<PAGE>
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SCHEDULE 14C
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE SECURITIES EXCHANGE ACT
OF 1934
Check the appropriate box:
[_]Preliminary Information Statement
[X]Definitive Information Statement
[_]Confidential, for the Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
BBN CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
[_]No fee required.
[X]Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $1.00 par value
(2) Aggregate number of securities to which transaction applies:
21,644,919 shares of Common Stock*
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
$29.00
(4) Proposed maximum aggregate value of transaction:
$627,702,651
(5) Total fee paid:
$125,541
[X] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$125,179
(2) Form, Schedule or Registration Statement No.:
Schedule 14D-1/Schedule 13D and Preliminary Schedule 14C
(3) Filing Party:
GTE Massachusetts Incorporated/GTE Corporation and BBN Corporation,
respectively
(4) Date Filed:
May 12, 1997 and June 20, 1997, respectively.
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* Estimated for purposes of calculating the amount of the filing fee only. The
amount assumes that 21,644,919 shares of common stock, $1.00 par value, of
BBN Corporation (the "Company") (including the associated common stock
purchase rights) (collectively, the "Shares") are outstanding upon
consummation of the merger of GTE Massachusetts with and into the Company.
Such number of shares represents all the Shares outstanding as of July 24,
1997. Such number does not include any Shares issuable upon conversion of
any of the Company's 6% Convertible Subordinated Notes due 2012 after July
24, 1997.
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<PAGE>
BBN CORPORATION
150 CAMBRIDGEPARK DRIVE
CAMBRIDGE, MASSACHUSETTS 02140
July 24, 1997
To the Stockholders of BBN Corporation:
BBN Corporation (the "Company") cordially invites you to attend a Special
Meeting of Stockholders of BBN Corporation to be held on Friday, August 15,
1997, at 10:00 a.m., local time, at Room 36-1, 36th Floor, One International
Place, Boston, Massachusetts (the "Meeting"). At the Meeting, a proposal to
adopt and approve the Agreement and Plan of Merger dated as of May 5, 1997
(the "Merger Agreement"), by and among GTE Corporation ("Parent"), GTE
Massachusetts Incorporated, a wholly owned subsidiary of Parent ("Purchaser"),
and the Company, which provides for the merger of Purchaser with and into the
Company (the "Merger"), will be voted upon.
The proposed Merger is the second and final step in the acquisition of the
Company by Parent. The first step was a tender offer (the "Offer") by
Purchaser to acquire all of the shares of common stock, $1.00 par value per
share (including the associated common stock purchase rights) (the "Shares"),
of the Company for $29.00 per Share in cash. The Offer has been completed, and
20,492,853 Shares, including Shares subject to guarantee of delivery, were
tendered and not withdrawn. Purchaser acquired 20,432,435 Shares in the Offer
(which number excludes Shares tendered pursuant to guarantee of delivery for
which Share certificates were not received), representing approximately 94.40%
of the Shares outstanding on Thursday, July 24, 1997 (the record date for
determination of stockholders entitled to notice of and to vote at the
Meeting). Massachusetts law requires the affirmative vote of the holders of at
least two-thirds of the outstanding Shares entitled to vote to cause the
Merger to be approved and adopted at the Meeting. In the Merger Agreement,
Parent agreed to vote, or cause to be voted, all Shares it beneficially owns
for the approval and adoption of the Merger Agreement. ACCORDINGLY, THE
ADOPTION AND APPROVAL OF THE MERGER AGREEMENT AT THE MEETING IS ASSURED
WITHOUT THE AFFIRMATIVE VOTE OF ANY OTHER STOCKHOLDER AND WE ARE NOT ASKING
YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
If the Merger is consummated, each Share (other than Shares owned by Parent,
Purchaser or any other wholly owned subsidiary of Parent, and Shares held by
dissenting stockholders who properly exercise and perfect their appraisal
rights under Massachusetts law) will be converted into the right to receive
$29.00 per Share in cash, without interest thereon, all as more fully set
forth and described in the accompanying Information Statement and the Merger
Agreement, a copy of which is attached as Exhibit B to the accompanying
Information Statement.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, THE OFFER AND THE MERGER, HAS DETERMINED THAT THE OFFER AND THE
MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE
COMPANY, AND UNANIMOUSLY RECOMMENDS APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE MERGER BY THE STOCKHOLDERS OF THE COMPANY.
We urge you to read and carefully consider the information presented in the
accompanying Information Statement.
Sincerely,
/s/ George H. Conrades
George H. Conrades
Chairman of the Board, President and
Chief Executive Officer
<PAGE>
BBN CORPORATION
NOTICE OF A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 15, 1997
To the Stockholders ofBBN Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of BBN
Corporation (the "Company") will be held on Friday, August 15, 1997, at 10:00
a.m., local time, at Room 36-1, 36th Floor, One International Place, Boston,
Massachusetts, and at any adjournment, continuation or postponement thereof
(the "Meeting"), for the following purposes:
1. To consider and act on the Agreement and Plan of Merger dated as of
May 5, 1997 (the "Merger Agreement"), by and among the Company, GTE
Corporation ("Parent") and GTE Massachusetts Incorporated, a wholly owned
subsidiary of Parent ("Purchaser"). The Merger Agreement provides, among
other things, for (i) the merger of Purchaser with and into the Company
(the "Merger"), with the Company as the surviving corporation; and (ii) the
conversion of all of the issued and outstanding shares of common stock,
$1.00 par value per share, of the Company (including the associated common
stock purchase rights) (the "Shares"), other than the Shares owned by
Parent, Purchaser or any other wholly owned subsidiary of Parent, and
Shares held by dissenting stockholders who properly exercise and perfect
their appraisal rights under Massachusetts law, into the right to receive
$29.00 per share in cash, without interest, all as more fully described in
the accompanying Information Statement.
2. To transact such other business as may properly be brought before the
Meeting.
If the Merger Agreement is approved by the stockholders of the Company at
the Meeting and the Merger is effected, any stockholder (1) who files with the
Company before the taking of the vote on the approval of the Merger Agreement,
written objection to the proposed action stating that he or she intends to
demand payment for his or her Shares if the Merger Agreement is approved and
adopted and (2) whose Shares are not voted in favor of such approval and
adoption has or may have the right to demand in writing from the Company,
within twenty days after the date of mailing to him or her of notice in
writing that the Merger has become effective, payment for his or her Shares
and an appraisal of the value thereof. The Company and any such stockholder
shall in such cases have the rights and duties and shall follow the procedure
set forth in Sections 88 to 98, inclusive, of Chapter 156B of the General Laws
of Massachusetts (the "MBCL"), a copy of which is attached as Exhibit A to the
Information Statement accompanying this notice. For further information about
appraisal rights and the procedures to assert those rights, see "The Merger--
Appraisal Rights" in the accompanying Information Statement.
The Board of Directors has fixed the close of business on Thursday, July 24,
1997 as the record date (the "Record Date") for the determination of the
stockholders entitled to notice of and to vote at the Meeting.
The Bylaws require that the holders of a majority of the Shares issued,
outstanding and entitled to vote be present or be represented by proxy at the
Meeting in order to constitute a quorum for the transaction of business.
THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT REQUIRE THE AFFIRMATIVE
VOTE OF THE HOLDERS OF AT LEAST TWO-THIRDS OF THE OUTSTANDING SHARES ENTITLED
TO VOTE AS OF THE RECORD DATE. THE MERGER AGREEMENT REQUIRES PARENT TO VOTE,
OR CAUSE TO BE VOTED, ALL OF THE SHARES BENEFICIALLY OWNED BY IT IN FAVOR OF
APPROVING AND ADOPTING THE MERGER AGREEMENT. AS A RESULT OF THE PURCHASE OF
THE SHARES PURSUANT TO THE OFFER, PARENT AND PURCHASER HAVE ACQUIRED THE RIGHT
TO VOTE A SUFFICIENT NUMBER OF SHARES TO CAUSE THE MERGER AGREEMENT TO BE
APPROVED AND ADOPTED WITHOUT THE AFFIRMATIVE VOTE OF ANY OTHER STOCKHOLDER.
ACCORDINGLY, APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AT THE MEETING IS
ASSURED.
The Merger Agreement is attached as Exhibit B to the Information Statement
accompanying this notice.
<PAGE>
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, THE OFFER AND THE MERGER, DETERMINED THAT THE OFFER AND THE MERGER
ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY, AND
UNANIMOUSLY RECOMMENDS APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
MERGER BY THE STOCKHOLDERS OF THE COMPANY.
This notice constitutes the notice to stockholders required by Sections 36
and 78 of the MBCL.
YOU SHOULD NOT SEND ANY SHARE CERTIFICATES AT THIS TIME. YOU WILL RECEIVE A
LETTER OF TRANSMITTAL PROMPTLY AFTER THE MERGER HAS BEEN CONSUMMATED. THE
LETTER OF TRANSMITTAL WILL GIVE YOU INSTRUCTIONS ON WHERE YOU SHOULD SEND YOUR
SHARES.
Nancy J. Nitikman
Clerk
Cambridge, Massachusetts
July 24, 1997
<PAGE>
BBN CORPORATION
150 CAMBRIDGEPARK DRIVE
CAMBRIDGE, MASSACHUSETTS 02140
----------------
INFORMATION STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
AUGUST 15, 1997
----------------
GENERAL MATTERS
----------------
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
----------------
This Information Statement is being furnished by BBN Corporation (the
"Company"), for use at the Special Meeting of Stockholders to be held on
Friday, August 15, 1997 at 10:00 a.m., local time, at Room 36-1, 36th Floor,
One International Place, Boston, Massachusetts, and any adjournment,
continuation, or postponement thereof (the "Meeting"). This Information
Statement is being mailed to stockholders of the Company beginning on or about
July 24, 1997.
The purpose of the Meeting is to consider and vote upon a proposal to
approve and adopt the Agreement and Plan of Merger dated as of May 5, 1997
(the "Merger Agreement"), by and among the Company, GTE Corporation ("Parent")
and GTE Massachusetts Incorporated, a wholly owned subsidiary of Parent
("Purchaser"). Pursuant to the Merger Agreement, Purchaser will be merged with
and into the Company, and the Company will be the surviving corporation (the
"Merger") as a wholly owned subsidiary of Parent. The Merger Agreement is
included as Exhibit B to this Information Statement. Pursuant to the Merger
Agreement, as the first step in the acquisition of the Company by Parent and
Purchaser, Purchaser commenced a cash tender offer, pursuant to an Offer to
Purchase dated May 12, 1997 (the "Offer to Purchase"), for all outstanding
shares of common stock, $1.00 par value per share (the "Company Common
Stock"), and the associated common stock purchase rights (the "Rights," and
together with the Company Common Stock, the "Shares"), of the Company at
$29.00 per Share in cash (the "Offer Price"), upon the terms and subject to
the conditions set forth in the Offer to Purchase and in the related Letter of
Transmittal (the Offer to Purchase and the Letter of Transmittal together
constituted the "Offer"). The Offer expired at 12:00 midnight, New York City
time, on June 9, 1997, at which time 20,492,853 Shares, including Shares
tendered subject to guarantee of delivery, had been tendered pursuant to the
Offer and not withdrawn, representing approximately 95.78% of the total number
of Shares outstanding on June 9, 1997. Purchaser acquired 20,432,435 Shares
(which number excludes Shares tendered subject to guarantee of delivery for
which Share certificates were not received), representing approximately 94.40%
of the Shares outstanding on the Record Date (as hereinafter defined). The
aggregate consideration paid by Purchaser for the Shares tendered was
$592,540,615. The Merger is the second and final step in the acquisition of
all of the Shares by Parent.
The Merger will be consummated on the terms and subject to the conditions
set forth in the Merger Agreement. At the effective time of the Merger, (a)
the Company will continue as the surviving corporation and will become a
wholly owned subsidiary of Parent; and (b) each Share issued and outstanding,
other than the Shares owned by Parent, Purchaser or any other wholly owned
subsidiary of Parent, and Shares held by dissenting stockholders who properly
exercise and perfect their appraisal rights under Massachusetts law, will be
converted into the right to receive $29.00 per Share in cash, without
interest.
<PAGE>
THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT REQUIRE THE AFFIRMATIVE
VOTE OF THE HOLDERS OF AT LEAST TWO-THIRDS OF THE OUTSTANDING SHARES ENTITLED
TO VOTE AS OF THE RECORD DATE. THE MERGER AGREEMENT REQUIRES PARENT TO VOTE,
OR CAUSE TO BE VOTED, ALL OF THE SHARES BENEFICIALLY OWNED BY IT IN FAVOR OF
APPROVING AND ADOPTING THE MERGER AGREEMENT. AS A RESULT OF THE PURCHASE OF
THE SHARES PURSUANT TO THE OFFER, PARENT AND PURCHASER HAVE ACQUIRED THE RIGHT
TO VOTE A SUFFICIENT NUMBER OF SHARES TO CAUSE THE MERGER AGREEMENT TO BE
APPROVED AND ADOPTED WITHOUT THE AFFIRMATIVE VOTE OF ANY OTHER STOCKHOLDER.
ACCORDINGLY, APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AT THE MEETING IS
ASSURED.
THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD OF DIRECTORS" OR "BOARD")
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE OFFER AND THE MERGER, AND
DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS
OF THE STOCKHOLDERS OF THE COMPANY. ACCORDINGLY, THE BOARD UNANIMOUSLY
RECOMMENDS THAT ALL STOCKHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE MERGER. In arriving at its decision, the Board
considered a number of factors, including the opinion of its financial
advisor, Alex. Brown & Sons Incorporated ("Alex. Brown"), that the Offer and
the Merger are fair, from a financial point of view, to the Company and its
stockholders. See "Opinion of the Company's Financial Advisor" below.
All information contained in this Information Statement concerning Parent,
Purchaser and their affiliates other than the Company, the financing of the
Merger and plans for Parent and the Company after the Merger has been supplied
by Parent and Purchaser. With the exception of the aforementioned information,
all information contained in this Information Statement has been supplied by
the Company.
STOCKHOLDERS SHOULD NOT SEND ANY SHARE CERTIFICATES AT THIS TIME.
STOCKHOLDERS WILL RECEIVE A LETTER OF TRANSMITTAL PROMPTLY AFTER THE MERGER
HAS BEEN CONSUMMATED. THE LETTER OF TRANSMITTAL WILL GIVE STOCKHOLDERS
INSTRUCTIONS ON WHERE THEY SHOULD SEND THEIR SHARES.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS INFORMATION STATEMENT OR THE DOCUMENTS INCORPORATED
HEREIN BY REFERENCE IN CONNECTION WITH THE SOLICITATIONS MADE HEREBY AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY PARENT, PURCHASER OR THE COMPANY. THIS INFORMATION
STATEMENT DOES NOT CONSTITUTE A SOLICITATION OF A PROXY. THE DELIVERY OF THIS
INFORMATION STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE INFORMATION SET FORTH
HEREIN OR IN THE AFFAIRS OF PARENT, PURCHASER OR THE COMPANY SINCE THE DATE OF
THIS INFORMATION STATEMENT.
----------------
The Depositary for the Merger is
THE FIRST NATIONAL BANK OF BOSTON
----------------
The date of this Information Statement is July 24, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
INTRODUCTION.............................................................. 1
The Meeting............................................................. 1
Voting Rights and Record Date........................................... 1
INFORMATION CONCERNING THE COMPANY........................................ 2
INFORMATION CONCERNING PARENT AND PURCHASER............................... 3
THE MERGER................................................................ 3
General................................................................. 3
Background.............................................................. 3
Recommendation of the Board and Reasons for the Merger.................. 6
Opinion of the Company's Financial Advisor.............................. 7
Payment of Merger Consideration for the Shares.......................... 11
Purpose of the Merger and Plans for the Company......................... 11
Accounting Treatment.................................................... 12
Financing of the Merger................................................. 12
Regulatory and Other Approvals.......................................... 12
Antitrust............................................................... 12
State Anti-takeover Statutes............................................ 13
Appraisal Rights........................................................ 13
The Merger Agreement.................................................... 15
Certain Effects of the Merger........................................... 22
Certain Tax Considerations.............................................. 22
INTERESTS OF CERTAIN PERSONS IN THE MERGER................................ 23
Common Stock Ownership of Certain Beneficial Owners and Management...... 23
Change-of-Control Arrangements.......................................... 27
Certain Provisions in the Merger Agreement.............................. 27
SUMMARY FINANCIAL OUTLOOK OF THE COMPANY.................................. 31
MARKET PRICES AND DIVIDEND MATTERS........................................ 33
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY..... 34
INDEPENDENT PUBLIC ACCOUNTANTS............................................ 35
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 35
EXHIBITS
Exhibit AMBCL Appraisal Rights Provisions................................. A-1
Exhibit BMerger Agreement (without exhibits).............................. B-1
Exhibit COpinion of Alex. Brown & Sons Incorporated....................... C-1
</TABLE>
i
<PAGE>
INTRODUCTION
THE MEETING
This Information Statement is being furnished to stockholders of the Company
by the Board of Directors in connection with the Meeting. At the Meeting,
stockholders will be asked to consider and vote upon a proposal to approve and
adopt the Merger Agreement pursuant to which Purchaser will be merged with and
into the Company, with the Company as the surviving corporation (the
"Surviving Corporation") in the Merger. As a result of the Merger, the Company
will become a wholly owned subsidiary of Parent. The Merger follows the
purchase of the Shares pursuant to the Offer, as the second and final step in
the acquisition of the Company by Parent pursuant to the Merger Agreement.
VOTING RIGHTS AND RECORD DATE
Only stockholders of record ("Record Holders") at the close of business on
Thursday, July 24, 1997 (the ("Record Date") will be entitled to notice of and
to vote at the Meeting. On Thursday, July 24, 1997 there were 21,644,919
Shares outstanding and entitled to vote; each of the Shares is entitled to one
vote.
The presence at the Meeting, in person or by proxy, of a majority of all the
Shares outstanding on the Record Date and entitled to vote will constitute a
quorum for the transaction of business. The approval and adoption of the
Merger Agreement requires the affirmative vote of the holders of at least two-
thirds of the outstanding Shares entitled to vote as of the Record Date. It is
not expected that any matters other than those referred to in this Information
Statement will be brought before the Meeting.
While the Company is not requesting proxies in connection with the Meeting,
Shares which are represented at the Meeting by properly executed proxies,
unless such proxies shall have previously been properly revoked, will be voted
in accordance with the instructions indicated in such proxies. Under the rules
of the New York Stock Exchange (the "NYSE"), while brokers who hold shares in
"street" name have the authority to vote on certain items for which they have
not received instructions from beneficial owners, brokers will not be entitled
to vote on the Merger Agreement absent instructions. Brokers who do not
receive instructions but who are present, in person or by proxy, at the
meeting will be counted present for quorum purposes. Because the approval and
adoption of the Merger Agreement by stockholders of the Company require the
affirmative vote of at least two-thirds of the Shares outstanding as of the
Record Date, failure to submit a proxy, abstentions and broker non-votes will
have the same effect as a vote against approval of the Merger Agreement.
AS A RESULT OF THE PURCHASE OF THE SHARES PURSUANT TO THE OFFER, PURCHASER
HOLDS A TOTAL OF 20,432,435 SHARES, CONSTITUTING APPROXIMATELY 94.40% OF THE
SHARES OUTSTANDING AS OF THE RECORD DATE AND ENTITLED TO VOTE AT THE MEETING.
ACCORDINGLY, PARENT BENEFICIALLY OWNS A SUFFICIENT NUMBER OF SHARES TO ADOPT
AND APPROVE THE MERGER AGREEMENT WITHOUT THE AFFIRMATIVE VOTE OF ANY OTHER
STOCKHOLDER. IN THE MERGER AGREEMENT, PARENT HAS AGREED TO VOTE, OR CAUSE TO
BE VOTED, ALL SHARES BENEFICIALLY OWNED BY IT FOR THE APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT. ACCORDINGLY, APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AT THE MEETING IS ASSURED.
Pursuant to the terms of the Merger Agreement, after the approval and
adoption of the Merger Agreement by the stockholders of the Company, the
satisfaction or waiver of the other conditions to the Merger and the filing of
Articles of Merger with the Massachusetts Secretary of State in accordance
with the provisions of Chapter 156B of the General Laws of Massachusetts (the
"MBCL") (the date and time of such filing being hereinafter referred to as the
"Effective Time"), each Share outstanding immediately prior to the Effective
Time (other than the Shares owned by Parent, Purchaser or any other wholly
owned subsidiary of Parent, or Shares held by dissenting stockholders who
properly exercise and perfect their appraisal rights under the MBCL)
(hereinafter, the "Outstanding Shares") will be cancelled, extinguished and
converted into the right to receive $29.00 per Share in cash, without
interest. See "The Merger--Appraisal Rights." At the Effective Time, the stock
transfer books of the Company will be closed and no transfer of the Shares
will thereafter be made.
1
<PAGE>
TO RECEIVE PAYMENT AFTER THE MERGER OF $29.00 PER SHARE IN CASH (WITHOUT
INTEREST), HOLDERS OF THE SHARES MUST DELIVER CERTIFICATES EVIDENCING SUCH
SHARES ALONG WITH A PROPERLY COMPLETED LETTER OF TRANSMITTAL TO THE FIRST
NATIONAL BANK OF BOSTON (THE "DEPOSITARY"). INSTRUCTIONS WITH REGARD TO THE
SURRENDER OF SHARE CERTIFICATES TO THE DEPOSITARY, TOGETHER WITH A LETTER OF
TRANSMITTAL TO BE USED FOR THIS PURPOSE, WILL BE FORWARDED TO THE COMPANY'S
STOCKHOLDERS AS PROMPTLY AS PRACTICABLE FOLLOWING THE EFFECTIVE TIME.
STOCKHOLDERS SHOULD SURRENDER SHARE CERTIFICATES ONLY AFTER RECEIVING A LETTER
OF TRANSMITTAL. STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES AT THIS
TIME.
The obligations of the Company and Parent to consummate the Merger are
subject to certain conditions. In the unlikely event that the Merger Agreement
is terminated without the Merger being consummated, certificates delivered to
the Depositary will be promptly returned.
INFORMATION CONCERNING THE COMPANY
The Company is a Massachusetts corporation with its principal executive
offices located at 150 CambridgePark Drive, Cambridge, Massachusetts 02140.
The telephone number of the Company at such offices is (617) 873-2000.
The Company is a leading provider of Internet and internetworking services
and solutions to businesses and other organizations, and a provider of
contract research, development, and consulting services to governmental and
other organizations. The Company operates through two principal business
units: BBN Planet and BBN Systems and Technologies. BBN Planet is responsible
for the Company's Internet offerings to business and other organizational
customers, and includes the Company's managed Internet access and value-added
services and related network operations and Internet dial-up access
capabilities. BBN Systems and Technologies focuses on providing networking
solutions and contract research and development, principally for the federal
government, as well as creating next generation technology for advanced
Internet applications, and is organized into three principal groups:
Internetwork Technologies, Information Systems and Technologies, and Physical
Systems and Technologies. The Company's commercial speech recognition
activities are included in BBN Systems and Technologies. The Company also has
minority equity positions in a number of ancillary ventures which in the
aggregate are immaterial to the Company's current financial condition.
The Company is currently subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is
required to file reports and other information with the Securities and
Exchange Commission (the "SEC") relating to its business, financial condition
and other matters. Information, as of particular dates, concerning the
Company's directors and officers, their remuneration, 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 described in
periodic statements distributed to the Company's stockholders and filed with
the SEC. These reports, proxy statements, and other information, including the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996
(the "Company 10-K"), the Company's Quarterly Reports on Form 10-Q for the
quarters ended September 30, 1996, December 31, 1996 and March 31, 1997 and
the Company's Schedule 14D-9 dated May 12, 1997, should be available for
inspection and copying at the SEC's principal office at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the SEC located
at Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such material may also be obtained by mail, upon payment of the SEC's
customary fees, from the SEC's principal office. Such material should also be
available for inspection at the offices of the NYSE, 20 Broad Street, New
York, New York 10005. The SEC also maintains an Internet site on the World
Wide Web at http://www.sec.gov that contains reports and other information.
2
<PAGE>
INFORMATION CONCERNING PARENT AND PURCHASER
Purchaser is a newly formed Massachusetts corporation and a wholly owned
subsidiary of Parent. To date, Purchaser has not conducted any business other
than in connection with the Offer and the Merger. Other than the Shares
purchased pursuant to the Offer, Purchaser does not have any significant
assets or liabilities and does not engage in activities other than those
incident to its formation and capitalization and the transactions contemplated
by the Offer and the Merger. Because Purchaser is a newly formed corporation
and has minimal assets and capitalization (other than the Shares as described
above), no meaningful financial information regarding Purchaser is available.
Parent is a New York corporation. Parent, together with its consolidated
subsidiaries, is one of the largest publicly held telecommunications companies
in the world. It is the largest U.S.-based local telephone company. Parent's
domestic and international operations serve 25.9 million access lines through
subsidiaries in the United States, Canada, and the Dominican Republic and an
affiliate in Venezuela. Parent is a leading mobile-cellular operator in the
United States, with the potential of serving 61.9 million cellular and
personal communications service customers. Outside the United States, Parent
operates mobile-cellular networks serving some 16.4 million POPs through
subsidiaries in Canada and the Dominican Republic and affiliates in Venezuela
and Argentina. Beginning in 1996, Parent became the first among its peers to
offer "one-stop shopping" for local, long-distance and Internet access
services. Parent is also a leader in government and defense communications
systems and equipment, aircraft-passenger telecommunications, directories and
telecommunications-based information services and systems. Parent also has
subsidiaries engaged in financing, insurance, leasing and other activities
offering financial and related services primarily to its operating companies.
One of these subsidiaries, GTE Service Corporation, furnishes, at cost,
advisory and consulting services related to administration, operations,
accounting methods and procedures, insurance, human resources, financing,
Federal and state taxes and other matters to operating companies of Parent.
Parent and its subsidiaries had approximately 102,000 employees at December
31, 1996. The principal executive offices of Parent and Purchaser are located
at One Stamford Forum, Stamford, Connecticut 06904. The telephone number of
Parent and Purchaser at such offices is (203) 965-2000.
THE MERGER
GENERAL
Pursuant to the terms of the Merger Agreement, as soon as practicable after
the satisfaction or waiver of the conditions set forth in the Merger
Agreement, Parent will acquire the Company through the merger of Purchaser
with and into the Company. Following the Merger, the Company will be the
surviving corporation and will continue in existence as a wholly owned
subsidiary of Parent. The Merger will become effective upon the filing of
Articles of Merger with the Massachusetts Secretary of State in accordance
with the MBCL. Such filing shall be made no later than the second business day
after the last of the conditions to the Merger set forth in the Merger
Agreement is satisfied or waived.
At the Effective Time, each Outstanding Share will be cancelled,
extinguished and converted into the right to receive $29.00 per Share in cash,
without interest, all as more fully set forth and described in this
Information Statement and the Merger Agreement, a copy of which (without
exhibits) is attached as Exhibit B to this Information Statement.
BACKGROUND
In an effort to meet the competitive demands of the Internet industry, the
Company has, on an ongoing basis, sought to obtain additional sources of
capital and strategic partners to continue to expand the Company's Internet
business and pursue other growth opportunities. In order to facilitate this
effort, in June 1996 the Company authorized Alex. Brown, the Company's
financial advisor, to seek out sources of capital and strategic partners for
the Company, as well as to explore other strategic opportunities.
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In addition to exploring several possible joint venturing and strategic
partnering opportunities, a number of potential acquirors were identified,
including Parent. In July, 1996, a representative of Alex. Brown contacted
Parent regarding the possibility of a strategic opportunity involving Parent
and the Company. Thereafter, representatives of the Company had several
discussions with representatives of Parent concerning a variety of possible
strategic transactions.
On October 22, 1996, George H. Conrades, Chief Executive Officer and
President of the Company, and Roger D. Wellington, a director of the Company,
met with Charles R. Lee, Chairman and Chief Executive Officer of Parent, and
Robert C. Calafell, then Senior Vice President--Corporate Planning and
Development of Parent. No firm proposals resulted from this meeting. On
November 26, 1996, the Company and Parent entered into a mutual
confidentiality agreement.
Over the period from October 1996 to February 1997, representatives of the
Company met with Parent and also had preliminary meetings with a number of
other potential strategic partners to review the Company's business and
explore possible transactions. As a culmination of this process, Parent and
one other potential acquiror expressed significant interest in acquiring the
Company. Throughout February and March 1997, the Company met with the other
potential acquiror to discuss the Company's business and a possible
acquisition.
On January 20, 1997, James A. Attwood, Vice President--Corporate Planning
and Development for GTE Service Corporation, an affiliate of Parent, and
certain other representatives of Parent, met in Boston with Bruce Linton, a
Vice President of BBN Planet, and discussed, among other things, the Company's
strategic plans. Mr. Calafell and Mr. Attwood met with Mr. Linton on March 5,
1997 and indicated Parent's interest in exploring an acquisition of the
Company. The parties also discussed the possibility of a significant minority
investment by Parent in the Company and the possibility of joint ownership in
the Company's network. Detailed discussions were scheduled and Mr. Calafell
requested that Mr. Linton contact Parent if, as a result of other
opportunities available to the Company, Parent should move quickly in its
review of a possible transaction.
On March 25, 1997, Mr. Conrades met with Mr. Kent B. Foster, President of
Parent, in Dallas, Texas to review the status of discussions between the
parties and to discuss the data telecommunications market generally.
Subsequently, Mr. Conrades telephoned Mr. Foster to advise him that a third
party had accelerated discussions regarding an acquisition of the Company and
had indicated that it would make a proposal shortly. Mr. Foster then agreed to
accelerate Parent's scheduled due diligence review.
During early and mid April 1997, both Parent and the other potential
acquiror commenced intensive due diligence reviews of the Company and its
business. On April 9, 1997, Mr. Calafell, Mr. Attwood and other
representatives of Parent met with Mr. Conrades, Ralph A. Goldwasser, Chief
Financial Officer of the Company, and other representatives of the Company to
discuss issues related to a possible acquisition of the Company by Parent,
including issues related to retention and motivation of employees. From April
26, 1997 through April 29, 1997, senior managers of Parent and representatives
of the Company had various due diligence discussions. On April 26, 1997, the
Company and Parent entered into an additional Confidentiality Agreement which
included certain standstill and employee non-solicitation commitments on the
part of Parent.
On April 29, 1997, the other potential acquiror confirmed a proposal to
acquire the Company in a stock-for-stock merger to be accounted for as a
pooling of interests. The proposal contained certain significant conditions
which the other potential acquiror indicated would need to be satisfied prior
to signing a definitive agreement.
During the week of April 28, 1997, both Parent and the other potential
acquiror submitted draft merger agreements to the Company for review. The
draft merger agreement from Parent contemplated a cash tender offer for the
Shares, followed by a merger of a subsidiary of Parent into the Company after
completion of the tender offer. No price was proposed in the draft merger
agreement from Parent.
On May 2, 1997, representatives of the Company, the other potential
acquiror, and their respective legal counsel met to review the stock-for-stock
merger agreement proposed by the other potential acquiror and to discuss the
conditions required by the other potential acquiror.
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Following a meeting of Parent's Board of Directors of May 2, 1997, Mr.
Foster telephoned Mr. Conrades and made a proposal pursuant to which Parent,
through a subsidiary, would acquire the Company for $27.00 per share in cash,
subject to the negotiation of mutually acceptable terms and conditions.
On May 2, 1997, the Company's Board of Directors held a special meeting to
consider the two proposals and review the negotiations. After discussion, it
was agreed that the Company's management would continue discussions with both
Parent and the other potential acquiror to improve the economic terms of the
proposals and to refine the terms and conditions of each of the proposals.
Following the meeting of the Company's Board of Directors on May 2, 1997,
representatives of Alex. Brown reported to Goldman, Sachs & Co., Parent's
financial advisor, that Parent's proposal had not been accepted by the
Company, but that the Company was interested in pursuing discussions if Parent
were willing to increase its offer. In a conversation early on May 3, 1997,
Mr. Conrades confirmed to Mr. Foster that Parent's proposal had not been
accepted. On May 3, 1997, Mr. Conrades also informed the other potential
acquiror that the conditions to its proposal were problematic for the Company
and would need to be resolved or removed before the Company could consider the
proposal further.
On May 4, 1997, Mr. Foster called Mr. Conrades and, after discussion,
increased Parent's offer to $29.00 cash per Share, provided the terms of the
merger agreement, including terms regarding payment of a termination fee and
the terms of a stock option agreement exercisable when a termination fee is
payable, could be finalized to Parent's satisfaction. On May 4, 1997, Mr.
Conrades also spoke with the other potential acquiror and confirmed that the
conditions to the other potential acquiror's proposal had not been removed or
resolved.
The Board of Directors of the Company met later on May 4th to review the
status of discussions. Mr. Conrades informed the Board that Parent had
increased its offer to $29.00 per Share and that the other potential acquiror
had confirmed that its stock-for-stock proposal remained outstanding subject
to certain conditions which had not been resolved. After discussion of the
terms of both proposals, representatives of Ropes & Gray, legal counsel to the
Company, described the Board's responsibilities in considering the proposed
acquisition proposals and reviewed the terms of the two proposed merger
agreements, including the stock option termination agreement proposed by
Parent. Alex. Brown then made a presentation to the Board with respect to the
Offer and subsequently stated that subject to the terms of a final merger
agreement, Alex. Brown was of the opinion that the $29.00 cash price to be
paid in the transaction was fair to the stockholders of the Company from a
financial point of view. The Board instructed management to continue to
negotiate the terms of a merger agreement with Parent.
From May 3, 1997 through May 6, 1997, representatives of Parent and the
Company negotiated the final terms of the Merger Agreement and the other
definitive documents for the transaction.
On the evening of May 5, 1997 the Board of Directors of the Company met to
further consider the Offer and to review the terms of the Merger Agreement and
associated documentation. Following a review of the terms of the Merger
Agreement, discussion and a rendering by Alex. Brown of its fairness opinion,
the Board unanimously approved the Merger Agreement and resolved to recommend
the Offer and the Merger to the stockholders of the Company. On the morning of
May 6, 1997, the Board of Directors of the Company met again to review the
final terms of the Merger Agreement. After discussion and following
confirmation by Alex. Brown of its fairness opinion, the Board of Directors
confirmed the resolutions taken at the May 5, 1997 Board meeting. The Merger
Agreement and Stock Option Agreement were finalized and executed promptly
thereafter.
On May 6, 1997, prior to the opening of trading, the Company and Parent
separately announced the transaction. On May 12, 1997, Purchaser commenced the
Offer. The Offer expired at 12:00 midnight, New York City time, on June 9,
1997, at which time 20,492,853 Shares, including Shares tendered subject to
guarantee of delivery, had been tendered pursuant to the Offer and not
withdrawn, representing approximately 95.78% of the total number of Shares
outstanding on June 9, 1997. Purchaser acquired 20,432,435 Shares (which
number excludes Shares tendered subject to guarantee of delivery for which
Share certificates were not received),
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representing approximately 94.40% of the Shares outstanding on the Record Date
(or 85.74% of the Shares that would be outstanding if all of the Company's 6%
Convertible Subordinated Debentures due 2012 (the "Subordinated Notes") were
converted). The aggregate consideration paid by Purchaser for the Shares
tendered was $592,540,615.
Effective June 10, 1997, Messrs. Albertine, Hopper, McKenna and Wellington
and Ms. Fjeldstad resigned as directors of the Company and effective June 17,
1997, the remaining directors (Messrs. Conrades, Levy and Nichols (the
"Continuing Directors")) elected Kent B. Foster, Thomas W. White, Gerald K.
Dinsmore, Robert C. Calafell and J. Michael Kelly, each an officer of Parent
or GTE Service Corporation, to fill the resulting vacancies on the Board. The
Continuing Directors (other than Mr. Conrades) have indicated that they will
resign as of the Effective Time.
RECOMMENDATION OF THE BOARD AND REASONS FOR THE MERGER
In light of the Board's review of the Company's competitive and financial
position, recent operating results and prospects, the Board determined that
the Offer and the Merger, taken together, are fair to, and in the best
interests of, the Company and its stockholders. In making such recommendation
and in approving the Merger Agreement and the transactions contemplated
thereby, the Board considered a number of factors, including, but not limited
to, the following:
(i) the terms and conditions of the Merger Agreement and associated
agreements;
(ii) the financial condition, results of operations, business and
prospects of the Company and the need for additional capital for the
Company;
(iii) the prospects of the Company if the Company were to remain
independent and the risks inherent in remaining independent;
(iv) the current status of the Internet industry and the competitive
advantage in the industry of large telecommunications companies with
significant distribution capacity, installed infrastructure, compatible
service offerings and financial resources;
(v) the trading price of the Shares prior to entering into the Merger
Agreement and that the $29.00 per Share paid in the Offer and to be paid as
the consideration in the Merger represents a premium of approximately 28.2%
over the $22.63 closing sale price for the Shares on the NYSE on May 5,
1997, the last trading day prior to the public announcement of the
execution of the Merger Agreement, and a premium of approximately 64.5%
over the $17.63 closing sale price for the Shares on the NYSE one month
prior, on April 7, 1997;
(vi) the fact that the proposal made by the other potential acquiror was
contingent on certain significant conditions which had to be satisfied
prior to signing a definitive agreement, and that, although the stock-for-
stock transaction proposed implied a nominally higher price for the Shares
based on the then current market price of the other potential acquiror's
stock, the stock-for-stock proposal was subject to significant risk,
including market risk with respect to the other potential acquiror's stock
and potential damage to significant business relationships of the Company;
(vii) that in view of the efforts of the Company and Alex. Brown to find
strategic partners and potential acquirors, it was not likely that any
other party or Parent would consider a transaction that was more favorable
to the Company and its stockholders;
(viii) the financial presentations of Alex. Brown made on May 4 and May
5, 1997 and the oral opinion of Alex. Brown delivered to the Board at the
May 5, 1997 Board meeting (subsequently confirmed orally at the Board
meeting on May 6, 1997 and by delivery of a written opinion dated May 6,
1997) to the effect that, as of such date and based upon and subject to
certain matters stated in such opinion, the cash consideration of $29.00
per Share to be received by holders of Shares (other than Parent and its
affiliates) in the Offer and the Merger was fair, from a financial point of
view, to such holders. Alex. Brown's opinion is directed only to the
fairness, from a financial point of view, of the cash consideration to be
received in the Offer and the Merger to holders of Shares (other than
Parent and its affiliates) and is not intended to
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constitute, and does not constitute, a recommendation as to whether any
stockholder should tender Shares pursuant to the Offer. The full text of
the opinion of Alex. Brown is attached as Exhibit C to this Information
Statement and is incorporated herein by reference. STOCKHOLDERS ARE URGED
TO READ THE OPINION OF ALEX. BROWN IN ITS ENTIRETY;
(ix) the Merger Agreement permitted the Board, in the exercise of its
fiduciary duties, to furnish information and data, and enter into
discussions and negotiations, in connection with an unsolicited acquisition
proposal and recommend an unsolicited acquisition proposal to the Company's
stockholders;
(x) the Merger Agreement permitted the Board, in the exercise of its
fiduciary duties, to terminate the Merger Agreement in favor of an
alternative acquisition proposal; upon such termination, the Company must
pay Parent a fee of $13.5 million (representing approximately 2.2% of the
total value of the consideration to be paid in the Offer and the Merger
with respect to currently outstanding Shares) and Parent will be permitted
to exercise an option to purchase 4,225,000 Shares at an exercise price of
$29.00; and
(xi) the transactions contemplated by the Merger Agreement provided for
an all cash payment to stockholders, with no financing condition.
The Board did not assign relative weights to the above factors or determine
that any factor was of particular importance. Rather, the Board viewed its
position and recommendations as being based on the totality of the information
presented to and considered by it. In addition, it is possible that different
members of the Board assigned different weights to the factors.
OPINION OF THE COMPANY'S FINANCIAL ADVISOR
The Company retained Alex. Brown to act as the Company's financial advisor
with regard to the Company's review and analysis of available financial
alternatives consistent with its strategic objectives. Alex. Brown acted as
the Company's financial advisor in connection with the Offer and the Merger,
including rendering its opinion to the Board of Directors of the Company as to
the fairness, from a financial point of view, of the consideration to be
received by the Company's stockholders in the Offer and the Merger.
At the May 5, 1997 meeting of the Board of Directors, representatives of
Alex. Brown made a presentation with respect to the Offer and the Merger and
rendered to the Board its oral opinion, subsequently confirmed orally and in
writing on May 6, 1997, that, as of such date, and subject to the assumptions
made, matters considered and limitations set forth in such opinion and
summarized below, the consideration to be received by the Company's
stockholders in the Offer and the Merger was fair, from a financial point of
view, to the Company's stockholders. No limitations were imposed by the Board
upon Alex. Brown with respect to the investigations made or procedures
followed by it in rendering its opinion.
The full text of Alex. Brown's written opinion dated May 6, 1997 (the "Alex.
Brown Opinion"), which sets forth, among other things, assumptions made,
matters considered and limitations on the review undertaken, is attached
hereto as Exhibit C and is incorporated herein by reference. The Company's
stockholders are urged to read the Alex. Brown Opinion in its entirety. The
Alex. Brown Opinion is directed to the Board, addresses only the fairness,
from a financial point of view, to the Company's stockholders, of the
consideration to be received by the Company's stockholders in the Offer and
the Merger and does not constitute a recommendation to the Company's
stockholders as to whether they should tender their Shares in the Offer or how
they should vote their Shares at the Meeting. The Alex. Brown Opinion was
rendered to the Board for its consideration in determining whether to approve
the Merger Agreement. The discussion of the Alex. Brown Opinion in this
Information Statement is qualified in its entirety by reference to the full
text of the Alex. Brown Opinion.
In connection with the Alex. Brown Opinion, Alex. Brown reviewed certain
publicly available financial information and other information concerning the
Company and Parent and certain internal analyses and other information
furnished to it by the Company. Alex. Brown also held discussions with the
members of the senior management of the Company regarding the business and
prospects of the Company. In addition, Alex. Brown (i) reviewed the reported
prices and trading activity for the Shares, (ii) compared certain financial
and stock market
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information for the Company with similar information for certain other
companies whose securities are publicly traded, (iii) reviewed the financial
terms of certain recent business combinations which it deemed comparable in
whole or in part, (iv) reviewed the terms of the Merger Agreement, and (v)
performed such other studies and analyses and considered such other factors as
it deemed appropriate.
In conducting its review and arriving at its opinion, Alex. Brown assumed
and relied upon, without independent verification, the accuracy, completeness
and fairness of the information furnished to or otherwise reviewed by or
discussed with it for purposes of rendering its opinion. With respect to the
financial projections of the Company, Alex. Brown assumed that such
projections and other information were reasonably prepared and reflected the
best currently available judgments and estimates of the management of the
Company. The financial projections of the Company that were provided to Alex.
Brown and were utilized and relied upon by Alex. Brown are described under the
headings "Analysis of Certain Other Publicly Traded Companies" and "Discounted
Cash Flow Analysis" summarized below. Alex. Brown did not make an independent
evaluation or appraisal of the assets of the Company and Parent, nor has Alex.
Brown been furnished with any such evaluations or appraisals. The Alex. Brown
Opinion is based on market, economic and other conditions as they existed and
could be evaluated as of the date of the opinion letter.
The following is a summary of the analyses performed and factors considered
by Alex. Brown in connection with the rendering of the Alex. Brown Opinion.
Historical Financial Position
In rendering its opinion, Alex. Brown reviewed and analyzed the historical
and current financial condition of the Company which included (i) an
assessment of the Company's recent financial statements and (ii) an analysis
of the Company's revenue, growth and operating performance trends.
Historical Stock Price Performance
Alex. Brown reviewed and analyzed the daily closing market prices and
trading volume for the Shares from May 3, 1992 to May 2, 1997. Alex. Brown
also reviewed the daily closing market prices of the Shares and compared the
movement of such daily closing prices with the movement of the S&P 500 index
over the period from May 3, 1995 through May 2, 1997. Alex. Brown noted that,
on a relative basis, the Company underperformed the S&P 500 index. Alex. Brown
also reviewed the daily closing market prices of the Shares and compared the
movement of such closing prices with the movement of an Internet Service
Providers and Online Services composite average (consisting of America Online,
Inc., Compuserve Corp., Digex Inc., IDT Corp., Netcom On-Line Communication
Services Inc. and PSINet Inc., the "ISPs/OSPs") and a Government Contractors
and Technology Consultants composite average (consisting of BDM International
Inc., CACI International Inc, Logicon Inc., Nichols Research Corp. and VSE
Corp., the "Government Contractors") over the period from May 3, 1995 through
May 2, 1997. On a relative basis the price of the Shares outperformed the
ISPs/OSPs composite average and underperformed the Government Contractors
composite average. This information was presented to give the Board background
information regarding the stock prices of the Company over the periods
indicated.
Analysis of Certain Other Publicly Traded Companies
This analysis examines a company's valuation in the public market as
compared to the valuation in the public market of other selected publicly
traded companies. Alex. Brown calculated certain financial information (based
on the commonly used valuation measurements described below) from two groups
of publicly traded related companies (consisting of the ISPs/OSPs and the
Government Contractors, collectively, the "Selected Companies") and compared
that to corresponding financial information for the Offer, based on the
consideration of $29.00 per Share. Such financial information included, among
other things, (i) common equity market valuation; (ii) capitalization ratios;
(iii) operating performance; (iv) ratios of common equity market value as
adjusted for debt and cash ("Adjusted Value") to revenues and operating
income, each for the latest reported 12
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month period ("LTM") and to revenues for estimated calendar years 1997 and
1998, as derived from publicly available information, Alex. Brown research and
third-party research; and (v) ratios of common equity market prices per share
("Equity Value") to earnings per share ("EPS"). The financial information used
in connection with the multiples provided below with respect to the Company
and the Selected Companies was based on the LTM period as derived from
publicly available information and on estimated EPS for calendar years 1997
and 1998 for the Company as provided by the Company's management and for the
Selected Companies as reported by the Institutional Brokers Estimating System
("IBES"). Alex. Brown noted that, on a trailing LTM basis, the multiple of
Adjusted Value to revenues was 0.6x to 4.0x, with a mean of 2.0x, for the
ISPs/OSPs, and a range of 0.2x to 0.9x, with a mean of 0.7x, for the
Government Contractors. The Company's LTM revenue multiple based on the Offer
was 2.0x. The multiple of Adjusted Value to LTM operating income was not
meaningful for the Company since the Company had an operating loss for the LTM
period. Alex. Brown also noted that on an estimated basis, the multiple of
Adjusted Value to calendar 1997 revenues was 0.4x to 2.2x, with a mean of
1.1x, for the ISPs/OSPs, and a range of 0.6x to 0.9x, with a mean of 0.7x, for
the Government Contractors. The Company's estimated 1997 revenue multiple
based on the Offer was 1.5x based on Alex. Brown research estimates and 1.4x
based on Company management estimates. The multiple of Adjusted Value to 1998
revenues was 0.3x to 1.7x, with a mean of 0.9x, for the ISPs/OSPs, and a range
of 0.5x to 0.8x, with a mean of 0.7x, for the Government Contractors. The
Company's estimated 1998 revenue multiple based on the Offer was 1.1x based on
Alex. Brown research estimates and 1.0x based on Company management estimates.
Alex. Brown also weighted the mean revenue multiples of the two groups of
Selected Companies by the Company's historical and projected revenue mix and
noted that the implied weighted revenue multiples (the "Blended Multiples")
were 1.3x, 0.9x and 0.8x on an LTM, estimated 1997 and estimated 1998 basis,
respectively. Alex. Brown further noted that the multiples of Equity Value to
trailing LTM EPS, calendar year 1997 EPS and calendar year 1998 EPS were not
meaningful for the Company since the Company was not and is not estimated to
be materially profitable. As a result of the foregoing procedures, Alex. Brown
noted that the multiples for the Offer were within the range of the multiples
for the ISPs/OSPs and above the range for the Government Contractors and above
the Blended Multiples. In addition, Alex. Brown calculated an implied Adjusted
Value of the Company's Internet business segment, BBN Planet, by subtracting
the proposed adjusted purchase price by the implied Adjusted Value of the
Company's Government Contractor business segment, BBN Systems and
Technologies, which was determined by multiplying the BBN Systems and
Technologies LTM revenue by the mean LTM revenue multiple for the Government
Contractors.
Analysis of Selected Mergers and Acquisitions
Alex. Brown reviewed the financial terms, to the extent publicly available,
of eight proposed, pending or completed mergers and acquisitions since
November 1994 in the Internet Service Provider industry segment and 10
proposed, pending or completed mergers and acquisitions since August 1994 in
the Government Contractors and Technology Consultants industry segment
(collectively, the "Selected Transactions"). Alex. Brown calculated various
financial multiples based on certain publicly available information for each
of the Selected Transactions and compared them to corresponding financial
multiples for the Offer, based on the consideration of $29.00 per Share. The
Internet Service Provider transactions reviewed, in reverse chronological
order of public announcement, were: CERFnet Services, Inc./Teleport
Communications Group Inc., EUnet Deutschland/UUNET Technologies, Inc.,
ImagiNation Network, Inc./America Online, Inc., UUNET Technologies, Inc./MFS
Communications Co., Inc., Unipalm Group plc/UUNET Technologies, Inc., SPRY
Inc./H&R Block (Compuserve Corp.), The Pipeline Network Inc./Performance
Systems International (PSINet Inc.) and Advanced Network & Services
(ANS)/America Online, Inc. The Government Contractors and Technology
Consultants transactions reviewed, in reverse chronological order of public
announcement, were: Bellcore/Science Applications International Corporation,
Cordant, Inc./Tracor, Inc., I-Net, Inc./Wang, Advanced Marine Enterprises,
Inc./Nichols Research Corp., SHL Systemhouse, Inc./MCI Communications Corp.,
IMI Systems, Inc./Olsten Corporation, Geodynamics Corp./Logicon Inc., Syscon
Corp./Logicon Inc., GDE Systems, Inc./Tracor, Inc. and Coleman Research
Corp./Thermo Electron Corp. Alex. Brown noted that the multiple of adjusted
purchase price (value of consideration paid for common equity adjusted for
debt, preferred stock and cash) to trailing LTM revenues was 2.0x for the
Offer and 3.5x for the implied Adjusted Value of BBN Planet,
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as described above, versus a range of 3.9x to 16.8x, with a mean of 9.5x, for
the Internet Service Provider transactions, and a range of 0.3x to 1.3x, with
a mean of 0.6x for the Government Contractors and Technology Consultants.
Alex. Brown also calculated the premium paid over market for 12 transactions
involving a publicly traded target in the Internet Service Provider,
Government Contractors and Technology Consultants, and Communications Services
industry segments. These transactions were effected at a range of premiums to
the target's per share market price one day prior to announcement and to the
target's per share market price four weeks prior to announcement of -5.8% to
125.6%, with a mean of 36.4%, and -9.6% to 125.9%, with a mean of 48.3%,
respectively, versus transaction premiums of 28.2% and 64.5%, respectively,
for the Offer (based on the per Share market price one day prior to and four
weeks prior to the May 6, 1997 announcement of the proposed transaction). All
multiples for the transactions were based on public information available at
the time of announcement of such transaction, without taking into account
differing market and other conditions during the period which the transactions
occurred.
Discounted Cash Flow Analysis
Alex. Brown performed a discounted cash flow analysis for the Company. The
discounted cash flow approach values a business based on the current value of
the future cash flow that the business will generate. To establish a current
value under this approach, future cash flow must be estimated and an
appropriate discount rate determined. Alex. Brown used estimates of projected
financial performance for the Company for the fiscal years ended June 30, 1998
through 2002 prepared by the Company's management. Alex. Brown aggregated the
present value of the cash flows through 2002 with the present value of a range
of terminal values. Alex. Brown discounted these cash flows at discount rates
ranging from 18% to 22%. The terminal values were computed based on projected
revenue in fiscal year 2002 at a range of terminal multiples of 1.1x to 1.5x
and based on projected earnings before interest, taxes, depreciation and
amortization in fiscal year 2002 at a range of 7.0x to 9.0x. Alex. Brown
arrived at such discount rates based on its judgment of the weighted average
cost of capital of the Company and the Selected Companies, and arrived at such
terminal values based on its review of the trading characteristics of the
common stock of the Selected Companies as well as certain companies providing
communications services and exhibiting growth characteristics similar to those
projected in fiscal year 2002. This analysis indicated a range of values of
$17.90 to $27.89 per Share.
Relevant Market and Economic Factors
In rendering its opinion, Alex. Brown considered, among other factors, the
condition of the U.S. stock markets, particularly in the Internet Service
Provider sector, and the current level of economic activity. Alex. Brown also
considered the overall changes in the telecommunications industry, with
respect to recent deregulation, industry consolidation and competition, and
their effects on the Internet Service Provider sector in general, and the
Company in particular.
No company used in the analysis of other publicly traded companies nor any
transaction used in the analysis of selected mergers and acquisitions
summarized above is identical to the Company, or the Offer or Merger.
Accordingly, such analyses must take into account differences in the financial
and operating characteristics of the Selected Companies and the companies in
the Selected Transactions and other factors that would affect the public
trading value and acquisition value of the Selected Companies and the Selected
Transactions, respectively.
While the foregoing summary describes all analyses and factors that Alex.
Brown deemed material in its presentation to the Board, it is not a
comprehensive description of all analyses and factors considered by Alex.
Brown. The preparation of a fairness opinion is a complex process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the applications of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Alex. Brown believes that its analyses must be considered
as a whole and that selecting portions of its analyses and of the factors
considered by it, without considering all analyses and factors, would create
an incomplete view of the evaluation process underlying the Alex. Brown
Opinion. In performing its analyses, Alex. Brown considered general economic,
market and financial conditions and other matters, many of which are beyond
the control of
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the Company. The analyses performed by Alex. Brown are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by such analyses. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty.
Additionally, analyses relating to the value of a business do not purport to
be appraisals or to reflect the prices at which the business actually may be
sold.
Pursuant to a letter agreement between the Company and Alex. Brown, the fees
to date payable to Alex. Brown for rendering the Alex. Brown Opinion have been
$500,000, which amount will be credited against the final fee of $7.0 million,
payable upon consummation of the Offer. In addition, the Company has agreed to
reimburse Alex. Brown for its reasonable out-of-pocket expenses incurred in
connection with rendering financial advisory services, including fees and
disbursements of its legal counsel. The Company has agreed to indemnify Alex.
Brown and its directors, officers, agents, employees and controlling persons,
for certain costs, expenses, losses, claims, damages and liabilities related
to or arising out of its rendering of services under its engagement as
financial advisor.
The Board retained Alex. Brown to act as its advisor based upon Alex. Brown
having served as placement agent for a private offering of the Company's
common stock, having provided financial advisory services with respect to the
sale of the assets of its LightStream subsidiary and the divestiture of a
majority interest in its BBN Domain subsidiary, general advisory services, and
based upon Alex. Brown's qualifications, reputation, experience and expertise.
Alex. Brown may actively trade the equity securities of the Company and Parent
for its own account and for the account of its customers and accordingly may
at any time hold a long or short position in such securities. Alex. Brown
regularly publishes research reports regarding the communications services
industry and the businesses and securities of the Company and other publicly
traded companies in the communications services industry.
PAYMENT OF MERGER CONSIDERATION FOR THE SHARES
Promptly after consummation of the Merger, the Depositary will send a
transmittal letter and instructions to each person that was a Record Holder of
the Outstanding Shares immediately prior to the Effective Time advising such
holder of the procedure for surrendering his or her certificate or
certificates in exchange for $29.00 in cash for each formerly outstanding
Share. To receive the payment to which they are entitled pursuant to the terms
of the Merger Agreement, stockholders must comply with the instructions on
such transmittal letter and return it, along with their certificates, to the
Depositary pursuant to the terms thereof. Properly surrendered Share
certificates will be cancelled and the stockholder will receive $29.00 per
Share, without interest, for each Share represented by such certificates. DO
NOT SEND SHARE CERTIFICATES AT THIS TIME.
All questions as to the form of all documents and the validity, form and
acceptance of any certificates representing the Shares for payment will be
determined by the Company, whose determination will be final and binding.
Interest will not be paid on the amounts payable upon surrender of
certificates which formerly represented the Shares. It is therefore
recommended that certificates be surrendered promptly after consummation of
the Merger. If, with respect to any Shares, the cash price of $29.00 per Share
is to be paid to a person who is not the holder of record of such Shares, the
amount of any applicable stock transfer taxes will be required to be paid by
the record holders or such other person prior to the payment of the $29.00
amount per Share unless satisfactory evidence of the payment of such taxes, or
exemption therefrom, is submitted to the Depositary. None of the Depositary,
Parent, Purchaser or the Company shall be liable to a holder of Shares for any
cash delivered pursuant to the Merger Agreement to any public official
pursuant to applicable abandoned property, escheat and similar laws.
PURPOSE OF THE MERGER AND PLANS FOR THE COMPANY
The purpose of the Merger is for Parent to acquire the entire equity
interest in the Company. Consummation of the Offer resulted in Parent, through
Purchaser, owning in excess of two-thirds equity interest in the Company.
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The Merger will allow Parent to acquire all outstanding Shares not tendered
and purchased pursuant to the Offer. The acquisition of the entire equity
interest in the Company has been structured as a cash tender offer and a cash
merger in order to provide a prompt and orderly transfer of ownership of the
Company from the public stockholders of the Company to Parent. The purchase of
Shares pursuant to the Offer increased the likelihood that the Merger will be
consummated.
Parent has announced its strategy of being a national provider of a full
bundle of communications services--voice, video and data. Parent plans to
offer customers end to end managed network solutions and a superior high speed
network that is affordable, reliable and secure. By acquiring the Company,
Parent will acquire significant expertise and value-added services to
supplement its data initiatives. Parent plans to assess various aspects of the
Company's business and operations to identify how best to maximize the
Company's strengths in implementing Parent's long-term strategy.
ACCOUNTING TREATMENT
In accordance with generally accepted accounting principles, the Merger will
be accounted for under the "purchase" method of accounting, whereby the
purchase price for the Company and certain costs of the Merger will be
allocated to the identifiable assets and liabilities of the Company and its
subsidiaries based on their estimated fair values with the excess purchase
price allocated to goodwill.
FINANCING OF THE MERGER
Purchaser estimates that the total amount of consideration required in
connection with the Merger based on the number of Shares outstanding on the
Record Date, assuming no additional Subordinated Notes are converted and no
Rights are exercised, and to pay fees and expenses related to the Merger will
be approximately $35.3 million. If all Subordinated Notes are converted, the
total funds needed would increase by approximately $63.4 million.
Purchaser plans to obtain all funds needed for the Merger through a capital
contribution, which will be made by Parent to Purchaser prior to the Effective
Time. Parent intends to obtain the funds necessary to make this capital
contribution from internally generated funds. Parent does not expect to make
any borrowings under any of its existing credit agreements to obtain funds
needed for the Merger.
REGULATORY AND OTHER APPROVALS
There are no material federal or state regulatory requirements which remain
to be complied with to consummate the Merger. The Company is not aware of any
license or regulatory permit that appears to be material to the business of
the Company and its subsidiaries, taken as a whole, that might be adversely
affected by the Merger or, except for the filing of Articles of Merger with
the Secretary of State of the Commonwealth of Massachusetts, of any approval
or other action by any governmental, administrative or regulatory agency or
authority, domestic or foreign, that would be required prior to the Merger.
ANTITRUST
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Offer could not be consummated until notifications
had been given and certain information had been furnished to the FTC and the
Antitrust Division of the U.S. Department of Justice (the "Antitrust
Division"). The waiting period under the HSR Act expired on May 31, 1997.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger. The termination of the
HSR Act waiting period does not preclude the Antitrust Division or the FTC
from challenging the Merger on antitrust grounds. Accordingly, at any time,
before or after the Effective
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Time, either the Antitrust Division or the FTC could take such action under
the antitrust laws as it deems necessary or desirable in the public interest.
STATE ANTI-TAKEOVER STATUTES
A number of states, including Massachusetts, have adopted "takeover"
statutes that purport to apply to attempts to acquire corporations that are
incorporated in such states, or whose business operations have substantial
economic effects in such states, or which have substantial assets, security
holders, employees, principal executive offices or principal places of
business in such states.
In Edgar v. MITE Corporation, the Supreme Court of the United States
invalidated on constitutional grounds the Illinois Business Takeover Act,
which, as a matter of state securities law, made takeovers of corporations
meeting certain requirements more difficult. However, in CTS Corp. v. Dynamics
Corp. of America, addressing Indiana's Control Share Acquisition Act, the
Supreme Court 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 under certain conditions, in particular, that
the corporation has a substantial number of stockholders in the state and is
incorporated there.
The Company conducts business in a number of states throughout the United
States, some of which have enacted "takeover" statutes. Purchaser does not
know whether any of these statutes, by their terms, apply to the Offer or the
Merger, and has not complied with any such statutes. To the extent that
certain provisions of these statutes purport to apply to the Offer or the
Merger, Purchaser believes that there are reasonable bases for contesting such
statutes. If any person should seek to apply any state takeover statute,
Purchaser would take such action as then appears desirable, which action may
include challenging the validity or applicability of any such statute in
appropriate court proceedings. If it is asserted that one or more takeover
statutes apply to the Offer or the Merger, and it is not determined by an
appropriate court that such statute or statutes do not apply or are invalid as
applied to the Offer or the Merger, Purchaser might be required to file
certain information with, or receive approvals from, the relevant state
authorities, and Purchaser might be unable to consummate the Merger, or be
delayed in continuing or consummating the Merger.
APPRAISAL RIGHTS
A Record Holder may exercise appraisal rights by complying with Sections 86
through 98 of the MBCL. The rights described in Sections 85 through 98 of the
MBCL are referred to as "Appraisal Rights" and stockholders who exercise their
Appraisal Rights are called "Dissenting Stockholders." The Shares owned by the
Dissenting Stockholders are called "Dissenting Shares." If your Shares are
held in the name of a bank, broker or another third party, you must direct the
third party to follow the procedures described below in order to exercise your
Appraisal Rights.
Prior to the vote on the Merger, you must notify the Company in writing that
you intend to exercise your Appraisal Rights. In addition, if you intend to
exercise these rights, you may not vote for the Merger.
IF YOU ARE CONSIDERING EXERCISING APPRAISAL RIGHTS, YOU SHOULD CAREFULLY
REVIEW SECTIONS 85 THROUGH 98 OF THE MBCL. THESE SECTIONS ARE REPRINTED IN
EXHIBIT A TO THIS INFORMATION STATEMENT.
THE FOLLOWING MATERIAL SUMMARIZES THE MASSACHUSETTS LAW RELATING TO
APPRAISAL RIGHTS. IT IS ONLY A SUMMARY OF SUCH LAWS AND YOU SHOULD REFER TO
EXHIBIT A FOR A COMPLETE DISCUSSION OF APPRAISAL RIGHTS AND THE PROCEDURES FOR
EXERCISING THOSE RIGHTS. IN ORDER TO EXERCISE APPRAISAL RIGHTS, YOU MUST
FOLLOW THE REQUIREMENTS IN THE MBCL EXACTLY. IF YOU FAIL TO COMPLY WITH
THE PROCEDURES, YOU WILL LOSE YOUR APPRAISAL RIGHTS. IF YOU ARE CONSIDERING
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EXERCISING APPRAISAL RIGHTS, WE STRONGLY URGE YOU TO CONSULT WITH YOUR LEGAL
ADVISOR.
If you elect to exercise your Appraisal Rights, you must dissent with
respect to all of the Shares you own. If your Shares are held in the name of a
third party, that third party can only dissent with respect to those of your
Shares that such third party holds.
Written Notice to the Company
To exercise Appraisal Rights, a Record Holder must (1) file with the
Company, before the vote on the Merger at the Meeting, a written objection to
the Merger stating that the stockholder intends to demand payment for his or
her Shares if the Merger is consummated and (2) not vote in favor of the
Merger Agreement. A vote in favor of the Merger Agreement with respect to any
Shares beneficially owned by a Record Holder will waive such Record Holder's
Appraisal Rights with respect to all of such Record Holder's Shares. However,
a failure to vote on the Merger Agreement will not in itself be a waiver of
the Record Holder's Appraisal Rights. APPRAISAL RIGHTS ARE NOT AVAILABLE
UNLESS THE FOREGOING WRITTEN OBJECTION REQUIREMENT IS FULFILLED. The Company
requests that such written objection (i) state the name and address of the
Record Holder(s), (ii) include the number of Shares as to which Appraisal
Rights are being asserted and (iii) be sent to BBN Corporation, Attention:
Clerk, 150 CambridgePark Drive, Cambridge, Massachusetts 02140.
Notice to Dissenters
If the Merger Agreement is approved and adopted by the stockholders of the
Company, within 10 days after the Effective Date of the Merger the Surviving
Corporation must give written notice that the Merger has become effective to
each stockholder who gave notice before the Meeting of such stockholder's
intention to demand payment for his or her Shares and who did not vote in
favor of the Merger Agreement.
Payment Demand
If a Record Holder timely files written objection to the Merger and does not
vote in favor of the Merger Agreement, such Dissenting Stockholder may, within
20 days after the mailing by the Company to the Dissenting Stockholders of the
notice that the Merger is effective, make written demand (the "Demand Notice")
on the Surviving Corporation for the payment of the fair value of such
stockholder's Dissenting Shares. Any Record Holder failing to make such Demand
Notice for payment within the 20-day period shall be bound by the Merger and
such Record Holder's Shares will be treated as having been exchanged for cash
payment pursuant to the Merger.
Payment by the Company
Within 30 days after the expiration of such 20-day notice period for
Dissenting Stockholders, the Surviving Corporation will pay the Dissenting
Shareholders who have met all statutory conditions the fair value of the
Dissenting Shareholders' Shares, plus accrued interest. Pursuant to the MBCL,
the fair value of the Dissenting Shares is the value thereof as of the day
immediately preceding the Meeting, excluding any element of value arising from
expectation of the Merger.
Payment for Determination of Value
If, within such 30-day period the Dissenting Stockholders and the Surviving
Corporation do not agree as to the fair value of the Dissenting Shares, then
within four months after the expiration of such 30-day period any Dissenting
Stockholder may file a bill with the Superior Court in the county where the
Company has its principal Massachusetts office (the "Court"), in his or her
own behalf and in behalf of all other Dissenting Stockholders with whom the
Surviving Corporation has not reached agreement as to the fair value of any
Dissenting Shares, demanding a determination of the value of the Dissenting
Shares. The Surviving Corporation must then file with
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its answer a duly verified list of all such Dissenting Stockholders with whom
the Surviving Corporation has not reached agreement as to the fair value of
their Dissenting Shares. A notice of the hearing on the bill will then be sent
to all Dissenting Stockholders on such list.
At the hearing on the bill, the Court will determine which, if any,
stockholders have complied with the MBCL and have become entitled to Appraisal
Rights and may refer the bill or any question to a special master, who shall
file a report of such master's findings with the Court. After the hearing, the
Court will determine the fair value of the Dissenting Shares and shall direct
payment of that value by the Surviving Corporation, together with interest
thereon, subject to receipt of duly endorsed certificates for the Dissenting
Shares. All court costs, including reasonable compensation and expenses of any
master appointed by the Court, shall be allocated by the Court in a manner it
determines to be equitable.
Effect on Dividends and Voting Rights
Upon consummation of the Merger, each Dissenting Stockholder will cease to
have any rights of a stockholder of the Company except the right to be paid
the fair value of the Dissenting Shares and the right to receive other
distributions, if any, payable to Record Holders prior to the Meeting and any
other rights under applicable Massachusetts law. No dividends will be paid on
any Dissenting Shares.
THE MERGER AGREEMENT
The Merger Agreement
The following is a summary of certain provisions of the Merger Agreement
that continue to be applicable after the conclusion of the Offer, a copy of
which is attached as Exhibit B and which is incorporated herein by reference.
The following summary is qualified in its entirety by reference to the Merger
Agreement.
Recommendation
In the Merger Agreement, the Company states that the Board has unanimously
(i) determined that the Offer and the Merger are fair to and in the best
interests of the stockholders of the Company and (ii) resolved to recommend
acceptance of the Offer and approval and adoption of the Merger Agreement and
the Merger by the stockholders of the Company.
The Merger
The Merger Agreement provides that, as soon as practicable following the
purchase of Shares pursuant to the Offer, and the satisfaction or waiver of
the other conditions to the Merger, or on such other date as the parties
thereto may agree (such agreement to require the approval of the majority of
the Continuing Directors, if at that time there shall be any Continuing
Directors), Purchaser will be merged with and into the Company. The Merger
will become effective by filing with the Secretary of State of Massachusetts
articles of merger (the "Articles of Merger") in accordance with the relevant
provisions of the MBCL at such time.
At the Effective Time, (i) each Share issued and outstanding immediately
prior to the Effective Time (other than Shares described in clause (ii) below)
will be converted into the right to receive $29.00 in cash, without interest
thereon (the "Merger Price"); (ii) (a) each Share held in the treasury of the
Company or held by any wholly owned subsidiary of the Company and each Share
held by Parent or any wholly owned subsidiary of Parent immediately prior to
the Effective Time will be cancelled and retired and cease to exist; (b) each
Dissenting Share will not be converted into or be exchangeable for the right
to receive the Merger Price; and (iii) each share of common stock of Purchaser
issued and outstanding immediately prior to the Effective Time will be
converted into and exchangeable for one share of common stock of the Surviving
Corporation.
The Merger Agreement provides that the Articles of Organization and Bylaws
of the Company as in effect at the Effective Time (including such amendments
to the Articles of Organization as are effected by the Articles
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of Merger) will be the Articles of Organization and Bylaws of the Surviving
Corporation until amended in accordance with applicable law. The Merger
Agreement also provides that (i) the directors of Purchaser at the Effective
Time will be the initial directors of the Surviving Corporation, (ii) the
officers of the Company at the Effective Time will be the initial officers of
the Surviving Corporation, and (iii) the initial directors and officers of the
Surviving Corporation will hold office from the Effective Time until their
respective successors are duly elected or appointed and qualify in the manner
provided in the Articles of Organization and Bylaws of the Surviving
Corporation, or as otherwise provided by applicable law.
Representations and Warranties
The Merger Agreement contains certain representations and warranties of the
parties including representations by the Company as to organization,
capitalization, authority relative to the Merger Agreement, no defaults,
consents and approvals, financial statements and SEC reports, absence of
certain changes concerning the Company's business, litigation and compliance
with law, environmental matters, governmental authorizations, offer documents,
brokers, employee agreements and benefits, receipt of a fairness opinion,
material agreements, title to properties and encumbrances thereon,
intellectual property, tax matters, interested party transactions,
governmental contracts and takeover statutes.
Certain Agreements Regarding the Board
The Merger Agreement provides that in the event that Purchaser acquires at
least a majority of the Shares outstanding pursuant to the Offer, Parent shall
be entitled to designate for appointment or election to the Board, upon
written notice to the Company, such number of persons so that the designees of
Parent constitute the same percentage (but in no event less than a majority)
of the Board (rounded up to the next whole number) as the percentage of Shares
acquired pursuant to the Offer. As contemplated by the Merger Agreement, the
Board currently consists of five Parent designees and three Continuing
Directors.
Prior to the Effective Time, any amendment of the Merger Agreement or any
amendment to the Articles of Organization or Bylaws of the Company
inconsistent with the Merger Agreement, any termination of the Merger
Agreement by the Company, any extension by the Company of the time for the
performance of any of the obligations or other acts of Parent or Purchaser or
any waiver of any of the Company's rights under the Merger Agreement will
require the concurrence of a majority of the Continuing Directors.
Interim Operations of the Company
Except as contemplated by the Merger Agreement, the Company has covenanted
and agreed that, during the period from the date of the Merger Agreement to
the Effective Time, the Company and its subsidiaries will each conduct its
operations according to its ordinary course of business, consistent with past
practice, and will use its reasonable best efforts to preserve intact its
business organization, to keep available the services of its officers and
employees and to maintain satisfactory relationships with all persons and
entities with which the Company has significant business relations. Without
limiting the generality of the foregoing, the Company has agreed that, except
as otherwise provided in the Merger Agreement, prior to the Effective Date,
neither Company nor any of its subsidiaries will, without the prior consent of
Purchaser:
(i) amend or propose to amend its Articles of Organization or Bylaws (or
comparable governing instruments); (ii) authorize for issuance, issue,
grant, sell, pledge, dispose of or propose to issue, grant, sell, pledge or
dispose of any shares of, or any options, warrants, commitments,
subscriptions or rights of any kind to acquire or sell any shares of, the
capital stock or other securities of the Company or any of its subsidiaries
including any securities convertible into or exchangeable for shares of
stock of any class of the Company or any of its subsidiaries, or enter into
any agreement, understanding or arrangement with respect to the purchase or
voting of shares of its capital stock, except for the issuance of Shares
pursuant to the exercise of Options or the conversion of the Subordinated
Notes outstanding on the date of the Merger Agreement, in accordance with
their present terms, and issuances of up to 120,000 Shares and options
under
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the ESPP (as defined below) to employees in the ordinary course of
business; (iii) split, combine or reclassify any shares of its capital
stock, make any other changes in its capital structure, or declare, pay or
set aside any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock, other
than dividends or distributions to the Company or a subsidiary wholly owned
by the Company, or redeem, purchase or otherwise acquire or offer to
acquire any shares of its capital stock or other securities, except for the
repurchase of shares of common stock from employees, consultants or
directors of the Company upon termination of their relationship with the
Company in accordance with existing contractual rights or obligations of
repurchase; (iv) (A) except for debt (including, but not limited to,
obligations in respect of capital leases) not in excess of $7,000,000 per
month or $30,000,000 in the aggregate for all entities combined, create,
incur or assume any short-term debt, long-term debt or obligations in
respect of capital leases, (B) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, indirectly, contingently or
otherwise) for the obligations of any person or entity, except for
obligations of the Company or any wholly owned subsidiary of the Company in
the ordinary course of business consistent with past practice, (C) make any
capital expenditures other than in the ordinary course in amounts not to
exceed $7,000,000 per month or $30,000,000 in the aggregate, (D) make any
loans, advances or capital contributions to, or investments in, any other
person or entity (other than customary relocation loans to employees made
in the ordinary course of business consistent with past practice), or (E)
acquire the stock or substantially all the assets of, or merge or
consolidate with, any other person or entity; (v) sell, transfer, mortgage,
pledge or otherwise dispose of, or encumber, or agree to sell, transfer,
mortgage, pledge or otherwise dispose of or encumber, any material assets
or properties, real, personal or mixed (except for (A) sales of assets in
the ordinary course of business and in a manner consistent with past
practice, (B) disposition of obsolete or worthless assets and (C)
encumbrances on assets to secure purchase money financings of equipment and
capital improvements); (vi) (A) increase the compensation of any of its or
their directors, officers or key employees, except pursuant to the terms of
agreements or plans currently in effect, (B) pay or agree to pay any
pension, retirement or other employee benefit provided in any existing
plan, agreement or arrangement to any director, officer or key employee
except in the ordinary course and consistent with past practice, (C)
commit, other than pursuant to any existing collective bargaining
agreement, to any additional pension, profit sharing, bonus, extra
compensation, incentive, deferred compensation, stock purchase, stock
option, stock appreciation right, group insurance, severance pay,
retirement or other employee benefit plan, agreement or arrangement, or to
any employment or consulting agreement with or for the benefit of any
director, officer or key employee, whether past or present, (D) amend, in
any material respect, any such plan, agreement or arrangement, or (E) enter
into, adopt or amend any employee benefit plans or employment or severance
agreement, or (except for normal increases in the ordinary and usual course
of business for employees with annual base cash compensation of less than
$80,000) increase in any manner the compensation of any employees; (vii)
settle or compromise any claims or litigation involving payments by the
Company or any of its subsidiaries of more than $250,000 in any single
instance or related instances, or that otherwise are material; (viii) make
any tax election or permit any insurance policy naming it as a beneficiary
or a loss payable payee to be canceled or terminated, except in the
ordinary and usual course of business consistent with past practices; (ix)
enter into any license with respect to intellectual property unless such
license is non-exclusive and entered into in the ordinary course consistent
with past practice or in accordance with existing contracts or other
agreements; (x) take any action or omit to take any action, which action or
omission would result in a breach of any of the covenants, representations
and warranties of the Company set forth in the Merger Agreement; (xi) enter
into any lease or amend any lease of real property other than in the
ordinary course of business consistent with past practice; (xii) change any
accounting practices, other than in the ordinary course and consistent with
past practice; (xiii) fail to use reasonable business efforts to keep in
full force and effect insurance comparable in amount and scope of coverage
to insurance now carried by it; (xiv) fail to pay all accounts payable and
other obligations, when they become due and payable, in the ordinary course
of business consistent with past practice and with the provisions of the
Merger Agreement, except if the same are contested in good faith, and, in
the case of the failure to pay any material accounts payable or other
obligations which are contested in good faith, only after consultation with
Purchaser; (xv) fail to comply in all material respects with all laws
applicable to it or any of its properties, assets or business and
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maintain in full force and effect all permits necessary for, or otherwise
material to, such business; or (xvi) agree, commit or arrange to do the
foregoing.
No Solicitation
In the Merger Agreement, the Company agreed that the Company and its
subsidiaries will not and they will cause each of their respective officers,
directors, employees, investment bankers, attorneys and other agents not to
(i) initiate, solicit or encourage, directly or indirectly, any inquiries or
the making of any Acquisition Proposal (as defined below), (ii) except as
described below, engage in negotiations or discussions with, or furnish any
information or data to any third party relating to an Acquisition Proposal,
(iii) except as described below, enter into any agreement with respect to any
Acquisition Proposal or approve or resolve to approve any Acquisition Proposal
or (iv) except as described below, participate in any discussions regarding,
or take any other action to facilitate any inquiries or the making of any
proposal that constitutes or may reasonably be expected to lead to any
Acquisition Proposal (other than the transactions contemplated by the Merger
Agreement). Notwithstanding the foregoing, in response to any unsolicited
Acquisition Proposal, the Company may (at any time prior to the consummation
of the Offer) furnish information concerning its business, properties or
assets to the person or group (a "Potential Acquiror") that was an unsolicited
Acquisition Proposal and participate in negotiations with the Potential
Acquiror if (x) the Board is advised by one or more of its independent
financial advisors that such Potential Acquiror has the financial wherewithal
to consummate without undue delay the transaction contemplated by the
Potential Acquiror's Acquisition Proposal, (y) the Board reasonably
determines, after receiving advice from the Company's financial advisor, that
such Potential Acquiror has submitted an Acquisition Proposal that involves
consideration to the Company's stockholders that is superior to the Offer and
the Merger, and (z) based upon advice of counsel to such effect, the Board
determines in good faith that it is necessary to so furnish information and/or
negotiate in order to comply with its fiduciary duty to stockholders of the
Company. In the event the Company determines to provide any information as
described above or receives any offer of the type referred above, it has
agreed in the Merger Agreement to (x) promptly inform Parent as to the fact
that such an offer has been received and/or information is to be provided, (y)
promptly provide Parent with a copy of any written offer or other materials
received by Company, its subsidiaries or their respective representatives in
connection therewith, and (z) if such offer is not in writing, promptly
furnish to Parent in writing the identity of the recipient of such information
and/or the proponent of such offer and the terms thereof. The Company has
agreed that any non-public information furnished to a Potential Acquiror will
be pursuant to a confidentiality agreement with confidential information and
no solicitation/no hire provisions substantially similar to those set forth in
the Confidentiality Agreement dated April 26, 1997 between the Company and
Parent set forth as an exhibit to the Schedule 14D-1/Schedule 13D filed with
the SEC by Parent and Purchaser on May 12, 1997. The Company has agreed to
keep Parent fully informed of the status and details, including amendments or
proposed amendments to any such Acquisition Proposal.
The Board has agreed in the Merger Agreement that it will not (x) withdraw
or modify or propose to withdraw or modify, in any manner adverse to Parent,
the approval or recommendation of the Board of the Merger Agreement or the
Merger or (y) approve or recommend, or propose to approve or recommend, any
Acquisition Proposal unless, in each case, in connection with a Superior Offer
(as defined below), the Board determines in good faith, based on advice of
outside legal counsel, that it is necessary to do so in order to comply with
the Board's fiduciary duties under applicable law.
For purposes of the Merger Agreement, "Acquisition Proposal" means any bona
fide proposal, whether in writing or otherwise, made by a third party to
acquire beneficial ownership (as defined under Rule 13(d) of the Exchange Act)
of all or a material portion of the assets of the Company or any of its
subsidiaries, or any material equity interest in the Company pursuant to a
merger, consolidation or other business combination, sale of shares of capital
stock, sale of assets, tender offer or exchange offer or similar transaction
involving either the Company or any of its subsidiaries, including any single
or multi-step transaction or series of related transactions which is
structured to permit such third party to acquire beneficial ownership of any
material portion of the assets of, or any material equity interest in, the
Company and its subsidiaries. For purposes of the Merger Agreement, the term
"Superior Offer" means a bona fide offer to acquire, directly or indirectly,
for consideration consisting of
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cash and/or securities, two-thirds or more of the Shares then outstanding or
all or substantially all the assets of the Company, and otherwise on terms
which the Board determines in its good faith reasonable judgment to be more
favorable to the Company's stockholders than the Offer and the Merger (based
on advice of the Company's independent financial advisor that the value of the
consideration provided for in such proposal is superior to the value of the
consideration provided for in the Offer and the Merger), for which financing,
to the extent required, is then committed or which, in the good faith
reasonable judgment of the Board, based on advice from the Company's
independent financial advisor, is reasonably capable of being financed by such
third party and for which the Board determines, in its good faith reasonable
judgment, that such proposed transaction is reasonably likely to be
consummated without undue delay.
Actions Regarding the Rights
Prior to the execution of the Merger Agreement, the Company, in accordance
with the terms and provisions of the Common Stock Rights Agreement dated as of
June 23, 1988 (the "Rights Agreement"), between the Company and The First
National Bank of Boston, as Rights Agent, amended the Rights Agreement so that
the transactions relating to and contemplated by the Merger Agreement are
exempted from certain provisions of the Rights Agreement and a "Common Stock
Event" thereunder will not occur as a result of such transactions. In the
Merger Agreement the Company has agreed that it will, with the consent of
Parent, continue to take all actions necessary to cause the transactions
contemplated by the Merger Agreement to remain exempted from such provisions
of the Rights Agreement, including, if desirable, entering into further
amendments to the Rights Agreement or causing the rights issued under the
Rights Agreement to be extinguished, cancelled or redeemed.
Miscellaneous Undertakings
Pursuant to the Merger Agreement, the Company, acting through the Board and
in accordance with applicable law, its Articles of Organization and its
Bylaws, has: (i) duly called and given notice of, and will convene and hold,
the Meeting for the purpose of considering and taking action on the Merger
Agreement; (ii) subject to its fiduciary duties under applicable laws as
advised as to legal matters by counsel, included herein the recommendation of
the Board; and (iii) (A) obtained and furnished the information required to be
included by it herein, and will, after consultation with Parent, respond
promptly to any comments made by the SEC with respect hereto and cause this
Information Statement to be mailed to its stockholders following the
consummation of the Offer and (B) obtain the necessary approvals of the Merger
Agreement and the Merger by its stockholders. Parent has provided the Company
with the information concerning Parent and Purchaser required to be included
herein and will vote, or cause to be voted, all Shares owned by it or its
subsidiaries in favor of approval and adoption of the Merger Agreement and the
transactions contemplated thereby.
Pursuant to the Merger Agreement, each of Parent, Purchaser and the Company
has agreed to use its reasonable best efforts to obtain any permits necessary
for the consummation of the transactions contemplated by the Merger Agreement,
provided that the Company has agreed not to, without the consent of Parent
(which consent will not be unreasonably withheld), agree to any amendment to
any material instrument or agreement to which it is a party. Parent, Purchaser
and the Company have also agreed to cooperate with one another (i) in promptly
determining whether any filings are required to be made or permits are
required to be obtained under any law or otherwise (including from other
parties to material contracts) in connection with the consummation of the
Offer and the Merger and (ii) in promptly making any such filings, furnishing
information required in connection therewith and seeking timely to obtain any
such permits. Each party has further agreed to use its reasonable best efforts
promptly to take, or cause to be taken, all actions and promptly to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws to consummate and make effective the transactions contemplated by the
Merger Agreement; provided that no party shall be required to proffer such
party's willingness to accept any decree, judgment, injunction or other order
(whether temporary, preliminary or permanent) providing for divestiture of its
assets or businesses which amount to 7.5% or more of the Company's assets or
earning power. The Company has also agreed to take all actions reasonably
requested by Parent to ensure the orderly transition of the business of the
Company and to preserve and maintain the Company's
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<PAGE>
business relationships. The Company has further agreed that upon request it
will assist Purchaser in any challenge of the applicability to the Offer or
the Merger of any state antitakeover statute.
Indemnification
In the Merger Agreement, Parent agreed that from and after the consummation
of the Offer, it will cause the Company, and from and after the Effective Time
it will cause the Surviving Corporation, to indemnify, defend and hold
harmless the present and former officers and directors of the Company and its
subsidiaries (each an "Indemnified Party"), against all losses, claims,
damages or liabilities arising out of actions or omissions in their capacity
as a director or officer of the Company or a subsidiary occurring on or prior
to the consummation of the Offer to the maximum extent permitted or required
under the MBCL and the Company's Bylaws in effect on the date of the Merger
Agreement, including provisions with respect to advances of expenses incurred
in the defense of any action or suit, provided that any determination required
to be made with respect to whether an Indemnified Party's conduct complies
with the standards set forth under the MBCL and the Company's Bylaws shall be
made by independent legal counsel selected in good faith by the Surviving
Corporation. Parent further agreed in the Merger Agreement that from and after
consummation of the Offer it will cause the Company or the Surviving
Corporation to advance litigation costs reasonably incurred by any Indemnified
Party provided that such party undertakes to repay amounts so advanced if it
is ultimately determined that indemnification for such expenses is not
authorized under the Merger Agreement or otherwise.
Pursuant to the Merger Agreement, Parent agreed that from and after
consummation of the Offer it will cause the Company, and from and after the
Effective Time it will cause the Surviving Corporation, to maintain the
Company's existing directors' and officers' liability insurance ("D&O
Insurance") in full force and effect without reduction of coverage for a
period of three years after the Effective Time; provided that the Surviving
Corporation will not be required to pay an annual premium therefor in excess
of 200% of the last annual premium paid prior to the date of the Merger
Agreement (the "Current Premium"); and, provided, further, that if the
existing D&O Insurance expires, is terminated or cancelled during the 3-year
period, the Surviving Corporation will use reasonable efforts to obtain as
much D&O Insurance as can be obtained for the remainder of such period for a
premium on an annualized basis not in excess of 200% of the Current Premium.
The Company will maintain, through the Effective Time, the Company's existing
D&O Insurance in full force and effect without reduction of coverage.
The Merger Agreement also provides that if the Surviving Corporation or any
of its successors or assigns (i) consolidates with or merges into any other
person or entity and shall not be the continuing or surviving corporation or
entity of such consolidation or merger and the continuing or surviving entity
does not assume the indemnification obligations of the Surviving Corporation,
or (ii) transfers all or substantially all of its properties and assets to any
person or entity, then, and in each such case, proper provision will be made
so that the successors and assigns of the Surviving Corporation assume the
indemnification obligations of the Surviving Corporation.
Conditions to Merger
Pursuant to the Merger Agreement, the respective obligations of each of
Parent, Purchaser and the Company to consummate the Merger are subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) the Merger Agreement shall have been adopted by the affirmative vote of
the stockholders of the Company by the requisite vote in accordance with
applicable law, if required by applicable law; and (b) the consummation of the
Merger shall not be precluded by any order, decree, ruling or injunction of a
court of competent jurisdiction and there shall not have been any action taken
or statute, rule or regulation enacted, promulgated or deemed applicable to
the Merger by any governmental entity that makes consummation of the Merger
illegal.
Termination
Pursuant to Section 8.1 of the Merger Agreement, the Merger Agreement may be
terminated and the Merger may be abandoned at any time (whether before or
after approval of the Merger by the stockholders of the
20
<PAGE>
Company) prior to the Effective Time: (a) by mutual written consent of each of
Parent and the Company; (b) by either Parent and Purchaser or the Company, if
any governmental authority has issued an order, decree or ruling or taken any
other action (which order, decree, ruling or other action the parties will use
their respective reasonable best efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated
by the Merger Agreement or prohibiting Parent or Purchaser from acquiring or
holding or exercising rights of ownership of the Shares except such
prohibitions which would not reasonably be expected to have a Material Adverse
Effect or prevent the consummation of the Offer prior to the Final Termination
Date, and such order, decree, ruling or other action shall have become final
and non-appealable; or (c) by Parent and Purchaser if any person or group
(other than Parent or Purchaser) shall have become the beneficial owner of 20%
or more of the outstanding Shares.
In the event of the termination of the Merger Agreement in accordance with
its terms, the Merger Agreement shall become null void and have no effect,
without any liability on the part of any party thereto or its affiliates,
directors, officers or stockholders, other than the provisions of the Merger
Agreement relating to fees and expenses (including the Termination Fee), the
Termination Option (as defined below), governing law and confidentiality of
information. Notwithstanding the foregoing, no party will be relieved from
liability that it may have for willful breach of the Merger Agreement.
Termination Fee and Termination Option
The Company has agreed to pay to Parent by wire transfer $13.5 million (the
"Termination Fee"), upon demand, if (i) the Company terminates the Merger
Agreement pursuant to Section 8.1(c)(i) thereof (which generally relates to a
change in the Board's recommendation adverse to Parent as a result of a
Superior Offer), in which case the Termination Fee must be paid simultaneously
with such termination, (ii) Parent or Purchaser terminates the Merger
Agreement pursuant to Section 8.1(d)(i) thereof (which generally relates to a
change in the Board's recommendation adverse to Parent or an agreement
relating to an Acquisition Proposal with a third party), or (iii) the Merger
Agreement is terminated for any reason (other than as a result of (x) the
failure of Parent or Purchaser to fulfill any material obligation under the
Merger Agreement, (y) the applicable waiting period under the HSR Act not
having expired or been terminated on or prior to the Final Termination Date or
(z) the failure of certain Conditions of the Offer to be satisfied or waived
by Parent on or prior to the Final Termination Date), at any time after an
Acquisition Proposal has been made and within nine months after such a
termination, the Company completes either (x) a merger, consolidation or other
business combination between the Company or a subsidiary of the Company and
any other person or entity (other than Parent, Purchaser or an affiliate of
Parent) or (y) the sale of 30% or more (in voting power) of the voting
securities of the Company or of 30% or more (in market value) of the assets of
the Company and its subsidiaries, on a consolidated basis.
Concurrently with the execution of the Merger Agreement, the Company issued
to Parent the Termination Option to purchase 4,225,000 Shares at a price per
Share equal to $29.00 pursuant to a Stock Option Agreement dated as of May 5,
1997 between the Company and Parent. Such option becomes exercisable by Parent
when a Termination Fee is payable to Parent.
Amendment
The Merger Agreement may be amended by action taken by the Company, Parent
and Purchaser provided that after the date of adoption of the Merger Agreement
by the stockholders of the Company (if stockholder approval of the Merger is
required by applicable law), no amendment shall be made which decreases the
cash price per Share or that in any other way adversely affects the rights of
the Company's stockholders (other than termination of the Merger Agreement)
without the approval of such stockholders. The Merger Agreement may not be
amended except by an instrument in writing signed on behalf of the parties or
party intended to be bound thereby.
Fees and Expenses
Except as specifically provided in the Merger Agreement, each party bears
its own respective expenses incurred in connection with the Merger Agreement,
the Offer and the Merger, including the preparation,
21
<PAGE>
execution and performance of the Merger Agreement and the transactions
contemplated thereby, and all fees and expenses of investment bankers,
finders, brokers, agents, representatives, counsel and accountants.
CERTAIN EFFECTS OF THE MERGER
If the Merger is consummated, stockholders will not have an opportunity to
continue their common equity interest in the Company as an ongoing operation
and therefore will not have the opportunity to share in its future earnings
and potential growth, if any.
CERTAIN TAX CONSIDERATIONS
The following summary addresses the material federal income tax consequences
to holders of Shares who sell their Shares in the Merger. The summary does not
address all aspects of federal income taxation that may be relevant to
particular holders of Shares and thus, for example, may not be applicable to
holders of Shares who are not citizens or residents of the United States, who
are employees and who acquired their Shares pursuant to the exercise of
compensatory stock options, or who are entities that are otherwise subject to
special tax treatment under the Internal Revenue Code of 1986, as amended (the
"Code") (such as insurance companies, tax-exempt entities and regulated
investment companies); nor does this summary address the effect of any
applicable foreign, state, local or other tax laws. The discussion assumes
that each holder of Shares holds such Shares as a capital asset within the
meaning of Section 1221 of the Code. The federal income tax discussion set
forth below is included for general information only and is based upon current
law. The precise tax consequences of the Merger will depend on the particular
circumstances of the holder. STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES TO THEM OF THE PROPOSED TRANSACTION.
The receipt of cash for Shares pursuant to the Merger will be a taxable
transaction for federal income tax purposes and may also be a taxable
transaction under applicable state, local or foreign tax laws. In general, a
stockholder who receives cash for Shares pursuant to the Merger will recognize
gain or loss for federal income tax purposes equal to the difference between
the amount of cash received in exchange for the Shares sold and such
stockholder's adjusted tax basis in such Shares. Such gain or loss will be
capital gain or loss, and will be long-term capital gain or loss if the holder
has held the Shares for more than one year at the time of sale. Gain or loss
will be calculated separately for each block of Shares tendered pursuant to
the Merger.
Under current law, the maximum federal tax rate applicable to long-term
capital gains recognized by an individual is 28%, and the maximum federal tax
rate applicable to ordinary income (including dividends and short-term capital
gains) recognized by individuals is 39.6%. The maximum federal tax rate
applicable to all capital gains and ordinary income recognized by a
corporation is 35%. It is possible that legislation may be enacted that would
reduce the maximum federal tax rate applicable to long-term capital gains,
possibly with retroactive effect. It is not possible to predict whether or in
what form any such legislation may be enacted, or the effective date of such
legislation if enacted.
Withholding
Unless a stockholder complies with certain reporting and/or certification
procedures, or is an exempt recipient under applicable provisions of the Code
(and regulations promulgated thereunder), such stockholder may be subject to a
"backup" withholding tax of 31% with respect to any payments received in the
Merger or as a result of the exercise of the holder's Appraisal Rights.
Stockholders should contact their brokers to ensure compliance with such
procedures. Foreign stockholders should consult with their tax advisors
regarding U.S. withholding taxes in general.
Dissenters
A stockholder who does not sell Shares in the Merger and who exercises and
perfects such stockholder's rights under the MBCL to demand fair value for
such Shares will recognize capital gain or loss (and may
22
<PAGE>
recognize an amount of interest income) attributable to any payment received
pursuant to the exercise of such rights based upon the principles described
above.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED UPON CURRENT LAW. STOCKHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF
THE MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF THE ALTERNATIVE
MINIMUM TAX, AND STATE, LOCAL AND FOREIGN TAX LAWS. IN ADDITION, THE
DISCUSSION SET FORTH ABOVE MAY NOT APPLY TO PARTICULAR CATEGORIES OF
STOCKHOLDERS, INCLUDING STOCKHOLDERS WHO ACQUIRED SHARES PURSUANT TO THE
EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION, INDIVIDUALS
WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES, FOREIGN CORPORATIONS,
OR ENTITIES THAT ARE OTHERWISE SUBJECT TO SPECIAL TAX TREATMENT.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
With respect to the Merger, stockholders should be aware that certain
current and former members of the Company's management and Board have certain
interests that are described below.
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the Record Date, there were 21,644,919 Shares outstanding. The Company
knows of no person who may be deemed to beneficially own more than five
percent of the Shares outstanding as of such date, except as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
TITLE OF NAME AND ADDRESS OF BENEFICIALLY OF
CLASS BENEFICIAL OWNER OWNED CLASS
-------- ------------------- ------------ -------
<S> <C> <C> <C>
Common Stock.............. GTE Massachusetts 20,432,435 94.40%
Incorporated
c/o GTE Corporation
One Stamford Forum
Stamford, Connecticut 06904
</TABLE>
23
<PAGE>
The following table sets forth certain information with respect to the
beneficial ownership of Shares as of the Record Date (i) individually by the
Chief Executive Officer, each of the four other highest paid executive
officers of the Company in fiscal year 1997, and each director of the Company
holding office at any time since the beginning of fiscal year 1997, and (ii)
by all officers and directors of the Company holding office at any time since
the beginning of fiscal year 1997, as a group:
<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY PERCENT OF
TITLE OF CLASS NAME OR GROUP OWNED(1) CLASS
-------------- ------------- ------------ ----------
<C> <S> <C> <C>
Common Stock George H. Conrades(2)(3)......... 0 *
David N. Campbell(4)............. 0 *
Paul R. Gudonis(5)............... 0 *
Ralph A. Goldwasser(6)........... 0 *
John Montjoy(7).................. 0 *
Steven R. Levy(8)................ 0 *
John M. Albertine(9)............. 0 *
Lucie J. Fjeldstad(9)............ 0 *
Max D. Hopper(9)................. 0 *
Regis McKenna(9)................. 0 *
Andrew L. Nichols(10)............ 0 *
Roger D. Wellington(9)........... 0 *
Kent B. Foster(11)............... 0 *
Thomas W. White(11).............. 0 *
Gerald K. Dinsmore(11)........... 0 *
Robert C. Calafell(11)........... 0 *
J. Michael Kelly(11)............. 0 *
All officers and directors
since July 1, 1996
(24 persons) as a group(12)(13).. 0 *
</TABLE>
- --------
(*) The percentage of shares beneficially owned does not exceed one percent.
(1) The inclusion herein of any Shares deemed beneficially owned under the
rules of the SEC does not constitute an admission by the individual of
beneficial ownership of such Shares.
(2) Mr. Conrades owns $50,000 principal amount of the Subordinated Notes.
(3) In connection with the Offer, Mr. Conrades tendered to Purchaser an
aggregate of 37,202 Shares beneficially owned by him (including Shares
beneficially owned with his spouse) and received therefor an aggregate of
$1,078,858 in cash. Mr. Conrades also elected under the terms of the
Merger Agreement to (i) convert an option for 1,000 Shares into a fully
vested option for 1,500 shares of Parent common stock expiring in January
2001; and (ii) have credited to an account (denominated in Parent common
stock units) established on his behalf in a GTE deferred compensation
plan an aggregate of approximately $13,141,000, being the product of (A)
the difference between the Offer price and the option prices of other
Company options held by him under the Company's option plans, all of
which became fully vested on the Closing Date (as defined below) of the
Offer, and (B) the number of Shares subject to such options.
(4) In connection with the Offer, Mr. Campbell tendered to Purchaser an
aggregate of 15,000 Shares beneficially owned by him and received
therefor an aggregate of $435,000 in cash. Mr. Campbell also elected
under the terms of the Merger Agreement to (i) convert options for an
aggregate of 40,300 Shares into fully vested options for 60,450 shares of
Parent common stock expiring at various dates to May 2003; (ii) have
credited to an account (denominated in Parent common stock units)
established on his behalf in a GTE deferred compensation plan an
aggregate of approximately $40,000, being the product of (A) the
difference between the Offer price and the option prices of certain
Company options held by him under the Company's option plans, which
became fully vested on the Closing Date of the Offer, and (B) the number
of Shares subject to such options; and (iii) convert options for an
aggregate of 150,000 Shares into options for that number of shares of
Parent common stock, vesting over a period to July 1999 and expiring in
July 2002.
24
<PAGE>
(5) In connection with the Offer, Mr. Gudonis tendered to Purchaser an
aggregate of 53,750 Shares beneficially owned by him and received
therefor an aggregate of $1,558,750 in cash. Mr. Gudonis also elected
under the terms of the Merger Agreement to (i) convert options for an
aggregate of 110,050 Shares into fully vested options for 165,075 shares
of Parent common stock expiring at various dates to January 2003; and
(ii) have credited to an account (denominated in Parent common stock
units) established on his behalf in a GTE deferred compensation plan an
aggregate of approximately $495,000, being the product of (A) the
difference between the Offer price and the option prices of other Company
options held by him under the Company's option plans, all of which became
fully vested on the Closing Date of the Offer, and (B) the number of
Shares subject to such options.
(6) In connection with the Offer, Mr. Goldwasser tendered to Purchaser an
aggregate of 20,492 Shares beneficially owned by him and received
therefor an aggregate of $594,268 in cash. Mr. Goldwasser also elected
under the terms of the Merger Agreement to (i) convert options for an
aggregate of 35,114 Shares into fully vested options for 52,671 shares of
Parent common stock expiring at various dates to May 2003; and (ii) have
credited to an account (denominated in Parent common stock units)
established on his behalf in a GTE deferred compensation plan an
aggregate of approximately $712,500, being the product of (A) the
difference between the Offer price and the option prices of other Company
options held by him under the Company's option plans, all of which became
fully vested on the Closing Date of the Offer, and (B) the number of
Shares subject to such options.
(7) In connection with the Offer, Mr. Montjoy tendered to Purchaser an
aggregate of 14,681 Shares beneficially owned by him and received
therefor an aggregate of $425,749 in cash. Mr. Montjoy also elected under
the terms of the Merger Agreement to (i) convert options for an aggregate
of 22,375 Shares into fully-vested options for 33,563 shares of Parent
common stock expiring at various dates to May 2003; and (ii) have
credited to an account (denominated in Parent common stock units)
established on his behalf in a GTE deferred compensation plan an
aggregate of approximately $502,000, being the product of (A) the
difference between the Offer price and the option prices of other Company
options held by him under the Company's option plans, all of which became
fully vested on the Closing Date of the Offer, and (B) the number of
Shares subject to such options. In connection with the Offer, Mr. Montjoy
also was refunded his outstanding contributions to the Company's employee
stock purchase plan during the most recent option period, and received
$2,556 in cash, being the difference between (A) the product of the
number of Share units subject to purchase by him under the plan and the
Offer price, and (B) the refunded contributions.
(8) In connection with the Offer, Mr. Levy tendered to Purchaser an aggregate
of 72,227 Shares beneficially owned by him and received therefor an
aggregate of $2,094,583 in cash. Mr. Levy also received under the terms
of the Merger Agreement an aggregate of $15,000, being the product of (A)
the difference between the Offer price and the option prices of Company
options held by him under the Company's option plans, which became fully
vested on the Closing Date of the Offer, and (B) the number of Shares
subject to such options.
(9) Consistent with the terms of the Merger Agreement, effective June 10,
1997, the following directors of the Company resigned: John M. Ablertine,
Lucie J. Fjeldstad, Max D. Hopper, Regis McKenna, and Roger D.
Wellington. In connection with the Offer, all such former directors
tendered to Purchaser an aggregate of 41,587 Shares beneficially owned by
them (including Shares beneficially owned with their spouses) and
received therefor an aggregate of $1,206,023 in cash. As a group, they
also received, under the terms of the Merger Agreement, an aggregate of
$243,187, being the product of (A) the difference between the Offer price
and the option prices of Company options held by them under the Company's
option plans, all of which became fully vested on the Closing Date of the
Offer, and (B) the number of Shares subject to such options. In addition,
three of the directors had credited to accounts (denominated in Parent
common stock units) established on their behalf in a GTE directors'
deferred compensation plan an aggregate amount equal to approximately
$1,140,500, being the product of the Offer price times the number of
Share units held in their deferred compensation accounts with the Company
under the Company's Deferred Compensation Plan for Non-Employee
Directors.
(10) In connection with the Offer, Mr. Nichols tendered to Purchaser an
aggregate of 12,450 Shares beneficially owned by him and received
therefor an aggregate of $361,050 in cash. Mr. Nichols also received
under
25
<PAGE>
the terms of the Merger Agreement an aggregate of $43,875, being the
product of (A) the difference between the Offer price and the option
prices of Company options held by him under the Company's option plans,
all of which became fully vested on the Closing Date of the Offer, and (B)
the number of Shares subject to such options.
(11) Each individual is an officer of Parent or GTE Service Corporation, and
is a designee of Parent on the Board of Directors. Purchaser owns
20,432,435 Shares, constituting approximately 94.40% of the Shares
outstanding on the Record Date.
(12) In connection with the Offer, all directors and officers individually
listed (17 persons) as a group tendered to Purchaser an aggregate of
225,802 Shares beneficially owned by them (including Shares beneficially
owned with their spouses) and received therefor an aggregate of
$6,548,258 in cash. As a group, they also elected under the terms of the
Merger Agreement to (i) convert options for an aggregate of 208,839
Shares into fully vested options for 313,259 shares of Parent common
stock expiring at various dates to May 2003; (ii) have credited to
accounts (denominated in Parent common stock units) established on their
behalf in a GTE deferred compensation plan an aggregate of approximately
$14,890,500, being the product of (A) the difference between the Offer
price and the option prices of certain Company options held by them under
the Company's option plans, all of which became fully vested on the
Closing Date of the Offer and (B) the number of Shares subject to such
options; and (iii) convert options for an aggregate of 150,000 Shares
into options for that number of shares of Parent common stock vesting
over a period to July 1999 and expiring in July 2002. In addition, two of
the directors received an aggregate of $58,875, being the product of (A)
the difference between the Offer price and the option prices of Company
options held by them under the Company's option plans, all of which
became fully vested on the Closing Date of the Offer, and (B) the number
of Shares subject to such options. In addition, three of the directors
had credited to accounts (denominated in Parent common stock units)
established on their behalf in a GTE directors' deferred compensation
plan an aggregate amount equal to approximately $1,140,500, being the
product of the Offer price times the number of Share units held in their
deferred compensation accounts with the Company under the Company's
Deferred Compensation Plan for Non-Employee Directors.
(13) In connection with the Offer, all officers of the Company holding office
at any time since the beginning of fiscal year 1997 (excluding officers
individually listed) as a group (7 persons) tendered to Purchaser an
aggregate of 19,959 Shares beneficially owned by them (including Shares
beneficially owned with their spouses) and received therefor an aggregate
of $578,811 in cash. As a group, they also elected under the terms of the
Merger Agreement to (i) convert options for an aggregate of 24,265 Shares
into fully vested options for 36,398 shares of Parent common stock
expiring at various dates to May 2003; (ii) have credited to accounts
(denominated in Parent common stock units) established on their behalf in
a GTE deferred compensation plan an aggregate of approximately $635,900,
being the product of (A) the difference between the Offer price and the
option prices of certain Company options held by them under the Company's
option plans, all of which became fully vested on the Closing Date of the
Offer and (B) the number of Shares subject to such options; and (iii)
convert options for an aggregate of 45,000 Shares into options for that
number of shares of Parent common stock, vesting over a period to
December 1999 and expiring no later than December 2002. In addition, two
such officers also were refunded their outstanding contributions to the
Company's employee stock purchase plan during the most recent option
period, and received an aggregate of $3,431 in cash, being the difference
between (A) the product of the number of Share units subject to purchase
by such individuals under the plan and the Offer price, and (B) the
refunded contributions.
Mr. Conrades has entered into an employment agreement with Parent to act as
Executive Vice President and President-Internetworking, Inc. effective July 1,
1997 until June 30, 1999. In addition to his base salary, Mr. Conrades
receives certain bonuses, and other compensation, benefits and perquisites
commensurate with other executives of Parent at his level.
In connection with the successful completion of the Offer, the Company paid
bonuses to each of Messrs. Goldwasser and Montjoy and five of the other
current officers of the Company as a group, of $75,000, $50,000, and, in the
aggregate for such other officers, $72,500, respectively.
26
<PAGE>
CHANGE-OF-CONTROL ARRANGEMENTS
The Company has termination agreements with Messrs. Conrades, Campbell,
Gudonis, Goldwasser and Montjoy. Such agreements obligate the related employee
to remain in the employ of the Company during the pendency of any change-of-
control proposal. In consideration for such agreement, the Company agreed to
pay severance benefits to each such individual, consisting of payment of
approximately three times his then most recent five-year average annual salary
and cash bonus, together with certain other benefits (including the
acceleration of the exercisability of outstanding stock options and continued
participation for one year in accident and health insurance) and payment of an
amount equal to a "gross-up" payment with respect to any excise taxes payable
by the individual as a result of the severance benefits. The benefits are
payable in the case of Mr. Conrades if his employment terminates (including a
voluntary termination on his part) for any reason other than death,
disability, normal retirement, or "cause" (defined as the commission of
certain felonies or conviction of a crime involving moral turpitude); the
benefits are payable in the case of each of the other named individuals only
if his employment is terminated by the Company for any reason other than for
"cause" (as defined in the relevant termination agreement) or is terminated by
such individual as the result of specified justification, in all cases during
a period of two years following a "change of control" of the Company. A change
of control is defined to include the acquisition of 30% or more of the then-
outstanding Shares, and other changes of control as determined by regulatory
authorities. Pursuant to the Offer, Purchaser acquired more than two-thirds of
the Shares and, therefore, the consummation of the Offer resulted in a change
of control. Such severance payments would not be reduced for compensation
received by the individual from any new employment. Under the agreements,
based upon the average annual compensation paid by the Company to the
individual with respect to the last five calendar years or shorter period he
has been with the Company (and assuming no gross-up payment), change of
control cash severance payments would, if payable, be approximately
$1,200,000, $1,300,000, $950,000, $610,000 and $520,000 respectively, for
Messrs. Conrades, Campbell, Gudonis, Goldwasser and Montjoy.
The Company also has termination agreements with its other six current
officers. Such agreements obligate the related employee to remain in the
employ of the Company during the pendency of any change-of-control proposal.
In consideration for such agreement, the Company agreed to pay severance
benefits to each such individual, consisting of payments equal to his or her
then most recent two-year average annual salary and cash bonus, together with
certain other benefits (including continued participation for one year in
accident and health insurance). The benefits are payable only if his or her
employment is terminated by the Company for any reason other than "cause" (as
defined in the relevant termination agreement) or is terminated by such
individual as the result of specific justification, in all cases during the
period of twelve months following a "change of control" of the Company. The
consummation of the Offer resulted in a change of control. Such severance
payments would not be reduced for compensation received by the individual from
any new employment.
CERTAIN PROVISIONS IN THE MERGER AGREEMENT
In the Merger Agreement, the Company agreed, with certain exceptions, that
it would not grant to any non-employees, including non-employee members of the
Board of Directors ("Directors"), and former employees (collectively "Non-
Employees"), or to any current employees any options to purchase Shares, stock
appreciation rights, restricted stock, restricted stock units or any other
real or phantom stock or stock equivalents on or after the date of the Merger
Agreement. Options to acquire Shares which were outstanding as of the date of
the Merger Agreement and which were granted to employees or Non-Employees
under any stock option plan, program or similar arrangement of the Company or
any of its subsidiaries ("Options"), other than Options which constitute
Restricted Stock (as defined below) and Options under the ESPP were treated in
the Merger Agreement as follows:
(i) Each employee of the Company as of the date of the Merger Agreement
whose annual base salary was $80,000 or more ("Key Employee") and who held
Options which had an exercise price ("Exercise Price") less than the Offer
Price ("In the Money Options") and which were vested as of the date on
which the consummation of the Offer occurred (the "Closing Date") could
make an irrevocable election on a grant by grant basis to be effective
immediately following the Closing Date to receive in exchange for
cancellation
27
<PAGE>
of each such vested In the Money Option either (A) a credit to an
individual deferred compensation book account equal to the excess of the
Offer Price over the Exercise Price of such In the Money Option times the
number of Shares subject to such In the Money Option, such deferred
compensation book account to have the terms described below, or (B) an
option to purchase a number of shares of Parent common stock (a "Parent
Option") equal to 150% of the number of Shares subject to the Key
Employee's In the Money Option; provided that (x) the Parent Option
received in the exchange is fully vested and has the same expiration date
as the vested In the Money Option exchanged therefor, (y) the Exercise
Price of the Parent Option is equal to the Fair Market Value (as defined
below), and (z) the Parent Option is governed by the provisions of the GTE
Corporation 1997 Long-Term Incentive Plan ("LTIP") and by applicable LTIP
award agreements. For purposes of the relevant portions of the Merger
Agreement, the deferred compensation book account is denominated in Parent
phantom stock units, and dividend equivalent payments will be credited to
such deferred compensation book account at such time and in such manner as
dividends are paid on Parent common stock. Before the third anniversary of
the Closing Date, no distribution may be made in respect of the deferred
compensation book account to a Key Employee who is employed by Parent or an
affiliate of Parent. The dividend equivalent payments on the deferred
compensation book account are subject to forfeiture in the event the Key
Employee is not employed by Parent or an affiliate of Parent on any date
that precedes the third anniversary of the Closing Date. Parent will
determine administrative procedures and provisions with regard to the
deferred compensation book account. In the event a Key Employee did not
make such an irrevocable election before the Closing Date, the Key Employee
was deemed to have irrevocably elected the deferred compensation book
account credit as described in clause (A) of the first sentence of this
paragraph (i), and all In the Money Options were canceled. "Fair Market
Value" means the average of the high and low sales price of the Parent
common stock on the composite tape of the NYSE issues as of the Closing
Date.
(ii) Each employee of the Company whose annual base salary as of the date
of the Merger Agreement was less than $80,000 ("Employee") who held In the
Money Options which were vested as of the Closing Date could make an
irrevocable election on a grant by grant basis to be effective immediately
following the Closing Date to receive in exchange for cancellation of each
such vested In the Money Option either (A) a cash payment equal, for each
such In the Money Option, to the excess of the Offer Price of a Share over
the Exercise Price of such In the Money Option times the number of Shares
subject to such In the Money Option, or (B) a Parent Option to purchase a
number of shares of Parent common stock equal to 150% of the number of
Shares subject to the Employee's In the Money Option; provided that (x) the
Parent Option received in the exchange is fully vested and has the same
expiration date as the vested In the Money Option exchanged therefor, (y)
the Exercise Price of the Parent Option is equal to the Fair Market Value,
and (z) the Parent Option is governed by the provisions of the LTIP and by
applicable LTIP award agreements. In the event an Employee did not make
such election before the Closing Date, the Employee was deemed to have
irrevocably elected the cash payment described in clause (A) of the
preceding sentence, and all In the Money Options were canceled.
(iii) Options of Key Employees or Employees had an Exercise Price equal
to or in excess of the Offer Price ("Under-Water Options"), regardless of
whether such Under-Water Options were vested as of the Closing Date, were
cancelled immediately following the Closing Date and exchanged for Parent
Options to purchase a number of shares of Parent common stock equal to 100%
of the number of Shares subject to the Key Employee's or Employee's Under-
Water Options, provided that (x) the Parent Options received in the
exchange have the same vesting schedule and expiration date as the Under-
Water Options exchanged therefor, (y) the Exercise Price of the Parent
Options is equal to the Fair Market Value, and (z) the Parent Options are
governed by the provisions of the LTIP and by applicable LTIP award
agreements. Notwithstanding the foregoing, if, on or after the date of the
Merger Agreement, a Key Employee exercised vested In the Money Options
that, on the date of the Merger Agreement, represent 50% or more of the
dollar value of the Key Employee's vested In the Money Options, all of such
Key Employee's Under-Water Options were canceled immediately, the exchange
provisions of this paragraph (iii) did not apply to such Key Employee, and
such Key Employee received the sum of one dollar ($1.00) as good and
valuable consideration for all of such Key Employee's Under-Water Options.
For purposes of the immediately
28
<PAGE>
preceding sentence, the dollar value of a vested In the Money Option equals
the excess of the Offer Price over the Exercise Price of such In the Money
Option times the number of Shares subject to the vested In the Money
Option.
(iv) In the Money Options of individuals who were Non-Employees as of the
date of the Merger Agreement, including Directors, which were vested as of
the Closing Date were canceled immediately following the Closing Date and
exchanged for a cash payment equal, for each vested In the Money Option, to
the excess of the Offer Price of a Share over the Exercise Price of such In
the Money Option times the number of Shares subject to such In the Money
Option. All other Options of Non-Employees, including Directors, were
canceled immediately as of the Closing Date and each such Non-Employee
received the sum of one dollar ($1.00) as good and valuable consideration
for all such Options.
(v) With respect to In the Money Options of Key Employees, Employees and
Non-Employees, including Directors, the Board of Directors or an
appropriate committee thereof, provided for the full and immediate vesting
of such In the Money Options as of the Closing Date. Except as provided in
the immediately preceding sentence on or after the date of the Merger
Agreement, the Board of Directors did not make any other changes to the
terms and conditions of any outstanding Options, stock appreciation rights,
restricted stock, restricted stock units or any other real or phantom stock
or stock equivalents.
Pursuant to the Merger Agreement, on the Closing Date, employees of the
Company who held Shares subject to a risk of forfeiture within the meaning of
Section 83(a) of the Code, or Options with an exercise price of zero dollars
($0.00) ("Restricted Stock") received in exchange for such Restricted Stock a
right to receive a number of Parent phantom stock units pursuant to a phantom
stock plan ("Phantom Stock Units") determined by dividing (A) the product of
(i) the number of shares of Restricted Stock held by such employee on the
Closing Date, and (ii) the Offer Price, by (B) the Fair Market Value. Such
Phantom Stock Units will be credited with dividend equivalent units at such
time and in such manner as dividends are normally paid on Parent common stock,
and the Phantom Stock Units and dividend equivalent units will be subject to
the same vesting schedule as the Restricted Stock which was exchanged for the
Phantom Stock Units. Upon the Phantom Stock Units vesting, the employee will
receive payment of the vested amounts in cash (less applicable withholding
taxes). Parent will determine administrative procedures and provisions with
regard to Phantom Stock Units. The Merger Agreement also provides that
immediately following the Closing Date, Restricted Stock purchased by certain
Key Employees and Directors pursuant to the Company's 1996 Restricted Stock
Plan will no longer be subject to a risk of forfeiture within the meaning of
Section 83(a) of the Code and will be tendered to Purchaser in exchange for
cash equal to the Offer Price times the number of Shares so tendered. At the
Closing Date, Company stock units in the deferred compensation account of each
Director who participated in the Company's Deferred Compensation Plan for
Directors (the "DCP") were converted into a number of Phantom Stock Units
determined by dividing (A) the product of (i) the number of Company stock
units credited to the Director's deferred compensation account under the DCP
as of the Closing Date, and (ii) the Offer Price, by (B) the Fair Market
Value. Such Phantom Stock Units will be credited with dividend equivalent
units at such time and in such manner as dividends are paid on Parent common
stock. A cash payment equal to the Phantom Stock Units will be made to the
Directors as soon as practicable after January 1, 1998. Parent will determine
administrative procedures and provisions with regard to the Phantom Stock
Units.
The Merger Agreement also required that, prior to the Closing Date, the
Board of Directors, or an appropriate committee thereof, cause written notice
of the Merger Agreement to be given to persons holding "options" (as defined
in the Company's Employee Stock Purchase Plan (the "ESPP")) to purchase Shares
("Purchase Rights") under the ESPP. The Merger Agreement required that
immediately following the Closing Date, all Purchase Rights be accelerated as
if the Closing Date was the last day of the "option period" (as defined in the
ESPP), such Purchase Rights be automatically cancelled and terminated on such
day and the contributions to the ESPP during such option period be refunded to
the holder of the Purchase Right (the "Refund Amount"), and each holder of a
Purchase Right be entitled to receive as soon as practicable thereafter from
the Company in consideration for such cancellation an amount in cash (less
applicable withholding taxes, but without interest) equal to (a) the product
of (i) the number of Shares (and fractions thereof) subject to such Purchase
Right of such holder as of the Closing Date, multiplied by (ii) the Offer
Price, less (b) the Refund
29
<PAGE>
Amount of such holder. The foregoing is subject to the right of an ESPP
participant to terminate the participant's payroll deduction authorization
under the ESPP and to cancel the participant's option and withdraw from the
ESPP at any time prior to the Closing Date.
In the Merger Agreement, Parent agreed that from and after the consummation
of the Offer, it will cause the Company, and from and after the Effective Time
it will cause the Surviving Corporation, to indemnify, defend and hold
harmless the present and former officers and directors of the Company and its
subsidiaries (each an "Indemnified Party"), against all losses, claims,
damages or liabilities arising out of actions or omissions in their capacity
as a director or officer of the Company or a subsidiary occurring on or prior
to the consummation of the Offer to the maximum extent permitted or required
under the MBCL and the Company's Bylaws in effect on the date of the Merger
Agreement, including provisions with respect to advances of expenses incurred
in the defense of any action or suit, provided that any determination required
to be made with respect to whether an Indemnified Party's conduct complies
with the standards set forth under the MBCL and the Company's Bylaws shall be
made by independent legal counsel selected in good faith by the Surviving
Corporation. Parent further agreed in the Merger Agreement that from and after
consummation of the Offer it will cause the Company or the Surviving
Corporation to advance litigation costs reasonably incurred by any Indemnified
Party provided that such party undertakes to repay amounts so advanced if it
is ultimately determined that indemnification for such expenses is not
authorized under the Merger Agreement or otherwise.
Pursuant to the Merger Agreement, Parent agreed that from and after
consummation of the Offer it will cause the Company, and from and after the
Effective Time it will cause the Surviving Corporation, to maintain the
Company's existing directors' and officers' liability insurance ("D&O
Insurance") in full force and effect without reduction of coverage for a
period of three years after the Effective Time; provided that the Surviving
Corporation will not be required to pay an annual premium therefor in excess
of 200% of the last annual premium paid prior to the date of the Merger
Agreement (the "Current Premium"); and, provided, further, that if the
existing D&O Insurance expires, is terminated or cancelled during the 3-year
period, the Surviving Corporation will use reasonable efforts to obtain as
much D&O Insurance as can be obtained for the remainder of such period for a
premium on an annualized basis not in excess of 200% of the Current Premium.
The Company will maintain, through the Effective Time, the Company's existing
D&O Insurance in full force and effect without reduction of coverage.
The Merger Agreement also provides that if the Surviving Corporation or any
of its successors or assigns (i) consolidates with or merges into any other
person or entity and shall not be the continuing or surviving corporation or
entity of such consolidation or merger and the continuing or surviving entity
does not assume the indemnification obligations of the Surviving Corporation,
or (ii) transfers all or substantially all of its properties and assets to any
person or entity, then, and in each such case, proper provision will be made
so that the successors and assigns of the Surviving Corporation assume the
indemnification obligations of the Surviving Corporation.
30
<PAGE>
SUMMARY FINANCIAL OUTLOOK OF THE COMPANY
PROJECTED FINANCIAL INFORMATION
In connection with Parent's review of the Company and in the course of the
negotiations described in the section above entitled "The Merger--Background,"
the Company and its representatives provided Parent with certain business and
financial information which Parent and Purchaser believe is not publicly
available. Following is a summary of the material forecast and financial model
information:
SUMMARY FINANCIAL OUTLOOK (AS OF FEBRUARY 7, 1997)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FORECAST FINANCIAL MODEL
FISCAL YEAR FISCAL YEAR
ENDING JUNE 30, ENDING JUNE 30,
1997 1998
--------------- ---------------
<S> <C> <C>
INCOME STATEMENT DATA
Revenue
BBN Planet............................... $180.8 $345.1
BBN System & Technologies................ 186.3 215.0
Eliminations of interdivisional sales be-
tween business units.................... (2.7) (3.8)
------ ------
$364.4 $556.3
Loss from operations
Planet................................... $(48.5) $(22.2)
System & Technologies.................... 5.8 10.0
Unallocated corporate expenses, net...... (3.1) (4.1)
------ ------
$(45.8) $(16.3)
Interest expense, net...................... $ (0.2) $ (4.0)
------ ------
Net loss................................... $(46.0) $(20.3)
====== ======
Net loss per share......................... $(2.15) $(0.94)
====== ======
</TABLE>
According to the Company, the fiscal year 1998 financial model information
(i) reflects revenue from an Internet Services Agreement with AT&T Corp.
("AT&T"), but does not reflect the impact of certain material disagreements
between the Company and AT&T regarding the terms of such agreement and (ii)
assumes that the percentage of BBN Planet's revenue derived from the Company's
contract with America OnLine, Incorporated will be consistent with the
percentage of revenue derived from such contract reported for fiscal year
1997. The costs estimate was based on historical experience and the
achievement of certain operating efficiencies, as well as other estimates. The
model was prepared on a stand-alone basis and does not give effect to the
Offer or the Merger.
In reaching its decision to acquire the Company, Parent made certain
assumptions of its own with regard to revenues and operations of the Company's
businesses as a wholly owned subsidiary, which assumptions are not reflected
in the above financial information.
FURTHER, THE COMPANY HAS ADVISED PARENT AND PURCHASER THAT THE FOREGOING
FORECAST AND FINANCIAL MODEL INFORMATION (THE "PROJECTIONS") WERE NOT PREPARED
WITH A VIEW TO PUBLIC DISCLOSURE OR COMPLIANCE WITH THE PUBLISHED GUIDELINES
OF THE SEC OR THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS REGARDING PROJECTIONS. THE PROJECTIONS ARE
INCLUDED IN THIS INFORMATION STATEMENT ONLY BECAUSE THEY WERE PROVIDED TO
PARENT. NONE OF PARENT, PURCHASER, THE COMPANY OR ANY OF THEIR RESPECTIVE
ADVISORS OR ANY OTHER PARTY WHO RECEIVED SUCH INFORMATION ASSUMES ANY
RESPONSIBILITY FOR THE VALIDITY, REASONABLENESS, ACCURACY OR COMPLETENESS OF
THE PROJECTIONS. ALTHOUGH PRESENTED WITH NUMERICAL SPECIFICITY, THE
PROJECTIONS ARE BASED UPON A VARIETY OF ASSUMPTIONS RELATING TO THE BUSINESSES
OF
31
<PAGE>
THE COMPANY, INDUSTRY PERFORMANCE, GENERAL BUSINESS AND ECONOMIC CONDITIONS
AND OTHER MATTERS, ALL OF WHICH MAY NOT BE REALIZED AND ARE SUBJECT TO
SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE
CONTROL OF THE COMPANY. THERE CAN BE NO ASSURANCE THAT THE PROJECTIONS SET
FORTH ABOVE WILL BE REALIZED, AND ACTUAL RESULTS MAY VARY MATERIALLY FROM
THOSE SHOWN. THE PROJECTIONS HAVE NOT BEEN EXAMINED OR COMPILED BY THE
COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS. FOR THESE REASONS, AS WELL AS THE
BASES ON WHICH SUCH PROJECTIONS WERE COMPILED, THERE CAN BE NO ASSURANCE THAT
ACTUAL RESULTS WILL NOT DIFFER MATERIALLY FROM THOSE ESTIMATED. THE INCLUSION
OF SUCH PROJECTIONS HEREIN SHOULD NOT BE REGARDED AS AN INDICATION THAT
PARENT, PURCHASER, THE COMPANY, ANY OF THEIR RESPECTIVE ADVISORS OR ANY OTHER
PARTY WHO RECEIVED SUCH INFORMATION CONSIDERS IT AN ACCURATE PREDICTION OF
FUTURE EVENTS. PARENT DID AN INDEPENDENT ASSESSMENT OF THE COMPANY'S VALUE AND
DID NOT RELY TO ANY MATERIAL DEGREE UPON THE FOREGOING PROJECTIONS. NONE OF
THE COMPANY, PARENT, PURCHASER OR ANY OTHER PARTY INTENDS PUBLICLY TO UPDATE
OR OTHERWISE PUBLICLY REVISE THE PROJECTIONS SET FORTH ABOVE EVEN IF
EXPERIENCE OR FUTURE CHANGES MAKE IT CLEAR THAT SUCH PROJECTIONS WILL NOT BE
REALIZED.
THE PROJECTIONS SET FORTH ABOVE CONSTITUTE FORWARD-LOOKING INFORMATION. FOR
A DISCUSSION OF FACTORS REGARDING SUCH FORWARD-LOOKING INFORMATION, SEE
"CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION" BELOW.
Cautionary Statement Regarding Forward-Looking Information
For purposes of the Private Securities Litigation Reform Act of 1995, the
following important factors which could cause the Company's actual results to
differ materially from the foregoing projections are identified:
(a) the development and expansion of the market for Internet access
services and products and of the networks which comprise the Internet;
(b) the Company's ability to continue and expand its business
relationships, including relationships with existing major customers;
(c) the capacity, reliability, cost and security of the Company's network
infrastructure;
(d) the Company's ability to finance expansion of its network;
(e) the Company's ability to develop or acquire the rights to price
competitive products and services;
(f) competition from larger competitors with more resources;
(g) the Company's ability to attract and retain highly qualified
management, technical, marketing and sales personnel;
(h) the Company's ability to manage growth;
(i) the Company's ability to improve its operating margins; and
(j) effects of the Offer and Merger.
With respect to the factor described in clause (b) above, Parent and
Purchaser note that the Company and AT&T have initiated the dispute resolution
procedures provided in the Internet Services Agreement between the two
companies in order to resolve material disagreements regarding the terms of
such agreement.
Many of the foregoing factors have been discussed in more detail in the
Company's prior filings with the SEC. The foregoing review of factors pursuant
to the Private Litigation Securities Reform Act of 1995 should not be
construed as exhaustive.
32
<PAGE>
MARKET PRICES AND DIVIDEND MATTERS
The Shares are traded under the symbol "BBN" primarily on the NYSE and to a
lesser extent on the Boston, Cincinnati, Midwest, Pacific and Philadelphia
exchanges. The following table sets forth, for the fiscal quarters indicated,
the high and low sales prices per Share on the NYSE.
<TABLE>
<CAPTION>
HIGH LOW
--------- -------
<S> <C> <C>
Fiscal Year Ended June 30, 1995:
Quarter ended September 30, 1994.................... $18 3/4 $10
Quarter ended December 31, 1994..................... $20 7/8 $12 5/8
Quarter ended March 31, 1995........................ $22 1/4 $14 5/8
Quarter ended June 30, 1995......................... $30 $16 1/2
Fiscal Year Ended June 30, 1996:
Quarter ended September 30, 1995.................... $39 3/8 $27 1/4
Quarter ended December 31, 1995..................... $48 3/4 $28 1/4
Quarter ended March 31, 1996........................ $40 7/8 $24 1/8
Quarter ended June 30, 1996......................... $30 3/4 $20 1/4
Fiscal Year Ended June 30, 1997:
Quarter ended September 30, 1996.................... $22 3/4 $15 5/8
Quarter ended December 31, 1996..................... $24 3/4 $17
Quarter ended March 31, 1997........................ $27 5/8 $16 1/2
Quarter ended June 30, 1997......................... $29 3/8 $15 1/8
Fiscal Year Ended June 30, 1998:
Quarter ended September 30, 1997 (through July 24,
1997).............................................. $28 15/16 $28 3/4
</TABLE>
No cash dividends have been declared or paid on the Shares since June 30,
1992. The Merger Agreement prohibits the Company from declaring or paying any
dividends until the effectiveness of the Merger.
On April 7, 1997, approximately one month prior to the public announcement
of the execution of the Merger Agreement, the closing sale price per Share on
the NYSE was $17 5/8. On May 5, 1997, the last full trading day prior to the
announcement of the execution of the Merger Agreement, the closing sale price
per Share on the NYSE was $22 5/8. On May 9, 1997, the last full trading day
prior to the commencement of the Offer, the closing sale price per Share on
the NYSE was $28 5/8. On July 24, 1997, the closing sale price per Share on
the NYSE was $28 13/16. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET
QUOTATION FOR THE SHARES.
The purchase of the Shares pursuant to the Offer has reduced the number of
Shares that trade publicly and the number of holders of the Shares and could
adversely affect the liquidity and market value of the remaining Shares held
by the public.
While the Company expects that the Shares will continue to be listed and
traded on the NYSE until the consummation of the Merger, no assurances can be
given that the NYSE will not (i) determine at any time prior to the
consummation of the Merger that the Shares and/or the Company no longer
satisfy the NYSE's listing criteria and (ii) initiate delisting proceedings
against the Company. Were the Shares to be delisted from the NYSE, no
assurances can be given that an alternative trading market would develop for
the Shares. Any delisting of the Shares could adversely affect the liquidity
and market value of the remaining Shares held by the public.
Following the consummation of the Merger, the Shares will be delisted by the
NYSE and application will be made by the Company, pursuant to Section 12(g)(4)
of the Exchange Act, to terminate the registration of the Shares under the
Exchange Act. Such termination will substantially reduce the information
required to be furnished by the Company to the SEC and will render
inapplicable certain provisions of the Exchange Act, such as the short-swing
profit recovery provisions of Section 16(b). Additionally, following
termination of registration of the Shares under the Exchange Act, the Shares
will cease to be "margin securities" under the rules of the Board of Governors
of the Federal Reserve System.
33
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL
INFORMATION OF THE COMPANY
The following table sets forth certain summary consolidated financial
information with respect to the Company and its subsidiaries excerpted or
derived from the audited financial statements contained in the Company 10-K
and the unaudited financial information contained in the Company's Quarterly
Reports on Form 10-Q for the nine months ended March 31, 1996 and 1997. More
comprehensive financial information is included in such reports and other
documents filed by the Company with the SEC, and the following summary is
qualified in its entirety by reference to such documents (which may be
inspected and obtained as described above), including the financial statements
and related notes contained therein.
BBN CORPORATION
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, FISCAL YEAR ENDED JUNE 30,
---------------------- ----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Revenue................. $ 254,145 $ 165,607 $ 234,339 $ 175,603 $ 160,711 $ 197,655 $ 216,588
========== ========== ========== ========== ========== ========== ==========
Income (loss) from
operations(1).......... (33,574) (44,024) (56,382) (16,507) (9,748) (33,397) 4,035
Interest and other
income (expense),
net(2)................. 428 418 (120) 97,392 779 242 (2,611)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
continuing operations
before income taxes and
extraordinary item..... (33,146) (43,606) (56,502) 80,885 (8,969) (33,155) 1,424
Income tax provision
(benefit).............. -- (4,953) (6,600) 13,783 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
continuing operations
before extraordinary
item................... (33,146) (38,653) (49,902) 67,102 (8,969) (33,155) 1,424
Income (loss) from
discontinued operations
net of applicable
income taxes(3)........ 20,000 (7,029) (6,740) (2,258) 1,145 891 2,729
Extraordinary item(4)... -- -- -- -- -- -- 3,648
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ (13,146) $ (45,682) $ (56,642) $ 64,844 $ (7,824) $ (32,264) $ 7,801
========== ========== ========== ========== ========== ========== ==========
Per-share amounts:
Continuing operations... $ (1.54) $ (2.19) $ (2.80) $ 3.73 $ (0.55) $ (2.11) $ 0.09
Discontinued
operations(3).......... .93 (.40) (0.38) (0.12) 0.07 0.06 0.16
Extraordinary item(4)... -- -- -- -- -- -- 0.22
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ (.61) $ (2.59) $ (3.18) $ 3.61 $ (0.48) $ (2.05) $ 0.47
========== ========== ========== ========== ========== ========== ==========
Cash dividends declared
per share.............. 0 0 0 0 0 0 $ 0.06
Shares used in per-share
calculations........... 21,566,000 17,670,000 17,818,000 17,984,000 16,179,000 15,705,000 16,504,000
========== ========== ========== ========== ========== ========== ==========
FINANCIAL POSITION
(AT END OF PERIOD)
Cash, cash equivalents
and temporary
investments(5)......... $ 104,442 $ 70,961 $ 120,275 $ 107,608 $ 63,115 $ 54,552 $ 43,541
Working capital......... 85,099 83,275 120,111 116,003 65,308 66,829 88,132
Property, plant and
equipment, net......... 73,327 33,963 48,069 24,195 16,346 16,922 23,057
Total assets............ 272,107 177,836 249,337 203,964 122,712 128,036 147,799
Redeemable convertible
preferred stock of
subsidiary............. -- 8,000 8,000 -- -- -- --
Redeemable common
stock(6)............... 8,000 -- -- -- -- -- --
Capital lease
obligations............ 24,323 -- 12,733 -- -- -- --
Convertible debentures.. 73,170 73,170 73,170 73,510 73,510 73,775 73,912
Shareholders' equity.... 69,016 36,832 79,336 82,552 7,271 10,042 41,887
GENERAL INFORMATION AND
RATIOS
Additions to property,
plant and equipment.... $ 40,546 $ 17,289 $ 34,407 $ 14,133 $ 5,595 $ 6,703 10,701
Revenue per average
number of employees.... 165 128 132 112 110 120 112
Employees at end of
period................. 2,200 1,788 1,895 1,662 1,466 1,445 1,861
Shareholders of record
at end of period....... 2,183 2,027 2,234 2,080 2,225 2,709 3,108
Current ratio........... 1.8 2.4 2.5 3.6 2.6 2.5 3.8
Debt to equity ratio.... 1.4 2.0 1.1 0.9 10.1 7.3 1.8
</TABLE>
34
<PAGE>
- --------
(1) The nine months ended March 31, 1996 and fiscal year 1996 include a charge
of $20.7 million or $1.16 per Share related primarily to the write-off of
goodwill and related costs in association with the Company's
reorganization effective April 1, 1996. Fiscal year 1993 includes a
restructuring charge of $20.5 million, or $1.30 per Share, associated with
employee severance and related facilities costs.
(2) Interest and other income (expense), net for the year ended June 30, 1995
includes the gain on the sale of assets of LightStream Corporation,
amounting to approximately $105.0 million before minority interest of
$11.8 million and provision for income taxes of $13.5 million and amounts
arising from contracts which were substantially completed in prior years.
(3) In July 1996 the Company completed the divestiture of a majority interest
in BBN Domain Corporation.
(4) Results for fiscal year 1992 included an extraordinary gain of $3.6
million, or $.22 per Share, from the purchase and early retirement of $9.8
million of the Subordinated Notes.
(5) Includes restricted cash of $4.7 million and $12.1 million at June 30,
1996 and June 30, 1995, respectively.
(6) On August 6, 1996 the redeemable convertible preferred stock of a
subsidiary of the Company was exchanged for 400,000 Shares.
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Coopers & Lybrand L.L.P., the Company's independent
certified public accountants for the fiscal years ended June 30, 1996 and June
30, 1997, are not expected to be present at the Meeting, and, therefore, will
not have the opportunity to make a statement or be available to answer
questions.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions of documents filed with the SEC by the
Company (File No. 1-6435) pursuant to the Exchange Act are incorporated by
reference in this Information Statement and are deemed to be a part hereof:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1996;
(2) The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996;
(3) The Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996;
(4) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997; and
(5) The Company's Current Reports on Form 8-K dated November 14, 1996,
May 8, 1997 (and amended pursuant to the Form 8-K/A filed on May 9, 1997)
and June 19, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Information Statement
and prior to the date of the Meeting shall be deemed to be incorporated by
reference into this Information Statement. Any statement contained in a
documents incorporated by reference shall be deemed to be modified or
superseded for all purposes to the extent that a statement contained in this
Information Statement modified or replaces such statement.
The Company undertakes to provide by first class mail, without charge, to
any person to whom a copy of this Information Statement has been delivered, on
the written or oral request of such person, a copy of any or all of the
documents referred to above which have been incorporated in this Information
Statement by reference, other than exhibits to such documents (unless such
exhibits are specifically incorporated by reference therein). Requests for
such copies should be directed to Investor Relations, BBN Corporation, 150
CambridgePark Drive, Cambridge, Massachusetts 02140, telephone number (617)
873-2000. In order to ensure delivery prior to the Meeting, requests should be
received by the Company by August 1, 1997.
35
<PAGE>
EXHIBIT A
MASSACHUSETTS APPRAISAL RIGHTS PROVISIONS
(S)85 DISSENTING STOCKHOLDER; RIGHT TO DEMAND PAYMENT FOR STOCK; EXCEPTION--
A stockholder in any corporation organized under the laws of Massachusetts
which shall have duly voted to consolidate or merge with another corporation
or corporations under the provisions of sections seventy-eight or seventy-nine
who objects to such consolidation or merger may demand payment for his stock
from the resulting or surviving corporation and an appraisal in accordance
with the provisions of sections eighty-six to ninety-eight, inclusive, and
such stockholder and the resulting or surviving corporation shall have the
rights and duties and follow the procedure set forth in those sections. This
section shall not apply to the holders of any shares of stock of a constituent
corporation surviving a merger if, as permitted by subsection (c) of section
seventy-eight, the merger did not require for its approval a vote of the
stockholders of the surviving corporation.
(S)86 SECTIONS APPLICABLE TO APPRAISAL; PREREQUISITES--If a corporation
proposes to take a corporate action as to which any section of this chapter
provides that a stockholder who objects to such action shall have the right to
demand payment for his shares and an appraisal thereof, sections eighty-seven
to ninety-eight, inclusive, shall apply except as otherwise specifically
provided in any section of this chapter. Except as provided in sections
eighty-two and eighty-three, no stockholder shall have such right unless (1)
he files with the corporation before the taking of the vote of the
shareholders on such corporate action, written objection to the proposed
action stating that he intends to demand payment for his shares if the action
is taken and (2) his shares are not voted in favor of the proposed action.
(S)87 STATEMENT OF RIGHTS OF OBJECTING STOCKHOLDERS IN NOTICE OF MEETING;
FORM--The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to
create any rights in any stockholder receiving the same to demand payment for
his stock, and the directors may authorize the inclusion in any such notice of
a statement of opinion by the management as to the existence or non-existence
of the right of the stockholders to demand payment for their stock on account
of the proposed corporate action. The notice may be in such form as the
directors or officers calling the meeting deem advisable, but the following
form of notice shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting
and effected by the corporation, any stockholder (1) who files with the
corporation before the taking of the vote on the approval of such action,
written objection to the proposed action stating that he intends to demand
payment for his shares if the action is taken and (2) whose shares are not
voted in favor of such action has or may have the right to demand in
writing from the corporation (or, in the case of a consolidation or merger,
the name of the resulting or surviving corporation shall be inserted),
within twenty days after the date of mailing to him of notice in writing
that the corporate action has become effective, payment for his shares and
an appraisal of the value thereof. Such corporation and any such
stockholder shall in such cases have the rights and duties and shall follow
the procedure set forth in sections 88 to 98, inclusive, of chapter 156B of
the General Laws of Massachusetts."
(S)88 NOTICE OF EFFECTIVENESS OF ACTION OBJECTED TO--The corporation taking
such action, or in the case of a merger or consolidation the surviving or
resulting corporation, shall, within ten days after the date on which such
corporate action became effective, notify each stockholder who filed a written
objection meeting the requirements of section eighty-six and whose shares were
not voted in favor of the approval of such action, that the action approved at
the meeting of the corporation of which he is a stockholder has become
effective. The giving of such notice shall not be deemed to create any rights
in any stockholder receiving the same to demand payment for his stock. The
notice shall be sent by registered or certified mail, addressed to the
stockholder at his last known address as it appears in the records of the
corporation.
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(S)89 DEMAND FOR PAYMENT; TIME FOR PAYMENT--If within twenty days after the
date of mailing of a notice under subsection (e) of section eighty-two,
subsection (f) of section eighty-three, or section eighty-eight, any
stockholder to whom the corporation was required to give such notice shall
demand in writing from the corporation taking such action, or in the case of a
consolidation or merger from the resulting or surviving corporation, payment
for his stock, the corporation upon which such demand is made shall pay to him
the fair value of his stock within thirty days after the expiration of the
period during which such demand may be made.
(S)90 DEMAND FOR DETERMINATION OF VALUE; BILL IN EQUITY; VENUE--If during
the period of thirty days provided for in section eighty-nine the corporation
upon which such demand is made and any such objecting stockholder fail to
agree as to the value of such stock, such corporation or any such stockholder
may within four months after the expiration of such thirty-day period demand a
determination of the value of the stock of all such objecting stockholders by
a bill in equity filed in the superior court in the county where the
corporation in which such objecting stockholder held stock had or has its
principal office in the commonwealth.
(S)91 PARTIES TO SUIT TO DETERMINE VALUE; SERVICE--If the bill is filed by
the corporation, it shall name as parties respondent all stockholders who have
demanded payment for their shares and with whom the corporation has not
reached agreement as to the value thereof. If the bill is filed by a
stockholder, he shall bring the bill in his own behalf and in behalf of all
other stockholders who have demanded payment for their shares and with whom
the corporation has not reached agreement as to the value thereof, and service
of the bill shall be made upon the corporation by subpoena with a copy of the
bill annexed. The corporation shall file with its answer a duly verified list
of all such other stockholders, and such stockholders shall thereupon be
deemed to have been added as parties to the bill. The corporation shall give
notice in such form and returnable on such date as the court shall order to
each stockholder party to the bill by registered or certified mail, addressed
to the last known address of such stockholder as shown in the records of the
corporation, and the court may order such additional notice by publication or
otherwise as it deems advisable. Each stockholder who makes demand as provided
in section eighty-nine shall be deemed to have consented to the provisions of
this section relating to notice, and the giving of notice by the corporation
to any such stockholder in compliance with the order of the court shall be a
sufficient service of process on him. Failure to give notice to any
stockholder making demand shall not invalidate the proceedings as to other
stockholders to whom notice was properly given, and the court may at any time
before the entry of a final decree make supplementary orders of notice.
(S)92 DECREE DETERMINING VALUE AND ORDERING PAYMENT; VALUATION DATE--After
hearing the court shall enter a decree determining the fair value of the stock
of those stockholders who have become entitled to the valuation of and payment
for their shares, and shall order the corporation to make payment of such
value, together with interest, if any, as hereinafter provided, to the
stockholders entitled thereto upon the transfer by them to the corporation of
the certificates representing such stock if certificated or if uncertificated,
upon receipt of an instruction transferring such stock to the corporation. For
this purpose, the value of the shares shall be determined as of the day
preceding the date of the vote approving the proposed corporate action and
shall be exclusive of any element of value arising from the expectation or
accomplishment of the proposed corporate action.
(S)93 REFERENCE TO SPECIAL MASTER--The court in its discretion may refer the
bill or any question arising thereunder to a special master to hear the
parties, make findings and report the same to the court, all in accordance
with the usual practice in suits in equity in the superior court.
(S)94 NOTATION ON STOCK CERTIFICATES OF PENDENCY OF BILL--On motion the
court may order stockholder parties to the bill to submit their certificates
of stock to the corporation for the notation thereon of the pendency of the
bill and may order the corporation to note such pendency in its records with
respect to any uncertificated shares held by such stockholder parties, and may
on motion dismiss the bill as to any stockholder who fails to comply with such
order.
(S)95 COSTS; INTEREST--The costs of the bill, including the reasonable
compensation and expenses of any master appointed by the court, but exclusive
of fees of counsel or of experts retained by any party, shall be
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<PAGE>
determined by the court and taxed upon the parties to the bill, or any of
them, in such manner as appears to be equitable, except that all costs of
giving notice to stockholders as provided in this chapter shall be paid by the
corporation. Interest shall be paid upon any award from the date of the vote
approving the proposed corporate action, and the court may on application of
any interested party determine the amount of interest to be paid in the case
of any stockholder.
(S)96 DIVIDENDS AND VOTING RIGHTS AFTER DEMAND FOR PAYMENT--Any stockholder
who has demanded payment for his stock as provided in this chapter shall not
thereafter be entitled to notice of any meeting of stockholders or to vote
such stock for any purpose and shall not be entitled to the payment of
dividends or other distribution on the stock (except dividends or other
distributions payable to stockholders of record at a date which is prior to
the date of the vote approving the proposed corporate action) unless:
(1) A bill shall not be filed within the time provided in section ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the corporation,
or in the case of a consolidation or merger, the resulting or surviving
corporation, deliver to it a written withdrawal of his objections to and an
acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
(S)97 STATUS OF SHARES PAID FOR--The shares of the corporation paid for by
the corporation pursuant to the provisions of this chapter shall have the
status of treasury stock, or in the case of a consolidation or merger the
shares or the securities of the resulting or surviving corporation into which
the shares of such objecting stockholder would have been converted had he not
objected to such consolidation or merger shall have the status of treasury
stock or securities.
(S)98 EXCLUSIVE REMEDY; EXCEPTION--The enforcement by a stockholder of his
right to receive payment for his shares in the manner provided in this chapter
shall be an exclusive remedy except that this chapter shall not exclude the
right of such stockholder to bring or maintain an appropriate proceeding to
obtain relief on the ground that such corporate action will be or is illegal
or fraudulent as to him.
A-3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE 1.
<C> <S> <C>
THE OFFER.............................................................. B-5
Section 1.1 The Offer.............................................. B-5
Section 1.2 Company Actions........................................ B-6
Section 1.3 Stockholder Lists...................................... B-6
Section 1.4 Composition of the Board of Directors; Section 14(f)... B-7
Section 1.5 Action by Continuing Directors......................... B-7
ARTICLE 2.
THE MERGER............................................................. B-7
Section 2.1 The Merger............................................. B-7
Section 2.2 Effective Time......................................... B-7
Section 2.3 Effects of the Merger.................................. B-8
Section 2.4 Articles of Organization and By-Laws................... B-8
Section 2.5 Directors.............................................. B-8
Section 2.6 Officers............................................... B-8
Section 2.7 Conversion of Shares................................... B-8
Section 2.8 Conversion of Purchaser's Common Stock................. B-8
Section 2.9 Stock Options.......................................... B-8
Restricted Stock Conversion and Directors Defined
Section 2.10 Compensation........................................... B-10
Section 2.11 Employee Stock Purchase Plan........................... B-11
Section 2.12 Stockholders' Meeting.................................. B-11
Section 2.13 Closing................................................ B-11
ARTICLE 3.
DISSENTING SHARES; EXCHANGE OF SHARES.................................. B-11
Section 3.1 Dissenting Shares...................................... B-11
Section 3.2 Exchange of Shares..................................... B-12
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................... B-12
Section 4.1 Organization........................................... B-12
Section 4.2 Capitalization......................................... B-13
Section 4.3 Authority.............................................. B-13
Section 4.4 No Default; Effect of Agreement........................ B-14
Section 4.5 Financial Statements; SEC Reports...................... B-14
Section 4.6 Absence of Certain Changes or Events................... B-14
Section 4.7 Compliance with Law; Litigation........................ B-15
Section 4.8 Environmental Matters.................................. B-15
Section 4.9 Governmental Authorizations and Regulations............ B-15
Section 4.10 Schedule 14D-9, Offer Documents and Schedule 14D-1..... B-15
Section 4.11 Brokers................................................ B-15
Section 4.12 Employee Agreements and Benefits....................... B-16
Section 4.13 Fairness Opinion....................................... B-17
Section 4.14 Material Agreements.................................... B-17
Section 4.15 Title to Properties; Encumbrances...................... B-17
Section 4.16 Intellectual Property.................................. B-18
Section 4.17 Tax Matters............................................ B-18
</TABLE>
B-2
<PAGE>
<TABLE>
<CAPTION>
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<C> <S> <C>
Section 4.18 Interested Party Transactions.......................... B-20
Section 4.19 Government Contracts................................... B-20
Section 4.20 Takeover Statutes...................................... B-20
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER................. B-21
Section 5.1 Organization........................................... B-21
Section 5.2 Authority.............................................. B-21
Section 5.3 Schedule 14D-1, Offer Documents and Schedule 14D-9..... B-21
Section 5.4 Effect of Agreement.................................... B-21
Section 5.5 Financing.............................................. B-21
Section 5.6 Brokers................................................ B-22
ARTICLE 6.
COVENANTS.............................................................. B-22
Section 6.1 No Solicitation........................................ B-22
Section 6.2 Appraisal Rights....................................... B-23
Section 6.3 Conduct of Business of the Company..................... B-23
Section 6.4 Access and Information................................. B-25
Section 6.5 Certain Filings, Consents and Arrangements............. B-25
Section 6.6 State Takeover Statutes................................ B-25
Section 6.7 Compliance with Antitrust Laws......................... B-25
Section 6.8 Press Releases......................................... B-26
Section 6.9 Indemnification; Insurance............................. B-26
Section 6.10 Notification of Certain Matters........................ B-26
Section 6.11 Fees and Expenses...................................... B-27
Section 6.12 Actions Regarding the Rights........................... B-27
Section 6.13 Shareholder Litigation................................. B-27
ARTICLE 7.
CONDITIONS TO THE MERGER............................................... B-27
Conditions to the Obligations of Parent, Purchaser and
Section 7.1 the Company............................................ B-27
Section 7.2 Conditions to the Obligations of Parent and Purchaser.. B-27
Section 7.3 Condition to the Company's Obligation.................. B-28
Section 7.4 Exception.............................................. B-28
ARTICLE 8.
MISCELLANEOUS.......................................................... B-28
Section 8.1 Termination............................................ B-28
Section 8.2 Effect of Termination.................................. B-30
Non-Survival of Representations, Warranties and
Section 8.3 Agreements............................................. B-30
Section 8.4 Waiver and Amendment................................... B-30
Section 8.5 Entire Agreement....................................... B-30
Section 8.6 Applicable Law......................................... B-31
Section 8.7 Headings............................................... B-31
Section 8.8 Notices................................................ B-31
Section 8.9 Counterparts........................................... B-31
Section 8.10 Parties in Interest; Assignment........................ B-32
Section 8.11 Specific Performance................................... B-32
</TABLE>
B-3
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<TABLE>
<CAPTION>
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<C> <S> <C>
Section 8.12 Certain Undertakings of Parent........................... B-32
Section 8.13 Interpretation........................................... B-32
Section 8.14 Severability............................................. B-32
</TABLE>
B-4
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May 5, 1997 (this "AGREEMENT"),
among GTE CORPORATION, a New York corporation ("PARENT"), GTE MASSACHUSETTS
INCORPORATED, a Massachusetts corporation and a wholly owned subsidiary of
Parent ("Purchaser"), and BBN CORPORATION, a Massachusetts corporation (the
"COMPANY").
RECITALS
WHEREAS, the Boards of Directors of the Company, Parent and Purchaser deem
it advisable and in the best interests of their respective stockholders that
Parent acquire the Company pursuant to the terms and conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, and intending to be
legally bound hereby, Parent, Purchaser and the Company hereby agree as
follows:
ARTICLE 1.
THE OFFER
SECTION 1.1 The Offer.
(a) Subject to this Agreement not having been terminated in accordance with
the provisions of Section 8.1 hereof, Purchaser shall, and Parent shall cause
Purchaser to, as promptly as practicable, but in no event later than five
business days from the date of the public announcement of the terms of this
Agreement or the Offer, commence an offer to purchase for cash (as it may be
amended in accordance with the terms of this Agreement, the "OFFER") all
shares of common stock, $1.00 par value, of the Company (including the common
stock purchase rights referred to in Section 6.12 hereof (collectively, the
"SHARES")) outstanding immediately prior to the consummation of the Offer,
subject to the conditions set forth in Exhibit A hereto (the "CONDITIONS"), at
a price of $29.00 per Share, net to the seller in cash. Subject to this
Agreement not having been terminated in accordance with the provisions of
Section 8.1 hereof and to the Conditions, Purchaser shall, and Parent shall
cause Purchaser to, accept for payment and pay for all Shares validly tendered
pursuant to the Offer, and not withdrawn prior to the expiration date of the
Offer, as promptly as practicable following the expiration date of the Offer.
If all of the Conditions are not satisfied on the initial expiration date of
the Offer, and the Agreement has not been terminated in accordance with the
provisions of Section 8.1, Parent shall, and shall cause Purchaser to, extend
(and re-extend) the Offer to provide time to satisfy such Conditions provided
that Purchaser or Parent may but in no event shall be obligated to extend the
period of time the Offer is open beyond August 15, 1997 or, if Purchaser has
elected, in its judgment, to extend the Offer beyond August 15, 1997 pursuant
to the last sentence of this Section 1.1(a), November 15, 1997 (such
applicable date being known as the "Final Termination Date"). Purchaser
expressly reserves the right to amend the terms and conditions of the Offer;
provided, that without the consent of the Company, no amendment may be made
which (i) decreases the price per Share or changes the form of consideration
payable in the Offer, (ii) decreases the number of Shares sought, or (iii)
imposes additional conditions to the Offer or amends any other term of the
Offer in any manner adverse to the holders of Shares (it being understood that
extensions of the Offer as contemplated by this Section 1.1(a) are not adverse
to the holders of Shares). Notwithstanding the foregoing, Purchaser shall, in
its judgment, have right to extend and re-extend the Offer, from time to time,
but in no event beyond November 15, 1997, if it believes that such extension
is advisable in order to facilitate the orderly transition of the business of
the Company and preserve and maintain the Company's business relationships.
(b) The Company will not, nor will it permit any of its Subsidiaries (as
defined below) to, tender into the Offer any Shares beneficially owned by it.
For purposes of this Agreement, "SUBSIDIARY" means, as to any Person (as
defined below), any corporation, limited liability company, partnership or
joint venture, whether now
B-5
<PAGE>
existing or hereafter organized or acquired: (i) in the case of a corporation,
of which at least a majority of the outstanding shares of stock having by the
terms thereof ordinary voting power to elect a majority of the board of
directors of such corporation (other than stock having such voting power
solely by reason of the happening of any contingency) is at the time directly
or indirectly owned or controlled by such Person and/or one or more of its
Subsidiaries or (ii) in the case of a limited liability company, partnership
or joint venture, in which such Person or a Subsidiary of such Person is a
managing member, general partner or joint venturer or of which a majority of
the partnership or other ownership interests are at the time owned by such
Person and/or one or more of its Subsidiaries. For purposes of this Agreement,
"PERSON" means any individual, corporation, company, voluntary association,
limited liability company, partnership, joint venture, trust, unincorporated
organization or other entity.
(c) On the date of the commencement of the Offer, Purchaser shall file with
the Securities and Exchange Commission (the "SEC") a Tender Offer Statement on
Schedule 14D-1 with respect to the Offer which will contain an offer to
purchase and form of the related letter of transmittal (together with any
supplements or amendments thereto, the "OFFER DOCUMENTS"). The Company and its
counsel shall be given a reasonable opportunity to review and comment on the
Offer Documents prior to the filing of such Offer Documents with the SEC.
Purchaser agrees to provide the Company and its counsel copies of any written
comments Purchaser and its counsel may receive from the SEC or its staff with
respect to the Offer Documents and a summary of any such comments received
orally promptly after the receipt thereof.
SECTION 1.2 Company Actions. The Company hereby consents to the Offer and
represents that its Board of Directors (the "BOARD" or "BOARD OF DIRECTORS")
(at a meeting duly called and held) has unanimously (i) approved the Offer and
the Merger (as defined in Section 2.1 hereof), as provided in Section 78 of
the Business Corporation Law of the Commonwealth of Massachusetts, as amended
(the "MASSACHUSETTS BCL"), (ii) determined that the Offer and the Merger are
fair to and in the best interests of the stockholders of the Company and (iii)
resolved to recommend acceptance of the Offer and approval and adoption of
this Agreement and the Merger by the stockholders of the Company. The Company
further represents that Alex. Brown & Sons Incorporated (the "FINANCIAL
ADVISOR") has delivered to the Board its opinion to the effect that, as of the
date of this Agreement, the cash consideration to be received by the holders
of Shares (other than Parent and its affiliates) in the Offer and the Merger
is fair to such holders from a financial point of view. Subject to its
fiduciary duties under applicable Laws (as defined in Section 2.4) as advised
as to legal matters by outside counsel, the Company hereby agrees to file a
Solicitation/Recommendation Statement on Schedule 14D-9 (the "SCHEDULE 14D-9")
containing the recommendation referred to in clause (iii) above with the SEC
(and the information required by Section 14(f) of the Securities Exchange Act
of 1934, as amended (together with all rules and regulations thereunder, the
"EXCHANGE ACT"), so long as Parent shall have furnished such information to
the Company in a timely manner) and to mail such Schedule 14D-9 to the
stockholders of the Company. The Company will use its best efforts to cause
the Schedule 14D-9 to be filed on the same date as Purchaser's Schedule 14D-1
is filed and mailed together with the Offer Documents; provided, that in any
event the Schedule 14D-9 shall be filed and mailed no later than 10 business
days following the commencement of the Offer. Purchaser and its counsel shall
be given a reasonable opportunity to review and comment on the Schedule 14D-9
prior to the Company's filing of the Schedule 14D-9 with the SEC. The Company
agrees to provide Parent and its counsel copies of any written comments the
Company or its counsel may receive from the SEC or its staff with respect to
the Schedule 14D-9 and a summary of any such comments received orally promptly
after the receipt thereof. Parent, Purchaser and the Company each agree
promptly to correct any information provided by it for use in the Schedule
14D-9 if and to the extent that any such information shall have become false
or misleading in any material respect and the Company further agrees to take
all steps necessary to cause the Schedule 14D-9 as so corrected to be filed
with the SEC and to be disseminated to the stockholders of the Company, in
each case as and to the extent required by applicable securities laws.
SECTION 1.3 Stockholder Lists. In connection with the Offer, at the request
of Parent or Purchaser, from time to time after the date hereof, the Company
will promptly furnish Purchaser with mailing labels, security position
listings and any available listing or computer file maintained for or by the
Company containing the
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names and addresses of the record holders of the Shares as of a recent date
and shall furnish Purchaser with such additional information reasonably
available to the Company and assistance as Purchaser or its agents may
reasonably request in communicating the Offer to the record and beneficial
holders of Shares. Subject to the requirements of applicable Law, and except
for such steps as are necessary to disseminate the Offer Documents and any
other documents necessary to consummate the Merger, Parent, Purchaser and its
affiliates and associates 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 Merger, and, if this Agreement shall be
terminated, will deliver to the Company all copies of such information in
their possession.
SECTION 1.4 Composition of the Board of Directors; Section 14(f). In the
event that Purchaser acquires at least a majority of the Shares outstanding
pursuant to the Offer, Parent shall be entitled to designate for appointment
or election to the Board, upon written notice to the Company, such number of
persons so that the designees of Parent constitute the same percentage (but in
no event less than a majority) of the Board (rounded up to the next whole
number) as the percentage of Shares acquired pursuant to the Offer. Effective
upon such purchase of at least a majority of the Shares pursuant to the Offer
(sometimes referred to herein as the "consummation" of the Offer), the Company
will increase the size of the Board or obtain the resignation of such number
of directors as is necessary to enable such number of Parent designees to be
so elected. In connection therewith, the Company will mail to the stockholders
of the Company the information required by Section 14(f) of the Exchange Act
and Rule 14f-1 thereunder unless such information has previously been provided
to such stockholders in the Schedule 14D-9. Parent and Purchaser shall provide
to the Company in writing, and will be solely responsible for, any information
with respect to such companies and their nominees, officers, directors and
affiliates required by Section 14(f) of the Exchange Act and Rule 14f-1
thereunder. Notwithstanding the provisions of this Section 1.4, the parties
hereto shall use their respective reasonable best efforts to ensure that at
least two of the members of the Board shall, at all times prior to the
Effective Time (as defined in Section 2.2 hereof) be, Continuing Directors (as
defined below). For purposes hereof, the term "CONTINUING DIRECTOR" shall mean
(i) any member of the Board as of the date hereof, (ii) any member of the
Board who is unaffiliated with, and not a designee or nominee of Parent or
Purchaser, or (iii) any successor of a Continuing Director who is (A)
unaffiliated with, and not a designee or nominee, of Parent or Purchaser, and
(B) recommended to succeed a Continuing Director by a majority of the
Continuing Directors then on the Board, and in each case under clause (iii)
who is not an employee of the Company.
SECTION 1.5 Action by Continuing Directors. Following the election or
appointment of Purchaser's designees pursuant to Section 1.4 and prior to the
Effective Time (as defined below), any amendment of this Agreement or any
amendment to the Articles of Organization or By-Laws of the Company
inconsistent with this Agreement, any termination of this Agreement by the
Company, any extension by the Company of the time for the performance of any
of the obligations or other acts of Parent or Purchaser or any waiver of any
of the Company's rights hereunder will require the concurrence of a majority
of the Continuing Directors.
ARTICLE 2.
THE MERGER
SECTION 2.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the applicable provisions of the Massachusetts
BCL, Purchaser shall be merged (the "MERGER") with and into the Company as
soon as practicable following the satisfaction or waiver of the conditions set
forth in Article 7 hereof or, subject to Section 1.5, on such other date as
the parties hereto may agree. Following the Merger the Company shall continue
as the surviving corporation (the "SURVIVING CORPORATION") and the separate
corporate existence of Purchaser shall cease.
SECTION 2.2 Effective Time. The Merger shall become effective by filing with
the Secretary of State of Massachusetts of articles of merger in accordance
with the relevant provisions of the Massachusetts BCL in a form reasonably
acceptable to Parent and the Company (the "ARTICLES OF MERGER"). The time at
which the Merger becomes effective is referred to as the "EFFECTIVE TIME."
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SECTION 2.3 Effects of the Merger. The Company will continue to be governed
by the laws of the Commonwealth of Massachusetts, and the separate corporate
existence of the Company and all of its rights, privileges, powers and
franchises as well of a public as of a private nature, and being subject to
all of the restrictions, disabilities and duties as a corporation organized
under the Massachusetts BCL, will continue unaffected by the Merger. The
Merger will have the effects specified in the Massachusetts BCL. As of the
Effective Time the Company shall be a wholly-owned Subsidiary of Parent.
SECTION 2.4 Articles of Organization and By-Laws. The Articles of
Organization and By-laws of the Company as in effect at the Effective Time
(including such amendments to the Articles of Organization as are effected by
the Articles of Merger) shall be the Articles of Organization and By-laws of
the Surviving Corporation, until amended in accordance with applicable Law (as
defined below). For purposes of this Agreement, (i) "LAW" or "LAWS" means any
valid constitutional provision, statute, ordinance or other law (including
common law), rule, regulation, decree, injunction, judgment, order, ruling,
assessment or writ of any Governmental Entity (as defined below), as any of
these may be in effect from time to time, and (ii) "GOVERNMENTAL ENTITY" means
any government or any agency, bureau, board, commission, court, department,
official, political subdivision, tribunal or other instrumentality of any
government, whether federal, state or local, domestic or foreign.
SECTION 2.5 Directors. The directors of Purchaser at the Effective Time
shall be the initial directors of the Surviving Corporation and will hold
office from the Effective Time until their respective successors are duly
elected or appointed and qualify in the manner provided in the Articles of
Organization and By-laws of the Surviving Corporation, or as otherwise
provided by Law.
SECTION 2.6 Officers. The officers of the Company at the Effective Time
shall be the initial officers of the Surviving Corporation and will hold
office from the Effective Time until their respective successors are duly
elected or appointed and qualify in the manner provided in the Articles of
Organization and By-laws of the Surviving Corporation, or as otherwise
provided by Law.
SECTION 2.7 Conversion of Shares.
(a) At the Effective Time, each Share issued and outstanding immediately
prior to the Effective Time (other than Shares held in the treasury of the
Company or held by any wholly-owned Subsidiary, and other than Dissenting
Shares (as defined in Section 3.1 hereof)) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive $29.00 in cash, or any higher price paid per Share in the
Offer (the "MERGER PRICE"), payable to the holder thereof, without interest
thereon, upon the surrender of the certificate formerly representing such
Share.
(b) At the Effective Time, each Share held in the treasury of the Company or
held by any wholly owned Subsidiary of the Company and each Share held by
Parent or any wholly-owned Subsidiary of Parent immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, be canceled and retired and cease to exist.
SECTION 2.8 Conversion of Purchaser's Common Stock. Each share of common
stock, $0.01 par value, of Purchaser issued and outstanding immediately prior
to the Effective Time shall, by virtue of the Merger and without any action on
the part of the holder thereof, be converted into and exchangeable for one
share of common stock of the Surviving Corporation.
SECTION 2.9 Stock Options. The Company shall not grant to any non-employees,
including non-employee members of the Board of Directors ("Directors"), and
former employees (collectively "NON-EMPLOYEES"), or to any current employees
any options to purchase Shares, stock appreciation rights, restricted stock,
restricted stock units or any other real or phantom stock or stock equivalents
on or after the date of this Agreement except as set forth in Attachment A to
Schedule 4.2(a). Options to acquire Shares which are outstanding as of the
date of this Agreement and which were granted to employees or Non-Employees
under any stock option plan, program or similar arrangement of the Company or
any Subsidiaries ("Options"), other than Options described in Sections 2.10
and 2.11, shall be treated as follows:
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(i) Each current employee as of the date of this Agreement whose annual
base salary as of the date of this Agreement is $80,000 or more ("Key
Employee") and who is holding Options which have an exercise price
("Exercise Price") less than the Closing Price (as defined below) ("In the
Money Options") and which are vested as of the Closing Date shall be given
the opportunity by the Company to make an irrevocable election on a grant
by grant basis to be effective immediately following the Closing Date to
receive in exchange for cancellation of each such vested In the Money
Option either (A) a credit to an individual deferred compensation book
account equal to the excess of the Closing Price of a Share over the
Exercise Price of such In the Money Option times the number of Shares
subject to such In the Money Option, such deferred compensation book
account to have the terms described below, or (B) an option to purchase a
number of shares of Parent common stock (a "Parent Option") equal to 150%
of the number of Shares subject to the Key Employee's In the Money Option;
provided that (x) the Parent Option received in the exchange shall be fully
vested and have the same expiration date as the vested In the Money Option
exchanged therefor, (y) the Exercise Price of the Parent Option shall equal
the Fair Market Value (as defined below), and (z) the Parent Option shall
be governed by the provisions of the GTE Corporation 1997 Long-Term
Incentive Plan ("LTIP") and by applicable LTIP award agreements. For
purposes of this Section 2.9(i), the deferred compensation book account
shall be denominated in Parent phantom stock units, and dividend equivalent
payments shall be credited to such deferred compensation book account at
such time and in such manner as dividends are paid on Parent common stock.
Before the third anniversary of the day of the Closing Date, no
distribution may be made in respect of the deferred compensation book
account to a Key Employee who is employed by Parent or an affiliate of
Parent. The dividend equivalent payments on the deferred compensation book
account shall be subject to forfeiture in the event the Key Employee is not
employed by Parent or an affiliate of Parent on any date that precedes the
third anniversary of the day of the Closing Date. Parent shall determine
administrative procedures and provisions with regard to the deferred
compensation book account. In the event a Key Employee does not make an
irrevocable election described in this Section 2.9(i) before the Closing
Date, the Key Employee shall be deemed to have irrevocably elected the
deferred compensation book account credit as described in clause (A) above
and all In the Money Options shall be canceled. For purposes of this
Section 2.9, Section 2.10, and Section 2.11, (i) "Closing Price" shall mean
the purchase price per share of the Shares as set forth in Section 1.1(a),
(ii) "Fair Market Value" shall mean the average of the high and low sales
price of the Parent common stock on the composite tape of the New York
Stock Exchange issues as of the Closing Date, or, in the event that no
trading occurs on such day, then the applicable value shall be determined
on the last preceding day on which trading took place and (iii) "Closing
Date" shall mean the day of the consummation of the Offer.
(ii) Each current employee whose annual base salary as of the date of
this Agreement is less than $80,000 ("Employee") who is holding In the
Money Options which are vested as of the Closing Date shall be given the
opportunity by the Company to make an irrevocable election on a grant by
grant basis to be effective immediately following the Closing Date to
receive in exchange for cancellation of each such vested In the Money
Option either (A) a cash payment equal, for each such In the Money Option,
to the excess of the Closing Price of a Share over the Exercise Price of
such In the Money Option times the number of Shares subject to such In the
Money Option, or (B) a Parent Option to purchase a number of shares of
Parent common stock equal to 150% of the number of Shares subject to the
Employee's In the Money Option; provided that (x) the Parent Option
received in the exchange shall be fully vested and have the same expiration
date as the vested In the Money Option exchanged therefor, (y) the Exercise
Price of the Parent Option shall equal the Fair Market Value, and (z) the
Parent Option shall be governed by the provisions of the LTIP and by
applicable LTIP award agreements. In the event an Employee does not make an
irrevocable election described in this Section 2.9(ii) before the Closing
Date, the Employee shall be deemed to have irrevocably elected the cash
payment described in clause (A) above, and all In the Money Options shall
be canceled.
(iii) Options of Key Employees or Employees which have an Exercise Price
equal to or in excess of the Closing Price ("Under-Water Options"),
regardless of whether such Under-Water Options are vested as of the Closing
Date, shall immediately following the Closing Date, be canceled and
exchanged for Parent Options to purchase a number of shares of Parent
common stock equal to 100% of the number of Shares
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subject to the Key Employee's or Employee's Under-Water Options; provided
that (x) the Parent Options received in the exchange shall have the same
vesting schedule and expiration date as the Under-Water Options exchanged
therefor, (y) the Exercise Price of the Parent Options shall equal the Fair
Market Value, and (z) the Parent Options shall be governed by the
provisions of the LTIP and by applicable LTIP award agreements.
Notwithstanding the foregoing, if, on or after the date of this Agreement,
a Key Employee exercises vested In the Money Options that, on the date of
this Agreement, represent 50% or more of the dollar value of the Key
Employee's vested In the Money Options, all of such Key Employee's Under-
Water Options shall be canceled immediately, the exchange provisions of
this Section 2.9(iii) shall not apply to such Key Employee, and such Key
Employee shall receive the sum of one dollar ($1.00) as good and valuable
consideration for all of such Key Employee's Under-Water Options. For
purposes of the immediately preceding sentence, the dollar value of a
vested In the Money Option shall be equal to the excess of the Closing
Price over the Exercise Price of such In the Money Option times the number
of Shares subject to the vested In the Money Option.
(iv) In the Money Options of individuals who are Non-Employees as of the
date of this Agreement, including Directors, which are vested as of the
Closing Date shall, immediately following the Closing Date, be canceled and
exchanged for a cash payment equal, for each vested In the Money Option, to
the excess of the Closing Price of a Share over the Exercise Price of such
In the Money Option times the number of Shares subject to such In the Money
Option. All other Options of Non-Employees, including Directors, shall be
canceled immediately as of the Closing Date and each such Non-Employee
shall receive the sum of one dollar ($1.00) as good and valuable
consideration for all such Options.
(v) With respect to In the Money Options of Key Employees, Employees, and
Non-Employees, including Directors, the Board of Directors or an
appropriate committee thereof, shall provide for the full and immediate
vesting of such In the Money Options as of the Closing Date. Except as
provided in the immediately preceding sentence on or after the date of this
Agreement, the Board of Directors shall not make any other changes to the
terms and conditions of any outstanding Options, stock appreciation rights,
restricted stock, restricted stock units or any other real or phantom stock
or stock equivalents.
SECTION 2.10 Restricted Stock Conversion and Directors Deferred
Compensation.
(a) Notwithstanding anything herein to the contrary other than Section
2.10(b) below, on the Closing Date, employees of the Company who hold Shares
subject to a risk of forfeiture within the meaning of Section 83(a) of the
Internal Revenue Code of 1986, as amended, (the "CODE"), or Options with an
exercise price of zero dollars ($0.00) ("Restricted Stock") shall receive in
exchange for such Restricted Stock a right to receive a number of Parent
phantom stock units pursuant to a phantom stock plan ("Phantom Stock Units")
determined by dividing (A) the product of (i) the number of shares of
Restricted Stock held by such employee on the Closing Date, and (ii) the
Closing Price, by (B) the Fair Market Value. Such Phantom Stock Units shall be
credited with dividend equivalent units at such time and in such manner as
dividends are normally paid on Parent common stock, and the Phantom Stock
Units and dividend equivalent units shall be subject to the same vesting
schedule as the Restricted Stock which was exchanged for the Phantom Stock
Units. Upon the Phantom Stock Units vesting, the employee shall receive
payment of the vested amounts in cash (less applicable withholding taxes).
Parent shall determine administrative procedures and provisions with regard to
Phantom Stock Units.
(b) Immediately following the Closing Date, Restricted Stock purchased by
two Key Employees and three Directors pursuant to the Company's 1996
Restricted Stock Plan shall no longer be subject to a risk of forfeiture
within the meaning of Section 83(a) of the Code and shall be tendered to
Purchaser in exchange for cash equal to the Closing Price times the number of
Shares so tendered.
(c) At the Closing Date, Company stock units in the deferred compensation
account of each Director who participates in the Company's Deferred
Compensation Plan for Directors (the "DCP") will be converted into a number of
Parent Phantom Stock Units determined by dividing (A) the product of (i) the
number of Company stock units credited to the Director's deferred compensation
account under the DCP as of the Closing Date, and (ii) the Closing Price, by
(B) the Fair Market Value. Such Phantom Stock Units shall be credited with
dividend
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equivalent units at such time and in such manner as dividends are paid on
Parent common stock. A cash payment equal to the Phantom Stock Units shall be
made to the Directors as soon as practicable after January 1, 1998. Parent
shall determine administrative procedures and provisions with regard to
Phantom Stock Units.
SECTION 2.11 Employee Stock Purchase Plan. Prior to the Closing Date, the
Board of Directors, or an appropriate committee thereof, shall cause written
notice of this Agreement to be given to persons holding "options" (as defined
in the Company's Employee Stock Purchase Plan ("ESPP")) to purchase Shares
("Purchase Rights") under the ESPP. Immediately following the Closing Date,
all Purchase Rights shall be accelerated as if the day of the Closing Date was
the last day of the "option period" (as defined in the ESPP), such Purchase
Rights shall be automatically canceled and terminated on such day and the
contributions to the ESPP during such option period shall be refunded to the
holder of the Purchase Right (the "Refund Amount"), and each holder of a
Purchase Right shall be entitled to receive as soon as practicable thereafter
from the Company in consideration for such cancellation an amount in cash
(less applicable withholding taxes, but without interest) equal to (a) the
product of (i) the number of Shares (and fractions thereof) subject to such
Purchase Right of such holder as of the Closing Date, multiplied by (ii) the
Closing Price, less (b) the Refund Amount of such holder. The foregoing is
subject to the right of an ESPP participant to terminate the participant's
payroll deduction authorization under the ESPP and to cancel the participant's
option and withdraw from the ESPP at any time prior to the day of the Closing
Date.
SECTION 2.12 Stockholders' Meeting. If required by applicable Law in order
to consummate the Merger, the Company, acting through the Board, shall, in
accordance with applicable Law, its Articles of Organization and its By-laws,
as soon as practicable:
(i) duly call, give notice of, convene and hold a special meeting of its
stockholders as soon as practicable following the consummation of the Offer
for the purpose of considering and taking action upon this Agreement (the
"STOCKHOLDERS' MEETING");
(ii) subject to its fiduciary duties under applicable Laws as advised as
to legal matters by counsel, include in the proxy statement or information
statement prepared by the Company for distribution to stockholders of the
Company in advance of the Stockholders' Meeting in accordance with
Regulation 14A or Regulation 14C promulgated under the Exchange Act (the
"PROXY STATEMENT") the recommendation of the Board referred to in Section
1.2 hereof; and
(iii) use its reasonable efforts to (A) obtain and furnish the
information required to be included by it in the Proxy Statement and, after
consultation with Parent, respond promptly to any comments made by the SEC
with respect to the Proxy Statement and any preliminary version thereof and
cause the Proxy Statement to be mailed to its stockholders following the
consummation of the Offer and (B) obtain the necessary approvals of this
Agreement and the Merger by its stockholders.
Parent will provide the Company with the information concerning Parent and
Purchaser required to be included in the Proxy Statement and will vote, or
cause to be voted, all Shares owned by it or its Subsidiaries in favor of
approval and adoption of this Agreement and the transactions contemplated
hereby.
SECTION 2.13 Closing. Prior to the filings referred to in Section 2.2, a
closing will be held at the offices of O'Melveny & Myers LLP, 153 East 53rd
Street, New York, New York (or such other place as the parties may agree), for
the purpose of confirming all of the foregoing. The closing will take place
one business day after the later of (i) the business day immediately following
the receipt of approval or adoption of this Agreement by the Company's
stockholders and (ii) the business day on which the last of the conditions set
forth in Article 7 is satisfied or duly waived, or at such other time as the
parties may agree.
ARTICLE 3.
DISSENTING SHARES; EXCHANGE OF SHARES
SECTION 3.1 Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, Shares which are issued and outstanding immediately prior to the
Effective Time and which are held by stockholders
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who have perfected any dissenters' rights provided under the Massachusetts
BCL, if applicable (the "DISSENTING SHARES"), shall not be converted into or
be exchangeable for the right to receive the consideration provided in Section
2.7(a) of this Agreement, unless and until such holder shall have failed to
perfect or shall have effectively withdrawn or lost such holder's right to
appraisal and payment under the Massachusetts BCL. If such holder shall have
so failed to perfect or shall have effectively withdrawn or lost such right,
such holder's Shares shall thereupon be deemed to have been converted into and
to have become exchangeable for, at the Effective Time, the right to receive
the consideration provided for in Section 2.7(a) of this Agreement, without
any interest thereon.
SECTION 3.2 Exchange of Shares.
(a) Prior to the Effective Time, Parent shall designate a bank or trust
company to act as exchange agent in the Merger (the "EXCHANGE AGENT").
Immediately prior to the Effective Time, Parent will take all steps necessary
to enable and cause the Company to deposit with the Exchange Agent the funds
necessary to make the payments contemplated by Section 2.7(a) on a timely
basis.
(b) Promptly after the Effective Time, the Exchange Agent shall mail to each
record holder, as of the Effective Time, of an outstanding certificate or
certificates which immediately prior to the Effective Time represented Shares
(the "CERTIFICATES") a form letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange
Agent) and instructions for use in effecting the surrender of the Certificates
for payment therefor, in each case customary for transactions such as the
Merger. Upon surrender to the Exchange Agent of a Certificate, together with
such letter of transmittal duly executed, and any other required documents,
the holder of such Certificate shall be entitled to receive in exchange
therefor the consideration set forth in Section 2.7(a) hereof, and such
Certificate shall forthwith be canceled. No interest will be paid or accrued
on the cash payable upon the surrender of the Certificates. If payment is to
be made to a Person other than the Person in whose name the Certificate
surrendered is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the Person requesting such payment shall pay any
transfer or other taxes required by reason of the payment to a Person other
than the registered holder of the Certificate surrendered or establish to the
satisfaction of the Surviving Corporation that such tax has been paid or is
not applicable. Until surrendered in accordance with the provisions of this
Section 3.2, each Certificate (other than Certificates representing Shares
held by Parent or any wholly owned Subsidiary of Parent, Shares held in the
treasury of the Company or held by any wholly owned Subsidiary of the Company
and Dissenting Shares) shall represent for all purposes only the right to
receive the consideration set forth in Section 2.7(a) hereof, without any
interest thereon.
(c) After the Effective Time there shall be no transfers on the stock
transfer books of the Surviving Corporation of Shares which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be
canceled and exchanged for the consideration provided in Section 2.7(a) hereof
in accordance with the procedures set forth in this Article 3.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as otherwise disclosed to Parent and Purchaser in a schedule
delivered to them at or prior to the execution hereof (the "DISCLOSURE
SCHEDULE") with respect to matters specifically set forth in this Article 4,
the Company represents and warrants to each of Parent and Purchaser as
follows:
SECTION 4.1 Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Massachusetts. Section 4.1 of the Disclosure Schedule lists all Subsidiaries
of the Company. Each Subsidiary of the Company is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization except where the failure to be so
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organized, existing and in good standing would not in the aggregate be
reasonably expected to have a Material Adverse Effect. The Company and its
Subsidiaries have all necessary corporate power and authority to own their
respective properties and assets and to carry on their respective businesses
as now conducted and are duly qualified or licensed to do business as foreign
corporations in good standing in all jurisdictions in which the character or
the location of the assets owned or leased by any of them or the nature of the
business conducted by any of them requires licensing or qualification except
where the failure to be so qualified would not in the aggregate be reasonably
expected to have a Material Adverse Effect. For purposes of this Agreement,
the term "Material Adverse Effect" shall mean any change, effect, matter or
circumstance that has or would reasonably be expected to have a material
adverse effect on the business, assets or properties (including intangible
assets or properties), liabilities, results of operations or financial
condition of the Company and its Subsidiaries taken as a whole, other than any
such changes, effects or circumstances (i) specifically referred to in the
Disclosure Schedule, (ii) generally affecting the United States economy or
(iii) resulting from both (x) the proposed acquisition of Company and (y) the
fact that the acquiror is Parent. Section 4.1 of the Disclosure Schedule lists
the current directors and executive officers of the Company. True, correct and
complete copies of the articles of organization and bylaws of the Company as
in effect on the date hereof have been delivered to Parent.
SECTION 4.2 Capitalization.
(a) On the date hereof, the authorized capital stock of the Company consists
solely of 100,000,000 Shares. As of the opening of business on the date
hereof, (i) 21,230,097 Shares were validly issued and outstanding, fully paid
and nonassessable and not subject to preemptive rights, (ii) 3,733,729 Shares
would be issuable upon exercise of outstanding Options (both vested and
unvested), (iii) 2,823,000 Shares would be issuable upon exercise of the
Company's 6% Convertible Subordinated Notes due 2012 (the "SUBORDINATED
NOTES"), and (iv) 4,225,000 Shares were reserved for issuance upon exercise of
the Termination Option as defined in Section 8.2. Except for the Stock
Options, Subordinated Notes, the Rights (as defined in Section 6.12 hereof)
and the Termination Option, and except as set forth in Section 4.2(a) of the
Disclosure Schedule, Shares issued pursuant thereto and as set forth above in
this Section 4.2(a), there are no shares of capital stock of the Company
issued or outstanding or any subscriptions, options, warrants, calls, rights,
convertible securities or other agreements or commitments of any character
obligating the Company to issue, transfer or sell any of its securities.
(b) Except as set forth in Section 4.2(b) of the Disclosure Schedule, the
Company or one of its Subsidiaries owns all of the outstanding shares of
capital stock of each Subsidiary of the Company. Section 4.2(b) of the
Disclosure Schedule sets forth each other Person whose equity securities are
held by the Company or any of its Subsidiaries (the "MINORITY OWNED ENTITIES")
and the percentage interest held by the Company or such Subsidiary. Except as
set forth in Section 4.2(b) of the Disclosure Schedule, there are not now, and
there will not be as a result of the transactions contemplated by this
Agreement (including the Offer and the Merger), any outstanding subscriptions,
options, warrants, calls, rights, convertible securities or other agreements
or commitments of any character relating to the issued or unissued capital
stock or other securities of any of the Company's Subsidiaries or otherwise
obligating the Company or any such Subsidiary to issue, transfer or sell any
such securities.
(c) Except as set forth in Section 4.2(c) of the Disclosure Schedule, there
are no voting trusts or shareholder agreements or agreements providing for the
issuance of capital stock to which the Company or any of its Subsidiaries is a
party with respect to the voting of the capital stock of the Company, any of
its Subsidiaries or any of the Minority Owned Entities.
SECTION 4.3 Authority. The Company has the requisite corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of the Company, subject only to
approval of the Merger, if necessary, by the stockholders of the Company as
provided in Section 2.12. This Agreement and the Merger have been unanimously
approved by the Board of Directors. This Agreement has been duly executed and
delivered by, and is a valid and binding obligation of, the Company
enforceable against the Company in accordance with its terms, except as (i)
such
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enforcement may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar Laws, now or hereafter in effect,
affecting creditors' rights generally, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject
to equitable defenses and to the discretion of the courts before which any
proceedings thereafter may be brought. The Board has unanimously determined
that the Offer and the Merger are fair and in the best interests of the
Company and its stockholders and has unanimously resolved to recommend
acceptance of the Offer and approval of the Merger by the Company's
stockholders.
SECTION 4.4 No Default; Effect of Agreement. Except as set forth in Section
4.4 of the Disclosure Schedule, the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby,
including the making and consummation of the Offer, will not constitute a
breach or violation of or default under, nor is the Company or any of its
Subsidiaries otherwise in breach or violation of or default under, (i) the
charter or the bylaws of the Company or such Subsidiary, as the case may be,
(ii) any applicable Laws, (iii) any Permit (as defined in Section 4.9 hereof)
issued by any Governmental Entity or otherwise, or (iv) any Material Contract,
other than, in the case of (i) through (iv) above, such breaches, violations
and defaults that would not in the aggregate have a Material Adverse Effect.
Except for compliance with the HSR Act (as defined below), the Exchange Act,
the securities laws of the various states, stockholder approval of the Merger,
and the filing of articles of merger pursuant to the Massachusetts BCL, the
consummation of the transactions contemplated hereby by the Company will not
require the consent or approval of or filing with any Governmental Entity or
other third party, other than consents and approvals the failure of which to
be obtained would not in the aggregate reasonably be expected to have a
Material Adverse Effect.
SECTION 4.5 Financial Statements; SEC Reports.
(a) Since June 30, 1993, the Company has filed with the SEC all Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K, proxy materials, registration statements and other materials required to
be filed by it pursuant to the federal securities laws and has made all other
filings with the SEC required to be made (collectively, the "SEC FILINGS").
Except as set forth in Section 4.5(a) of the Disclosure Schedule, the SEC
Filings did not (as of their respective filing dates, mailing dates or
effective dates, as the case may be) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(b) The audited and unaudited consolidated financial statements of the
Company included in the SEC Filings present fairly, in all material respects,
the financial position of the Company and its consolidated Subsidiaries as of
the respective dates thereof and the consolidated results of their operations
and changes in financial position for the respective periods then ended in
conformity with generally accepted accounting principles applied on a
consistent basis (except as stated in such financial statements or notes
thereto). The foregoing sentence is subject, in the case of the unaudited
financial statements, to normal year-end audit adjustments. Except as set
forth in Section 4.5(b) of the Disclosure Schedule or as disclosed in the
Annual Report on Form 10-K for the fiscal year ended June 30, 1996, or in
subsequent SEC Filings made prior to the date hereof, the Company and its
Subsidiaries have no liabilities, contingent or otherwise, that would be
required to be reflected or reserved against in a consolidated balance sheet
of the Company and its consolidated Subsidiaries prepared in accordance with
generally accepted accounting principles as applied in preparing the
consolidated balance sheet of the Company and its consolidated Subsidiaries as
at June 30, 1996 (the "BALANCE SHEET"). None of the Company's Subsidiaries is
required to file any statements or reports with the SEC.
SECTION 4.6 Absence of Certain Changes or Events. Except as disclosed in the
SEC Filings made prior to the date hereof or in Section 4.6 of the Disclosure
Schedule, since June 30, 1996, there has not been (i) any Material Adverse
Effect; (ii) any damage, destruction or loss, whether covered by insurance or
not, materially and adversely affecting the Company and its Subsidiaries;
(iii) any declaration, setting aside or payment of any dividend (whether in
cash, stock or property) with respect to the capital stock of the Company;
(iv) any split-up, combination or reclassification of the Shares or the
capital stock of any such Subsidiary; (v) any entry into an
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employment agreement or consulting agreement with former employees calling for
annual compensation in excess of $200,000; or (vi) any amendment to the
articles or certificate of incorporation or charter, as applicable, or bylaws
of the Company or any such Subsidiary which has not been filed with the state
in which such entity is organized. No existing or, to the knowledge of the
Company, threatened strike, slowdown, work stoppage, lockout or other
collective labor action affecting the Company or any of its Subsidiaries or
efforts to unionize the Company's or any of its Subsidiaries' employees exists
on the date hereof.
SECTION 4.7 Compliance with Law; Litigation. The businesses of the Company
and its Subsidiaries are not being, and have never been, conducted in
violation of any Laws, except for violations which in the aggregate do not
constitute a Material Adverse Effect. Except as described in the SEC Filings
made prior to the date hereof or as reflected in the Company's financial
statements (including the notes thereto) referred to in Section 4.5 or in
Section 4.7 of the Disclosure Schedule, there is no suit, action or proceeding
pending or, to the knowledge of the Company, threatened against or affecting
the Company or any of its Subsidiaries which, if adversely determined, could
reasonably be expected to result in liability to the Company or any of its
Subsidiaries in an amount in excess of $250,000, or restrain or prohibit
consummation of the transactions contemplated hereby; nor is there any decree,
injunction, judgment, order, ruling, assessment or writ ("ORDER") outstanding
against the Company or any of its Subsidiaries which constitutes in the
aggregate a Material Adverse Effect or would restrain or prohibit consummation
of the transactions contemplated hereby.
SECTION 4.8 Environmental Matters. (i) The Company and its Subsidiaries are
and have always been in compliance with all applicable Environmental Laws (as
hereinafter defined), except where the failure to comply would not reasonably
be expected in the aggregate to have a Material Adverse Effect, (ii) except as
set forth in Section 4.8(ii) of the Disclosure Schedule there is no civil,
criminal or administrative judgment, action, suit, demand, claim, hearing,
notice of violation, investigation, proceeding, notice or demand letter
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries pursuant to Environmental Laws, and (iii) except as
set forth in Section 4.8(iii) to the Disclosure Schedule there are no past or
present events which reasonably would be expected to prevent compliance with,
or have given rise to or will give rise to liability on the part of the
Company or any of its Subsidiaries under, Environmental Laws where the failure
to comply would not reasonably be expected, in the aggregate, to have a
Material Adverse Effect. As used herein the term "ENVIRONMENTAL LAWS" shall
mean Laws relating to pollution, waste control, the generation, presence or
disposal of asbestos, hazardous or toxic wastes or substances, the protection
of the environment, environmental activity or public health and safety.
SECTION 4.9 Governmental Authorizations and Regulations. Except as set forth
in Section 4.9 of the Disclosure Schedule, the Company and its Subsidiaries
hold all licenses, permits, franchises, authorizations, consents, certificates
of authority, or orders, or any waivers of the foregoing (collectively,
"PERMITS") that are required by any Governmental Entity to permit each of them
to conduct their respective businesses as now conducted, and all Permits are
valid and in full force and effect and will remain so upon consummation of the
transactions contemplated by this Agreement, except where the failure to hold
or maintain such Permits would not in the aggregate be reasonably expected to
have a Material Adverse Effect. No suspension, cancellation or termination of
any of such Permits is threatened or imminent that would in the aggregate
reasonably be expected to constitute a Material Adverse Effect.
SECTION 4.10 Schedule 14D-9, Offer Documents and Schedule 14D-1. The
Schedule 14D-9 and any amendments and supplements thereto will, when filed
with the SEC, comply in all material respects with the Exchange Act, except
that no representation is made by the Company with respect to information
supplied by Parent or Purchaser in writing for inclusion therein. None of the
information supplied by the Company for inclusion in the Offer Documents or
the Schedule 14D-1, and any amendments thereof, or supplements thereto, will,
on the respective dates such materials are filed with the SEC, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
SECTION 4.11 Brokers. No agent, broker, finder, or investment or commercial
banker, or other Person or firm engaged by or acting on behalf of the Company
or its Subsidiaries or any of their respective affiliates in
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connection with the negotiation, execution or performance of this Agreement,
the Merger or the other transactions contemplated by this Agreement, is or
will be entitled to any brokerage or finder's or similar fee or other
commission as a result of this Agreement, the Merger or such transactions,
except that the Financial Advisor has been employed as financial advisor to
the Company, pursuant to arrangements that have been disclosed in writing to
Parent and Purchaser, and as to whose fees, commissions, expenses and other
charges the Company shall have full responsibility.
SECTION 4.12 Employee Agreements and Benefits.
(a) Except for those matters set forth in Section 4.12 of the Disclosure
Schedule, (i) each "employee benefit plan" (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), and
all other employee benefit, bonus, incentive, stock option (or other equity-
based), severance, change in control, welfare (including post-retirement
medical and life insurance) and fringe benefit plans (whether or not subject
to ERISA) maintained or sponsored by the Company or any of its Subsidiaries or
by any entity that would be deemed a member of a controlled group of
corporations with the Company under Section 414(b) of the Code or a trade or
business under common control with the Company under Section 414(c) of the
Code (any such entity, an "ERISA AFFILIATE"), for the benefit of any employee
or former employee of the Company, any Subsidiary of the Company or any ERISA
Affiliate (the "PLANS") is, and has been, operated in all material respects in
accordance with its terms and in substantial compliance (including the making
of governmental filings) with all applicable Laws, including ERISA and
applicable provisions of the Code; (ii) each of the Plans intended to be
"qualified" within the meaning of Section 401(a) of the Code has been
determined by the Internal Revenue Service (the "IRS") in a written
determination letter to be so qualified, and to the knowledge of the Company,
none of said determinations has been revoked by the IRS, nor has the IRS given
any indication to the Company, any Subsidiary of the Company or any ERISA
Affiliate that it intends to revoke any such determination, nor has any such
Plan been operated in a manner that could reasonably be expected to cause the
Plan to lose its tax-qualified status; (iii) neither the Company, nor any
Subsidiary of the Company nor any ERISA Affiliate contributes or is obligated
to contribute, or at any time within the last six years contributed or was
obligated to contribute, to any "multiemployer plan" (as defined in Section
3(37) of ERISA); and (iv) there are no pending or, to the knowledge of the
executive officers of the Company (including, but not limited to, the vice
president for human resources of the Company), threatened claims by, on behalf
of or against any of the Plans or any trusts related thereto, other than
routine claims for benefits.
(b) Neither the Company, nor any Subsidiary of the Company nor any ERISA
Affiliate sponsors, maintains or contributes to, or at any time within the
past six years has sponsored, maintained or been obligated to contribute to,
any Plan subject to Title IV of ERISA.
(c) Except as set forth in Section 4.12 of the Disclosure Schedule, the
Company has provided to Purchaser (i) a copy of the plan document and summary
description for each Plan and of any related insurance contracts, insurance
policies and trust agreements, and (ii) with respect to each Plan that is
subject to ERISA, a copy of the most recent annual report (Form 5500 series)
filed for such Plan.
(d) Neither the Company, nor any Subsidiary of the Company nor any ERISA
Affiliate has failed to make any contribution or payment to any Plan which has
resulted or could result in the imposition of a material Lien (as defined in
Section 4.15) or the posting of a material bond or other material security
under ERISA or the Code.
(e) Except as otherwise set forth in Section 4.12 of the Disclosure Schedule
or as expressly provided for in this Agreement, the consummation of the
transactions contemplated by this Agreement will not (i) entitle any current
or former employee, officer or director of the Company, any Subsidiary of the
Company or any ERISA Affiliate to severance pay, unemployment compensation or
any other payment, (ii) entitle any current or former employee or officer of
the Company or any ERISA Affiliate to any severance benefit provided for under
Section 183 of Chapter 149 of the General Laws of the Commonwealth of
Massachusetts, or (iii) accelerate the time of payment or vesting, or increase
the amount of compensation due any such employee, officer or director.
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(f) Section 4.12 of the Disclosure Schedule lists any employment, material
consulting, bonus, profit sharing, compensation, severance, termination, stock
option, pension, retirement, deferred compensation, or other employee benefit
arrangements, trusts, plans, funds, or other arrangements for the benefit or
welfare of any director, officer, or employee of the Company or any of its
Subsidiaries, copies of which have been delivered to Parent.
(g) Except as set forth in Section 4.12 of the Disclosure Schedule, none of
the employees of the Company or any of its Subsidiaries has been or currently
is represented by an "employee organization" within the meaning of Section
3(4) of ERISA.
SECTION 4.13 Fairness Opinion. The Company has received from the Financial
Advisor, and provided to Parent, an executed copy of the opinion (the
"FAIRNESS OPINION"). The Company has been authorized by the Financial Advisor
to include the Fairness Opinion in the Offer Documents and the Proxy Statement
and has not been notified by the Financial Advisor that the Fairness Opinion
has been withdrawn or modified.
SECTION 4.14 Material Agreements. Except as set forth in Section 4.14 of the
Disclosure Schedule and except as described in, or filed as an exhibit to, the
SEC Filings made prior to the date hereof, none of the Company or any of its
Subsidiaries is a party to any Material Contract (as defined below). True
copies of the Material Contracts, including all amendments and supplements,
have been made available to Parent. Except for any of the following the
failure of which to be true has not and would not in the aggregate be
reasonably expected to have a Material Adverse Effect, (i) each Material
Contract is valid and subsisting; (ii) the Company or the applicable
Subsidiary has duly performed all its material obligations thereunder to the
extent that such obligations to perform have accrued; and (iii) no breaches or
defaults, alleged breach or default, or event which would (with the passage of
time, notice or both) constitute a breach or default thereunder by the
Company, any of its Subsidiaries or, to the best knowledge of the Company, any
other party or obligor with respect thereto, has occurred or as a result of
this Agreement or performance thereof will occur. Except as described in
Section 4.14 of the Disclosure Schedule, consummation of the transactions
contemplated by this Agreement will not (and will not give any Person a right
to) terminate or modify any rights of, or accelerate or augment any obligation
of, the Company or any of its Subsidiaries under any Material Contract or any
other contract to which the Company or any of its Subsidiaries is a party or
by which any of their assets are bound except where such terminations,
modifications or accelerations would not in the aggregate be reasonably
expected to have a Material Adverse Effect. For purposes of this Agreement,
"MATERIAL CONTRACT" means any agreement, arrangement, bond, commitment,
contract, franchise, indemnity, indenture, instrument, lease, license,
understanding or undertaking, whether or not in writing, that (i) after June
30, 1996 obligates the Company or any of its Subsidiaries to pay, or entitles
the Company or any of its Subsidiaries to receive, an amount of $2,500,000 or
more annually, (ii) involves an extension of credit other than consistent with
normal credit terms, (iii) contains non-competition, no solicitation or no
hire provisions or (iv) is otherwise required to be described in or filed as
an exhibit to the SEC filings.
SECTION 4.15 Title to Properties; Encumbrances. Except as set forth in
Section 4.15 of the Disclosure Schedule, each of the Company and its
Subsidiaries has good and marketable title to or other legal right to use all
material properties and assets (real, personal and mixed, and tangible, but
specifically excluding Intellectual Property which is covered in Section
4.16), including all such properties and assets that it or they purport to own
or have a legal right to use as reflected on the Balance Sheet or acquired
after the date thereof, except for properties and assets disposed of since
June 30, 1996 in the ordinary course of business and consistent with past
practice. Except as set forth in Section 4.15 of the Disclosure Schedule, none
of such properties or assets reflected on the Balance Sheet or acquired after
the date of the Balance Sheet are subject to any Lien except (i) statutory
Liens not yet delinquent, (ii) Liens with respect to the properties or assets
of the Company and its Subsidiaries taken as a whole that do not materially
impair or materially interfere with the present use of the properties or
assets subject thereto or affected thereby, or otherwise materially impair
present business operations at such properties, (iii) Liens for taxes not yet
delinquent or the validity of which are being contested in good faith by
appropriate actions, (iv) Liens identified in the SEC Filings made prior to
the date hereof, and (v) other Liens
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which would not be reasonably expected to have in the aggregate a Material
Adverse Effect. For purposes of this Agreement, "LIEN" means, with respect to
any asset, any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind whatsoever in respect of such asset.
SECTION 4.16 Intellectual Property.
(a) Section 4.16 of the Disclosure Schedule lists all of the Intellectual
Property (as hereinafter defined) in which the Company or any of its
Subsidiaries have an ownership interest for which a governmental registration
has been issued or applied. The Company and its Subsidiaries own or have the
right to use all Intellectual Property utilized in connection with their
businesses, as presently conducted, except for such Intellectual Property the
absence of which would not in the aggregate be reasonably expected to have a
Material Adverse Effect. Except as disclosed in Section 4.16 of the Disclosure
Schedule, the Company and its Subsidiaries have not received any written
notice to the effect that, or based on the circumstances have no reason to
know that, the use of the Intellectual Property by the Company or its
Subsidiaries in their business as presently conducted conflicts with any
rights of any Person, including any Intellectual Property of any Person,
except for any such conflicts would not in the aggregate be reasonably
expected to have a Material Adverse Effect.
(b) Except as set forth on Section 4.16 of the Disclosure Schedule: (i)
neither the Company nor its Subsidiaries have granted any exclusive license or
other exclusive rights to any Person to the Intellectual Property listed on
Section 4.16 of the Disclosure Schedule; and (ii) the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not breach, violate or conflict with or adversely
affect the Intellectual Property, except such breaches, violations, conflicts
or adverse affects which would not in the aggregate be reasonably expected to
have a Material Adverse Effect.
As used in this Agreement, the following terms shall have the meanings set
forth below: (i) "INTELLECTUAL PROPERTY" means any Intellectual Property
Rights, unpublished works, inventions, research and development findings,
inventories, computer firmware and software (existing in any form), marketing
rights, contractual rights, licenses and all related agreements and
documentation, other industrial and intellectual property rights, and all
Marks; (ii) "INTELLECTUAL PROPERTY RIGHTS" means any and all industrial and
intellectual property rights, including patents, patent applications, patent
rights, trademarks, trademark applications, service marks, service mark
applications, copyrights, Know-How, Trade Secrets, and proprietary processes,
formulae and other information; (iii) "KNOW-HOW" means any information,
including invention records, research and development records and reports,
experimental and engineering reports, pilot designs, production designs,
production specifications, raw material specifications, quality control
reports and specifications, drawings, photographs, models, tools, parts,
algorithms, processes, methods, market and competitive analysis, computer
software (in any form) and related documentation and other information
possessed by the Company or its Subsidiaries, whether or not considered
proprietary or a Trade Secret; (iv) "MARK" means any brand name, service mark,
trademark, trade name, logo, and all registrations or applications for
registration of any of the foregoing; and (v) "TRADE SECRETS" means any Know-
How, formulae, patterns, devices, methods, processes, compilations of
information, software or any other information, business or technical, (in any
form) which is used in connection with the business of the Company or its
Subsidiaries, as presently conducted, and which gives an opportunity to obtain
an advantage over competitors who do not know or use it.
SECTION 4.17 Tax Matters.
(a) Except as set forth in Section 4.17 of the Disclosure Schedule, the
Company has paid, or the Balance Sheet contains adequate provision for, all
material Company Taxes (as defined herein) for the taxable period ended on the
date of the Balance Sheet and all fiscal periods of the Company and its
Subsidiaries prior thereto. The Company Taxes paid and/or incurred from the
date of the Balance Sheet until the Effective Date include only the Company
Taxes incurred in the ordinary course of business determined in the same
manner as in the taxable period ending on the date of the Balance Sheet. All
Tax Returns (as defined herein) required to be filed with respect to Company
Taxes under federal, state, local or foreign Laws by the Company or any
Subsidiary have been timely filed (taking into account any extensions of time
for filing such Tax Returns), (ii) at the time
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filed, such Tax Returns were (and, as to Tax Returns not filed as of the date
hereof, will be) true, correct and complete in all material respects and each
of the Company and each of its Subsidiaries has timely paid all Company Taxes
due and payable, (iii) there are no material Liens for Company Taxes upon the
assets of the Company or any Subsidiary which are not provided for in the
financial statements included in the SEC Filings made prior to the date
hereof, except Liens for Company Taxes not yet due, and (iv) there are no
material outstanding deficiencies for any Company Taxes proposed, asserted or
assessed against the Company or any of its Subsidiaries which are not provided
for in the financial statements included in the SEC Filings made prior to the
date hereof (other than those which are being contested in good faith and
either for which adequate reserves have been established or the amounts are
immaterial). In addition, except in each case where the failure to do any of
the following would not reasonably be expected in the aggregate to have a
Material Adverse Effect, the Company and each of its Subsidiaries has properly
accrued in all material respects all Company Taxes for periods subsequent to
the periods covered by the Tax Returns filed by the Company or any such
Subsidiary. The Company has made available copies of all such Tax Returns to
Parent. Except as set forth in Section 4.17 of the Disclosure Schedule,
neither the Company nor any of its Subsidiaries has filed or entered into, or
is otherwise bound by, any election, consent or extension agreement that
extends any applicable statute of limitations with respect to taxable periods
of the Company. Except as set forth in Section 4.17 of the Disclosure
Schedule, no action, audit, examination, suit or other proceeding is pending
or, to the Company's knowledge, threatened by any Governmental Entity for
assessment or collection from the Company or any of its Subsidiaries of any
Company Taxes, no unresolved claim for assessment or collection of any Company
Taxes has been asserted against the Company or any of its Subsidiaries (other
than those for which adequate reserves have been established, which are being
contested in good faith or are immaterial), and all resolved assessments of
the Company Taxes have been paid or are reflected in the Balance Sheet.
(b) Except as disclosed in Section 4.17 of the Disclosure Schedule, there
are no outstanding written requests, agreements, consents or waivers to extend
the statutory period of limitations applicable to the assessment of any
material Company Taxes or deficiencies against the Company or any of its
Subsidiaries, and no power of attorney granted by either the Company or any of
its Subsidiaries with respect to any Company Taxes is currently in force.
Except as disclosed in Section 4.17 of the Disclosure Schedule, neither the
Company nor any of its Subsidiaries is a party to any agreement providing for
the allocation or sharing of Taxes. Except as disclosed in Section 4.17 of the
Disclosure Schedule, no claim has ever been made or, to the best knowledge of
the Company, could be made by an authority in a jurisdiction where any of the
Company or its Subsidiaries does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction. Except as set forth in Section 4.17
of the Disclosure Schedule none of the Company or its Subsidiaries has made
any payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Code (S) 280G. None of the Company
or its Subsidiaries (i) has been a member of an affiliated group filing a
consolidated federal income Tax Return (other than a group the common parent
of which was the Company) or (ii) has any liability for the Taxes of any other
person or entity (other than any of the Company and its Subsidiaries) under
Treas. Reg. (S) 1.1502-6 (or any similar provision of state, local or foreign
Law), as a transferee or successor, by contract or otherwise. The unexpired
net operating losses of the Company for federal income tax purposes, as of
June 30, 1996, is set forth in Section 4.17 of the Disclosure Schedule.
(c) As used in this Agreement, (i) "COMPANY TAXES" shall mean any and all
taxes, charges, fees, levies or other assessments, including income, gross
receipts, excise, real or personal property, sales, withholding, social
security, occupation, use, service, service use, value added, license, net
worth, payroll, franchise, transfer and recording taxes, fees and charges,
imposed by the IRS or any taxing authority (whether domestic or foreign
including any state, local or foreign government or any subdivision or taxing
agency thereof (including a United States possession)) on the Company or any
Subsidiary, whether computed on a separate, consolidated, unitary, combined or
any other basis; and such term shall include any interest, penalties or
additional amounts attributable to, or imposed upon, or with respect to, any
such taxes, charges, fees, levies or other assessments, and (ii) "TAX RETURN"
shall mean any report, return, document, declaration or other information or
filing required to be supplied to any taxing authority or jurisdiction
(foreign or domestic) with respect to Company Taxes.
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SECTION 4.18 Interested Party Transactions. Except as set forth in the SEC
Filings made prior to the date hereof, since the date of the Company's last
proxy statement to its stockholders, no event has occurred that would be
required to be reported by the Company as a "Certain Relationship" or "Related
Transaction," pursuant to Item 404 of Regulation S-K promulgated by the SEC.
SECTION 4.19 Government Contracts.
(a) Except as set forth in Section 4.19 of the Disclosure Schedule and
except as would not in the aggregate reasonably be expected to have a Material
Adverse Effect, with respect to each and every government contract and
subcontract under a government contract, (collectively "GOVERNMENT CONTRACT")
of the Company and its Subsidiaries: (i) the Company and its Subsidiaries have
complied in all respects with all material terms, conditions, representations
and certifications of each government contract and proposal submitted for any
such government contract; (ii) the Company and its Subsidiaries have complied
in all respects with all requirements of all applicable Laws or agreements,
including but not limited to, the cost accounting standards and cost
principles, pertaining to each government contract and proposal submitted for
any such government contract; (iii) no termination for convenience,
termination for default, cure notice or show cause notice is currently in
effect or threatened pertaining to any government contract and proposal
submitted for any such agreement contract; and (iv) no Governmental Entity has
provided the Company or its Subsidiaries with written notice of any cost
incurred by the Company and its Subsidiaries pertaining to such government
contract which has been questioned, challenged or disallowed or has been the
subject of any investigation.
(b) Except as set forth in Section 4.19 of the Disclosure Schedule, (i)
neither the Company or its Subsidiaries nor, to the best knowledge of the
Company, any of their directors, officers, employees, consultants or agents
engaged in the business of the Company or its Subsidiaries is (or during the
last six years has been) under administrative, civil or criminal
investigation, notice of proposed debarment or suspension, indictment or
information or equivalent official governmental charge or allegation by any
Governmental Entity or other Person with respect to any alleged irregularity,
misstatement or omission or other matter arising under or relating to any
government contract or proposal submitted for any such government contract and
(ii) except as would not in the aggregate reasonably be expected to have a
Material Adverse Effect, there is no irregularity, misstatement or omission or
other matter arising under or relating to any government contract or proposal
therefore that has led or could reasonably be expected to lead, either before
or after the Effective Time, to any of the consequences set forth in clause
(i) of this sentence.
(c) Except as set forth in Section 4.19 of the Disclosure Schedule and
except as would not in the aggregate reasonably be expected to have a Material
Adverse Effect on the Company, there exist (i) no outstanding claims, requests
for equitable adjustment, audits, disputes or other contractual action for
relief against the Company and its Subsidiaries, either by the U.S. Government
or by any prime contractor, subcontractor, vendor or other person, arising
under or relating to any government contract, performance of any government
contract or otherwise, and (ii) no settlement, compromise or similar
agreements waiving, releasing or abandoning any claim, entitlement, right or
defense of the Company or its Subsidiaries relating to the U.S. Government,
any prime contractor, subcontractor, vendor or other person.
(d) Except as set forth in Section 4.19 of the Disclosure Schedule and
except as in the aggregate would not reasonably be expected to have a Material
Adverse Effect, no government contract contains Organization Conflict of
Interest ("OCI") clauses or other similar provisions that might restrict or
preclude Parent or any of its affiliates from supplying products or services
to any Governmental Entity or supplier thereto.
SECTION 4.20 Takeover Statutes. No "fair price," "moratorium," "control
share acquisition" or other similar antitakeover statue or regulation enacted
under state or federal laws in the United States (each a "TAKEOVER STATUTE")
including Chapters 110C-110F of the Massachusetts General Laws, applicable to
the Company or any of its Subsidiaries is applicable to the execution,
delivery and performance of this Agreement or the consummation of the Offer or
the Merger or the other transactions contemplated by this Agreement.
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ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Each of Parent and Purchaser represents and warrants to the Company as
follows:
SECTION 5.1 Organization. Parent is a corporation duly organized and validly
existing and in good standing under the laws of the State of New York.
Purchaser is a corporation duly organized and validly existing and in good
standing under the laws of the Commonwealth of Massachusetts. Parent and
Purchaser have all necessary corporate power and authority to own their
respective properties and assets and to carry on their respective businesses
as now conducted and are duly qualified or licensed to do business as foreign
corporations in good standing in all jurisdictions in which the character or
the location of the assets owned or leased by any of them or the nature of the
business conducted by any of them requires licensing or qualification except
where the failure to be so qualified would not have a material adverse effect
on the consummation of the transactions contemplated hereby.
SECTION 5.2 Authority. Each of Parent and Purchaser has the requisite
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder; the execution, delivery and performance by Parent and
Purchaser of this Agreement and the transactions contemplated hereby have been
duly authorized by all necessary corporate action on either of their part and
no other corporate proceedings on either of their part are necessary to
authorize the execution, delivery or performance of this Agreement. This
Agreement constitutes a valid and binding obligation of Parent and Purchaser
enforceable against Parent and Purchaser in accordance with its terms, except
as (i) such enforcement may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar Laws, now or hereafter in effect
affecting creditors' rights generally, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject
to equitable defenses and the discretion of the courts before which any
proceeding therefor may be brought.
SECTION 5.3 Schedule 14D-1, Offer Documents and Schedule 14D-9. The Offer
Documents and the Schedule 14D-1 and all amendments and supplements thereto,
will, when filed with the SEC, comply in all material respects with the
Exchange Act, except that no representation is made by Parent or Purchaser
with respect to information supplied by or on behalf of the Company for
inclusion therein. None of the information supplied by Parent or Purchaser for
inclusion in Schedule 14D-9 and any amendments thereof or supplements thereto
will, on the respective dates such materials are filed with the SEC, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
SECTION 5.4 Effect of Agreement. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby,
including the making of the Offer, by Parent and Purchaser will not constitute
a breach or violation of or a default under (i) the Articles of Incorporation
or the Bylaws of Parent or Purchaser, (ii) any applicable Law, (iii) any
Permit issued by a Governmental Entity or otherwise, or (iv) any indenture,
agreement or instrument of Parent or Purchaser or to which Parent or Purchaser
or any of their respective properties is subject, other than in the case of
(i) through (iv) above, breaches, violations or defaults which would not
prevent, materially hinder or make materially more burdensome the consummation
by Parent or Purchaser of the transactions contemplated hereby. Except for
compliance with the HSR Act, the Exchange Act, the securities Laws of the
various states and the filing of the Articles of Merger pursuant to the
Massachusetts BCL, the consummation by Parent and Purchaser of the
transactions contemplated hereby will not require the consent or approval of
or filing with any Governmental Entity or other third party.
SECTION 5.5 Financing. Parent has, and will provide to Purchaser prior to
the expiration of the Offer, all funds necessary for the purchase of the
Shares pursuant to the Offer. Prior to the Effective Time, Purchaser will have
all funds necessary to consummate the Merger and to consummate all other
transactions contemplated hereunder.
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SECTION 5.6 Brokers. No agent, broker, finder, or investment or commercial
banker, or other Person or firm engaged by or acting on behalf of Parent or
Purchaser or any of their respective affiliates in connection with the
negotiation, execution or performance of this Agreement, the Merger or the
other transactions contemplated by this Agreement, is or will be entitled to
any brokerage or finder's or similar fee or other commission as a result of
this Agreement, the Merger or such transactions, except that Goldman, Sachs &
Co. has been employed as financial advisor to Parent and Purchaser, who have
full responsibility for their fees, commissions, expenses and other charges.
ARTICLE 6.
COVENANTS
SECTION 6.1 No Solicitation.
(a) The Company and its Subsidiaries will not, and will cause their
respective officers, directors, employees and investment bankers, attorneys or
other agents retained by or acting on behalf of the Company or any of its
Subsidiaries (collectively, the "REPRESENTATIVES"), as applicable, not to, (i)
initiate, solicit or encourage, directly or indirectly, any inquiries or the
making of any Acquisition Proposal (as defined below), (ii) except as
permitted below, engage in negotiations or discussions with, or furnish any
information or data to any third party relating to an Acquisition Proposal,
(iii) except as permitted below, enter into any agreement with respect to any
Acquisition Proposal or approve or resolve to approve any Acquisition Proposal
or (iv) except as permitted below, participate in any discussions regarding,
or take any other action to facilitate any inquiries or the making of any
proposal that constitutes or may reasonably be expected to lead to any
Acquisition Proposal (other than the transactions contemplated hereby).
Notwithstanding the foregoing, in response to any unsolicited Acquisition
Proposal, the Company may (at any time prior to the consummation of the Offer)
furnish information concerning its business, properties or assets to the
Person or group (a "POTENTIAL ACQUIROR") making such unsolicited Acquisition
Proposal and participate in negotiations with the Potential Acquiror if (x)
the Company's Board of Directors is advised by one or more of its independent
financial advisors that such Potential Acquiror has the financial wherewithal
to consummate without undue delay such an Acquisition Proposal, (y) the
Company's Board of Directors reasonably determines, after receiving advice
from the Company's financial advisor, that such Potential Acquiror has
submitted an Acquisition Proposal that involves consideration to the Company's
shareholders that are superior to the Offer and the Merger, and (z) based upon
advice of counsel to such effect, the Company's Board of Directors determines
in good faith that it is necessary to so furnish information and/or negotiate
in order to comply with its fiduciary duty to stockholders of the Company. In
the event the Company shall determine to provide any information as described
above or shall receive any offer of the type referred to in this Section
6.1(a), it shall (x) promptly inform Parent as to the fact that such an offer
has been received and/or such an offer has been received and/or information is
to be provided, (y) promptly provide Parent with a copy of any written offer
or other materials received by Company, its Subsidiaries or Representatives in
connection therewith, and (z) if such offer is not in writing, promptly
furnish to Parent in writing the identity of the recipient of such information
and/or the proponent of such offer and a summary of the terms thereof. The
Company agrees that any non-public information furnished to a Potential
Acquiror will be pursuant to a confidentiality agreement with confidential
information and no solicitation/no hire provisions substantially similar to
those set forth in the Confidentiality Agreement (as defined in Section 6.4
hereof). The Company will keep Parent fully informed of the status and
details, including amendments or proposed amendments to any such Acquisition
Proposal.
(b) The Board of Directors of the Company (x) shall not withdraw or modify
or propose to withdraw or modify, in any manner adverse to Parent, the
approval or recommendation of such Board of Directors of this Agreement, the
Offer or the Merger or (y) approve or recommend, or propose to approve or
recommend, any Acquisition Proposal unless, in each case, in connection with a
Superior Offer, such Board of Directors determines in good faith, based on
advice of outside legal counsel, that it is necessary to do so in order to
comply with such Board of Directors' fiduciary duties under applicable Law.
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(c) For purposes of this Agreement, "ACQUISITION PROPOSAL" shall mean any
bona fide proposal, whether in writing or otherwise, made by a third party to
acquire beneficial ownership (as defined under Rule 13(d) of the Exchange Act)
of all or a material portion of the assets of the Company or any of
Subsidiaries, or any material equity interest in the Company pursuant to a
merger, consolidation or other business combination, sale of shares of capital
stock, sale of assets, tender offer or exchange offer or similar transaction
involving either the Company or any of its Subsidiaries, including any single
or multi-step transaction or series of related transactions which is
structured to permit such third party to acquire beneficial ownership of any
material portion of the assets of, or any material equity interest in, the
Company and its Subsidiaries.
(d) The term "SUPERIOR OFFER" means a bona fide offer to acquire, directly
or indirectly, for consideration consisting of cash and/or securities, two-
thirds or more of the Shares then outstanding or all or substantially all the
assets of the Company, and otherwise on terms which the Board of Directors of
the Company determines in its good faith reasonable judgment to be more
favorable to the Company's shareholders than the Offer and the Merger (based
on advice of the Company's independent financial advisor that the value of the
consideration provided for in such proposal is superior to the value of the
consideration provided for in the Offer and the Merger), for which financing,
to the extent required, is then committed or which, in the good faith
reasonable judgment of the Board of Directors, based on advice from the
Company's independent financial advisor, is reasonably capable of being
financed by such third party and for which the Board of Directors determines,
in its good faith reasonable judgment, that such proposed transaction is
reasonably likely to be consummated without undue delay.
SECTION 6.2 Appraisal Rights. The Company shall not settle or compromise any
claim for appraisal rights in respect of the Merger without the prior written
consent of Parent or Purchaser.
SECTION 6.3 Conduct of Business of the Company. During the period from the
date of this Agreement to the Effective Time, except as specifically
contemplated by this Agreement (including matters specifically identified in
Section 6.3 of the Disclosure Schedule) or as otherwise approved in writing by
Parent or Purchaser, the Company shall conduct, and it shall cause each of its
Subsidiaries to conduct, its or their businesses in the ordinary course and
consistent with past practice, subject to the limitations contained in this
Agreement, and the Company shall, and it shall cause each of its Subsidiaries
to, use its or their reasonable best efforts to preserve intact its business
organization, to keep available the services of its officers and employees and
to maintain satisfactory relationships with all Persons with which the Company
has significant business relations. Without limiting the generality of the
foregoing, and except as otherwise expressly provided in this Agreement, after
the date of this Agreement and prior to the Effective Time, neither the
Company nor any of its Subsidiaries will, without the prior consent of
Purchaser:
(i) amend or propose to amend its Articles of Organization or Bylaws (or
comparable governing instruments);
(ii) authorize for issuance, issue, grant, sell, pledge, dispose of or
propose to issue, grant, sell, pledge or dispose of any shares of, or any
options, warrants, commitments, subscriptions or rights of any kind to
acquire or sell any shares of, the capital stock or other securities of the
Company or any of its Subsidiaries including any securities convertible
into or exchangeable for shares of stock of any class of the Company or any
of its Subsidiaries, or enter into any agreement, understanding or
arrangement with respect to the purchase or voting of shares of its capital
stock, except for the issuance of Shares pursuant to the exercise of
Options or the conversion of the Subordinated Notes outstanding on the date
of this Agreement, in accordance with their present terms, and issuances of
up to 120,000 Shares and options under the ESPP to employees in the
ordinary course of business;
(iii) split, combine or reclassify any shares of its capital stock, make
any other changes in its capital structure, or declare, pay or set aside
any dividend or other distribution (whether in cash, stock or property or
any combination thereof) in respect of its capital stock, other than
dividends or distributions to the Company or a Subsidiary wholly owned by
the Company, or redeem, purchase or otherwise acquire or offer to acquire
any shares of its capital stock or other securities, except for the
repurchase of shares of common
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stock from employees, consultants or directors of the Company upon
termination of their relationship with the Company in accordance with
existing contractual rights or obligations of repurchase;
(iv) (a) except for debt (including, but not limited to, obligations in
respect of capital leases) not in excess of $7,000,000 per month or
$30,000,000 in the aggregate for all entities combined, create, incur or
assume any short-term debt, long-term debt or obligations in respect of
capital leases; (b) assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, indirectly, contingently or otherwise)
for the obligations of any Person, except for obligations of the Company or
any wholly owned Subsidiary of the Company in the ordinary course of
business consistent with past practice; (c) make any capital expenditures
other than in the ordinary course in amounts not to exceed $7,000,000 per
month or $30,000,000 in the aggregate; (d) or make any loans, advances or
capital contributions to, or investments in, any other Person (other than
customary relocation loans to employees made in the ordinary course of
business consistent with past practice); or (e) acquire the stock or
substantially all the assets of, or merge or consolidate with, any other
Person;
(v) sell, transfer, mortgage, pledge or otherwise dispose of, or
encumber, or agree to sell, transfer, mortgage, pledge or otherwise dispose
of or encumber, any material assets or properties (including Intellectual
Property), real, personal or mixed (except for (i) sales of assets in the
ordinary course of business and in a manner consistent with past practice,
(ii) disposition of obsolete or worthless assets and (iii) encumbrances on
assets to secure purchase money financings of equipment and capital
improvements);
(vi) (A) increase the compensation of any of its or their directors,
officers or key employees, except pursuant to the terms of agreements or
plans currently in effect; (B) pay or agree to pay any pension, retirement
or other employee benefit provided in any existing plan, agreement or
arrangement to any director, officer or key employee except in the ordinary
course and consistent with past practice; (C) commit, other than pursuant
to any existing collective bargaining agreement, to any additional pension,
profit sharing, bonus, extra compensation, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right, group
insurance, severance pay, retirement or other employee benefit plan,
agreement or arrangement, or to any employment or consulting agreement with
or for the benefit of any director, officer or key employee, whether past
or present; (D) amend, in any material respect, any such plan, agreement or
arrangement; or (E) enter into, adopt or amend any employee benefit plans
or employment or severance agreement, or (except for normal increases in
the ordinary and usual course of business for employees with annual base
cash compensation of less than $80,000) increase in any manner the
compensation of any employees;
(vii) settle or compromise any claims or litigation involving payments by
the Company or any of its Subsidiaries of more than $250,000 in any single
instance or related instances, or that otherwise are material;
(viii) make any tax election or permit any insurance policy naming it as
a beneficiary or a loss payable payee to be canceled or terminated, except
in the ordinary and usual course of business consistent with past
practices;
(ix) enter into any license with respect to Intellectual Property unless
such license is non-exclusive and entered into in the ordinary course
consistent with past practice or in accordance with existing contracts or
other agreements;
(x) take any action or omit to take any action, which action or omission
would result in a breach of any of the covenants, representations and
warranties of the Company set forth in this Agreement;
(xi) enter into any lease or amend any lease of real property other than
in the ordinary course of business consistent with past practice;
(xii) change any accounting practices, other than in the ordinary course
and consistent with past practice;
(xiii) fail to use reasonable business efforts to keep in full force and
effect insurance comparable in amount and scope of coverage to insurance
now carried by it;
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(xiv) fail to pay all accounts payable and other obligations, when they
become due and payable, in the ordinary course of business consistent with
past practice and with the provisions of this Agreement, except if the same
are contested in good faith, and, in the case of the failure to pay any
material accounts payable or other obligations which are contested in good
faith, only after consultation with Purchaser;
(xv) fail to comply in all material respects with all Laws applicable to
it or any of its properties, assets or business and maintain in full force
and effect all Permits necessary for, or otherwise material to, such
business; or
(xvi) agree, commit or arrange to do the foregoing.
SECTION 6.4 Access and Information. The Company shall, upon reasonable
notice and subject to government security restrictions and restrictions
contained in confidentiality agreements to which it is subject, give to
Parent, Purchaser and their representatives full access to all of their
employees, and to all the premises and books and records of the Company and
its Subsidiaries and shall, and shall cause its Subsidiaries, officers and
independent auditors to furnish to Parent, Purchaser and their representatives
and designees such financial and operating data and other information,
including access to the working papers of its independent auditors, with
respect to its business and properties and the business and properties of its
Subsidiaries as Parent or Purchaser shall from time to time reasonably
request. Any such investigation shall be conducted in such manner as not to
interfere unreasonably with the operation of the business of the Company and
its Subsidiaries. No investigation pursuant to this Section shall affect or be
deemed to modify any representations or warranties made in this Agreement or
the conditions to the obligations of the parties to consummate the Merger. The
Confidentiality Agreement dated April 26, 1997 (the "CONFIDENTIALITY
AGREEMENT"), between Parent and the Company shall apply to the information
provided pursuant to this Section 6.4.
SECTION 6.5 Certain Filings, Consents and Arrangements.
(a) Parent, Purchaser and the Company shall use their reasonable best
efforts to obtain any Permits necessary for the consummation of the
transactions contemplated by this Agreement, provided that the Company shall
not, without the consent of Parent (which consent shall not be unreasonably
withheld), agree to any amendment to any material instrument or agreement to
which it is a party.
(b) Parent, Purchaser and the Company shall cooperate with one another (i)
in promptly determining whether any filings are required to be made or Permits
are required to be obtained under any Law or otherwise (including from other
parties to Material Contracts) in connection with the consummation of the
Offer and the Merger and (ii) in promptly making any such filings, furnishing
information required in connection therewith and seeking timely to obtain any
such Permits.
(c) Each party shall use its reasonable best efforts promptly to take, or
cause to be taken, all actions and promptly to do, or cause to be done, all
things necessary, proper or advisable under applicable Laws to consummate and
make effective the transactions contemplated by this Agreement; provided that
nothing in this Section 6.5 shall require any party hereto to proffer such
party's willingness to accept an Order providing for divestiture of its assets
or businesses which amount to 7.5% or more of Company's assets or earning
power. The Company shall take all actions reasonably requested by Parent to
ensure the orderly transition of the business of the Company and to preserve
and maintain the Company's business relationships.
SECTION 6.6 State Takeover Statutes. The Company shall, upon the request of
Parent or Purchaser, take all reasonable steps to assist in any challenge by
Parent or Purchaser to the validity or applicability to the Offer or Merger of
any state takeover statutes.
SECTION 6.7 Compliance with Antitrust Laws. Each party shall as promptly as
practicable make all filings necessary under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT"), or to comply with any
other request or demand by a Governmental Entity investigating the Offer or
the Merger under applicable antitrust Laws. Each party shall use its
reasonable best efforts to resolve such objections,
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if any, as any Governmental Entity may assert with respect to the Offer or the
Merger. Nothing in this Section 6.7 shall require any party hereto to proffer
such party's willingness to accept an Order providing for divestiture of its
assets or businesses which amount to 7.5% or more of Company's assets or
earning power.
SECTION 6.8 Press Releases. Parent, Purchaser and the Company shall consult
with each other before issuing any press release or otherwise making any
public statements with respect to the transactions contemplated hereby as may
be required by Law or by obligations pursuant to any listing agreement with
any national securities exchange.
SECTION 6.9 Indemnification; Insurance.
(a) From and after the consummation of the Offer, Parent shall cause the
Company and, after the Effective Time, the Surviving Corporation to indemnify,
defend and hold harmless the present and former directors and officers of the
Company and its Subsidiaries (each an "INDEMNIFIED PARTY") against all losses,
claims, damages or liabilities arising out of actions or omissions in their
capacity as a director or officer of the Company or a Subsidiary occurring on
or prior to the consummation of the Offer to the maximum extent permitted or
required under the Massachusetts BCL and the Company's Bylaws in effect on the
date hereof, including provisions with respect to advances of expenses
incurred in the defense of any action or suit, provided that any determination
required to be made with respect to whether an Indemnified Party's conduct
complies with the standards set forth under the Massachusetts BCL and the
Company's Bylaws shall be made by independent legal counsel selected in good
faith by the Surviving Corporation. From and after the consummation of the
Offer, Parent shall cause the Company and, after the Effective Time, the
Surviving Corporation, to pay from time to time in advance of the disposition
of any such action, suit or other proceeding expenses, including counsel fees,
reasonably incurred by the Indemnified Party in connection with any such
action, suit or other proceeding; provided that such Indemnified Party shall
undertake to repay the amounts so paid if it is ultimately determined that
indemnification for such expenses is not authorized under this Agreement or
otherwise.
(b) From and after the consummation of the Offer, Parent shall cause the
Company and, after the Effective Time, the Surviving Corporation to maintain
the Company's existing officers' and directors' liability insurance ("D&O
INSURANCE") in full force and effect without reduction of coverage for a
period of three years after the Effective Time; provided that the Surviving
Corporation will not be required to pay an annual premium therefor in excess
of 200% of the last annual premium paid prior to the date hereof (the "CURRENT
PREMIUM"); and, provided, further, that if the existing D&O Insurance expires,
is terminated or canceled during the 3-year period, the Surviving Corporation
will use reasonable efforts to obtain as much D&O Insurance as can be obtained
for the remainder of such period for a premium on an annualized basis not in
excess of 200% of the Current Premium.
(c) The Company will maintain, through the Effective Time, the Company's
existing D&O Insurance in full force and effect without reduction of coverage.
(d) If the Surviving Corporation or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger
and the continuing or surviving entity does not assume the obligations of the
Surviving Corporation set forth in this Section 6.9, or (ii) transfers all or
substantially all of its properties and assets to any person, then, and in
each such case, proper provision shall be made so that the successors and
assigns of the Surviving Corporation assume the obligations set forth in this
Section 6.9.
SECTION 6.10 Notification of Certain Matters. The Company shall give prompt
notice to Parent and Purchaser, and Parent or Purchaser shall give prompt
notice to the Company, of (i) any claims, actions, proceedings or
investigations commenced or, to the best of its knowledge, threatened,
involving or affecting the Company or any of its Subsidiaries or any of their
property or assets, that relate to the Offer or the Merger, (ii) the
occurrence, or failure to occur, of any event that would be likely to cause
(with the passage of time or otherwise) any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material
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respect or, in the case of the Company, a Material Adverse Effect, and (iii)
any material failure of the Company, Parent or Purchaser, as the case may be,
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder. No such notification shall affect the
representations or warranties of the parties or the conditions to the
obligations of the parties hereunder.
SECTION 6.11 Fees and Expenses. All costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses (including, in the case of the
Company, the costs of printing the Proxy Statement), whether or not the Offer
or the Merger is consummated.
SECTION 6.12 Actions Regarding the Rights.
Prior to the execution of this Agreement, the Company, in accordance with
the terms and provisions of the Common Stock Rights Agreement dated as of June
23, 1988 between the Company and The First National Bank of Boston, as Rights
Agent (the "RIGHTS AGREEMENT"), has amended the Rights Agreement so that the
transactions contemplated by this Agreement are exempted from certain
provisions of the Rights Agreement and a "Common Stock Event" thereunder will
not occur as a result of such transactions. The Company, with the consent of
Parent, shall continue to take all actions necessary to cause the transactions
contemplated by this Agreement to remain exempted from such provisions of the
Rights Agreement, including, if desirable, entering into further amendments to
the Rights Agreement or causing the rights issued under the Rights Agreement
(the "RIGHTS") to be extinguished, canceled or redeemed.
SECTION 6.13 Shareholder Litigation. The Company shall give Parent the
opportunity to participate in the defense or settlement of any shareholder
litigation against the Company and its directors relating to the transactions
contemplated by this Agreement; provided, however, that Parent shall have the
right to prevent the Company from entering into any such settlement without
Parent's consent if Parent agrees to indemnify the Company and each director
of the Company for the amount of its, his or her liability, if any, arising
from the underlying claim, net of any insurance proceeds received by such
person, that is in excess of the amount that such person would have been
liable for under such settlement.
ARTICLE 7.
CONDITIONS TO THE MERGER
SECTION 7.1 Conditions to the Obligations of Parent, Purchaser and the
Company. The obligations of Parent, Purchaser and the Company to consummate
the Merger are subject to the satisfaction, at or before the Effective Time,
of each of the following conditions:
(a) the stockholders of the Company shall have duly approved the Merger,
if required by applicable Law; and
(b) the consummation of the Merger shall not be precluded by any order or
injunction of a court of competent jurisdiction (each party agreeing to use
its reasonable best efforts to have any such order reversed or injunction
lifted), and there shall not have been any action taken or any statute,
rule or regulation enacted, promulgated or deemed applicable to the Merger
by any Governmental Entity that makes consummation of the Merger illegal.
SECTION 7.2 Conditions to the Obligations of Parent and Purchaser. The
obligations of Parent and Purchaser to consummate the Merger are subject to
the satisfaction, at or before the Effective Time, of the following additional
conditions:
(a) the Company shall have performed in all material respects the
covenants and agreements set forth herein to be performed by it at or prior
to the Effective Time;
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(b) the representations and warranties of the Company in Article 4 shall
be true and correct in all material respects on the date as of which made
and on the Effective Date with the same force and effect as though made on
and as of such date;
(c) there shall not have occurred after the completion of the Offer any
material adverse change in the business of the Company and its Subsidiaries
taken as a whole, except for such changes that are caused by the Company's
compliance with the terms of this Agreement and the Offer or that are
contemplated hereby;
(d) no governmental or other action or proceeding shall have been
commenced after completion of the Offer that (a) in the opinion of Parent's
or Purchaser's counsel is more likely than not to be successful, and (b)
either (i) seeks an injunction, a restraining order or any other Order
seeking to prohibit, restrain, invalidate or set aside consummation of the
Merger or (ii) if successful, would have a Material Adverse Effect; and
(e) the Company shall have delivered to Parent and Purchaser a
certificate, as of the Effective Time, executed by a senior executive
officer of the Company, to the effect that, to the best of such officer's
knowledge, the conditions set forth in this Section 7.2 have been
fulfilled.
SECTION 7.3 Conditions to the Company's Obligation. The obligation of the
Company to consummate the Merger is subject to the satisfaction, at or before
the Effective Time, of the following additional conditions:
(a) Parent and Purchaser shall have performed in all material respects
the covenants and agreements set forth herein to be performed by them at or
prior to the Effective Time;
(b) The representations and warranties of Parent and Purchaser set forth
in Article 5 shall be true and correct in all material respects on the date
as of which made and on the Effective Date with the same force and effect
as though made on and as of such date; and
(c) Parent and Purchaser shall have each delivered to the Company a
certificate, dated the date of the Effective Time and executed in each case
by a senior executive officer thereof, that to the best of such officer's
knowledge, the conditions set forth in this Section 7.3 have been
fulfilled.
SECTION 7.4 Exception. The conditions set forth in Section 7.2 and 7.3
hereof shall cease to be conditions to the obligations of any of the parties
hereto if Purchaser shall have accepted for payment and paid for Shares
validly tendered pursuant to the Offer.
ARTICLE 8.
MISCELLANEOUS
SECTION 8.1 Termination. This Agreement may be terminated and the Merger
contemplated herein may be abandoned at any time prior to the Effective Time,
whether before or after shareholder approval thereof:
(a) subject to Section 1.5, by the mutual consent of Parent and the
Company;
(b) by either the Company, on the one hand, or Parent and Purchaser, on
the other hand:
(i) if the Shares shall not have been purchased pursuant to the Offer
on or prior to the Final Termination Date; provided, however, that the
right to terminate this Agreement under this Section 8.1(b)(i) shall
not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure
of Purchaser to purchase the Shares pursuant to the Offer on or prior
to such date; or
(ii) if any Governmental Entity shall have issued an order, decree or
ruling or taken any other action (which order, decree, ruling or other
action the parties hereto shall use their respective reasonable best
efforts to lift), in each case permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement
or prohibiting Parent or Purchaser to acquire or hold or exercise
rights of ownership of the Shares except such prohibitions which would
not reasonably be
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expected to have a Material Adverse Effect or prevent the consummation
of the Offer prior to the Final Termination Date, and such order,
decree, ruling or other action shall have become final and non-
appealable;
(c) by the Company:
(i) if, prior to the purchase of Shares pursuant to the Offer the
Board of Directors shall have withdrawn, or modified or changed in a
manner adverse to Parent or Purchaser its approval or recommendation of
the Offer, this Agreement or the Merger (or the Board of Directors
resolves to do any of the foregoing) as a result of a Superior Offer,
and if concurrently with such termination the Termination Fee (as
defined in Section 8.2) is paid to Parent; or
(ii) if Parent or Purchaser shall have terminated the Offer, or the
Offer shall have expired, without Purchaser purchasing any Shares
pursuant thereto; provided that the Company may not terminate this
Agreement pursuant to this Section 8.1(c)(ii) if the Company's failure
to fulfill any obligation under this Agreement has been the cause of,
or resulted in, termination of the Offer or the failure of Purchaser to
purchase any Shares pursuant to the Offer; or
(iii) if, due to an occurrence that if occurring after the
commencement of the Offer would result in a failure to satisfy any of
the Conditions, the Parent, Purchaser or any of their affiliates shall
have failed to commence the Offer on or prior to five business days
following the date of the initial public announcement of the Offer;
provided, that the Company may not terminate this Agreement pursuant to
this Section 8.1(c)(iii) if the Company's failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in,
the failure of Parent, Purchaser or any affiliate to commence the
Offer; or
(iv) prior to the purchase of Shares pursuant to the Offer, (x) if
any representation or warranty of Parent and Purchaser set forth in
this Agreement shall be untrue in any material respects when made, or
(y) upon a breach in any material respect of any covenant or agreement
on the part of Parent or Purchaser set forth in this Agreement, in each
case where such misrepresentation or breach would result in a failure
to satisfy any of the Conditions, provided, that, if any such breach is
curable by Parent or Purchaser through the exercise of its reasonable
best efforts prior to the Final Termination Date and for so long as
Parent or Purchaser continues to exercise such reasonable best efforts,
the Company may not terminate this Agreement under this Section
8.1(c)(iv); or
(d) by Parent and Purchaser:
(i) if, prior to the purchase of the Shares pursuant to the Offer,
the Board of Directors shall have (A) withdrawn, modified or changed in
a manner adverse to Parent or Purchaser its approval or recommendation
of the Offer, this Agreement or the Merger, (B) recommended an
Acquisition Proposal or shall have executed an agreement in principle
or definitive agreement relating to an Acquisition Proposal or similar
business combination with a person or entity other than Parent,
Purchaser, or their affiliates (or the Board of Directors resolves to
do any of the foregoing); or
(ii) if, due to an occurrence that if occurring after the
commencement of the Offer would result in a failure to satisfy any of
the Conditions, Parent, Purchaser or any of their affiliates shall have
failed to commence the Offer on or prior to five business days
following the date of the initial public announcement of the Offer;
provided that neither Parent nor Purchaser may terminate this Agreement
pursuant to this Section 8.1(d)(ii) if the failure of Purchaser or
Parent to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Parent, Purchaser or any
affiliate to commence the Offer; or
(iii) prior to the purchase of Shares pursuant to the Offer, (i) if
any representation or warranty of the Company set forth in this
Agreement shall be untrue in any material respect when made or (ii)
upon a breach in any material respect of any covenant or agreement on
the part of the Company set forth in this Agreement, in each case where
such misrepresentation or breach would cause any of the Conditions not
to be met, provided, that, if any such breach is curable by the Company
through the exercise of its reasonable best efforts prior to the Final
Termination Date and for so long as the Company continues to exercise
such reasonable best efforts, neither Parent nor Purchaser may
terminate this Agreement under this Section 8.1(c)(iii); or
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<PAGE>
(iv) any Person or group shall have become the beneficial owner of
20% or more of the outstanding Shares; or
(v) if the Company shall have failed to file its Schedule 14D-9 with
the SEC within 10 business days of the commencement of the Offer;
provided, however, that the Company shall not terminate this Agreement
pursuant to Section 8.1(c)(i), and neither Parent nor Purchaser shall
terminate this Agreement pursuant to Section 8.1(d)(i), if any Shares are
purchased by Purchaser pursuant to the Offer.
SECTION 8.2 Effect of Termination.
(a) In the event of the termination of this Agreement as provided in Section
8.1, written notice thereof shall forthwith be given to the other party or
parties specifying the provision hereof pursuant to which such termination is
made, and this Agreement shall forthwith become null and void, and there shall
be no liability on the part of Parent, Purchaser or the Company or their
respective directors, officers, employees, shareholders, representatives,
agents or advisors other than, with respect to Parent, Purchaser and the
Company, the obligations pursuant to this Article 8 and the last sentence of
Section 6.4. Nothing contained in this Section 8.2(a) shall relieve Parent,
Purchaser or the Company from liability for willful breach of this Agreement.
(b) The Company shall pay to Parent by wire transfer $13.5 million (the
"TERMINATION FEE"), upon demand, if (i) the Company terminates this Agreement
pursuant to Section 8.1(c)(i), in which case the Termination Fee must be paid
simultaneously with such termination, (ii) Parent or Purchaser terminates this
Agreement pursuant to Section 8.1(d)(i), or (iii) this Agreement is terminated
for any reason (other than as a result of (x) the failure of Parent or
Purchaser to fulfill any material obligation under this Agreement, (y) the
applicable waiting period under the HSR Act shall not have expired or been
terminated on or prior to the Final Termination Date or (z) the failure of any
of the Conditions set forth in paragraph (iii) (a) of Exhibit A hereto or the
Conditions set forth in paragraph (iii) (d) of Exhibit A hereto to be
satisfied or waived by Parent on or prior to the Final Termination Date), at
any time after an Acquisition Proposal has been made and within nine months
after such a termination, the Company completes either (x) a merger,
consolidation or other business combination between the Company or a
Subsidiary of the Company and any other Person (other than Parent, Purchaser
or an affiliate of Parent) or (y) the sale of 30% or more (in voting power) of
the voting securities of the Company or of 30% or more (in market value) of
the assets of the Company and its Subsidiaries, on a consolidated basis.
(c) Concurrently with the execution hereof the Company is issuing to Parent
an option to purchase 4,225,000 Shares at a price per Share equal to $29.00
(such option is referred to herein as the "TERMINATION OPTION"), in the form
set forth as Exhibit B hereto.
SECTION 8.3 Non-Survival of Representations, Warranties and Agreements. The
representations and warranties in this Agreement shall terminate at the
Effective Time or the termination of this Agreement pursuant to Section 8.1,
as the case may be. The covenants and agreements contained in this Agreement
shall survive the Effective Time or termination of this Agreement, as the case
may be, and shall continue until they terminate in accordance with their
terms.
SECTION 8.4 Waiver and Amendment. Subject to Section 1.5, any provision of
this Agreement may be waived at any time by the party that is, or whose
stockholders are, entitled to the benefits thereof. Subject to Section 1.5,
this Agreement may be amended or supplemented at any time, except that after
approval hereof by the stockholders of the Company, no amendment shall be made
which decreases the Merger Consideration or that in any other way materially
adversely affects the rights of such stockholders (other than a termination of
this Agreement) without the further approval of such stockholders. No such
waiver, amendment or supplement shall be effective unless in writing and
signed by the party or parties intended to be bound thereby.
SECTION 8.5 Entire Agreement. Except for the Confidentiality Agreement,
(which is hereby incorporated herein by this reference) and the Termination
Option, this Agreement (a) contains the entire
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<PAGE>
agreement among Parent, Purchaser and the Company with respect to the Offer,
the Merger and the other transactions contemplated hereby, and supersedes all
prior agreements among the parties with respect to such matters, and (b) is
not intended to confer upon any other persons any rights or remedies
hereunder. The parties hereto acknowledge that the Confidentiality Agreement
remains in full force and effect and is unmodified, except that paragraph 7
thereof is terminated and of no further force or effect.
SECTION 8.6 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in that State, except to the extent
Massachusetts law is mandatorily applicable to the Merger.
SECTION 8.7 Headings. The descriptive headings contained herein are for
convenience and reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.8 Notices. All notices or other communications hereunder shall be
in writing and shall be given (and shall be deemed to have been duly given
upon receipt) by delivery in person, by facsimile, telegram, telex or other
standard form of telecommunications, or by registered or certified mail,
postage prepaid, return receipt requested addressed as follows:
If to the Company:
BBN Corporation
150 Cambridge Park Drive
Cambridge, MA 02140
Attention: General Counsel
Telecopy: (617) 873-3408
With a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Attention: Robert Hayes
Telecopy: (617) 951-7050
If to Purchaser or Parent:
GTE Corporation
One Stamford Forum
Stamford, CT 06904
Attention: Senior Vice President and General Counsel
Telecopy: (203) 965-3464
With a copy to:
O'Melveny & Myers LLP
153 East 53rd Street, 54th Floor
New York, NY 10066
Attn: Jeffrey J. Rosen, Esq.
Telecopy: (212) 326-2061
or to such other address as any party may have furnished to the other parties
in writing in accordance herewith.
SECTION 8.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute but one agreement.
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<PAGE>
SECTION 8.10 Parties in Interest; Assignment. This Agreement is binding upon
and is solely for the benefit of the parties and their respective successors,
legal representatives and assigns except that Section 6.9 shall be for the
express benefit of the persons in the categories referred to therein. Parent
and Purchaser shall have the right (i) to assign to one or more direct or
indirect wholly owned Subsidiaries of the Parent any and all rights and
obligations of Purchaser under this Agreement, including the right to
substitute in Purchaser's place such a Subsidiary as one of the constituent
corporations in the Merger (if such Purchaser assumes all of the obligations
of Purchaser in connection with the Merger), (ii) to transfer to one or more
direct or indirect wholly owned Subsidiaries of Parent the right to purchase
Shares tendered pursuant to the Offer and (iii) to restructure the transaction
to provide for the merger of the Company with and into Purchaser or any such
other corporation as provided above. If Parent or Purchaser exercise their
right to so restructure the transaction, the Company shall promptly enter into
appropriate agreements to reflect such restructuring. In any such event the
amounts to be paid to holders of Shares shall not be reduced nor shall there
be any material delay of the Effective Time.
SECTION 8.11 Specific Performance. The parties agree that irreparable damage
would occur if any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached. It is agreed
that the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, in addition to any other remedy to which any party is entitled
at law or in equity.
SECTION 8.12 Certain Undertakings of Parent. Parent shall perform, or cause
to be performed, any obligation of Purchaser (or any successor person pursuant
to Section 8.10) under this Agreement which shall have been breached by
Purchaser (or such successor).
SECTION 8.13 Interpretation. The words "hereof", "herein" and "herewith" and
words of similar import shall, unless otherwise stated, be construed to refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and article, section, paragraph, exhibit and schedule references
are to the articles, sections, paragraphs, exhibits and schedules of this
Agreement unless otherwise specified. Whenever the words "include", "includes"
or "including" are used in this Agreement they shall be deemed to be followed
by the words "without limitation". The words describing the singular number
shall include the plural and vice versa, and words denoting any gender shall
include all genders and words denoting natural persons shall include
corporations and partnerships and vice versa. The phrase "to the best
knowledge of" or any similar phrase shall mean such facts and other
information which as of any date of determination are known to any vice
president, chief financial officer, controller, or any officer superior to any
of the foregoing, of the referenced party. The phrases "the date of this
Agreement", "the date hereof" and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to May 5, 1997. As used in this
Agreement, the term "affiliate(s)" shall have the meaning set forth in Rule
12b-2 of the Exchange Act. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of
any provisions of this Agreement.
SECTION 8.14 Severability. If any provision of this Agreement is determined
to be invalid, illegal or unenforceable by any Governmental Entity, the
remaining provisions of this Agreement to the extent permitted by Law shall
remain in full force and effect provided that the essential terms and
conditions of this Agreement for all parties remain valid, binding and
enforceable; provided that the economic and legal substance of the
transactions contemplated is not affected in any manner materially adverse to
any party. In the event of any such determination, the parties agree to
negotiate in good faith to modify this Agreement to fulfill as closely as
possible the original intents and purposes hereof. To the extent permitted by
Law, the parties hereby to the same extent waive any provision of Law that
renders any provision hereof prohibited or unenforceable in any respect.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
under seal as of the date first written above.
GTE CORPORATION
/s/ Kent B. Foster
By:_________________________________
Name: Kent B. Foster
Title: President
/s/ Marianne Drost
By:_________________________________
Name: Marianne Drost
Title: Secretary
GTE MASSACHUSETTS INCORPORATED
/s/ Robert C. Calafell
By:_________________________________
Name: Robert C. Calafell
President
/s/ James A. Attwood
By:_________________________________
Name: James A. Attwood
Treasurer
BBN CORPORATION
/s/ John Montjoy
By:_________________________________
Name: John Montjoy
Senior Vice President
/s/ Bruce Haskin
By:_________________________________
Name: Bruce Haskin
Treasurer
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EXHIBIT B
AGREEMENT AND PLAN OF MERGER
AMONG
GTE CORPORATION
GTE MASSACHUSETTS INCORPORATED
AND
BBN CORPORATION
DATED AS OF MAY 5, 1997
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EXHIBIT C
[ALEX. BROWN LETTERHEAD]
May 6, 1997
BBN Corporation
150 Cambridge Park Drive
Cambridge, MA 02140
Dear Sirs:
BBN Corporation (the "Company"), GTE Corporation ("Buyer") and GTE
Massachusetts Incorporated, a Massachusetts corporation and a wholly owned
subsidiary of Buyer ("Purchaser"), have entered into the Agreement and Plan of
Merger dated as of May 5, 1997 (the "Agreement"). Pursuant to the Agreement,
Purchaser shall commence a tender offer (the "Offer") to purchase all shares
of the Company's common stock issued and outstanding at a price of $29.00 per
share, net to the seller in cash (the "Cash Consideration"). Thereafter,
Purchaser shall be merged with and into the Company and the Company shall
continue as the surviving corporation as a subsidiary of Buyer (the "Merger").
Stockholders of the Company other than Buyer shall receive the Cash
Consideration in the Merger. You have requested our opinion as to whether the
Cash Consideration is fair, from a financial point of view, to the Company's
stockholders.
Alex. Brown & Sons Incorporated ("Alex. Brown"), as a customary part of its
investment banking business, is engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and
other purposes. We have acted as financial advisor to the Board of Directors
of the Company in connection with the transaction described above and will
receive a fee for our services, a portion of which is contingent upon the
consummation of the Offer. We have also acted as placement agent for a private
offering of the Company's common stock and as the Company's financial advisor
with respect to the sale of Lightstream Corporation, the divestiture of a
majority interest in its BBN Domain subsidiary and general advisory services.
Alex. Brown regularly publishes research reports regarding the communications
services industry and the businesses and securities of the Company and other
publicly owned companies in the communications services industry. In the
ordinary course of business, Alex. Brown may actively trade the securities of
both the Company and the Buyer for our own account and the account of our
customers and, accordingly, may at any time hold a long or short position in
securities of the Company and the Buyer.
In connection with this opinion, we have reviewed certain publicly available
financial information and other information concerning the Company and Buyer
and certain internal analyses and other information furnished to us by the
Company. We have also held discussions with the members of the senior
management of the Company regarding the business and prospects of the Company.
In addition, we have (i) reviewed the reported prices and trading activity for
the common stock of the Company, (ii) compared certain financial and stock
market information for the Company with similar information for certain other
companies whose securities are publicly traded, (iii) reviewed the financial
terms of certain recent business combinations which we deemed comparable in
whole or in part, (iv) reviewed the terms of the Agreement, and (v) performed
such other studies and analyses and considered such other factors as we deemed
appropriate.
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<PAGE>
We have not independently verified the information described above, and for
purposes of this opinion have assumed the accuracy, completeness and fairness
thereof. With respect to the information relating to the prospects of the
Company, we have assumed that such information reflects the best currently
available judgments and estimates of the management of the Company as to the
likely future financial performance of the Company. In addition, we have not
made an independent evaluation or appraisal of the assets of the Company and
Buyer, nor have we been furnished with any such evaluations or appraisals. Our
opinion is based on market, economic and other conditions as they exist and
can be evaluated as of the date of this letter.
Our advisory services and the opinion expressed herein were prepared for the
use of the Board of Directors of the Company and do not constitute a
recommendation to the Company's stockholders as to whether they should tender
their shares in the Offer. We hereby consent, however, to the inclusion of
this opinion in its entirety in any filing required to be made by the Company
with the Securities and Exchange Commission with respect to the Offer and the
Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the Cash Consideration is fair, from a financial point of
view, to the Company's stockholders.
Very truly yours,
ALEX. BROWN & SONS INCORPORATED
By: /s/ Alex. Brown & Sons Incorporated
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