<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
EARTHLINK NETWORK, INC.
(NAME OF ISSUER)
----------------
COMMON STOCK, $.01 PAR VALUE PER SHARE
(TITLE OF CLASS OF SECURITIES)
270322100
(CUSIP NUMBER OF CLASS OF SECURITIES)
----------------
GRAYSON L. HOBERG
EARTHLINK NETWORK, INC.
3100 NEW YORK DRIVE
PASADENA, CALIFORNIA 91107
(626) 296-2400
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS)
COPIES TO:
J. STEPHEN HUFFORD, ESQ.
HUNTON & WILLIAMS
NATIONSBANK PLAZA, SUITE 4100
600 PEACHTREE ST., N.E.
ATLANTA, GEORGIA 30308
(404) 888-4000
If the filing person has previously filed a statement on Schedule 13G, and
is filing this schedule to report the acquisition which is the subject of this
Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4),
check the following box. [_]
(Continued on following pages)
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(Page 1 of 7 Pages)
<PAGE>
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CUSIP No. 270322100
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13D
Page 2 of 7 Pages
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1 NAME OF REPORTING PERSON:
IRS IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY):
Kevin M. O'Donnell
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP:
(A)[X]
(B)[_]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS:
OO
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E):
[_]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION:
UNITED STATES OF AMERICA
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| 7 SOLE VOTING POWER:
NUMBER OF | 182,500 Shares
SHARES | ----------------------------------------------------------
BENEFICIALLY | 8 SHARED VOTING POWER:
OWNED BY | 6,947,121 Shares*
EACH | ----------------------------------------------------------
REPORTING | 9 SOLE DISPOSITIVE POWER:
PERSON WITH | 182,500 Shares
| ----------------------------------------------------------
| 10 SHARED DISPOSITIVE POWER:
| 6,947,121 Shares*
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:
7,129,621 Shares
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[_]
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13 PERCENT OF CLASS REPRESENTED TO AMOUNT IN ROW (11):
62.1%
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14 TYPE OF REPORTING PERSON*:
IN
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- --------
* Includes highest number of shares as to which voting power or dispositive
power is shared by virtue of membership in the groups described in Item 2.
2
<PAGE>
13D Page 3 of 7 Pages
ITEM 1. SECURITY AND ISSUER.
The name of the issuer is EarthLink Network, Inc., a Delaware corporation
(the "Company"), and the address of its principal executive offices is 3100
New York Drive, Pasadena, CA 91107.
This Schedule 13D relates to the offer by Sprint Corporation, a Kansas
Corporation ("Sprint"), to purchase 1,250,000 shares of common stock of the
Company, par value $.01 per share (the "Shares" or "Common Stock"), at a price
of $45 per Share, net to each seller in cash (the "Offer Price"), upon the
terms and subject to the conditions set forth in the Offer to Purchase dated
February 18, 1998 (the "Offer to Purchase"), and in the related Letter of
Transmittal (which, together with any amendments or supplements thereto,
collectively constitute the "Offer"). A copy of the Offer to Purchase is
attached hereto as Exhibit (2)(a). There were 11,299,628 Shares outstanding as
of February 10, 1998.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(f) The person filing this Statement is Kevin M. O'Donnell, whose
business address is 3100 New York Dr., Pasadena, California 91107. Mr. O'Donnell
is a director of the Company and is the President of O'Donnell & Associates, a
venture capital firm. During the last five years, Mr. O'Donnell has not been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) and was not a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction as a result of which he was or is
subject to a judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, federal or state securities laws
or finding any violation of such law. Mr. O'Donnell is a U.S. citizen.
In order to induce Sprint and Sprint Communications Company L.P. ("Sprint
L.P.") to enter into the Investment Agreement dated February 10, 1998 among
Sprint, Sprint L.P., the Company, Dolphin, Inc. ("Newco") and Dolphin Sub,
Inc. ("Newco Sub") (the "Investment Agreement") and perform the transactions
contemplated thereby (as described under the caption "Introduction" and in
Section 12 ("Purpose of the Offer, The Investment Agreement; Ancillary
Agreements") of the Offer to Purchase which is incorporated herein by
reference), the following members of management of the Company and other
stockholders (the "Granting Stockholders") entered into an Agreement to Vote
and Tender Stock dated February 10, 1998 ("Agreement to Vote and Tender
Stock"): Sky D. Dayton, Chairman of the Board of the Company, 1,500,000; Kevin
M. O'Donnell, a director of the Company, 944,614; Gregory Abbott, 427,212;
Robert S. London, 392,032; George Abbott, 203,364; and Storie Partners LP,
521,892. That agreement obligates the Granting Stockholders to tender all of
the 3,989,114 Shares (representing 35.3% of the outstanding Shares) which they
own into the Offer, and to vote those Shares in favor of (i) the Merger (as
defined under the caption "Introduction" in the Offer to Purchase), (ii) the
issuance of the Convertible Preferred Stock (as defined under the caption
"Introduction" in the Offer to Purchase), the Convertible Notes (as defined
under the caption "Introduction" in the Offer to Purchase) and the Newco
Common Stock (as defined under the caption "Introduction" in the Offer to
Purchase) issuable upon conversion thereof, (iii) the other transactions
contemplated by the Investment Agreement, and (iv) any related matter that
must be approved by the holders of Common Stock or Newco Common Stock in order
for the transactions contemplated by the Investment Agreement to be
consummated (the matters referred to in (i), (ii), (iii) and (iv) are referred
to collectively as the "Company Stockholder Vote Matters"). In addition, the
following stockholders (the "Voting Stockholders") entered into an Agreement
to Vote Stock dated February 10, 1998 ("Agreement to Vote Stock") which
obligates them to vote all of the 2,950,382 Shares (representing 26.1% of the
outstanding Shares) in favor of the Company Stockholder Vote Matters: George
Soros, 214,545 Shares; Quantum Industrial Partners LDC, 1,456,480; Reed
Slatkin, a director of the Company (through Reed Slatkin & Associates),
1,042,473 Shares; and Sidney Azeez, a director of the Company, 236,884 Shares.
<PAGE>
13D Page 4 of 7 Pages
Simultaneously with the execution of the Investment Agreement, Sprint and
the following stockholders (the "SA Stockholders") entered into a Stockholders
Agreement (the "Stockholders Agreement", which will not become effective until
the Closing of the transactions contemplated by the Investment Agreement and
then only if the Offer is consummated and the conditions to the Closing are
satisfied or waived on or prior to the Closing) covering all of the Shares or
other equity securities of Newco they now own of record or beneficially or
which will receive in the Merger, or are convertible into Newco Common Stock
or are receivable in respect thereof ("Covered Shares"): Sky Dayton, Chairman
of the Board of the Company, 1,500,000 Shares; Quantum Industrial Partners
LDC, 1,456,480 Shares; Kevin M. O'Donnell, a director of the Company, 944,614
Shares; Reed Slatkin, a director of the Company (through Reed Slatkin &
Associates) 1,042,473 Shares; George Soros, 214,545 Shares; and Sidney Azeez,
a director of the Company, 236,884 Shares. The Stockholders Agreement
obligates the SA Stockholders to (i) vote all of the 5,394,996 Covered Shares
in favor of a Sprint Offer or Qualified Offer (as the terms Sprint Offer and
Qualified Offer are defined in Section 12 of the Offer to Purchase under the
subcaptions "Purchases of Additional Equity Securities; Business Combinations"
and "Third Party Offers", respectively) involving a business combination or
related matter, and (ii) to tender all of the Covered Shares into a tender
offer initiated by Sprint to effect a Sprint Offer or a Qualified Offer.
The reporting person may be deemed to be a member of a group with Sprint,
Sprint L.P. and the other Granting Stockholders with respect to the agreements
to vote and tender the 3,989,114 Shares contemplated by the Agreement to Vote
and Tender Stock, and thus may be viewed as sharing voting and dispositive
power for those purposes with respect to the Shares covered thereby.
The reporting person may also be deemed to be a member of a group with
Sprint, Sprint L.P. and the other SA Stockholders with respect to the
agreements to vote and tender the 5,394,996 covered shares of Newco Common
Stock contemplated by the Stockholders Agreement, and thus may be viewed as
sharing voting and dispositive power with respect to the Covered Shares.
The reporting person is making a separate filing to report its shared
beneficial ownership of Shares and Newco Common Stock resulting from its
membership in the two groups described in the two immediately preceding
paragraphs. The reporting person does not have knowledge of the information
called for by Instruction C to Schedule 13D with respect to the other members
of such groups and therefore is not required to report such information in
this Schedule 13D pursuant to Rule 13d-1(f)(2), except for the information set
forth under the caption "Beneficial Ownership of Common Stock" in the
Company's Proxy Statement dated January 23, 1998.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
The information set forth in Section 10 ("Source and Amount of Funds") of
the Offer to Purchase is incorporated herein by reference.
ITEM 4. PURPOSE OF TRANSACTION.
(a)-(g); (j) The information set forth under the caption "Introduction" and in
Section 12 ("Purpose of the Offer, The Investment Agreement; Ancillary
Agreements") of the Offer to Purchase is incorporated herein by reference.
(h) None.
(i) None.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
As a result of the reporting person being a party to the Stockholders'
Agreement and the Agreement to Vote and Tender Stock, the aggregate maximum
number of Shares reported for the reporting person equals 7,129,621 Shares,
which includes: (i) 182,500 shares as to which the reporting person exercises
sole voting and investment power; and (ii) 6,947,121 Shares as to which the
reporting person shares voting and dispositive power, which is comprised of
(A) 7,538 Shares and options to purchase an additional 87 shares of Common Stock
held by the reporting person's son, and (B) 6,939,496 Shares, which reflects the
highest number of Shares as to which voting power or dispositive power is shared
by virtue of membership in the groups described in Item 2. The 182,500 Shares as
to which the reporting person exercises sole voting and dispositive power are
Shares subject to warrants exercisable within 60 days of February 10, 1998. The
aggregate maximum number of Shares reported for the reported person represents
62.1% of the Shares outstanding as of February 10, 1998.
The reporting person disclaims beneficial ownership of the Shares held by his
son and the Shares issuable upon the exercise of options held by his son.
<PAGE>
13D Page 5 of 7 Pages
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SECURITIES OF THE ISSUER.
The information set forth under the caption "Introduction" and in Section 12
("Purpose of the Offer; The Investment Agreement; Ancillary Agreements--
Stockholders' Agreement") of the Offer to Purchase is incorporated herein by
reference.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
(1) Not applicable.
(2)(a) Offer to Purchase, dated February 18, 1998.
(2)(b) Investment Agreement, dated February 10, 1998, between Sprint
Corporation, Sprint Communications Company L.P., EarthLink Network,
Inc., Dolphin, Inc. and Dolphin Sub, Inc.
(3)(a) Stockholders' Agreement, dated February 10, 1998, between Sprint
Corporation, Sprint Communications Company L.P., the Company, Dolphin,
Inc. and certain stockholders of EarthLink Network, Inc.
(3)(b) Agreement to Vote and Tender Stock, dated February 10, 1998, between
Sprint Corporation, Sprint Communications Company L.P. and certain
stockholders of EarthLink Network, Inc.
(3)(c) Agreement to Vote Stock, dated February 10, 1998, between Sprint
Corporation, Sprint Communications Company L.P. and certain stockholders
of EarthLink Network, Inc.
<PAGE>
13D Page 6 of 7 Pages
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
Dated: February 20, 1998
/s/ Kevin M. O'Donnell
-----------------------------------
Kevin M. O'Donnell
<PAGE>
13D Page 7 of 7 Pages
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
(1) Not applicable.
(2)(a) Offer to Purchase, dated February 18, 1998.
(2)(b) Investment Agreement, dated February 10, 1998, between Sprint
Corporation, Sprint Communications Company L.P., EarthLink
Network, Inc., Dolphin, Inc. and Dolphin Sub, Inc.
(3)(a) Stockholders' Agreement, dated February 10, 1998, between
Sprint Corporation, Sprint Communications Company L.P., the
Company, Dolphin, Inc. and certain stockholders of EarthLink
Network, Inc.
(3)(b) Agreement to Vote and Tender Stock, dated February 10, 1998,
between Sprint Corporation, Sprint Communications Company L.P.
and certain stockholders of EarthLink Network, Inc.
(3)(c) Agreement to Vote Stock, dated February 10, 1998, between
Sprint Corporation, Sprint Communications Company L.P. and
certain stockholders of EarthLink Network, Inc.
</TABLE>
<PAGE>
EXHIBIT (2)(a)
OFFER TO PURCHASE FOR CASH
1,250,000 SHARES OF COMMON STOCK
OF
EARTHLINK NETWORK, INC.
AT
$45.00 NET PER SHARE
BY
SPRINT CORPORATION
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, MARCH 20, 1998, UNLESS THE OFFER IS
EXTENDED.
---------------
THE OFFER IS CONDITIONED UPON (1) THERE BEING VALIDLY TENDERED AND NOT
WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER 1,250,000 SHARES (AS DEFINED
HEREIN), (2) THE CONDITIONS TO THE OBLIGATIONS OF SPRINT CORPORATION, SPRINT
COMMUNICATIONS COMPANY L.P., EARTHLINK NETWORK, INC., DOLPHIN, INC., AND
DOLPHIN SUB, INC. TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY THE
INVESTMENT AGREEMENT (AS DEFINED HEREIN) (OTHER THAN THE ACCEPTANCE FOR
PAYMENT OF SHARES PURSUANT TO THE OFFER) HAVING BEEN SATISFIED OR WAIVED AND
(3) THE EXPIRATION OR TERMINATION OF ALL WAITING PERIODS IMPOSED UPON
CONSUMMATION OF THE OFFER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE
INVESTMENT AGREEMENT BY THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976, AS AMENDED, AND THE REGULATIONS THEREUNDER, AS WELL AS THE OTHER
CONDITIONS DESCRIBED HEREIN.
---------------
THE BOARD OF DIRECTORS OF EARTHLINK NETWORK, INC. HAS, BY UNANIMOUS VOTE OF
ALL DIRECTORS, APPROVED THE OFFER AND THE OTHER TRANSACTIONS DESCRIBED IN THIS
OFFER TO PURCHASE AND DETERMINED THAT THE TERMS OF THE OFFER AND SUCH OTHER
TRANSACTIONS, TAKEN TOGETHER, ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE
STOCKHOLDERS OF THE COMPANY AND RECOMMENDS THAT ALL STOCKHOLDERS OF THE
COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
---------------
IMPORTANT
ANY STOCKHOLDER DESIRING TO TENDER ALL OR ANY PORTION OF SUCH STOCKHOLDER'S
SHARES SHOULD EITHER (I) COMPLETE AND SIGN THE LETTER OF TRANSMITTAL (OR A
FACSIMILE COPY THEREOF) IN ACCORDANCE WITH THE INSTRUCTIONS IN THE LETTER OF
TRANSMITTAL, HAVE SUCH STOCKHOLDER'S SIGNATURE THEREON GUARANTEED IF REQUIRED
BY INSTRUCTION 1 TO THE LETTER OF TRANSMITTAL, AND MAIL OR DELIVER THE LETTER
OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS TO THE DEPOSITARY AND EITHER
DELIVER THE CERTIFICATES FOR SUCH SHARES TO THE DEPOSITARY ALONG WITH THE
LETTER OF TRANSMITTAL OR DELIVER SUCH SHARES PURSUANT TO THE PROCEDURE FOR
BOOK-ENTRY TRANSFER SET FORTH IN SECTION 2 PRIOR TO THE EXPIRATION OF THE
OFFER OR (II) REQUEST SUCH STOCKHOLDER'S BROKER, DEALER, COMMERCIAL BANK,
TRUST COMPANY OR OTHER NOMINEE TO EFFECT THE TRANSACTION FOR SUCH STOCKHOLDER.
A STOCKHOLDER HAVING SHARES REGISTERED IN THE NAME OF A BROKER, DEALER,
COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE MUST CONTACT SUCH BROKER,
DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE IF SUCH STOCKHOLDER
DESIRES TO TENDER SUCH SHARES.
A STOCKHOLDER WHO DESIRES TO TENDER SHARES AND WHOSE CERTIFICATES FOR SUCH
SHARES ARE NOT IMMEDIATELY AVAILABLE OR WHO CANNOT COMPLY IN A TIMELY MANNER
WITH THE PROCEDURE FOR BOOK-ENTRY TRANSFER DESCRIBED HEREIN, OR WHO CANNOT
DELIVER ALL REQUIRED DOCUMENTS TO THE DEPOSITARY PRIOR TO THE EXPIRATION OF
THE OFFER, MAY TENDER SUCH SHARES BY FOLLOWING THE PROCEDURE FOR GUARANTEED
DELIVERY SET FORTH IN SECTION 2.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THIS OFFER
TO PURCHASE, THE LETTER OF TRANSMITTAL, THE NOTICE OF GUARANTEED DELIVERY AND
ALL OTHER TENDER OFFER MATERIALS MAY BE DIRECTED TO THE INFORMATION AGENT OR
THE DEALER MANAGER AT THEIR ADDRESS AND TELEPHONE NUMBERS SET FORTH ON THE
BACK COVER OF THIS OFFER TO PURCHASE.
---------------
THE DEALER MANAGER FOR THE OFFER IS:
SBC WARBURG DILLON READ INC.
FEBRUARY 18, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Introduction.............................................................. 1
1. Terms of the Offer.................................................... 4
2. Procedure for Tendering Shares........................................ 7
3. Withdrawal Rights..................................................... 10
4. Acceptance for Payment and Payment.................................... 10
5. Certain Federal Income Tax Consequences............................... 12
6. Price Range of the Shares; Dividends on the Shares.................... 12
7. Effect of the Offer on the Market for the Shares, Stock Quotation and
Exchange Act Registration................................................ 13
8. Certain Information Concerning the Company............................ 13
9. Certain Information Concerning the Purchaser.......................... 15
10. Source and Amount of Funds............................................ 16
11. Contacts with the Company; Background of the Offer.................... 17
12. Purpose of the Offer; The Investment Agreement; Ancillary Agreements.. 19
13. Dividends and Distributions........................................... 34
14. Certain Conditions of the Offer....................................... 34
15. Certain Legal Matters................................................. 37
16. Fees and Expenses..................................................... 39
17. Miscellaneous......................................................... 39
Schedule I--Directors and Executive Officers.............................. S-1
</TABLE>
<PAGE>
To the Holders of the Common Stock of EarthLink Network, Inc.:
INTRODUCTION
THE OFFER
Sprint Corporation, a Kansas corporation (the "Purchaser" or "Sprint"),
hereby offers to purchase 1,250,000 shares of Common Stock, par value $0.01
per share (the "Shares" or "Common Stock"), of EarthLink Network, Inc., a
Delaware corporation (the "Company"), at $45.00 per Share (the "Offer Price"),
net to the seller in cash, upon the terms and subject to the conditions set
forth in this Offer to Purchase and in the related Letter of Transmittal
(which, together with any amendments or supplements hereto or thereto,
collectively constitute the "Offer"). The Offer is being made pursuant to the
Investment Agreement dated as of February 10, 1998 (the "Investment
Agreement"), among the Purchaser, Sprint Communications Company L.P., a
Delaware limited partnership ("Sprint L.P."), the Company, Dolphin, Inc., a
Delaware corporation ("Newco"), and Dolphin Sub, Inc., a Delaware corporation
and a wholly-owned subsidiary of Newco ("Newco Sub"), and certain related
agreements described in this Offer to Purchase.
Sprint L.P. operates the long distance communications services division of
Sprint and is owned by affiliates of Sprint. Newco and Newco Sub are nominally
capitalized and were established to facilitate the transfer of assets to Newco
in exchange for the issuance to Sprint L.P. of 4,102,941 shares of Series A
Convertible Preferred Stock, par value $.01 per share of Newco (the
"Convertible Preferred Stock") in connection with the merger of Newco Sub with
and into the Company (the "Merger"). Upon consummation of the Merger, the
Company will become a subsidiary of Newco and all of the outstanding shares of
Common Stock will be converted into an equal number of shares of common stock,
par value $.01 per share of Newco ("Newco Common Stock"), except for any
shares of Common Stock receivable upon the exercise of warrants or certain
other rights to acquire Common Stock which are not amended prior to the Merger
to become exercisable only for Newco Common Stock (the "Dilutable
Securities"). The Offer and the other transactions contemplated by the
Investment Agreement are conditioned upon the amendment of such Dilutable
Securities so that not more than 8% of the shares of Common Stock outstanding
immediately prior to the Closing will be subject to Dilutable Securities after
the Merger (the "Amendment Condition").
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, transfer taxes on the purchase of Shares by the Purchaser
pursuant to the Offer. The Purchaser will pay all fees and expenses of SBC
Warburg Dillon Read Inc. ("WDR"), which is acting as Dealer Manager (in such
capacity, the "Dealer Manager"), American Stock Transfer & Trust Company,
which is acting as the Depositary (the "Depositary"), and D. F. King & Co.,
Inc., which is acting as Information Agent (the "Information Agent"), in each
case incurred in connection with the Offer. See Section 16.
The Board of Directors of the Company (the "Board of Directors") has, by
unanimous vote of all Directors, approved the Offer and the other transactions
described in this Offer to Purchase and determined that the terms of the Offer
and such other transactions, taken together, are fair to, and in the best
interests of, the stockholders of the Company and recommends that all
stockholders of the Company accept the Offer and tender their Shares pursuant
to the Offer.
The Company has retained Deutsche, Morgan Grenfell Inc. ("DMG") as its
financial adviser. DMG rendered an opinion to the Board of Directors that, as
of the date of such opinion, the Offer, the sale of Convertible Preferred
Stock and the Merger, when taken together, are fair from a financial point of
view to the holders of the Common Stock.
Consummation of the Offer is conditioned upon (1) there being validly
tendered and not withdrawn prior to the Expiration Date (as defined in Section
1) 1,250,000 Shares (the "Minimum Tender Condition"), and (2) the
1
<PAGE>
Amendment Condition and the other conditions to the obligations of the
Purchaser, Sprint L.P., Newco, Newco Sub, and the Company to consummate the
transactions contemplated by the Investment Agreement (other than the
acceptance for payment of Shares pursuant to the Offer) having been satisfied
or waived (collectively, the "Investment Agreement Conditions"), including the
expiration or termination of all waiting periods imposed upon consummation of
the Offer and the other transactions contemplated by the Investment Agreement
by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the regulations thereunder (the "HSR Act") and the absence of any action taken
or instituted by the Department of Justice, the Federal Trade Commission or by
any other governmental entity to delay or otherwise enjoin the transactions
contemplated by the Investment Agreement (the "HSR Condition"). See Sections 1
and 14.
THE INVESTMENT AGREEMENT
The following summary of the Investment Agreement is qualified in its
entirety by the express terms of such agreement, which is included as an
exhibit to the Purchaser's Tender Offer Statement on Schedule 14D-1.
The Investment Agreement provides, among other things, that subject to the
terms and conditions set forth therein, immediately following the consummation
of the Offer, (i) the Merger will be effected and the issued and outstanding
Shares will be converted into shares of Newco Common Stock; (ii) Sprint L.P.
will acquire 4,102,941 shares of Convertible Preferred Stock, in exchange for
(A) an aggregate cash consideration of $23,750,000, (B) the assignment to
Newco of 100% of the Sprint Internet Passport SM Subscribers ("SIP
Subscribers"), of which there were approximately 130,000 as of the date of
execution of the Investment Agreement, and (C) Sprint L.P. having entered into
a network agreement whereby Newco and the Company will utilize Sprint L.P.'s
long-distance network under specified terms and conditions (the issuance of
such Convertible Preferred Stock, "Convertible Preferred Stock Issuance", and
the consideration described in (A), (B) and (C), collectively, the
"Convertible Preferred Stock Consideration"); and (iii) Sprint will provide
Newco and the Company, as co-borrowers, with up to $25 million of convertible
senior debt financing on or after the Closing (as defined below), with such
amount to increase by $25 million on each of the first, second and third
anniversaries of the Closing Date (as defined below) for a total of up to $100
million of such financing at the end of such period (the "Convertible Debt
Financing"), such indebtedness to be evidenced by one or more Convertible
Senior Promissory Note(s) (the "Convertible Notes") and to be subject to the
terms and conditions of a Credit Agreement dated as of February 10, 1998 among
the Purchaser, Newco and the Company (the "Credit Agreement"). The closing of
the Merger, the Convertible Preferred Stock Issuance and the other
transactions described herein which will occur concurrently with the Merger is
referred to as the "Closing" and the date on which the Closing occurs is
referred to as the "Closing Date."
Consummation of the transactions (other than the Offer) contemplated by the
Investment Agreement is conditioned upon the Purchaser having accepted for
payment the Shares to be purchased pursuant to the Offer (the "Offer
Condition") and the satisfaction of the HSR Condition, as well as the other
conditions described in Section 14. For purposes of the Offer, the Purchaser
will be deemed to have accepted for payment, and thereby purchased, Shares
properly tendered and not withdrawn as, if and when the Purchaser gives oral
or written notice to the Depositary of the Purchaser's acceptance of such
shares (the time of giving such notice is the "Offer Acceptance Time" and the
date on which such notice is given is the "Offer Acceptance Date"). If the
Shares have been accepted for payment pursuant to the Offer, the Offer
Acceptance Time will immediately precede the Closing and the Offer Acceptance
Date will occur on the same date as the Closing Date.
In order to induce Sprint and Sprint L.P. to enter into the Investment
Agreement and perform the transactions contemplated thereby, certain members
of management and other stockholders (the "Granting Stockholders") have
entered into an Agreement to Vote and Tender Stock dated February 10, 1998
("Agreement to Vote and Tender Stock"). That agreement obligates the Granting
Stockholders to tender all of the 3,989,114 Shares (representing 35.3% of the
outstanding Shares) which they own into the Offer, and to vote those Shares in
favor of (i) the Merger, (ii) the Convertible Preferred Stock Issuance, the
issuance of the Convertible Notes and the Newco Common Stock issuable upon
conversion thereof, (iii) the other transactions contemplated by the
Investment Agreement, and (iv) any related matter that must be approved by the
holders of Common Stock or Newco Common Stock in order for the transactions
contemplated by the Investment Agreement to be
2
<PAGE>
consummated (the matters referred to in (i), (ii), (iii) and (iv) are referred
to collectively as the "Company Stockholder Vote Matters"). In order to ensure
that the agreement to vote set forth in the Agreement to Vote and Tender Stock
will be fulfilled, each of the Granting Stockholders granted to the Purchaser
an Irrevocable Proxy, coupled with an interest, to vote in favor of the
Company Stockholder Vote Matters (the "Irrevocable Proxies"). The Granting
Stockholders are Sky Dayton, Chairman of the Board of the Company, 1,500,000
Shares; Kevin M. O'Donnell, a Director of the Company, 944,614 Shares; Storie
Partners, L.P., 521,892 Shares; Gregory Abbott, 427,212 Shares; Robert S.
London, 392,032 Shares; and George Abbott, 203,364 Shares.
In addition, certain other stockholders (the "Voting Stockholders") have
entered into an Agreement to Vote Stock dated February 10, 1998 ("Agreement to
Vote Stock") which obligates them to vote all of their 2,950,382 Shares
(representing 26.1% of the outstanding Shares) in favor of the Company
Stockholder Vote Matters, but did not grant any irrevocable proxies
thereunder. The Voting Stockholders are Quantum Industrial Partners LDC,
1,456,480 Shares; Reed Slatkin, a Director of the Company (through Reed
Slatkin & Associates), 1,042,473 Shares; Sidney Azeez, a Director of the
Company, 236,884 Shares; and George Soros, 214,545 Shares.
The number of Shares obligated to be tendered and/or voted pursuant to these
agreements will ensure approval of the Company Stockholder Vote Matters,
satisfaction of the Minimum Tender Condition, and consummation of the
transactions contemplated by the Investment Agreement, unless the Investment
Agreement Conditions have not been satisfied or waived on or prior to the
Offer Acceptance Time as described in Section 12.
The Company has informed the Purchaser that as of February 13, 1998, there
were 11,301,915 Shares issued and outstanding. Upon consummation of the Offer,
the Purchaser will own approximately 11.1% of such total number of issued and
outstanding Shares, which will be converted into the same number of shares of
Newco Common Stock pursuant to the Merger. The Company has also informed the
Purchaser that as of February 13, 1998, there were 1,901,969 Shares reserved
for issuance upon the exercise of outstanding employee stock options ("Stock
Options"), 391,515 Shares reserved for issuance pursuant to the Company's
Convertible Note issued to UUNET Technologies, Inc. ("UUNET Note") and 887,647
Shares reserved for issuance upon the exercise of outstanding warrants
("Warrants"). Based upon the conversion price in effect on the Closing Date,
the Convertible Preferred Stock would be convertible into 3,533,411 shares of
Newco Common Stock, provided that the Convertible Preferred Stock may not be
converted prior to the first anniversary of the Closing Date. Based on these
figures, immediately after consummation of the Offer, the Merger and the other
transactions contemplated by the Investment Agreement, the Purchaser would own
approximately 26.6% of the total number of issued and outstanding shares of
Newco Common Stock on a fully diluted basis (that is, assuming that (i) the
UUNET Note has been converted into shares of Newco Common Stock, (ii) the
Convertible Preferred Stock is converted into Newco Common Stock, and (iii)
that all outstanding Warrants and Stock Options have been exercised). However,
the Convertible Preferred Stock will pay dividends thereon for the first five
years in the form of increases in its Liquidation Value ("Liquidation
Accretion Dividends"), at a per annum rate of 3% of the Liquidation Value,
which will accrue and compound quarterly in arrears, but which will accelerate
in the event of a Business Combination (as defined in Section 12) or an
optional redemption by Newco. At the Closing, the Liquidation Value will be
the average of the closing price per share of Newco Common Stock for the 30
trading days prior to the Closing Date. Increases in the Liquidation Value
will have the effect of increasing the number of shares of Newco Common Stock
which the Purchaser will receive upon conversion of the Convertible Preferred
Stock. Assuming that the Convertible Preferred Stock is held by the Purchaser
for the initial five year period, or the Liquidation Accretion Dividends are
accelerated, the Purchaser will be entitled to receive 4,102,941 shares of
Newco Common Stock upon conversion thereof, subject to applicable antidilution
provisions. If the fully diluted number of Shares, as calculated above, were
the same at that time, the Purchaser would then own approximately 28.8% of the
total number of issued and outstanding shares of Newco Common Stock on that
basis.
Advances of funds under the Credit Agreement will be evidenced by
Convertible Notes, which are convertible into Newco Common Stock. The
Conversion Price per share at which the Convertible Notes may be converted
into Newco Common Stock is 130% of the average of the closing prices for Newco
Common Stock for the 30 trading days immediately preceding the applicable
advance of funds under the Credit Agreement. Because the number of shares
receivable upon conversion of the Convertible Notes is dependent upon future
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trading prices for Newco Common Stock, and because the amount of advances
under the Credit Agreement is within Newco's discretion (provided it is in
compliance with applicable Credit Agreement conditions), it is not possible to
predict the extent to which, if any, the Purchaser's fully diluted ownership
would increase in the event that advances are made under the Credit Agreement.
Simultaneously with the execution of the Investment Agreement, the following
agreements were executed and delivered by the parties thereto: (i) an
Agreement and Plan of Merger dated as of February 10, 1998 among Newco, Newco
Sub and the Company, setting forth, inter alia, the terms and conditions of
the Merger of Newco Sub into the Company (the "Agreement and Plan of Merger"),
(ii) the Agreement to Vote and Tender Stock, (iii) the Agreement to Vote
Stock, (iv) the Credit Agreement, (v) a Governance Agreement dated as of
February 10, 1998, between the Purchaser, Sprint L.P., the Company and Newco,
whereby certain terms and conditions are established concerning the corporate
governance of Newco, the acquisition and disposition of equity securities of
Newco by the Purchaser and its affiliates, and the rights of the Newco Board
of Directors with respect to acquisition proposals and business combinations
(the "Governance Agreement"), (vi) a Marketing and Distribution Agreement
dated as of February 10, 1998 among the Purchaser, Sprint L.P., Newco and the
Company, whereby the Purchaser, Sprint L.P., Newco and the Company agree to
provide certain cooperation and support to each other in specified marketing
matters and Sprint L.P. grants Newco the right to utilize certain distribution
channels of Sprint L.P. and a license to use Sprint L.P.'s brand in the
business of the Company (the "Marketing Agreement"), (vii) a Network Services
Agreement dated as of February 10, 1998, between Sprint L.P., Newco and the
Company, which grants Newco and the Company the right to use a minimum and
maximum number of ports on Sprint L.P.'s long-distance network, along with
pricing and other terms set forth therein (the "Network Agreement"), (viii) a
Registration Rights Agreement dated as of February 10, 1998, between the
Purchaser, Sprint L.P. and Newco establishing the rights of the Purchaser and
its affiliates with respect to public offerings and sales of equity securities
of Newco and to obtain registration thereof under federal and state securities
laws (the "Registration Rights Agreement"), and (ix) a Stockholders Agreement
dated as of February 10, 1998, between the Purchaser and certain stockholders
of the Company which provides for certain rights and obligations with respect
to such stockholders' voting and disposition of equity securities of Newco in
connection with an offer by the Purchaser to acquire the remaining equity
securities of Newco (the "Stockholders Agreement"). The agreements referred to
in (i), (iv), (v), (vi), (vii), (viii) and (ix) will not become effective
until the Closing and then only if the Offer is consummated and the Investment
Agreement Conditions are satisfied or waived on or prior to the Closing. The
Agreement and Plan of Merger, the Agreement to Vote and Tender Stock, the
Agreement to Vote Stock, the Credit Agreement, the Governance Agreement, the
Marketing Agreement, the Network Agreement, the Registration Rights Agreement
and the Stockholders Agreement are referred to as the "Ancillary Agreements."
The Investment Agreement and the Ancillary Agreements are more fully described
in Section 12.
Certain Federal income tax consequences of the sale of Shares pursuant to
the Offer are described in Section 5.
Following the consummation of the Offer, the Convertible Preferred Stock
Issuance, the Merger, and the other transactions contemplated by the
Investment Agreement, Newco will become a public company subject to the
informational filing requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the Company will be its subsidiary.
Application will be made for Newco Common Stock to trade under the ticker
symbol "ELNK" on the Nasdaq National Market of the National Association of
Securities Dealers Automated Quotation System after such transactions and it
is expected that the Shares (after they are converted into shares of Newco
Common Stock) will continue to trade thereon.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS
MADE WITH RESPECT TO THE OFFER.
1. TERMS OF THE OFFER
Upon the terms and subject to the conditions of the Offer, the Purchaser
will accept for payment and pay for 1,250,000 Shares validly tendered prior to
the Expiration Date and not theretofore withdrawn in accordance
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with Section 3. The term "Expiration Date" means 12:00 Midnight, New York City
time, on Friday, March 20, 1998, unless and until the Purchaser shall have
extended the period of time during which the Offer is open, in which event the
term "Expiration Date" shall mean the latest time and date at which the Offer,
as so extended by the Purchaser, shall expire. The Investment Agreement
provides that the Offer may not be consummated prior to March 20, 1998 and
that the Expiration Date may not be extended beyond June 15, 1998, without, in
each case, the prior written consent of the Company.
The Company will prepare and file with the Securities and Exchange
Commission (the "Commission") a proxy statement (the "Proxy Statement")
relating to a special meeting of the Company's stockholders (the "Special
Meeting") to be held to obtain stockholder approval of the Merger, the
Convertible Preferred Stock Issuance, the issuance of Convertible Notes and
the issuance of Newco Common Stock upon conversion of the Convertible
Preferred Stock and the Convertible Notes and the other Company Stockholder
Vote Matters in order to satisfy the requirements of Section 251 of the
Delaware General Corporation Law (the "DGCL") and Rule 4460 of the National
Association of Securities Dealers, Inc. The Newco Common Stock to be issued
pursuant to the Merger will be registered under the Securities Act of 1933, as
amended (the "Securities Act"), on Form S-4 (the "S-4 Registration
Statement"). A combined Proxy Statement and Prospectus forming Part I of the
S-4 Registration Statement will be mailed to the stockholders of the Company
at least 20 business days prior to the Special Meeting. Among the conditions
included within the Investment Agreement Conditions are the requirements that
the S-4 Registration has become effective under the Securities Act and that
the holders of Common Stock have approved the Company Stockholder Vote
Matters. In view of the time needed to accomplish the foregoing, the Purchaser
anticipates that it may be necessary to extend the period of time during which
the Offer is open beyond March 20, 1998 but not later than June 15, 1998.
If more than 1,250,000 Shares are validly tendered prior to the Expiration
Date and not withdrawn, the Purchaser will, upon the terms and subject to the
conditions of the Offer, accept such Shares for payment on a pro rata basis,
with adjustments to avoid purchases of fractional Shares, based upon the
number of Shares validly tendered prior to the Expiration Date and not
withdrawn.
Because of the difficulty of determining precisely the number of Shares
validly tendered and not withdrawn, if proration is required, the Purchaser
would not expect to announce the final results of proration until
approximately three Nasdaq National Market trading days after the Expiration
Date. The Purchaser will announce the preliminary results of proration by
press release as promptly as practicable after the Expiration Date. Holders of
Shares may obtain such preliminary information from the Depositary or the
Information Agent, and also may be able to obtain such preliminary information
from their brokers.
The Investment Agreement provides that the terms of the Offer may not be
amended or modified without the prior consent of the Company; provided,
however, that without the consent of the Company, the Purchaser may extend the
Offer (i) if at the scheduled expiration date of the Offer any of the
conditions to the Purchaser's obligation to accept for payment, and pay for,
Shares shall not have been satisfied or waived, until such time as such
conditions are satisfied or waived, (ii) for any period required by any rule,
regulation, interpretation or position of the Commission applicable to the
Offer and (iii) for any reason on one occasion for an aggregate period of not
more than five business days beyond the latest expiration date that would
otherwise be permitted under the terms of the Investment Agreement as
described in this sentence, but in any case, not beyond June 15, 1998. As used
in this Offer to Purchase, "business day" has the meaning set forth in Rule
14d-1 under the Exchange Act.
Subject to the terms of the Investment Agreement and the applicable rules
and regulations of the Commission, the Purchaser expressly reserves the right
(but shall not be obligated), in its sole discretion, at any time and from
time to time, to (i) extend the period of time during which the Offer is open,
and thereby delay acceptance for payment of and the payment for any Shares, by
giving oral or written notice of such extension to the Depositary and (ii)
amend the Offer in any other respect by giving oral or written notice of such
amendment to the Depositary. THE PURCHASER SHALL NOT HAVE ANY OBLIGATION TO
PAY INTEREST ON THE PURCHASE PRICE FOR TENDERED SHARES IF THE OFFER IS
EXTENDED FOR ANY REASON.
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If by 12:00 Midnight, New York City time, on Friday, March 20, 1998 (or any
other date or time then set as the Expiration Date) any or all conditions to
the Offer have not been satisfied or waived, the Purchaser reserves the right
(but shall not be obligated), subject to the terms and conditions contained in
the Investment Agreement and to the applicable rules and regulations of the
Commission, to (i) waive all the unsatisfied conditions and, subject to
complying with the terms of the Investment Agreement and the applicable rules
and regulations of the Commission, accept for payment and pay for 1,250,000
Shares validly tendered prior to the Expiration Date and not theretofore
withdrawn, (ii) extend the Offer to a date not later than June 15, 1998 and,
subject to the right of stockholders to withdraw Shares until the Expiration
Date, retain the Shares that have been tendered during the period or periods
for which the Offer is extended or (iii) amend the Offer.
Subject to the provisions of the Investment Agreement described above, there
can be no assurance that the Purchaser will exercise its right to extend the
Offer. Any extension, waiver, amendment or termination will be followed as
promptly as practicable by public announcement. In the case of an extension,
Rule 14e-1(d) under the Exchange Act requires that the announcement be issued
no later than 9:00 a.m., New York City time, on the next business day after
the previously scheduled Expiration Date in accordance with the public
announcement requirements of Rule 14d-4(c) under the Exchange Act. Subject to
applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act,
which require that any material change in the information published, sent or
given to stockholders in connection with the Offer be promptly disseminated to
stockholders in a manner reasonably designed to inform stockholders of such
change), and without limiting the manner in which the Purchaser may choose to
make any public announcement, the Purchaser will not have any obligation to
publish, advertise or otherwise communicate any such public announcement other
than by making a release to the Dow Jones News Service.
If the Purchaser extends the Offer or if the Purchaser (whether before or
after its acceptance for payment of Shares) is delayed in its acceptance for
payment of or payment for Shares or is unable to pay for shares pursuant to
the Offer for any reason, then, without prejudice to the Purchaser's rights
under the Offer, the Depositary may retain tendered Shares on behalf of the
Purchaser, and such Shares may not be withdrawn except to the extent tendering
stockholders are entitled to withdrawal rights as described in Section 3.
However, the ability of the Purchaser to delay the payment for Shares that the
Purchaser has accepted for payment is limited by Rule 14e-1(c) under the
Exchange Act, which requires that a bidder pay the consideration offered or
return the securities deposited by or on behalf of holders of securities
promptly after the termination or withdrawal of such bidder's offer.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer
(including, with the Company's consent, a waiver of the Minimum Tender
Condition), the Purchaser will disseminate additional tender offer materials
and extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and
14e-1(d) under the Exchange Act. With respect to a change in price or a change
in the percentage of securities sought other than an increase in the number of
Shares sought of two percent or less of the total number of outstanding
shares, a minimum period of 10 business days is generally required to allow
for adequate dissemination to stockholders. The minimum period during which
the Offer must remain open following material changes in the terms of the
Offer or information concerning the Offer, other than a change in price or
such a change in the percentage of securities sought, will depend upon the
facts and circumstances then existing, including the relative materiality of
the changed terms or information.
Consummation of the Offer is conditioned upon satisfaction or waiver of the
Minimum Tender Condition, the Investment Agreement Conditions and the HSR
Condition, as well as the satisfaction or waiver of the other conditions
described in Section 14. Subject to the terms and conditions contained in the
Investment Agreement, the Purchaser reserves the right (but shall not be
obligated) to waive any or all such conditions. However, if the Purchaser
waives or amends the Minimum Tender Condition (which action may not be taken
under the Investment Agreement without the Company's consent) during the last
five business days during which the Offer is open, the Purchaser will be
required to extend the Expiration Date so that the Offer will remain open for
at least five business days after the announcement of such waiver or amendment
is first published, sent or given to holders of Shares and may also be
required to extend the Offer if other conditions are waived, depending upon
the materiality of the waiver.
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The Company has provided the Purchaser with the Company's stockholder lists
and security position listings for the purpose of disseminating the Offer to
holders of the Shares. This Offer to Purchase, the related Letter of
Transmittal and other relevant materials will be mailed by the Purchaser to
record holders of Shares and will be furnished by the Purchaser to brokers,
dealers, commercial banks, trust companies and similar persons whose names, or
the names of whose nominees, appear on the stockholder lists or, if
applicable, who are listed as participants in a clearing agency's security
position listing, for subsequent transmittal to beneficial owners of Shares.
2. PROCEDURE FOR TENDERING SHARES
VALID TENDER
For a stockholder validly to tender Shares pursuant to the Offer, either (i)
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees (or, in the case of a book-
entry transfer, an Agent's Message (as defined below)) and any other documents
required by the Letter of Transmittal must be received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase
prior to the Expiration Date and either certificates for tendered Shares must
be received by the Depositary at one of such addresses prior to the Expiration
Date or such Shares must be delivered pursuant to the procedure for book-entry
transfer set forth below and a Book-Entry Confirmation (as defined below) must
be received with respect to such Shares by the Depositary prior to the
Expiration Date, or (ii) the tendering stockholder must comply with the
guaranteed delivery procedure set forth below.
The Depositary will establish an account with respect to the Shares at The
Depository Trust Company (the "Book-Entry Transfer Facility,") for purposes of
the Offer within two business days after the date of this Offer to Purchase.
Any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Shares by causing the Book-
Entry Transfer Facility to transfer such Shares into the Depositary's account
in accordance with the Book-Entry Transfer Facility's procedures for such
transfer. However, although delivery of Shares may be effected through book-
entry transfer, the properly completed and duly executed Letter of Transmittal
(or facsimile thereof), with any required signature guarantees (or, in the
case of a book-entry transfer, an Agent's Message) and any other required
documents, must, in any case, be transmitted to, and received by, the
Depositary at one of its addresses set forth on the back cover of this Offer
to Purchase prior to the Expiration Date, or the tendering stockholder must
comply with the guaranteed delivery procedure described below. DELIVERY OF
DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-
ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE
DEPOSITARY.
The confirmation of a book-entry transfer of Shares into the Depositary's
account at a Book-Entry Transfer Facility as described above is referred to
herein as a "Book-Entry Confirmation." The term "Agent's Message" means a
message, transmitted by the Book-Entry Transfer Facility to, and received by,
the Depositary and forming a part of the Book-Entry Confirmation, which states
that the Book-Entry Transfer Facility has received an express acknowledgment
from the participant in the Book-Entry Transfer Facility tendering the Shares
that such participant has received and agrees to be bound by the terms of the
Letter of Transmittal and that the Purchaser may enforce such agreement
against the participant.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER
FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES
WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF
DELIVERY IS BY MAIL, REGISTERED MAIL, WITH RETURN RECEIPT REQUESTED AND
PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ENSURE TIMELY DELIVERY.
SIGNATURE GUARANTEES
No signature guarantee is required on the Letter of Transmittal if (1) the
Letter of Transmittal is signed by the registered holder of the Shares (which
term, for purposes of this Section, includes any participant in the
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Book-Entry Transfer Facility's system whose name appears on a security
position listing as the owner of the Shares) tendered therewith, and such
registered holder has not completed either the box entitled "Special Delivery
Instructions" or the box entitled "Special Payment Instructions" on the Letter
of Transmittal or (2) such Shares are tendered for the account of a member
firm of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office, branch or agency in the United States (an "Eligible
Institution"). In all other cases, all signatures on the Letters of
Transmittal must be guaranteed by an Eligible Institution. See Instructions 1
and 5 to the Letter of Transmittal. If the certificates for Shares are
registered in the name of a person other than the signer of the Letter of
Transmittal, or if payment is to be made or certificates for Shares not
tendered or not accepted for payment are to be issued to a person other than
the registered holder of the certificates surrendered, the tendered
certificates must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name or names of the registered holders or
owners appear on the certificates, with the signatures on the certificates or
stock powers guaranteed as aforesaid. See Instruction 5 to the Letter of
Transmittal.
GUARANTEED DELIVERY
If a stockholder desires to tender Shares pursuant to the Offer and such
stockholder's certificates for Shares are not immediately available, the
procedure for book-entry transfer cannot be completed on a timely basis or
time will not permit all required documents to reach the Depositary prior to
the Expiration Date, such stockholder's tender may be properly effected if all
the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery
substantially in the form provided by the Purchaser is received by the
Depositary, as provided below, prior to the Expiration Date; and
(iii) the certificates for all tendered Shares, in proper form for
transfer (or a Book-Entry Confirmation with respect to such Shares),
together with a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), with any required signature guarantees (or, in the
case of book-entry transfer, an Agent's Message) and any other documents
required by the Letter of Transmittal, are received by the Depositary
within three Nasdaq National Market trading days after the date of
execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand to the Depositary
or transmitted by facsimile transmission or mail to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in such
Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (i) certificates for (or a timely Book-Entry
Confirmation with respect to) such Shares, (ii) a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees (or, in the case of a book-entry transfer, an Agent's
Message) and (iii) any other documents required by the Letter of Transmittal.
Accordingly, tendering stockholders may be paid at different times depending
upon when certificates for Shares or Book-Entry Confirmations are actually
received by the Depositary. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON
THE PURCHASE PRICE OF THE SHARES TO BE PAID BY THE PURCHASER, REGARDLESS OF
ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT.
The valid tender of Shares pursuant to one of the procedures described above
will constitute a binding agreement between the tendering stockholder and the
Purchaser upon the terms and subject to the conditions of the Offer.
CONVERTIBLE SECURITIES, OPTIONS AND WARRANTS
The Purchaser is not offering to purchase the UUNET Note, any other
convertible securities, the Stock Options, the Warrants or any other options,
warrants or rights to purchase Common Stock, and neither the Purchaser nor the
Company is establishing any special arrangements to facilitate conversions,
exchanges or
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exercises in connection with the Offer. Holders of the UUNET Note, Stock
Options or Warrants who wish to tender Shares in the Offer must first convert
such Note or exercise such Stock Options or Warrants, in each case in
accordance with the terms and provisions thereof, and then tender the Shares
received upon such conversion or exercise pursuant to the Offer. Holders of
the UUNET Note, Stock Options or Warrants who convert such Note or exercise
such Stock Options or Warrants will not have the right to revoke an effective
conversion or exercise, and contingent conversions or exercises will not be
valid. To the extent any such securities are converted into Shares, and the
resulting Shares are tendered but are not purchased pursuant to the Offer
(whether because the Offer is terminated or withdrawn, or by reason of
proration or otherwise), the holders of the instruments so converted will have
lost all rights as a holder of such note, options or warrants. Holders of the
UUNET Note, Stock Options and Warrants who wish to tender Shares issuable
pursuant to such securities are responsible for converting or exercising such
securities in sufficient time that such Shares can be delivered to the
Depositary in a timely manner as required by the Offer. NEITHER THE COMPANY
NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO ANY HOLDER OF THE UUNET
NOTE, STOCK OPTIONS OR WARRANTS AS TO WHETHER TO CONVERT ANY OR ALL SUCH NOTES
OR EXERCISE ANY OR ALL SUCH STOCK OPTIONS OR WARRANTS, AS THE CASE MAY BE.
APPOINTMENT
By executing a Letter of Transmittal as set forth above, the tendering
stockholder will irrevocably appoint the designees of the Purchaser as such
stockholder's attorneys-in-fact and proxies in the manner set forth in the
Letter of Transmittal, each with full power of substitution, to the full
extent of such stockholder's rights with respect to the Shares tendered by
such stockholder and accepted for payment by the Purchaser and with respect to
any and all other Shares or other securities or rights issued or issuable in
respect of such Shares on or after February 10, 1998. All such proxies shall
be considered coupled with an interest in such Shares. Such appointment will
be effective when, and only to the extent that, the Purchaser accepts for
payment Shares tendered by such stockholder as provided herein. Upon such
acceptance for payment, all prior powers of attorney and proxies given by such
stockholder with respect to such Shares or other securities or rights will,
without further action, be revoked and no subsequent powers of attorney and
proxies may be given (and, if given, will not be deemed effective). The
designees of the Purchaser will thereby be empowered to exercise all voting
and other rights with respect to such Shares or other securities or rights in
respect of any annual, special or adjourned meeting of the Company's
stockholders, or otherwise, as they in their sole discretion deem proper. The
Purchaser reserves the right to require that, in order for Shares to be deemed
validly tendered, immediately upon the Purchaser's acceptance for payment of
such Shares, the Purchaser must be able to exercise full voting and other
rights with respect to such Shares and other securities or rights, including
voting at any meeting of stockholders then scheduled.
DETERMINATION OF VALIDITY
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of any tender of Shares will be determined by the
Purchaser in its sole discretion, which determination will be final and
binding. The Purchaser reserves the absolute right to reject any or all
tenders determined by it not to be in proper form or the acceptance for
payment of or payment for which may, in the opinion of the Purchaser's
counsel, be unlawful. The Purchaser also reserves the absolute right to waive
any defect or irregularity in any tender with respect to any particular
Shares, whether or not similar defects or irregularities are waived in the
case of other Shares. No tender of Shares will be deemed to have been validly
made until all defects or irregularities relating thereto have been cured or
waived. None of the Purchaser, the Depositary, the Information Agent, the
Dealer Manager or any other person will be under any duty to give notification
of any defects or irregularities in tenders or incur any liability for failure
to give any such notification. The Purchaser's interpretation of the terms and
conditions of the Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding.
BACKUP WITHHOLDING
In order to avoid "backup withholding" of Federal income tax on payments of
cash pursuant to the Offer, a stockholder surrendering Shares in the Offer
must provide the Depositary with such stockholder's correct
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Taxpayer Identification Number ("TIN") on a Substitute Form W-9 and, unless an
exemption applies, must certify under penalties of perjury that such TIN is
correct and that such stockholder is not subject to backup withholding of
Federal income tax. Certain stockholders (including, among others, all
corporations and certain foreign individuals and entities) are not subject to
backup withholding. If a stockholder does not provide its correct TIN or fails
to provide the required certification on Substitute Form W-9 to the
Depositary, the Internal Revenue Service (the "IRS") may impose a penalty on
such stockholder and payment of cash to such stockholder pursuant to the Offer
may be subject to backup withholding of 31%. All stockholders surrendering
Shares pursuant to the Offer should complete and sign the main signature form
and the Substitute Form W-9 included as part of the Letter of Transmittal to
provide the information and certification necessary to avoid backup
withholding (unless an applicable exemption exists and is proved in a manner
satisfactory to the Purchaser and the Depositary). Foreign individual
stockholders and certain foreign entity stockholders must complete and sign
the main signature form and a Form W-8 (Certificate of Foreign Status), a copy
of which may be obtained from the Depositary, in order to avoid backup
withholding. See Instruction 9 to the Letter of Transmittal. For other Federal
income tax consequences, see Section 5.
3. WITHDRAWAL RIGHTS
Except as otherwise provided in this Section 3, tenders of Shares are
irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant
to the procedures set forth below at any time prior to the Expiration Date
and, unless theretofore accepted for payment and paid for by the Purchaser
pursuant to the Offer, may also be withdrawn at any time after April 20, 1998.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase and must
specify the name of the person having tendered the Shares to be withdrawn, the
number of Shares to be withdrawn and the name of the registered holder of the
Shares to be withdrawn, if different from the name of the person who tendered
the Shares. If certificates for Shares have been delivered or otherwise
identified to the Depositary, then, prior to the physical release of such
certificates, the serial numbers shown on such certificates must be submitted
to the Depositary and, unless such Shares have been tendered by an Eligible
Institution, the signatures on the notice of withdrawal must be guaranteed by
an Eligible Institution. If Shares have been tendered pursuant to the
procedures for book-entry transfers as set forth in Section 2 hereof, any
notice of withdrawal must also specify the name and number of the account at
the Book-Entry Transfer Facility to be credited with the withdrawn Shares and
otherwise comply with the Book-Entry Transfer Facility's procedures.
Withdrawals of tenders of Shares may not be rescinded, and any Shares properly
withdrawn will thereafter be deemed not validly tendered for any purposes of
the Offer. However, withdrawn Shares may be retendered by again following one
of the procedures described in Section 2 at any time prior to the Expiration
Date.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser in its sole
discretion, which determination will be final and binding. None of the
Purchaser, the Depositary, the Information Agent, the Dealer Manager or any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure
to give any such notification.
4. ACCEPTANCE FOR PAYMENT AND PAYMENT
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will accept for payment and will pay for
1,250,000 Shares validly tendered prior to the Expiration Date and not
properly withdrawn in accordance with Section 3 promptly after the Expiration
Date. Any determination concerning the satisfaction of such terms and
conditions will be within the sole discretion of the Purchaser, and such
determination will be final and binding on all tendering stockholders. See
Sections 1 and 14. The Purchaser expressly reserves the right, in its sole
discretion, to delay acceptance for payment of or payment for Shares in order
to comply in whole or in part
10
<PAGE>
with any applicable law, including, without limitation, the HSR Act. Any such
delays will be effected in compliance with Rule 14e-1(c) under the Exchange
Act (relating to the Purchaser's obligation to pay for or return tendered
Shares promptly after the termination or withdrawal of the Offer). In all
cases, payment for Shares accepted for payment pursuant to the Offer will be
made only after timely receipt by the Depositary of (i) certificates for such
Shares (or timely Book-Entry Confirmation of a book-entry transfer of such
Shares as described in Section 2), (ii) a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees (or, in the case of book entry transfer, an Agent's Message), and
(iii) any other documents required by the Letter of Transmittal. The per Share
consideration paid to any stockholder pursuant to the Offer will be the
highest per Share consideration paid to any other stockholder pursuant to the
Offer.
The Purchaser will file promptly a Notification and Report Form with respect
to the Offer and the other transactions contemplated by the Investment
Agreement under the HSR Act. The waiting period under the HSR Act with respect
to the Offer will expire at 11:59 p.m., New York City time, on the 15th day
after the date such form is filed and the waiting period with respect to the
other transactions contemplated by the Investment Agreement will expire at
11:59 p.m., New York City time, on the 30th day after the date such form is
filed by both the Purchaser and the Company, in each case unless early
termination of the waiting period is granted. In addition, the Antitrust
Division of the Department of Justice (the "Antitrust Division") or the
Federal Trade Commission (the "FTC") may extend such waiting periods by
requesting additional information or documentary material from the Purchaser
or, in the case of the waiting period applicable to the other transactions
contemplated by the Investment Agreement, the Company. If such a request is
made with respect to the Offer, the waiting period related to the Offer will
expire at 11:59 p.m., New York City time, on the 10th day after substantial
compliance by the Purchaser with such request. If such a request is made with
respect to the other transactions contemplated by the Investment Agreement,
the waiting period related to such other transactions will expire at 11:59
p.m. New York City time, on the 20th day after substantial compliance with
such request by each party to whom such a request is made. It is expected that
the Offer will not be consummated until the waiting periods under the HSR Act
with respect to both the Offer and the other transactions contemplated by the
Investment Agreement have expired or have been terminated. See Section 15
hereof for additional information concerning the HSR Act and the applicability
of antitrust laws to the Offer.
For purposes of the Offer, the Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares properly tendered to the Purchaser and
not withdrawn as, if and when the Purchaser gives oral or written notice to
the Depositary of the Purchaser's acceptance for payment of such Shares.
Payment for Shares accepted for payment pursuant to the Offer will be made by
deposit of the purchase price therefor with the Depositary, which will act as
agent for tendering stockholders for the purpose of receiving payment from the
Purchaser and transmitting payment to tendering stockholders. UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO BE
PAID BY THE PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY
IN MAKING SUCH PAYMENT.
If the Purchaser is delayed in its acceptance for payment of or payment for
Shares or is unable to accept for payment or pay for Shares pursuant to the
Offer for any reason, then, without prejudice to the Purchaser's rights under
the Offer (but subject to compliance with Rule 14e-1(c) under the Exchange
Act, which requires that a tender offeror pay the consideration offered or
return the tendered securities promptly after the termination or withdrawal of
a tender offer), the Depositary may, nevertheless, on behalf of the Purchaser,
retain tendered Shares, and such Shares may not be withdrawn except to the
extent tendering stockholders are entitled to exercise, and duly exercise,
withdrawal rights as described in Section 3.
If any tendered Shares are not purchased pursuant to the Offer because of an
invalid tender, proration or otherwise, certificates for any such Shares will
be returned, without expense to the tendering stockholder (or, in the case of
Shares delivered by book-entry transfer of such Shares into the Depositary's
account at the Book-Entry Transfer Facility pursuant to the procedure set
forth in Section 2, such Shares will be credited to an account maintained at
the appropriate Book-Entry Transfer Facility), as promptly as practicable
after the expiration or termination of the Offer.
11
<PAGE>
The Purchaser reserves the right to transfer or assign, in whole or from
time to time in part, to one or more subsidiaries of the Purchaser, the right
to purchase Shares tendered pursuant to the Offer, but any such transfer or
assignment will not relieve the Purchaser of its obligations under the Offer
and will in no way prejudice the rights of tendering stockholders to receive
payment for Shares validly tendered and accepted for payment pursuant to the
Offer.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Sales of Shares pursuant to the Offer will be taxable transactions for
Federal income tax purposes under the Internal Revenue Code of 1986, as
amended (the "Code"), and may also be taxable transactions under applicable
state, local, foreign and other tax laws. For Federal income tax purposes, a
tendering stockholder will generally recognize gain or loss equal to the
difference between the amount of cash received by the stockholder pursuant to
the Offer and the aggregate tax basis in the Shares tendered by the
stockholder and purchased pursuant to the Offer. Gain or loss should be
calculated separately for each block of Shares tendered and purchased pursuant
to the Offer.
If tendered Shares are held by a tendering stockholder as capital assets,
gain or loss recognized by the tendering stockholder will be capital gain or
loss, which will be long-term capital gain or loss if the tendering
stockholder's holding period for the Shares exceeds one year and will be
short-term capital gain or loss if the holding period for the Shares is one
year or less. Under present law, long-term capital gains recognized by a
tendering individual stockholder will generally be taxed at a maximum Federal
marginal tax rate of 39.6% if Shares were held by the stockholder for 12
months or less, at a maximum Federal marginal tax rate of 28% if the Shares
were held by the stockholder for between 12 and 18 months and a maximum
Federal marginal tax rate of 20% if the shares were held by the stockholder
for over 18 months, and long-term capital gains recognized by a tendering
corporate stockholder will generally be taxed at a maximum federal marginal
tax rate of 35%.
A stockholder (other than certain exempt stockholders including, among
others, all corporations and certain foreign individuals and entities) that
tenders Shares may be subject to 31% backup withholding unless the stockholder
provides its TIN and certifies that such number is correct (or properly
certifies that it is awaiting a TIN) and certifies that such stockholder is
not subject to backup withholding. A stockholder that does not furnish its
correct TIN may be subject to a penalty imposed by the IRS. Each stockholder
should complete and sign the Substitute W-9 included as part of the Letter of
Transmittal so as to provide the information and certification necessary to
avoid backup withholding.
If backup withholding applies to a stockholder, the Depositary is required
to withhold 31% from payments made to such stockholder. Backup withholding is
not an additional tax. Rather, the amount of the backup withholding can be
credited against the Federal income tax liability of the person subject to the
backup withholding, provided that the required information is given to the
IRS. If backup withholding results in an overpayment of tax, a refund can be
obtained by the stockholder from the IRS. See Section 2 for instructions to
avoid backup withholding.
THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE WITH RESPECT TO SHARES
RECEIVED PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS
COMPENSATION OR WITH RESPECT TO HOLDERS OF SHARES WHO ARE SUBJECT TO SPECIAL
TAX TREATMENT UNDER THE CODE, SUCH AS NON-U.S. PERSONS, LIFE INSURANCE
COMPANIES, TAX-EXEMPT ORGANIZATIONS AND FINANCIAL INSTITUTIONS, AND MAY NOT
APPLY TO A HOLDER OF SHARES IN LIGHT OF ITS INDIVIDUAL CIRCUMSTANCES.
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE
PARTICULAR TAX CONSEQUENCES TO THEM (INCLUDING THE APPLICATION AND EFFECT OF
ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS) OF THE OFFER.
6. PRICE RANGE OF THE SHARES; DIVIDENDS ON THE SHARES
The Shares are traded in the over-the-counter market and prices are quoted
on the Nasdaq National Market under the symbol "ELNK." The following table
sets forth, for each of the periods indicated, the high and low
12
<PAGE>
last reported sales prices per Share as reported by the Nasdaq National Market
and the Dow Jones News Retrieval Service.
<TABLE>
<CAPTION>
SALES PRICE
--------------
HIGH LOW
------ -------
<S> <C> <C>
1997
First Quarter (from the date of the Company's initial
public offering, January 22, 1997)..................... $20.25 $10.125
Second Quarter.......................................... 13.50 8.625
Third Quarter........................................... 19.50 10.25
Fourth Quarter.......................................... 25.75 16.00
1998
First Quarter (through February 17, 1998)............... 48.00 25.125
</TABLE>
On February 10, 1998, the last full day of trading before the public
announcement of the execution of the Investment Agreement, the reported
closing sale price of the Shares on the Nasdaq National Market was $38.625 per
Share. On February 17, 1998 the last full day of trading before the
commencement of the Offer, the reported closing sale price of the Shares on
the Nasdaq National Market was $44.375 per Share. STOCKHOLDERS ARE URGED TO
OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES.
According to the Company, it has never declared a cash dividend in respect
of the Shares.
7. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES, STOCK QUOTATION AND
EXCHANGE ACT REGISTRATION
The purchase of Shares pursuant to the Offer will likely reduce the number
of Shares that might otherwise trade publicly. However, it is expected that a
significant percentage of the outstanding Shares will continue to be held by
persons other than the Purchaser and its affiliates, and the Purchaser does
not believe that its purchase of 1,250,000 Shares pursuant to the Offer is
likely to result in the Company's failure to meet the requirements of the
National Association of Securities Dealers, Inc. for continued inclusion in
the Nasdaq National Market or in the Shares becoming eligible for
deregistration under the Exchange Act or should have a material adverse effect
on the liquidity and market value of the remaining Shares held by the public.
The Merger will have no effect on the number of shares traded publicly.
The Shares are currently registered under the Exchange Act and the Newco
Common Stock will be registered thereunder after the Merger.
The Shares are currently "margin securities" under the regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"), which has the effect, among other things, of allowing brokers to
extend credit on the collateral of the Shares. Following the Offer, the Newco
Common Stock will be "margin securities."
8. CERTAIN INFORMATION CONCERNING THE COMPANY
The Company is a Delaware corporation with its principal executive offices
at 3100 New York Drive, Pasadena, California 91107. According to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (the
"Company Form 10-K"), the Company's principal line of business is to serve as
an Internet Service Provider ("ISP") that provides its customers access to the
Internet and information, assistance and services designed to introduce
customers to the Internet and ensure that they have a satisfying Internet
experience. The Company also provides information to its users through an
extensive World Wide Website and bi-monthly printed newsletters to customers.
In addition, the Company offers business services, including business
Websites, high-speed ISDN communications capability and frame relay
connectivity, and consumer services such as multiplayer Internet games and the
EarthLink online store.
13
<PAGE>
SUMMARY FINANCIAL INFORMATION
Set forth below is certain selected financial information with respect to
the Company derived from the information contained in the Company's Form 10-K
for the year ended December 31, 1996, as well as the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997, each of which is
incorporated by reference herein. More comprehensive financial information is
included in such reports and other documents filed by the Company with the
Commission, and the following summary is qualified in its entirety by
reference to such reports and such other documents and all the financial
information (including any related notes) contained therein. Such reports and
other documents should be available for inspection and copies thereof should
be obtainable in the manner set forth below under "Available Information."
EARTHLINK NETWORK, INC.
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------------------
1997 1996 1995 1994(1)
------------- ---------------- -------- -------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues............. $ 55,167 $ 32,503 $ 3,028 $ 111
Loss from operations....... (22,276) (30,258) (6,018) (148)
Net loss................... (23,327) (31,149) (6,120) (148)
Net loss per share......... (2.43) (4.50) (1.25) (0.04)
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER 30, -----------------
1997 1996 1995
---------------- -------- -------
<S> <C> <C> <C> <C>
Balance sheet data:
Total current assets..................... $ 23,559 $ 9,073 $2,253
Total assets............................. 48,106 27,119 4,874
Total current liabilities................ 28,242 28,279 4,229
Long-term debt........................... 7,851 6,088 355
Total Stockholders' equity............... 12,013 (21,261) 290
</TABLE>
- --------
(1) Inception (May 26, 1994) through December 31, 1994
The Company announced its unaudited results of operations for the year ended
December 31, 1997 in a press release dated February 11, 1998, which reflected
revenues, net loss and net loss per share of $79.1 million, ($29.9 million)
and ($2.99), respectively.
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Exchange Act
and, in accordance therewith, is required to file reports and other
information with the Commission relating to its business, financial condition
and other matters. Information as of particular dates concerning the Company's
directors and officers, their remuneration, stock options granted to them, the
principal holders of the Company's securities and any material interest of
such persons in transactions with the Company is required to be disclosed in
proxy statements distributed to the Company's stockholders and filed with the
Commission. Such reports, proxy statements and other information should be
available for inspection at the public reference facilities of the Commission
located at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located in Room 1400, 500 West Madison Street,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York,
New York 10048. Copies should be obtainable, by mail, upon payment of the
Commission's customary charges, by writing to the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such
information should also be on file at the Nasdaq National Market, 1735 K
Street, N.W., Washington, D.C. 20006. The Commission maintains an Internet web
site that contains reports, proxy and information statements and other
information regarding issuers who file electronically with the Commission. The
address for that site is http://www.sec.gov.
14
<PAGE>
Except as otherwise stated in this Offer to Purchase, the information
concerning the Company contained herein has been taken from or based upon
publicly available documents on file with the Commission and other publicly
available information. Although the Purchaser does not have any knowledge that
any such information is untrue, the Purchaser does not take any responsibility
for the accuracy or completeness of such information or for any failure by the
Company to disclose events that may have occurred and may affect the
significance or accuracy of any such information.
9. CERTAIN INFORMATION CONCERNING THE PURCHASER
The Purchaser is a Kansas corporation with its principal executive offices
at 2330 Shawnee Mission Parkway, Westwood, Kansas 66205. Sprint is a
diversified telecommunications holding company providing domestic and
international voice, video and data communications through its subsidiaries.
Sprint has two major business divisions: local telephone operations and long-
distance operations. Complementary businesses include distribution of
telecommunications equipment and telephone directory publishing. Sprint
operates local exchange telephone systems serving more than 7 million access
lines in 19 states.
Sprint is a 40% partner in Sprint Spectrum Holding Company, L.P. ("Sprint
PCS"), a partnership with Tele-Communications, Inc., Comcast Corporation and
Cox Communications, Inc. Sprint PCS is building the nation's first single
technology, 100% digital, state-of-the-art wireless network to provide
personal communication services ("PCS") across the United States. Sprint is
also a partner in Global One, a joint venture with Deutsche Telekom Ag ("DT")
and France Telecom ("FT") to provide seamless global telecommunications
services to business, residential and carrier markets worldwide. Sprint is a
one-third partner in Global One's operating group serving Europe (excluding
France and Germany), and is a 50% partner in Global One's operating group for
the worldwide activities outside the United States and Europe.
Sprint's principal emerging businesses include consumer Internet access
services, competitive local exchange carrier ("CLEC") services, international
development activities (outside the scope of Global One), provision of PCS in
markets with licenses controlled by Sprint, and integration, management and
support services for computer networks (Paranet).
If the Offer is consummated, Sprint L.P. will assign its SIP Subscribers at
the Closing to the Company, together with certain other consideration, in
exchange for the acquisition of 4,102,941 shares of Convertible Preferred
Stock.
Additional information concerning Sprint and its subsidiaries is contained
in Sprint's Annual Report on Form 10-K for the year ended December 31, 1996
and its Quarterly Reports on Form 10-Q for the periods ended March 31 and June
30 and September 30, 1997.
The name, business address, present principal occupation or employment,
five-year employment history and citizenship of each of the directors and
executive officers of the Purchaser are set forth in Schedule I hereto.
SUMMARY FINANCIAL INFORMATION
Set forth below is certain selected financial information with respect to
the Purchaser and its consolidated subsidiaries derived from the information
contained in the Purchaser's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, as well as the Company's Quarterly Report on Form 10-
Q for the quarter ended September 30, 1997, each of which is incorporated by
reference herein. More comprehensive financial information is included in such
reports and other documents filed by the Purchaser with the Commission, and
the following summary is qualified in its entirety by reference to such
reports and other documents and all the financial information (including any
related notes) contained therein. Such reports and other documents may be
inspected at the Commission's office, and copies thereof may be obtained upon
payment of the Commission's customary charges, in the manner set forth in
Section 8.
15
<PAGE>
SPRINT CORPORATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, -----------------------------
1997 1996 1995 1994(1)
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Statement of Income Data:
Net operating revenues........... $11,059.2 $14,044.7 $12,765.1 $11,986.6
Operating Income................. 1,840.9 2,267.2 1,834.3 1,690.7
Net Income....................... 757.6 1,183.8 395.3 890.7
Earnings per share of common
stock........................... 1.74 2.78 1.12 2.55
</TABLE>
<TABLE>
<CAPTION>
AT AT DECEMBER 31,
SEPTEMBER 30, -------------------
1997 1996 1995
------------- --------- ---------
<S> <C> <C> <C>
Balance sheet data:
Total current assets....................... $ 3,686.7 $ 4,352.8 $ 3,619.4
Total assets............................... 17,621.7 16,953.0 15,195.9
Total current liabilities.................. 3,476.5 3,314.2 5,142.1
Long-term debt............................. 2,851.2 2,981.5 3,253.0
Common Stock and other shareholder's
equity.................................... 8,915.3 8,519.9 4,642.6
</TABLE>
Sprint announced its unaudited results of operations for the year ended
December 31, 1997 in a press release dated February 3, 1998 which reflected
revenues, net income and income per share (on a diluted basis) of $14.87
billion, $952.5 million and $2.18, respectively.
Except as described in this Offer to Purchase, (i) none of the Purchaser
nor, to the best knowledge of the Purchaser, any of the persons listed in
Schedule I or any majority-owned subsidiary of the Purchaser, or any of the
persons so listed, beneficially owns any equity security of the Company, and
(ii) none of the Purchaser nor, to the best knowledge of the Purchaser, any of
the other persons referred to above, or any of the respective directors,
executive officers or subsidiaries of any of the foregoing, has effected any
transaction in any security of the Company during the past 60 days.
Except as described in this Offer to Purchase, (i) there have not been any
contacts, transactions or negotiations between the Purchaser, any of its
subsidiaries or, to the best knowledge of the Purchaser, any of the persons
listed in Schedule I, on the one hand, and the Company or any of its
directors, officers or affiliates, on the other hand, that are required to be
disclosed pursuant to the rules and regulations of the Commission, and (ii)
none of the Purchaser or, to the best knowledge of the Purchaser, any of the
persons listed in Schedule I has any contact, arrangement, understanding or
relationship with any person with respect to any securities of the Company.
Except as described in this Offer to Purchase, during the last five years,
none of the Purchaser or, to the best knowledge of the Purchaser, any of the
persons listed in Schedule I (i) has been convicted in a criminal proceeding
(excluding traffic violations and similar misdemeanors) or (ii) was a party to
a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, Federal or state securities laws or finding any
violation of such laws.
10. SOURCE AND AMOUNT OF FUNDS
The total amount of funds required by the Purchaser to purchase Shares
pursuant to the Offer is $56,250,000. Fees and expenses related to the Offer
for the Depositary, the Information Agent, and printing are estimated to be
approximately $175,000. Aggregate fees and expenses of $2,000,000 for the
Dealer Manager and other investment banking and legal services for the
transactions contemplated by the Investment Agreement were not separately
allocated among the constituent transactions such as the Offer. The Purchaser
plans to obtain all funds needed for the Offer from working capital.
16
<PAGE>
11. CONTACTS WITH THE COMPANY; BACKGROUND OF THE OFFER
Sprint has been advised by the Company that during August, September and
October of 1997, the Company's senior management analyzed the Company's
strategic position in the Internet industry and its prospects for continuing
and accelerating the growth of its business and achieving critical mass in its
subscriber base and greater scale in its operations. In light of this
analysis, management discussed with the Company's Board of Directors (on both
a formal and an informal basis) an array of strategic alternatives designed to
enhance the Company's strategic, operational, financial, marketing and
distribution capabilities.
Sprint has been further advised that, at a regular meeting of the Board of
Directors of the Company held on October 29, 1997, the Board conducted an
open-ended discussion of these alternatives, which included (i) a proposed
strategic alliance with Sprint; (ii) an underwritten equity offering or other
financing transactions; (iii) a significant infusion of equity capital by a
financial investor, the proceeds of which would be used by the Company to make
strategic acquisitions; (iv) a significant equity investment in the Company
by, and/or a joint venture involving the Company with, one or more Regional
Bell Operating Companies; and (v) either alone or in combination with certain
of the foregoing, the making of a business combination proposal to one or more
other providers of Internet services. At the conclusion of this discussion,
the Board did not recommend that any particular alternative be pursued to the
exclusion of others, but rather directed that management take further steps to
explore the availability of various options (without committing the Company to
any alternative without further action of the Board) and periodically report
to the Board on the results of such initiatives. The Board also authorized
senior management and the Company's financial advisor, DMG, to make selective
inquiries to determine whether certain firms in the telecommunications
industry would have any interest in a potential joint venture, strategic
alliance or minority investment relationship with the Company. The Board also
instructed management and DMG not to foreclose the possibility of a business
combination involving the Company, although it believed that the better
approach, in terms of enhancing the Company's long-term value, was to solicit
a strategic alliance or minority investment. Ultimately, no proposals to
effect a business combination emerged. As a result of management's exploratory
initiatives, based on the strategic, operational and financial considerations
described below and Sprint's dynamic and prompt expression of interest in
pursuing a strategic alliance with the Company, the Board determined that
focusing primarily on the Sprint alternative was most likely to produce the
best transaction reasonably available.
During early October, 1997, with the permission of Garry Betty, President
and Chief Executive Officer of the Company, Sidney Azeez, one of the Company's
directors, contacted Carl Peterson, General Manager, President and CEO of the
Kansas City Chiefs, inquiring whether he was acquainted with William T. Esrey,
Chairman and Chief Executive Officer of Sprint Corporation. After learning
that Mr. Peterson and Mr. Esrey were acquaintances, Mr. Betty requested that
Mr. Peterson arrange an introduction so the Company could explore whether
Sprint would have any interest in discussing the possibility of a strategic
alliance or other relationship. Mr. Peterson contacted Sprint and suggested a
meeting during which the companies could discuss their respective businesses
and the possible benefits of a strategic or other relationship.
Theodore H. Schell, Senior Vice President Strategic Planning & Corporate
Development, phoned Mr. Betty on October 8, 1997 to express Sprint's interest
in exploratory discussions and to arrange for a visit by a Sprint
representative to the Company's headquarters in Pasadena, California. On
October 10, 1997, Chuck Chakravarty, Manager Corporate Development, visited
the Company's headquarters in Pasadena, California and had discussions with
Mr. Betty and other members of the Company's management. The discussions
focused on the operational and financial aspects of the Company.
On October 29, 1997, Sprint and the Company executed a reciprocal
confidentiality agreement in which they agreed to maintain the confidentiality
of nonpublic information concerning their businesses. On October 31, 1997, Mr.
Schell, Timothy S. Sutton, Vice President Strategic Planning & Corporate
Development and James Dodd, Vice President Internet Access Services met with
Mr. Peterson, Sky Dayton, Chairman of the Board of the Company, and Mr. Betty
in Kansas City to obtain a strategic overview of the Company's business.
Following that discussion, the participants concluded that there were several
areas of shared perspective with regard to the
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importance of expanded scale in the Internet access business, the
technological evolution of the Internet, and business philosophies regarding
quality of customer service and operations.
In early November, 1997, Mr. Sutton and Mr. Betty had phone conversations
confirming the desire of both parties to engage in further exploration of a
strategic or other relationship. On November 19, 1997, Mr. Sutton, Mr. Dodd
and certain other officers and employees of Sprint met in Pasadena with Mr.
Dayton, Mr. Betty and certain other officers and employees of the Company, and
a representative of DMG, the Company's financial advisor. The Company's
representatives presented a high-level overview of the Company's business from
an operational, financial and strategic perspective. The participants then
engaged in a high-level discussion of possible alternatives for a strategic or
other relationship between Sprint and the Company. Sprint's representatives
discussed the factors of importance to Sprint in assessing a potential
relationship with the Company. These factors included: continued reliance on
the Sprint brand (either alone or co-branded with the Company's brand);
marketing rights to the Internet product; utilization of Sprint's network
services; and the financial implications of the nature and amount of the
investment requisite to scaling up to achieve critical mass and profitability.
Each party expressed the lack of a desire to consider a business combination
or similar type of transaction with the other party at the time. However, each
party expressed an interest in Sprint acquiring a minority equity interest in
the Company if a structure could be developed that would be acceptable from a
strategic, operational and financial point of view.
Additional meetings were held in Pasadena on November 21 and 22, 1997 among
officers and employees of Sprint and the Company to continue discussions of
the strategic, financial and operational characteristics of a strategic
relationship between Sprint and the Company with respect to their Internet
businesses. The possible marketing opportunities and synergies of such an
alliance were also explored. These meetings were followed by several telephone
calls between officers of Sprint and the Company with regard to these matters.
A meeting was held in Pasadena on December 4, 1997 which was attended by
Messrs. Esrey, Schell, Sutton, Dodd, Dayton, Betty and certain other officers
and employees of the Company at which the possible components of a strategic
relationship were discussed. These discussions focused on strategic and
operational matters, including co-branding the Internet access service,
accessing Sprint's marketing and distribution channels, the nature of any
minority investment capital Sprint might make available to the Company and the
opportunity by which Sprint might acquire the equity securities of the Company
not already owned by Sprint and its affiliates at some point in the future.
Further meetings were held in Pasadena on December 11 and 12, 1997 among
Messrs. Sutton, Betty and Dayton, internal Sprint counsel, outside counsel to
the Company, and the financial advisers of Sprint and the Company. These
discussions focused on the valuation of Sprint's in-kind contributions,
including Sprint Internet Passport subscribers, the Sprint brand, access to
the Sprint network and access to the Sprint marketing channels. The
discussions also focused on the terms and structure for a minority investment
by Sprint in the Company, the terms of any credit arrangements Sprint might
provide, governance rights, and the timing and possible approaches under which
Sprint would be permitted in the future to seek to acquire the remaining
equity securities of the Company.
Further meetings were held in Pasadena on December 19 and 20, 1997 to
discuss a proposed preliminary term sheet prepared by Sprint. The term sheet
contemplated that Sprint would acquire a minority interest in the Company
through a cash tender offer. It also contemplated that in exchange for the
contribution of the Sprint Internet Passport subscribers and favorable terms
for access to the Sprint L.P. network, Sprint L.P. would receive a newly
created series of convertible preferred stock from the Company. The parties
also discussed a marketing agreement whereby the parties would jointly brand
their Internet products and Sprint would make its marketing channels available
to the Company with certain exclusivity and sales commitments.
Also involved in the negotiations were terms of a standstill arrangement
which would preclude further acquisitions of the Company's equity securities
by Sprint, except in limited situations designed to ensure the receipt of fair
value by all stockholders in the event Sprint acquired additional equity
securities above agreed upon thresholds. The parties also discussed
convertible debt financing of up to $100,000,000. There were also
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discussions of limited governance rights, stock registration rights,
limitations on the Company soliciting acquisition proposals (subject to the
Board's fiduciary obligations) and other customary rights of a financial
investor. Throughout these and subsequent meetings, considerable negotiations
took place regarding all strategic, operational, financial and governance
aspects of the proposed transactions.
These proposals, counter proposals and revisions were reflected in numerous
further discussion drafts of possible terms which were circulated between
Sprint and the Company and their respective financial and legal advisers.
Conference and telephone calls were held in the latter part of December 1997
and in early January 1998 among various members of management and the
financial and legal advisers to Sprint and the Company to discuss and refine
these proposals. Various members of management and employees of Sprint and the
Company visited Sprint's facilities in Reston, Virginia on December 30, 1997
in an attempt to reach a common view on applicable network economics, network
technologies and engineering set ups.
Meetings among various members of management and the financial and legal
advisers to Sprint and the Company were held during the evening of January 12,
1998 in Kansas City and during the following day to continue negotiation of
the terms of the transactions. Based on these negotiations, the parties agreed
to proceed immediately with the preparation of drafts of definitive agreements
to cover the matters encompassed by the Investment Agreement and Ancillary
Agreements. Numerous conference calls took place after January 12, 1998 to
divide drafting responsibilities, establish schedules and address issues
arising as part of the documentation effort. Prior to January 27, 1998,
initial drafts of most of the documents (and comments on most initial drafts)
were exchanged.
Negotiating sessions were held in Kansas City from January 27 through
February 1, 1998. Negotiations continued thereafter via numerous conference
calls and exchanges of drafts and comments through February 10, 1998, in an
effort to reach agreement on the matters encompassed by the Investment
Agreement and the Ancillary Agreements. Some of the negotiations between legal
counsel for Sprint and the Company occurred in person between February 6 and
February 10, 1998.
An overview of the possible transaction with the Company and related issues
were discussed at Sprint's Board of Directors meeting on December 9, 1997. A
meeting of Sprint's Board of Directors was held on February 10, 1998 and the
execution, delivery and performance of the Investment Agreement, the Ancillary
Agreements and the transactions contemplated thereby were approved.
An overview of the possible transaction and related issues were discussed at
the Company's Board of Directors meeting on January 11, 1998. At a special
meeting held on January 20, 1998, senior management provided the Board with a
report on the status of the negotiations with Sprint and developments with
respect to other potential strategic alternatives. Draft agreements were first
presented to the Company's Board of Directors at a regular meeting held on
February 2, 1998. A special meeting of the Company's Board of Directors was
held on February 10, 1998 and the execution, delivery and performance of the
Investment Agreement, the Ancillary Agreements and the transactions
contemplated thereby were approved.
Following approval by the Board of Directors of Sprint and the Company, the
Investment Agreement and the Ancillary Agreements were executed and delivered
after the close of financial markets in the United States on February 10,
1998. The Offer and the other transactions contemplated by these agreements
were publicly announced before the financial markets in the United States
opened on February 11, 1998.
12. PURPOSE OF THE OFFER; THE INVESTMENT AGREEMENT; ANCILLARY AGREEMENTS
GENERAL
Sprint and the Company have determined to enter into a strategic alliance to
provide Internet access services and related services on a collaborative
basis. The purpose of the Offer and the related investments being made by
Sprint pursuant to the Investment Agreement is to benefit from the enhanced
capabilities for growth and financial and strategic success by joining forces
with the Company. Immediately after the consummation of the
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Offer, the following transactions will take place pursuant to the Investment
Agreement at the Closing: (i) Sprint will purchase 4,102,941 shares of
Convertible Preferred Stock in exchange for (A) an aggregate cash
consideration of $23,750,000, (B) the assignment to Newco of 100% of the SIP
Subscribers, and (C) Sprint L.P. having entered into the Network Agreement
whereby Newco and the Company will utilize Sprint L.P.'s long-distance network
under specified terms and conditions (the consideration referred to in clauses
(A), (B) and (C) is referred to herein as the "Convertible Preferred Stock
Consideration"), (ii) pursuant to the Marketing Agreement, Newco and the
Company will begin to use Sprint and Sprint L.P. distribution channels and
sell certain Sprint L.P. products under specified terms and conditions,
including the commitment of Sprint to obtain 150,000 subscribers per year for
the Company, and (iii) Sprint will provide Newco and the Company, as co-
borrowers, with up to $25 million of Convertible Debt Financing on or after
the Closing, with such amount to increase by $25 million on each of the first,
second and third anniversary of the Closing Date for a total of $100 million
of such financing at the end of such period, such indebtedness to be evidenced
by one or more Convertible Notes which will be convertible into Newco Common
Stock.
Sprint, Sprint L.P. and Newco have entered into a Governance Agreement which
will become effective at the Closing. The Governance Agreement establishes
certain terms and conditions with respect to the corporate governance of
Newco, the acquisition and disposition of equity securities of Newco by Sprint
and its affiliates (including Sprint's rights, under certain circumstances
described therein, to offer to purchase the outstanding shares of Newco Common
Stock not already owned by Sprint and its affiliates), and the rights of the
Board of Directors of Newco to entertain acquisition proposals and business
combinations. Sprint, Sprint L.P. and certain stockholders of the Company have
also entered into a Stockholders' Agreement which will become effective at the
Closing and which requires such stockholders to support certain offers by
Sprint, whether by vote or tender, under the circumstances described in such
agreement.
Also, concurrently with the Closing of these transactions, other than the
Offer, Newco Sub will merge into the Company and the holders of Common Stock
will receive, in exchange for their shares of Common Stock, an equal number of
shares of Newco Common Stock.
THE INVESTMENT AGREEMENT
THE OFFER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE INVESTMENT AGREEMENT
Pursuant to the Investment Agreement, Sprint has commenced the Offer. See
Section 1 for a summary of the material terms of the Investment Agreement
relating to the Offer.
The obligations of Sprint, Sprint L.P., Newco, Newco Sub and the Company to
consummate the transactions contemplated to occur at the Closing other than
the Offer are subject to the satisfaction of the condition that Sprint shall
have accepted for payment shares of Common Stock pursuant to the Offer in
accordance with this Agreement. The conditions to the consummation of the
Offer are described in Section 14.
THE MERGER
Immediately following the consummation of the Offer, the Company, Newco and
Newco Sub will effect the Merger whereby Newco Sub, a wholly-owned subsidiary
of Newco, will merge with and into the Company. All of the then issued and
outstanding Shares of Common Stock, including the Shares acquired by the
Purchaser in the Offer, will be converted into an equal number of shares of
Newco Common Stock in the Merger. Upon consummation of Merger, the Company
will be a subsidiary of Newco. Pursuant to the Merger, the Certificate of
Incorporation and Bylaws of Newco Sub will become the Certificate of
Incorporation and Bylaws of the surviving corporation and the Certificate of
Incorporation and Bylaws of Newco will take effect as the constitutive
documents of the corporation whose stock is registered pursuant to the
Exchange Act. The Certificate of Incorporation and Bylaws of Newco are
substantially similar to the Certificate of Incorporation and Bylaws of the
Company, except that the number of authorized shares of Preferred Stock was
increased from 10 million to 25 million and that the scope of indemnification
of officers and directors was increased consistent with the
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Delaware General Corporation Law (the "DGCL"). Also, the directors and
officers of the Company will become the directors and officers of Newco until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with Newco's
Certificate of Incorporation and Bylaws, except that the two directors elected
by the holders of the Convertible Preferred Stock of Newco will be elected
immediately following the Closing.
While the Merger is subject to the approval of the stockholders of the
Company, the votes to be cast pursuant to the Agreement to Vote and Tender
Stock and the Agreement to Vote Stock will ensure approval of the Merger. The
Merger will create a holding company structure which may provide certain
advantages if the scope of the Company's business expands in the future as
well as facilitating the economic efficiency of the strategic relationship
with Sprint.
THE ISSUANCE OF CONVERTIBLE PREFERRED STOCK
Concurrently with the Merger, Sprint L.P. will receive 4,102,941 shares of
Convertible Preferred Stock in exchange for the Convertible Preferred Stock
Consideration. Such consideration consists of (i) $23,750,000 of cash, (ii)
Sprint L.P. contributing the SIP Subscribers to Newco, and (iii) Sprint L.P.,
the Company and Newco entering into the Network Agreement.
The Convertible Preferred Stock will be initially convertible into 3,533,411
Shares of Newco Common Stock at the Closing. Based on these figures,
immediately after consummation of the Offer, the Merger and the other
transactions contemplated by the Investment Agreement, the Purchaser would own
approximately 26.6% of the total number of issued and outstanding shares of
Newco Common Stock on a fully diluted basis (that is, assuming that the UUNET
Note has been converted into Shares and that all outstanding Warrants and
Stock Options have been exercised, including the Convertible Preferred Stock).
However, the Convertible Preferred Stock will pay dividends thereon for the
first five years in the form of increases in its Liquidation Value, at a per
annum rate of 3% of the Liquidation Value), which will accrue and compound
quarterly in arrears, but which will accelerate in the event of a Business
Combination (as defined in this Section 12) or an optional redemption of the
Convertible Preferred Stock by Newco. At the Closing, the Liquidation Value
will be the average of the closing price per share of Newco Common Stock for
the thirty (30) trading days prior to the Closing Date. Increases in the
Liquidation Value will have the effect of increasing the number of shares of
Newco Common Stock which the Purchaser will receive upon conversion of the
Convertible Preferred Stock. Assuming that the Convertible Preferred Stock is
held by the Purchaser for the initial five year period, or the Liquidation
Accretion Dividends are accelerated, the Purchaser will be entitled to receive
4,102,941 shares of Newco Common Stock upon conversion thereof. If the fully
diluted number of Shares, as calculated above, were the same at that time, the
Purchaser would then own approximately 28.8% of the total number of issued and
outstanding shares of Newco Common Stock on that basis.
Cash dividends at such rate are payable after five years from the Closing
Date when declared by the Board of Directors of Newco out of funds legally
available therefor and such dividends accumulate if not declared and paid.
After the twentieth anniversary of the Closing Date, such cumulative cash
dividends accrue at the rate per annum of 8% of the Liquidation Value, which
rate increases annually by 200 basis points up to an maximum rate of 12% per
annum. Holders of Convertible Preferred Stock are entitled to a liquidation
preference upon any voluntary or involuntary liquidation, dissolution or
winding up of Newco (" Liquidation Event") in an amount per share equal to the
sum of (i) the average closing price per share of Common Stock for the thirty
(30) trading days preceding the Closing Date, (ii) the amount of all
Liquidation Accretion Dividends that have been paid (including an amount equal
to a prorated dividend for the period from the latest Dividend Accrued Date
through the date of the Liquidation Event), and (iii) all accumulations of
accrued but unpaid cash dividends (such sum is referred to as the Liquidation
Value). Each share of Convertible Preferred Stock initially converts into less
than one share of Newco Common Stock, subject to antidilution adjustments, but
increases to a one-for-one conversion (subject to certain antidilution
adjustments) over a five-year period.
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At Newco's option, the shares of Convertible Preferred Stock are redeemable
after the third anniversary of the Closing Date at a redemption price
initially of 103% of the Liquidation Value and decreasing to 100% of
Liquidation Value by Newco's 2004 fiscal year. The holders of Convertible
Preferred Stock may elect two directors to the Board of Directors of Newco for
so long as they hold 20% or more of Newco's fully diluted shares outstanding
(subject to adjustment for certain dilutive events) and one director for so
long as they hold 10% of such outstanding shares (subject to adjustment for
certain dilutive events). Otherwise, the Convertible Preferred Stock is non-
voting except in the limited circumstances when required under the DGCL.
SIP SUBSCRIBERS
Pursuant to the Investment Agreement, concurrently with the Merger, Sprint
L.P. will contribute to Newco all of its SIP Subscribers which at the time of
the execution of the Investment Agreement was approximately 130,000 SIP
Subscribers. Thereafter, the SIP Subscribers shall be subscribers of Newco,
together with all rights under customer contracts and relationships related
thereto. The Investment Agreement provides that if the final number of paid
SIP Subscribers at Closing is less than 130,000, then Sprint L.P. will forfeit
to Newco a number of shares of Convertible Preferred Stock equal to the
product of (i) five, multiplied by (ii) 130,000 less the final number of paid
SIP Subscribers.
MARKETING AGREEMENT
Concurrently with the Merger, the Marketing Agreement among Sprint, Sprint
L.P., Newco and the Company will become effective, whereby certain cooperation
and support will be provided to each other in specified marketing matters and
Sprint L.P. will grant to Newco and the Company the right to utilize certain
distribution channels of Sprint. Sprint will also license the use of its brand
to Newco and the Company, and Newco and the Company will agree to use such
brand in conjunction with the Company's brand in the business of the Company,
subject to specified terms and conditions. The Marketing Agreement applies
only to the parties' activities in the 48 contiguous states of the United
States (the "Territory").
Pursuant to the Marketing Agreement, Sprint has appointed Newco and its
controlled affiliates as agents to sell Sprint's long distance services and
certain other telecommunications services as are agreed to by the parties. In
addition, Newco has appointed Sprint and its subsidiaries as agents to sell
Internet-related services offered by Newco and its controlled affiliates. The
Marketing Agreement provides for a joint marketing committee.
The Marketing Agreement also contains certain exclusivity arrangements. The
Marketing Agreement restricts Sprint and its controlled affiliates from
promoting, advertising, marketing, co-branding, packaging, bundling,
developing, offering or selling, or entering into any express or tacit
agreement to permit its name to be used in connection with, a set of Internet-
related products and services (whether as a series of individual products and
services or as an integrated grouping or package of products and services)
that is the same as or substantially similar to the Company's core Internet
service package (the "Core Internet Application Set"), as in effect from time
to time, other than as offered by Newco and its controlled affiliates. Sprint
and its controlled affiliates further agree that they will not bid on, acquire
or directly or indirectly own, manage, operate, join, control or finance, or
participate in the management, operation, control or financing of, any
provider of any set of Internet-related products and services that is the same
as or substantially similar to the Core Internet Application Set (as in effect
from time to time). The Marketing Agreement specifies that these exclusivity
restrictions do not restrict Sprint and its controlled affiliates from (i)
appointing one or more other Internet service providers ("ISP's") as Sprint's
agents for the sale of its branded long distance services and
telecommunications services so long as the Internet-related services provided
by such ISP are not billed on an integrated basis with any services provided
by Sprint, (ii) providing Internet service packages that are designed
primarily for large corporate accounts and offering enhanced features that are
not included in the Core Internet Application Set and (iii) offering or
selling individual components that are included in the Core Internet
Application Set so long as the Company has a first right of refusal to provide
Sprint with such elements or components.
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Newco and its controlled affiliates are restricted from promoting,
advertising, marketing, co-branding, bundling, developing, offering or selling
any long distance services or telecommunications services that are the same as
or substantially similar to the long distance services or telecommunications
services offered by Sprint and its controlled affiliates, other than as
offered by Sprint and its controlled affiliates. Newco and its controlled
affiliates are further prohibited from bidding on, acquiring or directly or
indirectly owning, managing, operating, joining, controlling or financing, or
participating in the management, operation, control or financing of, or acting
as an agent or representative for, or entering into any express or tacit
agreement to permit its name to be used in connection with, or permit its
Internet services to be marketed, sold or distributed by, any "Material
Provider" of long distance services or telecommunication services other than
Sprint and its controlled affiliates. A business or entity is deemed to be a
"Material Provider" of long distance services or telecommunications services
if such business or entity (together with its affiliates) derives from the
sale of long distance services and certain telecommunications services (i)
more than 5% of its gross revenues in any fiscal year or (ii) more than $25
million of gross revenues in any fiscal year. The exclusivity restrictions
will restrict Newco and its controlled affiliates with respect to PCS and
cellular services only if Sprint PCS enters into sales agency relationships
with Newco and its controlled affiliates on the terms set forth in the
Marketing Agreement. Newco and its controlled affiliates are not prohibited
from (i) continuing to offer a co-branded Core Internet Application Set under
currently existing agreements (subject to certain restrictions), (ii) offering
Internet telephony services under certain circumstances, provided that Sprint
has the first right to provide that service at such time as it has developed
an Internet telephony product and (iii) selling ATM and frame relay
telecommunications services of a third party for the sole purpose of providing
access to the public Internet.
Sprint and its controlled affiliates will seek to generate customers for the
Company's Core Internet Application Set through Sprint's customer base and its
third party marketing channels. The Company will pay Sprint varying amounts
for each customer generated by Sprint. In addition, Sprint is obligated to pay
varying shortfall amounts if Sprint fails to generate a minimum number of new
subscribers per year for the Core Internet Application Set in any year during
the five-year period commencing September 1, 1998. Newco and its controlled
affiliates will seek to generate customers for Sprint's long distance and
other telecommunications services from the users of its Core Internet
Application Set. Newco and its controlled affiliates will be entitled to
payment from Sprint of a market rate commission based on the monthly revenue
generated from such customers.
The Company and Sprint have agreed to negotiate a billing and collection
agreement for integrated billing services for Sprint's long distance and
telecommunications services and the Company's Internet services. The Company
will also cooperate with Sprint in developing Internet-related developments
and enhancements that are requested by Sprint.
Sprint and the Company have agreed to use the "EarthLink-Sprint" co-brand in
all of Sprint's marketing, advertising and other similar material relating to
or referencing any of the Company's Internet services and in all of the
Company's marketing, advertising and other similar material used to promote
and offer for sale or otherwise relating to its Internet services and/or
Sprint's long distance services and telecommunications services. Each party
has extended to the other a non-exclusive, royalty-free, non-transferable
license to use its brand in the Territory to the extent described above.
The Marketing Agreement has a 10-year term and may be extended by either
party for an additional five years. The Agreement is subject to early
termination upon the occurrence of certain events, including (i) a change of
control of Sprint or Newco, (ii) a business combination between Sprint and an
entity engaged in a business that is competitive with the Company's Core
Internet Application Set, (iii) the termination of the Governance Agreement
under certain circumstances and (iv) a material breach by either party that is
not cured after notice. Upon termination of the Marketing Agreement under the
circumstances described in clause (ii) above, Sprint will be required to pay a
termination fee to the Company, which will equal $60 million if such
termination occurs during the first two years following the Merger, dropping
to $36 million on the day following the second anniversary of the Merger and
thereafter declining on a daily pro rata basis to zero on and after the fifth
anniversary of the Merger. In case of such termination, Sprint must also pay
an additional fee (up to a maximum of $17.5 million, but declining to zero
after five years) to compensate the Company for the loss of customers that
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would have been generated for the Company through Sprint's marketing channels.
The termination fee described above represents the sole amount that will be
payable by either party upon a termination of the Marketing Agreement, except
for payment obligations accrued prior to termination and damages from the
party's breach of the Marketing Agreement.
NETWORK AGREEMENT
Concurrently with the Merger, the Network Agreement between and among Sprint
L.P., Newco and the Company will become effective, whereby Sprint L.P. agrees
to provide, and Newco and the Company agree to utilize, certain dial-up
Internet access Ports ("Ports") for use by the Company's Internet dial-up
access customers. The Network Agreement provides for the provision of a
minimum number of Ports together with the option for the Company to order an
additional quantity of Ports over the initial minimum term of four years.
The Network Agreement sets forth the schedule for implementation of service
in locations and in such quantities as agreed to by the parties. The Network
Agreement also specifies the rates and charges for the use of the Ports during
the initial term and a process for negotiating continued use of the Ports
beyond the initial term. The Network Agreement describes the performance
parameters associated with the Ports and allocates responsibilities for
network and customer support activities between the parties. In addition, the
Network Agreement specifies other commercial terms customarily found in
network service agreements, such as payment terms, force majeure and governing
law.
CONVERTIBLE DEBT FINANCING
Concurrently with the Merger, the Credit Agreement will become effective.
Sprint will initially provide up to $25 million in debt financing to be
evidenced by the Convertible Notes. Each year after the Closing Date, the
aggregate amount that Sprint is obligated to advance is increased by $25
million to a maximum of $100 million on a cumulative basis. The Convertible
Notes are convertible into shares of Newco Common Stock at a conversion price
of 130% of the average market price (i.e., the closing sale price over a 30
trading day period) at the time a particular Convertible Note is issued to
evidence an advance under the Credit Agreement. The Convertible Notes bear
interest at a rate equal to 6% per annum.
Sprint's obligation to make advances under the Credit Agreement terminates
upon the earlier of (i) the fifth anniversary of the Closing Date, (ii)
acceleration of the indebtedness evidenced by the Convertible Notes upon an
Event of Default (as defined below), (iii) consummation of a Business
Combination (as defined below), or (iv) termination of the Marketing Agreement
pursuant to certain provisions thereof. An Event of Default shall occur if (i)
there is a breach or there are breaches of any of the representations or
warranties unless such breach or breaches would not in the aggregate have a
Material Adverse Effect on Newco, the Company and their subsidiaries, taken as
a whole, (ii) nonpayment of principal or interest within fourteen (14) days
after the same becomes due, (iii) a breach of certain financial and other
covenants, and in certain cases, a failure to cure such breach within the
applicable cure period, (iv) a default by Newco or the Company in any
agreement or agreements under which indebtedness in excess of $5 million was
created, or the occurrence of any other event or existence of any condition,
the effect of any of which causes, or permits the holder of such indebtedness
to cause, such indebtedness to become due prior to its stated maturity, or any
such indebtedness shall be declared due and payable prior to the stated
maturity thereof, (v) Newco or the Company files for relief under bankruptcy,
receivership, or similar laws, or fails to contest any involuntary petition in
bankruptcy filed with regard to Newco or the Company, (vi) any condemnation of
a substantial portion of the property of Newco or the Company, or (vii) Newco
or the Company fails within thirty (30) days to pay, bond or otherwise
discharge any judgments or orders for the payment of money in excess of $1
million; which are not stayed on appeal or otherwise contested in good faith.
"Material Adverse Effect" is defined to mean any change or effect having a
material adverse effect (or any development as to which there is a substantial
likelihood, insofar as can be foreseen, that would have such an effect) on the
business, properties, assets, condition (financial or otherwise), or results
of operations of the Company, Newco, Newco Sub, Sprint, Sprint L.P. and
Sprint's subsidiaries, as the case may be.
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ACQUISITION PROPOSALS
The Investment Agreement provides that prior to the Closing the Company will
not, nor will it authorize or permit any officer, director or employee, or any
investment banker, attorney or other advisor or representative, of the Company
or any of its subsidiaries to (i) solicit or initiate, or encourage the
submission of, any Acquisition Proposal or (ii) participate in any discussions
or negotiations regarding, or furnish to any person any information with
respect to, or take any other action to expedite any inquiries or the making
of any proposal that constitutes, or may reasonably be expected to lead to,
any Acquisition Proposal. However, to the extent required by the fiduciary
obligations of the Board of Directors of the Company, as determined in good
faith by the Board of Directors based on the advice of outside counsel, the
Company may, (A) in response to an unsolicited request therefor, furnish
information with respect to the Company to any person pursuant to a customary
confidentiality agreement and discuss such information with such person, (B)
upon receipt by the Company of an Acquisition Proposal, following delivery to
the Purchaser of the required notice, participate in negotiations regarding
such Acquisition Proposal and (C) modify or withdraw its recommendation that
the stockholders of the Company accept the Offer or its recommendation to such
stockholders that they vote in favor of the transactions contemplated by the
Investment Agreement. Neither the Company nor its Board of Directors may,
under any circumstances, (A) terminate the Investment Agreement or any of the
Ancillary Agreements or withdraw its approval of such agreements, or (B)
approve or authorize the solicitation, initiation or encouragement of
additional Acquisition Proposals.
In addition to the obligations of the Company set forth in the preceding
paragraph, the Investment Agreement provides that the Company shall promptly
advise the Purchaser of the existence of any request for information or of any
takeover proposal, or any inquiry with respect to, or which could lead to, any
Acquisition Proposal.
The Investment Agreement further provides that the Company shall not take
any action that would enhance the ability of any other person proposing a
takeover proposal to obtain the approval of the Company's stockholders or
otherwise consummate such Acquisition Proposal without also taking a
comparable action that would similarly enhance the ability of the Purchaser to
obtain any necessary approval of the Company's stockholders of, and otherwise
to consummate, the transactions contemplated in the Investment Agreement and
the Ancillary Agreements or an alternative transaction initiated by the
Purchaser and concurrently withdrawing any impediments thereto that do not
similarly impede such other person.
The Investment Agreement provides that nothing contained therein shall
prohibit the Company from taking and disclosing to its stockholders a position
contemplated by Rule 14e-2 promulgated under the Exchange Act.
TRANSACTION COSTS
The Investment Agreement provides that all fees and expenses incurred in
connection with the Offer, the Investment Agreement and the transactions
contemplated thereby and the Ancillary Agreements shall be paid by the party
incurring such fees or expenses, whether or not the Offer or other
transactions contemplated by the Investment Agreement are consummated.
However, one-half of the reasonable out-of-pocket expenses incurred by the
Company in preparing the Proxy Statement and the S-4 Registration Statement,
printing and mailing the Proxy Statement, the Commission filing fees for the
S-4 Registration Statement and in holding the special meeting of Company
stockholders to approve the Merger shall be paid by the Purchaser.
CONDUCT OF BUSINESS BY THE COMPANY
The Investment Agreement provides that during the period from the date of
the Investment Agreement to the Closing Date, the Company shall carry on its
business in the usual, regular and ordinary course in substantially the same
manner as theretofore conducted and, to the extent consistent therewith, use
all reasonable efforts to preserve intact its current business organizations,
keep available the services of its current officers and other employees and
preserve its relationships with customers, suppliers, licensors, licensees,
distributors, joint
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ventures and others having business dealings with it except to the extent that
the failure to do so would not have a Material Adverse Effect on the Company.
In addition, during the period from the date of the Investment Agreement to
the Closing Date, the Company shall not, without first consulting with the
Purchaser take certain material actions relating to, among other matters,
dividends, acquisitions, dispositions, capital issuances or changes in capital
structure, research and development agreements, incurrence of indebtedness,
capital expenditures and satisfaction of claims.
TERMINATION OF THE INVESTMENT AGREEMENT
The Investment Agreement may be terminated at any time prior to the Closing
Date (i) by mutual written consent of the parties thereto, (ii) by any of the
parties if the Offer has not been consummated on or before June 15, 1998,
(iii) by the Purchaser and Sprint L.P. if any of the conditions to the
obligations of the Purchaser and Sprint L.P. with respect to Offering shall
have become incapable of fulfillment, and shall not have been waived by the
Purchaser, or (iv) by the Company, Newco and Newco Sub if any of the
conditions precedent to Sprint's right to consummate the Offer shall have
become incapable of fulfillment and shall not have been waived by the Company,
Newco and Newco Sub.
REPRESENTATIONS AND WARRANTIES
The Investment Agreement contains various customary representations and
warranties made by the parties thereto which will not survive the Closing
except for survival thereof for 24 months in the case of fraud or willful
material breaches of such representations and warranties.
THE GOVERNANCE AGREEMENT
GENERAL
In connection with the Investment Agreement, Sprint, Sprint L.P., Newco and
the Company entered into the Governance Agreement, which will take effect upon
the Closing. The Governance Agreement establishes certain terms and conditions
concerning the corporate governance of Newco, the acquisition and disposition
of equity securities of Newco ("Equity Securities") by Sprint, Sprint L.P. and
any of their respective affiliates (collectively, "Affiliated Equity
Holders"), the rights of Sprint to make offers to purchase all of the
outstanding securities of Newco not owned by Affiliated Equity Holders and the
rights of the Board of Directors of Newco to receive and entertain offers to
effect "Business Combinations" (as defined below), all as more particularly
described in the Governance Agreement. The following summary is qualified in
its entirety by the express terms of the Governance Agreement, which has been
filed with the Commission as an exhibit to the Purchaser's Tender Offer
Statement on Schedule 14D-1.
CORPORATE GOVERNANCE
The Governance Agreement establishes that the fundamental policies and
strategic direction of Newco, the Company and any significant subsidiary of
Newco will be determined by their respective Boards of Directors. Consistent
with the voting rights granted to the holders of Convertible Preferred Stock,
the Governance Agreement provides for two individuals to be designated as
"Investor Directors." Similarly, following conversion of the Convertible
Preferred Stock into Newco Common Stock, Newco and the Company are obliged to
elect the individuals designated as "Investor Directors" to their respective
Boards of Directors. In addition, the Governance Agreement permits one
Investor Director to participate on any Strategic Business Planning Committee,
Finance Committee or other significant committee of the Board of Directors of
Newco, the Company or any significant subsidiary, to the extent those
committees exist. If there is no such committee, the Governance Agreement
allows Sprint a reasonable opportunity to review and discuss Newco's strategic
and business plans and financing plans with the management of Newco prior to
the submission of any such plan to the Board of Directors, and to receive
advance copies of information and materials to be provided to the Board of
Directors with respect to such matters. Notwithstanding the foregoing, no
Investor Director is entitled to participate on any
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committee of the Board of Directors of Newco, the Company or any significant
subsidiary created for the purpose of considering a Business Combination or
any matter related thereto (including a "Sprint Offer" or a "Qualified Offer,"
as described in more detail below), or to participate in the Board's
deliberations with respect to any of the foregoing. Consistent with the terms
of the Convertible Preferred Stock, Sprint is entitled to two Investor
Directors for so long as it holds 20% or more of Newco's fully diluted shares
outstanding (subject to adjustment for certain dilutive events, the "Higher
Threshold"), and one Investor Director for so long as it holds 10% or more of
Newco's fully diluted shares outstanding (subject to adjustment for certain
dilutive events, the "Lower Threshold").
At such time as the Convertible Preferred Stock has been converted into
Newco Common Stock, the Governance Agreement obligates Newco to use its best
efforts to solicit from its stockholders proxies in favor of Sprint's Investor
Director nominees. The Governance Agreement also obligates the Affiliated
Equity Holders to vote in favor of any other nominee or director selected by
the Board of Newco in accordance with the agreement. The voting obligations of
Affiliated Equity Holders under the Governance Agreement are supported by an
"Irrevocable Proxy" granted by Sprint and Sprint L.P. to Newco and the
Company. See "--Irrevocable Proxies."
For so long as "Sprint's Percentage Interest" (a term that measures Sprint's
equity stake in Newco, including its ownership of both Newco Common Stock and
Convertible Preferred Stock, as a percentage of Newco's fully-diluted stock
outstanding) is greater than the Lower Threshold, Newco is prohibited from
taking or authorizing certain actions without the concurrence of all Investor
Directors serving in such capacity at that time. These actions include (i) the
execution or performance of any "Discriminatory Transaction" (as defined
below); (ii) the issuance of any class or series of stock of Newco that
provides for voting rights in excess of one vote per share; (iii) certain
events involving the dissolution or liquidation of Newco or any subsidiary
thereof, or the commencement by or with respect to Newco or any subsidiary
thereof of certain bankruptcy or bankruptcy-related events or proceedings;
(iv) the conduct by Newco or any significant subsidiary of business
substantially outside its current general field of enterprise; or (v) the
issuance by Newco of "Transaction Securities" (Equity Securities of Newco
issued in connection with joint ventures, strategic alliances, acquisitions,
mergers and other business combination transactions) representing (A) in any
twelve-month period, in one or more transactions, 50% or more of the number of
shares of Newco Common Stock outstanding prior to giving effect to such
issuances, or (B) in any one transaction, 35% or more of the number of shares
of Newco Common Stock outstanding prior to giving effect to such issuance.
The term "Discriminatory Transaction" is defined in the Governance Agreement
as any transaction or corporate action that would (i) impose limitations on
the legal rights of any Affiliated Equity Holder as a stockholder of Newco,
(ii) deny any benefit to any Affiliated Equity Holder, proportionately as a
holder of any class of voting Equity Securities, that is made available to
other holders, or (iii) otherwise materially adversely discriminate against
any Affiliated Equity Holders as stockholders of Newco. However, excepted from
the definition of Discriminatory Transactions are various transactions,
including (A) the adoption and implementation by Newco of a Stockholders'
Rights Plan, (B) the adoption and implementation by Newco of a classified
Board of Directors, (C) a Business Combination if in that transaction (x)
neither the Liquidation Value nor the Conversion Price of the Convertible
Preferred Stock is changed, and (y) upon consummation of such transaction, the
holders of Convertible Preferred Stock are offered the right to receive
consideration at the same times, in the same amount and the same form per
share as all other holders of Newco Common Stock, (D) any transaction having a
discriminatory effect against any Affiliated Equity Holder that occurs as a
result of a material breach or violation by any such holder of the Governance
Agreement, and (E) the execution by Newco, the Company or any significant
subsidiary of a definitive agreement with respect to a Business Combination,
if such agreement meets certain requirements set forth in the Governance
Agreement. See "--Purchases of Additional Equity Securities; Business
Combinations."
EQUITY PURCHASES FROM THE COMPANY; SUBSCRIPTION RIGHTS
So long as Sprint's Percentage Interest is greater than an amount defined as
the "Top-Up Threshold" (20%, subject to adjustment for certain dilutive events
and for Newco's incurrence of indebtedness under the
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Convertible Debt Financing), the Affiliated Equity Holders have certain anti-
dilution and subscription rights set forth in Article III of the Governance
Agreement. In addition to their rights to subscribe for stock of Newco
directly from Newco, Sprint may effect its rights under Article III by making
purchases of Equity Securities at any time from any person other than Newco as
long as, after giving effect to such purchases, Sprint's Percentage Interest
is less than or equal to the "Pro Rata Share," a formula that limits the
maximum equity stake in Newco that the Affiliated Equity Holders may have. The
Pro Rata Share, which adjusts only upon the incurrence of indebtedness by
Newco under the Convertible Debt Financing, has been established, as of the
date of the Governance Agreement, at an amount equal to .278.
Upon proposing to issue "New Securities" (other than New Securities that are
"Transaction Securities"), if Sprint's Percentage Interest is greater than the
Top-Up Threshold, Newco must provide Sprint written notice of its intent to
effect such issuance at least five business days prior to the date on which
the meeting of the Board is to be held to authorize such issuance. For a
period of ten business days after Sprint's receipt of such notice, Sprint has
the right to purchase the Pro Rata Share of such issuance and, if it does so,
the Equity Securities offered pursuant to such notice shall be issued and sold
to Sprint by Newco at the same times and on the same terms and conditions as
the New Securities are issued and sold to third parties. If for any reason the
issuance of such New Securities to third parties is not consummated, Sprint's
right to purchase its Pro Rata Share of such issuance shall lapse.
As noted above, Sprint's general subscription rights do not apply to the
issuance of Transaction Securities. However, if Newco determines that Sprint's
Percentage Interest has decreased by .05 or more as a result of issuances of
Transaction Securities, Newco must notify Sprint of such event. In addition,
not later than the second anniversary of Sprint's receipt of that notice (the
"Window Period"), Newco is obligated to make written offers (each, a "Primary
Share Offer") to Sprint to purchase, in the aggregate, a number of shares
sufficient to enable Sprint to bring Sprint's Percentage Interest up to the
amount in effect prior to the issuances of Transaction Securities. The number
of shares Newco is obligated to offer pursuant to such provision is defined in
the Governance Agreement as the "Available Top-Up Shares" and the aggregate
number of Available Top-Up Shares resulting from all issuances of Transaction
Securities is defined as the "Aggregate Number of Top-Up Shares." Sprint may
accept a Primary Share Offer within five business days of its receipt thereof,
and the offer is to be made at a purchase price equal to an average stock
price for Newco Common Stock for the ten trading days prior to the date of
such issuance, less the underwriting discount applied in the most recent
underwritten offering of Newco Common Stock.
If Newco determines that Sprint's Percentage Interest has decreased by .10
or more solely as a result of the issuance of Transaction Securities (after
giving effect to any and all Primary Share Offers), the Window Period shall be
accelerated such that Newco shall be obligated to make one or more Primary
Share Offers with respect to not less than the Aggregate Number of Top-Up
Shares, as then calculated, at the earlier of (i) the expiration of the Window
Period, as determined above, or (ii) six months after the date Sprint receives
notice to that effect from Newco. Notwithstanding anything else in the
Governance Agreement to the contrary, in no event is Newco obligated to make
Sprint a Primary Share Offer that, after giving effect to such transaction,
would cause Sprint's Percentage Interest to exceed the Pro Rata Share.
In addition, with respect to a purchase of New Securities pursuant to
Article III of the Governance Agreement, Sprint may, at its option, purchase
New Securities in the form of "Alternative Securities" convertible into the
applicable number of shares of Newco Common Stock. "Alternative Security" is
defined as a new series of Preferred Stock having terms that are structured
and priced in the same manner as the Convertible Preferred Stock. Such terms
are determined, if applicable, by reference to the average stock price for a
share of Newco Common Stock for the 30 trading days prior to the date of
issuance of such Alternative Securities. Sprint's purchase of New Securities
in the form of Alternative Securities are limited (i) to not more than 75% of
any issuance of New Securities from the Closing to the second anniversary
thereof, (ii) to not more than 66.67% of any issuance of New Securities after
the second anniversary of the Closing until the third anniversary thereof
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and (iii) after the third anniversary, Newco is not obligated to issue any New
Securities in the form of Alternative Securities.
STANDSTILL PROVISIONS
The Governance Agreement sets forth certain "Standstill Provisions"
applicable to Affiliated Equity Holders. These Standstill Provisions are
summarized below. See "--Effectiveness; Termination; Survival" for additional
information concerning the survival of the Standstill Provisions following
termination of the Governance Agreement.
Except for purchases of shares and related activities by Sprint otherwise
permitted under the Governance Agreement, the Affiliated Equity Holders may
not, directly or indirectly, (i) acquire, offer to acquire or agree to acquire
any Equity Securities, or any equity securities of any subsidiary of Newco, or
material assets of Newco or any subsidiary or division of Newco; (ii) make or
participate in any "solicitation" of proxies or otherwise seek to influence
any person with respect to the voting of any voting Equity Securities of
Newco; (iii) make any public announcement with respect to, or submit a
proposal for, or offer to effect any purchase of any significant portion of
the assets of Newco or any subsidiary or division of Newco, any tender or
exchange offer for any Equity Securities of Newco, or a merger, consolidation
or other extraordinary transaction involving Newco or any of its Equity
Securities; (iv) form, join or in any way participate in a "group" as defined
in Rule 13d-5(b) under the Exchange Act; or (v) request Newco or any of its
representatives to amend or waive any provision of the foregoing.
In addition, the Affiliated Equity Holders may not, directly or indirectly,
sell, transfer or otherwise dispose of any Equity Securities except (i)
pursuant to a registered underwritten public offering in accordance with the
Registration Rights Agreement, (ii) in accordance with Rule 144 under the
Securities Act, (iii) to any direct or indirect subsidiary of Sprint and (iv)
in a transaction effected in accordance with the so-called "Section 4(1 1/2)"
exemption under the Securities Act. In addition, notwithstanding the
foregoing, none of the Affiliated Equity Holders may sell, transfer or
otherwise dispose of any equity interest in any Equity Securities to any
purchaser or group of purchasers if, after giving effect to such sale, such
purchaser or group of purchasers would, to Sprint's knowledge, own, or have
the right to acquire, 5% or more of the Equity Securities then outstanding,
except to any person that is not obligated (or would not, by virtue of such
purchase, reasonably be anticipated to be obligated) to file a Schedule 13D
with the Commission pursuant to each of paragraphs (b) and (e) of Rule 13d-1
under the Exchange Act.
PURCHASES OF ADDITIONAL EQUITY SECURITIES; BUSINESS COMBINATIONS
Following the 39-month anniversary of Closing and prior to the 63-month
anniversary of Closing (the "Right to Offer Period"), Sprint shall have the
right to make a "Sprint Offer," by offering to purchase all (but not less than
all) of the outstanding Equity Securities that it does not already own at a
price per share equal to the per share price determined by dividing the "Fair
Private Market Value" by the total number of shares of Newco Common Stock
outstanding on a fully-diluted basis. The "Fair Private Market Value" is
defined as the aggregate private market equity value (including control
premium) that an unrelated third party would pay if it were to acquire all of
Newco's outstanding Equity Securities (including Equity Securities held by
Affiliated Equity Holders) in an arm's length transaction, assuming (i) that
all credible buyers are given an equal opportunity by Newco to make and
effectuate an Acquisition Proposal with respect to Newco, (ii) the absence of
any commercial relations between Newco and the Company, on the one hand, and
Sprint and its affiliates, on the other hand, and (iii) the absence of any
ownership stake in Newco by Affiliated Equity Holders. The Fair Private Market
Value is to be determined as follows.
The respective Boards of Newco and Sprint shall negotiate the amount of the
Fair Private Market Value to be paid pursuant to the Sprint Offer. In the
event the two parties are unable to agree on this amount, within 30 days after
submission of the Sprint Offer to the Board, the parties shall agree to be
bound to the valuation arrived at pursuant to the following formula: (i) two
appraisals shall be made by recognized investment banks, one
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selected by each of Sprint and Newco (the "Initial Values"), (ii) if the lower
of the Initial Values is more than 10% less than the higher, a third
independent valuation will be made by an investment bank jointly selected by
Newco and Sprint (the "Independent Valuation"); otherwise, the Fair Private
Market Value shall be the average of the Initial Values; and (iii) if the
Independent Valuation is greater or less than the average of the Initial
Values by more than 5%, the Fair Private Market Value shall be deemed to equal
the average of the two closest valuations. If the Independent Valuation does
not differ by such amount, it shall be the Fair Private Market Value.
A Sprint Offer shall not be subject to any financing contingency, and shall
be reflected in a form of definitive agreement that Sprint is prepared to
execute. The conditions to consummation of the Sprint Offer and the
representations and warranties set forth therein shall be reasonable and
customary for transactions in which a similarly situated stockholder offers to
purchase all of the Equity Security not held by such stockholder or its
affiliates.
The Board of Directors of Newco shall have a one-time right, exercisable
within 14 days after receipt of the Sprint Offer, to postpone the making of
that offer for nine months. Upon exercise of such right, Sprint is obligated
to withdraw the Sprint Offer for a period of nine months, provided that (i)
the Right to Offer Period shall be extended to the 72-month anniversary of
Closing and (ii) the exercise by Newco of its postponement right shall not
limit Sprint's right to respond to a "Third-Party Offer" as set forth below.
In addition, upon the determination of the amount of the Fair Private Market
Value, Sprint shall be obligated to commence and effectuate the Sprint Offer,
provided that Sprint shall have a one-time right, exercisable within 14 days
after receipt of the determination of Fair Private Market Value, to determine
not to proceed to make such Sprint Offer. There are, however, certain
limitations on Sprint's exercise of this "Walk-Away Right." If Sprint does not
exercise such right, the Board of Directors of Newco shall, unless an
"Intervening Offer" (as defined below) is then outstanding, (i) support the
Sprint Offer by approving and recommending it to Newco's stockholders and (ii)
cause Newco to take all steps reasonable and necessary to facilitate
consummation of such Sprint Offer. However, at such time as a "Third-Party
Offer" shall constitute an Intervening Offer, Sprint shall be released from
its obligation to commence and effectuate the Sprint Offer, and Newco shall be
released from its obligation to support and facilitate consummation of the
Sprint Offer. If the Intervening Offer is undertaken in the form of a tender
offer, at the consummation of such tender offer, the offeror shall have an
option to purchase from all Affiliated Equity Holders, at the tender offer
price, in the aggregate, a "Specified Number of Equity Securities" (a number
of Equity Securities owned by Affiliated Equity Holders equal to the
proportion of Equity Securities held by unaffiliated equity holders and
tendered into or voted for a competing Business Combination), less the number
of Equity Securities that have already been tendered to such offeror. In
addition, if the Intervening Offer (or a related matter) must be approved by
the stockholders of Newco in order for such offer to be effectuated, the
Affiliated Equity Holders are obligated to cast in favor of the Intervening
Offer (and such related matters) such number of votes as is equal to the
Specified Number of Equity Securities, provided that the Business Combination
does not constitute a Discriminatory Transaction. Affiliated Equity Holders
are not entitled to exercise rights of appraisal with respect to any Business
Combination effected in connection with an Intervening Offer.
The Governance Agreement defines an Intervening Offer as an offer for
aggregate consideration reasonably determined in good faith by the Board of
Newco to be in excess of the aggregate consideration proposed to be paid by
Sprint in a Sprint Offer or a "Qualified Offer" by Sprint (as defined below),
as applicable. The conditions to consummation of an Intervening Offer and the
representations, warranties and covenants set forth in the Intervening Offer
shall be customary for a transaction of that type.
THIRD-PARTY OFFERS
Newco is obligated to provide Sprint with prompt written notice of its
receipt of a bona fide, written offer to effect a Business Combination from a
third party ("Offer"). Upon receipt of such Offer, the Board is to determine
whether it intends to recommend that offer to the stockholders (a "Recommended
Third-Party Offer")
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or that such offer is not in the best interests of Newco's stockholders, in
which event it intends not to recommend such offer to the stockholders (a
"Non-Recommended Third-Party Offer" and, together with a Recommended Third-
Party Offer, a "Third-Party Offer").
For a period of ten days following the giving of notice of receipt of an
Offer, Newco may not enter into a definitive agreement with respect to that
Offer. Sprint has an option to make a "Qualified Offer" with respect to either
(i) an Offer that is a Recommended Third-Party Offer or (ii) an Offer that is
a Non-Recommended Third-Party Offer if the Board of Sprint reasonably
determines that the conditions to the Non-Recommended Third-Party Offer are
reasonably likely to be satisfied and the Offer consummated. A "Qualified
Offer" is defined as an offer made by an Affiliated Equity Holder to acquire
all of the Equity Securities not already owned by the Affiliated Equity
Holders at a price per share in excess of the equivalent per share price set
forth in a Third-Party Offer or an Intervening Offer, as the case may be. A
Qualified Offer shall be reflected in a form of definitive agreement that
Sprint is prepared to execute, and the conditions to consummation of such
offer and the representations, warranties and covenants set forth in it shall
be customary for transactions in which a similarly situated stockholder offers
to purchase all of the Equity Securities not held by such stockholder and may
not, in any event, be more onerous in any material respect than those set
forth in the Third-Party Offer or the Intervening Offer, as the case may be.
Newco may not adopt any takeover defenses, enter into any agreement or take
any other action in connection with a Recommended Third-Party Offer that would
materially impair Sprint's ability to make and consummate a Qualified Offer or
materially increase Sprint's cost of consummating a Qualified Offer. However,
notwithstanding the foregoing, Newco is permitted to enter into a definitive
agreement with respect to a Recommended Third-Party Offer that provides for a
termination fee not to exceed 3% of the consideration to be received per share
of Newco Common Stock multiplied by the number of shares of Newco Common Stock
outstanding on a fully diluted basis (less the number of shares beneficially
owned by the offering party), plus customary fees and expenses. Nevertheless,
the definitive agreement with respect to such Recommended Third-Party Offer
must provide that such fees and expenses shall not be payable if Sprint makes
a Qualified Offer within 72 hours of the first public announcement of such
Recommended Third-Party Offer.
If Sprint has the option to make a Qualified Offer and does so more than
five days prior to the date of a stockholders' meeting held to consider a
Third-Party Offer or an Intervening Offer, the Board of Directors shall,
unless an Intervening Offer is then outstanding, support the Qualified Offer
by approving and recommending it to Newco's stockholders and cause Newco to
take all steps reasonable and necessary to facilitate consummation of the
Qualified Offer. However, at such time as a Third-Party Offer made subsequent
to a Qualified Offer shall constitute an Intervening Offer, Newco's
obligations to support and facilitate a Qualified Offer shall terminate and
Newco shall be free to consider and act upon such Intervening Offer. Sprint is
nonetheless entitled, at any time prior to consummation of the Intervening
Offer, to make another Qualified Offer, and in such event, the most recent
Third-Party Offer shall cease to constitute an Intervening Offer.
If a Recommended Third-Party Offer or an Intervening Offer is undertaken in
the form of a tender offer, at the consummation of such tender offer, the
offeror shall have an option, to purchase from all Affiliated Equity Holders,
at the tender offer price, in the aggregate, a Specified Number of Equity
Securities, less the number of Equity Securities that have already been
tendered to such offeror. In addition, if a Recommended Third-Party Offer or
an Intervening Offer, as the case may be (or a related matter) must be
approved by the stockholders of Newco in order for such offer to be
effectuated, the Affiliated Equity Holders are obligated to cast in favor of
such offer (and such related matter) such number of votes as is equal to the
Specified Number of Equity Securities, provided that the Business Combination
does not constitute a Discriminatory Transaction. Affiliated Equity Holders
are not entitled to exercise rights of appraisal with respect to any Business
Combination effected in connection with a Recommended Third-Party Offer or
Intervening Offer.
The Governance Agreement defines "Business Combination" to mean a
transaction, undertaken in any form whatsoever, involving (i) the purchase or
acquisition of Equity Securities if the consummation of such transaction would
result in the purchaser beneficially owning 35% or more of the Equity
Securities outstanding,
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or (ii) a merger, consolidation, combination or other extraordinary
transaction with respect to Newco in which, upon consummation thereof, the
shareholders or owners of the other entity that is a party thereto, or the
controlling persons thereof, would acquire beneficial ownership of 50% or more
of the Equity Securities outstanding. The term Business Combination includes a
"Significant Sale," which means the sale of assets of Newco or any subsidiary
or the sale of capital stock of any subsidiary by Newco, in any such case, for
which the consideration proposed to be paid in such transaction represents 35%
or more of the market capitalization of Newco on the date that Newco agrees to
such sale.
SOLICITATION OF OFFERS
From the Closing Date until the earlier of the 27-month anniversary of such
date or the termination of the Governance Agreement in accordance with its
terms, Newco may not, directly or indirectly, (i) solicit or initiate, or
encourage the submission of, any "Acquisition Proposal" (as defined below), or
(ii) participate in any discussions or negotiations regarding, or take any
action that may reasonably be expected to lead to any Acquisition Proposal.
However, to the extent required by the fiduciary obligations of the Board of
Directors, as determined in good faith by the Board based on the advice of
outside counsel, Newco may (A) furnish information in response to any
unsolicited requests therefor and discuss such information, (B) upon receipt
by Newco of an Acquisition Proposal, following delivery to Sprint of notice
thereof, participate in negotiations regarding such Acquisition Proposal and
(C) enter into an agreement respecting such Acquisition Proposal or any
related agreements or take any other action ancillary thereto.
After the 27-month anniversary of the Closing Date until the 39-month
anniversary thereof or the termination of the Governance Agreement in
accordance with its terms, Newco may not, directly or indirectly, take any of
the actions identified in the prior paragraph except through an investment
banking firm formally engaged by Newco for such purpose; provided, that, 30
days prior to so engaging such investment banking firm for that purpose, Newco
shall notify Sprint of its intention to effect such engagement, and Sprint
shall be permitted to prepare and make a Sprint Offer for so long as such
investment banking firm remains engaged by Newco for that specific purpose.
Subject to the terms and conditions of the Sprint Offer and unless an
Intervening Offer is then outstanding, Sprint is entitled to pursue any such
Sprint Offer for so long as necessary to permit it to be consummated. Newco is
obligated to furnish Sprint with copies of all information provided by Newco
to such investment banking firm at the time such information is provided to
such firm, subject to Sprint entering into a customary confidentiality
agreement with respect to that information.
The Board of Directors of Newco is obligated to (i) promptly notify Sprint
in writing of (A) its receipt of an Acquisition Proposal, (B) any inquiries or
discussions that may reasonably be expected to lead to an Acquisition
Proposal, (C) the execution by Newco of a confidentiality agreement with
respect to an Acquisition Proposal or (D) the furnishing of any confidential
information in contemplation of an Acquisition Proposal, whether or not
pursuant to a confidentiality agreement; (ii) describe the terms and
conditions of any Acquisition Proposal in reasonable detail; (iii) provide to
Sprint copies of any definitive agreements with respect to any Acquisition
Proposal and any confidentiality agreements with respect thereto; and (iv)
subject to Sprint's obligation to hold such information in strict confidence,
make available to Sprint all information made available to the party making
the Acquisition Proposal at the same time it is provided to such party.
An "Acquisition Proposal" means any proposal for a tender or exchange offer,
a merger, consolidation, share exchange or other business combination, in
which Newco is a constituent party to such transaction, or a sale of
securities (other than Transaction Securities), recapitalization, liquidation,
dissolution or similar transaction involving Newco, or any proposal or offer
to acquire in any manner, directly or indirectly, a material equity interest
in, or a material amount of voting securities (with the acquisition of
beneficial ownership of 20% or more of the voting Equity Securities being
deemed to be material for this purpose) or assets of, Newco. In addition, a
"Material Sale," defined as any proposal involving the sale of assets of Newco
or any subsidiary or the sale of capital stock of any subsidiary, in any such
case, for which the consideration proposed to be paid in such transaction
represents 20% or more of the market capitalization on the date that Newco
receives such proposal, is also defined as an Acquisition Proposal.
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Subject to certain exceptions, Newco is obligated under the Governance
Agreement not to take any action or omit to take any action that would result
in (i) any Affiliated Equity Holder being deemed an "Acquiring Person" or
similar designation under any Stockholders' Rights Plan, (ii) any Affiliated
Equity Holder being prejudiced under any applicable state takeover statute,
including Section 203 of the DGCL, or (iii) otherwise causing any takeover
defense to materially impair or obstruct, or prevent (either legally or
financially) the exercise by any Affiliated Equity Holder of rights granted
under Article IV of the Governance Agreement.
STOCKHOLDERS' AGREEMENT
In connection with the Investment Agreement, Sprint and certain principal
stockholders of the Company (the "Stockholders") entered into the
Stockholders' Agreement, which will become effective at Closing. The
Stockholders' Agreement obligates the Stockholders to support the obligations
of Newco under the Governance Agreement by (i) voting all of the "Covered
Shares" (as defined in the Stockholders' Agreement) in favor of a Sprint Offer
or a Qualified Offer and (ii) tendering all of the Covered Shares into a
tender offer initiated by Sprint to effect a Sprint Offer or a Qualified
Offer, unless, in each case, an Intervening Offer is then outstanding. The
term "Covered Shares" includes Shares, shares of Newco Common Stock received
in the Merger and other Equity Securities. However, it does not include shares
of Newco Common Stock or other Equity Securities subsequently sold by the
Stockholders in accordance with the terms of the Stockholders Agreement. The
name and number of Covered Shares held by each Stockholder is as follows: Sky
Dayton, Chairman of the Board of Directors of the Company, 1,500,000 Shares;
Quantum Industrial Partners LDC, 1,456,480 Shares; Reed Slatkin, a Director of
the Company, 1,042,473 Shares; Kevin M. O'Donnell, a Director of the Company,
944,614 Shares; Sidney Azeez, a Director of the Company, 236,884 Shares; and
George Soros, 214,545 Shares.
IRREVOCABLE PROXIES
In order to provide for enforcement of the various provisions of the
Governance Agreement requiring the Affiliated Equity Holders to vote voting
Equity Securities in a certain manner, Sprint and Sprint L.P. have provided an
Irrevocable Proxy to the Company and Newco.
EFFECTIVENESS; TERMINATION; SURVIVAL
The Governance Agreement becomes effective at the Closing. Thereafter, the
Governance Agreement terminates at the earliest of the following to occur: (i)
the termination of the Investment Agreement in accordance with its terms; (ii)
such time as Sprint's percentage interest is greater than 90% or less than the
Lower Threshold; (iii) the expiration of the Right to Offer Period; (iv) the
first date on which any Person or group as defined in Rule 13d-5(b) of the
Exchange Act is determined (A) to beneficially own or control more than 35% of
the Equity Securities outstanding by virtue of the acquisition of such
securities pursuant to a Third-Party Offer if the rights granted and process
contemplated by Article IV of the Governance Agreement have been effected in
accordance with the terms thereof or (B) to beneficially own or control 50% or
more of the voting Equity Securities outstanding; (v) upon the termination of
the Marketing Agreement in accordance with certain of its provisions; or (vi)
upon the exercise of registration rights (demand or incidental) by any
"Holder" of "Registrable Securities" under the Registration Rights Agreement.
Notwithstanding the termination of the Governance Agreement, until the sixth
anniversary of the Closing Date and thereafter for as long as Sprint's
percentage interest is greater than the Lower Threshold, Sprint shall still be
subject to the Standstill Provisions. In addition, for so long as Sprint's
Percentage Interest remains greater than the Lower Threshold, Sprint shall
still have certain governance and anti-dilution rights under the Governance
Agreement. In such event, the Standstill Provisions and such other provisions
(as well as any definitional provisions with respect to the foregoing) shall
remain in full force and effect until such time as Sprint's Percentage
Interest is lower than the Lower Threshold; provided, however, that during any
period in which the Standstill Provisions survive, Sprint and its affiliates
may directly approach the Board of Newco in order to make an offer to effect a
Business Combination.
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REGISTRATION RIGHTS AGREEMENT
The Purchaser and Newco have entered into the Registration Rights Agreement
with respect to Newco Common Stock held by the Purchaser. Under the
Registration Rights Agreement, the Purchaser has the right (the "Demand
Registration Right") to at any time require Newco to file up to four
registration statements under the Securities Act to effect the registration of
Newco Common Stock held by Purchaser. This right may be exercised after 27
months following the Closing Date, but only once every nine months. Expenses
relating to the exercise of the Demand Registration Right will generally be
payable by Newco.
Under the Registration Rights Agreement, the Purchaser also has the right
(the "Incidental Registration Right"), with respect to any underwritten
offerings, including registered offerings, of Newco Common Stock for cash
proposed by Newco, to require Newco to include Newco Common Stock of the
Purchaser in such offering and registration, if applicable after 27 months
following the Closing Date. Incremental expenses relating to exercises of the
Incidental Registration Right will generally be payable by Newco.
In other respects, the Registration Rights Agreement contains terms that are
customary to registration rights agreements of its type.
OTHER MATTERS
Except as otherwise described in this Offer to Purchase, the Purchaser has
no current plans or proposals that would relate to, or result in, any
extraordinary corporate transaction involving Newco or the Company, such as a
merger, reorganization or liquidation involving Newco or the Company, a sale
or transfer of a material amount of assets of Newco or the Company, any change
in Newco's or the Company's capitalization or dividend policy or any other
material change in Newco's business, corporate structure or personnel. Any
plans or proposals relating thereto would be subject to the terms of the
Governance Agreement, the Stockholders Agreement and the other Ancillary
Agreements, as applicable. Subject to the provisions of the Investment
Agreement and the Governance Agreement, the Purchaser and its affiliates
reserve the right to purchase, following consummation or termination of the
Offer, additional Shares from Newco, in the open market or otherwise. Any
additional purchases of Newco Common Stock could be at a price greater or less
than the price to be paid for the Shares in the Offer.
13. DIVIDENDS AND DISTRIBUTIONS
During the period from the date of the Investment Agreement to the Closing
Date for the transactions contemplated by that agreement, the Company is not
permitted by the Investment Agreement to (i) declare or pay dividends or
making other distributions in respect of its capital stock, (ii) split,
combine or reclassify its capital stock, (iii) purchase, redeem or otherwise
acquire any of its capital stock, or (iv) issue or sell any of its capital
stock, convertible securities or warrants or other rights to acquire its
capital stock, without the prior written consent of Sprint and Sprint L.P..
14. CERTAIN CONDITIONS OF THE OFFER
The Investment Agreement sets forth the following conditions which must be
satisfied before Sprint shall have an obligation, or be permitted, to
consummate the Offer, which conditions can only be waived by the agreement of
Sprint, Sprint L.P., the Company, Newco and Newco Sub:
(i) the HSR Condition;
(ii) all other authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods imposed by,
any Federal, state, local or foreign government or any court of competent
jurisdiction; administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign (a "Governmental
Entity"), the failure to obtain which would have a Material Adverse Effect
on Sprint, Sprint L.P. and their respective subsidiaries, the Company, or
Newco and Newco Sub, in each case, taken as a whole, shall have been filed,
occurred or been obtained;
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(iii) an S-4 Registration Statement shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceeding
seeking a stop order;
(iv) there shall not be threatened or pending by any Governmental Entity
any action, suit, arbitration, inquiry, proceeding or investigation
("Action"), which has a reasonable likelihood of success, and there shall
not be pending by any other person any Action which has a substantial
likelihood of success (A) seeking to restrain or prohibit the acquisition
by Sprint of any shares of Common Stock or any Convertible Notes or the
acquisition by Sprint L.P. of any shares of Convertible Preferred Stock,
the making or consummation of the Offer or the performance by any of the
parties to the Investment Agreement of any of the other transactions
contemplated by this Agreement or any of the Ancillary Agreements, or
seeking to obtain from the Company, Newco, Sprint or Sprint L.P. any
damages that are material in relation to Sprint, Newco, the Company and
their respective subsidiaries taken as a whole, (B) seeking to impose
limitations on the ability of Sprint or Sprint L.P. to acquire or hold, or
exercise full rights of ownership of, any shares of Common Stock accepted
or payment by Sprint pursuant to the Offer or any shares of Convertible
Preferred Stock, any Convertible Notes or any Common Stock received upon
conversion of either thereof, including, without limitation, the right to
vote such Common Stock, Newco Common Stock and Convertible Preferred Stock
on all matters properly presented to the stockholders of the Company, or
Newco, as the case may be, (C) seeking to prohibit any party from
exercising any of its material rights under the Investment Agreement or any
Ancillary Agreements, or (D) seeking to prohibit or limit the ownership or
operation by any party or its respective subsidiaries of a material portion
of the business or assets of such party on a consolidated basis, or to
compel any party to dispose of or hold separate any material portion of the
business or assets of such party on a consolidated basis, as a result of
the Offer or any of the other transactions contemplated by the Investment
Agreement or the Ancillary Agreements;
(v) no statute, rule, regulation, executive order, decree, temporary
restraining order, preliminary or permanent injunction or other order
enacted, entered, promulgated, enforced or issued by any Governmental
Entity or other legal restraint or prohibition preventing the transactions
contemplated by the Investment Agreement or by the Ancillary Agreements to
occur by the Closing shall be in effect;
(vi) the holders of Common Stock shall have approved the Company
Stockholder Vote Matters; and
(vii) the Investment Agreement shall not have terminated in accordance
with its terms prior to the Expiration Date.
The obligation of Sprint to consummate the Offer is conditioned upon the
satisfaction of the following conditions, which conditions may be waived by
Sprint and Sprint L.P.:
(i) (A) The Board of Directors of the Company or Newco shall not have
withdrawn or modified in a manner adverse to Sprint or Sprint L.P. its
approval of the Offer or the other transactions contemplated by the
Investment Agreement or the Ancillary Agreements, or approved any
Acquisition Proposal or approved the solicitation of additional Acquisition
Proposals, (B) the Company shall not have entered into any agreement with
respect to any Acquisition Proposal, or (C) the Board of Directors of the
Company or Newco or any committee thereof shall not have resolved to take
any of the foregoing actions referred to in (A) or (B) above. "Acquisition
Proposal" is defined in the Investment Agreement to mean any proposal for a
tender or exchange offer, a merger, consolidation or other business
combination, recapitalization, liquidation, dissolution or similar
transaction involving a party to the Investment Agreement or any proposal
or offer to acquire in any manner, directly or indirectly, a material
equity interest in, or a material amount of voting securities (with the
acquisition of beneficial ownership of 15% or more of such Party's voting
securities being deemed to be material for this purpose) or assets of, such
Party, other than the transactions contemplated by the Investment Agreement
and the Ancillary Agreements;
(ii) Each of the Company, Newco and Newco Sub shall have executed and
delivered to Sprint and Sprint L.P., as the case may be, each Ancillary
Agreement to which it is a party and each Ancillary Agreement shall be in
full force and effect and all of the terms and conditions of each such
Ancillary Agreement shall be satisfied in all material respects;
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(iii) The representations and warranties of the Company, Newco and Newco
Sub set forth in the Investment Agreement shall be true and correct (A) as
of the date referred to in any representation or warranty that addresses a
matter as of a particular date, or (B) as to all other representations and
warranties, as of February 10, 1998 and as of the Offer Acceptance Time;
unless, in either the case of clause (A) or (B), the inaccuracies under
such representations and warranties, would not, individually or in the
aggregate, (x) have a Material Adverse Effect on the Company or Newco, (y)
materially impair the ability of the Company, Newco and Newco Sub to enter
into and perform the Investment Agreement or any Ancillary Agreement to
which any of them is a party and their respective obligations thereunder,
or (z) materially reduce Sprint's expected ownership interest in Newco by
virtue of material inaccuracies in the representations and warranties
regarding the capitalization of the Company, in each case without giving
effect to any supplement to any schedule to the Investment Agreement or to
any Ancillary Agreement and Sprint and Sprint L.P. shall also have each
received a separate certificate to such effect dated the Offer Acceptance
Date and executed by the chief executive officer and chief financial
officer of each of the Company, Newco and Newco Sub;
(iv) Each of the Company, Newco and Newco Sub shall have performed in all
material respects all of the respective obligations and covenants required
to be performed or complied with by them under the Investment Agreement and
each of the Ancillary Agreements at or prior to the time of the Closing;
(v) Sprint shall have received the legal opinion of Hunton & Williams,
dated as of the Closing Date, counsel to Newco, Newco Sub, and the Company
in form and substance reasonably satisfactory to Sprint and Sprint L.P.;
and
(vi) There shall not be any warrants to purchase Common Stock or other
Dilutable Securities of the Company outstanding on the Closing Date which
could be exercised on the Closing Date (assuming the expiration of any
applicable vesting periods or the satisfaction of any other conditions to
conversion, exchange, exercise or issuance) into a number of shares of
Common Stock which, in the aggregate, would constitute more than 8% of the
shares of Common Stock outstanding immediately prior to the Closing, which,
upon or after the Merger will be convertible into or exchangeable for or
give the right to acquire Common Stock or other voting securities of the
Company, and the Company shall have provided copies of all amendments or
other modifications of any Warrants and other Dilutable Securities obtained
by the Company.
Sprint may not accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) under the Exchange Act
(relating to Sprint's obligation to pay for or return tendered shares of
Common Stock after the termination or withdrawal of the Offer), pay for any
shares of Common Stock tendered pursuant to the Offer unless the following
conditions are satisfied on or prior to the Offer Acceptance Time, which
conditions may be waived by Newco, Newco Sub and the Company:
(i) (A) The Board of Directors of Sprint, and the Board of Directors of
the General Partners of Sprint L.P. shall not have withdrawn or modified in
a manner adverse to Newco or the Company their approval of the Offer or the
other transactions contemplated by the Investment Agreement or the
Ancillary Agreements, or approved any Acquisition Proposal or approved the
solicitation of additional Acquisition Proposals, (B) Sprint shall not have
entered into any agreement with respect to any Acquisition Proposal, or (C)
the Board of Directors of Sprint, or the Board of Directors of the General
Partner of Sprint L.P., or any committee thereof shall not have resolved to
take any of the foregoing actions referred to in (A) or (B) above, and
Sprint and Sprint L.P. shall have executed and delivered to the Company,
Newco and Newco Sub, as the case may be, and performed each Ancillary
Agreement to which it is a party. Each Ancillary Agreement shall be in full
force and effect and all of the terms and conditions of each such Ancillary
Agreement shall be satisfied in all material respects;
(ii) The representations and warranties of Sprint and Sprint L.P. shall
be true and correct (A) as of the date referred to in any representation or
warranty that addresses a matter as of a particular date, or (B) as to all
other representations and warranties, as of the date of this Agreement and
as of the Offer Acceptance Time; unless, in either the case of clause (A)
or (B), the inaccuracies under such representations and
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warranties, would not, individually or in the aggregate, (x) have a
Material Adverse Effect on Sprint or Sprint L.P., or (y) materially impair
the ability of Sprint and Sprint L.P. to enter into and perform the
Investment Agreement or any Ancillary Agreement to which any of them is a
Party and their respective obligations thereunder, in each case without
giving effect to any supplement to any schedule to the Investment Agreement
or to any Ancillary Agreement (provided, however, that any supplement must
be objected to before the earlier of the Offer Acceptance Time or 10
Business Days from the date of delivery thereof). The Company, Newco, and
Newco Sub shall have each received a separate certificate to such effect
dated the Offer Acceptance Date and executed by a duly authorized executive
officer of each of Sprint and Sprint L.P., in each case without giving
effect to any supplement to any Schedule to the Investment Agreement or to
any Ancillary Agreement;
(iii) Sprint shall have performed or complied in all material respects
with all obligations and covenants required by the Investment Agreement and
each of the Ancillary Agreements to be performed or complied with by Sprint
by the time of the Closing;
(iv) The Company, Newco and Newco Sub shall have received the legal
opinion of Stinson, Mag & Fizzell, P.C., counsel to Sprint and Sprint L.P.,
dated as of the Closing Date, in form and substance reasonably satisfactory
to Newco and the Company; and
(v) Sprint shall not have entered into an agreement providing for a
transaction contemplated by an Acquisition Proposal, nor shall it have
consummated any such transaction, nor shall Sprint have received any
Acquisition Proposal (i) recommended by the Board of Directors of Sprint,
or (ii) if not so recommended, which the Board of Directors of the Company
reasonably determines in good faith upon consultation with its outside
financial advisors is reasonably likely to be consummated.
15. CERTAIN LEGAL MATTERS
Based on a review of publicly available filings made by the Company with the
Commission and other publicly available information concerning the Company and
discussions by representatives of the Purchaser with representatives of the
Company, the Purchaser is not aware of any license or regulatory permit that
appears to be material to the business of the Company, taken as a whole, that
might be adversely affected by the Purchaser's acquisition of Shares as
contemplated herein or of any approval or other action, except as otherwise
described in this Section 15, by any Governmental Entity that would be
required for the acquisition or ownership of Shares by the Purchaser as
contemplated herein. Should any such approval or other action be required, the
Purchaser currently contemplates that such approval or other action will be
sought, except as described below under "State Takeover Laws". There can be no
assurance that any such approval or other action, if needed, would be obtained
or would be obtained without substantial conditions or that failure to obtain
any such approval or other action might not result in consequences adverse to
the Company's business or that certain parts of the Company's business might
not have to be disposed of if such approvals were not obtained or such other
actions were not taken or in order to obtain any such approval or other
action. If certain types of adverse action are taken with respect to the
matters discussed below, the Purchaser could decline to accept for payment or
pay for any Shares tendered. See Section 14 for certain conditions to the
Offer.
STATE TAKEOVER LAWS
A number of states throughout the United States have enacted takeover
statutes that purport, in varying degrees, to be applicable to attempts to
acquire securities of corporations that are incorporated or have assets,
stockholders, executive offices or places of business in such states. In Edgar
v. MITE Corp., the Supreme Court of the United States held that the Illinois
Business Takeover Act, which involved state securities laws that made the
takeover of certain corporations more difficult, imposed a substantial burden
on interstate commerce and therefore was unconstitutional. In CTS Corp. v.
Dynamics Corp. of America, however, the Supreme Court of the United States
held that a state may, as a matter of corporate law and, in particular, those
laws concerning corporate governance, constitutionally disqualify a potential
acquiror from voting on the affairs of a target corporation without prior
approval of the remaining stockholders, provided that such laws were
applicable only under certain conditions.
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Section 203 of the DGCL limits the ability of a Delaware corporation to
engage in business combinations with "interested stockholders" (defined as any
beneficial owner of 15% or more of the outstanding voting stock of the
corporation) unless, among other things, the corporation's board of directors
has given its prior approval to either the business combination or the
transaction which resulted in the stockholder becoming an "interested
stockholder." The Company's Board of Directors has approved the Investment
Agreement, the Ancillary Agreements, the transactions contemplated by the
Investment Agreement and the Ancillary Agreements and the Purchaser's
acquisition of Shares pursuant to the Offer and, therefore, Section 203 of the
DGCL is inapplicable to the Offer or the other transactions contemplated by
the Investment Agreement.
Based on information supplied by the Company, the Purchaser does not believe
that any other state takeover statutes purport to apply to the Offer or the
other transactions contemplated by the Investment Agreement. The Purchaser has
not currently complied with any state takeover statute or regulation. The
Purchaser reserves the right to challenge the applicability or validity of any
state law purportedly applicable to the Offer and nothing in this Offer to
Purchase or any action taken in connection with the Offer is intended as a
waiver of such right. If it is asserted that any state takeover statute is
applicable to the Offer, the Purchaser might be required to file certain
information with, or to receive approvals from, the relevant state
authorities, and the Purchaser might be unable to accept for payment or pay
for Shares tendered pursuant to the Offer, or be delayed in consummating the
Offer. In such case, the Purchaser may not be obliged to accept for payment or
pay for any Shares tendered pursuant to the Offer.
ANTITRUST
The Purchaser will promptly file after the date hereof a Notification and
Report Form with respect to the Offer and the other transactions contemplated
by the Investment Agreement under the HSR Act. The waiting period under the
HSR Act with respect to the Offer will expire at 11:59 p.m., New York City
time, on the 15th day after the date such form is filed and the waiting period
with respect to the other transactions contemplated by the Investment
Agreement will expire at 11:59 p.m., New York City time, on the 30th day after
the date such form is filed by both the Purchaser and the Company, in each
case unless early termination of the waiting period is granted. In addition,
the Antitrust Division or the FTC may extend such waiting periods by
requesting additional information or documentary material from the Purchaser
and, in the case of the waiting period applicable to the other transactions
contemplated by the Investment Agreement, the Company. If such a request is
made with respect to the Offer, the waiting period related to the Offer will
expire at 11:59 p.m., New York City time, on the 10th day after substantial
compliance by the Purchaser with such request. If such a request is made with
respect to the other transactions contemplated by the Investment Agreement,
the waiting period related to such other transactions will expire at 11:59
p.m., New York City time, on the 20th day after both parties have
substantially complied with such request by each party to whom such a request
is made. Because the other transactions contemplated by the Investment
Agreement are to occur immediately following the Offer, it is expected that
the Offer will not be consummated until the waiting periods under the HSR Act
with respect to both the Offer and the other transactions contemplated by the
Investment Agreement have expired or have been terminated. With respect to
each acquisition, the Antitrust Division or the FTC may issue only one request
for additional information. In practice, complying with a request for
additional information or material can take a significant amount of time. In
addition, if the Antitrust Division or the FTC raises substantive issues in
connection with a proposed transaction, the parties may engage in negotiations
with the relevant governmental agency concerning possible means of addressing
those issues and may agree to delay consummation of the transaction while such
negotiations continue. Expiration or termination of applicable waiting periods
under the HSR Act is a condition to the Purchaser's obligation to accept for
payment and pay for Shares tendered pursuant to the Offer.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the Purchaser's proposed investment
in the Company. At any time before or after the Purchaser's purchase of Shares
pursuant to the Offer, the Antitrust Division or FTC could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the purchase of Shares
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pursuant to the Offer or the other transactions contemplated by the Investment
Agreement or seeking the divestiture of Shares acquired by the Purchaser or
the divestiture of substantial assets of the Purchaser or its subsidiaries, or
the Company or its subsidiaries. Private parties may also bring legal action
under the antitrust laws under certain circumstances. There can be no
assurance that a challenge to the Offer on antitrust grounds will not be made
or, if such a challenge is made, of the results thereof.
16. FEES AND EXPENSES
As compensation for services rendered in connection with the Purchaser's
investment in the Company and the Offer, the Purchaser has agreed to pay SBC
Warburg Dillon Read Inc. fees of $1.5 million, of which $100,000 is being paid
in connection with their retention and $1.4 million is payable upon Closing.
In addition, the Purchaser has agreed to indemnify SBC Warburg Dillon Read
Inc. and certain related persons and entities against certain liabilities
(excluding those arising under the Securities Act or the Exchange Act) and
expenses.
The Purchaser has retained D.F. King & Co., Inc. to act as the Information
Agent and American Stock Transfer & Trust Company to serve as the Depositary
in connection with the Offer. The Information Agent and the Depositary each
will receive reasonable and customary compensation for their services, be
reimbursed for certain reasonable out-of-pocket expenses and be indemnified
against certain liabilities and expenses in connection therewith, including
certain liabilities under the Federal securities laws.
The Purchaser will not pay any fees or commissions to any broker or dealer
or other person (other than the Dealer Manager and the Information Agent) in
connection with the solicitation of tenders of Shares pursuant to the offer.
Brokers, dealers, commercial banks and trust companies will be reimbursed by
the Purchaser upon request for customary mailing and handling expenses
incurred by them in forwarding material to their customers.
For further information on fees and expenses related to the transactions
contemplated by the Investment Agreement, see Section 10.
17. MISCELLANEOUS
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the laws of
such jurisdiction. None of the Purchaser, Sprint L.P., the Company, Newco or
Newco Sub is aware of any jurisdiction in which the making of the Offer or the
tender of Shares in connection therewith would not be in compliance with the
laws of such jurisdiction. To the extent the Purchaser, the Company, Newco or
Newco Sub becomes aware of any state law that would limit the class of
offerees in the Offer, the Purchaser will amend the Offer and, depending on
the time of such amendment, if any, will extend the Offer to provide adequate
dissemination of such information to holders of Shares prior to the expiration
of the Offer. In any jurisdiction the securities, blue sky or other laws of
which require the Offer to be made by a licensed broker or dealer, the Offer
is being made on behalf of the Purchaser by the Dealer Manager or one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER NOT CONTAINED HEREIN OR IN THE
LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
The Purchaser has filed with the Commission a Tender Offer Statement on
Schedule 14D-1 pursuant to Rule 14d-3 under the Exchange Act, furnishing
certain additional information with respect to the Offer. In addition, the
Company has filed with the Commission a Solicitation/Recommendation Statement
on Schedule 14D-9 pursuant to Rule 14d-9 under the Exchange Act, setting forth
its recommendation with respect to the offer and the reasons for such
recommendation and furnishing certain additional related information. Such
Schedules and any amendments thereto, including exhibits, should be available
for inspection and copies should be obtainable in the manner set forth in
Sections 8 and 9 (except that they will not be available at the regional
offices of the Commission).
Sprint Corporation
February 18, 1998
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SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF
THE PURCHASER
DIRECTORS AND EXECUTIVE OFFICER OF THE PURCHASER
The name, business address, present principal occupation or employment, five-
year employment history and citizenship of each of the directors and executive
officers of the Purchaser are set forth below. Unless otherwise indicated
below, each occupation set forth opposite an individual's name refers to
employment with the Purchaser.
<TABLE>
<CAPTION>
NAME AND BUSINESS POSITION WITH THE PURCHASER, PRINCIPAL OCCUPATION
ADDRESS CITIZENSHIP OR EMPLOYMENT; 5-YEAR EMPLOYMENT HISTORY
- ----------------- ----------- --------------------------------------------------
<S> <C> <C>
Mr. William T. Esrey USA Chairman and Chief Executive Officer; Director of
Sprint Corporation Duke Energy Corporation, The Equitable Life
2330 Shawnee Mission Assurance Society of the United States, Everen
Parkway Capital Corporation, and General Mills, Inc. Mr.
Westwood, KS 66205 Esrey has been Chairman of Sprint since 1990 and
Chief Executive Officer since 1985. Director of
Sprint since 1985; Chairman of the Executive
Committee.
Mr. Ronald T. LeMay USA President and Chief Operating Officer; Director of
Sprint Corporation Ceridian Corporation, Imation Corporation, and
2330 Shawnee Mission Yellow Corporation. Mr. LeMay has served as
Parkway President and Chief Operating Officer of Sprint
Westwood, KS 66205 since February of 1996 except for the period from
July 1997 to October 1997 when he served as
Chairman and Chief Executive Officer of Waste
Management, Inc., a provider of comprehensive
waste management services. Mr. LeMay was Chief
Executive Officer of Sprint Spectrum from March
1995 until February 1996. Mr. LeMay was President
and Chief Operating Officer--Long Distance
Division of Sprint from 1989 until March of 1995.
Director of Sprint from 1993 until July 1997 and
re-elected in December 1997.
Mr. Michael B. Fuller USA President--Local Telecommunications Division,
Sprint Corporation since 1996. Mr. Fuller was President of United
2330 Shawnee Mission Telephone--Midwest Group, an operating group of
Parkway subsidiaries of Sprint from 1990 until 1996.
Westwood, KS 66205
Ms. Patti S. Manuel USA President and Chief Operating Officer--Long
Sprint Corporation Distance Division. Ms. Manuel was elected as
2330 Shawnee Mission President and Chief Operating Officer--Long
Parkway Distance Division in February 1998. She was also
Westwood, KS 66205 elected as President and Chief Operating Officer
of Sprint L.P. in February 1998. She had served as
President of Sprint Business, a division of Sprint
L.P., since May 1997. From 1994 to 1997, she was
President of Sales and Marketing for Sprint
Business. She was named President of Marketing for
Sprint Business in 1993.
Mr. Kevin E. Brauer USA President--National Integrated Services Division
Sprint Corporation since October 1997; served as Senior Vice
2330 Shawnee Mission President since June 1997; from 1992 to 1997, was
Parkway President of Sprint L.P.'s Business Service Group.
Westwood, KS 66205
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
NAME AND BUSINESS POSITION WITH THE PURCHASER, PRINCIPAL OCCUPATION
ADDRESS CITIZENSHIP OR EMPLOYMENT; 5-YEAR EMPLOYMENT HISTORY
- ----------------- ----------- --------------------------------------------------
<S> <C> <C>
Mr. J. Richard Devlin USA Executive Vice President--Law and External Affairs
Sprint Corporation since 1989.
2330 Shawnee Mission
Parkway
Westwood, KS 66205
Mr. Arthur B. Krause USA Executive Vice President--Chief Financial Officer
Sprint Corporation since 1988.
2330 Shawnee Mission
Parkway
Westwood, KS 66205
Mr. Gene M. Betts USA Senior Vice President since 1990.
Sprint Corporation
2330 Shawnee Mission
Parkway
Westwood, KS 66205
Mr. John R. Hoffman USA Senior Vice President--External Affairs since
Sprint Corporation 1990.
2330 Shawnee Mission
Parkway
Westwood, KS 66205
Mr. John P. Meyer USA Senior Vice President and Controller since 1993.
Sprint Corporation
2330 Shawnee Mission
Parkway
Westwood, KS 66205
Mr. Theodore H. Schell USA Senior Vice President--Strategic Planning and
Sprint Corporation Corporate Development since 1990.
2330 Shawnee Mission
Parkway
Westwood, KS 66205
Ms. M. Jeannine USA Senior Vice President and Treasurer since 1990.
Strandjord
Sprint Corporation
2330 Shawnee Mission
Parkway
Westwood, KS 66205
Mr. I. Benjamin Watson USA Senior Vice President--Human Resources since 1993.
Sprint Corporation
2330 Shawnee Mission
Parkway
Westwood, KS 66205
Mr. Don A. Jensen USA Vice President and Secretary since 1975.
Sprint Corporation
2330 Shawnee Mission
Parkway
Westwood, KS 66205
Mr. DuBose Ausley USA Chairman of Ausley & McMullen, a law firm,
Ausley & McMullen, P.A. Tallahassee, Florida; Director of Capital City
P.O. Box 391 Bank Group, Inc., Tampa Electric Co., Inc. and
Tallahassee, FL 32302 TECO Energy, Inc. Prior to becoming Chairman of
Ausley & McMullen in 1996, Mr. Ausley was Chairman
of Macfarlane, Ausley, Ferguson & McMullen since
1994 and, prior to that he was President of
Ausley, McMullen, McGehee, Carothers & Proctor,
P.A. for more than five years. Mr. Ausley has also
been Chairman of the Capital City Bank Group, Inc.
for more than five years. Director of Sprint since
1993.
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
NAME AND BUSINESS POSITION WITH THE PURCHASER, PRINCIPAL OCCUPATION
ADDRESS CITIZENSHIP OR EMPLOYMENT; 5-YEAR EMPLOYMENT HISTORY
- ----------------- ----------- --------------------------------------------------
<S> <C> <C>
Mr. Warren L. Batts USA Chairman and Chief Executive Officer of Tupperware
Suite 214 Corporation, a diversified consumer products
One Northfield Plaza company, Orlando, Florida. Mr. Batts is also
Northfield, IL 60093 Chairman of Premark International, Inc., a
diversified consumer products company, Deerfield,
Illinois, Director of The Allstate Corporation,
Cooper Industries, Inc. and Sears, Roebuck &
Company. Mr. Batts has been Chairman of Premark
International, Inc. since 1986 and Chairman and
Chief Executive Officer of Tupperware Corporation
since its spin-off from Premark International,
Inc. in 1996. Director of Sprint since 1982;
Chairman of the Audit Committee, Member of the
Executive Committee.
Mr. Michel Bon France Chairman and Chief Executive Officer of France
France Telecom Telecom, a telecommunications company, Paris,
6 place d'Alleray France. Mr. Bon became Chairman of France Telecom
75505 Paris Cedex 15 in September of 1995. He served as head of
France France's national job-placement agency from 1993
to 1995, and, prior to that as Chairman and Chief
Executive Officer of Carrefour, France's largest
retailer, for more than five years. Director of
Sprint since 1996.
Dr. Ruth M. Davis USA President and Chief Executive Officer of The
The Pymatuning Group, Pymatuning Group, Inc., a technology management
Inc. services company, Alexandria, Virginia; Director
Suite 570-4900 Seminary of Air Products and Chemicals, Inc., BTG, Inc.,
Rd. Consolidated Edison Company of New York, Inc.,
Alexandria, VA 22311 Ceridian Corporation, Premark International, Inc.,
Principal Financial Group, Tupperware Corporation
and Varian Associates, Inc. Dr. Davis has been
President and Chief Executive Officer of The
Pymatuning Group, Inc. for more than five years.
Director of Sprint since 1981; Member of the Audit
Committee.
Mr. Irvine O. Hockaday, USA President and Chief Executive Officer of Hallmark
Jr. Cards, Inc., manufacturer of greeting cards,
Hallmark Cards, Inc. Kansas City, Missouri. Director of Dow Jones,
P.O. Box 419580 Inc., Ford Motor Company and UtiliCorp United. Mr.
Kansas City, MO 64141- Hockaday has been President and Chief Executive
6508 Officer of Hallmark Cards, Inc. since 1985.
Director of Sprint since June of 1997; Member of
the Audit Committee.
Mr. Harold S. Hook USA Retired Chairman and Chief Executive Officer of
American General American General Corporation, a financial services
Corporation holding corporation, Houston, Texas, Director of
Wortham Tower Chase Manhattan Bank, Chase Manhattan Corporation,
2727 Allen Parkway, Cooper Industries, Inc. and Duke Energy
Suite W16-01 Corporation. Mr. Hook was Chairman of American
Houston, TX 77019-2125 General Corporation from 1978 to 1997 and Chief
Executive Officer from 1978 to 1996. Director of
Sprint since 1982; Member of the Organization,
Compensation and Nominating Committee.
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
NAME AND BUSINESS POSITION WITH THE PURCHASER, PRINCIPAL OCCUPATION
ADDRESS CITIZENSHIP OR EMPLOYMENT; 5-YEAR EMPLOYMENT HISTORY
- ----------------- ----------- --------------------------------------------------
<S> <C> <C>
Ms. Linda Koch Lorimer USA Vice President and Secretary of the University,
Yale University Yale University, New Haven, Connecticut; Director
P.O. Box 208230 of McGraw-Hill, Inc. Prior to becoming Vice
New Haven, CT 06520 President and Secretary of Yale University in
1993, Ms. Lorimer was President of Randolph-Macon
Woman's College for more than six years. Director
of Sprint since 1993; Member of the Organization,
Compensation and Nominating Committee.
Mr. Charles B. Rice USA Chairman and Chief Executive Officer of Barnett
NationsBank Banks, Inc., a bank holding company, Jacksonville,
P.O. Box 40789 Florida; Director of CSX Corporation. Mr. Rice has
Jacksonville, FL been Chairman and Chief Executive Officer of
32203-0789 Barnett Banks, Inc. for more than five years.
Director of Sprint since 1975; Member of the
Organization, Compensation and Nominating
Committee and the Executive Committee.
Dr. Ron Sommer Germany Chairman of the Board of Management of Deutsche
Deutsche Telekom AG Telekom AG, a telecommunications company, Bonn,
Friedrich-Ebert-Allee Germany. Prior to becoming Chairman of Deutsche
140 Telekom AG in May of 1995, Mr. Sommer was
53113 Bonn President and Chief Operating Officer of Sony
Germany Corporation of America beginning in 1990, and in
1993, he took over the management of Sony Europe
in the same function. Director of Sprint since
1996; Member of the Organization, Compensation and
Nominating Committee.
Mr. Stewart Turley USA Chairman of Eckerd Corporation, a diversified
Suite 201 retailer, Clearwater, Florida; Director of Barnett
1465 South Fort Harrison Banks, Inc. and Springs Industries, Inc. Mr.
Avenue Turley has been Chairman of Eckerd Corporation for
Clearwater, FL 33756 more than five years. Director of Sprint since
1980; Chairman of the Organization, Compensation
and Nominating Committee, member of the Executive
Committee.
</TABLE>
S-4
<PAGE>
Manually signed facsimile copies of the Letter of Transmittal will be
accepted. The Letter of Transmittal, certificates for Shares and any other
required documents should be sent or delivered by each stockholder of the
Company or such stockholder's broker, dealer, commercial bank, trust company
or other nominee to the Depositary at one of its addresses set forth below.
The Depositary for the Offer is:
American Stock Transfer & Trust Company
By Mail, Hand or Overnight By Facsimile Transmission:
Delivery: (718) 234-5001
40 Wall Street Confirm Receipt of Facsimile
46th Floor by Telephone:
New York, NY 10005 (718) 921-8200
----------------
Questions and requests for assistance or for additional copies of this Offer
to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery
may be directed to the Information Agent or the Dealer Manager at their
respective telephone numbers and locations listed below. You may also contact
your broker, dealer, commercial bank, trust company or other nominee for
assistance concerning the Offer.
The Information Agent for the Offer is:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
1-(800)-859-8515
or
Call Collect (212) 209-5550
The Dealer Manager for the Offer is:
SBC WARBURG DILLON READ INC.
535 Madison Avenue
New York, New York 10022
(212) 906-7530
<PAGE>
EXHIBIT NO. (2)(b)
================================================================================
INVESTMENT AGREEMENT
AMONG
SPRINT CORPORATION,
A KANSAS CORPORATION
SPRINT COMMUNICATIONS COMPANY L.P.,
A DELAWARE LIMITED PARTNERSHIP
DOLPHIN, INC.,
A DELAWARE CORPORATION
DOLPHIN SUB, INC.,
A DELAWARE CORPORATION
AND
EARTHLINK NETWORK, INC.,
A DELAWARE CORPORATION.
DATED AS OF FEBRUARY 10, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I THE OFFER AND FINANCING..................................................... 2
1.01. The Offer...................................................................... 2
1.02. Company Actions................................................................ 3
1.03. Issuance of Convertible Preferred Stock........................................ 4
1.04. Marketing Agreement............................................................ 5
1.05. Convertible Debt Financing..................................................... 5
1.06. Merger of Newco Sub into the Company and Conversion of
Company into Newco Stock..................................................... 6
1.07. Governance Agreement and Stockholders Agreement................................ 7
1.08. Registration Rights Agreement.................................................. 8
1.09. Closing........................................................................ 8
ARTICLE II CONDITIONS TO OFFER AND CLOSING............................................. 12
2.01. Mutual Conditions to Offer..................................................... 12
2.02. Conditions to Offer for Benefit of Sprint and Sprint L.P....................... 13
2.03. Conditions to Offer for Benefit of the Company, Newco, and Newco Sub........... 15
2.04. Condition to Closing of All Parties............................................ 16
ARTICLE III REPRESENTATIONS AND WARRANTIES.............................................. 17
3.01. Representations and Warranties of the Company.................................. 17
3.02. Representations and Warranties of Newco and Newco Sub.......................... 24
3.03. Representations and Warranties of Sprint and Sprint L.P........................ 27
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS AND OF THE COMPANY.................31
4.01. Conduct of Business............................................................ 31
4.02. Access to Property and Information............................................. 33
4.03. Public Disclosure.............................................................. 33
4.04. HSR Act Filings................................................................ 33
4.05. Information.................................................................... 34
4.06. Further Assurances............................................................. 34
4.07. No Solicitation................................................................ 34
4.08. Efforts Regarding Outstanding Warrants and Other Dilutable Securities.......... 35
ARTICLE V ADDITIONAL AGREEMENTS....................................................... 36
5.01. Reasonable Efforts; Notification............................................... 36
5.02. Fees and Expenses.............................................................. 37
5.03. Stockholder Litigation......................................................... 37
5.04. Nasdaq Listing................................................................. 37
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
5.05. Confidentiality................................................................37
5.06. No Acceleration of Options or Termination Payments.............................38
5.07. Amortization and Writeoffs of Goodwill and Assets..............................38
5.08. Maintaining SIP Subscribers at Newco...........................................38
5.09. Certification of SIP Subscribers...............................................38
ARTICLE VI TERMINATION, AMENDMENT AND WAIVER...........................................39
6.01. Termination....................................................................39
6.02. Effect of Termination..........................................................40
ARTICLE VII MISCELLANEOUS...............................................................40
7.01. Notices........................................................................41
7.02. Entire Agreement...............................................................42
7.03. Waiver, Amendment, Etc.........................................................42
7.04. Successors and Assigns.........................................................42
7.05. Governing Law..................................................................43
7.06. Severability...................................................................43
7.07. Counterparts...................................................................43
7.08. Headings.......................................................................43
7.09. No Third-Party Beneficiaries...................................................43
7.10. Interpretation.................................................................43
7.11. Inclusion of Information in Schedules..........................................44
7.12. Exclusive Jurisdiction and Consent to Service of Process.......................44
7.13. Amendment......................................................................44
7.14. Survival.......................................................................44
7.15. WAIVER OF JURY TRIAL...........................................................44
ARTICLE VIII DEFINITIONS.................................................................45
Definitions...........................................................................45
</TABLE>
ii
<PAGE>
PAGE
----
EXHIBITS:
A - Form of Certificate of Designation
B - Form of Master Assignment
C - Network Agreement
D - Marketing Agreement
E - Credit Agreement
F - Agreement and Plan of Merger
G - Governance Agreement
H - Stockholder's Agreement
I - Registration Rights Agreement
J - Agreement To Vote
K - Agreement to Vote and Tender Stock
iii
<PAGE>
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT dated as of February 10, 1998 (this "Agreement"),
among Sprint Corporation, a Kansas corporation ("Sprint"), Sprint Communications
Company L.P., a Delaware limited partnership ("Sprint L.P."), EarthLink Network,
Inc., a Delaware corporation (the "Company"), Dolphin, Inc., a Delaware
corporation ("Newco"), and Dolphin Sub, Inc., a Delaware corporation and a
wholly-owned subsidiary of Newco ("Newco Sub").
WHEREAS, the respective Boards of Directors of Sprint, the General Partner
of Sprint L.P., Newco and the Company have determined to enter into a strategic
relationship in the area of Internet access and related services and Sprint and
Sprint L.P. will make investments in Newco and the Company in connection with
the Merger of Newco Sub and the Company in order to enhance the capabilities for
growth and financial and strategic success;
WHEREAS, Sprint proposes to make a tender offer (as it may be amended from
time to time as permitted under this Agreement, with the Company's consent if
required hereby, the "Offer") to purchase 1,250,000 shares of Common Stock for
an aggregate cash consideration of $56,250,000 and at a price per share of
Common Stock of $45 net to each seller in cash (such price, as may hereafter be
changed, the "Offer Price"), upon the terms and subject to the conditions set
forth in this Agreement; and the Board of Directors of the Company has approved
the Offer and the other transactions contemplated hereby and is recommending
that the Company's stockholders who wish to receive cash for their shares of
Common Stock accept the Offer;
WHEREAS, immediately following the closing of the Offer, Sprint L.P.
proposes to purchase 4,102,941 shares of Series A Convertible Preferred Stock,
par value $.01 per share of Newco (the "Convertible Preferred Stock") in
exchange for (i) an aggregate cash consideration of $23,750,000, (ii) the
assignment to Newco of 100% of the Sprint Internet Passport Subscribers, and
(iii) entering into a network agreement whereby Newco and the Company will
utilize Sprint L.P.'s long-distance network under specified terms and
conditions;
WHEREAS, Sprint, Sprint L.P., the Company and Newco will enter into a
marketing agreement whereby Newco and the Company will utilize the Sprint brand
under specified terms and conditions and will, inter alia, have the right to use
----- ----
Sprint L.P. distribution channels under specified terms and conditions and agree
to sell certain Sprint L.P. products;
WHEREAS, Sprint shall provide Newco and the Company, as co-borrowers, with
up to $25 million of Convertible Senior Debt financing on or after the Closing,
with such amount to increase to up to $100 million over time (the "Convertible
Debt Financing"), such indebtedness to be evidenced by one or more Convertible
Senior Promissory Note(s) (the "Convertible Notes") and to be subject to the
terms and conditions of the Credit Agreement;
WHEREAS, the closing of the acquisition of the Convertible Preferred Stock
and the other transactions referred to above other than the Offer shall take
place concurrently with the merger of
1
<PAGE>
Newco Sub into the Company (the "Merger") and the conversion of each share of
the Company's outstanding Common Stock into one share of Newco common stock, par
value $.01 per share ("Newco Common Stock") pursuant to the Merger, in each case
upon the terms and subject to the conditions set forth in this Agreement and/or
the Ancillary Agreements (as defined below);
WHEREAS, to induce Sprint and Sprint L.P. to enter into this Agreement and
the Ancillary Agreements, and to consummate the transactions contemplated
thereby, (i) the Voting Stockholders have executed and delivered to Sprint and
Sprint L.P. the Agreement to Vote Stock, (ii) the Tendering Stockholders have
executed and delivered to Sprint and Sprint L.P. the Agreement to Vote and
Tender Stock, and (iii) certain stockholders have entered into a Stockholders
Agreement with Sprint and Sprint L.P.; and
WHEREAS, Sprint, Sprint L.P., the Company, Newco and Newco Sub desire to
make certain representations, warranties, covenants and agreements and also to
prescribe various conditions in connection with the transactions contemplated
hereby;
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement and in the Ancillary
Agreements, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:
ARTICLE I
THE OFFER AND FINANCING
SECTION 1.01 The Offer. (a) Subject to the provisions of this Agreement,
as promptly as practicable, but in no event later than five business days after
the date of this Agreement, Sprint shall commence the Offer. The obligation of
Sprint to commence the Offer and accept for payment, and pay for, any shares of
Common Stock tendered pursuant to the Offer shall be subject to the conditions
set forth in Sections 2.01, 2.02 and 2.03 (or written waivers as set forth
therein) and to the terms and conditions of this Agreement. Sprint may not
consummate the Offer prior to March 20, 1998, modify or amend the terms of the
Offer, terminate the Offer other than in accordance with the terms hereof or
extend the Offer beyond June 15, 1998 (the earlier of June 15, 1998 or the date
of acceptance for payment of the shares of Common Stock tendered pursuant to the
Offer is hereinafter referred to as the "Expiration Date") in any such case
without the prior written consent of the Company (such consent to be authorized
by the Board of Directors of the Company). Subject to the terms and conditions
thereof, the Offer shall expire at midnight New York City time on the date that
is 20 business days from the date the Offer is first published, sent or given to
holders of Common Stock; provided, however, that without the Company's consent,
-------- -------
Sprint may (i) extend the Offer, if at the scheduled expiration date of the
Offer any of the conditions to Sprint's obligation to accept for payment, and
pay for, shares of Common Stock shall not have been satisfied or waived, until
such time as such conditions are satisfied or waived, (ii) extend the Offer for
any period required by any rule, regulation, interpretation or position of the
SEC applicable to the Offer and (iii) extend
2
<PAGE>
the Offer for any reason on one occasion for an aggregate period of not more
than 5 business days beyond the latest expiration date that would otherwise be
permitted under clause (i) or (ii) of this sentence but in no event may the
Offer extend beyond the Expiration Date.
(b) On the date of commencement of the Offer, Sprint shall file with the
SEC a Tender Offer Statement on Schedule 14D-1 with respect to the Offer, which
shall contain an offer to purchase and a related letter of transmittal and
summary advertisement (such Schedule 14D-1 and the documents included therein
pursuant to which the Offer will be made, together with any supplements or
amendments thereto, the "Offer Documents"). Sprint agrees that the Offer
Documents shall comply as to form in all material respects with the Exchange Act
and that the Offer Documents on the date first published, sent or given to the
Company's stockholders shall not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, except that no representation is made by Sprint
or Sprint L.P. with respect to information supplied by the Company, Newco or
Newco Sub specifically for inclusion in the Offer Documents. Each of the
Parties agrees promptly to correct any information provided by it for use in the
Offer Documents if and to the extent that such information shall have become
false or misleading in any material respect, and Sprint further agrees to take
all steps necessary to amend or supplement the Offer Documents and to cause the
Offer Documents as so amended or supplemented to be filed with the SEC and to be
disseminated to the Company's stockholders, in each case as and to the extent
required by applicable Federal securities laws. The Company and its counsel
shall be given a reasonable opportunity to review the Offer Documents and all
amendments and supplements thereto prior to their filing with the SEC or
dissemination to stockholders of the Company. Sprint agrees to provide the
Company and its counsel any comments that Sprint or its counsel may receive from
the SEC or its staff with respect to the Offer Documents promptly after the
receipt of such comments.
SECTION 1.02 Company Actions. (a) The Company hereby approves of and
consents to the Offer and the other transactions contemplated hereby and by the
Ancillary Agreements and the Company, Newco and Newco Sub represent and warrant
that the Boards of Directors of the Company, Newco and Newco Sub at meetings
duly called and held, duly and unanimously adopted resolutions, as appropriate,
approving this Agreement, the Ancillary Agreements, the Offer and the issuance
of the Convertible Preferred Stock to Sprint L.P. and the Convertible Notes to
Sprint as contemplated hereby, determining that this Agreement and the
transactions contemplated hereby and by the Ancillary Agreements, including the
Offer and the acquisition of the Convertible Preferred Stock, are fair to, and
in the best interests of, the Company's stockholders and recommending that those
stockholders who wish to receive cash for their shares of Common Stock, accept
the Offer and tender their shares pursuant to the Offer. The Company represents
that its Board of Directors has received the opinion of Deutsche Morgan Grenfell
Inc. that the transactions contemplated by this Agreement, when taken together,
are fair, from a financial point of view, to the Company's stockholders and that
a complete and correct signed copy of such opinion has been delivered by the
Company to Sprint.
3
<PAGE>
(b) On the date the Offer Documents are filed with the SEC, the Company
shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-
9 with respect to the Offer (such Schedule 14D-9, as amended from time to time,
the "Schedule 14D-9") containing the recommendation described in paragraph (a)
of this Section 1.02 and shall mail the Schedule 14D-9 to the stockholders of
the Company. The Company agrees that the Schedule 14D-9 shall comply as to form
in all material respects with the requirements of the Exchange Act and, on the
date filed with the SEC and on the date first published, sent or given to the
Company's stockholders, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that no representation is
made by the Company with respect to information supplied by Sprint or Sprint
L.P. specifically for inclusion in the Schedule 14D-9. Each of the Company,
Newco and Newco Sub agrees promptly to correct any information provided by it
for use in the Schedule 14D-9 if and to the extent that such information shall
have become false or misleading in any material respect, and the Company further
agrees to take all steps necessary to amend or supplement the Schedule 14D-9 and
to cause the Schedule 14D-9 as so amended or supplemented to be filed with the
SEC and disseminated to the Company's stockholders, in each case as and to the
extent required by applicable Federal securities laws. Sprint and its counsel
shall be given a reasonable opportunity to review the Schedule 14D-9 and all
amendments and supplements thereto prior to their filing with the SEC or
dissemination to stockholders of the Company. The Company agrees to provide
Sprint and its counsel in writing with any comments the Company or its counsel
may receive from the SEC or its staff with respect to the Schedule 14D-9
promptly after the receipt of such comments.
(c) In connection with the Offer, the Company shall cause its transfer
agent to furnish Sprint promptly with mailing labels containing the names and
addresses of the record holders of Common Stock as of a recent date and of those
persons becoming record holders subsequent to such date, together with copies of
all lists of stockholders, security position listings and computer files and all
other information in the Company's possession or control regarding the
beneficial owners of Common Stock, and shall furnish to Sprint such information
and assistance (including updated lists of stockholders, security position
listings and computer files) as Sprint may reasonably request to facilitate
communication of the Offer to the Company's stockholders. Subject to the
requirements of applicable law, and except for such steps as are necessary to
disseminate the Offer Documents, Sprint and its agents shall hold in confidence
the information contained in any such labels, listings and files, will use such
information only in connection with the Offer and the other transactions
contemplated hereby and, if this Agreement shall be terminated, will deliver,
and will use their best efforts to cause their agents to deliver, to the Company
all copies of such information then in their possession or control.
SECTION 1.03 Issuance of Convertible Preferred Stock. Newco agrees to
issue to Sprint L.P., and Sprint L.P. agrees to acquire from Newco, 4,102,941
shares of Convertible Preferred Stock having the voting powers, preferences and
other rights set forth in the form of Certificate of Designation, Preferences
and Rights attached hereto as Exhibit A ("Certificate of Designation") and which
is to be filed with the Delaware Secretary of State on or prior to the Closing
Date, for the "Preferred Stock Consideration," which shall be delivered at the
Closing for the duly authorized and
4
<PAGE>
executed certificates evidencing such shares. The Preferred Stock Consideration
shall consist of the following:
(i) cash in the amount of $23,750,000, which payment shall be made
by wire transfer of immediately available funds pursuant to the wire
transfer instructions to be provided to Sprint L.P. by a duly authorized
officer of Newco at least 72 hours prior to the Closing;
(ii) all of the right, title and interest of Sprint L.P. in and to
all agreements with SIP Subscribers and all rights to provide Internet
access services to the SIP Subscribers after the Closing Date, as evidenced
by the Master Assignment and Assumption Agreement in the form attached
hereto as Exhibit B (the "Master Assignment"), which (A) shall have a
Schedule A attached thereto showing the number and identity of SIP
Subscribers as of a date no earlier than 10 days prior to the Closing Date,
(B) shall include the obligations to be assumed by Newco at the Closing to
continue the performance of all of such agreements after the Closing Date,
and (C) shall be executed and delivered by the Parties thereto on the
Closing Date; and
(iii) the right to utilize a minimum and maximum number of ports on
Sprint L.P.'s long-distance network specified, along with the pricing and
other terms and conditions set forth, in the Network Agreement attached
hereto as Exhibit C ("Network Agreement"), which shall be executed and
delivered by the Parties thereto on the date hereof, but which shall not
become effective until the Closing and then only if all of the applicable
conditions to Closing have been satisfied or waived.
SECTION 1.04 Marketing Agreement. The Marketing Agreement attached
hereto as Exhibit D shall be executed and delivered by the Parties thereto on
the date hereof, and pursuant to which (A) Newco and the Company shall have the
right to utilize certain distribution channels of Sprint L.P., and the Parties
shall provide certain cooperation and support to each other in specified
marketing matters, and (B) Newco and the Company shall be granted a license
requiring the use of the Sprint brand in conjunction with the Company's brand,
in each case upon the terms and subject to conditions set forth in the Marketing
Agreement, but which Agreement shall not become effective until the Closing and
then only if all of the applicable conditions to Closing have been satisfied or
waived.
SECTION 1.05 Convertible Debt Financing. Sprint agrees to make advances
of funds to Newco and the Company, as co-borrowers, in the amounts and at the
times specified in, and subject to the terms and conditions set forth in, the
Credit Agreement attached hereto as Exhibit E (the "Credit Agreement"), (A)
which shall be executed and delivered by the Parties thereto on the date hereof,
but which shall not become effective until the Closing and then only if all of
the applicable conditions to the Closing have been satisfied or waived, and (B)
advances thereunder shall be evidenced by one or more Convertible Notes which
shall be convertible into Newco Common Stock, a form of which Convertible Note
is attached to the Credit Agreement.
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SECTION 1.06 Merger of Newco Sub into the Company and Conversion of
Company Stock into Newco Stock. (a) The Company, Newco and Newco Sub shall duly
execute and deliver on the date hereof the Agreement and Plan of Merger among
them attached hereto as Exhibit F, but which shall not become effective until
the Closing, and pursuant to which, inter alia, at the Closing, (i) Newco Sub
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shall be merged with and into the Company and the Company shall be the surviving
corporation (the "Surviving Corporation"), (ii) the certificate of incorporation
and bylaws of Newco Sub shall be the certificate of incorporation and bylaws of
the Surviving Corporation, (iii) except as disclosed in Schedule 1.06 hereto;
the certificate of incorporation and bylaws of Newco shall be identical to the
certificate of incorporation and bylaws of the Company, (iv) the directors and
officers of the Company shall be the directors and officers of Newco until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with Newco's certificate of
incorporation and bylaws, except that the two directors elected by the holders
of the Convertible Preferred Stock shall be elected immediately following the
Closing and (v) each outstanding share of Common Stock of the Company shall be
converted into one share of Newco Common Stock.
(b) Subject to the provisions of this Agreement, as promptly as
practicable, the Company, Newco and Newco Sub shall prepare and file with the
SEC a proxy statement relating to a special meeting of the Company's
stockholders (the "Special Meeting") to be held in connection with the Merger
(the "Proxy Statement") that will serve as the prospectus included as Part I of
a registration statement on Form S-4 (the "S-4") to be filed by Newco with the
SEC to register the Newco Common Stock to be issued in the Merger by Newco. The
Proxy Statement and S-4 shall also seek approval by the Company's stockholders
of (i) the issuance and sale of the Convertible Preferred Stock, the Convertible
Notes, and the Newco Common Stock issuable upon conversion of the Convertible
Preferred Stock and/or the Convertible Notes, (ii) the other transactions
contemplated by this Agreement and the Ancillary Agreements, and (iii) any
related matters that must be approved by the holders of Common Stock or Newco
Common Stock in order for the transactions contemplated by the Investment
Agreement or any Ancillary Agreement to be consummated (the matters referred to
in clauses (i), (ii) and (iii) together with approval of the Merger, the
"Company Stockholder Vote Matters"). Each of the Company, Newco and Newco Sub
shall use all reasonable efforts to (i) have the S-4 declared effective under
the Securities Act as promptly as practicable after such filing, and (ii) to
cause the Proxy Statement to be mailed to all stockholders of the Company at the
earliest practicable date. The Company, Newco and Newco Sub agree that the S-4
and the Proxy Statement shall comply as to form in all material respects with
the Securities Act and the Exchange Act and shall not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except that no
representation is made by the Company, Newco or Newco Sub with respect to any
information supplied by Sprint specifically for inclusion in the S-4 and the
Proxy Statement. Each of the Parties agrees promptly to correct any information
provided by it for use in the S-4 and the Proxy Statement if and to the extent
that such information shall have become false or misleading in any material
respect, and the Company, Newco and Newco Sub further agree to take all steps
necessary to amend or supplement the S-4 and the Proxy Statement and to cause
the S-4 and the Proxy Statement as so amended or supplemented to be filed with
the SEC and to cause the Proxy Statement to be disseminated to the Company's
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stockholders, in each case as and to the extent required by applicable Federal
securities laws. Sprint and its counsel shall be given a reasonable opportunity
to review the S-4 and the Proxy Statement and all amendments and supplements
thereto prior to their filing with the SEC or dissemination to stockholders of
the Company. The Company, Newco and Newco Sub agree to provide Sprint and its
counsel any comments that the Company, Newco and Newco Sub or its counsel may
receive from the SEC or its staff with respect to the S-4 and the Proxy
Statement promptly after the receipt of such comments.
(c) The Company shall call the Special Meeting to be held as promptly as
practicable after the date hereof for the purpose of voting upon the Company
Stockholder Vote Matters. Subject to Section 4.07(a), the Company will, through
its Board of Directors, recommend that its stockholders vote their shares in
favor of the approval of the Company Stockholder Vote Matters and shall use its
reasonable best efforts to obtain approval and adoption by the Company's
stockholders of the Company Stockholder Vote Matters. The Company and Sprint
shall coordinate and cooperate with respect to the timing of the Special Meeting
and shall use all reasonable efforts to hold such meeting as soon as practicable
after the date hereof. Newco shall (i) cause Newco Sub promptly to submit this
Agreement and the transactions contemplated hereby for approval and adoption by
Newco as its sole stockholder by written consent or stockholder vote, (ii)
authorize and cause an officer of Newco to vote Newco's shares of Newco Sub for
adoption and approval of, or act by written consent to adopt and approve, this
Agreement and the Ancillary Agreements and the transactions contemplated hereby
and thereby, and (iii) take all additional actions as the sole stockholder of
Newco Sub necessary to adopt and approve this Agreement and the Ancillary
Agreements and the transactions contemplated hereby and thereby. Newco will, on
or prior to the Closing Date, execute and deliver to Sprint and the Company a
written consent by the sole stockholder of Newco (i) approving this Agreement,
the Ancillary Agreements and the transactions contemplated hereby and thereby,
and (ii) authorizing the taking of all additional actions as the sole
stockholder of Newco necessary to adopt and approve this Agreement and the
Ancillary Agreements and the transactions contemplated hereby and thereby.
SECTION 1.07 Governance Agreement and Stockholders Agreement.
(a) Sprint, Sprint L.P., Newco and the Company shall execute and
deliver on the date hereof the Governance Agreement attached hereto as
Exhibit G to establish therein certain terms and conditions concerning the
corporate governance of Newco, the acquisition of Newco's equity securities
by Sprint and its Affiliates, and the rights of Sprint to make offers to
purchase all of the outstanding securities not owned by Sprint and its
Affiliates and the rights of the Board of Directors of Newco to receive
offers to effect business combinations, which agreement shall not become
effective until the Closing.
(b) Sprint, Sprint L.P., Newco, the Company and the stockholders of
the Company identified on a schedule to the following agreement shall
execute and deliver on the date hereof a Stockholders' Agreement attached
hereto as Exhibit H to effectuate the intent and provisions of the
Governance Agreement and to provide for certain rights and obligations
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of such parties with respect to the voting and disposition of equity
securities of Newco, which agreement shall not become effective until the
Closing.
SECTION 1.08 Registration Rights Agreement. Sprint, Sprint L.P. and
Newco shall execute and deliver on the date hereof the Registration Rights
Agreement attached hereto as Exhibit I with respect to the rights of Sprint and
its Affiliates in connection with public offerings and sales of Newco Common
Stock acquired in the Merger, through conversion of the Convertible Preferred
Stock or the Convertible Notes, pursuant to the Governance Agreement or
otherwise, which agreement shall not become effective until the Closing.
SECTION 1.09 Closing. (a) Closing Date and Location. The closing of the
transactions contemplated by Sections 1.03., 1.04., 1.05., 1.06., 1.07., and
1.08. (the "Closing") shall be held at the offices of Stinson, Mag & Fizzell,
P.C., 1201 Walnut, Suite 2900, Kansas City, Missouri 64106, immediately
following, and subject only to, the acceptance for payment of shares of Common
Stock pursuant to the Offer, or at such other date, time or place as the parties
may mutually agree. The date on which the Closing shall occur is hereinafter
referred to as the "Closing Date."
(b) Deliveries by Newco and Newco Sub. At the Closing, Newco and Newco Sub
shall take the following actions:
(i) deliver to Sprint L.P. duly executed certificates evidencing
4,102,941 shares of Convertible Preferred Stock in exchange for the
Preferred Stock Consideration;
(ii) deliver to Sprint L.P. a duly executed and delivered instrument
acknowledging receipt of payment of the cash portion of the Preferred Stock
Consideration;
(iii) deliver to Sprint and Sprint L.P. each of the Ancillary
Agreements to which either of them is a party, which shall have been duly
executed and delivered by them;
(iv) deliver to Sprint and Sprint L.P. a certificate on behalf of
Newco and Newco Sub signed by a duly authorized executive officer, dated as
of the Closing Date, certifying the fulfillment of the conditions set forth
in Sections 2.02(d) and (e);
(v) deliver to Sprint and Sprint L.P. the legal opinion of Hunton &
Williams, counsel to the Company, Newco and Newco Sub, dated as of the
Closing Date, in form and substance reasonably satisfactory to Sprint and
Sprint L.P.;
(vi) deliver to Sprint and Sprint L.P. a Certificate of the
Secretary of Newco (A) as to true and complete copies of the certificate of
incorporation, bylaws and resolutions of the Board of Directors authorizing
the execution, delivery and performance of this Agreement and each of the
Ancillary Agreements to which it is a party and the transactions
contemplated hereby and thereby, (B) certifying that the execution,
delivery and performance of this Agreement and each of the Ancillary
Agreements and the transactions contemplated hereby and thereby were duly
and validly approved by the sole stockholder of Newco, and (C) as to
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incumbency of the Newco officers executing the Agreement and each of the
Ancillary Agreements to which it is a party;
(vii) deliver to Sprint and Sprint L.P. the certificate of
incorporation of Newco and all amendments to date, certified by the
Delaware Secretary of State, as of a date not earlier than three (3)
business days prior to the Closing Date;
(viii) deliver to Sprint and Sprint L.P. a Long Form Certificate of
Good Standing from the Delaware Secretary of State certifying that Newco is
in good standing, as of a date not earlier than three (3) business days
prior to the Closing Date;
(ix) deliver to Sprint and Sprint L.P. the SEC Order of
Effectiveness with respect to the S-4 if then in the possession of the
Company or Newco;
(x) deliver to Sprint and Sprint L.P. a Certificate of the
Secretary of Newco Sub (A) as to true and complete copies of the
certificate of incorporation, bylaws and resolutions of the Board of
Directors authorizing the execution, delivery and performance of this
Agreement and each of the Ancillary Agreements to which it is a party and
the transactions contemplated hereby and thereby, (B) certifying that the
execution, delivery and performance of this Agreement and each of the
Ancillary Agreements to which it is a party and the transactions
contemplated hereby and thereby were duly and validly approved by Newco as
the sole stockholder of Newco Sub, and (C) as to incumbency of the Newco
Sub officers executing this Agreement and each of the Ancillary Agreements
to which it is a party;
(xi) deliver to Sprint and Sprint L.P. the certificate of
incorporation of Newco Sub and all amendments to date, certified by the
Delaware Secretary of State, as of a date not earlier than three (3)
business days prior to the Closing Date; and
(xii) deliver to Sprint and Sprint L.P. a Long Form Certificate of
Good Standing from the Delaware Secretary of State certifying that Newco
Sub is in good standing, as of a date not later than three (3) business
days prior to the Closing Date.
(c) Deliveries by the Company. At the Closing, the Company shall deliver
to Sprint and Sprint L.P. the following:
(i) each of the Ancillary Agreements to which the Company is a
party, which shall have been duly executed and delivered by it;
(ii) a certificate on behalf of the Company signed by a duly
authorized executive officer, dated as of the Closing Date, certifying the
fulfillment of the conditions set forth in Sections 2.02(d) and (e);
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(iii) the legal opinion of Hunton & Williams, counsel to the Company,
Newco and Newco Sub dated as of the Closing Date, in form and substance
reasonably satisfactory to Sprint and Sprint L.P.;
(iv) a Certificate of the Secretary of the Company (A) as to true
and complete copies of the certificate of incorporation, bylaws and
resolutions of the Board of Directors authorizing the execution, delivery
and performance of this Agreement and each of the Ancillary Agreements to
which it is a party and the transactions contemplated hereby and thereby,
(B) certifying that the execution, delivery and performance of this
Agreement and each of the Ancillary Agreements and the transactions
contemplated hereby and thereby were duly and validly approved by the
stockholders of the Company, and (C) as to incumbency of the Company
officers executing the Agreement and each of the Ancillary Agreements to
which it is a party;
(v) the certificate of incorporation of the Company and all
amendments to date, certified by the Delaware Secretary of State, as of a
date not later than three (3) business days prior to the Closing Date;
(vi) a Long Form Certificate of Good Standing from the Delaware
Secretary of State certifying that the Company is in good standing, as of a
date not later than three (3) business days prior to the Closing Date;
(vii) the Certificate of Inspector of Election in connection with the
Special Meeting.
(d) Deliveries by Sprint. At the Closing, Sprint shall deliver to the
Company, Newco and Newco Sub the following:
(i) each of the Ancillary Agreements to which Sprint is a party,
which shall have been duly executed and delivered by it;
(ii) a certificate on behalf of Sprint signed by a duly authorized
executive officer, dated as of the Closing Date, certifying the fulfillment
of the conditions set forth in Sections 2.03(b), (c) and (e);
(iii) the legal opinion of Stinson, Mag & Fizzell, P.C., counsel to
Sprint and Sprint L.P., dated as of the Closing Date, in form and substance
reasonably satisfactory to Newco and the Company.
(iv) a Certificate of Secretary of Sprint (A) as to true and
complete copies of the articles of incorporation, bylaws and resolutions of
the Board of Directors authorizing the execution, delivery and performance
of this Agreement and each of the Ancillary Agreements to which it is a
party and the transactions contemplated hereby and thereby, and (B) as to
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incumbency of the Sprint officers executing this Agreement and each of the
Ancillary Agreements to which it is a party; and
(v) a Long Form Certificate of Good Standing from the Kansas
Secretary of State certifying that Sprint is in good standing, as of a date
not later than three (3) business days prior to the Closing Date.
(e) Deliveries by Sprint L.P. At the Closing, Sprint L.P. shall deliver
to the Company, Newco and Newco Sub the following:
(i) the cash portion of the Preferred Stock Consideration to Newco
by wire transfer of immediately available funds pursuant to wire transfer
instructions from a duly authorized officer of Newco;
(ii) each of the Ancillary Agreements to which Sprint L.P. is a
party, which shall have been duly executed and delivered by it;
(iii) a certificate on behalf of Sprint L.P. signed by a duly
authorized executive officer, dated as of the Closing Date, certifying the
fulfillment of the conditions set forth in Sections 2.03(b) and (c);
(iv) the legal opinion of Stinson, Mag & Fizzell, P.C., counsel to
Sprint and Sprint L.P., dated as of the Closing Date, in form and substance
reasonably satisfactory to Newco and the Company;
(v) a Certificate of Secretary of Sprint L.P. (A) as to true and
complete copies of the limited partnership agreement of Sprint L.P. and
resolutions of the Board of Directors of the General Partner of Sprint L.P.
authorizing the execution, delivery and performance of this Agreement and
each of the Ancillary Agreements to which it is a party and the
transactions contemplated hereby and thereby, and (B) as to incumbency of
the Sprint L.P. officers executing this Agreement and each of the Ancillary
Agreements to which it is a party; and
(vi) a Long Form Certificate of Good Standing from the Delaware
Secretary of State certifying that Sprint L.P. is in good standing, as of a
date not later than three (3) business days prior to the Closing Date.
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ARTICLE II
CONDITIONS TO OFFER AND CLOSING
SECTION 2.01 Mutual Conditions to Offer. Sprint shall not, and shall have
no obligation to, accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating
to Sprint's obligation to pay for or return tendered shares of Common Stock
after the termination or withdrawal of the Offer), pay for any shares of Common
Stock tendered pursuant to the Offer unless the following conditions are
satisfied on or prior to the Offer Acceptance Time (or waived in a writing
executed by Sprint, Sprint L.P., Newco, Newco Sub and the Company).
(a) Minimum Tender Condition. At least 1,250,000 shares of Common
Stock shall have been validly tendered and not withdrawn prior to the
expiration of the Offer (the "Minimum Tender Condition").
(b) Waiting Periods. The filing and waiting period requirements of
the HSR Act relating to the Offer, the Preferred Stock Consideration and
the Merger shall have been complied with and there shall be no action taken
or instituted by the Department of Justice, the Federal Trade Commission or
by any other Governmental Entity to delay or otherwise enjoin the
transactions contemplated by this Agreement and by the Ancillary Agreements
and the waiting period applicable under the HSR Act shall have expired or
received early termination.
(c) Other Approvals. In addition to the filing and expiration of the
waiting period contemplated by Section 2.01(b), all authorizations,
consents, orders or approvals of, or declarations or filings with, or
expirations of waiting periods imposed by, any Governmental Entity, the
failure to obtain which would have a Material Adverse Effect on Sprint,
Sprint L.P. and their respective Subsidiaries, the Company or Newco and
Newco Sub, in each case, taken as a whole, shall have been filed, occurred
or been obtained.
(d) Form S-4. The S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
(e) Actions, Suits or Proceedings. There shall not be Threatened or
pending by any Governmental Entity any Action which has a reasonable
likelihood of success, and there shall not be pending by any other Person
any Action which has a substantial likelihood of success, (i) seeking to
restrain or prohibit the acquisition by Sprint of any shares of Common
Stock or any Convertible Notes or the acquisition by Sprint L.P. of any
shares of Convertible Preferred Stock, the making or consummation of the
Offer or the performance by any of the Parties hereto of any of the other
transactions contemplated by this Agreement or any of the Ancillary
Agreements, or seeking to obtain from the Company, Newco, Sprint or Sprint
L.P. any damages that are material in relation to Sprint, Newco or the
Company and their respective subsidiaries taken as a whole, (ii) seeking to
impose limitations on the ability of
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Sprint or Sprint L.P. to acquire or hold, or exercise full rights of
ownership of, any shares of Common Stock accepted for payment by Sprint
pursuant to the Offer or any shares of Convertible Preferred Stock, any
Convertible Notes or any Common Stock received upon conversion of either
thereof, including, without limitation, the right to vote such Common
Stock, Newco Common Stock and Convertible Preferred Stock on all matters
properly presented to the stockholders of the Company or Newco, as the case
may be, (iii) seeking to prohibit any Party from exercising any of its
material rights under this Agreement or any Ancillary Agreement; or (iv)
seeking to prohibit or limit the ownership or operation by any Party or its
respective Subsidiaries of a material portion of the business or assets of
such Party on a consolidated basis, or to compel any Party to dispose of or
hold separate any material portion of the business or assets of such Party
on a consolidated basis, as a result of the Offer or any of the other
transactions contemplated by this Agreement or the Ancillary Agreements.
(f) No Injunctions or Restraints. No statute, rule, regulation,
executive order, decree, temporary restraining order, preliminary or
permanent injunction or other order enacted, entered, promulgated, enforced
or issued by any Governmental Entity or other legal restraint or
prohibition (x) preventing the consummation of the Merger or any of the
other transactions contemplated hereby or by the Ancillary Agreements that
are to occur by the Closing shall be in effect or, (y) applicable to the
Offer or the issuance of shares of Convertible Preferred Stock, any
Convertible Notes or any Newco Common Stock received upon conversion of
either thereof having any of the consequences described in clauses (i)
through (iv) of Section 2.01(e) shall be in effect; provided, however, that
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prior to invoking this condition, each Party shall use all reasonable
efforts to have any such decree, ruling, injunction or order vacated,
except as otherwise contemplated by this Agreement.
(g) Stockholder Approval. The holders of Common Stock of the Company
shall have approved the Company Stockholder Vote Matters.
(h) Termination of Agreement. This Agreement shall not have
terminated in accordance with its terms prior to the Expiration Date.
SECTION 2.02 Conditions to Offer for Benefit of Sprint and Sprint L.P.
Sprint shall have no obligation to accept for payment or, subject to any
applicable rules and regulations of the SEC, including Rule 14e-1(c) under the
Exchange Act (relating to Sprint's obligation to pay for or return tendered
shares of Common Stock after the termination or withdrawal of the Offer), pay
for any shares of Common Stock tendered pursuant to the Offer unless the
following conditions are satisfied on or prior to the Offer Acceptance Time (or
waived in a writing executed by Sprint and Sprint L.P.).
(a) Approval of the Board of Directors. (i) The Board of Directors of
the Company or Newco shall not have withdrawn or modified in a manner
adverse to Sprint or Sprint L.P. its approval of the Offer or the other
transactions contemplated by this Agreement or the Ancillary Agreements, or
approved any Acquisition Proposal or approved the solicitation of
additional Acquisition Proposals, (ii) the Company shall not have entered
into
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any agreement with respect to any Acquisition Proposal, or (iii) the Board
of Directors of the Company or Newco or any committee thereof shall not
have resolved to take any of the foregoing actions referred to in (i) or
(ii) above.
(b) Execution, Delivery, Effectiveness and Satisfaction of Ancillary
Agreements. Each of the Company, Newco and Newco Sub shall have executed
and delivered to Sprint and Sprint L.P., as the case may be, each Ancillary
Agreement to which it is a party. Each Ancillary Agreement shall be in
full force and effect and all of the terms and conditions of each such
Ancillary Agreement shall be satisfied in all material respects.
(c) Stockholder Agreements. (i) Each of (A) the stockholders named on
Schedule A of the Stockholders Agreement, and (B) each of Garry Betty,
Brinton Young, Robert Kavner and Chip Lacy, shall have executed, and
delivered to Sprint the Stockholders Agreement in the form attached hereto
as Exhibit H, including the Irrevocable Proxies related thereto (the
"Stockholders Agreement"), (ii) each of the Voting Stockholders shall have
executed and delivered to Sprint the Agreement To Vote Stock (the
"Agreement to Vote"), in the form attached hereto as Exhibit J, and (iii)
each of the Tendering Stockholders shall have executed and delivered to
Sprint the Agreement to Vote and Tender Stock (the "Agreement to Vote and
Tender"), in the form attached hereto as Exhibit K. The Stockholders
Agreement, each Agreement to Vote and each Agreement to Vote and Tender, to
the extent necessary to approve the Company Stockholder Vote Matters, shall
be in full force and effect and all of the terms and conditions of such
agreements shall be satisfied in all material respects.
(d) Representations and Warranties. The representations and
warranties of the Company, Newco and Newco Sub shall be true and correct
(i) as of the date referred to in any representation or warranty that
addresses a matter as of a particular date, or (ii) as to all other
representations and warranties, as of the date of this Agreement and as of
the Offer Acceptance Time; unless, in either the case of clause (i) or
(ii), the inaccuracies under such representations and warranties, would
not, individually or in the aggregate, (x) have a Material Adverse Effect
on the Company or Newco, (y) materially impair the ability of the Company,
Newco and Newco Sub to enter into and perform this Agreement or any
Ancillary Agreement to which any of them is a Party and their respective
obligations thereunder, or (z) materially reduce Sprint's expected
ownership interest in Newco by virtue of material inaccuracies in the
representations and warranties set forth in Section 3.01(c) hereof, in each
case without giving effect to any supplement to any schedule to this
Agreement or to any Ancillary Agreement (provided, however, that any
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supplement must be objected to before the earlier of the Offer Acceptance
Time or 10 Business Days from the date of delivery thereof). Sprint and
Sprint L.P. shall also have each received a separate certificate to such
effect dated the Offer Acceptance Date and executed by the chief executive
officer and chief financial officer of each of the Company, Newco and Newco
Sub, in each such case without giving effect to any supplement to any
Schedule to this Agreement or to any Ancillary Agreement.
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(e) Performance of Obligations and Covenants of the Company, Newco
and Newco Sub. Each of the Company, Newco and Newco Sub shall have
performed in all material respects all of the respective obligations and
covenants required to be performed or complied with by them under this
Agreement and each of the Ancillary Agreements at or prior to the time of
the Closing.
(f) Legal Opinions. Sprint shall have received the legal opinion of
Hunton & Williams, dated as of the Closing Date, counsel to Newco, Newco
Sub, and the Company in form and substance reasonably satisfactory to
Sprint and Sprint L.P.
(g) Amendments and Modifications of Warrants and other Dilutable
Securities. There shall not be any warrants to purchase Common Stock or
other Dilutable Securities of the Company outstanding on the Closing Date
which could be exercised on the Closing Date (assuming the expiration of
any applicable vesting periods or the satisfaction of any other conditions
to conversion, exchange, exercise or issuance) into a number of shares of
Common Stock which, in the aggregate, would constitute more than 8% of the
shares of Common Stock outstanding immediately prior to the Closing, which,
upon or after the Merger will be convertible into or exchangeable for or
give the right to acquire Common Stock or other voting securities of the
Company, and the Company shall have provided copies of all amendments or
other modifications of any Warrants and other Dilutable Securities obtained
by the Company pursuant to Section 4.08.
SECTION 2.03 Conditions to Offer for Benefit of the Company, Newco, and
Newco Sub. Sprint shall not accept for payment or, subject to any applicable
rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act
(relating to Sprint's obligation to pay for or return tendered shares of Common
Stock after the termination or withdrawal of the Offer), pay for any shares of
Common Stock tendered pursuant to the Offer unless the following conditions are
satisfied on or prior to the Offer Acceptance Time (or waived in a writing
executed by Newco, Newco Sub and the Company).
(a) Approval, Execution, Delivery, Effectiveness and Satisfaction of
Ancillary Agreements. (i) The Board of Directors of Sprint, and the Board
of Directors of the General Partners of Sprint L.P. shall not have
withdrawn or modified in a manner adverse to Newco or the Company their
approval of the Offer or the other transactions contemplated by this
Agreement or the Ancillary Agreements, or approved any Acquisition Proposal
or approved the solicitation of additional Acquisition Proposals, (ii)
Sprint shall not have entered into any agreement with respect to any
Acquisition Proposal, or (iii) the Board of Directors of Sprint, or the
Board of Directors of the General Partner of Sprint L.P., or any committee
thereof shall not have resolved to take any of the foregoing actions
referred to in (i) or (ii) above. Sprint and Sprint L.P. shall have
executed and delivered to the Company, Newco and Newco Sub, as the case may
be, and performed each Ancillary Agreement to which it is a party. Each
Ancillary Agreement shall be in full force and effect and all of the terms
and conditions of each such Ancillary Agreement shall be satisfied in all
material respects.
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(b) Representations and Warranties. The representations and
warranties of Sprint and Sprint L.P. shall be true and correct (i) as of
the date referred to in any representation or warranty that addresses a
matter as of a particular date, or (ii) as to all other representations and
warranties, as of the date of this Agreement and as of the Offer Acceptance
Time; unless, in either the case of clause (i) or (ii), the inaccuracies
under such representations and warranties, would not, individually or in
the aggregate, (x) have a Material Adverse Effect on Sprint or Sprint L.P.,
or (y) materially impair the ability of Sprint and Sprint L.P. to enter
into and perform this Agreement or any Ancillary Agreement to which any of
them is a Party and their respective obligations thereunder, in each case
without giving effect to any supplement to any schedule to this Agreement
or to any Ancillary Agreement (provided, however, that any supplement must
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be objected to before the earlier of the Offer Acceptance Time or 10
Business Days from the date of delivery thereof). The Company, Newco, and
Newco Sub shall have each received a separate certificate to such effect
dated the Offer Acceptance Date and executed by a duly authorized executive
officer of each of Sprint and Sprint L.P., in each case without giving
effect to any supplement to any Schedule to this Agreement or to any
Ancillary Agreement.
(c) Performance of Obligations and Covenants. Sprint shall have
performed or complied in all material respects with all obligations and
covenants required by this Agreement and each of the Ancillary Agreements
to be performed or complied with by Sprint by the time of the Closing.
(d) Legal Opinion. The Company, Newco and Newco Sub shall have
received the legal opinion of Stinson, Mag & Fizzell, P.C., counsel to
Sprint and Sprint L.P., dated as of the Closing Date, in form and substance
reasonably satisfactory to Newco and the Company.
(e) Sprint Acquisition Proposal. Sprint shall not have entered into
an agreement providing for a transaction contemplated by an Acquisition
Proposal, nor shall it have consummated any such transaction, nor shall
Sprint have received any Acquisition Proposal (i) recommended by the Board
of Directors of Sprint, or (ii) if not so recommended, which the Board of
Directors of the Company reasonably determines in good faith upon
consultation with its outside financial advisors is reasonably likely to be
consummated.
SECTION 2.04 Condition to Closing of All Parties. The obligations of
Sprint, Sprint L.P., Newco, Newco Sub and the Company to consummate the
transactions contemplated to occur at the Closing other than the Offer are
subject to the satisfaction of the condition that Sprint shall have accepted for
payment shares of Common Stock pursuant to the Offer in accordance with this
Agreement (the "Offer Acceptance Condition").
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01 Representations and Warranties of the Company. Except as
disclosed in the schedules attached to this Agreement setting forth exceptions
to the Company's representations and warranties set forth herein (the "Company
Disclosure Schedules"), the Company represents and warrants to Sprint and Sprint
L.P. as set forth below. The Company Disclosure Schedules will be arranged in
sections corresponding to sections of this Agreement to be modified thereby.
(a) Organization, Standing and Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has all requisite power and
authority to own, lease and operate its properties and to carry on its
business as now being conducted. The Company is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which the
nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed (individually or in the
aggregate) would not have a Material Adverse Effect on the Company. The
Company has made available to Sprint for its review complete and correct
copies of its certificate of incorporation and bylaws, in each case as
amended to the date of this Agreement.
(b) Subsidiaries and Joint Ventures. The Company does not have any
Subsidiaries. The Company does not have the right to acquire an equity
interest in any corporation, partnership, limited liability company, joint
venture, business trust or any other entity, except for Newco and Newco Sub
pursuant to the Merger.
(c) Capital Structure. The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock and 10,000,000 shares of
preferred stock, par value $0.01 per share. At the close of business on
January 31, 1998, (i) 11,293,394 shares of Common Stock and no shares of
preferred stock of the Company were issued and outstanding, (ii) no shares
of Common Stock were held by the Company in its treasury, (iii) 1,072,012
shares of Common Stock were reserved for issuance pursuant to outstanding
stock options granted under the 1995 Stock Option Plan to purchase shares
of Common Stock ("Employee Stock Options") and an additional 96,158 shares
of Common Stock were available for the grant of Employee Stock Options
pursuant to such plan (and upon approval by the Company's stockholders of a
pending proposal there will be 600,000 additional shares of Common Stock as
to which options can be granted under the 1995 Stock Option Plan), (iv) no
shares of Common Stock were reserved for issuance pursuant to outstanding
stock options granted under the Directors Stock Option Plan to purchase
shares of Common Stock ("Director Stock Options") and an additional 62,500
shares of Common Stock were available for the grant of Director Stock
Options pursuant to such plan, (v) 391,500 shares of Common Stock were
reserved for issuance pursuant to the Company's convertible note with UUNET
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Technologies, Inc., and (vi) 887,647 shares of Common Stock were reserved
for issuance upon the exercise of outstanding warrants. Except as set forth
above or as otherwise expressly provided herein, at the close of business
on January 31, 1998, no shares of capital stock or other voting securities
of the Company were issued, reserved for issuance or outstanding and except
as set forth on Schedule 3.01(c), there are not any phantom stock or other
contractual rights the value of which is determined in whole or in part by
the value of any capital stock of the Company ("Stock Equivalents"). There
are no outstanding stock appreciation rights ("SARs") with respect to
Common Stock that were not granted in tandem with a related Employee Stock
Option. When issued and sold to Sprint, the Convertible Preferred Stock and
the Convertible Notes will be duly authorized, validly issued, fully paid
and non-assessable and free and clear of all Liens. The Newco Common Stock
issued upon conversion of the Convertible Preferred Stock and the
Convertible Notes, will be duly authorized, validly issued, fully paid and
nonassessable and free and clear of all Liens. Other than this Agreement
and the Ancillary Agreements, the Convertible Preferred Stock and the
Convertible Notes are not, and the Newco Common Stock issuable upon
conversion of the Convertible Preferred Stock and the Convertible Notes
will not be, subject to any voting trust agreement or other contract,
agreement, arrangement, commitment or understanding, including any such
agreement, arrangement, commitment or understanding restricting or
otherwise relating to the voting or disposition of the Convertible
Preferred Stock or the Convertible Notes. All outstanding shares of capital
stock of the Company are, and all shares that may be issued pursuant to any
stock plans and the other agreements and instruments listed above will be,
when issued, duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights. Except as set forth above and in
Schedule 3.01(c), and as otherwise expressly set forth in this Agreement,
and except for changes since January 31, 1998 resulting from the grant or
exercise of Employee Stock Options, Director Stock Options, or warrants and
the conversion of notes described in clauses (v) and (vi) above, as of the
date of this Agreement, there are not any securities, options, warrants,
calls, rights to purchase, rights of first refusal, securities convertible
into or exchangeable for voting securities, commitments, agreements,
arrangements or undertakings of any kind to which the Company or any of its
Subsidiaries is a party or by which any of them is bound obligating the
Company to issue, deliver or sell or create, or cause to be issued,
delivered or sold or created, additional shares of capital stock or other
voting securities or Stock Equivalents of the Company or obligating the
Company to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking
(collectively referred to as "Dilutable Securities"). As of the date of
this Agreement, there are not any outstanding contractual obligations of
the Company to repurchase, redeem or otherwise acquire any shares of
capital stock of the Company, except pursuant to existing employee
arrangements.
(d) Authority; Noncontravention. The Company has the requisite
corporate power and authority to enter into this Agreement and the
Ancillary Agreements and, subject, with respect to consummation of the
Merger, to prior approval of the Merger by the stockholders of the Company,
Newco and Newco Sub, as appropriate, in accordance with the
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Delaware General Corporation Law ("DGCL"), to consummate the transactions
contemplated by this Agreement and the Ancillary Agreements. Except as set
forth on Schedule 3.01(d), the execution and delivery by the Company of
this Agreement and each Ancillary Agreement to which it is a party and the
consummation by it of the transactions contemplated by this Agreement and
the Ancillary Agreements have been duly authorized by all necessary
corporate action on the part of the Company, subject, with respect to
consummation of the Merger, to prior approval of the Merger by the
stockholders of the Company, Newco and Newco Sub, as appropriate, in
accordance with the DGCL. This Agreement and the Ancillary Agreements to
which it is party have been duly executed and delivered by each of the
Company, Newco and Newco Sub, as appropriate, and, subject, with respect to
consummation of the Merger, to approval of the Merger by the stockholders
of the Company in accordance with DGCL, and assuming this Agreement and the
Ancillary Agreements constitute the valid and binding agreements of Sprint,
constitute valid and binding obligations of each of them enforceable
against the Company, Newco, and Newco Sub, respectively, in accordance with
their respective terms, except to the extent that the enforcement of this
Agreement or the Ancillary Agreements may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally, and (ii)
general principles of equity regardless of whether enforceability is
considered in a proceeding in equity or at law. Except as set forth on
Schedule 3.01(d), the execution and delivery of this Agreement and the
Ancillary Agreements by the Company did not, and the consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements,
and compliance with the provisions of the Marketing Agreement and the
Network Agreement, without obtaining the consent of any third party will
not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss
by the Company of a material benefit under, or result in the creation of
any Lien upon any of the properties or assets of the Company under, (i) the
certificate of incorporation or bylaws of the Company, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit or license applicable to the Company or its
properties or assets or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any Law applicable to the
Company or its respective properties or assets, other than, in the case of
clauses (ii), (iii) and (iv), any such conflicts, violations, defaults,
rights or Liens that individually or in the aggregate would not (x) have a
Material Adverse Effect on the Company, (y) materially impair the ability
of the Company to perform its obligations under this Agreement or any
Ancillary Agreement to which it is a party or (z) prevent the consummation
of any of the transactions contemplated by this Agreement or any of the
Ancillary Agreements. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required by the Company in connection with the execution and delivery of
this Agreement and the Ancillary Agreements or the consummation by the
Company of the transactions contemplated by this Agreement and the
Ancillary Agreements, except for (i) the filing of a premerger notification
and report form by the Company under the HSR Act and the expiration of the
applicable waiting period or early termination thereof and, (ii) the filing
with the SEC of (w) the Proxy Statement, (x) the S-4,
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(y) a solicitation/recommendation statement on Schedule 14D-9 and (z) such
reports under Sections 12 and 13(a) of the Exchange Act as may be required
in connection with this Agreement, the Ancillary Agreements and the
transactions contemplated by this Agreement and the Ancillary Agreements,
(iii) the filing of the Certificate of Merger with the Secretary of State
of the State of Delaware, and (iv) such other consents, approvals, orders,
authorizations, registrations, declarations and filings as are set forth on
Schedule 3.01(d).
(e) SEC Documents; Undisclosed Liabilities. The Company has filed all
required reports, schedules, forms, statements and other documents with the
SEC since the filing of its initial registration statement with respect to
its initial public offering which was declared effective on January 22,
1997 (the "SEC Documents" which are deemed to include such registration
statement). As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, applicable to such SEC Documents, and
none of the SEC Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company has
filed all exhibits to its SEC documents required by Item 601 of SEC
Regulation S-K or which would have been required to be filed if there were
no exclusions or exceptions in paragraph (b)(10) of such Item 601. The
financial statements of the Company included in the SEC Documents comply as
to form in all material respects with applicable accounting requirements
and the published rules and regulations of the SEC with respect thereto,
have been prepared in accordance with generally accepted accounting
principles (except, in the case of unaudited statements, as permitted by
Form 10-Q of the SEC and SEC Regulations S-X) applied on a consistent basis
during the periods involved (except as may be indicated in the notes
thereto) and fairly present the financial position of the Company as of the
dates thereof and its statements of operations, stockholders equity and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal, recurring year-end audit adjustments). Except as set
forth in the SEC Documents filed and publicly available prior to the date
of this Agreement ("Company Filed SEC Documents"), as of the date hereof,
the Company has no liabilities or obligations of any nature (whether
accrued, contingent, absolute, determined, determinable or otherwise),
other than (i) liabilities provided for in the Company's unaudited balance
sheet included in the Company's Quarterly Report on Form 10-Q for its third
fiscal quarter ("Unaudited Balance Sheet"), dated as of September 30, 1997
(the "Unaudited Balance Sheet Date"), (ii) liabilities and obligations
incurred in the Ordinary Course of Business since the Unaudited Balance
Sheet Date, and (iii) liabilities and obligations under this Agreement and
the Ancillary Agreements.
(f) Absence of Certain Changes or Events. Except as disclosed in
Schedule 3.01(f) or as reflected in Section 3.01(c), the Company Filed SEC
Documents, or except as contemplated by this Agreement, since the Unaudited
Balance Sheet Date, the Company has conducted its business only in the
Ordinary Course of Business and (i) there has not occurred any transaction,
or condition (financial or otherwise) of any character (whether or not in
the Ordinary Course of Business), event or change (including the incurrence
of any
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liabilities of any nature, whether or not accrued, contingent or otherwise)
having individually or in the aggregate, a Material Adverse Effect on the
Company, and (ii) the Company has not taken any action that would have been
prohibited under Section 4.01 hereof as if the Agreement had been in effect
on the date of such action.
(g) Litigation. Except as disclosed in the Company Filed SEC
Documents or as set forth on Schedule 3.01(g), there is no suit, action or
proceeding pending or, to the Knowledge of the Company, Threatened against
the Company that, individually or in the aggregate, would have a Material
Adverse Effect on the Company.
(h) Benefit Plans.
(i) Schedule 3.01(h) hereto contains a true and complete list
of each Benefit Plan. With respect to each Benefit Plan, the Company
has made available to Sprint a true and correct copy of (a) the most
recent annual report (Form 5500) filed with the IRS, if any, (b) the
plan document, (c) any summary plan description relating to such
Benefit Plan, and (d) each trust agreement and group annuity contract,
if any, relating to such Benefit Plan.
(ii) With respect to the Benefit Plans, individually and in the
aggregate, no event has occurred, and to the Company's Knowledge,
there exists no present condition or set of circumstances in
connection with which the Company is now subject to, or could
reasonably be expected to be subject to, any liability under ERISA,
the Code, or any other applicable Law, except liability for benefit
claims and funding obligations or contributions payable in the
ordinary course, and to the Company's Knowledge each of the Benefit
Plans has at all times in all material respects been in compliance
with and administered in accordance with its terms, the applicable
provisions of ERISA, the Code or any other applicable Law.
(iii) Each of the Benefit Plans and related trusts that is
intended to be qualified in form under Section 401(a) and tax exempt
under Section 501(a) of the Code, respectively, has been determined by
the IRS to so qualify under the Code and, to the Company's Knowledge,
nothing has occurred since such determination to cause any of such
Benefit Plans not to qualify under Section 401(a) or any of such
related trusts not to be tax exempt under Section 501(a) of the Code
other than the effective date of certain amendments of the Code and
ERISA, the remedial amendment period for which has not expired.
(iv) With respect to the Benefit Plans, individually and in the
aggregate, all required reports and descriptions have been
appropriately filed and distributed to the extent ERISA, the Code or
applicable Law requires.
(v) With respect to the Benefit Plans, individually and in the
aggregate, there has been no prohibited transaction within the meaning
of Section 406 of ERISA
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or Section 4975 of the Code involving the Company, and there is no
action, suit, grievance, arbitration or other claim with respect to
the administration or investment of assets of the Benefit Plans (other
than routine claims for benefits made in the ordinary course) pending,
or to the Company's Knowledge, Threatened, and to the Company's
Knowledge there is no present condition or set of circumstances which
could reasonably be expected to give rise to any such action, suit,
grievance, arbitration or other claim.
(vi) Neither the Company nor any corporation, trade or business
which is affiliated with the Company, in the manner described in
Section 414(b), (c), (m) and (o) of the Code or Section 4001(a)(14) of
ERISA, has ever sponsored, or made or been obligated to make
contributions to, (i) any defined benefit pension plan subject to
Title IV of ERISA or any plan subject to the minimum funding standards
under Section 412 of the Code or Section 302 of ERISA; or (ii) any
nonqualified deferred compensation plan or arrangement, including,
without limitation, any plans providing for post employment benefits
such as life or health insurance or any other benefits.
(i) Taxes. Except as set forth on Schedule 3.01(i), the Company has
timely filed all Returns and reports required to be filed by it on or
before the date hereof, except where failure to timely file would not have
a Material Adverse Effect on the Company. All such Returns are complete
and accurate except where the failure to be complete or accurate would not
have a Material Adverse Effect on the Company. The Company has paid or has
set up an adequate reserve for the payment of all Taxes shown as due on
such Returns, except where the failure to do so would not have a Material
Adverse Effect on the Company. The Unaudited Balance Sheet contains an
adequate reserve for all Taxes payable by the Company accrued through the
Unaudited Balance Sheet Date. Except as set forth on Schedule 3.01(i), no
deficiencies for any Taxes have been asserted, proposed or assessed against
the Company in writing that have not been paid or otherwise settled or
reserved against, except for deficiencies the assertion, proposing or
assessment of which would not have a Material Adverse Effect on the
Company, and no waivers of the time to assess any such Taxes are pending.
There are no material Liens for Taxes (other than for current taxes not yet
due and payable) on the assets of the Company.
(j) Voting Requirements. The only vote of the holders of any class or
series of the Company's capital stock that is necessary to approve this
Agreement, the Ancillary Agreements or the transactions contemplated by
this Agreement and the Ancillary Agreements is (i) the affirmative vote by
a majority of the votes cast by the holders of Common Stock entitled to
vote with respect to the issuance and sale of the Convertible Preferred
Stock and Convertible Notes, as may be required by paragraph (i) of NASD
Rule 4460, and (ii) the affirmative vote by the holders of a majority of
the outstanding shares of Common Stock entitled to vote with respect to the
Merger, as required by Section 251 of the DGCL.
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(k) Brokers. No broker, investment banker, financial advisor or other
person, other than Deutsche Morgan Grenfell Inc., the fees and expenses of
which will be paid by the Company, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission, in connection with
the transactions contemplated by this Agreement and the Ancillary
Agreements, based upon arrangements made by or on behalf of the Company
(except as set forth on Schedule 3.01(k)).
(l) Compliance with Laws. The Company has in effect all approvals,
authorizations, certificates, filings, franchises, licenses, notices,
permits, variances, exemptions, orders and rights ("Permits") necessary for
it to own, lease or operate its properties and assets and to carry on its
business as now conducted, and there has not occurred any default under any
Permit, except for the absence of Permits and for defaults under Permits
that, individually or in the aggregate, have not had a Material Adverse
Effect on the Company. Except as disclosed in the Company Filed SEC
Documents, the Company is in compliance with all applicable Law, except
where failures to so comply, individually or in the aggregate, would not
have a Material Adverse Effect on the Company. Except as set forth in
Schedule 3.01(l) hereto or as described in Company Filed SEC Documents
filed prior to the date hereof, as of the date of this Agreement, no
investigation or review by any Governmental Entity with respect to the
Company is pending or, to the Company's Knowledge, Threatened, other than,
in each case, those the outcome of which would not have a Material Adverse
Effect on the Company.
(m) Environmental Matters. The Company is and at all times has been
in full compliance with, and has not been and is not in violation of or
liable under, any Environmental Law (which compliance includes the
possession by the Company of all Permits required under applicable
Environmental Law and compliance with the terms and conditions thereof),
except for such failure to be in compliance which, individually or in the
aggregate, would not have a Material Adverse Effect on the Company. There
are no pending or, to the Company's Knowledge, Threatened claims, orders,
notices, administrative or judicial actions, or Encumbrances, relating to
environmental, health, and safety liabilities arising under or pursuant to
any federal, state or local Environmental Laws, with respect to or
affecting any of the properties and assets (whether real, personal, or
mixed) in which the Company has an interest, except for any such claim,
order, notice, administrative or judicial action, Encumbrance or other
restriction that would not, individually or in the aggregate, have a
Material Adverse Effect on the Company.
(n) Intellectual Property. The Company owns sufficient right, title
and interest in and to, or has valid licenses of sufficient scope and
duration for, all patents, patent rights, copyrights, trademarks, service
marks, trade names, software, trade secrets, confidential information and
other intellectual property material to the operation of the business of
the Company as currently conducted or
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proposed to be conducted (the "Intellectual Property Assets") and as
presently proposed to be conducted. The Intellectual Property Assets are
free and clear of all Liens which would materially impair the Company's
ability to use the Intellectual Property Assets in the business of the
Company as currently conducted or proposed to be conducted. The Company has
granted to no third party any rights in and to the Intellectual Property
Assets except for distribution rights, OEM rights, end user licenses and
rights to reproduce certain of the Intellectual Property Assets in the
Ordinary Course of Business in connection with the marketing and
distribution of the Company's product and service offerings, and which
individually and in the aggregate would not have a Material Adverse Effect.
Except as set forth on Schedule 3.01(n), none of the Intellectual Property
Assets owned or licensed by the Company infringes, or conflicts with, or to
the Company's Knowledge, is alleged to infringe upon or conflict with the
intellectual property rights of any third party, which infringement or
alleged infringement could have a Material Adverse Effect. The Company has
no Knowledge that any of its employees performing or managing key functions
of the Company is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to
any judgment, decree or order of any court or administrative agency, that
would interfere with the use of such employee's best efforts to promote the
interests of the Company or that would conflict with the Company's business
as proposed to be conducted. To the Company's Knowledge, neither the
execution nor delivery of this Agreement or any Ancillary Agreement, nor
the conduct of the Company's business by the employees of the Company, nor
the conduct of the Company's business as proposed, will conflict with or
result in a breach of the terms, conditions or provisions of, or constitute
a default under, any contract, covenant or instrument under which any of
such employees is now obligated, which conflict or breach would have a
Material Adverse Effect. The Company does not presently utilize or intend
to utilize any inventions of any of its employees (or people it currently
intends to hire) made prior to their employment by the Company. To the
Company's Knowledge, any software owned by the Company, and any software
used independently by the Company and owned by third parties and licensed
to the Company is, in all material respects, Year 2000 Compliant. "Year
2000 Compliant" means (i) the software is capable of correctly processing,
providing and receiving date data within and between the twentieth and
twenty-first century (including accounting for all required leap year
calculations); and (ii) all date fields in the software use four digit year
fields.
(o) Certain Payments. Neither the Company, nor any of its directors,
officers, agents, or employees, or to the Company's Knowledge, any other
Person associated with or acting for or on behalf of the Company, has
directly or indirectly (a) made any contribution, gift, bribe, rebate,
payoff, influence payment, kickback, or other payment to any Person,
private or public, regardless of form, whether in money, property, or
services (i) to obtain favorable treatment in securing business, (ii) to
pay for favorable treatment for business secured, (iii) to obtain special
concessions or for special concessions already obtained, for or in respect
of the Company or any Affiliate of the Company, (b) established or
maintained any fund or asset that has not been appropriately recorded in
the books and records of the Company, which in the case of either clause
(a) or (b) would be in violation of Law or would have a Material Adverse
Effect.
SECTION 3.02 Representations and Warranties of Newco and Newco Sub. Newco
and Newco Sub represent and warrant to Sprint and Sprint L.P., jointly and
severally, as follows:
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(a) Organization, Standing and Power. Newco and Newco Sub were each
incorporated under the DGCL on January 30, 1997 and neither of them has
engaged in any business, owns any property or assets (except for $10 in
cash received by Newco for the issuance of 10 shares of its common stock to
its sole stockholder (which is not the Company or an Affiliate of the
Company) and $10 in cash received by Newco Sub for the issuance of 10
shares of its common stock to Newco, which in each case represents all of
their outstanding shares of capital stock) or is a party to any agreement,
except for this Agreement. Each of Newco and Newco Sub is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated. Newco will, immediately following
the Merger, be duly qualified or licensed to do business and be in good
standing in each jurisdiction in which the nature of the business conducted
or the ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to
be so qualified or licensed (individually or in the aggregate) would not
have a Material Adverse Effect on Newco immediately following the Merger.
Each of Newco and Newco Sub has made available to Sprint for its review
complete and correct copies of its certificate of incorporation and bylaws,
in each case as amended to the date of this Agreement.
(b) Authority; Noncontravention. Each of Newco and Newco Sub has the
requisite corporate power and authority to enter into this Agreement and
the Ancillary Agreements and, subject, with respect to consummation of the
Merger, to approval of the Merger by the stockholders of the Company, Newco
and Newco Sub in accordance with the DGCL, to consummate the transactions
contemplated by this Agreement and the Ancillary Agreements. Except as set
forth on Schedule 3.02(b), the execution and delivery by each of Newco and
Newco Sub of this Agreement and each Ancillary Agreement to which it is a
party and the consummation by each of them of the transactions contemplated
by this Agreement and the Ancillary Agreements have been duly authorized by
all necessary corporate action on the part of Newco and Newco Sub,
respectively, subject, with respect to consummation of the Merger, to prior
approval of the Merger by the stockholders of the Company, Newco and Newco
Sub in accordance with DGCL. This Agreement and the Ancillary Agreements to
which it is party have been duly executed and delivered by each of Newco
and Newco Sub and, subject, with respect to consummation of the Merger, to
prior approval of the Merger by the stockholders of the Company, Newco and
Newco Sub in accordance with DGCL, and assuming this Agreement and the
Ancillary Agreements constitute the valid and binding agreements of Sprint
and the Company, constitute valid and binding obligations of each of them
enforceable against Newco and Newco Sub, respectively, in accordance with
their respective terms, except to the extent that the enforcement hereof
and thereof may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally, and (ii) general principles of equity
regardless of whether enforceability is considered in a proceeding in
equity or at law. Except as set forth on Schedule 3.02(b), the execution
and delivery of this Agreement and the Ancillary Agreements by Newco and
Newco Sub did not, and the consummation of the transactions contemplated by
this Agreement and the Ancillary Agreements and compliance
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with the provisions of the Marketing Agreement and the Network Agreement
without obtaining the consent of any third party will not, conflict with,
or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss by Newco or Newco
Sub of a material benefit under, or result in the creation of any Lien upon
any of the properties or assets of Newco or Newco Sub under, (i) the
certificate of incorporation or bylaws of Newco or Newco Sub, (ii) any loan
or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit or license applicable to Newco or Newco Sub
or their respective assets or (iii) subject to the governmental filings and
other matters referred to in the following sentence, any Law applicable to
Newco or Newco Sub or their respective assets, other than, in the case of
clauses (ii) and (iii), any such conflicts, violations, defaults, rights or
Liens that individually or in the aggregate would not (x) have a Material
Adverse Effect on Newco or Newco Sub, (y) materially impair the ability of
Newco and Newco Sub to perform its obligations under this Agreement or any
Ancillary Agreement to which it is a party or (z) prevent the consummation
of any of the transactions contemplated by this Agreement or any of the
Ancillary Agreements. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required by Newco or Newco Sub in connection with the execution and
delivery of this Agreement and the Ancillary Agreements or the consummation
by Newco and Newco Sub of the transactions contemplated by this Agreement
and the Ancillary Agreements, except for (i) the filing with the SEC of (i)
the S-4, (ii) the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware, and (iii) such other consents, approvals,
orders, authorizations, registrations, declarations and filings as are set
forth on Schedule 3.02(b).
(c) Litigation. There is no suit, action or proceeding pending or, to
the Knowledge of Newco or Newco Sub, Threatened against Newco or Newco Sub.
(d) Voting Requirements. The only vote of the holders of any class or
series of the capital stock of Newco and Newco Sub that is necessary to
approve this Agreement, the Ancillary Agreements or the transactions
contemplated by this Agreement and the Ancillary Agreements is the
affirmative vote by the holders of a majority of their respective
outstanding shares of common stock entitled to vote with respect to the
Merger, as required by Section 251 of the DGCL.
(e) Brokers. No broker, investment banker, financial advisor or other
person, other than Deutsche Morgan Grenfell Inc., the fees and expenses of
which will be paid by the Company, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with
the transactions contemplated by this Agreement and the Ancillary
Agreements based upon arrangements made by or on behalf of Newco and Newco
Sub.
(f) Compliance with Laws. Newco and Newco Sub will, immediately
following the Merger, have all Permits necessary for them to own, lease or
operate the properties and assets now owned by the Company and to carry on
the business now conducted by the
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Company, except for such Permits, the absence of which would not have,
individually or in the aggregate, a Material Adverse Effect on Newco and
Newco Sub, taken as a whole.
SECTION 3.03 Representations and Warranties of Sprint and Sprint L.P..
Sprint and Sprint L.P., jointly and severally, represent and warrant to the
Company, Newco and Newco Sub as follows:
(a) Organization, Standing and Power. Sprint is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated. Sprint L.P. is a limited
partnership duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is organized. Each of Sprint and
Sprint L.P. has all requisite power and authority to own, lease and operate
their respective properties and to carry on their respective businesses as
now being conducted. Each of Sprint and Sprint L.P. and each of their
respective Significant Subsidiaries is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed (individually or in the
aggregate) could not reasonably be expected to have a Material Adverse
Effect on Sprint or Sprint L.P. and their respective Subsidiaries, taken as
a whole. Sprint has made available to the Company, Newco and Newco Sub for
their review complete and correct copies of its certificate of
incorporation and bylaws. Sprint L.P. has made available to the Company,
Newco and Newco Sub for their review a complete and correct copy of its
constitutive documents.
(b) Subsidiaries. A schedule to Sprint's Annual Report on Form 10-K
for 1996 lists each Significant Subsidiary of Sprint. All the outstanding
shares of capital stock of each Significant Subsidiary that is a
corporation have been validly issued and are fully paid and nonassessable
and are not subject to any options or other rights to acquire any such
shares.
(c) Authority; Noncontravention. Sprint has the requisite corporate
power and authority, and Sprint L.P. has the requisite power and authority,
to enter into this Agreement and the Ancillary Agreements and to consummate
the transactions contemplated by this Agreement and the Ancillary
Agreements. The execution and delivery by Sprint and Sprint L.P. of this
Agreement and each Ancillary Agreement to which it is a party and the
consummation by it of the transactions contemplated by this Agreement and
the Ancillary Agreements have been duly authorized by, in the case of
Sprint, all necessary corporate action, and in the case of Sprint L.P., all
necessary action of the limited partnership and its general partner. This
Agreement and the Ancillary Agreements to which Sprint or Sprint L.P. is
party have been duly executed and delivered by Sprint and Sprint L.P. and,
assuming this Agreement and the Ancillary Agreements constitute the valid
and binding agreements of the Company, Newco and Newco Sub, constitute
valid and binding obligations enforceable against Sprint and Sprint L.P. in
accordance with their respective terms, except to the extent
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that the enforcement of this Agreement or the Ancillary Agreements may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
generally, and (ii) general principles of equity regardless of whether
enforceability is considered in a proceeding in equity or at law. Except as
set forth on Schedule 3.03(c), the execution and delivery of this Agreement
and the Ancillary Agreements by Sprint and Sprint L.P. did not, and the
consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements and compliance with the provisions of the Marketing
Agreement and the Network Agreement without obtaining the consent of any
third party will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any
obligation or to loss by Sprint, Sprint L.P. or any of Sprint's Significant
Subsidiaries, of a material benefit under, or result in the creation of any
Lien upon any of the properties or assets of Sprint or Sprint L.P. under,
(i) the certificate of incorporation or bylaws of Sprint or the comparable
charter or organizational documents of Sprint L.P. or any of Sprint's
Significant Subsidiaries, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit or
license applicable to Sprint, Sprint L.P. or any of Sprint's Significant
Subsidiaries or their respective properties or assets or (iii) subject to
the governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Sprint, Sprint L.P. or any of Sprint's Significant
Subsidiaries or their respective properties or assets, other than, in the
case of clauses (ii) and (iii), any such conflicts, violations, defaults,
rights or Liens that individually or in the aggregate would not (x) have a
Material Adverse Effect on Sprint, Sprint L.P. and Sprint's Subsidiaries,
taken as a whole, (y) materially impair the ability of Sprint or Sprint
L.P. to perform their respective obligations under this Agreement or any
Ancillary Agreement to which it is a party or (z) prevent the consummation
of any of the transactions contemplated by this Agreement or any of the
Ancillary Agreements. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required by or with respect to Sprint or Sprint L.P. or any of Sprint's
Significant Subsidiaries in connection with the execution and delivery of
this Agreement and the Ancillary Agreements or the consummation by Sprint
or Sprint L.P. of the transactions contemplated by this Agreement and the
Ancillary Agreements, except for (i) the filing of a premerger notification
and report form by Sprint or Sprint L.P. under the HSR Act and the
expiration of the applicable waiting period or early termination thereof
and, (ii) the filing with the SEC of (x) a tender offer statement on
Schedule 14D-1 and (y) such reports under Sections 12 and 13(a) of the
Exchange Act as may be required in connection with this Agreement, the
Ancillary Agreements and the transactions contemplated by this Agreement
and the Ancillary Agreements, and (iii) such other consents, approvals,
orders, authorizations, registrations, declarations and filings as are set
forth on Schedule 3.03(c).
(d) Brokers. No broker, investment banker, financial advisor or other
person, other than SBC Warburg Dillon Read, Inc. the fees and expenses of
which will be paid by Sprint, is entitled to any broker's, finder's,
financial advisor's or other similar fee or
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commission in connection with the transactions contemplated by this
Agreement and the Ancillary Agreements based upon arrangements made by or
on behalf of Sprint or Sprint L.P.
(e) Ownership of Common Stock. As of the date of this Agreement,
neither Sprint nor Sprint L.P. beneficially owns any shares of Common
Stock.
(f) Investment Intent. Sprint is purchasing the Convertible Notes for
advances under the Credit Agreement, and Sprint L.P. is purchasing the
Convertible Preferred Stock in exchange for the Preferred Stock
Consideration, in each case for their own account for investment and not
with a present view to, or for sale in connection with, any distribution
thereof in violation of the Securities Act. The certificates evidencing the
Convertible Preferred Stock, the Convertible Notes and any shares of Common
Stock issued upon conversion of the Convertible Preferred Stock or the
Convertible Notes shall bear substantially the following legend (modified
accordingly in the case of the Convertible Notes) until such time as there
is a sale or transfer in accordance with this Agreement and the Ancillary
Agreements or the termination thereof:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. THE
DISPOSITION AND VOTING OF SUCH SHARES IS SUBJECT TO THE
CONDITIONS SPECIFIED IN THE INVESTMENT AGREEMENT DATED AS OF
FEBRUARY 10, 1998, AMONG THE COMPANY, SPRINT, SPRINT L.P.,
NEWCO, AND NEWCO SUB AND THE GOVERNANCE AGREEMENT DATED AS
OF FEBRUARY 10, 1998, AMONG THE COMPANY, SPRINT, SPRINT
L.P., AND NEWCO, AND NEWCO RESERVES THE RIGHT TO REFUSE THE
TRANSFER OF SUCH SHARES UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF SUCH
CONDITIONS WILL BE FURNISHED BY NEWCO TO THE HOLDER HEREOF
UPON WRITTEN REQUEST AND WITHOUT CHARGE. THESE SECURITIES
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED EXCEPT IN ACCORDANCE THEREWITH."
(g) Acquisition for Investment and Rule 144. Sprint and Sprint L.P.
understand that the shares of Convertible Preferred Stock issued to them
pursuant to the Agreement ("Sprint Shares") and Sprint understands that the
Convertible Notes issued to Sprint pursuant to the Credit Agreement will
not be registered under the Securities Act by reason of a specific
exemption from the registration provision of the Securities Act which
depends upon, among other things, the bona fide nature of their investment
intent as expressed herein. Except as otherwise provided in Section
3.03(i), Sprint and Sprint L.P. acknowledge that the Sprint Shares and the
Convertible Notes must be held indefinitely unless they are subsequently
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registered under the Securities Act or an exemption from such registration
is available. Sprint and Sprint L.P. have been advised or are aware of the
provisions of Rule 144 promulgated under the Securities Act which permit
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions. Sprint and Sprint L.P. are aware that
the certificates representing the Sprint Shares, and that the Convertible
Notes, will bear such legends relating to restrictions on resale under the
Securities Act as provided in Section 3.01(f) and Newco under certain
conditions may issue instructions to its stock transfer agent to stop the
transfer of the Sprint Shares and the Convertible Notes unless made in
accordance with this Agreement or any Ancillary Agreement.
(h) Legal Investment. The purchase of the Convertible Preferred Stock
by Sprint L.P. and the purchase of Convertible Notes by Sprint hereunder is
legally permitted by all applicable Law and all consents, approvals,
authorizations of or designations, declarations or filings in connection
with the valid execution and delivery of this Agreement by Sprint and
Sprint L.P. or the purchase of the Convertible Preferred Stock by Sprint
L.P. and the Convertible Notes by Sprint have been obtained, or will be
obtained prior to the Closing Date.
(i) Purchase Entirely for Own Account. Sprint is purchasing the
Convertible Notes for advances under the Credit Agreement, and Sprint L.P.
is purchasing the Convertible Preferred Stock in exchange for the Preferred
Stock Consideration, in each case for their own account and not as a
nominee or agent, and not with a view to the resale or distribution of any
part thereof, except for transfers permitted by this Agreement. Neither
Sprint L.P. nor Sprint has any present intention of selling, granting any
participation in, or otherwise distributing the Convertible Preferred Stock
or the Convertible Notes. Neither Sprint nor Sprint L.P. has any contract,
undertaking, agreement or arrangement with any Person to sell, transfer or
grant participations to such Person or to any third person with respect to
the Convertible Preferred Stock or the Convertible Notes. Notwithstanding
any other provision of this Agreement, Sprint and Sprint L.P. shall be
permitted to transfer the Convertible Preferred Stock, the Convertible
Notes and the Newco Common Stock issued upon conversion thereof to any
Affiliate of Sprint or Sprint L.P. without an opinion of counsel, without
registration under the Securities Act or any state securities law, and
without the consent of Newco, provided that any such Affiliate who acquires
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such Convertible Preferred Stock, Convertible Notes or Newco Common Stock
agrees in writing to be subject to the applicable requirements of this
Section 3.03 and any restrictions on transfer contained in any of the
Ancillary Agreements to the same extent as if such Affiliate were the
original purchaser thereof.
(j) Agreements with SIP Subscribers. Sprint L.P. has previously
furnished to each of the Company, Newco and Newco Sub the form of agreement
between Sprint L.P. and the SIP Subscribers governing the receipt of
internet access services from Sprint L.P. ("SIP Agreements"). Sprint L.P.
has complied in all material respects with all applicable terms and
requirements of the SIP Agreements. As of the date hereof, Sprint has
approximately 130,000 SIP Subscribers who are subject to SIP Agreements.
Except as set forth in Schedule 3.03(j), the SIP Agreements are assignable
to Newco in accordance with this Agreement and are enforceable against
Sprint L.P. in accordance with their respective terms, except to the
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extent enforcement thereof may be limited by: (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally, and (ii) general principals of
equity, regardless of whether enforceability is considered in a proceeding
in equity or at law; provided, however, that the SIP Agreements are subject
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to immediate termination by unilateral action of the SIP Subscribers.
(k) Financial Capability. Sprint has sufficient funds available to
finance the Offer and the other transactions contemplated by this Agreement
and the Ancillary Agreements, and is not engaged in any financing activity,
the consummation of which would be necessary in order for Sprint to
consummate the Offer and the other transactions contemplated by this
Agreement and the Ancillary Agreements.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS AND
OF THE COMPANY
SECTION 4.01 Conduct of Business. (a) Conduct of Business by the
Company. During the period from the date of this Agreement to the Closing Date,
the Company shall carry on its business in accordance with applicable Laws and
in the usual, regular and Ordinary Course in substantially the same manner as
heretofore conducted and, to the extent consistent therewith, use all reasonable
efforts to preserve intact its current business organization, keep available the
services of its current officers and employees and preserve its relationships
with customers, suppliers, licensors, licensees, distributors, joint venturers
and others having business dealings with it, except to the extent that the
failure to do so would not have a Material Adverse Effect on the Company.
Without limiting the generality of the foregoing, except as contemplated by this
Agreement, during the period from the date of this Agreement to the Closing
Date, the Company shall not, without obtaining the prior written consent of
Sprint, undertake any of the following:
(i) (x) declare, set aside or pay any dividends on, or make any
other distributions in respect of any of its capital stock, (y) split,
combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (z) purchase, redeem
or otherwise acquire any shares of capital stock of the Company or any
other equity securities of the Company or any rights, warrants or
options to acquire, or convert into or exchange for, any such shares
or other equity securities, except for Employee Stock Options, shares
repurchased or redeemed pursuant to any existing arrangements with
existing employees;
(ii) except as set forth in subsection (iv) hereof below, issue,
deliver, sell, pledge or otherwise encumber any shares of capital
stock, any other voting securities or any securities convertible into
or exchangeable for, or any rights, warrants or options to acquire,
any such shares, voting securities or convertible or exchangeable
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securities (other than (x) the issuance of new Employee Stock Options
or Director Stock Options under existing Benefit Plans or Common Stock
upon the exercise or conversion of Employee Stock Options or Director
Stock Options, warrants or convertible notes outstanding on the date
of this Agreement and in accordance with their present terms, and (y)
the issuance and sale of the Convertible Preferred Stock and the
Convertible Notes in accordance with the terms hereof);
(iii) any amendment to the certificate of incorporation or
bylaws of the Company;
(iv) acquire or agree to acquire (x) by merging or
consolidating with, or by purchasing a substantial portion of the
stock or assets of, or by any other manner, any business or any
corporation, partnership, joint venture, association or other business
organization or division thereof if the consideration paid by the
Company in such transaction is in the form of an issuance of capital
stock or Dilutable Securities which in the aggregate are in excess of
the Issuance Percentage Limitation or (y) any assets that are
material, individually or in the aggregate, to the Company;
(v) sell, lease, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its Intellectual
Property Assets or any other properties or assets if, as a result
thereof, the Company would suffer a Material Adverse Effect;
(vi) (A) incur any indebtedness for borrowed money or guarantee
any such indebtedness of another Person, issue or sell any debt
securities or warrants or other rights to acquire any debt securities
of the Company, guarantee any debt securities of another Person, enter
into any "keep well" or other agreement to maintain any financial
statement condition of another Person or enter into any arrangement
having the economic effect of any of the foregoing, except for short-
term borrowings incurred in the Ordinary Course of Business or which
do not exceed $10 million in the aggregate, or (B) make any loans,
advances or capital contributions to, or investments in, any other
Person other than (1) pursuant to existing contractual rights and (2)
non-material loans or advances to employees in the Ordinary Course of
Business;
(vii) make or agree to make any new capital expenditures or
expenditures (other than capital expenditures which are contained in a
duly approved budget of the Company as of the date hereof), which, are
in excess of $5 million in the aggregate.
(viii) change any accounting policy or procedure, other than any
changes required by GAAP or applicable SEC accounting policy;
(ix) fail to maintain its books, accounts and records in any
manner other than the usual, regular and ordinary manner, on a basis
consistent with prior years and in a business-like manner in
accordance with sound commercial practice;
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(x) fail to timely file all tax returns and reports required to
be filed with any Governmental Entity; or
(xi) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) Other Actions. The Company, Newco, Newco Sub, Sprint and Sprint L.P.
shall not, and Sprint shall not permit any of its Subsidiaries to, take any
action that would result in (i) any of the representations and warranties of
such party set forth in this Agreement or the Ancillary Agreements that are
qualified as to materiality becoming untrue, (ii) any of such representations
and warranties that are not so qualified becoming untrue in any material respect
or (iii) any of the conditions set forth in Article II not being satisfied. Each
of the Parties agrees to and shall use its respective commercially reasonable
efforts to cause the conditions for the respective benefit of the other Parties
hereto and set forth in Article II to be satisfied.
(c) Advice of Changes. Each of the Parties shall promptly notify the other
Parties of any change or event having a Material Adverse Effect on the other
Parties. If a Party provides notice to the other Parties of a change or event
having a Material Adverse Effect on the other Parties, and as to any of the
other Parties that fails to deliver notice within five (5) business days to such
notifying Party of its intention to not Close as a result of such change or
event, then such Party failing to deliver such notice shall be deemed to have
waived such change or event.
SECTION 4.02 Access to Property and Information. Sprint, Sprint L.P. and
their counsel, accountants, auditors and representatives shall have full access
during normal business hours to the facilities of the Company and to its books,
records, Contracts and documents concerning its business, assets and properties
that may reasonably be requested, provided that such inspections will not
--------
unreasonably disrupt the Company's business or employees and the Company
receives reasonable advance notice of such inspections.
SECTION 4.03 Public Disclosure. No public release or announcement of the
transactions contemplated by this Agreement or any of the Ancillary Agreements
or related discussions or negotiations shall be made without advance approval
thereof by Sprint, the Company and Newco, except as may be required by Law or
legal process, in which case the other Parties shall receive prior notification
and opportunity for review before release.
SECTION 4.04 HSR Act Filings. As soon as practicable, the Company and
Sprint shall each file completed notification reports under the HSR Act, in
connection with the transactions contemplated by this Agreement and the
Ancillary Agreements and will cooperate with each other in attempting to secure
a waiver of the applicable waiting periods under such Act, and, upon the request
of either the Federal Trade Commission or the United States Department of
Justice, will supply such agency with any additional requested information as
expeditiously as possible.
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SECTION 4.05 Information. Each Party will promptly inform the other party
in writing of (i) any litigation commenced against such Party in respect of the
transactions contemplated by this Agreement or any Ancillary Agreement, or (ii)
any material litigation commenced against such Party which would have a Material
Adverse Effect on such Party and its Subsidiaries taken as a whole.
SECTION 4.06 Further Assurances. Each Party shall each execute and
deliver or cause to be executed and delivered such further instruments of
transfer, assignment and conveyance and take such other action as may be
reasonably required to more effectively carry out the consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements.
SECTION 4.07 No Solicitation. (a) The Company shall not and shall not
authorize or permit any officer, director or employee of, or any investment
banker, attorney or other advisor or representative of, the Company to, (i)
solicit or initiate, or encourage the submission of, any Acquisition Proposal,
or approve or authorize any of the foregoing, or (ii) participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to, or take any other action to expedite any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Acquisition Proposal; provided, however, that to the extent required by
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the fiduciary obligations of the Board of Directors of the Company, as
determined in good faith by the Board of Directors based on the advice of
outside counsel, the Company may, (A) in response to an unsolicited request
therefor, furnish information with respect to the Company to any person pursuant
to a customary confidentiality agreement and discuss such information with such
person, (B) upon receipt by the Company of an Acquisition Proposal, following
delivery to Sprint of the notice required pursuant to Section 4.07(b),
participate in negotiations regarding such Acquisition Proposal, and (C) modify
or withdraw the recommendation to accept the Offer contemplated by Section
1.02(a) or its recommendation that the stockholders of the Company vote in favor
of the Company Stockholder Vote Matters as contemplated by Section 1.06(c).
(b) The Company shall (i) promptly notify Sprint of (A) the existence of
any request for confidential information with respect to, or the receipt of, any
Acquisition Proposal, (B) any inquiry or discussions with respect to, or which
could reasonably be expected to lead to, any Acquisition Proposal, (C) the
execution of a confidentiality agreement with respect to an Acquisition
Proposal, (D) the furnishing of any information in contemplation of an
Acquisition Proposal, whether or not pursuant to a confidentiality agreement,
(ii) describe the terms and conditions of any Acquisition Proposal in reasonable
detail, and (iii) furnish to Sprint all information made available to any Person
making the Acquisition, or contemplating the making of an Acquisition Proposal,
subject to a customary confidentiality agreement.
(c) The Company shall not take any action that would enhance the ability
of any other Person proposing an Acquisition Proposal to obtain the approval of
the Company's stockholders or otherwise consummate such Acquisition Proposal
(including granting any approval pursuant to Section 203 of the DGCL) without
also taking a comparable action that would similarly enhance the ability of
Sprint to obtain any necessary approval of the Company's stockholders of, and
otherwise to consummate, the transactions contemplated by this Agreement and the
Ancillary Agreements or
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an alternative transaction initiated by Sprint and concurrently withdrawing any
impediments thereto that do not similarly impede such other Person.
(d) Nothing contained in this Section 4.07 shall prohibit the Company from
taking and disclosing to its stockholders a position contemplated by Rule 14e-2
under the Exchange Act.
SECTION 4.08 Efforts Regarding Outstanding Warrants and Other Dilutable
Securities. Prior to the Closing, the Company will use its commercially
reasonable efforts to cause each of the Warrants and other Dilutable Securities
of the Company outstanding on the Closing Date to be amended or otherwise
modified so that such Warrants and other Dilutable Securities would be
thereafter only convertible into, exchangeable for or give the right to acquire
a number of shares of Newco Common Stock equal to the number of shares of Common
Stock into which such are convertible, exchangeable or exercisable. The Company
shall, at any time reasonably requested by Sprint, update Sprint with respect to
(i) any warrants or other Dilutable Securities of the Company that will be
convertible into, exchangeable for, or given the right to acquire Common Stock
or other voting securities of the Company after the Merger, and (ii) the
Company's progress in obtaining amendments or modifications to each of the
agreements and/or instruments governing and/or evidencing such warrants and/or
Dilutable Securities in order to ensure that such warrants and/or Dilutable
Securities will be convertible into, exchangeable for, or given the right to
acquire solely the same respective number of shares of Newco Common Stock after
the Merger.
ARTICLE V
ADDITIONAL AGREEMENTS
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SECTION 5.01 Reasonable Efforts; Notification. (a) Upon the terms and
subject to the conditions set forth in this Agreement, each of the Parties shall
use all commercially reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement and the Ancillary Agreements, including (i) the
obtaining of all necessary actions or nonactions, waivers, consents and
approvals from Governmental Entities and the making of all necessary
registrations and filings (including filings with Governmental Entities, if any)
and the taking of all reasonable steps as may be necessary to obtain an approval
or waiver from, or to avoid an action or proceeding by, any Governmental Entity,
(ii) the obtaining of all necessary consents, approvals or waivers from third
parties, (iii) the defending of any lawsuits or other legal proceedings, whether
judicial or administrative, challenging this Agreement or any of the Ancillary
Agreements or the consummation of the transactions contemplated by this
Agreement or the Ancillary Agreements, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed, and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement and the Ancillary Agreements.
In connection with and without limiting the foregoing, the Company, Newco and
their respective Boards of Directors shall (i) take all action requested by
Sprint or Sprint L.P. reasonably necessary so that no state takeover statute of
the States of California or Delaware or similar statute or regulation in such
states is or becomes applicable to this Agreement, the Ancillary Agreements or
any transaction contemplated by this Agreement or the Ancillary Agreements and
(ii) if any state takeover statute of the States of California or Delaware or
similar statute or regulation in such states becomes applicable to this
Agreement, any Ancillary Agreement or any transaction contemplated by this
Agreement or any Ancillary Agreement, take all action reasonably requested by
Sprint or Sprint L.P. and within the Company's or Newco's power to permit the
transactions contemplated by this Agreement and the Ancillary Agreements to be
consummated as promptly as practicable on the terms contemplated by this
Agreement and the Ancillary Agreements and otherwise take such actions as are
reasonably requested by Sprint or Sprint L.P. and within the Company's or
Newco's power to minimize the effect of such statute or regulation on the
transactions contemplated by this Agreement and the Ancillary Agreements.
Notwithstanding the foregoing, the Board of Directors of the Company shall not
be prohibited from taking any action permitted by Section 4.07.
(b) Each Party shall give prompt notice to the other parties, of (i) any
representation or warranty made by it contained in this Agreement or any
Ancillary Agreement that is qualified as to materiality becoming untrue or
inaccurate in any respect, subject to such qualification, or any such
representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect or (ii) the failure of that Party to comply
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement or any Ancillary
Agreement (including the Knowledge of Sprint of any circumstance or condition
that could reasonably be expected to render Sprint to be unable to satisfy the
condition set forth in Section 2.03(e)); provided, however, that no such
-------- -------
notification shall affect the representations, warranties, covenants or
agreements of the Parties or the conditions to the obligations of the Parties
under this Agreement or the Ancillary Agreements.
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SECTION 5.02 Fees and Expenses. Except as provided below, all fees and
expenses incurred in connection with the Offer, this Agreement and the
transactions contemplated by this Agreement and the Ancillary Agreements shall
be paid by the Party incurring such fees or expenses, whether or not the Offer,
the sale of the Convertible Preferred Stock or the Convertible Notes, or the
other transactions contemplated by this Agreement or any Ancillary Agreement on
the terms contemplated hereby or thereby is consummated; provided, however, that
-------- -------
one-half of the reasonable out-of-pocket expenses incurred by the Company in
preparing the Proxy Statement and S-4, printing and mailing the Proxy Statement,
the SEC filing fees for the S-4 and in holding the Special Meeting shall be paid
by Sprint.
SECTION 5.03 Stockholder Litigation. The Company shall give Sprint prompt
notice of any stockholder litigation against the Company and its directors
relating to the transactions contemplated by this Agreement and the Ancillary
Agreements; provided, however, that no settlement of any such litigation shall
-------- -------
be agreed to until the Company has consulted with Sprint.
SECTION 5.04 Nasdaq Listing. The Company shall use its best efforts to
cause the Newco Common Stock to be included in The Nasdaq National Market after
the Closing.
SECTION 5.05 Confidentiality. Prior to the date of this Agreement, and
between the date of this Agreement and until the earlier of the Closing Date or
the termination of this Agreement, and thereafter in accordance with the
Ancillary Agreements and the transactions and ongoing business conducted by the
Parties as contemplated hereby and thereby, the Parties have provided, or shall
provide, one another with information which is protected, secret, non-public or
proprietary in nature ("Confidential Information"); provided, however, that the
-------- -------
term Confidential Information shall not include information which: (a) is or
becomes publicly available other than as a result of a disclosure by the
disclosing Party or its representatives, (b) is or becomes available to the
receiving Party on a nonconfidential basis from a source (other than the
disclosing Party or its representatives) which, to the receiving Party's
knowledge after due inquiry, is not prohibited from disclosing such information
to the receiving Party by a legal, contractual or fiduciary obligation to the
disclosing Party, (c) is independently developed by the receiving Party without
use of the Confidential Information, or (d) is already known by the receiving
Party. Each Party agrees to (i) hold confidential, to protect, and not to
disclose except on a need-to-know basis to its directors, officers, employees,
agents, financial advisors and legal counsel, all Confidential Information
provided to it by any other Party to this Agreement or any Ancillary Agreement,
and except as otherwise required by Law or legal process, or (ii) to use
Confidential Information for any purpose other than to the extent necessary to
evaluate and enforce its rights under this Agreement and any Ancillary
Agreement. The covenants set forth in this Section 5.05 shall remain in effect
until the Closing Date and so long thereafter as any Ancillary Agreement remains
in effect. If this Agreement is terminated prior to consummation of the
transactions contemplated hereby or by any Ancillary Agreement, then each Party
shall return all documents and other material, whether or not confidential,
provided to it pursuant to this Agreement by or on behalf of any other Party to
this Agreement. The foregoing obligations of confidentiality, non-disclosure
and limited use shall be in effect for a period of three years beyond such
termination. During such period, none of the Parties shall use any of the
Confidential Information received from
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any other Party to the detriment of such other Party. Notwithstanding any other
provision of this Section 5.05, each Party shall have the right to retain and to
use any Confidential Information to the extent necessary to evaluate and enforce
its rights under this Agreement or any Ancillary Agreement.
SECTION 5.06 No Acceleration of Options or Termination Payments. (a) The
Company shall, prior to the Closing, amend, or cause to be amended, (i) the 1995
Stock Option Plan and, if necessary, any options granted thereunder, (ii) the
employment agreement with Charles G. Betty and any other employment agreements
with officers, directors or employees of the Company, (iii) any other plan,
agreement, arrangement or understanding giving rise to any options, warrants or
any other rights to purchase capital stock of the Company are granted or issued,
(iv) any plan, agreement, arrangement or understanding pursuant to which any
termination or severance pay or other compensation of any officer, director or
employee of the Company is or may become due, in order, in any such case, to
ensure that none of the transactions contemplated by this Agreement or any of
the Ancillary Agreements (including, without limitation, conversion of the
Convertible Preferred Stock and/or the Convertible Notes) will, constitute a
"change of control," or any similar event or occurrence within the meaning of
any such term or any similar term contained in any of the foregoing, or
otherwise cause or result in the acceleration of the vesting of such options or
rights or of the time at which such options or rights are permitted to be
exercised, or the acceleration of the right to receive termination or severance
pay or other compensation, in any such case either alone or together with any
other event or occurrence, such as the termination or constructive termination
of employment of any officer, director or employee of the Company.
SECTION 5.07 Amortization and Writeoffs of Goodwill and Assets. The
Company and Newco agree that none of the goodwill, or other tangible or
intangible assets acquired pursuant to, the transactions contemplated by this
Agreement or any Ancillary Agreement shall be amortized or written off other
than on a straight line basis of equal amounts taken over a period of no less
than 24 months commencing with the Closing Date, except for any such amount
which, individually or in the aggregate, is not material.
SECTION 5.08 Maintaining SIP Subscribers at Newco. The Company and Newco
agree that all of the SIP Subscribers assigned to Newco at the Closing shall be
maintained as customers of Newco and not the Company for a period of at least
two years after the Closing Date (unless such customers terminate their customer
agreement with Newco on their own initiative); provided, however, that such
-------- -------
customers may be serviced by the Company pursuant to an agreement to do so
containing terms and conditions as would be obtained by Persons dealing at arms
length. During the period commencing on the Closing Date and continuing until
the 31st day after the Closing Date, Newco shall not (i) discontinue or modify,
or publicly announce the discontinuance or modification, of the current $5.00
credit program (i.e., whereby SIP Subscribers are entitled to a $5.00 credit
upon certain circumstances set forth in the terms and conditions governing such
program), or (ii) make any change or modification to any other term or condition
of the SIP Agreement which is reasonably likely to result in a reduction in the
number of SIP Subscribers within the aforementioned time period.
SECTION 5.09 Certification of SIP Subscribers.
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(a) On or before the 15th day following the Closing Date, Sprint L.P.
shall prepare and deliver to the Company a schedule certified by a duly
authorized executive officer showing (i) the number and identity of the SIP
Subscribers assigned to the Company at Closing pursuant to Section 1.03(ii)
who have paid pursuant to the SIP Agreements at any time on or prior to the
Closing Date and (ii) the number and identity of SIP Subscribers assigned
to the Company at Closing pursuant to Section 1.03(ii) who had not paid
pursuant to the SIP Agreements at any time on or prior to the Closing Date.
For purposes of this Section 5.09, a SIP Subscriber shall be deemed to have
paid on the date of receipt of payment or upon which the subscriber's
credit card is billed by Sprint L.P., the Company or Newco, as the case may
be.
(b) On or before the 45th day following the Closing Date, Newco shall
prepare and deliver to Sprint L.P. a schedule (the "SIP True-Up
Certificate") certified by its chief financial officer showing (i) the
number and identity of the SIP Subscribers who have paid pursuant to SIP
Agreements at any time on or prior to the 31st day after the Closing Date
("Paid SIP Subscribers") and (ii) the number and identity of the SIP
Subscribers who have not paid pursuant to SIP Agreements at any time on
prior to the 31st day after the Closing Date. The Parties agree to
cooperate and to provide such further information as may be reasonably
requested to verify the matters covered by the SIP True-Up Certificate,
with such mutually agreed upon number of Paid SIP Subscribers referred to
as the "Final Number of Paid SIP Subscribers."
(c) If the Final Number of Paid SIP Subscribers is less than 130,000,
then Sprint L.P. shall forfeit to Newco a number of shares of Convertible
Preferred Stock equal to the product of (i) five shares of Convertible
Preferred Stock, times (ii) 130,000 minus the Final Number of Paid SIP
Subscribers, with such product referred to as the "Number of Forfeited
Shares of Convertible Preferred Stock." Sprint L.P. shall deliver to Newco
the stock certificate evidencing its shares of Convertible Preferred Stock
originally issued to it on the Closing Date (the "Number of Original Shares
of Convertible Preferred Stock"), together with duly executed stock power
transferring to Newco the Number of Forfeited Shares of Convertible
Preferred Stock and Newco shall thereupon issue to Sprint L.P. a balance
certificate evidencing a number of shares of Convertible Preferred Stock
equal to the difference between the Number of Original Shares of
Convertible Preferred Stock and the Number of Forfeited Shares of
Convertible Preferred Stock.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
SECTION 6.01 Termination. (a) Anything contained herein to the contrary
notwithstanding, this Agreement may be terminated, and the transactions
contemplated hereby or by any Ancillary Agreement abandoned, at any time prior
to the Closing Date:
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(i) by mutual written consent of all of the Parties;
(ii) by any of the Parties if the Offer shall not have been
consummated on or before the Expiration Date;
(iii) by Sprint and Sprint L.P. if any of the conditions set forth in
Sections 2.01 or 2.02 shall have become incapable of fulfillment, and shall
not have been waived by Sprint and Sprint L.P.; or
(iv) by the Company, Newco and Newco Sub if (x) any of the
conditions set forth in Sections 2.01 or 2.03 shall have become incapable
of fulfillment, and shall not have been waived by the Company, Newco and
Newco Sub, or (y) Sprint shall have failed to commence the Offer within
five business days following the date of initial public announcement of the
Offer;
provided, however, that the Party seeking termination pursuant to clause (ii),
- -------- -------
(iii) or (iv) is not in material breach of any of its representations,
warranties, covenants or agreements contained in this Agreement or any Ancillary
Agreement.
(b) In the event of termination by any of the Parties pursuant to this
Section 6.01, written notice thereof shall forthwith be given to the other
Parties and the transactions contemplated by this Agreement and the Ancillary
Agreements shall be terminated, without further action by any Party.
SECTION 6.02 Effect of Termination. Each Party's right of termination
under Section 6.01 is in addition to any other rights it may have under this
Agreement, any Ancillary Agreement or otherwise, and the exercise of a right of
termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 6.01 (other than those obligations set forth in
Sections 5.02 and 5.05 which shall continue to apply upon termination of this
Agreement prior to the consummation of the transactions contemplated by this
Agreement or by any Ancillary Agreement, all further obligations of the Parties
under this Agreement and any Ancillary Agreement will terminate; provided,
--------
however, that if this Agreement is terminated by a Party because of fraud or a
- -------
willful and material breach of the Agreement or any Ancillary Agreement by any
other Party or because one or more of the conditions to the terminating party's
obligations under this Agreement is not satisfied as a result of any other
Party's fraud or willful and material failure to comply with its obligations
under this Agreement or any Ancillary Agreement, the terminating Party's right
to pursue all legal remedies will survive such termination unimpaired.
ARTICLE VII
MISCELLANEOUS
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SECTION 7.01 Notices. Unless otherwise provided herein, any notice,
request, waiver, instruction, consent or document or other communication
required or permitted to be given by this Agreement shall be effective only if
it is in writing and (a) delivered by hand or sent by certified mail, return
receipt requested, (b) if sent by a nationally-recognized overnight delivery
service with delivery confirmed, or (c) if telexed or telecopied, with receipt
confirmed as follows:
The Company: 3100 New York Drive
Pasadena, California 91107
Attn: President and CEO
Telecopy No.: (626) 296-4161
with a copy to: Hunton & Williams
NationsBank Plaza, Suite 4100
600 Peachtree Street, N.E.
Atlanta, Georgia 30308-2216
Attn: Scott M. Hobby, Esq.
Telecopy No.: (404) 888-4190
Newco and Newco Sub: 3100 New York Drive
Pasadena, California 91107
Attn: President and CEO
Telecopy No.: (626) 296-4161
with a copy to: Hunton & Williams
NationsBank Plaza, Suite 4100
600 Peachtree Street, N.E.
Atlanta, Georgia 30308-2216
Attn: Scott M. Hobby, Esq.
Telecopy No.: (404) 888-4190
Sprint: Sprint Corporation
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
Attn: Chief Financial Officer
Telecopy No.: (913) 624-8426
with a copy to: Sprint Corporation
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
Attn: Corporate Secretary
Telecopy No.: (913) 624-8233
with an additional copy to: Stinson, Mag & Fizzell, P.C.
1201 Walnut, Suite 2800
P.O. Box 419251
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Kansas City, Missouri 64141-6251
Attn: John A. Granda, Esq.
Telecopy No.: (816) 691-3495
The Parties shall promptly notify each other of any change in their respective
addresses or facsimile numbers or of the Person or office to receive notices,
requests or other communications under this Section 7.02. Notice shall be
deemed to have been given as of the date when so personally delivered, when
actually delivered by the U.S. Postal Service at the proper address, the next
day when delivered during business hours to an overnight delivery service
properly addressed or when receipt of a telex or telecopy is confirmed, as the
case may be, unless the sending party has actual Knowledge that such notice was
not received by the intended recipient.
SECTION 7.02 Entire Agreement. This Agreement and, upon execution by all
Parties thereto, the Ancillary Agreements, together with the respective
Schedules and Exhibits hereto and thereto, embody the entire agreement and
understanding of the Parties in respect to the matters contemplated hereby and
thereby and supersede and render null and void all other prior agreements and
understandings, written and oral, with respect to the subject matters hereof and
thereof, provided that this provision shall not abrogate any other written
--------
agreement among the Parties executed simultaneously with this Agreement. No
Party shall be liable or bound to any other Party in any manner by any promises,
conditions, representations, warranties, covenants, agreements and
understandings, except as specifically set forth herein or therein.
SECTION 7.03 Waiver, Amendment, Etc. Except as otherwise permitted in
this Agreement, this Agreement may not be amended or supplemented, unless set
forth in a writing signed by, and delivered to, all the Parties.
Except as otherwise permitted in this Agreement, the terms or conditions of
this Agreement may not be waived unless set forth in a writing signed by the
Party entitled to the benefits thereof. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of such provision at
any time in the future or a waiver of any other provision hereof. The rights
and remedies of the Parties are cumulative and not alternative. Except as
otherwise provided in this Agreement, neither the failure nor any delay by any
Party in exercising any right, power or privilege under this Agreement, or any
of the other Ancillary Agreements or the documents referred to in this Agreement
or therein will operate as a waiver of such right, power or privilege, and no
single or partial exercise of any such right, power or privilege will preclude
any other or further exercise of such right, power or privilege or the exercise
of any other right, power or privilege.
SECTION 7.04 Successors and Assigns. Neither this Agreement nor any of
the rights, interests or obligations under this Agreement shall be assigned or
transferred, in whole or in part, by any of the Parties without the prior
written consent of the other Parties; provided, however, that such assignment or
-------- -------
transfer may be made by (i) Sprint to any of its Affiliates, or (ii) pursuant to
any merger or sale of substantially all of the assets or stock of Sprint or such
Affiliates (or any transaction having such effect) that is pursuant to an
agreement entered into after the Closing Date. Subject to the
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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.
SECTION 7.05 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to conflict of laws principles.
SECTION 7.06 Severability. If any term or provision of this Agreement or
the Ancillary Agreements or the application thereof to either party or set of
circumstances shall, in any jurisdiction and to any extent, be finally held
invalid or unenforceable, such term or provision shall only be ineffective as to
such jurisdiction, and only to the extent of such invalidity or
unenforceability, without invalidating or rendering unenforceable any other
terms or provisions of this Agreement or the Ancillary Agreements or under any
other circumstances, and the parties shall negotiate in good faith a substitute
provision which comes as close as possible to the invalidated or unenforceable
term or provision, and which puts each party in a position as nearly comparable
as possible to the position it would have been in but for the finding of
invalidity or unenforceability, while remaining valid and enforceable.
SECTION 7.07 Counterparts. This Agreement may be executed in one or more
counterparts each of which when so executed and delivered shall for all purposes
be deemed to be an original but all of which, when taken together, shall
constitute one and the same Agreement.
SECTION 7.08 Headings. The table of contents, captions and headings used
in this Agreement or any Ancillary Agreements are inserted for convenience only
and shall not be deemed to constitute part of this Agreement or any Ancillary
Agreements or to affect the construction or interpretation hereof.
SECTION 7.09 No Third-Party Beneficiaries. Nothing in this Agreement or
any Ancillary Agreements, express or implied, shall create or confer upon any
Person (including but not limited to any employees), other than the Parties or
their respective successors and permitted assigns, any legal or equitable
rights, remedies, obligations, liabilities or claims under or with respect to
this Agreement or any Ancillary Agreements, except as expressly provided herein.
SECTION 7.10 Interpretation. (a) Unless specifically stated otherwise,
references to Articles, Sections, Exhibits and Schedules refer to Articles,
Sections, Exhibits and Schedules in this Agreement. References to "includes"
and "including" mean "includes without limitation" and "including without
limitation."
(b) Each Party is a sophisticated legal entity that was advised by
experienced counsel and, to the extent it deemed necessary, other advisors in
connection with this Agreement and the Ancillary Agreements. Accordingly, each
Party hereby acknowledges that no Party has relied or will rely in respect of
this Agreement or any Ancillary Agreements or the transactions contemplated
hereby or thereby upon any document or written or oral information previously
furnished to or discovered by it or its representatives, other than this
Agreement or any Ancillary Agreements or the documents and instruments delivered
at the Closing.
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(c) No provision of this Agreement or any Ancillary Agreement shall be
interpreted in favor of, or against, any of the Parties by reason of the extent
to which any such Party or its counsel participated in the drafting thereof or
by reason of the extent to which any such provision is inconsistent with any
prior draft hereof or thereof.
SECTION 7.11 Inclusion of Information in Schedules. The inclusion of any
information in any disclosure schedule (i) shall not be deemed an admission that
any such information is material for purposes of the representation and warranty
to which it relates or any other representation and warranty or for any other
purpose related to the Agreement or any Ancillary Agreement or the transactions
contemplated hereby or thereby, including, without limitation, for purposes of
any covenants, closing conditions or any other remedies the Parties may have,
and (ii) shall not be used or interpreted in any manner to create a standard of
materiality for any such purpose.
SECTION 7.12 Exclusive Jurisdiction and Consent to Service of Process.
The Parties agree that any Action arising out of or relating to this Agreement,
the Ancillary Agreements or the transactions contemplated hereby or thereby
shall be brought by the Parties only in a Delaware state court or a federal
court sitting in that state, which shall be the exclusive venue of any such
Action. Each Party waives any objection which such party may now or hereafter
have to the laying of venue of any such Action, and irrevocably consents and
submits to the jurisdiction of any such court (and the appropriate appellate
courts) in any such Action. Any and all service of process and any other notice
in any such Action shall be effective against such Party when transmitted in
accordance with Section 7.01. Nothing contained herein shall be deemed to affect
the right of any Party to serve process in any manner permitted by Law.
SECTION 7.13 Amendment. No amendment, modification or alteration of the
terms or provisions of this Agreement or any Ancillary Agreement, including any
Schedules and Exhibits hereto or thereto, shall be binding unless the same shall
be in writing and duly executed by the Party against whom such amendment,
modification or alteration is sought to be enforced.
SECTION 7.14 Survival. Except for the covenants or agreements set forth
in Article V or any other covenants or agreements contained in this Agreement or
any Ancillary Agreements which shall continue after the Closing, the
representations, warranties, agreements and covenants in this Agreement, or in
the Schedules, Exhibits hereto, and in certificates delivered at the Closing,
shall not survive after the Closing; provided, however, that with respect to
-------- -------
claim(s) for fraud and/or willful and material breach(es) hereof, all such
representations, warranties, agreements and covenants shall survive the Closing,
and continue for 24 months, except for any agreement or covenant which by its
terms continues in effect for a longer or shorter time period, and shall in no
way be affected by any investigation of the subject matter thereof made by or on
behalf of any Party or any information capable of being acquired by any Party.
SECTION 7.15 WAIVER OF JURY TRIAL. THE COMPANY, NEWCO, NEWCO SUB, SPRINT
AND SPRINT L.P. HEREBY IRREVOCABLY AND
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UNCONDITIONALLY WAIVE ANY RIGHT THAT THEY MAY HAVE TO A TRIAL BY JURY IN ANY
ACTION INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
THIS AGREEMENT OR ANY ANCILLARY AGREEMENT OR THE RELATIONSHIP ESTABLISHED
HEREUNDER OR THEREUNDER.
ARTICLE VII
DEFINITIONS
Definitions. For purposes of this Agreement, the terms set forth below
shall have the following meanings:
"Acquisition Proposal" means any proposal for a tender or exchange
offer, a merger, consolidation or other business combination,
recapitalization, liquidation, dissolution or similar transaction involving
a Party or any proposal or offer to acquire in any manner, directly or
indirectly, a material equity interest in, or a material amount of voting
securities (with the acquisition of beneficial ownership of 15% or more of
a Party's voting securities being deemed to be material for this purpose)
or assets of, a Party, other than the transactions contemplated by this
Agreement and the Ancillary Agreements.
"Action" means any action, suit, arbitration, inquiry, proceeding or
investigation by or before any Government Entity.
"Affiliate" means, with respect to any Person, or any other Person
controlling, controlled by, or under common control with such Person. For
purposes of this Agreement, the term "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with" as used
with respect to any Person) means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and
policies of such Person whether through ownership of voting securities, by
contract or otherwise.
"Agreement" means this Agreement, together with the Schedules and
Exhibits hereto.
"Agreement and Plan of Merger" means the Agreement and Plan of Merger
among Newco, Newco Sub and the Company, dated as of the date hereof,
setting forth, inter alia, the terms and conditions of the merger of Newco
----- ----
Sub into the Company, a copy of which is attached to the Agreement as
Exhibit F.
"Agreement to Vote" means the Agreement To Vote Stock, a copy of which
is attached to the Agreement as Exhibit J, executed in favor of Sprint by
Voting Stockholders in connection with the Offer and the other transactions
contemplated hereby and by the Ancillary Agreements.
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"Agreement to Vote and Tender" means the Agreement to Vote and Tender
Stock, a copy of which is attached to the Agreement as Exhibit K, executed
in favor of Sprint by the Tendering Stockholders in connection with the
Offer and the other transactions contemplated hereby and by the Ancillary
Agreements.
"Ancillary Agreements" means any and all of the Certificate of
Designation, the Governance Agreement, the Master Assignment, the Marketing
Agreement, the Network Services Agreement, the Registration Rights
Agreement, the Credit Agreement, the Stockholders Agreement, the Agreement
and Plan of Merger, the Agreement to Vote and the Agreement to Vote and
Tender.
"Benefit Plan" means pension, retirement, savings, profit sharing,
deferred compensation, incentive compensation, stock option, severance or
termination pay, medical, dental, life or other insurance, disability or
other written employee benefit plan, program, agreement or arrangement
maintained, sponsored or contributed to by the Company, whether covering
employees of the Company, former employees of the Company, or directors or
former directors of the Company (including, but not limited to, any
"Employee Benefit Plan," as defined in Section 3(3) of ERISA).
"Certificate of Designation" shall have the meaning set forth in
Section 1.03.
"Closing" shall have the meaning set forth in Section 1.09.
"Closing Date" shall have the meaning set forth in Section 1.09.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock, par value $.01 per share, of
the Company.
"Company Filed SEC Documents" shall mean the SEC Documents of the
Company filed and publicly available prior to the date of this Agreement.
"Company's Knowledge" means the actual knowledge of any of the
executive officers and directors (excluding John W. Sidgmore) of Company
without any duty to inquire or attribution of knowledge from any other
Person to the persons in such capacities.
"Company Stockholder Vote Matters" shall have the meaning set forth in
Section 1.06(b).
"Confidential Information" shall have the meaning set forth in Section
5.05.
"Contract" means all contracts, agreements, instruments, leases,
licenses, commitments and arrangements.
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"Convertible Debt Financing" shall have the meaning set forth in the
fifth WHEREAS paragraph of the preamble to this Agreement.
"Convertible Notes" shall have the meaning set forth in the fifth
WHEREAS paragraph of the preamble to this Agreement.
"Convertible Preferred Stock" means the Series A Convertible Preferred
Stock, par value $.01 per share, of Newco.
"Credit Agreement" means the Credit Agreement dated as of the date
hereof among Sprint, Newco and the Company whereby Sprint agrees to provide
Newco and the Company, as co-borrowers, with the Convertible Debt
Financing, a copy of which is attached to the Agreement as Exhibit E.
"DGCL" means the Delaware General Corporate Law, title 8 of the
Delaware Code.
"Dilutable Securities" shall have the meaning set forth in Section
3.01(c).
"Director Stock Options" shall have the meaning set forth in Section
3.01(c).
"Dollars" or "$" means lawful currency of the United States.
"Employee Stock Options" shall have the meaning set forth in Section
3.01(c).
"Encumbrance" means any charge, claim, community property interest,
equitable interest Lien, Tax lien, option, pledge, security interest, right
of first refusal or restriction of any kind, including any restriction on
transfer, receipt of income or exercise of any other attribute of
ownership.
"Environment" means soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands), groundwaters, drinking water supply, stream
sediments, ambient air (including indoor air), plant and animal life, and
any other environmental medium or natural resource.
"Environmental Law" means any Law that requires or relates to
protection of human health or the Environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities and Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder as in effect
at the applicable time.
"Expiration Date" shall have the meaning set forth in Section 1.01.
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"GAAP" shall mean Generally Accepted Accounting Principles, as in
effect on the date of this Agreement. All references herein to financial
statements prepared in accordance with GAAP shall mean in accordance with
GAAP consistently applied throughout the periods to which reference is
made.
"Governance Agreement" shall mean the Governance Agreement, dated as
of the date hereof, among Sprint, Sprint L.P., the Company and Newco, a
copy of which is attached to the Agreement as Exhibit G.
"Governmental Entity" means any federal, state, foreign or local
government, any of its subdivisions, administrative agencies, authorities,
commissions, boards or bureaus, any federal, state, foreign or local court
or tribunal and any arbitrator.
"Hazardous Activity" means the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
release, storage, transfer, transportation, treatment, or use (including
any withdrawal or other use of groundwater) of Hazardous Materials in, on,
under, about, or from the facilities or any part thereof into the
Environment.
"Hazardous Materials" means any waste or other substance that is
listed, defined, designated, or classified as, or otherwise determined to
be, hazardous, radioactive, or toxic or a pollutant or a contaminant under
or pursuant to any Environmental Law, including any mixture or solution
thereof, and specifically including petroleum and all derivatives thereof
or synthetic substitutes therefor and asbestos or asbestos-containing
materials.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the regulations promulgated thereunder.
"Intellectual Property Assets" includes all marks, patent rights,
copyrights and trade secrets of the Company.
"IRS" means the United States Internal Revenue Service.
"Issuance Percentage Limitation" means the lesser of (a) 20%, or (b)
the percentage of shares of outstanding Common Stock which if issued, and
after taking into effect such issuance, would cause the total number of
shares of Common Stock subject to (i) all irrevocable proxies granted in
favor of Sprint to vote "for" the Company Stockholder Vote Matters, and
(ii) votes "for" the Company Stockholder Vote Matters pursuant to
Agreements to Vote to constitute, in the aggregate, less than 51% of the
outstanding shares of Common Stock. For purposes of this definition,
"outstanding shares of Common Stock" shall be calculated on a fully diluted
basis, excluding any Dilutable Securities which are not or will not be
vested or otherwise exercisable on or prior to the Offer Acceptance Time.
48
<PAGE>
"Knowledge" means the actual knowledge of any of the executive
officers and directors of the Parties without any duty to inquire or
attribution of knowledge from any other Person to the persons in such
capacities.
"Law" means any federal, state, local, municipal, foreign,
international, multinational, or other judicial or administrative order,
judgment, decree, constitution, law, ordinance, common law of California
and Delaware, regulation, statute, or treaty.
"Lien" means any lien, pledge, security interest or Encumbrance
whatsoever, mortgage, deed of trust, security interest, retention of title
agreement, easement, encroachment, condition, reservation, covenant, lis
pendens lien, claim of lien, adverse claim, or restriction on attributes of
ownership.
"Marketing Agreement" means the Marketing and Distribution Agreement,
dated as of the date hereof, among Sprint, Sprint L.P., Newco and the
Company, whereby Sprint, Sprint L.P., Newco and the Company agree to
provide certain cooperation and support to each other in specified
marketing matters and Sprint L.P. grants Newco the right to utilize certain
distribution channels of Sprint L.P., a copy of which is attached to the
Agreement as Exhibit D.
"Master Assignment" means the Master Assignment and Assumption
Agreement, dated as of the date hereof, between Sprint L.P. and Newco, by
which Sprint L.P. grants to Newco all of the right, title and interest of
Sprint L.P. in and to all agreements with SIP Subscribers and all rights to
provide Internet access services to the SIP Subscribers after the Closing
Date and Newco assumes all of the obligations to continue the performance
of such agreements after the Closing Date, a copy of which is attached to
the Agreement as Exhibit B.
"Material Adverse Effect" means any change or effect having a material
adverse effect (or any development as to which there is a substantial
likelihood, insofar as can be foreseen, that would have such an effect) on
the business, properties, assets, condition (financial or otherwise), or
results of operations of the Company, Newco, Newco Sub, Sprint, Sprint L.P.
and Sprint's Subsidiaries.
"Merger" means the merger of Newco Sub into the Company in accordance
with the terms and conditions set forth in the Agreement and Plan of
Merger.
"Minimum Tender Condition" shall have the meaning set forth in Section
2.01(a).
"Network Agreement" means the Network Agreement, dated as of the date
hereof, among Sprint L.P., Newco and the Company, which grants Newco and
the Company the right to use a minimum and maximum number of ports on
Sprint L.P.'s long-distance network, along with pricing and other terms set
forth therein, a copy of which is attached to the Agreement as Exhibit C.
49
<PAGE>
"Newco Common Stock" shall have the meaning set forth in the sixth
WHEREAS paragraph of the preamble of this Agreement.
"Offer" shall have the meaning set forth in the second WHEREAS
paragraph of the preamble to this Agreement.
"Offer Acceptance Condition" shall have the meaning set forth in
Section 2.04.
"Offer Acceptance Time" means the date and time upon which Sprint
accepts for payment shares of Common Stock pursuant to the Offer.
"Offer Documents" shall have the meaning set forth in Section 1.01(b).
"Offer Price" shall have the meaning set forth in the second WHEREAS
paragraph of the preamble to this Agreement.
"Ordinary Course of Business" means an action taken by a Person will
be deemed to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person
and is taken in the ordinary course of the normal day-to-day operations of
such Person; and
(b) such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons exercising
similar authority);
"Paid SIP Subscribers" shall have the meaning set forth in Section
5.09(b).
"Party" means any Person that is a signatory to this Agreement.
"Permits" shall have the meaning set forth in Section 3.01(l).
"Person" means any natural person, corporation, partnership, limited
liability company, trust, unincorporated organization or other entity.
"Preferred Stock Consideration" shall have the meaning set forth in
Section 1.03.
"Proxy Statement" shall have the meaning set forth in Section 1.06(b).
"Registration Rights Agreement" shall mean the Registration Rights
Agreement, dated as of the date hereof, among Newco, Sprint and Sprint
L.P., a copy of which is attached hereto as Exhibit I.
"Returns" means all tax returns that must be filed with any federal,
state or local taxing authority.
50
<PAGE>
"S-4" shall have the meaning set forth in Section 1.06(b).
"SARs" means stock appreciation rights.
"SEC" means the Securities and Exchange Commission and the staff
thereof.
"SEC Documents" shall have the meaning set forth in Section 3.01(e).
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder as in effect at the applicable
time.
"Significant Subsidiary" means any Subsidiary of a Party that
constitutes a significant subsidiary within the meaning of Rule 1-02 of
Regulation S-X of the SEC.
"SIP Agreements" means the agreements between Sprint L.P. and the SIP
Subscribers governing the receipt of Internet access from Sprint L.P.
"SIP Subscriber" shall mean a registered customer of Sprint L.P.'s
"Sprint Internet Passport" service, regardless of whether on an hourly
payment plan or a fixed payment plan, and regardless of whether in an
initial introductory period.
"Special Meeting" shall have the meaning set forth in Section 1.05(b).
"Sprint Shares" shall have the meaning set forth in Section 3.03(g)
"Stock Equivalents" shall have the meaning set forth in Section
3.01(c).
"Stockholders Agreement" means the Stockholders Agreement, dated as of
the date hereof, among Sprint and certain stockholders of the Company, a
copy of which is attached to the Agreement as Exhibit H.
"Subsidiary" shall mean a Person, the equity of which is at least 50%
owned by another Person.
"Surviving Corporation" shall have the meaning set forth in Section
1.05(a).
"Tax" or "Taxes" means all income, profits, franchise, gross receipts,
capital, sales, use, withholding, value added, ad valorem, transfer,
employment, social security, disability, occupation, property, severance,
production, excise and other taxes, duties and similar governmental charges
and assessments imposed by or on behalf of any Governmental Entity
(including interest and penalties thereon).
51
<PAGE>
"Tendering Stockholders" means the holders of Common Stock who are
identified in Schedule 1 to the Agreement to Vote and Tender.
"Threatened" means any demand or statement that has been made in
writing that would lead a prudent person to conclude that a claim,
proceeding, dispute, Action, or other matter is likely to be asserted,
commenced, taken, or otherwise pursued in the future.
"Unaudited Balance Sheet" means the Unaudited Consolidated Balance
Sheet of the Company dated at the Unaudited Balance Sheet Date.
"Unaudited Balance Sheet Date" means September 30, 1997.
"Voting Stockholders" means the holders of Common Stock who are
identified in Schedule 1 to the Agreement to Vote.
52
<PAGE>
IN WITNESS WHEREOF, the Parties have caused their respective duly
authorized officers to execute this Agreement as of the day and year first above
written.
SPRINT CORPORATION
By: /s/ Theodore H. Schell
------------------------------------
Name: Theodore H. Schell
Title: Vice President - Strategic
Planning and Corporate
Development
SPRINT COMMUNICATIONS COMPANY L.P.
By: US Telecom, Inc., General Partner.
By: /s/ Don A. Jensen
------------------------------------
Name: Don A. Jensen
Title: Vice President and
Secretary
EARTHLINK NETWORK, INC.
By: /s/ Charles G. Betty
------------------------------------
Name: Charles G. Betty
Title: President & CEO
DOLPHIN, INC.
By: /s/ Charles G. Betty
------------------------------------
Name: Charles G. Betty
Title: President & CEO
DOLPHIN SUB, INC.
By: /s/ Charles G. Betty
------------------------------------
Name: Charles G. Betty
Title: President & CEO
SIGNATURE PAGE FOR INVESTMENT AGREEMENT
53
<PAGE>
EXHIBIT NO. (3)(a)
EXECUTION COPY
--------------
STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT (the "Agreement"), dated as of February 10,
1998, is entered into by and among, EARTHLINK NETWORK, INC., a Delaware
corporation (the "Company"), DOLPHIN, INC., a Delaware corporation ("NEWCO"),
SPRINT CORPORATION, a Kansas corporation ("Sprint"), SPRINT COMMUNICATIONS
COMPANY L.P., a Delaware limited partnership ("Sprint L.P.") and the persons
identified on Schedule I hereto, each of whom is a stockholder of the Company
(individually, a "Stockholder" and collectively, the "Stockholders").
R E C I T A L S
A. WHEREAS, the respective Boards of Directors of Sprint and the Company
have determined to enter into a strategic relationship in the area of Internet
access and related services and Sprint will make investments in Newco and the
Company in connection with the Merger (as defined below) of Dolphin Sub, Inc., a
Delaware corporation ("Newco Sub") and the Company in order to enhance the
capabilities for growth and financial and strategic success;
B. WHEREAS, pursuant to an Investment Agreement, dated as of February 10,
1998, among Sprint, Sprint L.P., the Company, Newco and Newco Sub (the
"Investment Agreement"), Sprint proposes to make a tender offer (as it may be
amended from time to time as permitted under the Investment Agreement, with the
Company's consent, if required under the Investment Agreement (the "Tender
Offer")), to purchase 1,250,000 shares of common stock, par value $.01 per
share, of the Company (the "Common Stock"), for an aggregate cash consideration
of $56,250,000 and at a price per share of Common Stock of $45 net to each
seller in cash, upon the terms and subject to the conditions set forth in the
Investment Agreement; and the Board of Directors of the Company has approved the
Tender Offer and the other transactions contemplated by the Investment Agreement
and is recommending that the Company's stockholders who wish to receive cash for
their shares of Common Stock accept the Tender Offer;
C. WHEREAS, immediately following the closing of the Tender Offer, Sprint
L.P. proposes to purchase 4,102,941 shares of Series A Convertible Preferred
Stock, par value $.01 per share of Newco (the "Convertible Preferred Stock") in
exchange for (i) an aggregate cash consideration of $23,750,000, (ii) the
assignment to Newco of 100% of the Sprint Internet Passport Subscribers, and
(iii) entering into a network agreement whereby Newco and the Company will
utilize Sprint L.P.'s long-distance network under specified terms and
conditions;
D. WHEREAS, Sprint, Sprint L.P., the Company and Newco will enter into a
marketing agreement whereby Newco and the Company will utilize the Sprint brand
under specified terms and conditions, and will, inter alia, have the right to
----- ----
use Sprint L.P. distribution channels under specified terms and conditions and
agree to sell certain Sprint products;
E. WHEREAS, Sprint shall provide Newco and the Company, as co-borrowers,
with up to $25 million of Convertible Senior Debt financing on or after the
Closing, with such amount
<PAGE>
to increase to up to $100 million over time (the "Convertible Debt Financing"),
such indebtedness to be evidenced by one or more Convertible Senior Promissory
Note(s);
F. WHEREAS, the closing of the Contribution and the other transactions
referred to above other than the Tender Offer shall take place concurrently with
the merger of Newco Sub into the Company (the "Merger") and the conversion of
each share of the Company's outstanding Common Stock into one share of Newco
common stock, par value $.01 per share ("Newco Common Stock") pursuant to the
Merger, in each case upon the terms and subject to the conditions set forth in
the Investment Agreement and any applicable Ancillary Agreements;
G. WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements and also to prescribe various conditions in
connection with the transactions contemplated by this Agreement;
H. WHEREAS, in furtherance of all of the foregoing arrangements, the
Company, Newco, Sprint and Steven L.P. have entered into a Governance Agreement,
dated February 10, 1998 (the "Governance Agreement");
I. WHEREAS, in order to effectuate the intent and provisions of the
Governance Agreement, the Company, Newco, Sprint, Steven L.P. and the
Stockholders each desire to enter into this Agreement to provide for certain
rights and obligations of such parties with respect to the Stockholders' voting
and disposition of certain Equity Securities beneficially owned by each of them;
and
J. WHEREAS, the rights and obligations of the parties hereto shall not
take effect prior to the Closing.
NOW, THEREFORE, in consideration of the mutual covenants, benefits and
agreements of the parties hereto pursuant to this Agreement, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. DEFINITIONS. All capitalized terms used herein but not otherwise
-----------
defined shall have the meanings given to such terms in the Governance Agreement.
2. REPRESENTATIONS AND WARRANTIES. Each of the Stockholders represents,
------------------------------
as to itself only, and warrants to Sprint and Sprint L.P. as follows:
(a) Each Stockholder that is an entity is a corporation or
partnership that is duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is incorporated or organized and has
the power and authority to execute, deliver and perform this Agreement. Each
Stockholder that is a natural person has the capacity and the full legal right
to execute, deliver and perform this Agreement.
(b) This Agreement has been duly executed and delivered and
constitutes a valid and binding agreement and irrevocable proxy (coupled with an
interest), respectively, and
2
<PAGE>
is enforceable in accordance with its terms, except to the extent that the
enforcement of this Agreement may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally, and (ii) general principles of equity
regardless of whether enforceability is considered in a proceeding in equity or
at law.
(c) The execution and delivery of this Agreement did not, and the
performance thereof, without obtaining the consent of any third party will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both) under (i) to the knowledge of the Stockholder, the
certificate of incorporation or bylaws of the Company, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit or license applicable to the applicable Stockholder or the
Owned Shares, or (iii) any law applicable to the Stockholder. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any governmental entity or any party to a material contract is required by
or with respect to the applicable Stockholder or by the applicable Stockholder
in connection with the execution and delivery of this Agreement except under the
Exchange Act.
(d) Each of the Owned Shares is free and clear of all liens, claims
and encumbrances, except for any bona fide pledge to margin facilities and,
except as contemplated by this Agreement and the Voting Agreement, is not
subject to any (i) right of first refusal, (ii) right to purchase, acquire or
vote or (iii) power of attorney.
(e) Each Stockholder has the sole power, right and authority to vote
and to tender the Owned Shares in accordance with the terms of this Agreement.
(f) Notwithstanding the foregoing, Quantum Industrial Partners LDC
("QIP") has granted discretionary authority to vote and dispose of its Owned
Shares to Soros Fund Management LLC, although such grant will not affect QIP's
obligations hereunder.
3. OBLIGATIONS TO TENDER OR VOTE.
-----------------------------
(a) NOTICE OF OFFERS. Promptly after its receipt thereof, Newco
----------------
shall give notice of an Offer, a Sprint Offer or a Qualified Offer to each of
the Stockholders (a "Stockholder Notice"). Such notice shall set forth in
reasonable detail the aggregate consideration and other terms and conditions of
the Offer, Sprint Offer or the Qualified Offer, as appropriate. If the terms of
any such offer are materially amended after an initial Stockholder Notice, Newco
shall promptly give notice of such amended terms to each Stockholder. For
purposes of comparing a Third-Party Offer with a Sprint Offer or a Qualified
Offer, the Stockholders may request and shall be entitled to receive from Newco
any additional information pertaining to any such offer possessed by Newco.
(b) SPRINT OFFER. If a Sprint Offer is initiated and if an
------------
Intervening Offer is not then outstanding, each Stockholder shall be subject to
the following obligations:
(i) Tender Offers. If the Sprint Offer is to be effected,
-------------
in whole or in part, in the form of a tender offer (a "Sprint Tender
Offer"), each Stockholder shall
3
<PAGE>
validly tender into the Sprint Tender Offer, in accordance with the terms
and subject to the conditions set forth in Sprint's offer to purchase and
related letter of transmittal and shall not withdraw such shares therefrom,
all of such Stockholder's Owned Shares; and
(ii) Other Offers. If the Sprint Offer involves a Business
------------
Combination which must be approved by the holders of Voting Equity
Securities (or a related matter that must be approved by the holders of
Voting Equity Securities in order for such Business Combination to be
effected), at the meeting at which such matters are considered by the
stockholders of Newco, each Stockholder shall vote all of such
Stockholder's Owned Shares in favor of such Business Combination and any
such related matter.
(c) QUALIFIED OFFER. If a Qualified Offer is initiated and if an
---------------
Intervening Offer is not then outstanding, each Stockholder shall be subject to
the following obligations:
(i) Tender Offers. If the Qualified Offer is to be effected, in
-------------
whole or in part, in the form of a Sprint Tender Offer, each Stockholder
shall tender into the Sprint Tender Offer, in accordance with the terms and
subject to the conditions set forth in Sprint's offer to purchase and
related letter of transmittal and shall not withdraw such shares therefrom,
all of such Stockholder's Owned Shares;
(ii) Other Offers. If the Qualified Offer involves a Business
------------
Combination, which must be approved by the holders of Voting Equity
Securities (or a related matter that must be approved by the holders of
Voting Equity Securities in order for such Business Combination to be
effected), at the meeting at which such matters are considered by the
stockholders of Newco, each Stockholder shall vote all of such
Stockholder's Owned Shares in favor of such Business Combination and any
such related matter.
4. COVERED SHARES.
--------------
(a) The term "Owned Shares" used herein shall mean all Equity
Securities (defined as if it covered both Common Stock and Newco Common Stock)
owned of record or beneficially (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) by each respective
Stockholder as of the date hereof, which shall include all shares of Newco
Common Stock received in the Merger, all Newco securities received in the Merger
and convertible into Newco Common Stock, and all other shares of stock or
securities or rights issuable in respect thereof on or after the date hereof.
Upon receipt of a Stockholder Notice, each Stockholder holding Equity Securities
that are convertible into Newco Common Stock shall promptly convert such
securities to Newco Common Stock in a manner that will permit the Newco Common
Stock issued pursuant to such conversion to be included in the Tender Offer, as
required under Sections 3(b)(i) and 3(c)(i) hereof, or voted under the
irrevocable proxy required under Sections 3(b)(ii) or 3(c)(ii) hereof, as the
case may be; provided, that no such conversion shall be required if the amount
to be paid per share in the relevant transaction is less than the amount to be
paid by the Stockholder in effecting such conversion. All of the
4
<PAGE>
Newco Common Stock issued upon conversion shall be considered "Owned Shares" for
purposes of this Agreement.
(b) Notwithstanding any provision of this Agreement to the contrary,
at any time after the Closing, each Stockholder may offer, sell, convey, assign
or otherwise transfer or dispose of ("Transfer") any of such Stockholder's Owned
Shares:
(i) in transactions effected pursuant to Rule 144 under the
Securities Act of 1933, as amended;
(ii) in a public offering registered with the SEC;
(iii) in any other transaction other than one which, to the
applicable Stockholder's actual knowledge, would be a Transfer to a Person
that (i) owns, of record or beneficially, or who is (by virtue of such
Transfer) reasonably anticipated to own of record or beneficially (as
defined in Rule 13d-3 under the Exchange Act), 5% or more of the
outstanding Equity Securities of the Company (calculated in accordance with
Rule 13d-3 under the Exchange Act), or (ii) is obligated to file (or would,
by virtue of such transaction, reasonably be anticipated to be obligated to
file) a Schedule 13D with the SEC pursuant to each of paragraphs (b) and
(e) of Rule 13d-1 under the Exchange Act;
(iv) in any placement to a margin or nominee account; subject to
the requirements set forth in Section 5(b) hereof; or
(v) subject to Sprint's prior written consent, in any other
transaction.
(c) Owned Shares as to which a Transfer is effected shall cease to be
Owned Shares immediately upon acceptance by such Stockholder of payment for such
shares, and may be so Transferred free and clear of any restrictions arising
under this Agreement.
5. VOTING AGREEMENT. (a) To the extent this Agreement constitutes a
----------------
voting agreement in accordance with Section 218(c) of the Delaware General
Corporation Law, it is intended to comply therewith and be enforceable
thereunder. The obligations of the Stockholders in this Agreement, including
without limitation those with respect to the voting of their respective Owned
Shares, are irrevocable during the term of this Agreement.
(b) In order to insure that the voting agreements set forth in
Sections 3(b)(ii) and 3(c)(ii) will be fulfilled, each of the undersigned
Stockholders agrees to grant, and (except with respect to shares held by a
nominee for which the applicable Stockholders will obtain from such nominee
promptly after the date hereof) concurrently with the execution of this
Agreement hereby grants, to Sprint and Sprint L.P., or either of them, an
Irrevocable Proxy, coupled with an interest, in the form attached hereto, with
respect to all of the Owned Shares covered by such voting agreements, for and in
the name, place and stead of such Stockholder, at any annual or special meeting
of the holders of Newco Common Stock and at any adjournment or postponement
thereof, or pursuant to any consent in lieu of a meeting, in respect of the
specific matters described in Sections 3(b)(ii) and 3(c)(ii). The Irrevocable
Proxy granted by each of the
5
<PAGE>
Stockholders constitutes the valid and effective Irrevocable Proxy, coupled with
an interest, of each such Stockholder in respect of the Owned Shares, within the
meaning of Section 212(e) of the Delaware General Corporation Law, revokes any
proxy or proxies or powers of attorney heretofore given by such Stockholder in
respect of such Owned Shares; shall remain in full force and effect and is and
shall be irrevocable until the termination of this Agreement and is coupled with
an interest and an integral part of the benefits and obligations of such
Stockholder and the rights and benefits of Sprint and Sprint L.P.
Notwithstanding the foregoing, in the event that a Stockholder places any Owned
Shares in a nominee account after the date hereof, the Stockholder shall, on or
before the date on which such placement is made, deliver a replacement
Irrevocable Proxy to Sprint.
6. NATURE OF STOCKHOLDER OBLIGATIONS. The obligations of the
---------------------------------
Stockholders hereunder are several and not joint.
7. TERM. This Agreement and the obligations hereunder shall commence
----
on the Closing Date (as defined in the Investment Agreement) and continue until
the earlier of (i) the termination of the Investment Agreement, (ii) the
modification, waiver or amendment of the Investment Agreement or the Ancillary
Agreements in any manner adverse to the Stockholders, and (iii) June 15, 1998 if
the Closing Date has not occurred on or before such date (each, a "Termination
Date").
8. MISCELLANEOUS.
-------------
(a) Notices. Unless otherwise provided herein, any notice, request,
-------
waiver, instruction, consent or document or other communication required or
permitted to be given by this Agreement shall be effective only if it is in
writing and (a) delivered by hand or sent by certified mail, return receipt
requested, (b) if sent by a nationally-recognized overnight delivery service
with delivery confirmed, or (c) if telexed or telecopied, with receipt confirmed
as follows:
6
<PAGE>
The Company: 3100 New York Drive
Pasadena, California 91107
Attn: President and CEO
Telecopy No.: 626/296-4161
with a copy to: Hunton & Williams
NationsBank Plaza, Suite 4100
600 Peachtree Street, N.E.
Atlanta, Georgia 30308-2216
Attn: Scott M. Hobby, Esq.
Telecopy No.: (404) 888-4190
Newco and Newco Sub: 3100 New York Drive
Pasadena, California 91107
Attn: President and CEO
Telecopy No.: 626/296-4161
with a copy to: Hunton & Williams
NationsBank Plaza, Suite 4100
600 Peachtree Street, N.E.
Atlanta, Georgia 30308-2216
Attn: Scott M. Hobby, Esq.
Telecopy No.: (404) 888-4190
Sprint: Sprint Corporation
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
Attn: Chief Financial Officer
Telecopy No.: (913) 624-8426
with a copy to: Sprint Corporation
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
Attn: Corporate Secretary
Telecopy No.: (913) 624-8233
7
<PAGE>
with an additional
copy to: Stinson, Mag & Fizzell, P.C.
1201 Walnut, Suite 2800
P.O. Box 419251
Kansas City, Missouri 64141-6251
Attn: John A. Granda, Esq.
Telecopy No.: (816) 691-3495
Quantum Industrial
Partners LDC: Quantum Industrial Partners LDC
c/o Soros Fund Management, LLC
888 7th Avenue, Floor 33
New York, New York 10106
Attn: Michael Neus, Esq.
Telecopy No.: (212) 664-0544
with a copy to: Akin, Gump, Strauss, Hauer, Feld, L.L.P.
590 Madison Avenue
New York, New York 10022
Attn: Patrick Dooley, Esq.
Telecopy No.: (212) 407-3280
The parties hereto (the "Parties") shall promptly notify each other of any
change in their respective addresses or facsimile numbers or of the Person or
office to receive notices, requests or other communications under this Section
8(a). Notice shall be deemed to have been given as of the date when so
personally delivered, when actually delivered by the U.S. Postal Service at the
proper address, the next day when delivered during business hours to an
overnight delivery service properly addressed or when receipt of a telex or
telecopy is confirmed, as the case may be, unless the sending party has actual
Knowledge that such notice was not received by the intended recipient.
(b) Amendments. No amendment, modification or alteration of the
----------
terms or provisions of this Agreement shall be binding unless the same
shall be in writing and duly executed by the Party against whom such
amendment, modification or alteration is sought to be enforced.
(c) Waivers. Except as otherwise permitted in this Agreement, the
-------
terms or conditions of this Agreement may not be waived unless set forth in
a writing signed by, the Party entitled to the benefits thereof. No waiver
of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of such provision at any time in the future or a waiver
of any other provision hereof. The rights and remedies of the Parties are
cumulative and not alternative. Except as otherwise permitted in this
Agreement, neither the failure nor any delay by any Party in exercising any
right, power or privilege under this Agreement will operate as a waiver of
such right, power or privilege, and no single or partial exercise of any
such right, power or privilege will preclude any other or further exercise
of such right, power or privilege or the exercise of any other right, power
or privilege.
8
<PAGE>
(d) Severability. If any term or provision of this Agreement or the
------------
application thereof to either party or set of circumstances shall, in any
jurisdiction and to any extent, be finally held invalid or unenforceable,
such term or provision shall only be ineffective as to such jurisdiction,
and only to the extent of such invalidity or unenforceability, without
invalidating or rendering unenforceable any other terms or provisions of
this Agreement or under any other circumstances, and the parties shall
negotiate in good faith a substitute provision which comes as close as
possible to the invalidated or unenforceable term or provision, and which
puts each party in a position as nearly comparable as possible to the
position it would have been in but for the finding of invalidity or
unenforceability, while remaining valid and enforceable.
(e) Inapplicability of Certain Sections. Notwithstanding the
-----------------------------------
obligations set forth in Section 3(b)(i) and (ii), 3(c)(i) and (ii), and
Sections 4(a) or 5(b), such sections shall be deemed to be inapplicable to
any Stockholder who, in his or its sole discretion, reasonably determines,
at any time after the date hereof and prior to his or its tender,
conversion, voting or granting of such proxy as to Owned Shares, that such
action could be a transaction in violation of Section 16(b) of the Exchange
Act. In such event, the applicable Stockholder's obligation to take any
actions required under such Sections shall be deemed to be null and void
and not enforceable against such Stockholder, but only to the extent of
such potential violation.
(f) Entire Agreement. This Agreement and, upon execution by all
----------------
Parties thereto embodies the entire agreement and understanding of the
Parties in respect to the matter contemplated hereby and thereby and
supersedes and renders null and void all other prior agreements and
understandings, written and oral, with respect to the subject matter hereof
and thereof, provided, that this provision shall not abrogate any other
--------
written agreement between the Parties executed simultaneously with this
Agreement. No Party shall be liable or bound to any other Party in any
manner by any promises, conditions, representations, warranties, covenants,
agreements and understandings, except as specifically set forth herein or
therein.
(g) Assignment. Neither this Agreement nor any of the rights,
----------
interests or obligations under this Agreement shall be assigned or
transferred, in whole or in part, by any of the Parties without the prior
written consent of the other Parties; provided, however, that such
assignment or transfer may be made by (i) by Sprint to any of its
Affiliates, or (ii) pursuant to any merger or sale of substantially all of
the assets of Sprint or such Affiliates (or any transaction having such
effect) that is pursuant to an agreement entered into after the Closing.
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. Any attempted assignment in violation of
this Section 8(g) shall be void.
(h) Parties in Interest. Nothing in this Agreement, express or
-------------------
implied, shall create or confer upon any Person (including but not limited
to any employees), other than the Parties or their respective successors
and permitted assigns, any legal or equitable rights, remedies,
obligations, liabilities or claims under or with respect to this Agreement
except as expressly provided herein.
(i) Specific Performance. The Parties recognize and agree that
--------------------
immediate irreparable damages for which there is no adequate remedy at law
would occur in the event that
9
<PAGE>
any provision of this Agreement is not performed in accordance with the
specific terms hereof or is otherwise breached. Accordingly, it is agreed
that in the event of a failure by a Party to perform its obligations under
this Agreement, the non-breaching Party shall be entitled to specific
performance through injunctive relief to prevent breaches of the provisions
of this Agreement and to enforce specifically the provisions of this
Agreement in any action instituted in any court having subject matter
jurisdiction, in addition to any other remedy to which such party may be
entitled, at law or in equity.
(j) Governing Law. This Agreement shall be construed in accordance
-------------
with and governed by the laws of the State of Delaware, without regard to
conflict of laws principles.
(k) Exclusive Jurisdiction and Consent to Service of Process. The
--------------------------------------------------------
Parties agree that any Action arising out of or relating to this Agreement,
the Ancillary Agreements or the transactions contemplated hereby or thereby
shall be brought by the Parties only in a Delaware state court or a federal
court sitting in that state, which shall be the exclusive venue of any such
Action. Each Party waives any objection which such party may now or
hereafter have to the laying of venue of any such Action, and irrevocably
consents and submits to the jurisdiction of any such court (and the
appropriate appellate courts) in any such Action. Any and all service of
process and any other notice in any such Action shall be effective against
such Party when transmitted in accordance with Section 8(a). Nothing
contained herein shall be deemed to affect the right of any Party to serve
process in any manner permitted by Law.
(l) Counterparts. This Agreement may be executed in one or more
------------
counterparts each of which when so executed and delivered shall for all
purposes be deemed to be an original but all of which, when taken together,
shall constitute one and the same Agreement.
(m) Effectiveness; Termination. This Agreement shall become effective
--------------------------
at the Closing and, concurrently therewith, upon the effectiveness of the
Governance Agreement. After becoming effective, this Agreement shall
terminate upon termination of the Governance Agreement and the Stockholders
shall thereafter have no further obligations hereunder.
(n) WAIVER OF JURY TRIAL. THE COMPANY, NEWCO, SPRINT AND SPRINT L.P.
--------------------
AND EACH STOCKHOLDER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT
THAT IT MAY HAVE TO A TRIAL BY JURY IN ANY ACTION INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN
ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY
ANCILLARY AGREEMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR
THEREUNDER.
(o) Nothing herein contained shall prohibit a Stockholder from
tendering into any Tender Offer any Owned Shares.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders'
Agreement as of the day and year first above written.
[Signatures on the following page]
11
<PAGE>
EARTHLINK NETWORK, INC.
By: /s/ Charles G. Betty
-----------------------------------------
Name: Charles G. Betty
---------------------------------------
Title: President and CEO
DOLPHIN, INC.
By: /s/ Charles G. Betty
-----------------------------------------
Name: Charles G. Betty
---------------------------------------
Title: President and CEO
SPRINT CORPORATION
By: /s/ Theodore H. Schell
-----------------------------------------
Name: Theodore H. Schell
---------------------------------------
Title: Vice President - Strategic Planning
and Corporate Development
SPRINT COMMUNICATIONS COMPANY L.P.
By: U.S. Telecom, Inc., General Partner
By: /s/ Don A. Jenson
-------------------------------------
Name: Don A. Jenson
-----------------------------------
Title: Vice President and Secretary
----------------------------------
SIGNATURE PAGE FOR STOCKHOLDERS' AGREEMENT
12
<PAGE>
/s/ Sky Dayton
----------------------------------
SKY D. DAYTON
SIGNATURE PAGE FOR STOCKHOLDERS' AGREEMENT
<PAGE>
QUANTUM INDUSTRIAL PARTNERS LDC
By: /s/ Michael C. Neus
------------------------------------
Name: Michael C. Neus
----------------------------------
Title: Attorney-in-Fact
SIGNATURE PAGE FOR STOCKHOLDERS' AGREEMENT
<PAGE>
/s/ Kevin M. O'Donnell
----------------------------------
KEVIN M. O'DONNELL
SIGNATURE PAGE FOR STOCKHOLDERS' AGREEMENT
<PAGE>
/s/ George Soros
----------------------------------
GEORGE SOROS
SIGNATURE PAGE FOR STOCKHOLDERS' AGREEMENT
<PAGE>
/s/ Reed Slatkin
----------------------------------
REED SLATKIN
SIGNATURE PAGE FOR STOCKHOLDERS' AGREEMENT
<PAGE>
/s/ Sidney Azeez
----------------------------------
SIDNEY AZEEZ
SIGNATURE PAGE FOR STOCKHOLDERS' AGREEMENT
<PAGE>
Schedule I
----------
Name and Address Owned Shares
- ---------------- ------------
Sky D. Dayton 1,500,000
3100 New York Drive
Pasadena, CA 91107
Quantum Industrial Partners LDC 1,456,095
c/o Soros Fund Management
Attn: Paul McNulty
888 Seventh Avenue
New York, NY 10106
Kevin M. O'Donnell 974,002
9919 Beverly Grove Drive
Beverly Hills, CA 90210
George Soros 214,545
888 Seventh Avenue
New York, NY 10106
Reed Slatkin 1,042,473
890 North Kellogg Avenue
Santa Barbara, CA 93111
Sidney Azeez 236,884
c/o Unitel Cellular Communications Systems
Bayport One, Suite 400
West Atlantic City, NJ 08232
<PAGE>
EXHIBIT (3)(b)
AGREEMENT TO VOTE AND TENDER STOCK
THIS AGREEMENT TO VOTE AND TENDER STOCK, dated as of February 10, 1998
(the "Agreement"), among the Granting Stockholders named on Schedule A hereto,
Sprint Corporation, a Kansas corporation ("Sprint") and Sprint Communications
Company L.P., a Delaware limited partnership ("Sprint L.P.") (the Granting
Stockholders, Sprint and Sprint L.P. are collectively referred to herein as the
"Parties" and individually as a "Party").
WHEREAS, the respective Boards of Directors of Sprint and EarthLink
Network Inc., a Delaware corporation (the "Company") have determined to enter
into a strategic relationship in the area of Internet access and related
services and Sprint will make investments in the Newco, Inc., a Delaware
corporation ("Newco") and the Company in connection with the Merger of Newco
Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Newco ("Newco
Sub") and the Company in order to enhance the capabilities for growth and
financial and strategic success;
WHEREAS, Sprint, Sprint L.P., the Company, Newco and Newco Sub have
entered into an Investment Agreement as of the date hereof (the "Investment
Agreement") contemplating that strategic alliance and addressing the terms and
conditions of such investment and related transactions;
WHEREAS, a condition to Sprint's obligations under the Investment
Agreement is that each of the Granting Stockholders execute and perform this
Agreement and grant an irrevocable proxy in the form attached hereto as Exhibit
A (the "Irrevocable Proxy");
WHEREAS, Sprint proposes to make a tender offer (as it may be amended
from time to time as permitted under the Investment Agreement, with the
Company's consent if required hereby, the "Offer") to purchase 1,250,000 shares
of common stock, par value $.01 per share, of the Company (the "Common Stock"),
for an aggregate cash consideration of $56,250,000 and at a price per share of
Common Stock of $45 net to each seller in cash (such price, as may hereafter be
changed, the "Offer Price"), upon the terms and subject to the conditions set
forth in the Investment Agreement; and the Board of Directors of the Company has
approved the Offer and the other transactions contemplated in the Investment
Agreement and is recommending that the Company's stockholders who wish to
receive cash for their shares of Common Stock accept the Offer;
WHEREAS, immediately following the closing of the Offer, Sprint L.P.
proposes to purchase 4,102,941 shares of Series A Convertible Preferred Stock,
par value $.01 per share of Newco (the "Convertible Preferred Stock") in
exchange for (i) an aggregate cash consideration of $23,750,000, (ii) the
assignment to Newco of 100% of the Sprint Internet Passport Subscribers, (iii)
entering enter into an agreement whereby Newco and the Company will utilize the
Sprint brand under specified terms and conditions Newco and Newco Sub will,
inter alia, have the right to use Sprint distribution channels under specified
terms and conditions, and (iv) entering into a
<PAGE>
network agreement whereby Newco and the Company will utilize Sprint's long-
distance network under specified terms and conditions.
WHEREAS, Sprint shall provide Newco and the Company, as co-borrowers,
with up to $25 million of Convertible Senior Debt financing (the "Convertible
Debt Financing") on or after the Closing, with such amount to increase to up to
$100 million over time, such indebtedness to be evidenced by one or more
Convertible Senior Promissory Note(s) (the "Convertible Notes");
WHEREAS, the closing of the Contribution and the other transactions
referred to above other than the Offer shall take place concurrently with the
merger of Newco Sub into the Company (the "Merger") and the conversion of each
share of the Company's outstanding Common Stock into one share of Newco common
stock, par value $.01 per share ("Newco Common Stock") pursuant to the Merger,
in each case upon the terms and subject to the conditions set forth in the
Investment Agreement and/or the Ancillary Agreements (as defined below);
WHEREAS, Section 2.02(c) of the Investment Agreement includes as a
condition to the obligations of Sprint and Sprint L.P. to consummate the
transactions contemplated by the Investment Agreement and the Ancillary
Agreements that the Granting Stockholders shall execute, deliver and fully
perform this Agreement and that the terms and conditions of this Agreement shall
have been otherwise satisfied in all material respects;
WHEREAS, the Granting Stockholders desire to induce the parties to the
Investment Agreement to execute, deliver and perform such agreement and the
Ancillary Agreements and to satisfy the aforesaid condition to the Closing of
the Investment Agreement;
WHEREAS, capitalized terms used herein shall have the meaning set forth
in the Investment Agreement unless otherwise defined herein.
NOW, THEREFORE, in consideration of (i) the foregoing premises, (ii)
the benefits to be received equally by all stockholders of the Company upon the
execution, delivery and performance of the Investment Agreement and the
Ancillary Agreements, (iii) the interest of Sprint and Sprint L.P. in purchasing
shares of Common Stock from the Granting Stockholders and other stockholders of
the Company in the Offer, (iv) the representations, warranties, covenants and
agreements contained in this Agreement, the Investment Agreement and the
Ancillary Agreements, and (v) for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Agreement and Obligation to Tender. Each of the Granting
----------------------------------
Stockholders agrees to tender all of the shares of Common Stock which they own
of record or beneficially (within the meaning of Rule 13d-3 under the Exchange
Act as of the date hereof), which number of shares is set forth opposite the
Granting Stockholder's name on Schedule A attached hereto in the precise manner
in which such name it is set forth on the certificate evidencing the Shares (the
"Owned
2
<PAGE>
Shares"; which term shall include any and all other shares of capital stock or
securities or rights issued or issuable in respect thereof on or after the date
hereof), in accordance with the terms and subject to the conditions set forth in
the Offer to Purchase and the related Letter of Transmittal (which, together
with any amendments or supplements to such Offer to Purchase and Letter of
Transmittal, shall definitively constitute the Offer). The Granting Stockholders
understand and agree that the actual number of Owned Shares purchased by Sprint
will vary depending upon the total number of shares of Common Stock validly
tendered and not withdrawn at the expiration of the Offer and the obligation
imposed on Sprint by Rule 14d-8 under the Exchange Act to prorate such
purchases; provided, however, that Sprint shall not be obligated to purchase any
shares of Common Stock in the Offer unless all of the conditions to the Offer
have been satisfied or waived in accordance with the Investment Agreement.
2. Agreement and Obligation to Vote. (a) Each of the Granting
--------------------------------
Stockholders agrees to cast, or cause to be cast, all of the votes represented
by the Owned Shares (which for this purpose shall also include all shares of
Newco Common Stock received upon conversion of the Owned Shares into Newco
Common Stock pursuant to the Merger) which such Granting Stockholder has the
right or power to vote, directly or indirectly, or has the right or power to
vote by holding a proxy to vote such shares or otherwise, in favor of (a) the
Merger, (b) the issuance and sale of the Convertible Preferred Stock, the
Convertible Notes and the Newco Common Stock issuable upon conversion of the
Convertible Preferred Stock and/or the Convertible Notes, in each case in
accordance with the Investment Agreement and the applicable Ancillary
Agreements, (c) the other transactions contemplated by the Investment Agreement
and the Ancillary Agreements, and (d) any related matter that must be approved
by the holders of Common Stock or Newco Common Stock in order for the
transactions contemplated by the Investment Agreement or any Ancillary Agreement
to be consummated.
(b) In order to ensure that the voting agreement set forth in Section
2(a) will be fulfilled, each of the Granting Stockholders agrees to grant, and
concurrently with the execution of this Agreement hereby grants, to Sprint
Corporation an Irrevocable Proxy, coupled with an interest, with respect to all
of the Owned Shares covered by the aforesaid voting agreement which the Granting
Stockholder is entitled to vote, for and in the name, place and stead of such
stockholder, at any annual or special meeting of the holders of Common Stock and
at any adjournment or postponement thereof, or pursuant to any consent in lieu
of a meeting, or otherwise for the matters described in Section 2(a). The
Irrevocable Proxy granted by each of the Granting Stockholders constitutes the
valid and effective irrevocable proxy, coupled with an interest, of each of the
Granting Stockholders in respect of the Owned Shares within the meaning of
Section 212(e) of the Delaware General Corporation Law; revokes any proxy or
proxies or powers of attorney heretofore given by any of the Granting
Stockholders in respect of the Shares; shall remain in full force and effect and
is and shall be irrevocable until the Closing of the Merger and the other
transactions contemplated by the Investment Agreement and the Ancillary
Agreements; and is coupled with an interest and an integral part of the benefits
and obligations of each of the Granting Stockholders and the rights and benefits
of Sprint and Sprint L.P.
3. Agreement Not to Dispose of Shares. Each Granting Stockholder
----------------------------------
hereby
3
<PAGE>
covenants and agrees as follows between the date hereof and the Closing (as
defined in the Investment Agreement):
a. The Granting Stockholders will not, and will not agree to,
directly or indirectly, (i) sell, transfer, assign, pledge,
hypothecate, cause to be redeemed or repurchased or otherwise dispose
of any of the Owned Shares, (ii) grant any proxy, power of attorney or
interest in or with respect to the Shares, or (iii) enter into a voting
agreement with respect to the Owned Shares, in any such case prior to
the Closing of the Merger and the other transactions contemplated by
the Investment Agreement and the Ancillary Agreements.
b. The Granting Stockholders will cause the Company to have
the certificates evidencing their shares bear substantially the
following legend and to cause the Company to instruct its transfer
agent to stop the transfer of any certificates bearing such legend that
is not made in accordance with this Agreement:
THE TRANSFER OF AND VOTING OF THE SHARES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE PRIOR RIGHTS AND LIMITATIONS
IMPOSED BY THE AGREEMENT TO VOTE AND TENDER STOCK DATED FEBRUARY
10, 1998 AMONG SPRINT CORPORATION, A KANSAS CORPORATION, SPRINT
COMMUNICATIONS COMPANY L.P., AND CERTAIN GRANTING STOCKHOLDERS
WHO ARE SIGNATORIES THERETO. A COPY OF SUCH AGREEMENT WILL BE
FURNISHED BY THE COMPANY'S SECRETARY UPON WRITTEN REQUEST AND
WITHOUT CHARGE.
4. Representations and Warranties. Each of the Granting
------------------------------
Stockholders severally represents and warrants to Sprint and Sprint L.P. as
follows:
a. Each Granting Stockholder that is an entity is a
corporation, limited liability company or partnership that is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated or organized and has the power
and authority to execute, deliver and perform this Agreement and to
grant the Irrevocable Proxy. Each Granting Stockholder that is a
natural person has the capacity and the full legal right to execute,
deliver and perform this Agreement and to grant the Irrevocable Proxy.
b. This Agreement and each Irrevocable Proxy have been duly
executed and delivered and constitute a valid and binding agreement or
irrevocable proxy (coupled with an interest), respectively, and are
enforceable in accordance with their respective terms, except to the
extent that the enforcement of this Agreement or the Irrevocable Proxy
may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws
4
<PAGE>
now or hereafter in effect relating to creditors' rights generally, and
(ii) general principles of equity regardless of whether enforceability
is considered in a proceeding in equity or at law.
c. The execution and delivery of this Agreement and of the
Irrevocable Proxies did not, and the performance thereof, without
obtaining the consent of any third party will not, conflict with, or
result in any violation of, or default (with or without notice or lapse
of time, or both) under (i) to their knowledge, the certificate of
incorporation or bylaws of the Company, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit or license applicable to the Granting Stockholder or
the Owned Shares, or (iii) any Law applicable to the Granting
Stockholders. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity or
any party to a Contract is required by or with respect to the
applicable Granting Stockholder or in connection with the execution and
delivery of this Agreement or the applicable Irrevocable Proxy.
d. Each of the Owned Shares has been duly and validly issued,
is fully paid and nonassessable, is free and clear of all Liens, and is
not subject to (i) any preemptive rights, (ii) right of first refusal,
(iii) right to purchase, acquire or vote, (iv) power of attorney, or
(v) any other right.
e. Each Granting Stockholder has the sole power, right and
authority to vote and to tender the Owned Shares in accordance with the
terms of this Agreement and the Irrevocable Proxy.
5. Specific Performance. Each Granting Stockholder understands and
--------------------
agrees that immediate irreparable damages for which there is no adequate remedy
at law would occur in the event that any provision of this Agreement and/or the
Irrevocable Proxy is not performed in accordance with the specific terms hereof
or thereof or is otherwise breached. Accordingly, it is agreed that in the event
of a failure by a Granting Stockholder to perform its obligations under this
Agreement and/or the Irrevocable Proxy, Sprint and Sprint L.P. shall each be
entitled to specific performance through injunctive relief to prevent breaches
of the provisions of this Agreement and/or the Irrevocable Proxy and to enforce
specifically the provisions of this Agreement and/or the Irrevocable Proxy in
any Action instituted in any court having competent jurisdiction, in addition to
any other remedy to which Sprint and Sprint L.P. may be entitled, at law or in
equity.
6. Term. This Agreement and the obligations hereunder shall commence
----
on the date hereof and continue until the earlier of (a) the Closing of the
Merger and the other transactions contemplated by the Investment Agreement and
the Ancillary Agreements, or (b) the termination of the Investment Agreement
pursuant to Section 6.01 thereof.
7. Miscellaneous Provisions. (a) Unless otherwise provided herein,
------------------------
any notice, request, waiver, instruction, consent or document or other
communication required or permitted
5
<PAGE>
to be given by this Agreement shall be effective only if it is in writing and
(i) delivered by hand or sent by certified mail, return receipt requested, (ii)
if sent by a nationally-recognized overnight delivery service with delivery
confirmed, or (iii) if telexed or telecopied, with receipt confirmed as follows:
Granting Stockholders Hunton & Williams
in care of their attorneys: NationsBank Plaza, Suite 4100
600 Peachtree Street, N.E.
Atlanta, Georgia 30308-2216
Attn: Scott M. Hobby, Esq.
Telecopy No.: (404) 888-4190
Sprint and Sprint L.P.: Sprint Corporation
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
Attn: Chief Financial Officer
Telecopy No.: (913) 624-8426
with a copy to: Sprint Corporation
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
Attn: Corporate Secretary
Telecopy No.: (913) 624-8233
with an additional copy to: Stinson, Mag & Fizzell, P.C.
1201 Walnut, Suite 2800
P.O. Box 419251
Kansas City, Missouri 64141-6251
Attn: John A. Granda, Esq.
Telecopy No.: (816) 691-3495
The parties shall promptly notify each other of any change in their respective
addresses or facsimile numbers or of the Person or office to receive notices,
requests or other communications under this Section 7(a). Notice shall be deemed
to have been given as of the date when so personally delivered, three (3) days
after when so deposited with the United States mail properly addressed, the next
day when delivered during business hours to such overnight delivery service
properly addressed or when receipt of a telex or telecopy is confirmed, as the
case may be, unless the sending party has actual Knowledge that such notice was
not received by the intended recipient.
(b) This Agreement and the Irrevocable Proxies embody the entire
agreement and understanding of the Parties in respect to the matter contemplated
hereby and thereby and supersede and render null and void all other prior
agreements and understandings, written and oral, with respect to the subject
matter hereof and thereof, provided that this provision shall not
6
<PAGE>
abrogate any other written agreement between the Parties executed simultaneously
with this Agreement. No Party shall be liable or bound to any other Party in any
manner by any promises, conditions, representations, warranties, covenants,
agreements and understandings, except as specifically set forth herein or
therein.
(c) Except as otherwise permitted in this Agreement, this Agreement may
not be amended or supplemented, unless set forth in a writing signed by and
delivered to, all the Parties and no Irrevocable Proxy may be amended or
supplemented unless set forth in a writing signed by Sprint, Sprint L.P. and the
Granting Stockholder who has granted such Irrevocable Proxy. Except as otherwise
permitted in this Agreement or the Irrevocable Proxies, the terms or conditions
of this Agreement and the Irrevocable Proxies may not be waived unless set forth
in a writing signed by the Party or Parties entitled to the benefits thereof. No
waiver of any of the provisions of this Agreement or the Irrevocable Proxies
shall be deemed or shall constitute a waiver of such provision at any time in
the future or a waiver of any other provision hereof or, in the case of the
Irrevocable Proxies, any similar provision in another Irrevocable Proxy. The
rights and remedies of the Parties are cumulative and not alternative. Except as
otherwise provided in this Agreement or the Irrevocable Proxies, neither the
failure nor any delay by any Party in exercising any right, power or privilege
under this Agreement or the Irrevocable Proxies will operate as a waiver of such
right, power or privilege, and no single or partial exercise of any such right,
power or privilege will preclude any other or further exercise of such right,
power or privilege or the exercise of any other right, power or privilege.
(d) Neither this Agreement or the Irrevocable Proxies nor any of the
rights, interests or obligations under this Agreement or the Irrevocable Proxies
shall be assigned or transferred, in whole or in part, by any of the Parties
without the prior written consent of the other Parties; provided, however, that
such assignment or transfer may be made by (i) Sprint or Sprint L.P. to any of
its Affiliates, (ii) by any Affiliate of Sprint to any other Affiliate of
Sprint, or (iii) pursuant to any merger, consolidation, reorganization or sale
of substantially all of the assets of Sprint or such Affiliates (or any
transaction having such effect). Subject to the preceding sentence, this
Agreement and the Irrevocable Proxies will be binding upon, inure to the benefit
of, and be enforceable by, the Parties and their respective successors and
assigns.
(e) This Agreement shall be governed by the laws of the State of
Delaware, without regard to conflict of laws principles.
(f) If any term or provision of this Agreement or the Irrevocable
Proxies or the application thereof to any Party or set of circumstances shall,
in any jurisdiction and to any extent, be finally held invalid or unenforceable,
such term or provision shall only be ineffective as to such jurisdiction, and
only to the extent of such invalidity or unenforceability, without invalidating
or rendering unenforceable any other terms or provisions of this Agreement or
the Irrevocable Proxies or under any other circumstances, and the Parties shall
negotiate in good faith a substitute provision which comes as close as possible
to the invalidated or unenforceable term or provision, and which puts each Party
in a position as nearly comparable as possible to the position it would have
been in but for the finding of invalidity or unenforceability, while remaining
valid and
7
<PAGE>
enforceable.
(g) This Agreement may be executed in one or more counterparts each of
which when so executed and delivered shall for all purposes be deemed to be an
original but all of which, when taken together, shall constitute one and the
same Agreement.
(h) The captions and headings used in this Agreement and the Irrevocable
Proxies are inserted for convenience only and shall not be deemed to constitute
part of this Agreement or the Irrevocable Proxies, as the case may be, or to
affect the construction or interpretation hereof or thereof.
(i) Nothing in this Agreement or the Irrevocable Proxies, express or
implied, shall create or confer upon any Person, other than the Parties or their
respective successors and permitted assigns, any legal or equitable rights,
remedies, obligations, liabilities or claims under or with respect to this
Agreement or the Irrevocable Proxies, except as expressly provided herein or
therein.
(j) Unless specifically stated otherwise, references to sections refer
to sections in this Agreement. References to "includes" and "including" mean
"includes without limitation" and "including without limitation."
(k) Each Granting Stockholder is a sophisticated legal entity or
individual that was advised by experienced counsel and, to the extent it deemed
necessary, other advisors in connection with this Agreement and the Irrevocable
Proxies. Accordingly, each Party hereby acknowledges that no Party has relied or
will rely in respect of this Agreement or the Irrevocable Proxies or the
transactions contemplated hereby or thereby upon any document or written or oral
information previously furnished to or discovered by it or its representatives,
other than this Agreement or the Irrevocable Proxies or the documents and
instruments delivered at the Closing.
(l) No provision of this Agreement or the Irrevocable Proxies shall be
interpreted in favor of, or against, any Party by reason of the extent to which
such Party or its counsel participated in the drafting thereof or by reason of
the extent to which any such provision is inconsistent with any prior draft
hereof or thereof.
(m) The Parties agree that any Action arising out of or relating to this
Agreement or the Irrevocable Proxies shall be brought by the Parties and held
and determined only in a Delaware state court or a federal court sitting in that
state which shall be the exclusive venue of any such Action. Each Party waives
any objection which such Party may now or hereafter have to the laying of venue
of any such Action, and irrevocably consents and submits to the jurisdiction of
any such court (and the appropriate appellate courts) in any such Action. Any
and all service of process and any other notice in any such Action shall be
effective against such Party when transmitted in accordance with subsection (a)
of this Section 7. Nothing contained herein shall be deemed to affect the right
of any Party to serve process in any manner permitted by Law.
8
<PAGE>
(n) All representations, warranties and covenants in this Agreement or
the Irrevocable Proxies shall survive the execution and delivery of this
Agreement and shall continue for their respective statute of limitations period,
except for any covenant which by its terms continues in effect for a longer time
period, and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of any Party or any information capable of
being acquired by any Party.
9
<PAGE>
(o) THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT
THAT THEY MAY HAVE TO A TRIAL BY JURY IN ANY ACTION INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR THE
IRREVOCABLE PROXIES.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the day and year first above written.
EARTHLINK NETWORK, INC.
By: /s/ Charles G. Betty
--------------------------------
Name: Charles G. Betty
Title: President and CEO
DOLPHIN, INC.
By: /s/ Charles G. Betty
--------------------------------
Name: Charles G. Betty
Title: President and CEO
SPRINT CORPORATION
By: /s/ Theodore H. Schell
--------------------------------
Name: Theodore H. Schell
Title: Vice President-Strategic
Planning and Corporate
Development
SPRINT COMMUNICATIONS
COMPANY L.P.
By: US Telecom, Inc., General Partner
By: /s/ Don A. Jensen
--------------------------------
Name: Don A. Jensen
Title: Vice President and Secretary
SIGNATURE PAGE FOR AGREEMENT TO VOTE AND TENDER STOCK
-----------------------------------------------------
10
<PAGE>
/s/ Sky D. Dayton
----------------------------
Sky D. Dayton
SIGNATURE PAGE FOR AGREEMENT TO VOTE AND TENDER STOCK
-----------------------------------------------------
11
<PAGE>
/s/ Kevin M. O'Donnell
----------------------
Kevin M. O'Donnell
SIGNATURE PAGE FOR AGREEMENT TO VOTE AND TENDER STOCK
-----------------------------------------------------
12
<PAGE>
/s/ Gregory Abbott
------------------
Gregory Abbott
SIGNATURE PAGE FOR AGREEMENT TO VOTE AND TENDER STOCK
-----------------------------------------------------
13
<PAGE>
/s/ Robert S. London
-----------------------------------
Robert S. London
SIGNATURE PAGE FOR AGREEMENT TO VOTE AND TENDER STOCK
14
<PAGE>
/s/ George Abbott
---------------------------------
George Abbott
SIGNATURE PAGE FOR AGREEMENT TO VOTE AND TENDER STOCK
15
<PAGE>
STORIE PARTNERS L.P.
By: /s/ Steven A. Ledger
-----------------------------
Name: Steven A. Ledger
Title: Managing Partner
SIGNATURE PAGE FOR AGREEMENT TO VOTE AND TENDER STOCK
16
<PAGE>
Schedule A
----------
<TABLE>
<CAPTION>
Name and Address Owned Shares
---------------- ------------
<S> <C>
Sky D. Dayton
3100 New York Drive
Pasadena, CA 91107 1,500,000
Kevin M. O'Donnell
9919 Beverly Grove Drive
Beverly Hills, CA 90210 944,614
Gregory Abbott
1200 Kessler Drive
Aspen, CO 81611 427,212
Robert S. London
212 Aurora Drive
Montecito, CA 93108 392,032
George Abbott
1285 South Ocean Boulevard
Palm Beach, FL 33480 203,364
Storie Partners LP
c/o Coman and Cohen
One Bush Street, Suite 1350
San Francisco, CA 94104 521,892
</TABLE>
<PAGE>
EXHIBIT NO. (3)(c)
AGREEMENT TO VOTE STOCK
THIS AGREEMENT TO VOTE STOCK, dated as of February 10, 1998 (the
"Agreement"), among the Granting Stockholders named on Schedule A hereto, Sprint
Corporation, a Kansas corporation ("Sprint") and Sprint Communications Company
L.P., a Delaware limited partnership ("Sprint L.P.") (the Granting Stockholders,
Sprint and Sprint L.P. are collectively referred to herein as the "Parties" and
individually as a "Party").
WHEREAS, the respective Boards of Directors of Sprint and EarthLink
Network, Inc., a Delaware corporation (the "Company") have determined to enter
into a strategic relationship in the area of Internet access and related
services and Sprint will make investments in Dolphin, Inc., a Delaware
corporation ("Newco") and the Company in connection with the Merger of Dolphin
Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Newco ("Newco
Sub") and the Company in order to enhance the capabilities for growth and
financial and strategic success;
WHEREAS, Sprint, Sprint L.P., the Company, Newco and Newco Sub have
entered into an Investment Agreement as of the date hereof (the "Investment
Agreement") contemplating that strategic alliance and addressing the terms and
conditions of such investment and related transactions;
WHEREAS, a condition to Sprint's obligations under the Investment
Agreement is that each of the Granting Stockholders execute and perform this
Agreement;
WHEREAS, Sprint proposes to make a tender offer (as it may be amended
from time to time as permitted under the Investment Agreement, with the
Company's consent if required hereby, the "Offer") to purchase 1,250,000 shares
of common stock, par value $.01 per share, of the Company (the "Common Stock"),
for an aggregate cash consideration of $56,250,000 and at a price per share of
Common Stock of $45 net to each seller in cash (such price, as may hereafter be
changed, the "Offer Price"), upon the terms and subject to the conditions set
forth in the Investment Agreement; and the Board of Directors of the Company has
approved the Offer and the other transactions contemplated in the Investment
Agreement and is recommending that the Company's stockholders who wish to
receive cash for their shares of Common Stock accept the Offer;
WHEREAS, immediately following the closing of the Offer, Sprint L.P.
proposes to purchase 4,102,941 shares of Series A Convertible Preferred Stock,
par value $.01 per share of Newco (the "Convertible Preferred Stock") in
exchange for (i) an aggregate cash consideration of $23,750,000, (ii) the
assignment to Newco of 100% of the Sprint Internet Passport Subscribers, and
(iii) entering into a network agreement whereby Newco and the Company will
utilize Sprint's long-distance network under specified terms and conditions (the
consideration under clauses (i), (ii) and (iii) is referred to collectively
herein as the "Contribution");
WHEREAS, Sprint L.P. will enter into an agreement whereby Newco and the
Company will utilize the Sprint brand under specified terms and conditions Newco
and Newco Sub will,
<PAGE>
inter alia, have the right to use Sprint distribution channels under specified
- ----- ----
terms and conditions and agrees to sell certain Sprint products;
WHEREAS, Sprint shall provide Newco and the Company, as co-borrowers,
with up to $25 million of Convertible Senior Debt financing (the "Convertible
Debt Financing") on or after the Closing, with such amount to increase to up to
$100 million over time, such indebtedness to be evidenced by one or more
Convertible Senior Promissory Note(s) (the "Convertible Notes");
WHEREAS, the closing of the Contribution and the other transactions
referred to above other than the Offer shall take place concurrently with the
merger of Newco Sub into the Company (the "Merger") and the conversion of each
share of the Company's outstanding Common Stock into one share of Newco common
stock, par value $.01 per share ("Newco Common Stock") pursuant to the Merger,
in each case upon the terms and subject to the conditions set forth in the
Investment Agreement and/or the Ancillary Agreements (as defined below);
WHEREAS, Section 2.02(c) of the Investment Agreement includes as a
condition to the obligations of Sprint and Sprint L.P. to consummate the
transactions contemplated by the Investment Agreement and the Ancillary
Agreements that the Granting Stockholders shall execute, deliver and fully
perform this Agreement and that the terms and conditions of this Agreement shall
have been otherwise satisfied in all material respects;
WHEREAS, the Granting Stockholders desire to induce the parties to the
Investment Agreement to execute, deliver and perform such agreement and the
Ancillary Agreements and to satisfy the aforesaid condition to the Closing of
the Investment Agreement;
WHEREAS, capitalized terms used herein shall have the meaning set forth
in the Investment Agreement unless otherwise defined herein; and
NOW, THEREFORE, in consideration of (i) the foregoing premises, (ii)
the benefits to be received equally by all stockholders of the Company upon the
execution, delivery and performance of the Investment Agreement and the
Ancillary Agreements, (iii) the interest of Sprint in purchasing shares of
Common Stock from the stockholders of the Company in the Offer, (iv) the
representations, warranties, covenants and agreements contained in this
Agreement, the Investment Agreement and the Ancillary Agreements, and (v) for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Agreement and Obligation to Vote. Each of the Granting Stockholders
--------------------------------
on and prior to the Termination Date agrees to cast, or cause to be cast, at any
duly called meeting of the stockholders, all of the votes represented by the
shares of Common Stock which they own of record or beneficially (within the
meaning of Rule 13d-3 under the Exchange Act as of the date hereof), which
number of shares is set forth opposite the Granting Stockholder's name on
Schedule A attached hereto (the "Owned Shares"; which term shall include any and
all other shares of capital stock or securities or rights issued or issuable in
respect thereof on or after the date hereof), (which for this purpose shall also
include all shares of Newco Common Stock
<PAGE>
received upon conversion of the Owned Shares into Newco Common Stock pursuant to
the Merger) which such Granting Stockholder has the right or power to vote,
directly or indirectly, or has the right or power to vote by holding a proxy to
vote such shares or otherwise, in favor of the following matters only (a) the
Merger, (b) the issuance and sale of the Convertible Preferred Stock, the
Convertible Notes and the Newco Common Stock issuable upon conversion of the
Convertible Preferred Stock and/or the Convertible Notes, in each case in
accordance with the Investment Agreement and the applicable Ancillary
Agreements, (c) the other transactions contemplated by the Investment Agreement
and the Ancillary Agreements, and (d) any related matter that must be approved
by the holders of Common Stock or Newco Common Stock in order for the
transactions contemplated by the Investment Agreement or any Ancillary Agreement
to be consummated so long as not inconsistent with the Investment Agreement and
the Ancillary Agreements.
2. Agreement Not to Dispose of Shares. Each Granting Stockholder hereby
----------------------------------
covenants and agrees as follows between the date hereof and the Termination
Date:
(a) The Granting Stockholders will not, and will not agree to, directly
or indirectly, (i) sell, transfer, assign, pledge, hypothecate, cause to be
redeemed or repurchased or otherwise dispose of any of the Owned Shares, (ii)
grant any proxy, power of attorney or interest in or with respect to the Owned
Shares, or (iii) enter into a voting agreement with respect to the Owned Shares,
in any such case prior to the Closing of the Merger and the other transactions
contemplated by the Investment Agreement and the Ancillary Agreements, provided,
such Granting Stockholder may pledge such shares in connection with bona fide
margin facilities.
(b) The Granting Stockholders will request the Company to have the
certificates evidencing those shares which are owned of record by such Granting
Stockholders to bear substantially the following legend and to request the
Company to instruct its transfer agent to stop the transfer of any certificates
bearing such legend that is not made in accordance with this Agreement:
THE TRANSFER OF AND VOTING OF THE SHARES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE PRIOR RIGHTS AND LIMITATIONS
IMPOSED BY THE AGREEMENT TO VOTE DATED AS OF FEBRUARY 10, 1998
AMONG SPRINT CORPORATION, A KANSAS CORPORATION, SPRINT
COMMUNICATIONS COMPANY L.P. AND CERTAIN GRANTING STOCKHOLDERS
WHO ARE SIGNATORIES THERETO. A COPY OF SUCH AGREEMENT WILL BE
FURNISHED BY THE COMPANY'S SECRETARY UPON WRITTEN REQUEST AND
WITHOUT CHARGE.
(c) Notwithstanding the foregoing, each Granting Stockholder shall be
permitted to tender any or all Owned Shares into the Offer.
3
<PAGE>
3. Representations and Warranties. Each of the Granting Stockholders,
------------------------------
as to itself only, represents and warrants to Sprint and Sprint L.P. as follows:
(a) Each Granting Stockholder that is an entity is a corporation,
limited liability company or partnership that is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated or organized and has the power and authority to execute, deliver
and perform this Agreement. Each Granting Stockholder that is a natural person
has the capacity and the full legal right to execute, deliver and perform this
Agreement.
(b) This Agreement has been duly executed and delivered and constitute
a valid and binding agreement and is enforceable in accordance with its terms,
except to the extent that the enforcement of this Agreement may be limited by
(i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights generally, and (ii) general
principles of equity regardless of whether enforceability is considered in a
proceeding in equity or at law.
(c) The execution and delivery of this Agreement did not, and the
performance thereof, without obtaining the consent of any third party will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both) under (i) to their knowledge, the certificate of
incorporation or bylaws of the Company, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit or
license applicable to the Granting Stockholder or the Owned Shares, or (iii) any
Law applicable to the Granting Stockholders. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity or any party to a Contract is required by or with respect to the
applicable Granting Stockholder or by the Granting Stockholder in connection
with the execution and delivery of this Agreement except under the Exchange Act.
(d) Each of the Owned Shares is free and clear of all Liens except for
bona fide margin facilities permitted under Section 2(a), and, except as
contemplated by this Agreement and the Stockholder's Agreement, is not subject
to any (i) right of first refusal, (ii) right to purchase, acquire or vote, or
(iii) power of attorney.
(e) Each Granting Stockholder has the sole power, right and authority
to vote the Owned Shares in accordance with the terms of this Agreement.
(f) Notwithstanding the foregoing, Quantum Industrial Partners LDC
("QIP") has granted discretionary authority to vote and dispose of its Owned
Shares to Soros Fund Management LLC, although such grant will not affect QIP's
obligations hereunder.
4. Term. This Agreement and the obligations hereunder shall commence on
----
the date hereof and continue until the earlier of (a) consummation of the
Merger, (b) termination of the Investment Agreement pursuant to Section 6.01
thereof, (c) the modification, waiver or amendment, in any manner, adverse to
the Granting Stockholders, of the Investment Agreement or the Ancillary
Agreements, and (d) June 15, 1998 (the "Termination Date").
4
<PAGE>
5. Miscellaneous Provisions. (a) Unless otherwise provided herein, any
------------------------
notice, request, waiver, instruction, consent or document or other communication
required or permitted to be given by this Agreement shall be effective only if
it is in writing and (i) delivered by hand or sent by certified mail, return
receipt requested, (ii) if sent by a nationally-recognized overnight delivery
service with delivery confirmed, or (iii) if telexed or telecopied, with receipt
confirmed as follows:
Granting Stockholders Hunton & Williams
in care of their attorneys: NationsBank Plaza, Suite 4100
600 Peachtree Street, N.E.
Atlanta, Georgia 30308-2216
Attn: Scott M. Hobby, Esq.
Telecopy No.: (404) 888-4190
Sprint and Sprint L.P.: Sprint Corporation
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
Attn: Chief Financial Officer
Telecopy No.: (913) 624-8426
with a copy to: Sprint Corporation
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
Attn: Corporate Secretary
Telecopy No.: (913) 624-8233
with an additional copy to: Stinson, Mag & Fizzell, P.C.
1201 Walnut, Suite 2800
P.O. Box 419251
Kansas City, Missouri 64141-6251
Attn: John A. Granda, Esq.
Telecopy No.: (816) 691-3495
The parties shall promptly notify each other of any change in their respective
addresses or facsimile numbers or of the Person or office to receive notices,
requests or other communications under this Section 5(a). Notice shall be deemed
to have been given as of the date when so personally delivered, when physically
delivered by the U.S. Postal Service at the proper address, the next day when
delivered during business hours to an overnight delivery service properly
addressed or when receipt of a telex or telecopy is confirmed, as the case may
be, unless the sending party has actual Knowledge that such notice was not
received by the intended recipient.
(b) This Agreement embodies the entire agreement and understanding of
the Parties in respect to the matter contemplated hereby and thereby and
supersede and render null and void all other prior agreements and
understandings, written and oral, with respect to the subject matter hereof and
thereof, provided that this provision shall not abrogate any other written
agreement
5
<PAGE>
between the Parties executed simultaneously with this Agreement. No Party shall
be liable or bound to any other Party in any manner by any promises, conditions,
representations, warranties, covenants, agreements and understandings, except as
specifically set forth herein or therein.
(c) Except as otherwise permitted in this Agreement, this Agreement may
not be amended or supplemented, unless set forth in a writing signed by and
delivered to, all the Parties. Except as otherwise permitted in this Agreement,
the terms or conditions of this Agreement may not be waived unless set forth in
a writing signed by the Party or Parties entitled to the benefits thereof. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of such provision at any time in the future or a waiver of
any other provision hereof. The rights and remedies of the Parties are
cumulative and not alternative. Except as otherwise provided in this Agreement,
neither the failure nor any delay by any Party in exercising any right, power or
privilege under this Agreement will operate as a waiver of such right, power or
privilege, and no single or partial exercise of any such right, power or
privilege will preclude any other or further exercise of such right, power or
privilege or the exercise of any other right, power or privilege.
(d) This Agreement nor any of the rights, interests or obligations
under this Agreement shall be assigned or transferred, in whole or in part, by
any of the Parties without the prior written consent of the other Parties;
provided, however, that such assignment or transfer may be made by (i) Sprint or
Sprint L.P. to any of their Affiliates, (ii) by any Affiliate of Sprint to any
other Affiliate of Sprint, or (iii) pursuant to any merger, consolidation,
reorganization or sale of substantially all of the assets of Sprint or such
Affiliates (or any transaction having such effect). 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.
(e) This Agreement shall be governed by the laws of the State of
Delaware, without regard to conflict of laws principles.
(f) If any term or provision of this Agreement or the application
thereof to any Party or set of circumstances shall, in any jurisdiction and to
any extent, be finally held invalid or unenforceable, such term or provision
shall only be ineffective as to such jurisdiction, and only to the extent of
such invalidity or unenforceability, without invalidating or rendering
unenforceable any other terms or provisions of this Agreement or under any other
circumstances, and the Parties shall negotiate in good faith a substitute
provision which comes as close as possible to the invalidated or unenforceable
term or provision, and which puts each Party in a position as nearly comparable
as possible to the position it would have been in but for the finding of
invalidity or unenforceability, while remaining valid and enforceable.
(g) This Agreement may be executed in one or more counterparts each of
which when so executed and delivered shall for all purposes be deemed to be an
original but all of which, when taken together, shall constitute one and the
same Agreement.
(h) The captions and headings used in this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction or
6
<PAGE>
interpretation hereof.
(i) Nothing in this Agreement, express or implied, shall create or
confer upon any Person, other than the Parties or their respective successors
and permitted assigns, any legal or equitable rights, remedies, obligations,
liabilities or claims under or with respect to this Agreement, except as
expressly provided herein.
(j) Unless specifically stated otherwise, references to sections refer
to sections in this Agreement. References to "includes" and "including" mean
"includes without limitation" and "including without limitation."
(k) Each Granting Stockholder is a sophisticated legal entity or
individual that was advised by experienced counsel and, to the extent it deemed
necessary, other advisors in connection with this Agreement. Accordingly, each
Party hereby acknowledges that no Party has relied or will rely in respect of
this Agreement or the transactions contemplated hereby or thereby upon any
document or written or oral information previously furnished to or discovered by
it or its representatives, other than this Agreement or the documents and
instruments delivered at the Closing.
(l) No provision of this Agreement shall be interpreted in favor of, or
against, any Party by reason of the extent to which such Party or its counsel
participated in the drafting thereof or by reason of the extent to which any
such provision is inconsistent with any prior draft hereof or thereof.
(m) The Parties agree that any Action arising out of or relating to
this Agreement shall be brought by the Parties and held and determined only in a
Delaware state court or a federal court sitting in that state which shall be the
exclusive venue of any such Action. Each Party waives any objection which such
Party may now or hereafter have to the laying of venue of any such Action, and
irrevocably consents and submits to the jurisdiction of any such court (and the
appropriate appellate courts) in any such Action. Any and all service of process
and any other notice in any such Action shall be effective against such Party
when transmitted in accordance with subsection (a) of this Section 5. Nothing
contained herein shall be deemed to affect the right of any Party to serve
process in any manner permitted by Law.
(n) All representations, warranties and covenants in this Agreement
shall survive the execution and delivery of this Agreement and shall continue
for their respective statute of limitations period, except for any covenant
which by its terms continues in effect for a longer time period, and shall in no
way be affected by any investigation of the subject matter thereof made by or on
behalf of any Party or any information capable of being acquired by any Party.
(o) THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT
THAT THEY MAY HAVE TO A TRIAL BY JURY IN ANY ACTION INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING
7
<PAGE>
IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR
CONNECTED WITH THIS AGREEMENT.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the day and year first above written.
SPRINT CORPORATION
By: /s/ Theodore H. Schell
--------------------------------------------
Name: Theodore H. Schell
-------------------------------------
Title: Vice President-Strategic
-------------------------------------
Planning and Corporate Development
-------------------------------------
SPRINT COMMUNICATIONS
COMPANY L.P.
By: US Telecom, Inc., General Partner
By: /s/ Don A. Jensen
--------------------------------------------
Name: Don A. Jensen
-------------------------------------
Title: Vice President and Secretary
-------------------------------------
SIGNATURE PAGE FOR AGREEMENT TO VOTE STOCK
<PAGE>
/s/ George Soros
------------------------------------
George Soros
QUANTUM INDUSTRIAL PARTNERS LDC
By: /s/ Michael C. Neus
----------------------------------
Name: Michael C. Neus
---------------------------
Title: Attorney-in-Fact
---------------------------
/s/ Reed Slatkin
-------------------------------------
Reed Slatkin
/s/ Sidney Azeez
-------------------------------------
Sidney Azeez
SIGNATURE PAGE FOR AGREEMENT TO VOTE STOCK
<PAGE>
Schedule A
----------
Name and Address Owned Shares
---------------- ------------
George Soros
888 Seventh Avenue
New York, NY 10106 214,545
Quantum Industrial Partners LDC
c/o Soros Fund Management
Attn: Paul McNulty
888 Seventh Avenue
New York, NY 10106 1,456,095
Reed Slatkin
890 North Kellogg Avenue
Santa Barbara, CA 93111 1,042,473
Sidney Azeez
c/o Unitel Cellular Communications Systems
Bayport One, Suite 400
West Atlantic City, NJ 08232 236,884
