel Networks. The Canada Business Corporations Act also generally
provides that a corporation may indemnify its present and former directors or
officers or a person who acts or acted at the corporation's request as a
director or officer of a corporation of which the corporation is or was a
shareholder or creditor, and his or her heirs and legal representatives against
all costs, charges and expenses, including an amount paid to settle an action or
satisfy a judgment reasonably incurred by him or her in respect of any civil,
criminal or administrative action or proceeding to which he or she is made a
party by reason of being or having been a director or officer of the
corporation. However, this indemnity is limited to circumstances in which the
director or officer acted honestly and in good faith with a view to the best
interests of the corporation. In the case of a criminal or administrative action
or proceeding that is enforced by a monetary penalty, the director or officer
must have had reasonable grounds for believing that his or her conduct was
lawful. Subject to the above mentioned limitations, a corporation may, with the
approval of a court, also indemnify in respect of an action by or on behalf of
the corporation to which the person is made a party by reason of being or having
been a director or an officer of the corporation. The Nortel Networks by-laws
require indemnification to the full extent authorized by the Canada Business
Corporations Act. Where an officer or director is substantially successful on
the merits in his or her defense of an action or proceeding, the officer or
director is entitled to indemnification from the corporation for reasonable
costs, charges and expenses, subject to the limitations discussed above.
The Canada Business Corporations Act does not expressly contemplate the
advance payment of an indemnitee's expenses prior to the final disposition of an
action.
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LIMITATION OF DIRECTORS' PERSONAL LIABILITY FOR MONETARY DAMAGES
Clarify. Under the Delaware General Corporation Law, a corporation is
permitted to include a provision in its certificate which limits or eliminates
the personal liability of directors to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, as long as this
liability does not arise from proscribed conduct, including intentional
misconduct and breach of the duty of loyalty.
Clarify's certificate of incorporation limits the personal liability of the
corporation's directors for monetary damages for breach of fiduciary duty to the
full extent permitted by Delaware law.
Nortel Networks. The Canada Business Corporations Act has no comparable
provision.
SPECIAL MEETING OF STOCKHOLDERS
Clarify. Under the Delaware General Corporation Law, a special meeting of
stockholders may be called by the board of directors or any other person
authorized to do so in the corporation's certificate of incorporation or
by-laws.
Clarify's By-laws provide that a special meeting of stockholders may be
called by the president or secretary at the request in writing of a majority of
the board of directors. The stockholders of the corporation do not have the
power to call a special meeting of stockholders.
Nortel Networks. Under the Canada Business Corporations Act, the directors
of a corporation may call a special meeting of shareholders. Under the Nortel
Networks by-laws, in addition to Nortel Networks' Board, the Chairman of the
Board of Nortel Networks or the Chief Executive Officer of Nortel Networks has
the power to call a special meeting of shareholders.
QUORUM REQUIREMENTS
Clarify. Under the Delaware General Corporation Law, holders of a majority
of the outstanding shares of a corporation constitute a quorum of stockholders,
unless otherwise specified in the corporation's certificate of incorporation or
by-laws. In no event, however, can holders of less than one-third of the
outstanding shares constitute a quorum.
Clarify's by-laws state that a majority of the stock issued and outstanding
and entitled to vote at a meeting of the stockholders, present in person or by
proxy, constitutes a quorum of the stockholders for the transaction of business,
except as otherwise provided by statute.
Nortel Networks. Under the Canada Business Corporations Act, holders of a
majority of the outstanding shares entitled to vote at a meeting of shareholders
constitute a quorum, unless otherwise specified in a corporation's by-laws.
Nortel Networks' by-laws generally state that a quorum shall be three persons
present in person and representing in their own right, or by proxy, or as the
duly authorized representative of any shareholder that is a body corporate or
association, not less than 25% of the outstanding shares of the corporation
carrying voting rights at the meeting of shareholders.
RIGHTS AGREEMENT
Clarify. In 1997, Clarify's Board adopted a rights agreement which may
have the effect of discouraging some types of transactions that involve an
actual or threatened change in control of Clarify. Under the rights agreement,
stockholders of Clarify hold rights to purchase preferred stock in Clarify, or
in an acquirer of Clarify, under specified circumstances and in the event of
particular hostile efforts to acquire control of Clarify. Clarify's Board may
redeem the rights in accordance with the rights agreement. Clarify's Board has
taken action to exempt the merger and the related transactions from triggering
the rights of Clarify's stockholders under the rights agreement.
Nortel Networks. Nortel Networks has not adopted any agreement or plan
similar to the rights agreement.
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INSPECTION OF BOOKS AND RECORDS
Clarify. Under the Delaware General Corporation Law, any stockholder has
the right to examine the books and records of the corporation for any proper
purpose.
Nortel Networks. The Canada Business Corporations Act provides that
shareholders, creditors, their agents and legal representatives may examine
specified records of a corporation during usual business hours and take extracts
of the records free of charge.
LEGAL OPINIONS
The validity of the Nortel Networks common shares offered by this proxy
statement/prospectus will be passed upon for Nortel Networks by Nicholas J.
DeRoma, Esq., Chief Legal Officer of Nortel Networks.
EXPERTS
The consolidated financial statements as of December 31, 1998 and 1997 and
for each of the three years in the period ended December 31, 1998 and the
related financial statement schedules incorporated in this proxy
statement/prospectus by reference from Nortel Networks Corporation's Annual
Report on Form 10-K for the year ended December 31, 1998, as amended by its Form
10-K/A dated February 10, 2000, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of the firm
given upon their authority as experts in accounting and auditing.
The consolidated financial statements as of December 31, 1998 and 1997 and
for each of the three years in the period ended December 31, 1998 and the
related financial statement schedule incorporated in this proxy
statement/prospectus by reference to Clarify Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1998 have been so incorporated in reliance on
the reports of PricewaterhouseCoopers LLP, given on the authority of said firm
as experts in auditing and accounting. On August 23, 1999,
PricewaterhouseCoopers LLP resigned as Clarify's independent auditors after
Clarify and PricewaterhouseCoopers LLP entered into a strategic global alliance.
Clarify subsequently appointed Deloitte & Touche LLP as its principal
accountants. There were no disagreements with PricewaterhouseCoopers LLP during
the three years ended December 31, 1998 or during any subsequent interim period
preceding their replacement on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which
disagreements, if not resolved to PricewaterhouseCoopers LLP's satisfaction,
would have caused them to make reference to the subject matter of the
disagreement in connection with their reports. PricewaterhouseCoopers LLP issued
an unqualified report on Clarify's financial statements as of December 31, 1997
and 1998 and for the three years ended December 31, 1998. Clarify did not
consult with Deloitte & Touche LLP on any accounting matters prior to their
appointment.
The consolidated financial statements of Bay Networks, Inc. as of June 30,
1997 and 1996, and for each of the three years in the period ended June 30,
1997, appearing in the Bay Networks, Inc. Annual Report on Form 10-K for the
year ended June 30, 1997 have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES
Nortel Networks is a Canadian corporation. A substantial portion of Nortel
Networks' assets is located in Canada and a majority of its directors and
officers, and its experts named in this proxy statement/prospectus, are
residents of Canada. As a result, it may be difficult for investors to effect
service within the United States upon Nortel Networks or upon Nortel Networks'
directors, officers and experts. Execution by United States courts of any
judgment obtained against Nortel Networks or any of its
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directors, officers and experts in United States courts would be limited to the
assets of Nortel Networks or that person in the United States. Nicholas J.
DeRoma, Esq., Chief Legal Officer of Nortel Networks, has advised Nortel
Networks that there is doubt as to the enforceability in Canada of United States
judgments or liabilities in original actions in Canadian courts predicated
solely upon the civil liability provisions of the federal securities laws of the
United States. The agent for service of process in the United States for Nortel
Networks is Harris Trust Company of New York, 88 Pine Street, 19th Floor, New
York, New York 10005.
WHERE YOU CAN FIND MORE INFORMATION
Clarify and Nortel Networks file annual, quarterly and special reports,
proxy statements and other information with the Commission. You may read and
copy any of the information on file with the Commission at the Commission's
following locations:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, NY 10048 Chicago, IL 60661-2511
</TABLE>
Please call the Commission at 1-800-SEC-0330 for further information on the
public reference rooms. Clarify's and Nortel Networks' Commission filings are
also available to the public from commercial document retrieval services. Some
of Clarify's Commission filings are available at the Commission's World Wide Web
site located at http://www.sec.gov. and some of Nortel Networks' filings are
available at http://www.nortelnetworks.com.
Nortel Networks common shares are listed on the New York and Toronto stock
exchanges. Reports and other information concerning Nortel Networks may be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
Nortel Networks filed a registration statement on Form S-4 to register with
the Commission the Nortel Networks common shares offered by this proxy
statement/prospectus. This document is a part of that registration statement and
constitutes a prospectus of Nortel Networks in addition to being a proxy
statement of Clarify for the Clarify special meeting. As permitted by Commission
rules, this document does not contain all the information you can find in the
registration statement or exhibits to the registration statement.
The Commission allows Clarify and Nortel Networks to incorporate by
reference information into this document, which means that Nortel Networks and
Clarify can disclose important information to you by referring you to another
document filed separately with the Commission. The information incorporated by
reference is deemed to be part of this document, except for any information
superseded by information in this document. This document incorporates by
reference the documents set forth below that Clarify and Nortel Networks have
previously filed with the Commission. These documents contain important
information about Clarify and Nortel Networks and their financial performance.
65
<PAGE> 71
<TABLE>
<CAPTION>
CLARIFY COMMISSION FILINGS PERIOD
- -------------------------- ------
<S> <C>
Annual Report on Form 10-K................... Year ended December 31, 1998
Quarterly Reports on Form 10-Q............... Quarters ended March 31, June 30 and
September 30, 1999.
Current Reports on Form 8-K.................. Dated June 25, 1997, August 30, 1999 and
October 27, 1999.
Description of Clarify's capital stock from
its Form 8-A............................... Dated September 15, 1995, as amended by Form
8-A/A dated October 11, 1995.
Description of Clarify's Preferred Stock
Purchase Rights attached to each share of
Clarify common stock from its Form 8-A..... Dated June 24, 1997, as amended by Form
8-A12G/A dated February 2, 2000.
</TABLE>
Clarify is also incorporating by reference any additional documents that it
files with the Commission between the date of this document and the date of the
special meeting.
<TABLE>
<CAPTION>
NORTEL NETWORKS COMMISSION FILINGS PERIOD
- ---------------------------------- ------
<S> <C>
Annual Report on Form 10-K................... Year ended December 31, 1998, as amended by
Form 10-K/A dated February 10, 2000.
Quarterly Reports on Form 10-Q............... Quarters ended March 31, June 30 and
September 30, 1999, as amended by Form 10-Q/A
dated February 10, 2000.
Current Reports on Form 8-K.................. Dated July 23, 1998, January 27, 1999, April
14, 1999, April 28, 1999, April 29, 1999,
July 29, 1999, August 24, 1999, September 13,
1999, October 19, 1999, October 27, 1999,
December 16, 1999, January 6, 2000, January
25, 2000 and January 26, 2000.
Current Report on Form 8-K/A................. Dated April 30, 1999.
Description of the Nortel Networks common
shares and preferred shares contained in
Nortel Networks' Form 8-A.................. Dated October 8, 1975, as amended by filings
on Form 8 dated February 24, 1983, June 12,
1984, September 13, 1984, June 25, 1985, and
July 15, 1987, and as amended by filings on
Form 8-A/A, dated May 8, 1998 and November
19, 1999.
Proxy Circular and Proxy Statement........... Dated February 26, 1999 filed as Exhibit 99
to Nortel Networks' Annual Report on Form
10-K for the year ended December 31, 1998.
</TABLE>
Nortel Networks is also incorporating by reference any additional documents
that it files with the Commission between the date of this document and the date
of the Clarify special meeting.
Nortel Networks has supplied all information contained or incorporated by
reference in this document relating to Nortel Networks and Clarify has supplied
all information contained or incorporated by reference in this document relating
to Clarify.
You may already have been sent some of the documents incorporated by
reference, but you can obtain any of them from Clarify or Nortel Networks, as
appropriate, or the Commission. Documents incorporated by reference are
available from Clarify or Nortel Networks, as the case may be, without charge,
excluding all exhibits unless an exhibit has been specifically incorporated by
reference in this
66
<PAGE> 72
document. Stockholders may obtain documents incorporated by reference in this
document by Clarify by requesting them in writing or by telephone at:
Clarify Inc.
2560 Orchard Parkway
San Jose, California 95131
Attn: Investor Relations
Telephone: (408) 965-7000
E-mail: [email protected]
Stockholders may obtain documents incorporated by reference in this
document by Nortel Networks by requesting them in writing or by telephone at:
Nortel Networks Corporation
8200 Dixie Road, Suite 100
Brampton, Ontario
Canada, L6T 5P6
Attn: Corporate Secretary
Telephone: (905) 863-0000
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM CLARIFY OR NORTEL NETWORKS,
PLEASE DO SO BY FEBRUARY 29, 2000 TO RECEIVE THEM BEFORE THE MEETING. CLARIFY OR
NORTEL NETWORKS WILL SEND REQUESTED DOCUMENTS BY FIRST-CLASS MAIL WITHIN ONE
BUSINESS DAY OF RECEIVING THE REQUEST.
You should rely only on the information contained or incorporated by
reference in this document to vote on the merger agreement proposal. No one has
been authorized to provide you with information that is different from what is
contained in this document. This document is dated February 10, 2000. You should
not assume the information contained in this document is accurate as of any date
other than this date, and neither the mailing of this document to stockholders
nor the issuance of Nortel Networks common shares in the merger shall imply
information is accurate as of any other date.
67
<PAGE> 73
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NORTEL NETWORKS CORPORATION,
NORTHERN CROWN SUBSIDIARY, INC.
AND
CLARIFY INC.
Dated as of October 18, 1999
A-1
<PAGE> 74
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
ARTICLE I CERTAIN DEFINITIONS............................... A-4
1.01. Certain Definitions.................................. A-4
ARTICLE II THE MERGER; EFFECTS OF THE MERGER................ A-9
2.01. The Merger........................................... A-9
2.02. Effective Date and Effective Time.................... A-9
2.03. Tax Consequences..................................... A-9
ARTICLE III CONVERSION OF SHARES; EXCHANGE PROCEDURES....... A-9
3.01. Conversion of Shares................................. A-9
3.02. Issuance of Shares of the Surviving Corporation...... A-10
3.03. Rights as Stockholders; Stock Transfers.............. A-10
3.04. Fractional Shares.................................... A-10
3.05. Exchange Procedures.................................. A-10
3.06. Anti-Dilution Provisions............................. A-11
3.07. Stock Options and Other Stock Plans.................. A-12
ARTICLE IV ACTIONS PENDING MERGER........................... A-13
4.01. Forbearances of the Company.......................... A-13
4.02. Forbearances of Nortel............................... A-15
ARTICLE V REPRESENTATIONS AND WARRANTIES.................... A-15
5.01. Disclosure Schedules................................. A-15
5.02. Standard............................................. A-16
5.03. Representations and Warranties of the Company........ A-16
5.04. Representations and Warranties of Nortel and Sub..... A-25
ARTICLE VI COVENANTS........................................ A-28
6.01. Reasonable Best Efforts.............................. A-28
6.02. Stockholder Approvals................................ A-28
6.03. Registration Statement............................... A-28
6.04. Press Releases....................................... A-29
6.05. Access; Information.................................. A-29
6.06. Acquisition Proposals................................ A-30
6.07. Affiliate Agreements................................. A-31
6.08. Takeover Laws........................................ A-31
6.09. The Company Rights Agreement......................... A-31
6.10. Shares Listed........................................ A-31
6.11. Regulatory Applications.............................. A-31
6.12. Indemnification...................................... A-32
6.13. Certain Employee Benefit Matters..................... A-33
6.14. Accountants' Letters................................. A-34
6.15. Notification of Certain Matters...................... A-34
6.16. Certain Tax Matters.................................. A-34
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE MERGER........ A-34
7.01. Conditions to Each Party's Obligation to Effect the
Merger.................................................... A-34
7.02. Conditions to Obligation of the Company.............. A-35
7.03. Conditions to Obligation of Nortel and Sub........... A-36
</TABLE>
A-2
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<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
ARTICLE VIII TERMINATION.................................... A-36
8.01. Termination.......................................... A-36
8.02. Effect of Termination and Abandonment................ A-38
ARTICLE IX MISCELLANEOUS.................................... A-39
9.01. Survival............................................. A-39
9.02. Amendment; Extension; Waiver......................... A-39
9.03. Counterparts......................................... A-39
9.04. Governing Law........................................ A-39
9.05. Expenses............................................. A-39
9.06. Notices.............................................. A-39
9.07. Entire Understanding................................. A-40
9.08. Assignment; No Third Party Beneficiaries............. A-40
9.09. Interpretation....................................... A-40
9.10. Severability......................................... A-41
Exhibit A Form of Affiliate Letter......................... A-42
</TABLE>
A-3
<PAGE> 76
AGREEMENT AND PLAN OF MERGER, dated as of October 18, 1999 (this
"Agreement "), by and among NORTEL NETWORKS CORPORATION, a corporation organized
under the laws of Canada ("Nortel "), NORTHERN CROWN SUBSIDIARY, INC., a
corporation organized under the laws of Delaware and a wholly owned subsidiary
of Nortel ("Sub "), and CLARIFY INC., a corporation organized under the laws of
Delaware (the "Company ").
WITNESSETH:
WHEREAS, the Boards of Directors of each of Nortel, Sub and the Company
have determined that it is advisable and in the best interests of their
respective companies and their stockholders to consummate the strategic business
combination transaction provided for herein in which, subject to the terms and
conditions set forth herein, Sub will merge (the "Merger ") with and into the
Company, so that the Company is the surviving corporation in the Merger;
WHEREAS, the parties intend that for U.S. federal income tax purposes, the
Merger qualify as a "reorganization" within the meaning of Section 368(a) of the
Code;
WHEREAS, as a condition and an inducement to Nortel's willingness to enter
into this Agreement, Nortel and the Company are simultaneously entering into a
Stock Option Agreement (the "Option Agreement "), pursuant to which the Company
is granting Nortel an option exercisable upon the occurrence of certain events;
WHEREAS, as a condition and as an inducement to Nortel's willingness to
enter into this Agreement, certain substantial Company securityholders are
entering into an agreement with Nortel (the "Stockholders' Agreement ");
WHEREAS, as a condition and as an inducement to Nortel's willingness to
enter into this Agreement, certain employees and directors of the Company who
are also holders of stock or options of the Company are entering into agreements
(the "Restrictive Covenant Agreements ") with Nortel and the Company; and
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and also to prescribe certain
conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.01. Certain Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Acquisition Proposal " shall mean (a) a merger or consolidation, or any
similar transaction, involving the Company (other than mergers, consolidations
or similar transactions involving solely the Company and/or one or more
wholly-owned Subsidiaries of the Company), (b) a purchase or other acquisition
(including by way of merger, consolidation, share exchange, tender or exchange
offer involving any Subsidiary of the Company or securities issued by any
Subsidiary of the Company, as the case may be) of greater than 20% of the
consolidated assets of the Company and its Subsidiaries (other than transactions
involving the sale of inventory in the ordinary course of business, consistent
with past practice), (c) a purchase or other acquisition (including by way of
merger, consolidation, share exchange, tender or exchange offer or otherwise) of
beneficial ownership of securities representing more than 20% of the voting
power of the Company, (d) any substantially similar transaction, or (e) any
inquiry or indication of interest with respect to any of the foregoing; in each
case other than the transactions contemplated by this Agreement and the Option
Agreement.
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<PAGE> 77
"1999 Company Stock Purchase Plan " shall have the meaning set forth in
Section 3.07(d).
"Agreement " shall have the meaning set forth in the first paragraph of
this Agreement.
"Business Day " shall mean each day on which banking institutions in both
of Toronto, Canada and New York, New York are not authorized or required to
close.
"Canadian GAAP " shall mean Canadian generally accepted accounting
principles.
"Canadian Stock Exchanges " shall mean the Toronto and Montreal stock
exchanges.
"Capitalization Date " shall have the meaning set forth in Section
5.03(b)(i).
"Code " shall mean the U.S. Internal Revenue Code of 1986, as amended.
"Company " shall have the meaning set forth in the first paragraph of this
Agreement.
"Company Affiliate " shall have the meaning set forth in Section 6.07(a).
"Company Board " shall mean the Board of Directors of the Company.
"Company Certificate " shall mean the Amended and Restated Certificate of
Incorporation of the Company.
"Company Common Stock " shall have the meaning set forth in Section
3.01(b).
"Company Disclosure Schedule " shall have the meaning set forth in Section
5.01.
"Company Employee " shall have the meaning set forth in Section 6.13(a).
"Company Equity Interests" shall have the meaning set forth in Section
5.03(b).
"Company Filed SEC Documents" shall have the meaning set forth in Section
5.03(g).
"Company Financial Advisor" shall have the meaning set forth in Section
5.03(k).
"Company Intellectual Property Rights" shall have the meaning set forth in
Section 5.03(p).
"Company Meeting " shall have the meaning set forth in Section 6.02.
"Company Plan " shall mean any Plan entered into or currently maintained,
sponsored, or contributed to by the Company or any of its Subsidiaries or to
which the Company or any such Subsidiary has any obligation to contribute or
with respect to which the Company or any of its Subsidiaries may have any
material liability.
"Company Preferred Stock " shall have the meaning set forth in Section
5.03(b).
"Company Proxy Statement " shall have the meaning set forth in Section
6.03(a).
"Company Rights Agreement " shall have the meaning set forth in Section
5.03(b).
"Company SEC Documents " shall have the meaning set forth in Section
5.03(g).
"Company Series A Preferred Stock " shall have the meaning set forth in
Section 5.03(g).
"Company Stock Option Arrangements " shall have the meaning set forth in
Section 3.07(a).
"Company Stock Option Plans " shall have the meaning set forth in Section
3.07(a).
"Company Stock Options " shall have the meaning set forth in Section
3.07(a).
"Company Stock Purchase Plans " shall have the meaning set forth in Section
3.07(d).
"Company Stockholder Protection Rights " shall have the meaning set forth
in Section 5.03(b).
"Confidentiality Agreement " shall mean that certain confidentiality
agreement, dated September 1, 1999, by and between the Company and Nortel.
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<PAGE> 78
"Copyrights " shall have the meaning set forth in the definition of
Intellectual Property Rights.
"Costs " shall have the meaning set forth in Section 6.12(a).
"DGCL " shall mean the General Corporation Law of the State of Delaware.
"Disclosure Schedule " shall have the meaning set forth in Section 5.01.
"Effective Date " shall have the meaning set forth in Section 2.02.
"Effective Time " shall have the meaning set forth in Section 2.02.
"Environmental Laws " shall have the meaning set forth in Section 5.03(o).
"ERISA " shall mean the U.S. Employee Retirement Income Security Act of
1974, as amended, and the regulations promulgated thereunder and published
interpretations of any Governmental Authority with respect thereto.
"Exchange Act " shall mean the U.S. Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exchange Agent " shall have the meaning set forth in Section 3.05(a).
"Exchange Fund " shall have the meaning set forth in Section 3.05(a).
"Exchange Ratio " shall mean 1.3, subject to adjustment as set forth in
Section 3.06.
"Exon-Florio " shall have the meaning set forth in Section 5.03(r).
"Governmental Authority " means any court, administrative agency or
commission or other foreign or domestic federal, state, provincial or local
governmental authority or instrumentality.
"HSR Act " shall have the meaning set forth in Section 5.03(r).
"Indemnified Party " shall have the meaning set forth in Section 6.12(a).
"Insurance Amount " shall have the meaning set forth in Section 6.12(b).
"Intellectual Property Rights " shall mean all proprietary, license and
other rights in and to: (A) trademarks, service marks, brand names, trade dress,
trade names, words, symbols, color schemes and other indications of origin
("Trademarks "); (B) patents, patent applications (together, "Patents "),
inventors' certificates and invention disclosures; (C) trade secrets and other
confidential or non-public business information, including ideas, formulas,
compositions, discoveries and improvements, know-how, manufacturing and
production processes and techniques, and research and development information;
drawings, specifications, plans, proposals and technical data; analytical
models, investment and lending strategies and records, financial and other
products; financial, marketing and business data, pricing and cost information;
business and marketing plans and customer and supplier lists and information; in
each case whether patentable, copyrightable or not ("Trade Secrets "); (D)
computer programs and databases, in each case whether patentable, copyrightable
or not (collectively, "Software "), and all documentation therefor; (E) writings
and other works of authorship, including marketing materials, brochures,
training materials, including all copyrights and moral rights related to each of
the foregoing ("Copyrights "); (F) mask works; (G) rights to limit the use or
disclosure of confidential information by any Person; (H) registrations of, and
applications to register, any of the foregoing with any Governmental Authority
and any renewals or extensions thereof; (I) the goodwill associated with each of
the foregoing; and (J) any claims or causes of action arising out of or related
to any infringement or misappropriation of any of the foregoing; in each case in
any jurisdiction.
"Knowledge " with respect to a party shall mean to the knowledge of its
senior executive officers after reasonable inquiry.
"Liens " shall mean any charge, mortgage, pledge, security interest,
restriction, claim, lien, or encumbrance.
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"Material Adverse Effect " shall mean with respect to any party, any
change, circumstance or effect that (i) is or is reasonably likely to be
materially adverse to the business, condition (financial or otherwise) or
results of operations of such party and its Subsidiaries taken as a whole, other
than any change, circumstance or effect that results from or arises out of (a)
changes in the economy in general or (b) changes or circumstances affecting the
industries in which such party operates, which change, circumstance or effect
(in the case of clause (b)) does not affect the Company or Nortel, as the case
may be, disproportionately relative to other entities operating in such
industry; provided, that any change, circumstance or effect that arises directly
out of or results directly from the announcement of the transactions
contemplated by this Agreement shall not by itself be deemed to constitute a
Material Adverse Effect; or (ii) would materially impair the ability of Nortel
or the Company, as the case may be, to perform its obligations under this
Agreement.
"Material Suppliers " shall have the meaning set forth in Section
5.03(t)(ii).
"Material Systems " shall mean, with respect to any person, all internal
computer systems, communications systems, embedded manufacturing systems and
facilities infrastructure systems that are material to the business, finances
and operations of such person.
"Merger " shall have the meaning set forth in the recitals to this
Agreement.
"NASD " shall mean the National Association of Securities Dealers, Inc. or,
if the context so requires, the Nasdaq Stock Market, Inc.
"New Certificates " shall have the meaning set forth in Section 3.05(a).
"New Purchase Date " shall have the meaning set forth in Section 3.07(d).
"Nortel " shall have the meaning set forth in the first paragraph of this
Agreement.
"Nortel Board " shall mean the Board of Directors of Nortel.
"Nortel Certificate " shall mean the Certificate and Articles of
Amalgamation of Nortel dated January 4, 1982, as amended from time to time by
the Certificates and Articles of Amendment of Nortel.
"Nortel Common Shares " shall have the meaning set forth in Section
3.01(a).
"Nortel Disclosure Schedule " shall have the meaning set forth in Section
5.01.
"Nortel SEC Documents " shall have the meaning set forth in Section
5.04(f).
"NYSE " shall mean the New York Stock Exchange, Inc.
"Old Certificates " shall have the meaning set forth in Section 3.05(a).
"Option Agreement " shall have the meaning set forth in the recitals
hereof.
"Other Company Option Agreements " shall have the meaning set forth in
Section 3.07(a).
"Patents " shall have the meaning set forth in the definition of
Intellectual Property Rights.
"Person " or "person " shall mean any individual, bank, corporation,
limited liability company, partnership, association, joint-stock company,
business trust or unincorporated organization.
"Plan " shall mean any "employee benefit plan", within the meaning of
Section 3(3) of ERISA, whether or not subject to ERISA, and any employment,
consulting, termination, severance, retention, change in control, deferred or
incentive compensation, bonus, stock option or other equity based, vacation or
other fringe benefit plan, program, policy, arrangement, agreement or
commitment.
"Previously Disclosed " by a party shall mean set forth or disclosed in (x)
the Company Filed SEC Documents or the Nortel SEC Documents filed prior to the
date of this Agreement, as the case may be, or (y) the related section of its
Disclosure Schedule.
"Registration Statement " shall have the meaning set forth in Section
6.03(a).
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"Regulatory Law " shall mean the Sherman Act, as amended, the Clayton Act,
as amended, the HSR Act, the Federal Trade Commission Act, as amended, and all
other federal, state and foreign, if any, statutes, rules, regulations, orders,
decrees, administrative and judicial doctrines and other laws that are designed
or intended to prohibit, restrict or regulate actions having the purpose or
effect of monopolization or restraint of trade or lessening of competition
through merger or acquisition.
"Restrictive Covenant Agreements " shall have the meaning set forth in the
recitals to this Agreement.
"Rights " shall mean, with respect to any person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any person any
right to subscribe for or acquire, or any options, calls or commitments relating
to, or any stock appreciation right or other instrument the value of which is
determined in whole or in part by reference to the market price or value of,
shares of capital stock of such person.
"Scheduled Expenditures " shall have the meaning set forth in Section
4.01(n).
"SEC " shall mean the United States Securities and Exchange Commission.
"Securities Act " shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Software " shall have the meaning set forth in the definition of
Intellectual Property Rights.
"Stockholders' Agreement " shall have the meaning set forth in the recitals
to this Agreement.
"Sub " shall have the meaning set forth in the first paragraph of this
Agreement.
"Sub Common Stock " shall have the meaning set forth in Section 3.01(a).
"Subsidiary " and "Significant Subsidiary " shall have the meanings
ascribed to them in Rule 1-02 of Regulation S-X of the SEC.
"Superior Proposal " shall have the meaning set forth in Section 6.06(a).
"Surviving Corporation " shall mean the Company, as the surviving
corporation in the Merger.
"Takeover Laws " shall have the meaning set forth in Section 5.03(m).
"Tax Returns " shall have the meaning set forth in Section 5.03(q).
"Taxes " shall mean all taxes, charges, fees, levies or other assessments,
however denominated, including, without limitation, all net income, gross
income, gross receipts, sales, use, ad valorem, goods and services, capital,
transfer, franchise, profits, license, withholding, payroll, employment,
employer health, excise, estimated, severance, stamp, occupation, property or
other taxes, custom duties, fees, assessments or charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts imposed by any taxing authority whether arising before, on or after the
Effective Date.
"Termination Fee " shall have the meaning set forth in Section 8.02(b).
"Trade Secrets " shall have the meaning set forth in the definition of
Intellectual Property Rights.
"Trademarks " shall have the meaning set forth in the definition of
Intellectual Property Rights.
"Treasury Shares " shall mean shares of the Company Common Stock held by
the Company or any of its Subsidiaries.
"U.S. GAAP " shall mean United States generally accepted accounting
principles.
"Year 2000 Compliant " shall have the meaning set forth in Section 5.03(t).
"$ " shall mean United States Dollar.
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ARTICLE II
THE MERGER; EFFECTS OF THE MERGER
2.01. The Merger. (a) Surviving Corporation. Upon the terms and subject
to the conditions set forth in this Agreement, and in accordance with the DGCL,
at the Effective Time Sub will merge with and into the Company pursuant to the
Merger. Following the Effective Time of the Merger, the separate corporate
existence of Sub shall cease and the Company shall survive and continue to exist
as a Delaware corporation.
(b) Effectiveness and Effects of the Merger. Subject to the satisfaction
or waiver of the conditions set forth in Article VII in accordance with this
Agreement, the Merger shall become effective upon the occurrence of the filing
in the office of the Secretary of State of the State of Delaware of a
certificate of merger in accordance with Section 251 of the DGCL, or such later
date and time as may be set forth in such certificate. The Merger shall have the
effects prescribed in the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of the Company and Sub shall be vested in the
Surviving Corporation, and all debt, liabilities and duties of the Company and
Sub shall become the debt, liabilities and duties of the Surviving Corporation.
(c) Certificate of Incorporation and By-Laws. The certificate of
incorporation and by-laws of Sub, as in effect immediately prior to the
Effective Time, but with Article 1 of the certificate of incorporation amended
to read: "The name of the Corporation is Clarify Inc.," shall be those of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law.
(d) Name. The name of the Surviving Corporation shall remain "Clarify
Inc."
(e) Officers and Directors of Surviving Corporation. The officers of the
Company as of the Effective Time shall be the officers of the Surviving
Corporation, until the earlier of their resignation or removal or otherwise
ceasing to be an officer or until their respective successors are duly elected
and qualified, as the case may be. The directors of Sub as of the Effective Time
shall be the directors of the Surviving Corporation until the earlier of their
resignation or removal or otherwise ceasing to be a director or until their
respective successors are duly elected and qualified, as the case may be.
2.02. Effective Date and Effective Time. Subject to the satisfaction or
waiver (subject to applicable law) of the conditions set forth in Article VII in
accordance with this Agreement, the parties shall cause the effective date of
the Merger (the "Effective Date ") to occur on (i) the third Business Day to
occur after the last of the conditions set forth in Section 7.01 shall have been
satisfied or waived in accordance with the terms of this Agreement or (ii) such
other date to which the parties may agree in writing. The time on the Effective
Date when the Merger shall become effective is referred to as the "Effective
Time."
2.03. Tax Consequences. It is intended that the Merger shall qualify as a
reorganization under Section 368(a) of the Code. The parties hereto hereby adopt
this Agreement as a "plan of reorganization" within the meaning of Sections
1.368-2(g) and 1.368-3(a) of the U.S. Treasury Regulations.
ARTICLE III
CONVERSION OF SHARES; EXCHANGE PROCEDURES
3.01. Conversion of Shares. Subject to the provisions of this Agreement,
at the Effective Time, automatically by virtue of the Merger and without any
action on the part of any party or stockholder:
(a) Conversion of Sub Common Stock. Each share of common stock of
Sub, par value $0.0001 per share (the "Sub Common Stock"), issued and
outstanding immediately prior to the Effective Time, shall be converted
into one newly issued, fully-paid and non-assessable share of preferred
stock, $0.0001 par value, of the Surviving Corporation, pursuant to a
Certificate of Designations proposed by Nortel and approved by the Company,
such approval not to be unreasonably withheld or delayed.
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(b) Conversion of Company Common Stock. Subject to Section 3.04, each
share of common stock, par value $0.0001 per share, of the Company (the
"Company Common Stock ") issued and outstanding immediately prior to the
Effective Time (other than shares of Company Common Stock to be canceled
pursuant to Section 3.01(c)) shall become and be converted into the right
to receive a number of common shares, without par value, of Nortel ("Nortel
Common Shares "), equal to the Exchange Ratio. All of the shares of Company
Common Stock converted into the right to receive Nortel Common Shares (or
cash pursuant to Section 3.04) pursuant to this Article III shall no longer
be outstanding and shall automatically be canceled and shall cease to exist
as of the Effective Time.
(c) Treasury Shares. Each share of Company Common Stock held by the
Company or any wholly owned Subsidiary of the Company as Treasury Shares
immediately prior to the Effective Time or owned by Nortel or any
Subsidiary thereof shall no longer be outstanding and shall automatically
be canceled and retired at the Effective Time and no consideration shall be
issued in exchange therefor.
3.02. Issuance of Shares of the Surviving Corporation. At the Effective
Time, in consideration of the issuance by Nortel of Nortel Common Shares to the
holders of Company Common Stock in accordance with Section 3.01(b), the
Surviving Corporation shall issue to Nortel a number of shares of newly issued,
fully-paid and non-assessable common stock, $0.0001 par value, of the Surviving
Corporation, which number shall be equal to the number of shares of Company
Common Stock outstanding as of immediately prior to the Effective Time.
3.03. Rights as Stockholders; Stock Transfers. At the Effective Time,
holders of Company Common Stock shall cease to be, and shall have no rights as,
stockholders of the Company, other than the right to receive any dividend or
other distribution with respect to such Company Common Stock with a record date
occurring prior to the Effective Time and the consideration provided under this
Article III. After the Effective Time, there shall be no transfers on the stock
transfer books of the Company or the Surviving Corporation of shares of Company
Common Stock.
3.04. Fractional Shares. Notwithstanding any other provision hereof, no
fractional Nortel Common Shares and no certificates or scrip therefor, or other
evidence of ownership thereof, will be issued in the Merger; instead, Nortel
shall pay to each holder of Company Common Stock who would otherwise be entitled
to a fractional share of Nortel Common Shares (after taking into account all Old
Certificates delivered by such holder) an amount (in U.S. dollars) in cash
(without interest) determined by multiplying such fraction by the average of the
last sale prices of Nortel Common Shares, as reported by the NYSE Composite
Transactions Reporting System (as reported in The Wall Street Journal or, if not
reported therein, in another authoritative source), for the five NYSE trading
days immediately preceding the Effective Date. As promptly as practicable after
the determination of the amount of cash, if any, to be paid to holders of
fractional interests, Nortel shall so notify the Exchange Agent, and Nortel
shall cause the Surviving Corporation to deposit such amount with the Exchange
Agent and shall cause the Exchange Agent to forward payments to such holders of
fractional interests subject to and in accordance with the terms hereof.
3.05. Exchange Procedures. (a) At or prior to the Effective Time, Nortel
shall deposit, or shall cause to be deposited, with a bank or trust company
having (or whose parent has) net capital of not less than $100,000,000 (the
"Exchange Agent "), for the benefit of the holders of certificates formerly
representing shares of Company Common Stock ("Old Certificates "), for exchange
in accordance with this Article III, certificates representing the Nortel Common
Shares ("New Certificates ") and an estimated amount of cash pursuant to Section
3.04 (such cash and New Certificates (without any interest on any such cash),
being hereinafter referred to as the "Exchange Fund ") to be paid pursuant to
this Article III in exchange for outstanding shares of Company Common Stock.
(b) As promptly as practicable after the Effective Date, Nortel shall send
or cause the Exchange Agent to send or cause to be sent to each former holder of
record of shares (other than Treasury Shares) of Company Common Stock
immediately prior to the Effective Time transmittal materials for use in
exchanging such stockholder's Old Certificates for the consideration set forth
in this Article III. Nortel
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shall cause the New Certificates representing Nortel Common Shares into which
shares of a stockholder's Company Common Stock are converted at the Effective
Time and/or any check in respect of any fractional share interests or dividends
or distributions which such person shall be entitled to receive pursuant to this
Article III to be delivered to such stockholder upon delivery to the Exchange
Agent of Old Certificates representing such shares of Company Common Stock (or,
pursuant to Section 3.05(f), a surety bond or other indemnity reasonably
satisfactory to Nortel and the Exchange Agent, if any of such certificates are
lost, stolen or destroyed) owned by such stockholder. No interest will be paid
on any such cash to be paid in lieu of fractional share interests or in respect
of dividends or distributions which any such person shall be entitled to receive
pursuant to this Article III upon such delivery.
(c) Notwithstanding the foregoing, neither the Exchange Agent nor any party
hereto shall be liable to any former holder of Company Common Stock for any
amount properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(d) No dividends or other distributions with respect to Nortel Common
Shares with a record date occurring after the Effective Time shall be paid to
the holder of any unsurrendered Old Certificate representing shares of Company
Common Stock converted in the Merger into the right to receive Nortel Common
Shares and cash in lieu of fractional Nortel Common Shares pursuant to Section
3.04, until the holder thereof shall be entitled to receive New Certificates and
such amount of cash in exchange therefor in accordance with this Article III.
After becoming so entitled in accordance with this Article III, the record
holder thereof also shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore had become
payable with respect to Nortel Common Shares such holder had the right to
receive upon surrender of the Old Certificate, and payment thereof shall be made
promptly following the later of (i) the date on which such holder shall become
entitled to receive New Certificates and (ii) the payment date with respect to
such dividend or other distribution.
(e) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of the Company for one year after the Effective Time shall, upon
demand by Nortel, be paid or delivered to Nortel. Any stockholders of the
Company who have not theretofore complied with this Article III shall thereafter
look only to Nortel for payment of the Nortel Common Shares, cash in lieu of any
fractional shares and unpaid dividends and distributions on the Nortel Common
Shares deliverable in respect of each share of Company Common Stock such
stockholder holds as determined pursuant to this Agreement, in each case,
without any interest thereon.
(f) If any Old Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such Old
Certificate to be lost, stolen or destroyed and the posting by such person of a
bond in such reasonable amount as Nortel may direct as indemnity against any
claim that may be made against it or the Surviving Corporation with respect to
such Old Certificate, Nortel shall, in exchange for such lost, stolen or
destroyed Old Certificate, deliver or cause the Exchange Agent to deliver a New
Certificate in respect thereof pursuant to this Article III.
3.06. Anti-Dilution Provisions. In the event Nortel changes (or
establishes a record date for changing) the number of Nortel Common Shares
issued and outstanding prior to the Effective Time as a result of a stock split,
stock dividend, recapitalization, subdivision, reclassification, combination,
exchange of shares or similar transaction with respect to the outstanding Nortel
Common Shares then (a) if the record and payment dates therefor shall be prior
to the Effective Time, the Exchange Ratio shall be proportionately adjusted to
reflect such stock split, stock dividend, recapitalization, subdivision,
reclassification, combination, exchange of shares or similar transaction; and
(b) if the record date therefor shall be prior to the Effective Time but the
payment date therefor shall be subsequent to the Effective Time, Nortel shall
take such action as shall be required so that on such payment date any former
holder of Old Certificates who shall have received or become entitled to receive
New Certificates pursuant to this Article III shall be entitled to receive such
additional Nortel Common Shares as such holder would have received as a result
of such event if the record date therefor had been immediately after the
Effective Time.
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3.07. Stock Options and Other Stock Plans. (a) Effective at the
Effective Time, each option to purchase shares of Company Common Stock
(collectively, the "Company Stock Options ") granted to employees or directors
of, or consultants or advisors to, the Company or any Subsidiary thereof
pursuant to the terms of the Clarify Inc. 1999 Non-Executive Stock Option/Stock
Issuance Plan, the Clarify Inc. 1995 Stock Option/Stock Issuance Plan, the
Clarify Inc. Non-Employee Directors' Stock Option Plan, the Clarify Inc. 1991
Stock Option/Stock Issuance Plan or the Objix Systems Development, Inc. Stock
Plan (collectively, the "Company Stock Option Plans ") or granted to employees
pursuant to a separate stock option agreement listed on Schedule 3.07 hereto
(collectively, the "Other Company Option Agreements " and, together with the
Company Stock Option Plans, the "Company Stock Option Arrangements ") that is
outstanding immediately prior to the Effective Time shall be assumed by Nortel
and deemed to constitute an option to acquire, on the same terms and conditions
(including adjustments for any stock dividend, subdivision, reclassification,
recapitalization, split, combination, exchange of shares or similar transaction
following such assumption) as were applicable under such Company Stock Option
immediately prior to the Effective Time, the number of Nortel Common Shares
(rounded down to the greatest number of whole Nortel Common Shares) that is
equal to the product of (i) the number of shares of Company Common Stock covered
by such Company Stock Option immediately prior to the Effective Time multiplied
by (ii) the Exchange Ratio, at an option exercise price per share of Nortel
Common Shares equal to the quotient of (iii) the option exercise price per share
of Company Common Stock covered by such Company Stock Option immediately prior
to the Effective Time divided by (iv) the Exchange Ratio. The date of grant of
each such Company Stock Option shall be the date on which such Company Stock
Option was originally granted. The portion, if any, of the Company Stock Options
granted pursuant to the Other Company Option Agreements, Article IV (Automatic
Option Grant Program) of the 1995 Stock Option/Stock Issuance Plan prior to its
amendment on June 10, 1999 or the Non-Employee Directors' Stock Option Plan
which, pursuant to the terms of such Other Company Option Agreements, Article IV
of such 1995 Stock Option/Stock Issuance Plan or Non-Employee Directors' Stock
Option Plan, are to become vested in connection with the Merger shall become
vested at the Effective Time in accordance with their terms. Within three
Business Days following the Effective Date, Nortel shall cause to be delivered
to each holder of a Company Stock Option that has been assumed by Nortel
pursuant to this Section 3.07 a notice stating that (x) such Company Stock
Option has been converted into an option to purchase Nortel Common Shares, (y)
such Company Stock Option has been assumed by Nortel and shall continue in
effect subject to all of the terms and conditions applicable thereto immediately
prior to the Effective Time and (z) setting forth the number of Nortel Common
Shares covered by such Company Stock Option and the per share option exercise
price for such Nortel Common Shares. From and after the Effective Time, Nortel
and the Surviving Corporation shall comply with the terms of each Company Stock
Option Arrangement pursuant to which the Company Stock Options were granted,
including such terms requiring acceleration of the vesting of Company Stock
Options in the event of certain terminations of the service of the holder
thereof occurring within the eighteen month period immediately following the
Effective Date; provided, that the board of directors of Nortel or an authorized
committee thereof shall succeed to the authorities and responsibilities of the
Company Board or any committee thereof under the Comp any Stock Option
Arrangements. The adjustments provided herein with respect to any Company Stock
Options that are "incentive stock options" (as defined in Section 422 of the
Code) shall be effected in a manner consistent with Section 424(a) of the Code.
(b) Prior to the Effective Date, the Company shall take all necessary or
appropriate action (including amending any of the Company Stock Option
Arrangements or making adjustments as permitted thereby) to (i) effectuate the
assumption and conversion of the Company Stock Options by Nortel and the
assignment to Nortel of the authorities and responsibilities of the Company
Board or any committee thereof under the Company Stock Option Arrangements, (ii)
preclude the grant of any additional Company Stock Options under any of the
Company Stock Option Arrangements or otherwise (except as provided in Section
4.01(d)(iii)) and (iii) make such other amendments as Nortel shall determine are
necessary to comply with Canadian securities laws that will become applicable to
such Company Stock Option Arrangements at the Effective Time or otherwise by
reason of the Merger.
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(c) Nortel shall cause to be taken all corporate action necessary to
reserve for issuance a sufficient number of Nortel Common Shares for delivery
upon exercise of Company Stock Options in accordance with this Section 3.07.
Nortel shall use its reasonable best efforts to cause the Nortel Common Shares
subject to Company Stock Options to be registered under the Securities Act
pursuant to a registration statement on Form S-8 (or any successor or other
appropriate forms) within five Business Days following the Effective Date, and
shall use its reasonable best efforts to cause the effectiveness of such
registration statement (and current status of the prospectus or prospectuses
contained therein) to be maintained for so long as Company Stock Options remain
outstanding.
(d) The Company shall take such action as is necessary to cause (i) a "new
purchase date," within the meaning of the Clarify Inc. 1999 Employee Stock
Purchase Plan (the "1999 Company Stock Purchase Plan"), to be established that
will cause all offering periods under the 1999 Company Stock Purchase Plan in
effect immediately prior to the Effective Date to terminate as of the Business
Day immediately prior to the Effective Date (the "New Purchase Date") and (ii)
cause all offering periods in effect immediately prior to the Effective Date
under the Clarify Inc. Employee Stock Purchase Plan (together with the 1999
Company Stock Purchase Plan, the "Company Stock Purchase Plans") to terminate as
of the New Purchase Date; provided that such changes in the offering periods
shall be conditioned upon the consummation of the Merger. On the New Purchase
Date, the Company shall apply the funds credited as of such date under the
Company Stock Purchase Plans within each participant's payroll withholding
account to the purchase of whole shares of Company Common Stock in accordance
with the terms of the Company Stock Purchase Plans, with any remaining cash to
be returned to the respective employees. Immediately prior to and effective as
of the Effective Time and subject to the consummation of the Merger, the Company
shall terminate the Company Stock Purchase Plans.
ARTICLE IV
ACTIONS PENDING MERGER
4.01. Forbearances of the Company. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement, as required by a
Governmental Authority of competent jurisdiction or as set forth in Section 4.01
of the Company Disclosure Schedule, without the prior written consent of Nortel,
the Company will not, and will cause each of its Subsidiaries not to:
(a) Ordinary Course. Conduct its business and the business of its
Subsidiaries other than in the ordinary and usual course in all material
respects and in material compliance with applicable laws and regulations
or, to the extent consistent therewith, fail to use reasonable best efforts
to preserve intact their business organizations and assets and maintain
their rights, franchises and existing relations with customers, suppliers,
employees and business associates, or take any action that would adversely
affect its ability to perform any of its material obligations under this
Agreement in any material respect; provided, however, that no action by the
Company or its Subsidiaries with respect to matters specifically addressed
by any other provision of this Section 4.01 shall be deemed a breach of
this Section 4.01(a) unless such action would constitute a breach of one or
more of such other provisions.
(b) Capital Stock. (i) Issue, sell, pledge, dispose of or encumber,
or authorize or propose the issuance, sale, pledge, disposition or
encumbrance of, any shares of its capital stock or any Rights, (ii) enter
into any agreement with respect to the foregoing or (iii) permit any
additional shares of capital stock to become subject to new grants of
employee or director stock options, other Rights or similar stock-based
employee rights, other than (w) the issuance of Company Common Stock upon
the exercise of stock options outstanding as of the date hereof issued in
the ordinary course of business in accordance with the terms of the Company
Stock Option Arrangements as in effect on the date of this Agreement, (x)
the issuance of Company Common Stock upon the exercise of stock options
granted in accordance with Section 4.01(d)(iii), (y) issuances by a wholly
owned Subsidiary of the Company of capital stock to such Subsidiary's
parent and (z) issuances to comply with the Company's obligations under the
Company Stock Purchase Plans.
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(c) Dividends, Etc. (i) Make, declare, pay or set aside for payment
any dividend (other than dividends from the Company's Subsidiaries to the
Company or another Subsidiary of the Company) on or in respect of, or
declare or make any distribution on any shares of its capital stock or (ii)
except for any such transaction by a wholly owned Subsidiary of the Company
which remains a wholly owned Subsidiary after consummation of such
transaction, directly or indirectly adjust, split, combine, redeem,
reclassify, purchase, repurchase or otherwise acquire, any shares of the
capital stock of the Company or any of its Subsidiaries.
(d) Compensation; Employment Agreements; Etc. Enter into or amend any
employment, consulting, severance, retention, change in control or similar
agreements or arrangements with any of its or its Subsidiaries' directors,
officers, employees or consultants or former directors, officers, employees
or consultants, or grant any salary, wage or other compensation increase,
make any award or grant under any Plan or increase or modify any employee
benefit (including any incentive or bonus payments or perquisite), except
for (i) increases in annual salary or hourly wage rates granted to current
employees (other than officers) in the ordinary course of business,
consistent with past practice, (ii) changes required to be implemented in
accordance with the current terms of any Company Plan set forth in Section
4.01(d) of the Company Disclosure Schedule, (iii) grants of stock options
to purchase up to an aggregate of 150,000 shares of Company Common Stock in
accordance with the terms of the Clarify Inc. 1999 Non-Executive Stock
Option/Stock Issuance Plan and the Clarify Inc. 1995 Stock Option/Stock
Issuance Plan, in each case as in effect on the date hereof, to new
employees hired after the date hereof and/or to current employees (other
than current officers or other executives) in connection with the promotion
or retention of any such current employee, in any such case, in the
ordinary course of business, consistent with past practice, and (iv)
changes required by law.
(e) Benefit Plans. Enter into, adopt, implement or amend in any
material respect (except to the extent required to comply with applicable
law) any Plan.
(f) Acquisitions and Dispositions. Acquire all or any portion of the
assets, business or properties of any other entity or sell, transfer,
mortgage, encumber or otherwise dispose of or discontinue any portion of
its assets, business or properties.
(g) Amendments. Amend the Company Certificate or the Company's
by-laws.
(h) Accounting Methods. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be required
by U.S. GAAP or SEC regulation.
(i) Contracts. Except in the ordinary course of business, enter into
or terminate any contract, agreement or lease (including any licensing
agreement) involving property, services or payments with a value in excess
of $2,000,000, or amend or modify in a material respect any of its existing
contracts, agreements or leases (including any licensing agreements)
originally involving property, services or payments with a value in excess
of $2,000,000.
(j) Claims. Except in the ordinary course of business, settle any
claim, action or proceeding involving money damages in excess of $200,000
in the aggregate or involving any restrictions or limitations on the
Company or the Company's business.
(k) Adverse Actions. (i) Take any action while knowing that such
action would, or is reasonably likely to, prevent or impede the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the
Code; or (ii) knowingly take any action that is intended or is reasonably
likely to result in (A) any of its representations and warranties set forth
in this Agreement being or becoming untrue at any time at or prior to the
Effective Time, (B) except as otherwise permitted by Section 6.06, any of
the conditions to the Merger set forth in Article VII not being satisfied
or satisfaction of such condition being materially delayed or (C) a
violation of any provision of this Agreement except, in each case, as may
be required by applicable law.
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(l) Incurrence of Indebtedness. Other than (i) short-term
indebtedness incurred in the ordinary course of business consistent with
past practice but in no event to exceed an aggregate of $2,000,000 of
short-term indebtedness and (ii) indebtedness of the Company or any of its
Subsidiaries to the Company or any of its Subsidiaries, incur any
indebtedness for borrowed money, assume, guarantee, endorse or otherwise as
an accommodation become responsible for the obligations of any other
individual, corporation or other entity, or make any loan or advance.
(m) Capital Expenditures in General. Make any capital expenditures in
excess of $2,000,000 in the aggregate in any quarter of the year, other
than Scheduled Expenditures.
(n) Scheduled Expenditures. Make any capital expenditures in
connection with the construction of Building "A" on the Clarify Corporate
Center campus or the international PeopleSoft implementation ("Scheduled
Expenditures ") in excess of the amounts set forth in Section 4.01(n) of
the Company Disclosure Schedule, which represents the Company's best
estimate of the amount and nature of all such expenditures to be incurred
through June 30, 2000.
(o) Tax Elections. Make any new or different material Tax election,
or revoke any material Tax election.
(p) Confidentiality Agreements. Waive any confidentiality or
"standstill" provisions entered into with any third party in connection
with its consideration of an Acquisition Proposal.
(q) Agreements. Agree or commit to do anything prohibited by the
above paragraphs (a) through (p).
4.02. Forbearances of Nortel. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement or as set forth in
Section 4.02 of the Nortel Disclosure Schedule, without the prior written
consent of the Company, Nortel will not, and will cause each of its Subsidiaries
not to:
(a) Dividends, Etc. (i) Make, declare, pay or set aside for payment
any extraordinary cash dividend on or in respect of the Nortel Common
Shares.
(b) Adverse Actions. (i) Take any action while knowing that such
action would, or is reasonably likely to, prevent or impede the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the
Code; or (ii) knowingly take any action that is intended or is reasonably
likely to result in (A) any of its representations and warranties set forth
in this Agreement being or becoming untrue at any time at or prior to the
Effective Time, (B) subject to Section 6.11(d), any of the conditions to
the Merger set forth in Article VII not being satisfied or satisfaction of
such condition being materially delayed or (C) a violation of any provision
of this Agreement except, in each case, as may be required by applicable
law.
(c) Agreements. Agree or commit to do anything prohibited by the
above paragraphs (a) and (b).
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01. Disclosure Schedules. At or prior to the execution hereof, the
Company has delivered to Nortel and Nortel has delivered to the Company a
schedule (each a "Disclosure Schedule " and, respectively, the "Company
Disclosure Schedule " and the "Nortel Disclosure Schedule ") each section of
which sets forth items (x) the disclosure of which is necessary or appropriate
in response to an express disclosure requirement contained in a correspondingly
numbered provision hereof or (y) that qualify, to the extent specified therein,
a correspondingly numbered representation and warranty contained in Section 5.03
or 5.04 or covenant contained in Article IV; provided, that the mere inclusion
of an item in a Disclosure Schedule shall not be deemed an admission by a party
that such item represents a material exception to any representation, warranty
or covenant or is for any purpose relating to this Agreement a
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material fact, event or circumstance or that such item is reasonably likely to
result in a Material Adverse Effect; and provided, further, that any item
included in a party's Disclosure Schedule pursuant to clause (y) above shall be
deemed to qualify each representation and warranty in Section 5.03 or 5.04, as
the case may be, and each covenant in Article IV if and only to the extent that
it should be reasonably obvious to the other party from the content of such item
and the context in which it appears in the Disclosure Schedule that such
qualification is appropriate.
5.02. Standard. Except as otherwise set forth in this Section 5.02, no
representation or warranty of the Company contained in Section 5.03 (other than
in Section 5.03(u)) or of Nortel contained in Section 5.04 (other than in
Section 5.04(j)) shall be deemed untrue or incorrect, and no party hereto shall
be deemed to have breached any such representation or warranty, unless there
exist facts, circumstances or events that are inconsistent with such
representation or warranty and that, individually or taken together with all
other facts, events or circumstances inconsistent with any representation or
warranty contained in Section 5.03 or Section 5.04, as the case may be, has had
or is reasonably likely to have a Material Adverse Effect. Notwithstanding the
foregoing, (x) any representation or warranty of the Company contained in
Sections 5.03(b), 5.03(e), 5.03(f)(ii), 5.03(m), 5.03(n), 5.03(s) and, solely as
of the date of this Agreement, Section 5.03(h) and (y) any representation or
warranty of Nortel contained in Sections 5.04(b), 5.04(d) and 5.04(e)(ii) shall
be deemed untrue and incorrect, and the Company or Nortel, as the case may be,
shall be deemed to have breached such representation or warranty, if such
representation or warranty is not true and correct in all material respects. In
determining whether a representation or warranty in Section 5.03 or Section 5.04
(other than the representations and warranties in Section 5.03(u) and Section
5.04(j)) is true and correct under the foregoing standards, such representation
or warranty shall be read without regard to any reference to materiality or
Material Adverse Effect set forth therein.
5.03. Representations and Warranties of the Company. Subject to Sections
5.01 and 5.02 and except as Previously Disclosed, the Company hereby represents
and warrants to each of Nortel and Sub as follows:
(a) Organization, Standing and Authority. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization. It is duly qualified to do
business and is in good standing in the states of the United States and
foreign jurisdictions where its ownership or leasing of property or assets
or the conduct of its business requires it to be so qualified and it has in
effect all federal, state, local and foreign governmental authorizations
necessary for it to own or lease its properties and assets and to carry on
its business as it is now conducted. The Company has made available to
Nortel a complete and correct copy of its certificate of incorporation and
by-laws, each as amended and in full force and effect as of the date of
this Agreement, and the Company is not in violation of any provision
thereof.
(b) Shares.
(i) The authorized capital stock of the Company consists of (A)
55,000,000 shares of Company Common Stock of which 23,654,944 shares
were outstanding as of October 14, 1999 (the "Capitalization Date ") and
(B) 5,000,000 shares of preferred stock, par value $0.0001 per share
("Company Preferred Stock "), of which no shares were issued or
outstanding as of the Capitalization Date and 50,000 shares of which
have been designated Series A Junior Participating Preferred Stock
("Company Series A Preferred Stock ") and reserved for issuance upon
exercise of the rights (the "Company Stockholder Protection Rights ")
distributed to the holders of Company Common Stock pursuant to a Rights
Agreement dated as of June 13, 1997, between the Company and Harris
Trust Company of California, as Rights Agent, as amended (the "Company
Rights Agreement "). Since the Capitalization Date, there have been no
issuances of shares of the capital stock of the Company or any other
securities of the Company other than issuances of shares pursuant to
Company Stock Options outstanding on the Capitalization Date as set
forth in clause (iii) below.
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(ii) All issued and outstanding shares of Company Common Stock have
been duly authorized and validly issued, and are fully paid and
nonassessable, and no class of capital stock of the Company is entitled
to preemptive rights.
(iii) There were outstanding at the Capitalization Date no Rights
to acquire capital stock from the Company other than (A) the Company
Stockholder Protection Rights, (B) Company Stock Options and (C) rights
under the Company Stock Purchase Plans, the Rights referred to in
clauses (B) and (C) representing in the aggregate the right to purchase
6,659,730 shares of Company Common Stock. Section 5.03(b)(iii) of the
Company Disclosure Schedule sets forth for all Company Stock Options
outstanding at the Capitalization Date a true and complete list of the
following: their holders, their date of grant, the number of shares of
Company Common Stock for which they are exercisable, their exercise
price as currently in effect, their date of vesting and the conditions,
if any, under which such vesting may accelerate. Other than in
connection with the Option Agreement and other than the associated
Company Stockholder Protection Rights issued with the shares of Company
Common Stock issued as described in clause (i) above, no Rights to
acquire capital stock from the Company have been issued or granted since
the Capitalization Date.
(c) Subsidiaries.
(i) Section 5.03(c)(i) of the Company Disclosure Schedule sets
forth a list as of the date hereof of all of the Company's Subsidiaries,
together with their jurisdiction of organization. Unless otherwise
described therein, the Company owns, directly or indirectly,
beneficially and of record 100% of the issued and outstanding voting
securities of each such Subsidiary (other than directors' qualifying
shares, if any). No equity securities of any of the Company's
Subsidiaries are or may become required to be issued (other than to the
Company or its wholly owned Subsidiaries) by reason of any Rights and
there are no contracts, commitments, understandings or arrangements by
which any of such Subsidiaries is bound to sell or otherwise transfer
any shares of capital stock of any such Subsidiaries (other than to the
Company or its wholly owned Subsidiaries). In addition, Section
5.03(c)(i) of the Company Disclosure Schedule lists as of the date of
this Agreement each corporation, partnership, limited liability company
or similar entity with respect to which, as of the date of this
Agreement, the Company or any Subsidiary of the Company owns more than
5% but less than a majority of the voting equity or similar voting
interest or any interest convertible into, or exchangeable or
exercisable for, more than 5% but less than a majority of the voting
equity or similar voting interest and which interest is carried on the
Company's most recent financial statements (or if not held as of the
date thereof, would be carried on the Company's financial statements if
prepared as of the date hereof) at a value in excess of $500,000
(collectively, the "Company Equity Interests"). All of the shares of
capital stock of each of the Significant Subsidiaries of the Company and
all the Company Equity Interests held by the Company and each Subsidiary
of the Company are fully paid and nonassessable and are owned by the
Company or such Subsidiary free and clear of any Liens. There are no
material outstanding contractual obligations of the Company or any of
its Subsidiaries to provide funds to, or make any investment (in the
form of a loan, capital contribution or otherwise) in any entity in
which the Company or any Subsidiary of the Company owns a Company Equity
Interest.
(ii) Each of the Company's Subsidiaries has been duly organized and
is validly existing in good standing under the laws of the jurisdiction
of its organization. Each of such Subsidiaries is duly qualified to do
business and in good standing in the jurisdictions where its ownership
or leasing of property or the conduct of its business requires it to be
so qualified and each has in effect all federal, state, local and
foreign governmental authorizations necessary for it to own or lease its
properties and assets and to carry on its business as it is now
conducted.
(d) Corporate Power. The Company and each of its Subsidiaries has the
corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets;
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and it has the corporate power and authority to execute, deliver and
perform its obligations under this Agreement and the Option Agreement and
to consummate the transactions contemplated hereby and thereby.
(e) Corporate Authority.
(i) Subject, in the case of the consummation of the Merger, to
receipt of the requisite approval and adoption of the "agreement of
merger" (as such term is used in Section 251 of the DGCL) contained in
this Agreement and the Merger by the holders of a majority of the
outstanding shares of Company Common Stock entitled to vote thereon, the
Company Board having unanimously adopted a resolution approving such
"agreement of merger" and declaring its advisability, this Agreement,
the Option Agreement and the transactions contemplated hereby and
thereby have been authorized by all necessary corporate action of the
Company and the Company Board (assuming that neither Nortel nor Sub is
an "interested stockholder" of the Company under Section 203 of the DGCL
immediately before the execution and delivery of this Agreement, the
Option Agreement and the Stockholders' Agreement).
(ii) This Agreement and the Option Agreement are legal, valid and
binding agreements of the Company, enforceable in accordance with their
terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer
and similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles, whether considered at
law or in equity).
(f) No Defaults. Subject to receipt of the regulatory approvals, and
expiration of the waiting periods, referred to in Section 5.03(r) and
required filings under federal and state securities or other laws, the
execution, delivery and performance of this Agreement and the Option
Agreement and the consummation of the transactions contemplated hereby and
thereby by the Company do not and will not (i) constitute a breach or
violation of, or a default under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license, or agreement,
indenture or instrument of the Company or of any of its Subsidiaries or to
which the Company or any of its Subsidiaries or any of their respective
properties or assets are subject or bound, (ii) constitute a breach or
violation of, or a default under, the articles or certificate of
incorporation or by-laws of the Company or any of its Subsidiaries or (iii)
require any consent or approval under any such law, rule, regulation,
judgment, decree, order, governmental permit or license, agreement,
indenture or instrument. Section 5.03(f) of the Company Disclosure Schedule
contains a list of all consents of third parties required under any
material agreement to be obtained by it or its subsidiaries prior to, or as
a result of, the consummation of the Merger.
(g) Financial Reports and SEC Documents.
(i) With respect to the periods since December 31, 1995, the
Company and its Subsidiaries have filed all reports and statements,
together with any amendments required to be made thereto, that were
required to be filed with the SEC.
(ii) The Company's Annual Reports on Form 10-K for the fiscal years
ended December 31, 1996, 1997, and 1998, its Quarterly Reports on Form
10-Q for the periods ended March 31, 1999 and June 30, 1999 and all
other reports, registration statements, definitive proxy statements or
information statements filed or to be filed by it or any of its
Subsidiaries subsequent to December 31, 1995 under the Securities Act,
or under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the
form filed, or to be filed (collectively, the "Company SEC Documents "),
with the SEC, as of the date filed (or, with respect to a document filed
prior to the date of this Agreement and amended or superseded by a
subsequent filing prior to the date of this Agreement, then on the date
of such filing as so amended or superseded) (A) complied or will comply
in all material respects as to form with the applicable requirements
under the Securities Act or the Exchange Act, as the case may be; and
(B) did not and will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
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necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; and each of the balance
sheets contained in or incorporated by reference into any such Company
SEC Document (including the related notes and schedules thereto) fairly
presents and will fairly present the financial position of the entity or
entities to which it relates as of its date, and each of the statements
of income and changes in stockholders' equity and cash flows or
equivalent statements in such Company SEC Documents (including any
related notes and schedules thereto) fairly presents and will fairly
present the results of operations, changes in stockholders' equity and
changes in cash flows, as the case may be, of the entity or entities to
which it relates for the periods to which they relate, in each case in
accordance with U.S. GAAP consistently applied during the periods
involved and Regulation S-X of the SEC, except in each case as may be
noted therein, subject to normal year-end audit adjustments in the case
of unaudited statements.
(iii) Since June 30, 1999, the Company has not incurred any
liabilities (whether absolute, accrued, contingent or otherwise) that
are of a nature that would be required to be disclosed on a balance
sheet of the Company or the footnotes related thereto prepared in
conformity with U.S. GAAP, except (x) liabilities as set forth in the
Company SEC Documents filed prior to the date of this Agreement (the
"Company Filed SEC Documents ") and (y) other liabilities incurred in
the ordinary course of business consistent with past practice, which do
not have, and would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on the Company.
(h) Litigation. Except as disclosed on Section 5.03(h) of the Company
Disclosure Schedule, no litigation, claim or other proceeding before any
court or governmental agency is pending or, to the Company's Knowledge,
threatened against the Company or any of its Subsidiaries which, if
determined adversely to the Company or any such Subsidiary, would
reasonably be expected to result in a loss of more than $100,000 or the
imposition of any material restrictions on the business of the Company or
any such Subsidiary or would materially impair the ability of the Company
to perform its obligations under this Agreement.
(i) Compliance with Laws. The Company and each of its Subsidiaries:
(i) is in compliance with all applicable federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments,
orders or decrees applicable thereto or to the employees conducting such
businesses;
(ii) has all permits, licenses, authorizations, orders and
approvals of, and has made all filings, applications and registrations
with, all Governmental Authorities that are required in order to permit
them to conduct their businesses substantially as presently conducted,
and all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect and, to its Knowledge, no
suspension or cancellation of any of them is threatened; and
(iii) has received since December 31, 1998 no written notification
or communication from any Governmental Authority (A) asserting that the
Company or any of its Subsidiaries is not in compliance with any of the
statutes, regulations or ordinances which such Governmental Authority
enforces or (B) threatening to revoke any license, franchise, permit or
governmental authorization.
(j) Material Contracts; Defaults. Except for this Agreement, the
Option Agreement, and those agreements and other documents filed as
exhibits to the Company Filed SEC Documents, as of the date of this
Agreement, neither the Company nor any of its Subsidiaries is a party to or
bound by (i) any "material contract" within the meaning of Item 601(b)(10)
of the SEC's Regulation S-K or (ii) any non-competition agreement or other
agreement or arrangement that materially restricts it or any of its
Subsidiaries from competing in any line of business. Neither it nor any of
its Subsidiaries is in default under any material contract, agreement,
commitment, arrangement, lease, insurance policy or other instrument to
which it is a party, by which its respective assets, business, or
operations may
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be bound or affected, and there has not occurred any event that, with the
lapse of time or the giving of notice or both, would constitute such a
default.
(k) No Brokers. No action has been taken by the Company, its
officers, directors or employees that would give rise to any valid claim
against any party hereto for a brokerage commission, finder's fee or other
like payment with respect to the transactions contemplated by this
Agreement, excluding fees to be paid to Morgan Stanley Dean Witter (the
"Company Financial Advisor ") pursuant to the Company's written agreement
with such firm, a true and complete copy of which has been furnished to
Nortel prior to the date of this Agreement.
(l) Employee Benefits; Employee Relations.
(i) Section 5.03(l) of the Company Disclosure Schedule contains a
complete and correct list of each Company Plan. With respect to each
Company Plan, true and complete copies have been provided to Nortel of:
(i) the plan document or agreement or, with respect to any Company Plan
that is not in writing, a written description of the terms thereof; (ii)
the trust agreement, insurance contract or other documentation of any
related funding arrangement; (iii) the summary plan description; (iv)
the most recent required Internal Revenue Service Form 5500, including
all schedules thereto; (v) any material communication to or from any
Governmental Authority, including a written description of any oral
communication; and (vi) all amendments or modifications to any such
document.
(ii) Neither the Company nor any Subsidiary thereof has
disseminated in writing or otherwise broadly or generally notified
employees of any intent or commitment (whether or not legally binding)
to create or implement any additional Plan or to amend, modify or
terminate any Company Plan, except for amendments to any Company Plan
that will not result in a material increase in the annual costs in
respect of such plan incurred or to be incurred by the Company or any of
its Subsidiaries.
(iii) Each Company Plan has been operated and administered, and is,
in compliance with its terms and all applicable laws, rules and
regulations (including ERISA and the Code and any regulations
thereunder). There are no actions, suits, claims or governmental audits
(other than routine claims for benefits in the ordinary course) pending
or, to the Knowledge of the Company, threatened with respect to any
Company Plan.
(iv) No Company Plan is, and neither the Company nor any Subsidiary
thereof contributes to or has any material liability or obligation with
respect to any Plan that is, (A) a multiemployer plan within the meaning
of Section 4001(a)(3) of ERISA, (B) any single employer plan or other
pension plan subject to Title IV or Section 302 of ERISA or Section 412
of the Code or (C) a multiple employer plan within the meaning of
Section 4063 or 4064 of ERISA. Neither the Company nor any Subsidiary
thereof is or has been a party to any collective bargaining or other
collective labor agreement or understanding.
(v) There is no pending or, to the Knowledge of the Company,
threatened labor dispute, strike, work stoppage or other concerted labor
activity against the Company or any Subsidiary thereof or involving any
of their respective employees. During the three (3) year period
immediately preceding the date hereof, to the Knowledge of the Company,
there have been no organizing activities conducted by any labor
organization or work council or the like with respect to any employee of
the Company or any subsidiary thereof. To the Knowledge of the Company,
neither the Company nor any Subsidiary thereof, nor their respective
businesses, has committed any unfair labor practices or violated in any
material respect any applicable employment laws, regulations,
ordinances, rules, orders or decrees in connection with the operation of
the respective businesses of the Company or any Subsidiary thereof, and
there is no pending or, to the Knowledge of the Company, threatened
charge, complaint, investigation or proceeding against the Company or
any of its Subsidiaries by or before the National Labor Relations Board,
the Department of Labor, the Equal Employment Opportunity Commission,
the Occupational Health
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and Safety Administration or any comparable state or municipal agency,
or by or on behalf of any employee or class of employees or by or before
any governmental agency relating to a purported violation of any
applicable employment laws, regulations, ordinances, rules, orders or
decrees.
(vi) Each Company Plan that is intended to qualify under Section
401(a) and/or 401(k) of the Code so qualifies and its trust is exempt
from taxation under Section 501(a) of the Code. The Company and its
Subsidiaries have timely paid all contributions, premiums and expenses
payable to or in respect of each Company Plan under the terms thereof
and in accordance with applicable law, including ERISA and the Code,
and, to the extent any such contributions, premiums or expenses are not
yet due, the liability therefor has been properly and adequately accrued
on the Company's financial statements included in its Quarterly Report
on Form 10-Q for the period ended June 30, 1999.
(vii) Neither the Company nor any of its Subsidiaries has incurred
or will incur, either directly or indirectly (including as a result of
an indemnification obligation), any material liability under or pursuant
to any provision of Title I or IV of ERISA or the penalty, excise tax or
joint and several liability provisions of the Code relating to employee
benefit plans, and to the Knowledge of the Company, no event,
transaction or condition has occurred, exists or is expected to occur
which could reasonably be expected to result in any such material
liability to the Company, any of its Subsidiaries or, after the
Effective Time , Nortel or any of its Affiliates.
(viii) Except as set forth in Section 5.03(l)(viii) of the
Disclosure Schedule, neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
either alone or in combination with another event (whether contingent or
otherwise) will (A) entitle any current or former employee, consultant,
officer or director of the Company or any of its Subsidiaries to any
increased or modified benefit or payment; (B) increase the amount of
compensation due to any such employee, consultant, officer or director;
(C) accelerate the vesting, payment or funding of any compensation,
stock-based benefit, incentive or other benefit; (D) result in any
"parachute payment" under Section 280G of the Code (whether or not such
payment is considered to be reasonable compensation for services
rendered); or (E) cause any compensation to fail to be deductible under
Section 162(m), or any other provision of the Code or any similar
foreign Law.
(m) Takeover Laws. The Company Board has validly approved this
Agreement, the Option Agreement and the Stockholders' Agreement and the
transactions contemplated hereby and thereby (including the Merger) for
purposes of Section 203 of the DGCL. Except for Section 203 of the DGCL
(which has been rendered inapplicable), to the Company's Knowledge, no
"moratorium", "control share", "fair price" or other antitakeover laws and
regulations of any state (collectively, "Takeover Laws") are applicable to
the Merger or the other transactions contemplated by this Agreement, the
Option Agreement and the Stockholders' Agreement.
(n) Rights Agreement. The Company Board, by a duly enacted
resolution, has approved an amendment (in the form previously furnished to
Nortel) to the Company Rights Agreement to the effect that none of Nortel,
Sub or any of their respective affiliates shall become an "Acquiring
Person" and that no "Shares Acquisition Date" or "Distribution Date" (as
such terms are defined in the Company Rights Agreement) will occur as a
result of the approval, execution or delivery of this Agreement, the Option
Agreement, the Stockholders' Agreement or the Restrictive Covenant
Agreements or the consummation of the transactions contemplated hereby or
thereby. The Company Rights Agreement shall terminate and be of no further
effect upon the Effective Time, without any consideration being payable
with respect to outstanding Company Stockholder Protection Rights
thereunder.
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(o) Environmental Matters.
(i) As used in this Agreement, "Environmental Laws " means all
applicable local, state, provincial and federal environmental, health
and safety laws (including common law) and regulations in effect on the
date of this Agreement, relating to the protection of human health and
safety as affected by exposure to pollutants, contaminants, or hazardous
or toxic wastes, substances or materials and to the protection of the
environment including, without limitation, the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response, Compensation,
and Liability Act, the Clean Water Act, the Federal Clean Air Act, and
the Occupational Safety and Health Act, each as amended, regulations
promulgated thereunder, and state counterparts.
(ii) (x) Neither the conduct or operations of the Company or its
Subsidiaries nor any condition of any property presently or previously
owned, leased or operated by any of them violates or, within the
applicable statute or limitations period, violated Environmental Laws
and (y) to the Knowledge of the Company, no condition has existed or
event has occurred with respect to any of them or any such property that
is reasonably likely to result in a Material Adverse Effect on the
Company. Neither the Company nor any of its Subsidiaries has received
any written notice from any Governmental Authority that it or its
Subsidiaries or the operation or condition of any property ever owned,
leased, operated, held as collateral or held as a fiduciary by any of
them are or were in material violation of or otherwise are alleged to
have material liability under any Environmental Law, including, but not
limited to, responsibility (or potential responsibility) for the cleanup
or other remediation of any pollutants, contaminants, or hazardous or
toxic wastes, substances or materials at, on, beneath, or originating
from any such property.
(iii) To the Company's Knowledge, none of the property currently
owned, leased or operated by the Company or by its Subsidiaries is
subject to, or as a result of this transaction would be subject to, (i)
the New Jersey Site Recovery Act or any other state or local
Environmental Laws which would impose restrictions, such as notice,
disclosure or obtaining advance approval prior to this transaction, or
(ii) any liens under any Environmental Laws.
(p) Intellectual Property.
(i) Except as set forth in Section 5.03(p)(i) of the Company
Disclosure Schedule, the Company and its Subsidiaries own or are
licensed to use all Intellectual Property Rights currently used in the
business of the Company or its Subsidiaries or necessary to conduct the
business of the Company and its Subsidiaries as currently conducted or
currently anticipated to be conducted (the "Company Intellectual
Property Rights ").
(ii) Section 5.03(p)(ii) of the Company Disclosure Schedule
contains an accurate and complete list as of the date of this Agreement
of the following categories of Company Intellectual Property Rights: (A)
Trademarks that are registered or for which an application for
registration is pending; (B) Patents; (C) Software; (D) Copyrights that
are registered or for which an application for registration is pending;
and (E) mask works. Where listed Intellectual Property Rights are
registered with a governmental authority or an application for
registration is pending, the jurisdiction, registration or application
number, date of registration or application, named owner and/or
assignee, and international classes of registration are indicated, as
applicable.
(iii) Section 5.03(p)(iii) of the Company Disclosure Schedule
contains an accurate and complete list as of the date of this Agreement
of all licenses and agreements under which the Company and its
Subsidiaries are licensed to use third party Intellectual Property
Rights. There are no licenses or sublicenses under which the Company and
its Subsidiaries have granted rights to third parties to use the Company
Intellectual Property Rights other than licenses and sublicenses which
have been furnished to Nortel and licenses and sublicenses entered into
in the ordinary course of business that conform in all material respects
with the Company's standard
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form agreements, correct and complete copies of which have been
furnished to Nortel. As soon as reasonably practicable following the
date of this Agreement, the Company will furnish to Nortel an accurate
and complete list as of the date thereof of all licenses and sublicenses
under which the Company and its Subsidiaries have granted rights to
third parties to use the Company Intellectual Property Rights, other
than licenses and sublicenses entered into in the ordinary course of
business that conform in all material respects with the Company's
standard form agreements. Except as set forth in Section 5.03(p)(iii) of
the Company Disclosure Schedule, the Company and its Subsidiaries are
not required to pay any royalties, fees or other amounts to any Person
in connection with the use of the Company Intellectual Property Rights.
(iv) The Company and its Subsidiaries have good and valid title to
all Company Intellectual Property Rights owned by any of them and valid
and enforceable license rights to all Company Intellectual Property
Rights used under license, free and clear, to the Company's Knowledge,
of all Liens, and other than as set forth in Section 5.03(p)(iv) of the
Company Disclosure Schedule, to the Company's Knowledge, all Company
Intellectual Property Rights are in full force and effect and will
remain in full force and effect immediately following the Effective
Time.
(v) The Company and its Subsidiaries have a practice to secure, and
have secured, from all consultants and contractors who contribute or
have contributed to the creation or development of Company Intellectual
Property Rights valid written assignments by such persons to the Company
and its Subsidiaries of the rights to such contributions the Company and
its Subsidiaries do not already own by operation of law. The Company and
its Subsidiaries have taken reasonable and appropriate steps to protect
and preserve the confidentiality of all of their Trade Secrets, and to
the Company's Knowledge there are no unauthorized uses, disclosures or
infringements of any Company Intellectual Property Rights, and all use
by, and disclosure to, any Person of Trade Secrets that comprise any
part of the Company Intellectual Property Rights has been pursuant to
the terms of a written agreement with such Person, and all use by the
Company and its Subsidiaries of Trade Secrets owned by another Person
has been pursuant to the terms of a written agreement with such Person
or is otherwise lawful. Neither the Company Intellectual Property Rights
nor the use or other exploitation thereof by the Company and its
Subsidiaries (or any consultant, contractor or employee of the Company
and its Subsidiaries who contributes to or has contributed to or
participated in the creation or development of Company Intellectual
Property Rights) in the conduct of their business, nor any product or
service provided by the Company and its Subsidiaries, infringes on,
misappropriates, breaches or violates any third party Intellectual
Property Rights.
(vi) Neither the Company nor any of its Subsidiaries: (A) has been
notified or is otherwise aware of any actual or threatened adverse
proceeding of any Person pertaining to any challenge to the scope,
validity or enforceability of, or the Company's ownership of, any of the
Company Intellectual Property Rights; (B) is the subject of any claim of
infringement or misappropriation by the Company or any of its
Subsidiaries of any third party Intellectual Property Rights; or (C) has
any claim for infringement or misappropriation of, or breach of any
license or agreement involving, any of the Company Intellectual Property
Rights.
(q) Tax Matters.
(i)(A) All returns, declarations, reports, estimates, information
returns and statements required to be filed on or before the Effective
Date under federal, state, local or any foreign tax laws ("Tax Returns")
with respect to it or any of its Subsidiaries, have been or will be
timely filed, or requests for extensions have been timely filed and have
not expired, except where a failure or failures to so timely file would
not, individually or in the aggregate, be expected to be material; (B)
all material Tax Returns filed by it are complete and accurate in all
material respects; (C) all Taxes shown to be due and payable (without
regard to whether such Taxes have been assessed) on such Tax Returns
have been paid or adequate reserves have been
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established for the payment of such Taxes; (D) the proper and accurate
amounts have been withheld from all employees (and timely paid to the
appropriate Governmental Authority or set aside in an account for such
purposes) for all periods through the Effective Date in compliance in
all material respects with all Tax withholding provisions of applicable
federal, state, local and foreign laws (including, without limitation,
income, social security, and employment tax withholding for all types of
compensation); (E) neither it nor any of its subsidiaries is a party to
any tax sharing or similar agreement or any agreement pursuant to which
it or any of its subsidiaries has an obligation to indemnify any party
(other than it or one of its subsidiaries) with respect to Taxes; (F)
all Taxes due with respect to completed and settled examinations or
concluded litigation relating to it or any of its subsidiaries have been
paid in full or adequate reserves have been established for the payment
thereof; and (G) no material audit or examination or refund litigation
with respect to any Tax Return is pending.
(ii) The Company has no reason to believe that any conditions exist
that might prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
(r) Regulatory Approvals. No consents or approvals of, or filings or
registrations with, any Governmental Authority or instrumentality are
necessary to consummate the Merger except (i) as may be required under, and
other applicable requirements of, the Hart-Scott Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), the Competition Act
(Canada) and antitrust or other competition laws of other jurisdictions;
(ii) as may be required by the by-laws, rules, regulations or policies of
the Canadian Stock Exchanges in respect of the assumption by Nortel, and
the exercisability by the holders, of the Company Stock Options and of the
NYSE and the Canadian Stock Exchanges in respect of the Nortel Common
Shares to be issued in the Merger and upon exercise of the Company Stock
Options to be assumed by Nortel by reason of the Merger and the listing of
such Nortel Common Shares on such stock exchanges; (iii) the filing with
the SEC of the Company Proxy Statement and the filing and declaration of
effectiveness of the Registration Statement; (iv) the filing of a
certificate of merger with the Secretary of State of the State of Delaware
pursuant to the DGCL; (v) such filings as are required to be made or
approvals as are required to be obtained under the securities or "Blue Sky"
laws of various states in connection with the issuance of Nortel Common
Shares in the Merger; (vi) such filings as are required to be made and
exemption rulings or orders as are required to be obtained under the Canada
Business Corporations Act and Canadian securities laws; and (vii) as may be
required under Section 721 of the U.S. Defense Production Act of 1950, as
amended, and the rules promulgated thereunder ("Exon-Florio") and the rules
and regulations promulgated by the U.S. Department of Defense.
(s) Fairness Opinion. On or before the date hereof, the Company
Financial Advisor has delivered its opinion to the Company Board that the
Exchange Ratio is fair, from a financial point of view, to the holders of
Company Common Stock and such opinion has not been withdrawn.
(t) Year 2000 Compliance.
(i) Except as set forth in Section 5.03(t)(i) of the Company
Disclosure Schedule, all Material Systems of the Company and its
Subsidiaries have been remediated through modification, upgrade or
replacement so that they are (A) able to receive, record, store,
process, calculate, manipulate and output dates from and after January
1, 2000, time periods that include January 1, 2000 and information that
is dependent on or relates to such dates or time periods, in the same
manner and with the same accuracy, functionality, data integrity and
performance as when dates or time periods prior to January 1, 2000 are
involved and (B) able to store and output date information in a manner
that is unambiguous as to century ("Year 2000 Compliant ").
(ii) To the Company's Knowledge, the material suppliers and vendors
of goods and services to the Company and its Subsidiaries ("Material
Suppliers ") are taking, or will in a timely
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manner take, such steps as are necessary to make their respective
Material Systems Year 2000 Compliant by December 31, 1999.
(iii) All Company products shipped to customers since September 1,
1998, are Year 2000 Compliant in all material respects and have been
tested by the Company (including custom testing of all third-party
manufactured content of such Company products) to confirm such status.
With respect to Company products shipped prior to such date, the Company
and its Subsidiaries have undertaken reasonable efforts to notify all
end-users of such products of the need to upgrade such products to be
Year 2000 Compliant and of the need to audit any custom application
products to identify any respects in which they are not Year 2000
Compliant.
(iv) The Company has furnished to Nortel copies of, or copies of
all documents relating to, (A) all complaints, investigations or audits
of any Governmental Authority, (B) all unresolved customer complaints,
demands or claims (excluding routine requests for information regarding
matters relating to the year 2000 turnover), (C) all attorney letters or
demands and (D) all litigation, arbitrations or similar proceedings, in
each case insofar as they relate to the Year 2000 Compliant status of
Company products, the cost of upgrading Company products to a Year 2000
Compliant status or injuries and damages suffered as a result of the
non-Year 2000 Compliant condition of Company products.
(v) The Company has provided to Nortel copies of its written
contingency plan relating to interruptions to its business or the
functioning of Company products caused by the year 2000 turnover, and
the Company has no other contingency plans relating thereto.
(u) No Material Adverse Effect. Since June 30, 1999, and until the
date hereof, the Company and its Subsidiaries have conducted their
respective businesses in the ordinary course (excluding the incurrence of
reasonable and customary liabilities related to this Agreement and the
transactions contemplated hereby). Since June 30, 1999, and until the date
hereof, no event has occurred or circumstance arisen that, individually or
taken together with all other facts, circumstances and events (described in
any paragraph of Section 5.03 or otherwise), has had or is reasonably
likely to have a Material Adverse Effect with respect to the Company.
5.04. Representations and Warranties of Nortel and Sub. Subject to
Sections 5.01 and 5.02 and except as Previously Disclosed, Nortel and Sub hereby
represent and warrant to the Company as follows:
(a) Organization, Standing and Authority. Each of Nortel and Sub (x)
is a corporation duly organized, validly existing and, in the case of Sub,
in good standing under the laws of the jurisdiction of its organization and
(y) is duly qualified to do business and, as applicable, is in good
standing in the provinces of Canada and in the states of the United States
and foreign jurisdictions where its ownership or leasing of property or
assets or the conduct of its business requires it to be so qualified. Each
of Nortel and Sub has in effect all federal, provincial, state, local and
foreign governmental authorizations necessary for it to own or lease its
properties and assets and to carry on its business as it is now conducted.
Each of Nortel and Sub has made available to the Company a complete and
correct copy of its constitutive documents, each as amended to date and in
full force and effect.
(b) Shares.
(i) As of the date hereof, the authorized capital stock of Nortel
consists solely of (A) an unlimited number of Nortel Common Shares, of
which 1,361,621,637 shares were outstanding as of September 30, 1999;
(B) an unlimited number of Class A Preferred Shares issuable in series,
without nominal or par value, of which 200 Cumulative Redeemable Class A
Preferred Shares Series 4 (which are exchangeable at certain times, and
subject to certain conditions, into Nortel Common Shares), 16,000,000
Cumulative Redeemable Class A Preferred Shares Series 5 (which are
convertible at certain times, and subject to certain conditions, into an
equal number of Cumulative Redeemable Class A Preferred Shares Series 6)
and 14,000,000 Non-cumulative Redeemable Class A Preferred Shares Series
7 (which are convertible at certain times, and subject to certain
conditions, into an equal number of Non-cumulative Redeemable Class A
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Preferred Shares Series 8) were outstanding as of September 30, 1999;
and (C) an unlimited number of Class B Preferred Shares, issuable in
series, without nominal or par value, of which no shares were
outstanding as of September 30, 1999. As of the date hereof, there are
no outstanding Rights to acquire capital stock from Nortel other than
pursuant to the stock option and other employee compensation plans of
Nortel and its subsidiaries, Nortel's shareholder dividend reinvestment
and stock purchase plan, the exchange rights associated with Nortel's
Series 4 Preferred Shares that are described in the Nortel SEC Documents
and under the Agreement and Plan of Merger dated as of August 24, 1999
by and among Nortel, a subsidiary of Nortel and Periphonics Corporation.
(ii) The authorized capital stock of Sub consists of one share of
common stock, $0.0001 per share, which one share is outstanding and is
owned directly by Nortel. Sub has not conducted any business prior to
the date hereof and has no Subsidiaries and no assets, liabilities or
obligations of any nature other than incident to its formation and
incident to this Agreement.
(iii) The outstanding shares of Nortel's and Sub's capital stock
have been duly authorized and are validly issued and outstanding, fully
paid and nonassessable, and subject to no preemptive rights (and were
not issued in violation of any preemptive rights). As of the date
hereof, there are no shares of capital stock of Sub authorized and
reserved for issuance and Sub does not have any Rights issued or
outstanding with respect to its capital stock or any commitment to
authorize, issue or sell any such shares or Rights, except pursuant to
this Agreement.
(iv) The Nortel Common Shares to be issued in exchange for shares
of Company Common Stock in the Merger or upon exercise of Company Stock
Options to be assumed by Nortel by reason of the Merger, when issued
will be duly authorized, validly issued, fully paid and nonassessable
and will not have been issued in violation of any subscriptive or
preemptive rights.
(c) Corporate Power. Each of Nortel and Sub has the corporate power
and authority to carry on its business as it is now being conducted and to
own all its properties and assets; and each of Nortel and Sub has the
corporate power and authority to execute, deliver and perform its
obligations under this Agreement and, in the case of Nortel, the Option
Agreement and to consummate the transactions contemplated hereby and, in
the case of Nortel, thereby.
(d) Corporate Authority. (i) This Agreement and the transactions
contemplated hereby, including the issuance of Nortel Common Shares in the
Merger or upon the exercise of Company Stock Options to be assumed by
Nortel by reason of the Merger, and the Option Agreement and the
transactions contemplated thereby, as applicable, have been authorized and
approved by all necessary corporate action of Nortel (no shareholder
approvals being required under the Canada Business Corporations Act), Sub,
the Nortel Board and the Board of Directors of Sub prior to the date hereof
(which action has not been rescinded or modified in any way) and (ii) each
of this Agreement and, in the case of Nortel, the Option Agreement, is a
legal, valid and binding agreement of each of Nortel and Sub, enforceable
in accordance with its terms (except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to
or affecting creditors' rights or by general equity principles, whether
considered at law or in equity).
(e) No Defaults. Subject to receipt of the regulatory approvals, and
expiration of the waiting periods, referred to in Section 5.04(i) and any
required filings under federal, state and provincial securities laws and
the Canada Business Corporations Act, the execution, delivery and
performance of this Agreement and, as applicable, the Option Agreement and
the consummation of the transactions contemplated hereby and, as
applicable, thereby by Nortel and Sub do not and will not (i) constitute a
material breach or violation of, or a material default under, any law, rule
or regulation or any judgment, decree, order, governmental permit or
license, or agreement, indenture or instrument of Nortel or of any of
Nortel's Subsidiaries or to which it or any of its Subsidiaries or any of
their respective properties or assets are subject or bound, (ii) constitute
a breach or violation of, or a default under, the articles or certificate
of incorporation or by-laws of either Nortel or Sub, or (iii)
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require any consent or approval under any such material law, rule,
regulation, judgment, decree, order, governmental permit or license,
agreement, indenture or instrument.
(f) Financial Reports and SEC Documents. Nortel's Annual Reports on
Form 10-K for the fiscal years ended December 31, 1996, 1997 and 1998, its
Quarterly Reports on Form 10-Q for the periods ended March 31, 1999 and
June 30, 1999, and all other reports or registration statements, filed or
to be filed by it or any of its Subsidiaries subsequent to December 31,
1996 under the Securities Act, or under Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act, in the form filed, or to be filed (collectively, the
"Nortel SEC Documents "), with the SEC, as of the date filed (A) complied
or will comply in all material respects as to form with the applicable
requirements under the Securities Act or the Exchange Act, as the case may
be; and (B) did not and will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; and each of the balance sheets
contained in or incorporated by reference into any such Nortel SEC Document
(including the related notes and schedules thereto) fairly presents and
will fairly present the financial position of the entity or entities to
which it relates as of its date, and each of the statements of income and
changes in stockholders' equity and cash flows or equivalent statements in
such Nortel SEC Documents (including any related notes and schedules
thereto) fairly presents and will fairly present the results of operations,
changes in stockholders' equity and changes in cash flows, as the case may
be, of the entity or entities to which it relates for the periods to which
they relate, in each case in accordance with Canadian GAAP consistently
applied during the periods involved and Regulation S-X of the SEC, except
in each case as may be noted therein, subject to normal year-end audit
adjustments in the case of unaudited statements. The books and records of
Nortel and its Subsidiaries have been, and are being, maintained in all
material respects in accordance with Canadian GAAP and any other applicable
legal and accounting requirements and reflect only actual transactions.
(g) Litigation. Except as Previously Disclosed, no litigation, claim
or other proceeding before any court or governmental agency that is pending
or, to Nortel's Knowledge, threatened against Nortel or any of its
Subsidiaries would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Nortel.
(h) No Brokers. No action has been taken by it that would give rise
to any valid claim against any party hereto for a brokerage commission,
finder's fee or other like payment with respect to the transactions
contemplated by this Agreement, excluding fees to be paid to Credit Suisse
First Boston.
(i) Regulatory Approvals. No consents or approvals of, or filings or
registrations with, any Governmental Authority or with any third party are
necessary to consummate the Merger except for (i) as may be required under,
and other applicable requirements of, the HSR Act and the Competition Act
(Canada); (ii) as may be required by the by-laws, rules, regulations or
policies of the Canadian Stock Exchanges in respect of the assumption by
Nortel, and the exercisability by the holders, of the Company Stock Options
and of the NYSE and the Canadian Stock Exchanges in respect of the Nortel
Common Shares to be issued in the Merger and upon the exercise of the
Company Stock Options to be assumed by Nortel by reason of the Merger and
the listing of such Nortel Common Shares on such stock exchanges; (iii) the
filing with the SEC of the Company Proxy Statement in definitive form and
the filing and declaration of effectiveness of the Registration Statement;
(iv) the filing of a certificate of merger with the Secretary of State of
the State of Delaware pursuant to the DGCL; (v) such filings as are
required to be made or approvals as are required to be obtained under the
securities or "Blue Sky" laws of various states in connection with the
issuance of Nortel Common Shares in the Merger; (vi) such filings as are
required to be made and exemption rulings or orders as are required to be
obtained under the Canada Business Corporations Act and Canadian securities
laws; and (vii) as may be required under Exon-Florio and the rules and
regulations promulgated by the U.S. Department of Defense.
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(j) No Material Adverse Effect. Since December 31, 1998, until the
date hereof, no event has occurred or circumstance arisen that,
individually or taken together with all other facts, circumstances and
events (described in any paragraph of Section 5.04 or otherwise), has had
or is reasonably likely to have a Material Adverse Effect with respect to
Nortel.
ARTICLE VI
COVENANTS
The Company hereby covenants to and agrees with Nortel, and each of Nortel
and Sub hereby covenants to and agrees with the Company, that:
6.01. Reasonable Best Efforts. Subject to the terms and conditions of
this Agreement, it shall use its reasonable best efforts in good faith to take,
or cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or desirable (including obtaining any consents of third
parties required under any agreement to be obtained by it or its subsidiaries
prior to, or as a result of, the consummation of the Merger so that such
agreement is not terminable as a result of the Merger), or advisable under
applicable laws, so as to permit consummation of the Merger as promptly as
practicable and otherwise to enable consummation of the transactions
contemplated hereby and shall cooperate fully with the other party hereto to
that end. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purpose of this Agreement or to vest the
Surviving Corporation with full title to all properties, assets, rights,
approvals, immunities and franchises of any of the parties to the Merger, the
proper officers and directors of each party to this Agreement and their
respective Subsidiaries shall take all such necessary action as may be
reasonably requested by, and at the sole expense of, Nortel.
6.02. Stockholder Approvals. The Company shall take, in accordance with
this Agreement, applicable law, applicable NASD rules and its certificate of
incorporation and by-laws, all action necessary to convene an appropriate
meeting of stockholders of the Company to consider and vote upon the approval
and adoption of the "agreement of merger" (as such term is used in Section 251
of the DGCL) contained in this Agreement and the Merger and any other matters
required to be approved by the Company's stockholders for consummation of the
Merger (including any adjournment or postponement, the "Company Meeting ") as
promptly as practicable. The Company Board, subject to Section 6.06, shall at
all times recommend such approval and shall take all reasonable lawful action to
solicit such approval by its stockholders.
6.03. Registration Statement. (a) Each of Nortel and the Company agrees
to cooperate in the preparation of a registration statement on Form S-4 (the
"Registration Statement ") to be filed by Nortel with the SEC in connection with
the issuance of Nortel Common Shares in the Merger (including the proxy
statement and prospectus and other proxy solicitation materials of the Company
constituting a part thereof (the "Company Proxy Statement ") and all related
documents). The Registration Statement and the Company Proxy Statement shall
comply as to form in all material respects with the applicable provisions of the
Securities Act and the Exchange Act and the rules and regulations thereunder.
Provided the other party has cooperated as required above, the Company agrees to
file the Company Proxy Statement in preliminary form with the SEC as promptly as
reasonably practicable, and Nortel agrees to file the Registration Statement
with the SEC as promptly as reasonably practicable after any SEC comments with
respect to the preliminary Proxy Statement are resolved or at such earlier time
as Nortel may elect. Each of Nortel and the Company shall, as promptly as
practicable after receipt thereof, provide copies of any written comments
received from the SEC with respect to the Registration Statement and the Company
Proxy Statement, as the case may be, to the other party, and advise the other
party of any oral comments with respect to the Registration Statement or the
Company Proxy Statement received from the SEC. Each of Nortel and the Company
agrees to use reasonable best efforts to cause the Registration Statement to be
declared effective under the Securities Act as promptly as reasonably
practicable after filing thereof, and the Company agrees to mail the Company
Proxy Statement to its shareholders as promptly as practicable after the
Registration Statement is declared effective. Nortel also agrees to use
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reasonable best efforts to obtain all necessary state securities law or "Blue
Sky" permits and approvals required to carry out the transactions contemplated
by this Agreement. The Company agrees to furnish to Nortel all information
concerning the Company, its Subsidiaries, officers, directors and stockholders
as may be reasonably requested in connection with the foregoing.
(b) Each of Nortel and the Company agrees, as to itself and its
Subsidiaries, that none of the information supplied or to be supplied by it for
inclusion or incorporation by reference in (i) the Registration Statement will,
at the time the Registration Statement and each amendment or supplement thereto,
if any, becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and (ii) the
Company Proxy Statement and any amendment or supplement thereto will, at the
date of mailing to stockholders and at the time of the Company Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.
(c) Nortel agrees to advise the Company, promptly after Nortel receives
notice thereof, of the time when the Registration Statement has become effective
or any supplement or amendment has been filed, of the issuance of any stop order
or the suspension of the qualification of the Nortel Common Shares for offering
or sale in any jurisdiction, of the initiation or threat of any proceeding for
any such purpose, or of any request by the SEC for the amendment or supplement
of the Registration Statement or for additional information.
(d) Nortel will use its reasonable best efforts to obtain, and will provide
evidence reasonably satisfactory to the Company, of all necessary rulings or
orders of Canadian securities regulatory authorities exempting the distribution
by Nortel of the Nortel Common Shares and options to purchase Nortel Common
Shares under the Merger and the resale of Nortel Common Shares issued under the
Merger in Canada as contemplated by this Agreement from the registration and
prospectus requirements under applicable Canadian securities laws on terms
reasonably satisfactory to Nortel and the Company.
6.04. Press Releases. Nortel and the Company shall jointly agree on an
initial press release with respect to the transactions contemplated hereby and
in compliance with applicable law, and shall cooperate in connection with any
subsequent press releases or written statements for general circulation. The
Company will not, without the prior approval of Nortel, issue any other press
release or written statement for general circulation (including any written
statement circulated to employees, customers or other third parties) relating to
the transactions contemplated hereby, except, based on the advice of counsel, as
otherwise required by applicable law or regulation or NASD rules and only after
consulting, or using its reasonable best efforts to consult, with Nortel.
6.05. Access; Information. (a) Upon reasonable notice and subject to
applicable laws relating to the exchange of information, the Company shall
afford to the officers, employees, counsel, accountants and other authorized
representatives of Nortel, reasonable access, during normal business hours
throughout the period prior to the Effective Date, to all of its properties,
books, contracts, commitments and records and, during such period, it shall
furnish promptly to Nortel (i) a copy of each material report, schedule and
other document filed by it pursuant to the requirements of federal or state
securities laws, and (ii) all other information concerning the business,
properties and personnel of it as Nortel may reasonably request; provided that
such information may not be used for any purpose unrelated to the consummation
of the transactions contemplated by this Agreement. The Company shall promptly
inform Nortel of any material litigation, claim or other proceeding before any
court or other governmental authority that arises following the date of this
Agreement and any material development in any such existing material litigation,
claim or other proceeding. The Company and its Subsidiaries shall not be
required to provide access to or to disclose information where such access or
disclosure would contravene any law, rule, regulation, order, judgment, decree
or agreement. Nortel and the Company shall make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply.
(b) Subject to the requirements of applicable law, pending consummation of
the Merger, all non-public information provided by the Company to Nortel and
Nortel to the Company pursuant to this
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Agreement or otherwise will remain subject to the obligations of Nortel and the
Company under the Confidentiality Agreement.
(c) No investigation by a party, pursuant to this Section 6.05 or
otherwise, shall affect or be deemed to modify any representation or warranty of
the other party contained herein.
6.06. Acquisition Proposals. (a) The Company shall not, and shall cause
its Subsidiaries and the officers, directors, agents and advisors of the Company
and its Subsidiaries not to, initiate, solicit or encourage inquiries or
proposals with respect to, or engage in any negotiations concerning, or provide
any confidential information to, or have any discussions with, any person
relating to, any Acquisition Proposal. Notwithstanding the foregoing, the
Company shall be permitted to engage in any discussions or negotiations with, or
provide any information to, any Person in response to a bona fide written
Acquisition Proposal by any such Person received by the Company, if and only to
the extent that in each such case such proposal was not solicited or encouraged
in violation of this Agreement and (i) the Company Meeting shall not have
occurred; (ii) the Company Board determines in good faith that such Acquisition
Proposal would, if consummated, constitute a Superior Proposal and is reasonably
likely to be consummated; (iii) the Company Board determines, in good faith
after consultation with outside counsel, that such action is legally required as
a matter of the fiduciary duties of the directors under applicable law; and (iv)
prior to providing any information or data to any Person or entering into
discussions or negotiations with any Person, the Company receives from such
Person an executed confidentiality agreement containing terms no less
restrictive with respect to such Person than the terms of the Confidentiality
Agreement with respect to Nortel. The Company shall notify Nortel promptly, but
in any event within 24 hours, of any such inquiries, proposals, or offers
received by, any such information requested from, or any such discussions or
negotiations sought to be initiated or continued with, any of its
representatives indicating, in connection with such notice, the name of such
Person and the material terms and conditions of any proposals or offers. For the
purposes of this Agreement, "Superior Proposal " shall mean any bona fide
written Acquisition Proposal made by a third party that was not solicited or
encouraged in violation of this Agreement and which the Company Board determines
in its good faith judgment (based on the opinion to such effect by a financial
advisor of nationally recognized reputation) to be materially more favorable to
the stockholders of the Company than the transactions contemplated by this
Agreement. The Company shall immediately cease and cause to be terminated any
activities, discussions or negotiations conducted prior to the date of this
Agreement with any parties other than Nortel with respect to any Acquisition
Proposal. The Company shall advise Nortel of any material developments with
respect to any proposal as to which the Company is exercising its rights
pursuant to the second sentence of this Section 6.06 promptly upon the
occurrence thereof.
(b) Subject to Section 8.01(e)(ii), neither the Company Board nor any
committee thereof shall (i) approve or recommend, or propose to approve or
recommend, any Acquisition Proposal, (ii) cause the Company or any of its
Subsidiaries to enter into any letter of intent, agreement in principle,
acquisition agreement, merger agreement or other similar agreement with respect
to any Acquisition Proposal or (iii) other than in accordance with subsection
(c) below, withdraw or modify, in a manner adverse to Nortel, or fail to make,
the recommendation to Company stockholders of such "agreement of merger."
(c) Notwithstanding subsection (b)(iii) above, in the event (but only in
the event) that the Company Board determines in good faith, after consultation
with outside counsel, that, having received a Superior Proposal, such action is
legally required as a matter of the fiduciary duties of the directors under
applicable law, the Company Board may withdraw or modify its recommendation to
Company stockholders of the "agreement of merger" contained in this Agreement
(or not recommend it in the Company Proxy Statement), but only at a time that is
after the third Business Day following Nortel's receipt of written notice
advising Nortel that the Company Board has received a proposal which may be a
Superior Proposal, specifying the material terms and conditions of such proposal
and identifying the Person making such proposal. Nothing in this Section 6.06
shall affect the Company's obligations under the first sentence of Section 6.02.
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(d) Nothing in this Section 6.06 shall (i) prohibit the Company from
complying, to the extent applicable, with Rules 14d-9 and 14e-2(a) promulgated
under the Exchange Act with respect to an Acquisition Proposal or (ii) permit
the Company to violate its obligations under the first sentence of Section 6.02.
6.07. Affiliate Agreements. (a) Not later than the mailing of the Company
Proxy Statement, the Company shall deliver to Nortel a schedule of each person
that, to the best of its knowledge, is or is reasonably likely to be, as of the
date of the Company Meeting, deemed to be an "affiliate" of it (each, a "Company
Affiliate") as that term is used in Rule 145 under the Securities Act.
Thereafter, the Company shall promptly notify Nortel upon becoming aware of any
other person that is or is reasonably likely to be, as of the date of the
Company Meeting, deemed to be a Company Affiliate.
(b) The Company shall use its reasonable best efforts to cause each person
who may be deemed to be a Company Affiliate to execute and deliver to Nortel on
or before the date of mailing of the Company Proxy Statement (or, in the case of
any person identified as a possible Company Affiliate after such date, as
promptly thereafter as possible) an agreement in the form attached hereto as
Exhibit A.
6.08. Takeover Laws. Subject to Section 6.06, no party shall take any
action that would cause the transactions contemplated by this Agreement, the
Option Agreement and the Stockholders' Agreement to be subject to requirements
imposed by any Takeover Law and each of them shall take all necessary steps
within its control to exempt (or ensure the continued exemption of), or minimize
the effect on, the transactions contemplated by this Agreement and the Option
Agreement from, or if necessary challenge the validity or applicability of, any
applicable Takeover Law, as now or hereafter in effect, including, without
limitation, Section 203 of the DGCL or any other Takeover Laws that purport to
apply to this Agreement or the Option Agreement or the transactions contemplated
hereby or thereby.
6.09. The Company Rights Agreement. The Company Board shall take all
further action (in addition to that referred to in Section 5.03(n)) necessary
(including redeeming the Company Stockholder Protection Rights immediately prior
to the Effective Time or amending the Company Rights Agreement) in order to
render the Company Stockholder Protection Rights inapplicable to the Merger and
the other transactions contemplated by this Agreement, the Option Agreement and
the Stockholders' Agreement. The Company Board shall take no action (including
redeeming the Company Stockholder Protection Rights or amending the Company
Rights Agreement) in order to render the Company Stockholder Protection Rights
inapplicable in connection with any Acquisition Proposal.
6.10. Shares Listed. Nortel shall use its reasonable best efforts to
list, prior to the Effective Date, on the NYSE and the Canadian Stock Exchanges,
subject to official notice of issuance, the Nortel Common Shares to be issued to
the holders of Company Common Stock in the Merger and upon exercise of Company
Stock Options to be assumed by Nortel by reason of the Merger.
6.11. Regulatory Applications. (a) Nortel and the Company and their
respective Subsidiaries shall cooperate and use their respective reasonable best
efforts (i) to prepare all documentation, to effect all filings (including,
without limitation, filings under the HSR Act and the Competition Act (Canada))
and to obtain all permits, consents, approvals and authorizations of all third
parties and Governmental Authorities necessary to consummate the transactions
contemplated by this Agreement and (ii) to cause the Merger to be consummated as
expeditiously as reasonably practicable. Each of Nortel and the Company shall
have the right to review in advance, and to the extent practicable each will
consult with the other, in each case subject to applicable laws relating to the
exchange of information, with respect to, all material written information
submitted to any third party or any Governmental Authority in connection with
the transactions contemplated by this Agreement. In exercising the foregoing
right, each of the parties hereto agrees to act reasonably and as promptly as
practicable. Each party hereto agrees that it will consult with the other party
hereto with respect to the obtaining of all material permits, consents,
approvals and authorizations of all third parties and Governmental Authorities
necessary or advisable to consummate the transactions contemplated by this
Agreement and each party will keep the other party apprised of the status of
material matters relating to completion of the transactions contemplated hereby.
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(b) Each party agrees, upon request, to furnish the other party with all
information concerning itself, its Subsidiaries, directors, officers and
stockholders and such other matters as may be reasonably necessary or advisable
in connection with any filing, notice or application made by or on behalf of
such other party or any of its Subsidiaries to any third party or Governmental
Authority.
(c) In furtherance and not in limitation of the covenants of the parties
contained in Sections 6.11(a) and (b), if any objections are asserted with
respect to the transactions contemplated hereby under any Regulatory Law or if
any suit is instituted or threatened by any Governmental Authority or any
private party challenging any of the transactions contemplated hereby as
violative of any Regulatory Law, each of Nortel and the Company shall use its
reasonable best efforts to resolve any such objections or challenge as such
Governmental Authority or private party may have to such transactions under such
Regulatory Law so as to permit consummation of the transactions contemplated by
this Agreement, and if any administrative or judicial action or proceeding,
including any proceeding by a private party, is instituted (or threatened to be
instituted) challenging any transaction contemplated by this Agreement as
violative of any Regulatory Law, each of Nortel and the Company shall cooperate
in all respects with each other and use its respective reasonable best efforts
to contest and resist any such action or proceeding and to have vacated, lifted,
reversed or overturned any decree, judgment, injunction or other order, whether
temporary, preliminary or permanent, that is in effect and prohibits, prevents
or restricts consummation of the transactions contemplated by this Agreement.
Notwithstanding the foregoing or any other provision of this Agreement, nothing
in this Section 6.11 shall limit a party's right to terminate this Agreement
pursuant to Section 7.01(b) or 8.01(d) so long as such party has theretofore
complied in all respects with its obligations under this Section 6.11.
(d) Nothing contained in this Agreement shall require Nortel or any of its
Subsidiaries to sell or otherwise dispose of, or to hold separately, or permit
the sale or other disposition of, any assets of Nortel, the Company or their
respective Subsidiaries, or require Nortel to refrain from exercising full
authority over the Company and its Subsidiaries after the Effective Time,
whether as a condition to obtaining any approval from a Governmental Authority
or any other Person or for any other reason.
6.12. Indemnification. (a) Following the Effective Date and until the
expiration of any applicable statutory limitations period, the Surviving
Corporation shall indemnify, defend and hold harmless the present and former
directors and officers of the Company and its Subsidiaries (each, an
"Indemnified Party ") against all costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
(collectively, "Costs ") incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of actions or omissions occurring at or prior to the
Effective Time (including, without limitation, the transactions contemplated by
this Agreement and the Option Agreement) to the fullest extent that the Company
is permitted to indemnify its directors and officers under the laws of the State
of Delaware, the Company Certificate and the Company's by-laws as in effect on
the date hereof (and the Surviving Corporation shall also advance expenses as
incurred to the fullest extent permitted under applicable law).
(b) For a period of six years from the Effective Time, Nortel shall provide
a "runoff " policy with respect to that portion of director's and officer's
liability insurance that serves to cover the present and former officers and
directors of the Company and its Subsidiaries (determined as of the Effective
Time) with respect to claims against such directors and officers arising from
facts or events which occurred at or before the Effective Time, which "runoff "
insurance shall contain at least the same maximum coverage and amounts to such
officers and directors, and contain terms and conditions no less advantageous,
as that coverage currently provided by the Company; provided, however, that in
no event shall Nortel be required to expend to maintain or obtain the insurance
called for by this Section 6.12(b) more than 200 percent of the current annual
amount expended by the Company to maintain or procure such directors and
officers insurance coverage for the current year (the "Insurance Amount ");
provided, further, that if Nortel is unable to maintain or obtain the insurance
called for by this Section 6.12(b), Nortel shall use its reasonable best efforts
to obtain as much comparable insurance as is available for the Insurance Amount;
provided, further, that officers and directors of the Company or any Subsidiary
of the Company may be
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required to make application and provide customary representations and
warranties to Nortel's insurance carrier for the purpose of obtaining such
insurance.
(c) Any Indemnified Party wishing to claim indemnification under Section
6.12(a), upon learning of any claim, action, suit, proceeding or investigation
described above, shall promptly notify Nortel thereof; provided, that the
failure so to notify shall not affect the obligations of Nortel under Section
6.12(a) unless and to the extent such failure materially increases Nortel's
liability under such subsection (a).
(d) If Nortel or any of its successors or assigns shall consolidate with or
merge into any other entity and shall not be the continuing or surviving entity
of such consolidation or merger or shall transfer all or substantially all of
its assets to any entity, then and in each case, proper provision shall be made
so that the successors and assigns of Nortel shall assume the obligations set
forth in this Section 6.12.
6.13. Certain Employee Benefit Matters. (a) For the one year period
ending on the first anniversary of the Effective Date (the "Continuation
Period "), the Surviving Corporation shall, or shall cause its Subsidiaries to,
(i) pay to each of their respective employees, during any portion of the
Continuation Period that such employee is employed by the Surviving Corporation
or any such Subsidiary, an annual salary or hourly wage rate, as applicable,
that is no less than the annual salary or hourly wage rate payable to such
employee immediately prior to the Effective Time and (ii) provide such employees
in the aggregate with employee benefits, during any portion of the Continuation
Period that such employees are employed by the Surviving Corporation or any such
Subsidiary, that are substantially similar in the aggregate to the employee
benefits provided to such employees pursuant to the Company Plans (other than
equity based benefits) immediately prior to the Effective Time. Notwithstanding
any other provision herein, none of the Surviving Corporation, any of its
Subsidiaries or Nortel will have any obligation to continue the employment of
any such employee for any period following the Effective Time.
(b) With respect to the Plans, if any, of Nortel or Nortel's Subsidiaries
in which employees of the Company or its Subsidiaries ("Company Employees")
become eligible to participate after the Effective Time (the "Nortel Plans"),
Nortel shall, or shall cause its Subsidiaries or the Surviving Corporation to:
(i) with respect to each Nortel Plan that is a medical or health plan, (x) waive
any exclusions for pre-existing conditions under such Nortel Plan that would
result in a lack of coverage for any condition for which the applicable Company
Employee would have been entitled to coverage under the corresponding Company
Plan in which such Company Employee was an active participant immediately prior
to his or her transfer to the Nortel Plan; (y) waive any waiting period under
such Nortel Plan to the extent that such period exceeds the corresponding
waiting period under the corresponding Company Plan in which such Company
Employee was an active participant immediately prior to his or her transfer to
the Nortel Plan (after taking into account the service credit provided for
herein for purposes of satisfying such waiting period); and (z) provide each
Company Employee with credit for any co-payments and deductibles paid by such
Company Employee prior to his or her transfer to the Nortel Plan (to the same
extent such credit was given under the analogous Company Plan prior to such
transfer) in satisfying any applicable deductible or out-of-pocket requirements
under such Nortel Plan for the plan year that includes such transfer; and (ii)
recognize service of the Company Employees with the Company or any of its
Subsidiaries for purposes of eligibility to participate and vesting credit, and,
solely with respect to vacation benefits, benefit accrual in any Nortel Plan in
which the Company Employees are eligible to participate after the Effective Time
to the extent that such service was recognized for that purpose under the
analogous Company Plan prior to such transfer; provided that the foregoing shall
not apply to the extent it would result in duplication of benefits. Nothing in
this paragraph shall be interpreted to require Nortel to provide for the
participation of any Company Employee in any Nortel Plan.
(c) To the extent applicable, Nortel and the Company shall each take such
reasonable steps as are required to cause the disposition and acquisition of
equity securities (including derivative securities) pursuant to Article III of
this Agreement in connection with the consummation of the Merger by each
individual who is an officer or director of the Company to qualify for exemption
from Section 16(b) of the Exchange Act pursuant to Rule 16b-3(e) promulgated
under the Exchange Act.
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(d) For the one year period following the Effective Time, Company Employees
shall be eligible to participate in severance benefit plans that provide
severance benefits on substantially the same terms and conditions and in
substantially the same amounts as the severance benefits provided to similarly
situated employees of Nortel and its Subsidiaries. The service of the Company
Employees with the Company or any of its Subsidiaries completed prior to the
Effective Time shall be recognized for purposes of determining the severance
benefits, if any, payable to Company Employees at any time after the Effective
Time.
6.14. Accountants' Letters. The Company shall use its reasonable best
efforts to cause to be delivered to Nortel a letter or letters of
PricewaterhouseCoopers L.L.P. or Deloitte & Touche LLP, independent auditors
(the "Company's Accountants"), and Nortel shall use its reasonable best efforts
to cause to be delivered to the Company a letter of Deloitte & Touche LLP,
independent auditors ("Nortel's Accountants"), each dated a date within two
Business Days of the date on which the Registration Statement shall become
effective and addressed to such other party, and in form and substance customary
for "comfort" letters delivered by independent accountants (x) in the case of
the Company's Accountants, in accordance with Statement of Accounting Standards
No. 72 and (y) in the case of Nortel's Accountants, in accordance with the
Handbook of The Canadian Institute of Chartered Accountants.
6.15. Notification of Certain Matters. (a) Each of the Company and Nortel
shall give prompt notice to the other of any fact, event or circumstance known
to it that would cause or constitute a material breach of any of its
representations, warranties, covenants or agreements contained herein.
(b) Nortel shall promptly notify the Company, and the Company shall
promptly notify Nortel, in writing, of any notice or other communication from
any regulatory authority or self-regulatory organization in connection with the
transactions contemplated by this Agreement or the Option Agreement.
(c) Each of Nortel and the Company shall promptly notify the other of any
fact, event or circumstance known to it that could reasonably be expected to,
individually or taken together with all other facts, events and circumstances
known to it, cause the Merger to fail to qualify as a "reorganization" within
the meaning of Section 368(a) of the Code.
6.16. Certain Tax Matters. Each of Nortel and the Company will use its
reasonable best efforts to cause the Merger to qualify as, and will not (either
before or after the Effective Date) take any action that is reasonably likely to
prevent the Merger from qualifying as, a reorganization within the meaning of
Section 368(a) of the Code that is not subject to Section 367(a)(1) of the Code
pursuant to U.S. Treasury Regulation Section 1.367(a)-3(c) (other than with
respect to holders of Company Common Stock who are or will be "5% transferee
shareholders" within the meaning of U.S. Treasury Regulation Section
1.367(a)-3(c)(5)(ii)), and will use its reasonable best efforts to timely
satisfy, or cause to be timely satisfied, all applicable tax reporting and
filing requirements contained in the Code and U.S. Treasury Regulations with
respect to the Merger, including the reporting requirements contained in U.S.
Treasury Regulation Section 1.367(a)-3(c)(6).
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.01. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each of Nortel, Sub and the Company to consummate the
Merger is subject to the fulfillment or written waiver by Nortel, Sub and the
Company prior to the Effective Time of each of the following conditions:
(a) Stockholder Approvals. This "agreement of merger" (as that term
is used in Section 251 of the DGCL) and the Merger shall have been duly
adopted by the requisite vote of the stockholders of the Company.
(b) Regulatory Approvals. All regulatory approvals required to
consummate the transactions contemplated hereby shall have been obtained
and shall remain in full force and effect and all
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statutory waiting periods in respect thereof shall have expired and (in the
case of Nortel's obligation to consummate the Merger) no such approvals
shall contain any conditions, restrictions or requirements which would
reasonably be expected to (i) following the Effective Time, have a Material
Adverse Effect on Nortel and its Subsidiaries taken as a whole or on the
Surviving Corporation or (ii) require Nortel to take any action that it is
not required to take under Section 6.11(d) hereof.
(c) No Injunction. No Governmental Authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, judgment, decree, injunction or other order
(whether temporary, preliminary or permanent) which is in effect and
enjoins or prohibits consummation of the Merger.
(d) Registration Statement. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and be
in effect and no proceedings for that purpose shall have been initiated or
threatened by the SEC and not concluded or withdrawn.
(e) Listing. The Nortel Common Shares to be issued in the Merger and
upon exercise of Company Stock Options to be assumed by Nortel by reason of
the Merger shall have received conditional approval for listing on the NYSE
and the Canadian Stock Exchanges, subject to official notice of issuance.
7.02. Conditions to Obligation of the Company. The obligation of the
Company to consummate the Merger is also subject to the fulfillment or written
waiver by the Company prior to the Effective Time of each of the following
conditions:
(a) Representations and Warranties. All representations and
warranties of Nortel set forth in this Agreement (giving effect to the
standard set forth in Section 5.02) shall be true and correct as of the
date of this Agreement and as of the Effective Date as though made on and
as of the Effective Date (except that representations and warranties that
by their terms speak as of the date of this Agreement or some other date
shall be true and correct as of such date); and the Company shall have
received a certificate, dated the Effective Date, signed on behalf of
Nortel by the Chief Executive Officer or the Chief Financial Officer of
Nortel to such effect.
(b) Performance of Obligations. Nortel shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Effective Time, and the Company shall have
received a certificate, dated the Effective Date, signed on behalf of
Nortel by the Chief Executive Officer or the Chief Financial Officer of
Nortel to such effect.
(c) Opinion of the Company's Counsel. The Company shall have received
an opinion of Venture Law Group, A Professional Corporation, counsel to the
Company, dated the Effective Date, to the effect that, on the basis of
facts, representations and assumptions set forth in such opinion, (a) the
Merger constitutes a reorganization within the meaning of Section 368 (a)
of the Code, (b) Nortel shall be treated as a corporation under Section
367(a)(1) of the Code with respect to each transfer of property thereto
pursuant to the Merger, and (c) that, accordingly, (i) no gain or loss will
be recognized by the Company as a result of the Merger and (ii) no gain or
loss will be recognized by a stockholder of the Company who receives Nortel
Common Shares in exchange for shares of Company Common Stock, except with
respect to cash received in lieu of fractional share interests. In
rendering its opinion, such counsel may require and rely upon
representations contained in letters from the Company, Nortel, Sub and
stockholders of the Company. Counsel's opinion shall not address the tax
consequences applicable to any stockholder of the Company who, immediately
after the Merger, will be a "five percent transferee shareholder" with
respect to Nortel within the meaning of U.S. Treasury Regulation Section
1.367(a)-3(c)(5).
(d) No Material Adverse Effect. From the date of this Agreement, no
event shall have occurred or circumstance arisen or been discovered that,
individually or taken together with all other such
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events and circumstances, has had or would reasonably be expected to have a
Material Adverse Effect on Nortel.
7.03. Conditions to Obligation of Nortel and Sub. The obligations of
Nortel and Sub to consummate the Merger are also subject to the fulfillment or
written waiver by Nortel and Sub prior to the Effective Time of each of the
following conditions:
(a) Representations and Warranties. All representations and
warranties of the Company set forth in this Agreement (giving effect to the
standard set forth in Section 5.02) shall be true and correct as of the
date of this Agreement and as of the Effective Date as though made on and
as of the Effective Date (except that representations and warranties that
by their terms speak as of the date of this Agreement or some other date
shall be true and correct as of such date); and Nortel and Sub shall have
received a certificate, dated the Effective Date, signed on behalf of the
Company by the Chief Executive Officer and the Chief Financial Officer of
the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Time, and Nortel
and Sub shall have received a certificate, dated the Effective Date, signed
on behalf of the Company by the Chief Executive Officer and the Chief
Financial Officer of the Company to such effect.
(c) Material Adverse Effect. From the date of this Agreement, no
event shall have occurred or circumstance arisen or been discovered that,
individually or taken together with all other such events and circumstances
has had or would reasonably be expected to have a Material Adverse Effect
on the Company.
(d) Opinion of Nortel and Sub's Counsel. Nortel shall have received
an opinion of Cleary, Gottlieb, Steen & Hamilton, special counsel to Nortel
and Sub dated the Effective Date, to the effect that, on the basis of
facts, representations and assumptions set forth in such opinion, (a) the
Merger constitutes a reorganization under Section 368(a) of the Code, (b)
Nortel shall be treated as a corporation under Section 367(a)(1) of the
Code with respect to each transfer of property thereto pursuant to the
Merger and (c) that, accordingly, (i) no gain or loss will be recognized by
the Company as a result of the Merger and (ii) no gain or loss will be
recognized by a stockholder of the Company who receives Nortel Common
Shares in exchange for shares of the Company Common Stock, except with
respect to cash received in lieu of fractional share interests. In
rendering its opinion, such counsel may require and rely upon
representations contained in letters from the Company, Nortel, Sub and
stockholders of the Company. Counsel's opinion shall not address the tax
consequences applicable to any stockholder of the Company who, immediately
after the Merger, will be a "five percent transferee shareholder " with
respect to Nortel within the meaning of U.S. Treasury Regulation Section
1.367(a)-3(c)(5).
(e) No Action Seeking Injunction. No Governmental Authority of
competent jurisdiction shall have brought an action or proceeding seeking
to enjoin or prohibit consummation, or require the unwinding, of the
Merger, or to impose substantial penalties as a result of the Merger, which
action or proceeding is reasonably likely to succeed.
ARTICLE VIII
TERMINATION
8.01. Termination. This Agreement may be terminated, and the Merger may
be abandoned:
(a) Mutual Consent. At any time prior to the Effective Time, by the
mutual consent of Nortel and the Company by action taken by their
respective Boards of Directors.
(b) Breach. At any time prior to the Effective Time, by Nortel or the
Company, in the event of either: (i) a breach by the other party of any
representation or warranty contained herein which
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would result in the non-satisfaction of the conditions set forth in
Sections 7.02(a) and 7.03(a), as the case may be, which breach is not
capable of being cured or has not been cured within 15 calendar days after
the giving of written notice to the breaching party of such breach; or (ii)
a material breach by the other party of any of the covenants or agreements
contained herein, which breach is not capable of being cured or has not
been cured within 15 calendar days after the giving of written notice to
the breaching party of such breach. Without limiting the foregoing, for all
purposes of this Agreement, any breach of the agreements contained in
Section 6.06 shall constitute a breach which is not capable of being cured.
(c) Delay. At any time prior to the Effective Time, by Nortel or the
Company, if its Board of Directors so determines, in the event that the
Merger is not consummated by March 31, 2000, or, in the event that an
approval of any Governmental Authority required to be obtained for the
consummation of the transactions contemplated by this Agreement has not
been obtained, June 30, 2000, except to the extent that the failure of the
Merger then to be consummated arises out of or results from the knowing
action or inaction of the party seeking to terminate pursuant to this
Section 8.01(c) which action or inaction is in violation of its obligations
under this Agreement.
(d) No Approval.
(i) By the Company or Nortel, by action taken by its Board of
Directors, in the event the approval of any Governmental Authority
required for consummation of the Merger and the other transactions
contemplated by this Agreement shall have been denied by final
nonappealable action of such Governmental Authority.
(ii) By Nortel, by action taken by its Board of Directors, in the
event any required approval of a Governmental Authority contains any
final, nonappealable conditions, restrictions or requirements which
would reasonably be expected to (A) following the Effective Time, have a
Material Adverse Effect on Nortel and its Subsidiaries taken as a whole
or on the Surviving Corporation or (B) require Nortel to take any action
that it is not required to take under Section 6.11(d) hereof.
(iii) By the Company, by action taken by its Board of Directors, in
the event any required approval of a Governmental Authority contains any
final, nonappealable conditions, restrictions or requirements which
would reasonably be expected to (A) following the Effective Time, have a
Material Adverse Effect on Nortel and its Subsidiaries taken as a whole
or (B) require Nortel to take any action that it is not required to take
under Section 6.11(d) hereof, unless (in the case of this clause (B))
within 30 days following receipt by Nortel of written notice of the
Company's intent to terminate this Agreement under this clause (iii)
Nortel notifies the Company that it waives its right to terminate this
Agreement under clause (ii) above.
(iv) By Nortel or the Company, if its Board of Directors so
determines, in the event the approval of the Company's stockholders
required by Section 7.01(a) herein is not obtained at the Company
Meeting by reason of the failure to obtain the requisite vote required
by Section 7.01(a).
(e) Board Action.
(i) By Nortel if the Board of Directors of the Company, prior to
the Company Meeting (A) shall withdraw or modify in any adverse manner
its recommendation of the "agreement of merger" (as such term is used in
Section 251 of the DGCL) contained in this Agreement (whether or not
such withdrawal or modification is permitted by Section 6.06(c)), or (B)
shall resolve to do so.
(ii) By the Company if the Board of Directors of the Company,
within 45 days from the date hereof, shall elect to terminate this
Agreement in order to recommend or approve a Superior Proposal; provided
that (x) the Company has notified Nortel in writing that it intends to
recommend or approve a Superior Proposal, attaching the most current
version of such proposal
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to such notice, and (y) at any time after the third Business Day
following written notification by the Company to Nortel of the Company's
intention to enter into a binding agreement with respect to such
proposal, after taking into account any modifications to the
transactions contemplated by the Agreement that Nortel has then proposed
in writing and not withdrawn, the Company Board has determined that such
proposal is and continues to be a Superior Proposal, and (z)
concurrently with the giving of notice of such termination, pays to
Nortel the Termination Fee due under Section 8.02(b) (unless Nortel has
previously notified the Company of its election to defer such payment
pursuant to Section 8.02(c)).
8.02. Effect of Termination and Abandonment. (a) In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article VIII, no party to this Agreement (nor any of their respective officers,
directors or agents) shall have any liability or further obligation to any other
party hereunder except as set forth in subsections (b) and (c) below and in
Section 9.01, and except that termination shall not relieve a party from
liability for any willful breach of this Agreement.
(b) Nortel and the Company agree that the Company shall pay to Nortel the
sum of $60,000,000 (the "Termination Fee ") solely as follows:
(i) if (x) the Company shall terminate this Agreement pursuant to
Section 8.01(c) due to the failure of the parties to consummate the Merger
by the relevant date (unless such failure results primarily from the action
or inaction of Nortel or from Nortel's or Sub's inability to obtain consent
or approval of, or make any filing or registration with, any Governmental
Authority) and (y) at any time after the date of this Agreement and at or
before such termination there shall exist an Acquisition Proposal and (z)
within 12 months of the termination of this Agreement, the Company enters
into a definitive agreement with any third party with respect to an
Acquisition Proposal or an Acquisition Proposal is consummated;
(ii) if (x) the Company or Nortel shall terminate this Agreement
pursuant to Section 8.01(d)(iv) due to the failure of the Company's
stockholders to approve and adopt this Agreement and (y) at any time after
the date of this Agreement and at or before the Company Meeting there shall
exist an Acquisition Proposal which has been publicly announced or the
existence of which is a matter of public knowledge and (z) within 12 months
of the termination of this Agreement, the Company enters into a definitive
agreement with any third party with respect to an Acquisition Proposal or
an Acquisition Proposal is consummated;
(iii) if Nortel shall terminate this Agreement pursuant to Section
8.01(b)(i) or Section 8.01(b)(ii) following a willful breach of any of the
representations, covenants or agreements contained herein and (y) at any
time after the date of this Agreement and at or before such termination
there shall exist an Acquisition Proposal and (z) within 12 months of the
termination of this Agreement, the Company enters into a definitive
agreement with any third party with respect to an Acquisition Proposal or
an Acquisition Proposal is consummated;
(iv) if Nortel shall terminate this Agreement pursuant to Section
8.01(e)(i); or
(v) if the Company shall terminate this Agreement pursuant to Section
8.01(e)(ii).
(c) The Termination Fee required to be paid pursuant to subsection (b)(i),
(b)(ii) or (b)(iii) above shall be payable by the Company to Nortel not later
than two Business Days after the date the Company enters into a definitive
agreement with respect to, or the date of consummation of, an Acquisition
Proposal, whichever is earlier. The Termination Fee required to be paid pursuant
to subsection (b)(iv) above shall be payable by the Company to Nortel not later
than two Business Days after the termination referred to therein. The
Termination Fee required to be paid pursuant to subsection (b)(v) shall be
payable as set forth in clause (z) of Section 8.01(e)(ii). Notwithstanding the
foregoing, (i) in no event shall more than one Termination Fee be payable, (ii)
Nortel may elect, by notice to the Company, to defer the payment of the
Termination Fee from time to time for a period or periods of up to an aggregate
of twelve months after the date such fee would otherwise be payable and (iii)
the Termination Fee shall cease to be payable immediately following any exercise
by Nortel of the
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Option under the Option Agreement. All payments under this Section 8.02 shall be
made by wire transfer of immediately available funds to an account designated by
Nortel.
ARTICLE IX
MISCELLANEOUS
9.01. Survival. All representations, warranties, agreements and covenants
contained in this Agreement shall not survive the Effective Time or termination
of this Agreement if this Agreement is terminated prior to the Effective Time;
provided, however, if the Effective Time occurs, the agreements of the parties
in Sections 6.01, 6.03, 6.10, 6.12, 6.13 and 6.16 and this Article IX shall
survive the Effective Time, and if this Agreement is terminated prior to the
Effective Time, the agreements of the parties in the proviso to Section 6.05(a),
Sections 6.05(b) and 8.02 and Article IX and in the Confidentiality Agreement
shall survive such termination and the Option Agreement shall survive to the
extent provided therein.
9.02. Amendment; Extension; Waiver. (a) Subject to compliance with
applicable law, this Agreement may be amended by the parties hereto, by action
taken or authorized by their respective Boards of Directors, at any time before
or after approval of the matters presented in connection with the Merger by the
stockholders of the Company; provided, however, that after any approval of the
transactions contemplated by this Agreement by the stockholders of the Company,
there may not be, without further approval of such stockholders, any amendment
of this Agreement which by law requires further approval by such stockholders
without such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
(b) Prior to the Effective Time, the parties hereto, by action taken or
authorized by their respective Boards of Directors, may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party, but such extension or waiver or
failure to insist on strict compliance with an obligation, covenant, agreement
or condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
9.03. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
9.04. Governing Law. This Agreement shall be governed by, and interpreted
in accordance with, the laws of the State of New York (except insofar as
mandatory provisions of Delaware law are applicable), without regard to the
conflict of law principles thereof.
9.05. Expenses. Subject to Section 8.02(b), each party hereto will bear
all expenses incurred by it in connection with this Agreement and the
transactions contemplated hereby, except that printing and mailing expenses and
SEC registration and filing fees shall be shared equally between the Company and
Nortel.
9.06. Notices. All notices, requests and other communications hereunder
to a party shall be in writing and shall be deemed given if personally
delivered, telecopied (with confirmation) or three Business Days after being
mailed by registered or certified mail (return receipt requested) or one
Business Day after being delivered by overnight courier to such party at its
address set forth below or such other address as such party may specify by
notice to the parties hereto.
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If to Nortel or to Sub, to:
Nortel Networks Corporation
8200 Dixie Road, Suite 100
Brampton, Ontario
Canada L6T 5P6
Attention: Corporate Secretary
Fax: (905) 863-8386
Phone: (905) 863-0000
With a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Victor I. Lewkow, Esq.
Fax: (212) 225-3999
Phone: (212) 225-2000
If to the Company, to:
Clarify Inc.
2560 Orchard Parkway
San Jose, California 95131
Attention: Anthony Zingale
Fax: (408) 965-7000
Phone: (408) 573-3000
With a copy to:
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attention: Elias J. Blawie, Esq.
Fax: (650) 233-8386
Phone: (650) 854-4488
9.07. Entire Understanding. This Agreement (including the Disclosure
Schedules), the Option Agreement and the Confidentiality Agreement represent the
entire understanding of the parties hereto with reference to the transactions
contemplated hereby and thereby and this Agreement supersedes any and all other
oral or written agreements (other than the Option Agreement and the
Confidentiality Agreement) heretofore made.
9.08. Assignment; No Third Party Beneficiaries. Neither this Agreement,
nor any of the rights, interests or obligations shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns. Except for Section
6.12, nothing in this Agreement expressed or implied, is intended to confer upon
any person, other than the parties hereto or their respective successors, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
9.09. Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Disclosure Schedules, such reference shall be to a Section
of, or Exhibit or Disclosure Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and are not part of this Agreement. Whenever the
words "include ", "includes " or "including " are used in this Agreement, they
shall be deemed to be followed by the words "without limitation ". Any reference
to "herein " or "hereof " or similar terms shall refer to the agreement as a
whole rather than to the individual paragraph, section or article.
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9.10. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as it is enforceable.
* * *
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
<TABLE>
<S> <C>
NORTEL NETWORKS CORPORATION
By: /s/ Frank A. Dunn
-----------------------------------------------------
Name: Frank A. Dunn
Title: Senior Vice-President and
Chief Financial Officer
By: /s/ Deborah J. Noble
-----------------------------------------------------
Name: Deborah J. Noble
Title: Vice-President, Corporate Secretary
and Associate General Counsel
NORTHERN CROWN SUBSIDIARY, INC.
By: /s/ Blair F. Morrison
-----------------------------------------------------
Name: Blair F. Morrison
Title: Corporate Secretary
CLARIFY INC.
By: /s/ Anthony Zingale
-----------------------------------------------------
Name: Anthony Zingale
Title: Chief Executive Officer
</TABLE>
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<PAGE> 114
EXHIBIT A
FORM OF AFFILIATE LETTER
Nortel Networks Corporation
8200 Dixie Road, Suite 100
Brampton, Ontario, Canada
L6T 5P6
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed to
be an "affiliate" of Clarify Inc., a Delaware corporation (the "Company"), as
the term "affiliate" is defined for purposes of paragraphs (c) and (d) of Rule
145 of the rules and regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"). Pursuant to the terms of the Agreement and Plan of Merger
dated as of October 18, 1999 (the "Agreement"), by and between Nortel Networks
Corporation, a Canadian corporation ("Nortel"), Northern Crown Subsidiary, Inc.,
a Delaware corporation and a wholly owned subsidiary of Nortel ("Sub"), and the
Company, Sub will merge with and into the Company (the "Merger").
As a result of the Merger, I may receive common shares, without par value,
of Nortel (the "Nortel Common Shares") in exchange for shares owned by me of
common stock, par value $0.0001 per share, of the Company.
I represent, warrant and covenant to Nortel that in the event I receive any
Nortel Common Shares as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of Nortel
Common Shares in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Agreement and discussed the
requirements of such documents and other applicable limitations upon my ability
to sell, transfer or otherwise dispose of the Nortel Common Shares, to the
extent I felt necessary, with my counsel or counsel for Nortel.
C. I have been advised that the issuance of Nortel Common Shares to me
pursuant to the Merger has been registered with the Commission under the Act on
a Registration Statement on Form S-4. However, I have also been advised that,
since at the time the Merger was submitted for a vote of the stockholders of the
Company, I may be deemed to have been an affiliate of the Company and the
distribution by me of the Nortel Common Shares has not been registered under the
Act, I may not sell, transfer or otherwise dispose of the Nortel Common Shares
issued to me in the Merger unless (i) such sale, transfer or other disposition
has been registered under the Act, (ii) such sale, transfer or other disposition
is made in conformity with Rule 145 promulgated by the Commission under the Act
or (iii) in the opinion of counsel reasonably acceptable to Nortel, or pursuant
to a "no action" letter obtained by the undersigned from the staff of the
Commission, such sale, transfer or other disposition is otherwise exempt from
registration under the Act.
D. I understand that, except as may be provided in any registration rights
agreement entered into by Nortel and the undersigned, Nortel is under no
obligation to register the sale, transfer or other disposition of the Nortel
Common Shares by me or on my behalf under the Act or to take any other action
necessary in order to make compliance with an exemption from such registration
available.
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Execution of this letter should not be considered an admission on my part
that I am an "affiliate" of the Company as described in the first paragraph of
this letter or as a waiver of any rights I may have to object to any claim that
I am such an affiliate on or after the date of this letter.
<TABLE>
<S> <C>
Very truly yours,
-----------------------------------------------------
Agreed to and Accepted this
day of , 1999
NORTEL NETWORKS CORPORATION
By: /s/
--------------------------------------------
Name:
Title:
By: /s/
--------------------------------------------
Name:
Title:
</TABLE>
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<PAGE> 116
ANNEX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of October 18, 1999 (the "Agreement "),
between NORTEL NETWORKS CORPORATION, a Canadian corporation ("Grantee "), and
CLARIFY INC., a Delaware corporation ("Issuer ").
WITNESSETH:
WHEREAS, concurrently herewith, Grantee and Issuer are entering into an
Agreement and Plan of Merger (the "Merger Agreement ");
WHEREAS, as a condition and inducement to Grantee's execution of the Merger
Agreement and in furtherance of the transactions contemplated thereby and in
consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined); and
WHEREAS, the Board of Directors of Issuer has approved the grant of the
Option and the Merger Agreement prior to the execution hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. The Option. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option ") to purchase, subject to the terms hereof, up
to an aggregate of 4,707,333 fully paid and nonassessable shares of the common
stock, $0.0001 par value per share, of Issuer ("Common Stock ") at a price per
share equal to 1.3 times the closing price per share of the Grantee's common
shares as reported on the date hereof on the Consolidated Tape for New York
Stock Exchange issues (such price, as adjusted if applicable, the "Option
Price "); provided, however, that in no event shall the number of shares for
which this Option is exercisable exceed 19.9% of the issued and outstanding
shares of Common Stock at the time of exercise without giving effect to the
shares of Common Stock issued or issuable under the Option. The number of shares
of Common Stock that may be received upon the exercise of the Option and the
Option Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement and other than pursuant to an event described in
Section 5(a) hereof), the number of shares of Common Stock subject to the Option
shall be increased so that, after such issuance, such number together with any
shares of Common Stock previously issued pursuant hereto, equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing contained
in this Section 1(b) or elsewhere in this Agreement shall be deemed to authorize
Issuer to breach any provision of the Merger Agreement.
2. Exercise; Closing. (a) Grantee and/or any other person that shall
become a holder of all or part of the Option in accordance with the terms of
this Agreement (each such person being referred to herein as the "Holder ") may
exercise the Option, in whole or part, if, but only if, both an Initial
Triggering Event (as defined below) and a Subsequent Triggering Event (as
defined below) shall have occurred prior to the occurrence of an Exercise
Termination Event (as defined below), provided that the Holder shall have sent
written notice of such exercise (as provided in subsection (f) of this Section
2) within 180 days following such Subsequent Triggering Event (or such later
period as provided in Section 10).
(b) Each of the following shall be an "Exercise Termination Event ":
(i) the Effective Time (as defined in the Merger Agreement);
(ii) termination of the Merger Agreement in accordance with the
provisions of Section 8.01(a), 8.01(d)(i), 8.01(d)(ii) or 8.01(d)(iii) of
the Merger Agreement, or termination of the Merger Agreement by the Issuer
in accordance with the provisions of Section 8.01(b) thereof, or
termination
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of the Merger Agreement by the Grantee in accordance with the provisions of
Section 8.01(b) thereof by reason solely of non-willful breaches of
representations warranties or covenants by the Issuer, or termination of
the Merger Agreement by the Grantee in accordance with the provisions of
Section 8.01(c);
(iii) termination of the Merger Agreement by the Issuer in accordance
with the provisions of Section 8.01(c), or termination of the Merger
Agreement pursuant to Section 8.01(d)(iv) thereof, or termination of the
Merger Agreement by the Grantee in accordance with the provisions of
Section 8.01(b) thereof under circumstances where clause (ii) above is
inapplicable, in each case only if such termination occurs prior to the
occurrence of an Initial Triggering Event;
(iv) the passage of 12 months (or such later period as provided in
Section 10) after termination of the Merger Agreement other than as set
forth in clauses (ii) and (iii) above; or
(v) the receipt by Grantee (pursuant to its request) of the
Termination Fee.
(c) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (as defined in Rule 1-02 of
Regulation S-X promulgated by the Securities and Exchange Commission (the
"SEC")) (each an "Issuer Subsidiary"), without having received Grantee's
prior written consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as defined below) with any person (the term
"person" for purposes of this Agreement having the meaning assigned thereto
in Sections 3(a)(9) and 13(d)(3) of the Exchange Act) other than Grantee or
any of its Subsidiaries (each a "Grantee Subsidiary") or the Board of
Directors of Issuer shall have recommended that the stockholders of Issuer
approve or accept any Acquisition Transaction (other than the Merger
referred to in the Merger Agreement). For purposes of this Agreement,
"Acquisition Transaction" shall mean (w) a merger or consolidation, or any
similar transaction, involving Issuer or a Significant Subsidiary (as
defined in Rule 1-02 of Regulation S-X promulgated by the SEC) of Issuer,
(x) a purchase, lease or other acquisition or assumption of all or more
than 20% of the consolidated assets of Issuer (including by way of merger,
consolidation, share exchange or otherwise involving any Subsidiary of
Issuer), (y) a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of beneficial ownership (the
term "beneficial ownership" for purposes of this Agreement having the
meaning assigned thereto in Section 13(d) of the Exchange Act, and the
rules and regulations thereunder) of securities representing 20% or more of
the voting power of Issuer or more than 20% of any Significant Subsidiary
of Issuer, or (z) any substantially similar transaction; provided, however,
that in no event shall any merger, consolidation, purchase or similar
transaction involving only the Issuer and one or more of its wholly-owned
Subsidiaries or involving only any two or more of such wholly-owned
Subsidiaries, be deemed to be an Acquisition Transaction, if such
transaction is not entered into in violation of the terms of the Merger
Agreement;
(ii) Issuer or any Issuer Subsidiary, without having received
Grantee's prior written consent, shall have authorized, recommended,
proposed or publicly announced its intention to authorize, recommend or
propose, to engage in an Acquisition Transaction with any person other than
Grantee or a Grantee Subsidiary or shall have authorized or engaged in, or
announced its intention to authorize or engage in, any negotiations
regarding an Acquisition Transaction with any person other than the Grantee
or a Grantee Subsidiary, or the Board of Directors of Issuer shall have
failed to recommend or shall have publicly withdrawn or modified, or
publicly announced its intention to withdraw or modify, in any manner
adverse to Grantee, its recommendation that the stockholders of Issuer
approve the Merger;
(iii) The shareholders of Issuer shall have voted and failed to
approve the Merger at a meeting which has been held for that purpose or any
adjournment or postponement thereof, or such meeting shall not have been
held in violation of the Merger Agreement or shall have been canceled prior
to termination of the Merger Agreement if, prior to such meeting (or if
such meeting shall not have
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<PAGE> 118
been held or shall have been canceled, prior to such termination), any
person (other than the Grantee or a Grantee Subsidiary) shall have made a
proposal to Issuer or its stockholders by public announcement or written
communication that is or becomes the subject of public disclosure to engage
in an Acquisition Transaction;
(iv) (a) Any person other than Grantee or any Grantee Subsidiary shall
have acquired beneficial ownership or the right to acquire beneficial
ownership of 20% or more of the then outstanding shares of Common Stock or
(b) any group (the term "group " having the meaning assigned in Section
13(d)(3) of the Exchange Act), other than a group of which the Grantee or
any Grantee Subsidiary is a member, shall have been formed that
beneficially owns 20% or more of the then outstanding shares of Common
Stock;
(v) Any person other than Grantee or any Grantee Subsidiary shall have
made a bona fide proposal to Issuer or its stockholders to engage in an
Acquisition Transaction and such proposal shall have become publicly known,
or shall have commenced, or publicly announced its intention to commence, a
tender or exchange offer to acquire beneficial ownership of 20% or more of
the then outstanding shares of Common Stock;
(vi) Issuer shall have willfully breached any representation,
warranty, covenant or obligation contained in the Merger Agreement and such
breach (x) would entitle Grantee to terminate the Merger Agreement and (y)
shall not have been cured prior to the Notice Date (as defined below); or
(vii) Any person other than Grantee or any Grantee Subsidiary, other
than in connection with a transaction to which Grantee has given its prior
written consent, shall have filed with any federal or state regulatory or
governmental authority an application for approval or notice of intention
to engage in an Acquisition Transaction.
(d) The term "Subsequent Triggering Event " shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person or by a group other than Grantee or
any Grantee Subsidiary of beneficial ownership of 25% or more of the then
outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
paragraph (i) of subsection (c) of this Section 2, except that the
references to 20% in clause (x) and clause (y) shall each be deemed to be a
reference to 25%.
(e) Issuer shall notify Grantee promptly in writing of the occurrence of
any Initial Triggering Event or Subsequent Triggering Event (together, a
"Triggering Event "), it being understood that the giving of such notice by
Issuer shall not be a condition to the right of the Holder to exercise the
Option.
(f) In the event the Holder is entitled to and wishes to exercise the
Option (or any portion thereof), it shall send to Issuer a written notice (the
date of which being herein referred to as the "Notice Date ") specifying (i) the
total number of shares it will purchase pursuant to such exercise and (ii) a
place and date not earlier than three business days nor later than 60 business
days from the Notice Date for the closing of such purchase (the "Closing
Date "); provided, that if the closing of such purchase cannot be consummated by
reason of any applicable judgment, injunction, decree, order, law or regulation,
the period of time that would otherwise run pursuant to this sentence shall run
instead from the date on which such restriction on consummation has expired or
been terminated; and provided, further, that if prior notification to or
approval of any regulatory or antitrust agency is required in connection with
such purchase, the Holder shall promptly file the required notice or application
for approval, shall promptly notify Issuer of such filing and shall
expeditiously process the same and the period of time that otherwise would run
pursuant to this sentence shall run instead from the date on which any required
notification periods have expired or been terminated or such approvals have been
obtained and any requisite waiting period or periods shall have passed. Any
exercise of the Option shall be deemed to occur on the Notice Date relating
thereto.
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<PAGE> 119
(g) At the closing referred to in subsection (f) of this Section 2, the
Holder shall (i) pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated by Issuer,
provided that failure or refusal of Issuer to designate such a bank account
shall not preclude the Holder from exercising the Option by delivery of a
certified check or bank draft, and (ii) present and surrender this Agreement to
Issuer for cancellation in whole or (in the case of a partial exercise) in part.
(h) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (g) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder.
(i) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this
certificate is subject to certain provisions of an
agreement between the registered holder hereof and Issuer
and to resale restrictions arising under applicable
securities laws (including the Securities Act of 1933, as
amended). A copy of such agreement is on file at the
principal office of Issuer and will be provided to the
holder hereof without charge upon receipt by Issuer of a
written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
arising under applicable securities laws, including the Securities Act of 1933,
as amended (the "Securities Act "), in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if the Holder shall
have delivered to Issuer a copy of a letter from the staff of the SEC, or an
opinion of counsel, in form and substance reasonably satisfactory to Issuer, to
the effect that such legend is not required for purposes of the Securities Act
or other applicable securities laws; (ii) the reference to the provisions of
this Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference in the opinion
of counsel to the Holder, in form and substance reasonably satisfactory to
Issuer; and (iii) the legend shall be removed in its entirety if the conditions
in the preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
The Holder understands and agrees that the Option is being issued to the Holder
pursuant to the registration and prospectus exceptions in paragraph 35(1) and
clause 72(1)(b) of the Securities Act (Ontario) (the "Ontario Act ") and that
the resale of the Option or Common Stock issued upon exercise of the Option is
restricted by the provisions of the Ontario Act and other applicable Canadian
securities legislation.
(j) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (f) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. Issuer shall
pay all expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates under this Section 2 in the name of the
Holder or its assignee, transferee or designee.
3. Covenants of Issuer. In addition to its other agreements and covenants
herein, Issuer agrees:
(a) that it shall at all times maintain, free from any subscriptive or
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants,
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<PAGE> 120
convertible securities and other rights of third parties to purchase Common
Stock from Issuer or to cause Issuer to issue shares of Common Stock;
(b) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other
voluntary act, avoid or seek to avoid the observance or performance of any
of the covenants, stipulations or conditions to be observed or performed
hereunder by Issuer; and
(c) promptly to take all action (i) as may from time to time be
required (including complying with all applicable notification, filing,
reporting and waiting period requirements under HSR or otherwise, and
cooperating fully with the Holder in preparing any applications or notices
and providing such information to any regulatory authority as it may
require) in order to permit the Holder to exercise the Option and Issuer
duly and effectively to issue shares of Common Stock pursuant hereto, and
(ii) as may from time to time be required to protect the rights of the
Holder against dilution
4. Exchange; Replacement. This Agreement (and the Option granted hereby)
are exchangeable, without expense, at the option of the Holder, upon
presentation and surrender of this Agreement at the principal office of Issuer,
for other Agreements providing for Options of different denominations entitling
the holder thereof to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of shares
of Common Stock purchasable hereunder. The terms "Agreement " and "Option " as
used herein include any Agreements and related Options for which this Agreement
(and the Option granted hereby) may be exchanged. Upon receipt by Issuer of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Agreement, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Agreement, if mutilated, Issuer will execute and deliver a new Agreement of
like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed or mutilated shall at any time
be enforceable by any person other than the holder of the new Agreement.
5. Adjustments. In addition to the adjustment in the number of shares of
Common Stock that are purchasable upon exercise of the Option pursuant to
Section 1 hereof, the number of shares of Common Stock purchasable upon the
exercise of the Option and the Option Price shall be subject to adjustment from
time to time as provided in this Section 5.
(a) In the event of any change in, or distributions in respect of, the
Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of
shares or the like, the type and number of shares of Common Stock
purchasable upon exercise hereof shall be appropriately adjusted and proper
provision shall be made so that, in the event that any additional shares of
Common Stock are to be issued or otherwise become outstanding as a result
of any such change (other than pursuant to an exercise of the Option), the
number of shares of Common Stock that remain subject to the Option shall be
increased so that, after such issuance and together with shares of Common
Stock previously issued pursuant to the exercise of the Option (as adjusted
on account of any of the foregoing changes in the Common Stock), it equals
19.9% of the number of shares of Common Stock then issued and outstanding.
(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 5, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the
numerator of which shall be equal to the number of shares of Common Stock
purchasable prior to the adjustment and the denominator of which shall be
equal to the number of shares of Common Stock purchasable after the
adjustment.
6. Registration. (a) Upon the occurrence of any Subsequent Triggering
Event that occurs prior to an Exercise Termination Event, Issuer shall, subject
to Section 6(d) hereof, at the request of Grantee delivered within twelve (12)
months (or such later period as provided in Section 10 hereof) of such
Subsequent Triggering Event (whether on its own behalf or on behalf of any
subsequent holder of this Option (or part thereof) or any of the shares of
Common Stock issued pursuant hereto), promptly
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prepare, file and keep current a shelf registration statement under the
Securities Act covering any shares issued and issuable pursuant to this Option
and shall use its reasonable best efforts to cause such registration statement
to become effective and remain current in order to permit the sale or other
disposition of any shares of Common Stock issued upon total or partial exercise
of this Option ("Option Shares") in accordance with any plan of disposition
requested by Grantee. Issuer will use its reasonable best efforts to cause such
registration statement promptly to become effective and then to remain effective
for a period not in excess of 180 days from the day such registration statement
first becomes effective or such shorter time as may be reasonably necessary, in
the judgment of the Grantee or the Holder, to effect such sales or other
dispositions. Grantee shall have the right to demand two such registrations. The
Issuer shall bear the costs of such registrations (including, but not limited
to, Issuer's attorneys' fees, printing costs and filing fees, except for
underwriting discounts or commissions, brokers' fees and the fees and
disbursements of Grantee's counsel related thereto). The foregoing
notwithstanding, if, at the time of any request by Grantee for registration of
the Option Shares as provided above, Issuer is in registration with respect to
an underwritten public offering by Issuer of shares of Common Stock, and if in
the good faith judgment of the managing underwriter or managing underwriters,
or, if none, the sole underwriter or underwriters, of such offering the
inclusion of the Option Shares would interfere with the successful marketing of
the shares of Common Stock offered by Issuer, the number of Option Shares
otherwise to be covered in the registration statement contemplated hereby may be
reduced to the extent necessary to eliminate such condition; provided, however,
that after any such required reduction the number of Option Shares to be
included in such offering for the account of the Holder shall constitute at
least 25% of the total number of shares to be sold by the Holder and Issuer in
the aggregate; and provided further, however, that if such reduction occurs,
then Issuer shall file a registration statement for the balance as promptly as
practicable thereafter as to which no reduction pursuant to this Section 6 shall
be permitted or occur and the Holder shall be deemed not to have made an
additional registration demand and the twelve (12) month period referred to in
the first sentence of this section shall be increased to twenty-four (24)
months. Each such Holder shall provide all information reasonably requested by
Issuer for inclusion in any registration statement to be filed hereunder. If
requested by any such Holder in connection with such registration, Issuer shall
become a party to any underwriting agreement relating to the sale of such
shares, but only to the extent of obligating itself in respect of
representations, warranties, indemnities and other agreements customarily
included in such underwriting agreements for Issuer. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy thereof to
any other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in no event shall the
number of registrations that Issuer is obligated to effect be increased by
reason of the fact that there shall be more than one Holder as a result of any
assignment or division of this Agreement.
(b) In the event that Grantee so requests, the closing of the sale or other
disposition of the Common Stock or other securities pursuant to a registration
statement filed pursuant to Section 6(a) hereof shall occur substantially
simultaneously with the exercise of the Option.
(c) If the Common Stock or the class of any other securities to be acquired
upon exercise of the Option are then listed on the Nasdaq National Market of The
Nasdaq Stock Market, Inc. ("Nasdaq") or any national securities exchange,
Issuer, upon the request of the Holder, shall promptly file an application to
list the Common Stock or other securities to be acquired upon exercise of the
Option on Nasdaq or such exchange and will use its reasonable best efforts to
obtain approval of such listing as soon as practicable.
(d) Issuer may delay any registration of the Option Shares required
pursuant to Section 6(a) hereof for a period not in excess of 90 days if, in the
reasonable good faith judgment of Issuer, such registration would materially and
adversely affect a proposed merger, consolidation or similar transaction
(including through the premature disclosure thereof) or offering or contemplated
offering of other securities by Issuer.
7. Repurchase of Option and/or Option Shares. (a) At any time commencing
upon the occurrence of a Repurchase Event (as defined in Section 7(d) hereof)
and ending twelve (12) months thereafter,
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(i) at the request of the Holder, delivered in writing prior to an Exercise
Termination Event (or such later period as provided in Section 10), Issuer (or
any successor thereto) shall repurchase the Option from the Holder at a price
(the "Option Repurchase Price") equal to the amount by which (A) the
market/offer price (as defined below) exceeds (B) the Option Price, multiplied
by the number of shares for which this Option may then be exercised, and (ii) at
the request of the owner of Option Shares from time to time (the "Owner "),
delivered in writing prior to an Exercise Termination Event (or such later
period as provided in Section 10), Issuer (or any successor thereto) shall
repurchase such number of the Option Shares from the Owner as the Owner shall
designate at a price (the "Option Share Repurchase Price") equal to the
market/offer price multiplied by the number of Option Shares so designated. The
term "market/offer price" shall mean the highest of (i) the price per share of
Common Stock at which a tender or exchange offer therefor has been made and has
been consummated or remains outstanding, (ii) the price per share of Common
Stock to be paid by any third party pursuant to an agreement with Issuer after
the date hereof, (iii) the highest average closing price for shares of Common
Stock for any 20 trading day period within the three-month period immediately
preceding the date the Holder gives notice of the required repurchase of this
Option or the Owner gives notice of the required repurchase of Option Shares, as
the case may be, or (iv) in the event of a sale of all or substantially all of
the consolidated assets of Issuer, the sum of the net price paid in such sale
for such assets and the current market value of the remaining net assets of
Issuer as determined by a nationally recognized investment banking firm selected
by the Holder or the Owner, as the case may be, and reasonably acceptable to
Issuer, divided by the number of shares of Common Stock outstanding at the time
of such sale, which determination, absent manifest error, shall be conclusive
for all purposes of this Agreement. In determining the market/offer price, the
value of consideration other than cash shall be determined by a nationally
recognized investment banking firm selected by the Holder or Owner, as the case
may be, and reasonably acceptable to Issuer, which determination, absent
manifest error, shall be conclusive for all purposes of this Agreement.
(b) The Holder and the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and any Option Shares pursuant to this
Section 7 by surrendering for such purpose to Issuer, at its principal office, a
copy of this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder or the Owner,
as the case may be, elects to require Issuer to repurchase this Option and/or
the Option Shares in accordance with the provisions of this Section 7. Prior to
the later of (x) the date that is five business days after the surrender of the
Option and/or certificates representing Option Shares and the receipt of such
notice or notices relating thereto and (y) the day on which a Repurchase Event
occurs, Issuer shall deliver or cause to be delivered to the Holder the Option
Repurchase Price and/or to the Owner the Option Share Repurchase Price or the
portion thereof that Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full, Issuer
shall promptly so notify the Holder and/or the Owner and thereafter deliver or
cause to be delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after delivery of a
notice of repurchase pursuant to paragraph (b) of this Section 7 is prohibited
under applicable law or regulation from delivering to the Holder and/or the
Owner, as appropriate, the Option Repurchase Price and the Option Share
Repurchase Price, respectively, in full (and Issuer hereby undertakes to use its
reasonable best efforts to obtain all required regulatory and legal approvals
and to file any required notices as promptly as practicable in order to
accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option and/or the Option Shares whether in whole or to the
extent of the prohibition, whereupon, in the latter case, Issuer shall promptly
(i) deliver to the Holder and/or the Owner, as appropriate, that portion of the
Option Repurchase Price and/or the Option Share Repurchase Price that Issuer is
not prohibited from delivering; and (ii) deliver, as appropriate, either (A) to
the Holder, a new Agreement evidencing the right of the Holder to purchase that
number of shares of Common Stock obtained by multiplying the number of shares of
Common Stock for which the
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surrendered Agreement was exercisable at the time of delivery of the notice of
repurchase by a fraction, the numerator of which is the Option Repurchase Price
less the portion thereof theretofore delivered to the Holder and the denominator
of which is the Option Repurchase Price, and/or (B) to the Owner, a certificate
for the Option Shares it is then so prohibited from repurchasing. If an Exercise
Termination Event shall have occurred less than 30 days prior to the date of the
notice by Issuer described in the first sentence of this subsection (c), or
shall be scheduled to occur at any time before the expiration of a period ending
on the thirtieth day after such date, the Holder shall nonetheless have the
right to exercise the Option until the expiration of such 30-day period after
the date of the Exercise Termination Event or the notice date, respectively.
(d) For purposes of this Section 7, a Repurchase Event shall be deemed to
have occurred (i) upon the consummation of any merger, consolidation or similar
transaction involving Issuer or any purchase, lease or other acquisition of all
or substantially all of the assets of Issuer on a consolidated basis, other than
any such transaction which would not constitute an Acquisition Transaction
pursuant to the proviso to Section 2(c)(i) hereof or (ii) upon the acquisition
by any person of beneficial ownership of 50% or more of the then outstanding
shares of Common Stock; provided that no such event shall constitute a
Repurchase Event unless a Subsequent Triggering Event shall have occurred prior
to an Exercise Termination Event.
8. Substitute Option. (a) In the event that prior to an Exercise
Termination Event, Issuer shall enter into an agreement (i) to consolidate with
or merge into any person, other than Grantee or any of its Subsidiaries
(collectively, "Excluded Persons") and Issuer shall not be the continuing or
surviving corporation of such consolidation or merger, (ii) to permit any
person, other than an Excluded Person, to merge into Issuer and Issuer shall be
the continuing or surviving or acquiring corporation, but, in connection with
such merger, the then outstanding shares of Common Stock shall be changed into
or exchanged for stock or other securities of any other person or cash or any
other property or the then outstanding shares of Common Stock shall after such
merger represent less than 50% of the outstanding voting shares and voting share
equivalents of the merged or acquiring company, or (iii) to sell or otherwise
transfer all or substantially all of its assets to any person, other than an
Excluded Person, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Holder, of either (x) the Acquiring Corporation
(as hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or surviving
person of a consolidation or merger with Issuer (if other than Issuer),
(ii) Issuer in a merger in which Issuer is the continuing or surviving or
acquiring person, and (iii) the transferee of all or substantially all of
Issuer's assets.
(ii) "Substitute Shares" shall mean the shares of capital stock (or
similar equity interest) with the greatest voting power in respect of the
election of directors (or other persons similarly responsible for direction
of the business and affairs) of the issuer of the Substitute Option.
(iii) "Assigned Value" shall mean the market/offer price as defined in
Section 7.
(iv) "Average Price" shall mean the average closing price per
Substitute Share, on the principal trading market on which such shares are
traded as reported by a recognized source, for the 20 trading day period
immediately preceding the consolidation, merger or sale in question, but in
no event higher than the closing price of the Substitute Shares on such
market on the day preceding such consolidation, merger or sale; provided
that if Issuer is the issuer of the Substitute Option, the Average Price
shall be computed with respect to a share of common stock issued by the
person merging into Issuer or by any company which controls or is
controlled by such person, as the Holder may elect.
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(c) The Substitute Option shall have the same terms as the Option, provided
that if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option, such terms shall be as similar as possible to the terms of
the Option and (to the extent permitted by applicable law) in no event less
advantageous to the Holder. The issuer of the Substitute Option shall also enter
into an agreement with the then Holder or Holders of the Substitute Option in
substantially the same form as this Agreement (after giving effect for such
purpose to the provisions of Section 9 hereof), which agreement shall be
applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of
Substitute Shares as is equal to the Assigned Value multiplied by the number of
shares of Common Stock for which the Option was exercisable immediately prior to
the event described in the first sentence of Section 8(a) hereof, divided by the
Average Price. The exercise price of the Substitute Option per Substitute Share
shall then be equal to the Option Price multiplied by a fraction, the numerator
of which shall be the number of shares of Common Stock for which the Option was
exercisable immediately prior to the event described in the first sentence of
Section 8(a) hereof and the denominator of which shall be the number of
Substitute Shares for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
number of shares purchasable upon exercise of the Substitute Option exceed 19.9%
of the Substitute Shares then issued and outstanding at the time of exercise
(without giving effect to Substitute Shares issued or issuable under the
Substitute Option). In the event that the Substitute Option would be exercisable
for more than 19.9% of the Substitute Shares then issued and outstanding prior
to exercise but for this clause (e), the issuer of the Substitute Option (the
"Substitute Option Issuer ") shall make a cash payment to Holder equal to the
excess of (i) the value of the Substitute Option without giving effect to the
limitation in this clause (e) over (ii) the value of the Substitute Option after
giving effect to the limitation in this clause (e). This difference in value
shall be determined by a nationally recognized investment banking firm selected
by Grantee (or, if Grantee is not then the Holder owning Options with respect to
the largest number of Shares, the largest Holder) and reasonably acceptable to
Issuer, which determination, absent manifest error, shall be conclusive for all
purposes of this Agreement.
(f) In addition to any other restrictions or covenants, Issuer agrees that
it shall not enter or agree to enter into any transaction described in Section
8(a) hereof unless (i) the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder and (ii) the Substitute Option Issuer agrees to comply with this
Section 8 and agrees to take all action necessary to prevent the exercise of any
rights of any holder of Substitute Shares or shares of capital stock of any
successor to the Substitute Option Issuer that any holder of the Substitute
Option (each such person being referred to herein as a "Substitute Option
Holder ") or any holder of Substitute Shares (each such person being referred to
herein as a "Substitute Share Owner ") purchased upon exercise of the Substitute
Option by a Substitute Option Holder would be prohibited or precluded from
exercising or the exercise of which would adversely affect the rights of any
Substitute Option Holder under the agreement for such Substitute Option or the
transactions contemplated by the Merger Agreement.
9. Repurchase of Substitute Option. (a) At the written request of a
Substitute Option Holder, the Substitute Option Issuer shall repurchase the
Substitute Option from the Substitute Option Holder at a price (the "Substitute
Option Repurchase Price ") equal to the amount by which (i) the Highest Closing
Price (as hereinafter defined) exceeds (ii) the exercise price of the Substitute
Option multiplied by the number of Substitute Shares for which the Substitute
Option may then be exercised, and at the request of the Substitute Share Owner,
the Substitute Option Issuer shall repurchase the Substitute Shares at a price
(the "Substitute Share Repurchase Price ") equal to the Highest Closing Price
multiplied by the number of Substitute Shares so designated. The term "Highest
Closing Price " shall mean the highest average closing price for Substitute
Shares for any 20 trading day period within the three-month period immediately
preceding the date the Substitute Option Holder gives notice of the required
repurchase of the Substitute Option or the Substitute Share Owner gives notice
of the required repurchase of the Substitute Shares, as applicable.
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(b) The Substitute Option Holder and the Substitute Share Owner, as the
case may be, may exercise its respective rights to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
at its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Agreement) and/or certificates for
Substitute Shares accompanied by a written notice or notices stating that the
Substitute Option Holder or the Substitute Share Owner, as the case may be,
elects to require the Substitute Option Issuer to repurchase the Substitute
Option and/or the Substitute Shares in accordance with the provisions of this
Section 9. As promptly as practicable and in any event within five business days
after the surrender of the Substitute Option and/or certificates representing
Substitute Shares and the receipt of such notice or notices relating thereto,
the Substitute Option Issuer shall deliver or cause to be delivered to the
Substitute Option Holder the Substitute Option Repurchase Price and/or to the
Substitute Share Owner the Substitute Share Repurchase Price therefor or the
portion thereof which the Substitute Option Issuer is not then prohibited under
applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation from repurchasing the Substitute Option and/or the
Substitute Shares in part or in full, the Substitute Option Issuer shall
promptly so notify the Substitute Option Holder and/or the Substitute Share
Owner and thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
portion of the Substitute Option Repurchase Price and/or the Substitute Share
Repurchase Price, respectively, which it is no longer prohibited from
delivering, within five (5) business days after the date on which the Substitute
Option Issuer is no longer so prohibited; provided, however, that if the
Substitute Option Issuer is at any time after delivery of a notice of repurchase
pursuant to subsection (b) of this Section 9 is prohibited under applicable law
or regulation from delivering to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the Substitute Option Repurchase Price
and the Substitute Share Repurchase Price, respectively, in full (and the
Substitute Option Issuer shall use its best efforts to receive all required
regulatory and legal approvals as promptly as practicable in order to accomplish
such repurchase), the Substitute Option Holder and/or Substitute Share Owner may
revoke its notice of repurchase of the Substitute Option or the Substitute
Shares either in whole or to the extent of the prohibition, whereupon, in the
latter case, the Substitute Option Issuer shall promptly (i) deliver to the
Substitute Option Holder or Substitute Share Owner, as appropriate, that portion
of the Substitute Option Repurchase Price or the Substitute Share Repurchase
Price that the Substitute Option Issuer is not prohibited from delivering; and
(ii) deliver, as appropriate, either (A) to the Substitute Option Holder, a new
Substitute Option evidencing the right of the Substitute Option Holder to
purchase that number of Substitute Shares obtained by multiplying the number of
Substitute Shares for which the surrendered Substitute Option was exercisable at
the time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, and/or (B) to the Substitute
Share Owner, a certificate for the Substitute Option Shares it is then so
prohibited from repurchasing. If an Exercise Termination Event shall have
occurred less than 30 days prior to the date of the notice by the Substitute
Option Issuer described in the first sentence of this subsection (c), or shall
be scheduled to occur at any time before the expiration of a period ending on
the thirtieth day after such date, the Substitute Option Holder shall
nevertheless have the right to exercise the Substitute Option until the
expiration of such 30-day period after the date of the Exercise Termination
Event or the notice date, respectively.
10. Extension. The periods for exercise of certain rights under Sections
2, 6, 7, 9 and 12 hereof shall be extended: (i) to the extent necessary to
obtain all governmental and regulatory approvals for the exercise of such rights
(for so long as the Holder, Substitute Option Holder or Substitute Share Owner,
as the case may be, is using its reasonable best efforts to obtain such
regulatory approvals), and for the expiration of all statutory waiting periods;
(ii) during any period for which an injunction or similar legal prohibition on
exercise shall be in effect; (iii) to the extent necessary to avoid liability
under Section 16(b) of the Exchange Act by reason of such exercise; and (iv) by
the number of days by which Issuer shall have delayed any registration pursuant
to Section 6(d) hereof.
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11. Representations and Warranties. (a) Issuer hereby represents and
warrants to Grantee as follows:
(i) Issuer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of Issuer and no other corporate
proceedings on the part of Issuer are necessary to authorize this Agreement
or to consummate the transactions so contemplated. This Agreement has been
duly and validly executed and delivered by Issuer and constitutes a valid
and legally binding obligation of Issuer enforceable against Issuer in
accordance with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles, whether such principles
are considered at law or in equity).
(ii) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will
have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common
Stock at any time and from time to time issuable hereunder, and all such
shares, upon issuance pursuant to the Option, will be duly authorized,
validly issued, fully paid, nonassessable, and will be delivered free and
clear of all claims, liens, encumbrances and security interests (other than
those created by this Agreement) and not subject to any preemptive rights.
(iii) The execution, delivery and performance of this Agreement does
not or will not, and the consummation by Issuer of any of the transactions
contemplated hereby will not, constitute or result in (i) a breach or
violation of or a default under, its articles or certificate of
incorporation or by-laws, or the comparable governing instruments of any of
its subsidiaries, or (ii) a breach or violation of or a default under, any
agreement, lease, contract, note, mortgage, indenture, arrangement or other
obligation of it or any of its subsidiaries (with or without the giving of
notice, the lapse of time or both) or under any law, rule, ordinance or
regulation or judgment, decree, order, award or governmental or
non-governmental permit or license to which it or any of its subsidiaries
is subject, except where such breach, violation or default would not in the
aggregate have a Material Adverse Effect (as defined in the Merger
Agreement) and would not materially impair Issuer's ability to consummate
the transactions contemplated by this Agreement.
(b) Grantee hereby represents and warrants to Issuer that Grantee has full
corporate power and authority to enter into this Agreement and, subject to
obtaining the approvals referred to in this Agreement, to consummate the
transactions contemplated by this Agreement; the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Grantee; and
this Agreement has been duly executed and delivered by Grantee and constitutes a
valid and legally binding obligation of Grantee enforceable against Grantee in
accordance with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles, whether such principles are
considered at law or in equity).
12. Assignment. Neither of the parties hereto may assign any of its
rights or obligations under this Agreement or the Option created hereunder to
any other person, without the express written consent of the other party, except
that in the event a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Grantee, subject to the express provisions hereof,
may assign in whole or in part its rights and obligations hereunder within
twelve (12) months following such Subsequent Triggering Event (or such later
period as provided in Section 10 hereof) provided that the assignee executes a
supplement to this Agreement agreeing to be bound by this Agreement's terms.
13. Filings; Other Actions. Each of Grantee and Issuer will use its
reasonable best efforts to make all filings with, and to obtain consents of, all
third parties and regulatory and governmental authorities
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necessary for the consummation of the transactions contemplated by this
Agreement, including, without limitation, notices and filings under HSR and
making application to list the shares of Common Stock issuable hereunder on
Nasdaq upon official notice of issuance.
14. Specific Performance. The parties hereto acknowledge that damages
would be an inadequate remedy for a breach of this Agreement by either party
hereto and that the obligations of the parties hereto shall be enforceable by
either party hereto through injunctive or other equitable relief.
15. Severability. If any term, provision, covenant or restriction
contained in this Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions and covenants and restrictions contained in
this Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Holder is not permitted to acquire, or Issuer or
Substitute Option Issuer, as applicable, is not permitted to repurchase pursuant
to Section 7 or 9 hereof, as applicable, the full number of shares of Common
Stock provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or
Section 5 hereof), it is the express intention of Issuer to allow the Holder to
acquire or to require Issuer to repurchase such lesser number of shares as may
be permissible, without any amendment or modification hereof.
16. Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by fax, telecopy, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement or such other address as shall be provided in
writing.
17. Governing Law. This Agreement shall be governed by, and interpreted
in accordance with, the laws of the State of New York, without regard to the
conflicts of laws principles thereof.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
19. Expenses. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
20. Entire Agreement. Except as otherwise expressly provided herein or in
the Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assignees. Nothing in this Agreement, expressed or implied, is intended to
confer upon any party, other than the parties hereto, and their respective
successors except as assignees, any rights, remedies, obligations or liabilities
under or by reason of this Agreement, except as expressly provided herein.
21. Limitation on Profit. (a) Notwithstanding any other provision of this
Agreement, the Grantee's Total Profit (as hereinafter defined) shall be limited
to $70,000,000 and, if it otherwise would exceed this amount, the Grantee, at
its sole election, shall either (i) reduce the number of shares of Common Stock
subject to this Option (or the number of shares of common stock of the
Substitute Option Issuer subject to this Substitute Option, as the case may be),
(ii) deliver to the Issuer (or Substitute Option Issuer) for cancellation Option
Shares (or Substitute Shares) previously purchased by Grantee (or subsequent
share owner), (iii) pay cash to the Issuer (or Substitute Option Issuer), or
(iv) any combination thereof, so that Grantee's realized Total Profit shall not
exceed $70,000,000 after taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, this Option (or
Substitute Option) may not be exercised for a number of shares as would, as of
the date of exercise, result in a Notional Total Profit (as defined below) which
would exceed $70,000,000; provided, that nothing in this sentence shall restrict
any exercise of the Option (or Substitute Option) permitted hereby on any
subsequent date.
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(c) As used in this Agreement, the term "Total Profit " shall mean the
aggregate amount (before taxes) of the following: (i) (x) the amount received by
Grantee and any other Holder or Substitute Option Holder pursuant to Issuer's
repurchase of the Option (or any portion thereof) or any Option Shares in
accordance with Section 7, or pursuant to Substitute Option Issuer's repurchase
of the Substitute Option (or any portion thereof) or any Substitute Shares in
accordance with Section 9, less, in the case of any repurchase of Option Shares
or Substitute Shares, (y) the Grantee's and any other Holder's or Substitute
Option Holder's purchase price for such Option Shares or Substitute Shares, as
the case may be, (ii) (x) the net cash amounts (and the fair market value of any
other consideration) received by Grantee and any other Holder or Substitute
Option Holder pursuant to the sale of Option Shares or Substitute Shares (or any
other securities into which such Option Shares or Substitute Shares are
converted or exchanged) to any unaffiliated party, less (y) the Grantee's (or
any other Holder's or Substitute Option Holder's) purchase price of the Option
Shares or Substitute Shares, and (iii) the net cash amounts (and the fair market
value of any other consideration) received by Grantee (or any other Holder or
Substitute Option Holder) on the transfer of the Option or Substitute Option (or
any portion thereof) to any unaffiliated party. In the case of clauses (ii) (x)
and (iii) above, the Grantee and any Holder or Substitute Option Holder agree to
furnish as promptly as reasonably practicable after any disposition of all or a
portion of the Option or Option Shares or of the Substitute Option or Substitute
Shares a complete and correct statement, certified by a responsible executive
officer or partner of the Grantee or Holder or Substitute Option Holder, of the
net cash amounts (and the fair market value of any other consideration) received
in connection with any sale or transfer of the Option or Option Shares or of the
Substitute Option or Substitute Shares.
(d) As used in this Agreement, the term "Notional Total Profit " with
respect to any number of shares as to which Grantee and any other Holder or
Substitute Option Holder may propose to exercise this Option or Substitute
Option shall be the Total Profit determined as of the date of such proposal
assuming that this Option or Substitute Option were exercised on such date for
such number of shares and assuming that such shares, together with all other
Option Shares or Substitute Shares held by Grantee and any other Holders or
Substitute Option Holders and their respective affiliates as of such date, were
sold for cash at the closing market price for the Common Stock (or the common
stock of the Substitute Option Issuer, as the case may be) as of the close of
business on the preceding trading day (less customary brokerage commissions).
22. Captions; Capitalized Terms. The section and paragraph captions
herein are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof. Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned thereto in the Merger Agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
<TABLE>
<S> <C>
NORTEL NETWORKS CORPORATION
By: /s/ Frank A. Dunn
--------------------------------------------------
Name: Frank A. Dunn
Title: Senior Vice-President and
Chief Financial Officer
By: /s/ Deborah J. Noble
--------------------------------------------------
Name: Deborah J. Noble
Title: Vice-President, Corporate Secretary
and Associate General Counsel
CLARIFY INC.
By: /s/ Anthony Zingale
--------------------------------------------------
Name: Anthony Zingale
Title: Chief Executive Officer
</TABLE>
B-14
<PAGE> 130
ANNEX C
STOCKHOLDERS AGREEMENT
This STOCKHOLDERS AGREEMENT (this "Agreement "), dated as of October 18,
1999, is entered into by and among Kirsten Berg-Painter, Dean Chabrier, Dennis
Cunningham, Tanya Johnson, Jan Praisner, Senya Rahmil, David Stamm, Jay Tyler,
Jeanne Urich, Anthony Zingale (each a "Stockholder Party ") and Nortel Networks
Corporation, a corporation organized under the laws of Canada ("Nortel ").
WHEREAS, simultaneously with the execution of this Agreement, Nortel,
Northern Crown Subsidiary, Inc., a wholly owned subsidiary of Nortel ("Sub "),
and Clarify Inc., a corporation organized under the laws of Delaware (the
"Company "), are entering into an Agreement and Plan of Merger, dated as of the
date hereof (as the same may be amended or supplemented, the "Merger
Agreement ") providing, among other things, for the Merger of Sub with and into
the Company (the "Merger "); and
WHEREAS, as of the date hereof, each Stockholder Party is the Beneficial
Owner (as defined below) of, and has the sole right to vote and dispose of, the
shares of common stock, par value $0.0001 per share of the Company ("Common
Stock "), set forth in Schedule A (the "Owned Shares "); and
WHEREAS, as an inducement and a condition to their entering into the Merger
Agreement and incurring the obligations set forth therein, Nortel has required
that each Stockholder Party enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein and in
the Merger Agreement, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. Certain Definitions. Capitalized terms used but not defined in this
Agreement are used in this Agreement with the meanings given to such terms in
the Merger Agreement. In addition, for purposes of this Agreement:
"Affiliate " means, with respect to any specified Person, any Person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Person specified. For
purposes of this Agreement, with respect to any Stockholder Party, "Affiliate "
shall not include the Company and the Persons that directly, or indirectly
through one or more intermediaries, are controlled by the Company.
"Alternative Transaction " has the meaning set forth in Section 2(b)
hereof.
"Beneficially Owned " or "Beneficial Ownership " with respect to any
securities means having beneficial ownership of such securities (as determined
pursuant to Rule 13d-3 under the Exchange Act, disregarding the phrase "within
60 days" in paragraph (d)(1)(i) thereof), including pursuant to any agreement,
arrangement or understanding, whether or not in writing. Without duplicative
counting of the same securities by the same holder, securities Beneficially
Owned by a Person shall include securities Beneficially Owned by all Affiliates
of such Person and all other Persons with whom such Person would constitute a
"Group" within the meaning of Section 13(d) of the Exchange Act and the rules
promulgated thereunder.
"Beneficial Owner " with respect to any securities means a Person who has
Beneficial Ownership of such securities.
"Company Meeting " has the meaning set forth in Section 3 hereof.
"Proposed Business Combination " means the transactions contemplated by the
Merger Agreement.
"Transfer " means, with respect to a security, the sale, transfer, pledge,
hypothecation, encumbrance, assignment or disposition of such security or the
Beneficial Ownership thereof, the offer to make such a
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sale, transfer or other disposition, and each option, agreement, arrangement or
understanding, whether or not in writing, to effect any of the foregoing. As a
verb, "Transfer " shall have a correlative meaning.
2. No Disposition or Solicitation.
(a) Each Stockholder Party agrees that from and after the date hereof,
except as contemplated by this Agreement, such party will not Transfer or
agree to Transfer any Common Stock Beneficially Owned by such party other
than with Nortel's prior written consent, or grant any proxy or power-of-
attorney with respect to any such Common Stock other than pursuant to this
Agreement; provided, that nothing in this Section 2(a) shall prohibit any
Stockholder Party from effecting any Transfer of Common Stock Beneficially
Owned by such Stockholder Party (i) by will or applicable laws of descent
and distribution or (ii) to any member of the immediate family of such
Stockholder Party, or any trust, limited partnership or other similar
entity the Beneficial Ownership of which is held by the Stockholder Party
or such family members (each a "Permitted Transferee "), so long as such
Permitted Transferee agrees in writing, in form and substance reasonably
satisfactory to Nortel, to be bound by the terms of this Agreement to the
same extent as such Stockholder Party is bound.
(b) Each Stockholder Party agrees that from and after the date hereof,
except as contemplated by this Agreement or, solely in such Stockholder
Party's capacity as an officer or director of the Company, as permitted by
the Merger Agreement, such Stockholder Party and such party's Affiliates
and representatives, will not directly or indirectly solicit, initiate, or
encourage any inquiries or proposals from, discuss or negotiate with, or
provide any non-public information to, any Person relating to, or otherwise
facilitate any tender or exchange offer, proposal for a merger,
consolidation or other business combination involving the Company or any of
its subsidiaries or any proposal or offer to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets of,
the Company or any of its subsidiaries other than the Proposed Business
Combination (an "Alternative Transaction ").
(c) Each Stockholder Party agrees that, except for communications made
in the course of his duties as an officer of the Company or unless required
by applicable law, neither such Stockholder Party nor any of such party's
Affiliates shall make any press release, public announcement or other
communication with respect to Nortel or the business or affairs of the
Company, including this Agreement and the Merger Agreement and the
transactions contemplated hereby and thereby, without the prior written
consent of Nortel.
3. Stockholder Vote; Offer. Each Stockholder Party agrees that (i) at
such time as the Company conducts a meeting of or otherwise seeks a vote or
consent of its stockholders for the purpose of approving the Merger Agreement
and the Merger (such meeting or any adjournment thereof, or such consent
process, the "Company Meeting "), such Stockholder Party will vote, or provide a
consent with respect to, all Common Stock (including the Owned Shares) then
Beneficially Owned by such party over which such party has voting power ("Voting
Shares ") in favor of the Merger Agreement and the Merger, provided that such
Stockholder Party shall not be required to vote for, or provide a consent with
respect to, any action that would reduce the number of Nortel Common Shares to
be received by such Stockholder Party in respect of such party's Common Stock in
the Merger, and (ii) such Stockholder Party will (at any meeting of
stockholders) vote such party's Voting Shares against, and such party will not
consent to, any Alternative Transaction or any action that would delay, prevent
or frustrate the transactions contemplated by the Merger Agreement.
Without limiting the foregoing, it is understood that the obligations under
clause (i) above shall remain applicable in respect of each meeting of
stockholders of the Company duly called for the purpose of approving the Merger
Agreement and the Merger regardless of the position of the Company Board as to
the Merger at the time of such meeting, and that the obligations under clause
(ii) above shall continue to the extent set forth in Section 10.
4. Reasonable Efforts to Cooperate. Each Stockholder Party will (a) use all
reasonable efforts to cooperate with the Company, Nortel and Sub in connection
with the transactions contemplated by the
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Merger Agreement, (b) promptly take such actions as are necessary or appropriate
to consummate such transactions and (c) provide any information reasonably
requested by the Company, Nortel or Sub for any regulatory application or filing
made or approval sought for such transactions (including filings with the SEC).
5. Other Stock. Each Stockholder Party agrees that any shares of Common
Stock acquired by such Stockholder Party or over which such Stockholder Party
acquires Beneficial Ownership, whether pursuant to existing stock option
agreements, warrants or otherwise, shall be subject to the provisions of this
Agreement.
6. Irrevocable Proxy. (i) In furtherance of the agreements contained in
Section 3 of this Agreement, each Stockholder Party hereby irrevocably grants
to, and appoints, Nortel and J.A. Roth, Vice Chairman and Chief Executive
Officer of Nortel, F.A. Dunn, Senior Vice President and Chief Financial Officer
of Nortel, and W.R. Kerr, Senior Vice President, Finance and Business
Development, of Nortel, in their respective capacities as officers of Nortel,
and any individual who shall hereafter succeed to any such office of Nortel, and
each of them individually, such Stockholder Party's proxy and attorney-in-fact
(with full power of substitution), for and in the name, place and stead of such
Stockholder Party, to vote all Voting Shares Beneficially Owned by such
Stockholder Party, or grant a consent or approval in respect of such Voting
Shares, or execute and deliver a proxy to vote such Voting Shares, (x) subject
to the proviso set forth in clause (i) of the first paragraph of Section 3, in
favor of the Merger and the Merger Agreement and approval of the terms thereof
and each of the other transactions contemplated by the Merger Agreement and (y)
against any Alternative Transaction or any other matter referred to in clause
(ii) of the first sentence of Section 3 hereof.
(ii) Each Stockholder Party represents and warrants to Nortel that any
proxies heretofore given in respect of such party's Voting Shares are not
irrevocable, and hereby revokes any such proxies.
(iii) Each Stockholder Party hereby affirms that the irrevocable proxy set
forth in this Section 6 is given in connection with, and in consideration of,
the execution of the Merger Agreement by Nortel and Sub, and that such
irrevocable proxy is given to secure the performance of the duties of such
Stockholder Party under this Agreement. Each Stockholder Party hereby further
affirms that the irrevocable proxy is coupled with an interest and may under no
circumstances be revoked. Such Stockholder Party hereby ratifies and confirms
all that such irrevocable proxy may lawfully do or cause to be done by virtue
hereof. Such irrevocable proxy is executed and intended to be irrevocable in
accordance with the provisions of Section 218 of the Delaware General
Corporation Law. The proxy granted in this Section 6 shall remain valid until
terminated pursuant to Section 10 hereof or until earlier terminated with
respect to shares of Common Stock that are Transferred in accordance with this
Agreement.
7. Covenant of Stockholder Parties. Each Stockholder Party agrees to take
all action necessary to (i) permit (a) such Stockholder Party's Owned Shares to
be acquired in the Merger and (b) the voting of such Stockholder Party's Voting
Shares in accordance with the terms of this Agreement and (ii) prevent creditors
in respect of any pledge of such Stockholder Party's Owned Shares from
exercising their rights under such pledge.
8. Representations, Warranties and Covenants of Stockholder Parties. Each
Stockholder Party hereby represents and warrants to, and agrees with, Nortel as
follows:
(a) Such Stockholder Party has all necessary power and authority and
legal capacity to execute and deliver this Agreement and perform his
obligations hereunder.
(b) This Agreement has been duly and validly executed and delivered by
such Stockholder Party and constitutes the valid and binding agreement of
such Stockholder Party, enforceable against such Stockholder Party in
accordance with its terms except to the extent limited by (i) applicable
bankruptcy, insolvency or similar laws affecting creditors' rights or (ii)
general equity principles, whether considered at law or in equity.
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(c) Each Stockholder Party is the sole Beneficial Owner of such
party's Owned Shares. Each Stockholder Party has good and marketable title
(which may include holding in nominee or "street" name) to all of such
party's Owned Shares, free and clear of all liens, claims, options,
proxies, voting agreements and security interests (other than as created by
this Agreement and restrictions on Transfer under applicable securities
laws). Except as set forth in Schedule A, the Owned Shares constitute all
of the capital stock of the Company Beneficially Owned by such Stockholder
Party and neither such Stockholder Party nor such party's Affiliates is the
Beneficial Owner of, or has any right to acquire (whether currently, upon
lapse of time, following the satisfaction of any conditions, upon the
occurrence of any event or any combination of the foregoing) any Common
Stock or any securities convertible into or exchangeable or exercisable for
Common Stock.
(d) Neither the execution and delivery of this Agreement by each
Stockholder Party nor the consummation of the transactions contemplated
hereby will (i) conflict with, result in any violation of, require any
consent under or constitute a default (whether with notice or lapse of time
or both) by such Stockholder Party under any mortgage, bond, indenture,
agreement, instrument or obligation to which such Stockholder Party is a
party or by which such Stockholder Party or any of the Voting Shares is
bound; (ii) violate any judgment, order, injunction, decree or award of any
court, administrative agency or governmental body that is binding on such
Stockholder Party; or (iii) constitute a violation by such Stockholder
Party of any law or regulation of any jurisdiction, in each case except for
violations, conflicts or defaults that would not have a material adverse
effect on the ability of such Stockholder Party to perform such party's
obligations under this Agreement.
(e) Each Stockholder Party understands and acknowledges that Nortel
and Sub are entering into the Merger Agreement in reliance upon such
Stockholder Party's execution, delivery and performance of this Agreement.
Each Stockholder Party acknowledges that such Stockholder Party's
irrevocable proxy set forth in Section 6 is granted in consideration of the
execution and delivery of the Merger Agreement by Nortel.
9. Representations and Warranties of Nortel. Nortel represents and
warrants to the Stockholder Parties that Nortel has full corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. The execution, delivery and performance of this Agreement by Nortel
will not constitute a violation of, conflict with or result in a default under,
(i) any contract, understanding or arrangement to which Nortel is a party or by
which it is bound or require the consent of any other Person or any party
pursuant thereto, (ii) any judgment, decree or order applicable to Nortel, or
(iii) any law, rule or regulation of any governmental body, in each case except
for violations, conflicts or defaults that would not have a material adverse
effect on the ability of Nortel to perform its obligations under this Agreement;
and this Agreement constitutes a legal, valid and binding agreement on the part
of Nortel, enforceable against Nortel in accordance with its terms, except as
such enforceability may be limited by principles applicable to creditors' rights
generally or governing the availability of equitable relief. The execution and
delivery by Nortel of this Agreement and the consummation by Nortel of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Nortel and no other corporate proceedings on the part of
Nortel are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Nortel.
10. Termination. This Agreement, and all rights and obligations of the
parties hereunder, shall terminate on the earlier of:
(a) the Effective Time;
(b) termination of the Merger Agreement in accordance with the
provisions of Section 8.01(a), 8.01(d)(i), 8.01(d)(ii) or 8.01(d)(iii) of
the Merger Agreement, or termination of the Merger Agreement by the Company
in accordance with the provisions of Section 8.01(b) thereof, or
termination of the Merger Agreement by Nortel in accordance with the
provisions of Section 8.01(b) thereof by reason solely of non-willful
breaches of representations warranties or covenants by the
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Company, or termination of the Merger Agreement by Nortel in accordance
with the provisions of Section 8.01(c);
(c) termination of the Merger Agreement by the Company in accordance
with the provisions of Section 8.01(c), or termination of the Merger
Agreement pursuant to Section 8.01(d)(iv) thereof, or termination of the
Merger Agreement by Nortel in accordance with the provisions of Section
8.01(b) thereof under circumstances where clause (b) above is inapplicable,
in each case only if at the time of such termination the conditions to
payment of the Termination Fee set forth in Section 8.02(b)(i), 8.02(b)(ii)
or 8.02(b)(iii), other than the condition set forth in clause (z) of the
relevant section, have not been met; and
(d) 120 days following the termination of the Merger Agreement other
than as set forth in clause (b) or (c) above;
provided, however, that the term of this Agreement shall be extended by a period
of days equal to the duration of any temporary or permanent order, writ or
injunction issued by a court of competent jurisdiction that invalidates, impedes
or enjoins the operation or enforcement of this Agreement, the Merger Agreement
or any agreement contemplated hereby or thereby or entered into in connection
herewith or therewith.
11. Miscellaneous.
(a) This Agreement represents the entire understanding of the parties
hereto with reference to the subject matter hereof and supersedes any and
all other oral or written agreements and understandings among the parties
heretofore made.
(b) Each Stockholder Party agrees that this Agreement and the
respective rights and obligations of such Stockholder Party hereunder shall
attach to any Common Stock, and any securities convertible into such
shares, that may become Beneficially Owned by such Stockholder Party.
(c) Except as otherwise provided in this Agreement, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
(d) This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties and their respective
successors, personal or legal representatives, executors, administrators,
heirs, distributees, devisees, legatees and permitted assigns, but neither
this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by any party (whether by operation of law or otherwise)
without the prior written consent of the other parties; provided, that
Nortel may assign any or all rights under this Agreement to Sub or any
other Subsidiary. Nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement.
(e) This Agreement may not be amended, changed, supplemented, or
otherwise modified or terminated, except upon the execution and delivery of
a written agreement executed by the parties hereto; provided, that Nortel
may waive compliance by any other party with any representation, agreement
or condition otherwise required to be complied with by any other party
under this Agreement or release any other party from its obligations under
this Agreement, but any such waiver or release shall be effective only if
in writing executed by Nortel.
(f) All notices and other communications hereunder shall be in writing
and shall be deemed given upon (a) transmitter's confirmation of a receipt
of a facsimile transmission, (b) confirmed delivery by a standard overnight
carrier or when delivered by hand or (c) the expiration of five business
days after the day when mailed by certified or registered mail, postage
prepaid, addressed at:
(i) in the case of a Stockholder Party, to such Stockholder Party
at the address set forth beside its name on Schedule A hereto; and
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(ii) if to Nortel, to:
Nortel Networks Corporation
8200 Dixie Road, Suite 100
Brampton, Ontario
Canada L6T 5P6
Attention: Corporate Secretary
Fax: (905) 863-8386
Phone: (905) 863-0000
with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Victor I. Lewkow, Esq.
Fax: (212) 225-3999
Phone: (212) 225-2370
or to such other address or facsimile number as the Person to whom notice
is given shall have previously furnished to the others in writing in the
manner set forth above.
(g) If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder
of the terms, provisions and covenants and restrictions contained in this
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated.
(h) Each Stockholder Party acknowledges and agrees that in the event
of any breach of this Agreement, Nortel would be irreparably and
immediately harmed and could not be made whole by monetary damages. It is
accordingly agreed that (a) each Stockholder Party will waive, in any
action for specific performance, the defense of adequacy of a remedy at
law, and (b) Nortel shall be entitled, in addition to any other remedy to
which it may be entitled at law or in equity, to compel specific
performance of this Agreement.
(i) All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be
cumulative and not alternative, and the exercise of any thereof by any
party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party. The failure of any party hereto
to exercise any right, power or remedy provided under this Agreement or
otherwise available in respect hereof at law or in equity, or to insist
upon compliance by any other party hereto with its obligations hereunder,
and any custom or practice of the parties at variance with the terms
hereof, shall not constitute a waiver by such party of its right to
exercise any such or other right, power or remedy or to demand such
compliance.
(j) This Agreement shall be governed by, and interpreted in accordance
with, the laws of the State of New York.
(k) The section and paragraph captions herein are for convenience of
reference only, do not constitute part of this Agreement and shall not be
deemed to limit or otherwise affect any of the provisions hereof.
(l) This Agreement may be executed in one or more counterparts, each
of which shall be deemed to constitute an original.
12. Stockholder Capacity. No Stockholder Party executing this Agreement
who is or becomes during the term hereof a director or officer of the Company
makes any agreement or understanding herein in such Stockholder Party's capacity
as such director or officer. Each Stockholder Party signs solely in such
Stockholder Party's capacity as the record holder and/or beneficial owner of the
Owned Shares and Voting Shares, and nothing herein shall limit or affect any
actions taken or omitted to be taken by a
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Stockholder Party in such party's capacity as an officer or director of the
Company to the extent specifically permitted by the Merger Agreement.
13. Further Assurances. From time to time, at Nortel's reasonable request
and without further consideration, each Stockholder Party shall execute and
deliver such additional documents and take all such further lawful action as may
be necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
<TABLE>
<S> <C>
Kirsten Berg-Painter
/s/ Kirsten Berg-Painter
-----------------------------------------------------
Dean Chabrier
/s/ Dean Chabrier
-----------------------------------------------------
Dennis Cunningham
/s/ Dennis Cunningham
-----------------------------------------------------
Tanya Johnson
/s/ Tanya Johnson
-----------------------------------------------------
Jan Praisner
/s/ Jan Praisner
-----------------------------------------------------
Senya Rahmil
/s/ Senya Rahmil
-----------------------------------------------------
David Stamm
/s/ David Stamm
-----------------------------------------------------
Jay Tyler
/s/ Jay Tyler
-----------------------------------------------------
</TABLE>
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<TABLE>
<S> <C>
Jeanne Urich
/s/ Jeanne Urich
-----------------------------------------------------
Anthony Zingale
/s/ Anthony Zingale
-----------------------------------------------------
NORTEL NETWORKS CORPORATION
By: /s/ Frank A. Dunn
Name: Frank A. Dunn
Title: Senior Vice-President and
Chief Financial Officer
By: /s/ Deborah J. Noble
Name: Deborah J. Noble
Title: Vice-President, Corporate Secretary
and Associate General Counsel
</TABLE>
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SCHEDULE A
STOCKHOLDER PARTIES
<TABLE>
<CAPTION>
NAME SHARES ADDRESS
- ---- ------ -------
<S> <C> <C>
Kirsten Berg-Painter........... Owned Shares: 0 c/o Clarify Inc.
Shares subject to options: 2560 Orchard Parkway
250,000 San Jose, California 95131
Fax: (408) 965-4610
Dean Chabrier.................. Owned Shares: 0 c/o Clarify Inc.
Shares subject to options: 2560 Orchard Parkway
160,000 San Jose, California 95131
Fax: (408) 965-4610
Dennis Cunningham.............. Owned Shares: 0 c/o Clarify Inc.
Shares subject to options: 2560 Orchard Parkway
175,000 San Jose, California 95131
Fax: (408) 965-4610
Tanya Johnson.................. Owned Shares: 9,983 c/o Clarify Inc.
Shares subject to options: 2560 Orchard Parkway
175,017 San Jose, California 95131
Fax: (408) 965-4610
Jan Praisner................... Owned Shares: 0 c/o Clarify Inc.
Shares subject to options: 2560 Orchard Parkway
325,000 San Jose, California 95131
Fax: (408) 965-4610
Senya Rahmil................... Owned Shares: 66,666 c/o Clarify Inc.
Shares subject to options: 2560 Orchard Parkway
206,666 San Jose, California 95131
Fax: (408) 965-4610
David Stamm.................... Owned Shares: 1,201,332 c/o Clarify Inc.
Shares subject to options: 2560 Orchard Parkway
165,000 San Jose, California 95131
Fax: (408) 965-4610
Jay Tyler...................... Owned Shares: 0 c/o Clarify Inc.
Shares subject to options: 2560 Orchard Parkway
200,000 San Jose, California 95131
Fax: (408) 965-4610
Jeanne Urich................... Owned Shares: 15,000 c/o Clarify Inc.
Shares subject to options: 2560 Orchard Parkway
205,000 San Jose, California 95131
Fax: (408) 965-4610
Anthony Zingale................ Owned Shares: 0 c/o Clarify Inc.
Shares subject to options: 2560 Orchard Parkway
600,000 San Jose, California 95131
Fax: (408) 965-4610
Aggregate Owned Shares: c/o Clarify Inc.
1,292,981 2560 Orchard Parkway
Aggregate shares subject to San Jose, California 95131
options: 2,461,683 Fax: (408) 965-4610
</TABLE>
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ANNEX D
October 18, 1999
Board of Directors
Clarify Inc.
2560 Orchard Parkway
San Jose, CA 95131
Members of the Board:
We understand that Clarify Inc. ("Clarify" or the "Company"), Nortel
Networks Corporation ("Nortel"), and Northern Crown Subsidiary, Inc. ("Merger
Sub"), a wholly-owned subsidiary of Nortel, propose to enter into an Agreement
and Plan of Merger, substantially in the form dated October 18, 1999 (the
"Merger Agreement") which provides, among other things, for the merger (the
"Merger") of Merger Sub with and into Clarify. Pursuant to the Merger, Clarify
will become a wholly-owned subsidiary of Nortel and each outstanding share of
common stock, par value $0.0001 per share of Clarify (the "Clarify Common
Stock"), other than shares held in treasury or held by Nortel or any subsidiary
of Nortel, will be converted into the right to receive 1.3 shares (the "Exchange
Ratio") of common stock, no par value, of Nortel (the "Nortel Common Stock").
The terms and conditions of the Merger are more fully set forth in the Merger
Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to the holders of
shares of Clarify Common Stock.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
business and financial information of Clarify and Nortel, respectively;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning Clarify prepared by the management
of Clarify;
(iii) analyzed certain financial projections prepared by the
management of Clarify;
(iv) discussed the past and current operations and financial condition
and the prospects of Clarify, including information relating to certain
strategic, financial and operational benefits anticipated from the Merger,
with senior executives of Clarify;
(v) discussed the past and current operations and financial condition
and the prospects of Nortel, including a review of publicly available
projections from equity research analyst estimates and information relating
to certain strategic, financial and operational benefits anticipated from
the Merger, with senior executives of Nortel;
(vi) reviewed the pro forma impact of the Merger on the earnings per
share of Nortel;
(vii) reviewed the reported prices and trading activity for the
Clarify Common Stock and Nortel Common Stock;
(viii) compared the financial performance of Clarify and Nortel and
the prices and trading activity of the Clarify Common Stock and Nortel
Common Stock with that of certain other publicly-traded companies
comparable with Clarify and Nortel and their securities;
(ix) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
(x) reviewed and discussed with the senior managements of Clarify and
Nortel their strategic rationales for the Merger;
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<PAGE> 140
(xi) participated in discussions and negotiations among
representatives of Clarify and Nortel and their financial and legal
advisors;
(xii) reviewed the draft Merger Agreement and certain related
documents; and
(xiii) performed such other analyses and considered such other factors
as we have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the internal financial statements and other
financial and operating data, and discussions relating to the strategic,
financial and operational benefits anticipated from the Merger provided by
Clarify, we have assumed that they have, in each case, been reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
prospects of Clarify and Nortel. We have relied upon the assessment by the
managements of Clarify and Nortel of their ability to retain key employees of
Clarify. We have also relied upon, without independent verification, the
assessment by the managements of Clarify and Nortel of: (i) the strategic and
other benefits expected to result from the Merger; (ii) the timing and risks
associated with the integration of Clarify and Nortel; and (iii) the validity
of, and risks associated with, Clarify's and Nortel's existing and future
technologies, services or business models. We have not made any independent
valuation or appraisal of the assets or liabilities or technology of Clarify and
Nortel, nor have we been furnished with any such appraisals. In addition, we
have assumed that the Merger will be consummated in accordance with the terms
set forth in the Merger Agreement, including, among other things, that the
Merger will be treated as a tax-free reorganization and/or exchange pursuant to
Section 368(a) of the Internal Revenue Code of 1986. Our opinion is necessarily
based on financial, economic, market and other conditions as in effect on, and
the information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for Nortel and have received fees for
the rendering of these services. In the ordinary course of our business we may
actively trade the securities of Clarify and Nortel for our own account and 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 Clarify, except that this opinion may be included in its entirety
in any filing made by Clarify with the Securities and Exchange Commission in
respect of the transaction. In addition, this opinion does not in any manner
address the prices at which the Nortel Common Stock will trade following the
consummation of the Merger, and Morgan Stanley expresses no opinion or
recommendation as to how the shareholders of Clarify should vote at the
shareholders' meeting to be held in connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to the holders of shares of Clarify Common Stock.
<TABLE>
<S> <C>
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Charles R. Cory
-------------------------------------------------
Charles R. Cory
Managing Director
</TABLE>
D-2
<PAGE> 141
CLARIFY INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
CLARIFY INC.
SPECIAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Clarify Inc., a Delaware corporation (the
"Company") hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and Proxy Statement/Prospectus, each dated February 11, 2000, and
hereby appoints Anthony Zingale and Jan Praisner, and each of them, with full
power of substitution, as proxies and attorneys-in-fact, on behalf and in the
name of the undersigned, to represent the undersigned at the Company's Special
Meeting of Stockholders to be held on March 16, 2000 at 10:00 a.m., Pacific
Time, at the principal executive offices of the Company located at 2560 Orchard
Parkway, San Jose, California 95131, and at any adjournment or postponement
thereof, and to vote all shares of Common Stock which the undersigned would be
entitled to vote if then and there personally present, on the matters set forth
below:
PLEASE SIGN ON REVERSE AND RETURN IMMEDIATELY
1. PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER, DATED
AS OF OCTOBER 18, 1999, AMONG THE COMPANY, NORTEL NETWORKS CORPORATION, A
CORPORATION ORGANIZED UNDER THE LAWS OF CANADA, AND NORTHERN CROWN SUBSIDIARY,
INC., A DELAWARE CORPORATION AND A WHOLLY OWNED SUBSIDIARY OF NORTEL NETWORKS
CORPORATION, AND TO APPROVE THE MERGER AND OTHER TRANSACTIONS DESCRIBED IN THE
MERGER AGREEMENT AND AS DESCRIBED IN THE PROXY STATEMENT/PROSPECTUS:
_____ FOR _____ AGAINST _____ ABSTAIN
and, in their discretion, upon such other matter or matters that may properly
come before the meeting and any postponement(s) or adjournment(s) thereof.
<PAGE> 142
This proxy will be voted as directed or, if no contrary direction is
indicated, will be voted FOR Proposal 1, and as said proxies deem advisable on
such other matters as may come before the meeting.
(This proxy should be marked, dated, signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. If
shares are held by joint tenants or as community property, both should sign.)
________________________________ Date: ________________________________
Signature
________________________________ Date: ________________________________
Signature
