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BBN CORPORATION
150 CAMBRIDGEPARK DRIVE
CAMBRIDGE, MASSACHUSETTS 02140
May 12, 1997
Dear Stockholder:
We are pleased to report that BBN Corporation (the "Company") has entered
into a merger agreement with GTE Corporation ("GTE") and one of its
subsidiaries that provides for the acquisition of the Company by GTE at a
price of $29.00 per share in cash. Under the terms of the proposed
transaction, a GTE subsidiary is today commencing a cash tender offer for all
outstanding shares of the Company's common stock at $29.00 per share.
Following the successful completion of the GTE tender offer, the GTE
subsidiary will be merged into the Company and all shares not purchased in the
GTE tender offer will be converted into the right to receive $29.00 per share
in cash in the merger.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE GTE TENDER OFFER AND
DETERMINED THAT THE TERMS OF THE TENDER OFFER AND THE MERGER, TAKEN TOGETHER,
ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS SHAREHOLDERS.
ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS ACCEPTANCE OF THE
GTE TENDER OFFER AND APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
MERGER BY THE SHAREHOLDERS OF THE COMPANY.
In arriving at its recommendations, the Board of Directors gave careful
consideration to a number of factors. These factors included the opinion dated
May 6, 1997 of Alex. Brown & Sons Incorporated ("Alex. Brown"), financial
advisor to the Company, 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 Company shareholders (other than GTE and
its affiliates) in the offer and the merger was fair from a financial point of
view to such shareholders.
Accompanying this letter is a copy of the Company's
Solicitation/Recommendation Statement on Schedule 14D-9. Also enclosed is
GTE's Offer to Purchase and related materials, including a Letter of
Transmittal for use in tendering shares. We urge you to read the enclosed
materials, including Alex. Brown's opinion which is attached to the Schedule
14D-9, carefully.
The management and directors of BBN Corporation thank you for the support
you have given the Company.
Sincerely,
/s/ George H. Conrades
George H. Conrades
Chairman of the Board, President
and Chief Executive Officer
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 14D-9
Solicitation/Recommendation Statement Pursuant to
Section 14(d)(4) of the Securities Exchange Act of 1934
BBN CORPORATION
(Name of Subject Company)
----------------
BBN CORPORATION
(Name of Person Filing Statement)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(INCLUDING THE ASSOCIATED RIGHTS)
(Title of Classes of Securities)
055283105
(CUSIP Number of Class of Securities)
----------------
JOHN MONTJOY
SENIOR VICE PRESIDENT
BBN CORPORATION
150 CAMBRIDGEPARK DRIVE
CAMBRIDGE, MASSACHUSETTS 02140
(617) 873-2000
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications on Behalf of
the Person Filing Statement)
----------------
WITH A COPY TO
ROBERT F. HAYES, ESQ.
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110
(617) 951-7000
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is BBN Corporation, a Massachusetts
corporation (the "Company"). The address of the principal executive offices of
the Company is 150 CambridgePark Drive, Cambridge, Massachusetts 02140. The
title of the class of equity securities to which this Statement relates is the
shares of common stock, par value $1.00 per share, of the Company (the "Common
Stock"), together with the associated rights (the "Rights," and together with
the Common Stock, the "Shares") to purchase shares of Common Stock issued
pursuant to the Common Stock Rights Agreement dated as of June 23, 1988, as
amended (the "Rights Agreement"), between the Company and The First National
Bank of Boston (the "Rights Agent").
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to a tender offer by GTE Massachusetts Incorporated,
a Massachusetts corporation ("Purchaser") and a wholly owned subsidiary of GTE
Corporation, a New York corporation ("Parent"), disclosed in a Tender Offer
Statement on Schedule 14D-1 (the "Schedule 14D-1") dated May 12, 1997 offering
to purchase all of the outstanding Shares at a price of $29.00 per Share, net
to the seller in cash, without interest thereon upon the terms and subject to
the conditions set forth in the Offer to Purchase dated May 12, 1997 (the
"Offer to Purchase") and the related Letter of Transmittal (which together
constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger dated as
of May 5, 1997 (the "Merger Agreement") among Parent, Purchaser, and the
Company. The Merger Agreement provides that, among other things, as soon as
practicable after the consummation of the Offer and satisfaction or, if
permissible, waiver of the conditions to the Merger (as defined below)
Purchaser shall be merged with and into the Company (the "Merger"), the
separate corporate existence of Purchaser shall cease, and the Company shall
continue as the surviving corporation (the "Surviving Corporation"). A copy of
the Merger Agreement is filed as Exhibit 1 to this Statement and is
incorporated herein by reference.
According to the Offer to Purchase, the principal executive offices of
Parent and Purchaser are located at One Stamford Forum, Stamford, Connecticut
06904.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and address of the Company, which is the person filing this
Statement, are set forth in Item 1 above.
(b) Certain contracts, agreements, arrangements or understandings between
the Company and its executive officers, directors and affiliates are described
under the captions "1. Election of Directors", "Principal Holders of Company
Common Stock", "Compensation and Certain Other Transactions Involving
Executive Officers" and "Report of Compensation and Stock Option Committee on
Annual Executive Compensation" on pages 4-8 and 18-31 of the Company's Proxy
Statement dated October 2, 1996 for its 1996 Annual Meeting of Shareholders
(the "1996 Proxy Statement"). A copy of such portion of the 1996 Proxy
Statement is filed as Exhibit 4 to this Statement and is incorporated herein
by reference.
INDEMNIFICATION UNDER MASSACHUSETTS LAW, THE COMPANY'S RESTATED ARTICLES OF
ORGANIZATION AND BY-LAWS AND THE MERGER AGREEMENT
The Company is organized under the laws of Massachusetts. The Massachusetts
Business Corporation Law (the "MBCL") provides that indemnification of
directors, officers, employees, and other agents of a Massachusetts
corporation, and persons who serve at its request
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as directors, officers, employees, or other agents of another organization, or
who serve at its request in any capacity with respect to any employee benefit
plan, may be provided by the corporation to whatever extent is specified in
the charter document or votes adopted by its shareholders, except that no
indemnification may be provided for any person with respect to any matter as
to which the person shall have been adjudicated in any proceeding not to have
acted in good faith in the reasonable belief that his/her action was in the
best interests of the corporation, or to the extent that such matter relates
to services with respect to an employee benefit plan, in the best interests of
the participants or beneficiaries of such employee benefit plan. Under
Massachusetts law, a corporation can purchase and maintain insurance on behalf
of any person against any liability incurred as a director, officer, employee,
agent, or person serving at the request of the corporation as a director,
officer, employee, or other agent of another organization or with respect to
any employee benefit plan, in his/her capacity as such, whether or not the
corporation would have the power to itself indemnify him/her against such
liability.
The Company's Restated Articles of Organization provide that a director of
the Company shall not be liable to the Company or its shareholders for
monetary damages for breach of fiduciary duty as a director, except to the
extent that such exculpation from liability is not permitted by the MBCL as
the same exists now or may hereafter be amended. Such Restated Articles of
Organization provide further that no amendment to or repeal of the foregoing
provision shall apply to or have any effect on the liability or alleged
liability of any director for or with respect to any act or omission of such
director occurring prior to such amendment or repeal.
The Company's By-laws provide that the Company shall, to the extent legally
permissible, indemnify each of its directors and officers (including persons
who serve at its request as directors, officers, or trustees of another
organization in which it has any interest, as a shareholder, creditor or
otherwise) against all liabilities and expenses, including amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and
counsel fees, reasonably incurred by him/her in connection with the defense or
disposition of any action, suit, or other proceeding, whether civil or
criminal, in which he/she may be involved or with which he/she may be
threatened, while in office or thereafter, by reason of his/her being or
having been such a director or officer, except with respect to any matter as
to which he/she shall have been adjudicated in any proceeding not to have
acted in good faith in the reasonable belief that his/her action was in the
best interests of the Company; provided, however, that as to any matter
disposed of by a compromise payment by such director or officer, pursuant to a
consent decree or otherwise, no indemnification either for said payment or for
any other expenses shall be provided unless such compromise shall be approved
as in the best interests of the Company, after notice that it involves such
indemnification, (a) by a disinterested majority of the directors then in
office; or (b) by a majority of the disinterested directors then in office,
provided that there has been obtained an opinion in writing of independent
legal counsel to the effect that such director or officer appears to have
acted in good faith in the reasonable belief that his/her action was in the
best interests of the Company; or (c) by the holders of a majority of the
outstanding stock at the time entitled to vote for directors, voting as a
single class, exclusive of any stock owned by any interested director or
officer. The By-laws further provide that the right of indemnification
provided therein shall not be exclusive of or affect any other rights to which
any director or officer may be entitled.
The Company maintains a Directors and Officers Liability and Corporate
Reimbursement Insurance Policy and a Fiduciary Responsibility Insurance Policy
covering its directors and officers.
The Merger Agreement provides that, 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
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to the consummation of the Offer to the maximum extent permitted or required
under the MBCL and the Company's By-laws 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 By-laws 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 the Merger Agreement or otherwise.
Pursuant to the Merger Agreement, 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 of the Merger Agreement (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.
The Merger Agreement provides that the Company will maintain, through the
Effective Time, the Company's existing D&O Insurance in full force and effect
without reduction of coverage.
Pursuant to the Merger Agreement, 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 relating to indemnification of
officers and directors of the Company set forth in Section 6.9 of the Merger
Agreement, 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 Section 6.9 of the Merger Agreement.
THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement.
Such summary is qualified in its entirety by reference to the Merger
Agreement, a copy of which is filed herewith as Exhibit 1 and is incorporated
herein by reference. Capitalized terms not otherwise defined in the following
summary of certain provisions of the Merger Agreement have the respective
meanings ascribed to them in the Merger Agreement.
THE OFFER. The Merger Agreement provides for the making of the Offer by
Purchaser. Subject to the Merger Agreement not having been terminated in
accordance with its terms and to the Conditions (as defined below) to the
Offer, Purchaser has agreed to accept for payment and pay $29.00 per share
(the "Offer Price") for all the 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. Pursuant to the Merger Agreement
and subject to the Conditions, 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 its terms, Purchaser shall extend (and re-
extend) the Offer through the Final Termination Date to provide time to
satisfy such Conditions. The Final Termination Date shall initially be August
15, 1997; provided, however, if the Purchaser shall extend the Offer pursuant
to the provisions of the last sentence of this paragraph beyond August 15,
1997, the Final Termination Date shall be November 15, 1997. In addition,
whether or not the Conditions have been satisfied, Purchaser may, in its
judgment, extend
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and reextend the Offer, from time to time, but in no event beyond November 15,
1997, if it believes such extension is advisable in order to facilitate the
orderly transition of the business of the Company and to preserve and maintain
the Company's business relationships.
The obligation of Purchaser to accept for payment and pay for Shares tendered
pursuant to the Offer is subject to (i) the tender and non-withdrawal of Shares
which, when added to the Shares then beneficially owned by Parent, constitutes
two-thirds of the outstanding Shares and (ii) the satisfaction of certain other
Conditions described below. Subject to the terms of the Merger Agreement,
Purchaser reserves the right to amend the terms and conditions of the Offer
provided that, without the written consent of the Company, no amendment to the
Offer may be made which (i) decreases the price per Share or changes the form
of consideration to be paid in the Offer, (ii) decreases the number of Shares
sought in the Offer, or (iii) imposes additional conditions to the Offer other
than those described below or amends any other term of the Offer in any manner
adverse to holders of Shares.
CONDITIONS TO THE OFFER. Notwithstanding any other provision of the Offer,
Purchaser shall not be required to accept for payment or, subject to any
applicable rules and regulations of the SEC, including without limitation, Rule
14e-1(c) under the Securities Exchange Act of 1934 (the "Exchange Act")
(relating to Purchaser's obligation to pay for or return Shares promptly after
termination or withdrawal of the Offer), pay for, or may delay the acceptance
for payment of or payment for, any tendered shares, or may, in its sole
discretion, terminate or amend the Offer as to any Shares not then paid for, if
(i) any applicable waiting period under the HSR Act shall not have expired or
been terminated, (ii) the number of Shares validly tendered and not withdrawn
when added to the Shares then beneficially owned by Parent does not constitute
two-thirds of the Shares then outstanding; or (iii) on or after the date of the
Merger Agreement and at or before the time of payment for the Shares, any of
the following events shall occur and be continuing:
(a) there shall have occurred and be continuing (1) any general
suspension of trading in, or limitation on prices for, securities on the
NYSE, (2) the declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States (whether or not
mandatory), (3) the commencement of a war, armed hostilities or other
international or national calamity directly or indirectly involving the
United States and having had or being reasonably likely to have a Material
Adverse Effect (as defined hereinafter) or would restrain, prohibit or
delay beyond the Final Termination Date the consummation of the Offer, (4)
any limitation or proposed limitation (whether or not mandatory) by any
Governmental Entity, or any other event, that materially adversely affects
generally the extension of credit by banks or other financial institutions,
(5) from the date of the Merger Agreement through the date of termination
or expiration of the Offer, a decline of at least 25% in the Standard &
Poor's 500 Index or (6) in the case of any of the situations described in
clauses (1) through (5) inclusive, existing at the date of the Merger
Agreement, a material acceleration, escalation or worsening thereof;
(b) (i) the representations and warranties of the Company set forth in
the Merger Agreement shall not have been true and correct in any material
respect on the date of the Merger Agreement or (ii) the representations and
warranties of the Company set forth in the Merger Agreement shall not be
true and correct in any respect as of the scheduled expiration date (as
such date may be extended) of the Offer as though made on or as of such
date or the Company shall have breached or failed in any respect to perform
or comply with any obligation, agreement or covenant required by the Merger
Agreement to be performed or complied with by it except, in each case with
respect to clause (ii), (x) for changes specifically permitted by the
Merger Agreement and (y) (A) for those representations and warranties that
address matters only as of a particular date which are true and correct as
of such date or (B) where the failure of representations and warranties
(without giving effect to any limitation based on "materiality," "Material
Adverse Effect" or words of similar effect set forth therein) to be true
and correct, or the performance or compliance with such obligations,
agreements or covenants, would not in the aggregate reasonably be expected
to have a Material Adverse Effect;
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(c) there shall be any action or proceeding commenced by or before, or
threatened in writing by, any Governmental Entity, which has a reasonable
likelihood of success and which, if decided adversely to the Company, would
have a Material Adverse Effect or would restrain, prohibit or delay beyond
the Final Termination Date the consummation of the Offer and if decided
adversely to Parent, would have the effect of (i) making the purchase of,
or payment for, some or all of the Shares pursuant to the Offer or the
Merger or otherwise illegal, or resulting in a material delay in the
ability of Parent or Purchaser to accept for payment or pay for some or all
of the Shares, (ii) compelling Parent or Purchaser to dispose of or hold
separately all or any material portion of the Company's or Parent's
business or assets, (iii) making illegal, or otherwise directly or
indirectly restraining or prohibiting or imposing material financial
burdens, penalties or fines or requiring the payment of material damages in
connection with the making of, the Offer, the acceptance for payment of,
payment for, or ownership, directly or indirectly, of some of or all the
Shares by Parent or Purchaser, the consummation of the Offer or the Merger,
(iv) otherwise preventing consummation of the Offer or the Merger, or (v)
imposing limitations on the ability of Parent or Purchaser effectively (A)
to acquire, hold or operate the business of the Company and its
subsidiaries taken as a whole or (B) to exercise full rights of ownership
of the Shares acquired by it, including, but not limited to, the right to
vote the Shares purchased by it on all matters properly presented to the
stockholders of the Company, which, in either case, would effect a material
diminution in the value of the Company or the Shares;
(d) there shall been any law, rule or regulation enacted, promulgated,
entered or deemed applicable to the Offer or the Merger Agreement or any
other action shall have been taken or threatened in writing, by any
Governmental Entity on or after the date of the Offer that would reasonably
be expected to, directly or indirectly, result in any of the consequences
referred to in clauses (i) through (v) of paragraph (c) above;
(e) the Board of Directors of the Company shall have publicly (including
by amendment of its Schedule 14D-9) withdrawn or adversely modified its
recommendation of acceptance of the Offer;
(f) since the date of the Merger Agreement, there shall have occurred any
event or events that, singly or in the aggregate, have had or would
reasonably be expected to have a Material Adverse Effect; or
(g) the Merger Agreement shall have been terminated in accordance with
its terms, or Parent or Purchaser shall have reached an agreement or
understanding in writing with the Company providing for termination or
amendment of the Offer;
which, in any such case, and regardless of the circumstances (including any
action or inaction by Parent or Purchaser) giving rise to any such conditions,
makes it in the sole discretion of Parent inadvisable to proceed with the
Offer and/or with such acceptance for payment of or payment for the Shares.
The foregoing conditions (the "Conditions") are for the sole benefit of
Parent and Purchaser and may be asserted by Parent or Purchaser regardless of
the circumstances giving rise to any such Condition and may be waived by
Parent or Purchaser, in whole or in part, at any time and from time to time,
in the sole discretion of Parent or Purchaser. The failure by Parent or
Purchaser at any time to exercise any of the foregoing rights will not be
deemed a waiver of any right and each right will be deemed an ongoing right
which may be asserted at any time and from time to time.
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
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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 shall 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
(the time the Merger becomes effective being the "Effective 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, or any higher
price paid per Share in the Offer, 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 Share held by any
holder who has perfected any dissenters' rights under the MBCL, as applicable
(the "Dissenting Shares"), 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 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)
will be the Articles of Organization and By-laws 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 officers and directors 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 By-laws of the Surviving Corporation, or as
otherwise provided by applicable law.
TREATMENT OF OPTIONS AND CERTAIN OTHER STOCK PURCHASE RIGHTS. In the Merger
Agreement, the Company has agreed, with certain exceptions, that it will 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. 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 (as defined below) are treated in the Merger
Agreement as follows:
(i) Each current employee as of the date of the Merger Agreement whose
annual base salary is $80,000 or more ("Key Employee") and who is holding
Options which have an exercise price ("Exercise Price") less than the Offer
Price ("In the Money Options") and which are vested as of the date on which
the consummation of the Offer occurs (the "Closing Date") may 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 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 will be fully
vested and have
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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 does not make such an irrevocable
election before the Closing Date, the Key Employee will be 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 will be 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 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 will be determined on the last preceding day on which
trading took place.
(ii) Each current employee whose annual base salary as of the date of the
Merger Agreement is less than $80,000 ("Employee") who is holding In the
Money Options which are vested as of the Closing Date may 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 will 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 will equal the Fair Market
Value, and (z) the Parent Option will be governed by the provisions of the
LTIP and by applicable LTIP award agreements. In the event an Employee does
not make such election before the Closing Date, the Employee will be deemed
to have irrevocably elected the cash payment described in clause (A) of the
preceding sentence, and all In the Money Options will be canceled.
(iii) Options of Key Employees or Employees which have an Exercise Price
equal to or in excess of the Offer Price ("Under-Water Options"),
regardless of whether such Under-Water Options are vested as of the Closing
Date, will 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 subject to the Key Employee's or
Employee's Under-Water Options, provided that (x) the Parent Options
received in the exchange will have the same vesting schedule and expiration
date as the Under-Water Options exchanged therefor, (y) the Exercise Price
of the Parent Options will equal the Fair Market Value, and (z) the Parent
Options will be 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 exercises 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 will be canceled immediately, the
exchange provisions of this paragraph (iii) will not apply to such Key
Employee, and such Key Employee will 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
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In the Money Option will be 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 the vested In the Money Option.
(iv) In the Money Options of individuals who are Non-Employees as of the
date of the Merger Agreement, including Directors, which are vested as of
the Closing Date will, 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 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,
will be canceled immediately as of the Closing Date and each such Non-
Employee will 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, will 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 the
Merger Agreement, the Board of Directors will 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 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")
will 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 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 participates
in the Company's Deferred Compensation Plan for Directors (the "DCP") will be
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 provides that, prior to the Closing Date, the
Board of Directors, or an appropriate committee thereof, will 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
provides that immediately following the Closing Date, all Purchase Rights will
be accelerated as if the Closing Date was the last day of the "option period"
(as defined in the ESPP), such Purchase Rights will be
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automatically canceled and terminated on such day and the contributions to the
ESPP during such option period will be refunded to the holder of the Purchase
Right (the "Refund Amount"), and each holder of a Purchase Right will 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 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.
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. Prior to 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 the
Merger Agreement, the Company, Parent and Purchaser have agreed to 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 be, Continuing
Directors.
Following the election or appointment of Purchaser's designees as set forth
above and prior to the Effective Time, any amendment of the Merger Agreement
or any amendment to the Articles of Organization or By-Laws 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 By-laws (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
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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 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 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) or 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
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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 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 made the 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 filed herewith as Exhibit
3. 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, the Offer
or the Merger or (y) approve or recommend, or propose to approve
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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 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
Rights Agreement, 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, canceled or redeemed.
MISCELLANEOUS UNDERTAKINGS. Pursuant to the Merger Agreement, if required by
applicable law in order to consummate the Merger, the Company, acting through
the Board, will, 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 on the Merger 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 above; 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 the Merger 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
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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
have agreed to use their 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 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.
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.
Unless Purchaser has accepted for payment and paid for Shares validly
tendered pursuant to the Offer, the obligations of the Company to effect the
Merger are further subject to the satisfaction at or prior to the Effective
Time of the following conditions: (a) each of Parent and Purchaser having
performed in all material respects its obligations under the Merger Agreement
required to be performed by it at or prior to the Effective Time; (b) the
representations and warranties of Parent and Purchaser contained in the Merger
Agreement being true and correct in all material respects on the date as of
which made and on the Effective Time as though made on and as of such time;
and (c) Parent and Purchaser having delivered to the Company a certificate
with respect thereto.
Unless Purchaser has accepted for payment and paid for Shares validly
tendered pursuant to the Offer, the obligations of Parent and Purchaser to
effect the Merger are further subject to the satisfaction at or prior to the
Effective Time of the following conditions: (a) the Company having performed
in all material respects each of its obligations under the Merger Agreement
required to be performed by it at or prior to the Effective Time; (b) the
representations and warranties of the Company contained in the Merger
Agreement being true and correct in all material respects on the date as of
which made and on the Effective Time as if made at and as such time; (c) there
not having 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
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with the terms of the Merger Agreement and the Offer or that are contemplated
by the Merger Agreement; (d) no governmental or other action or proceeding
having been commenced after completion of the Offer that (i) in the opinion of
Parent's or Purchaser's counsel is more likely than not to be successful, and
(ii) either (A) seeks an injunction, a restraining order or any other Order
seeking to prohibit, restrain, invalidate or set aside consummation of the
Merger or (B) if successful, would have a Material Adverse Effect; and (e) the
Company having delivered to Parent and Purchaser a certificate with respect
thereto.
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
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, (1)
if the Shares have not been purchased pursuant to the Offer on or prior to the
Final Termination Date; provided, however, that such termination right will
not be available to any party whose failure to fulfill any obligation under
the Merger 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 (2) 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; (c) by the Company, (1) if, prior
to the purchase of Shares pursuant to the Offer the Board of Directors has
withdrawn, or modified or changed in a manner adverse to Parent or Purchaser
its approval or recommendation of the Offer, the Merger 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 hereinafter) is paid to Parent, (2) if Parent or
Purchaser has terminated the Offer, or the Offer has expired, without
Purchaser purchasing any Shares pursuant thereto; provided that the Company
will not have such right to terminate the Merger Agreement if the Company's
failure to fulfill any obligation under the Merger Agreement has been the
cause of, or resulted in, the termination of the Offer or the failure of
Purchaser to purchase any Shares pursuant to the Offer, (3) 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 of the Offer, 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 will not have such right to terminate the
Merger Agreement if the Company's failure to fulfill any obligation under the
Merger Agreement has been the cause of, or resulted in, the failure of Parent,
Purchaser or any affiliate to commence the Offer, or (4) prior to the purchase
of Shares pursuant to the Offer, (A) if any representation or warranty of
Parent and Purchaser set forth in the Merger Agreement shall be untrue in any
material respect when made, or (B) upon a breach in any material respect of
any covenant or agreement on the part of Parent or Purchaser set forth in the
Merger Agreement, in each case where such misrepresentation or breach would
result in a failure to satisfy any of the Conditions of the Offer; provided
that the Company shall not have such right to terminate the Merger Agreement
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; or (d) by Parent and Purchaser, (1) 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, the Merger Agreement or the Merger, or (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); (2)
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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 of the Offer,
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
shall have such right to terminate the Merger Agreement if the failure of
Purchaser or Parent to fulfill any obligation under the Merger Agreement has
been the cause of, or resulted in, the failure of Parent, Purchaser or any
affiliate to commence the Offer; (3) prior to the purchase of Shares pursuant
to the Offer, (A) if any representation or warranty of the Company set forth
in the Merger Agreement shall be untrue in any material respect when made or
(B) upon a breach in any material respect of any covenant or agreement on the
part of the Company set forth in the Merger Agreement, in each case where such
misrepresentation or breach would cause the Conditions of the Offer not to be
met; provided that neither Parent nor Purchaser shall have such right to
terminate the Merger Agreement 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; (4) if any person or group shall have become the
beneficial owner of 20% or more of the outstanding Shares; or (5) if the
Company shall have failed to file this Schedule 14D-9 with the SEC within 10
business days of the commencement of the Offer. As used in the Merger
Agreement, the term "Material Adverse Effect" means any change, effect, matter
or circumstances 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 delivered by the Company to Parent, (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.
Pursuant to the Merger Agreement, in the event of the termination of the
Merger Agreement in accordance with its terms, the Merger Agreement shall
forthwith 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 an option to purchase 4,225,000 Shares at a price per Share equal to
$29.00 pursuant to the Stock Option
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Agreement dated as of May 5, 1997 between the Company and Parent (the "Stock
Option Agreement"). Such option becomes exercisable by Parent when a
Termination Fee is payable to Parent. For a summary of the Stock Option
Agreement see "--Stock Option Agreement."
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 shall bear its own respective expenses incurred in connection with
the Merger Agreement, the Offer and the Merger, including the preparation,
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.
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STOCK OPTION AGREEMENT
The following is a summary of certain provisions of the Stock Option
Agreement, dated as of May 5, 1997 (the "Stock Option Agreement"), between
Parent and the Company, a copy of which is filed herewith as Exhibit 2 and is
incorporated herein by reference. Capitalized terms not otherwise defined in
the following summary of certain provisions of the Stock Option Agreement have
the respective meanings ascribed to them in the Stock Option Agreement.
GRANT OF OPTION. Pursuant to the Stock Option Agreement, the Company granted
to Parent an irrevocable option (the "Termination Option") to purchase, under
certain circumstances, up to 4,225,000 (subject to adjustment as set forth
therein) Shares (the "Option Shares") at a purchase price of $29.00 (subject
to adjustment as set forth therein) per Option Share (the "Purchase Price").
In the event of any change in the Shares by reason of a stock dividend, split-
up, merger, recapitalization, combination, exchange of shares, distribution of
assets, or similar transaction, the type and number of shares or securities
subject to the Termination Option, and the Purchase Price thereof, will be
adjusted appropriately, and proper provision will be made in the agreements
governing such transaction, so that Parent will receive upon exercise of the
Termination Option the number and class of shares or other securities or
property that Parent would have received in respect of the Shares (after
giving effect to such event) if the Termination Option had been exercised
immediately prior to such event or the record date therefor, as applicable.
Subject to the terms of the Stock Option Agreement, upon any issuance of
common stock by the Company (other than as referred to in the preceding
sentence) the number of Shares subject to the Termination Option will be
adjusted so that, after such issuance, it equals 19.9% of the number of Shares
then issued and outstanding, without giving effect to any shares subject to or
issued pursuant to the Termination Option, and the Purchase Price thereof will
be adjusted appropriately.
EXERCISE OF TERMINATION OPTION. Parent may exercise the Termination Option,
with respect to all or any part of the Option Shares at any one time, subject
to the other provisions described in the next sentence, after the occurrence
of any event as a result of which Parent is entitled to receive the
Termination Fee pursuant to Section 8.2(b) of the Merger Agreement (a
"Purchase Event"). Notwithstanding anything to the contrary contained in the
Stock Option Agreement, any exercise of the Termination Option and purchase of
Option Shares is subject to the obtaining or making of any consents,
approvals, orders, notifications or authorizations, the failure of which to
have obtained or made would have the effect of making the issuance of Option
Shares illegal. In the event purchase of the Option Shares is subject to any
such restriction if the Termination Option is otherwise exercisable Parent may
purchase the number of Option Shares that Parent is then permitted to acquire
under the applicable laws and regulations, and if Parent thereafter obtains
the regulatory approvals to acquire the remaining balance of the Option
Shares, then Parent shall be entitled to acquire such remaining balance. The
Company has agreed to use its reasonable best efforts to assist Parent in
seeking any necessary regulatory approvals.
CASH-OUT RIGHT. In the event (i) Parent receives official notice that a
regulatory approval required for the purchase of any Option Shares will not be
issued or granted, (ii) such regulatory approval has not been issued or
granted within six months of the date of the notice exercising the Termination
Option, or (iii) Parent in its sole discretion shall so elect, Parent may
exercise its Cash-Out Right pursuant to the Stock Option Agreement with
respect to the Option Shares for which such regulatory approval will not be
issued or granted or has not been issued or granted.
TERMINATION. The Termination Option will terminate and be of no further
force and effect upon the earliest to occur of (A) the Effective Time, (B)
nine months after the first occurrence of a Purchase Event described in
clauses (i) or (ii) of Section 8.2(b) of the Merger Agreement, (C) termination
of the Merger Agreement in accordance with its terms prior to the occurrence
of a Purchase Event, unless, in the case of clause (C), Parent has, or upon
the occurrence of certain events would have, the right
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to receive the Termination Fee under clause (iii) of Section 8.2(b) of the
Merger Agreement following such termination, in which case the Termination
Option will not terminate until the later of (x) six months following the time
such Termination Fee becomes payable and (y) the expiration of the period in
which Parent has or may have such right to receive the Termination Fee, and
(D) when the aggregate amount paid by the Company under the "cash out"
provision of the Stock Option Agreement and in connection with the Termination
Fee equals or exceeds $21,231,000. Notwithstanding the termination of the
Termination Option, Parent will be entitled to purchase the Option Shares if
it has exercised the Termination Option in accordance with the terms of the
Stock Option Agreement prior to the termination of the Termination Option, and
the termination of the Termination Option will not affect any rights under the
Stock Option Agreement which by their terms do not terminate or expire prior
to or as of such termination.
OTHER. Pursuant to the Stock Option Agreement, the Company makes certain
representations and warranties to Parent with respect to the authorization and
issuance of the Option Shares and certain other representations and
warranties. Further, Parent may also require the Company to cause the Shares
or other securities to be issued upon exercise of the Termination Option to be
registered under the Securities Act, to qualify such shares or other
securities under any applicable state securities laws and to promptly file an
application to list such shares or other securities on the NYSE (and any such
other national securities exchange or national securities quotation system).
CONFIDENTIALITY AGREEMENT
The following is a summary of certain provisions of the Confidentiality
Agreement, dated as of April 26, 1997, between Parent and the Company (the
"Confidentiality Agreement"). This summary is qualified in its entirety by
reference to the Confidentiality Agreement which is filed herewith as Exhibit
3 and is incorporated herein by reference. The Confidentiality Agreement
contains customary provisions pursuant to which, among other matters, Parent
agreed to keep confidential all nonpublic, confidential or proprietary
information furnished to it by the Company relating to the Company, subject to
certain exceptions (the "Confidential Information"), and to use the
Confidential Information solely for the purpose of evaluating a possible
transaction involving the Company and Parent.
Except as described above or incorporated herein, to the knowledge of the
Company, as of the date hereof, there exists no material contract, agreement,
arrangement, or understanding and no actual or potential conflict of interest
between the Company or its affiliates and (i) the Company, its executive
officers, directors, or affiliates, or (ii) Purchaser or its executive
officers, directors, or affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has unanimously approved the Merger
Agreement and the transactions contemplated thereby and determined that the
Offer and the Merger, taken together, are fair to and in the best interests of
the Company and its shareholders. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THE ACCEPTANCE OF THE OFFER AND APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE MERGER BY THE SHAREHOLDERS OF THE COMPANY. THIS
RECOMMENDATION IS BASED IN PART UPON AN OPINION OF ALEX. BROWN & SONS,
INCORPORATED ("ALEX. BROWN") THAT THE CONSIDERATION TO BE RECEIVED BY THE
COMPANY'S SHAREHOLDERS IN THE OFFER AND THE MERGER IS FAIR TO THE SHAREHOLDERS
FROM A FINANCIAL POINT OF VIEW (THE "FAIRNESS OPINION"). THE FAIRNESS OPINION
CONTAINS A DESCRIPTION OF THE FACTORS CONSIDERED, THE ASSUMPTIONS MADE, AND
THE SCOPE OF THE REVIEW UNDERTAKEN BY ALEX. BROWN IN RENDERING ITS OPINION.
THE FULL TEXT OF THE OPINION OF ALEX. BROWN IS ATTACHED HERETO AS ANNEX II TO
THIS SCHEDULE 14D-9 AND IS INCORPORATED HEREIN BY REFERENCE. SHAREHOLDERS ARE
URGED TO READ SUCH OPINION OF ALEX. BROWN IN ITS ENTIRETY.
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BACKGROUND OF THE MERGER AND THE OFFER
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.
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
Robert C. Calafell, Senior Vice President-Corporate Planning and Development
of 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
Mr. Calafell. 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
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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 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.
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 Board of Directors of the Company held a special meeting
to consider the two proposals and review the negotiations. After discussion,
it was agreed that 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 per share cash, 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
Parent's 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 shareholders of the Company from a
financial point
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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 from Parent and to review the current 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 shareholders 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, Parent commenced the
Offer.
To the extent any of the foregoing information describes events to which the
Company or its advisors were not a party, it is based on information provided
by Parent.
REASONS FOR THE RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS.
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 shareholders. 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 recent trading price of the shares of Common Stock and that the
$29.00 per Share to be paid in the Offer and 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 New York Stock Exchange 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 New York Stock Exchange 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
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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 shareholders;
(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 constitute, and does not constitute, a recommendation as to whether any
shareholder should tender Shares pursuant to the Offer. The full text of the
opinion of Alex. Brown is attached hereto as Annex II to this Schedule 14D-9
and is incorporated herein by reference. SHAREHOLDERS ARE URGED TO READ THE
OPINION OF ALEX. BROWN IN ITS ENTIRETY;
(ix) the Merger Agreement permits 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 shareholders;
(x) the Merger Agreement permits 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 shall 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 the Parent will be permitted to exercise an
option to purchase 4,225,000 shares of Common Stock at an exercise price of
$29.00; and
(xi) the transactions contemplated by the Merger Agreement provided for an
all cash payment to shareholders, 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.
The Board recognized that, while the consummation of the Offer gives the
Company's shareholders the opportunity to realize a significant premium over
the price at which the Shares were traded prior to the public announcement of
the Offer, tendering in the Offer would eliminate the opportunity for such
shareholders to participate in the future growth and profits of the Company.
The Board believes that the loss of the opportunity to participate in the
growth and profits of the Surviving Corporation was reflected in the Offer
price of $29.00 per Share. The Board also recognized that there can be no
assurance as to the level of growth or profits to be attained by the Surviving
Corporation in the future.
It is expected that, if the Shares are not purchased by Parent in accordance
with the terms of the Offer or if the Merger is not consummated, the Company's
current management, under the general direction of the Board, will continue to
manage the Company as an ongoing business.
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ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The Company has retained Alex. Brown as its financial advisor in connection
with the Offer and the Merger. Pursuant to the terms of Alex. Brown's
engagement, the Company has agreed to pay Alex. Brown $500,000 for the
delivery of an opinion regarding the fairness of the cash consideration to be
received pursuant to the Offer and the Merger and an additional fee of
approximately $6.5 million upon the consummation of the Offer. The Company
also has agreed to reimburse Alex. Brown for reasonable travel and other out-
of-pocket expenses, including reasonable legal fees and expenses, and to
indemnify Alex. Brown and certain related parties against certain liabilities,
including liabilities under the federal securities laws, arising out of Alex.
Brown's engagement. In the ordinary course of business, Alex. Brown and its
affiliates may actively trade or hold the securities of the Company and Parent
for their own account or for the account of customers and, accordingly, may at
any time hold a long or short position in such securities.
Neither the Company nor any person acting on its behalf has employed,
retained or agreed to compensate any person to make solicitations or
recommendations to the shareholders concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) During the past 60 days, no transactions in Shares have been effected by
the Company or, to the best of the Company's knowledge, by any of its
executive officers, directors or affiliates.
(b) To the best knowledge of the Company, all of its executive officers,
directors, and affiliates currently intend to tender pursuant to the Offer all
Shares (other than shares issuable upon the exercise of Options) which are
owned beneficially by such persons, subject to and consistent with any
fiduciary obligations of such person.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as set forth herein, the Company is not engaged in any
negotiation in response to the Offer which relates to or would result in (i)
an extraordinary transaction, such as a merger or reorganization, involving
the Company; (ii) a purchase, sale or transfer of material amount of assets by
the Company; (iii) a tender offer for or other acquisition of securities by or
of the Company; or (iv) any material change in the present capitalization or
dividend policy of the Company.
(b) Except as described in Item 3 or 4 above, there are no transactions,
Board resolutions, agreements in principle, or signed contracts in response to
the Offer that relate to or would result in one or more of the events referred
to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
INFORMATION STATEMENT
The Information Statement attached hereto as Annex I is being furnished in
connection with the contemplated designation by Purchaser, pursuant to the
Merger Agreement, of certain persons to be appointed to the Board of Directors
of the Company other than at a meeting of the Company's shareholders following
the purchase by Purchaser of the number of Shares pursuant to the Offer
necessary to satisfy the Minimum Condition.
RIGHTS PLAN AMENDMENT
Prior to the execution of the Merger Agreement, in accordance with the terms
and provisions of the Rights Agreement, the Board of Directors authorized and
the Company and the Rights Agent
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executed an amendment to the Rights Agreement (the "Rights Agreement
Amendment"). The Rights Agreement Amendment rendered certain provisions of the
Rights Agreement inapplicable to the transactions contemplated by the Merger
Agreement. Except as expressly provided in the Rights Agreement Amendment, the
Rights Agreement remains in full force and effect.
A copy of the Rights Agreement Amendment has been filed as Exhibit 10 to
this Schedule 14D-9 and is incorporated herein by reference, and the foregoing
summary is qualified in its entirety by reference thereto.
6% CONVERTIBLE SUBORDINATED DEBENTURES
Prior to and following the consummation of the Offer but before the Merger,
the Indenture dated as of April 1, 1987 (the "Indenture"), between the Company
and State Street Bank and Trust Company (the "Trustee") relating to the
Company's 6% Convertible Subordinated Debentures due 2012 (the "Subordinated
Notes") shall remain in full force and effect with no change to the rights of
the holders of the Subordinated Notes. Upon the occurrence of the Merger,
however, the Company is required, pursuant to the terms of the Indenture, to
execute with the Trustee a supplemental indenture providing that each
Subordinated Note shall be convertible into the right to receive the amount in
cash, without interest thereon, receivable upon the consummation of the Merger
by a holder of that number of Shares issuable upon conversion of such
Subordinated Note immediately prior to the Merger.
ITEM 9. MATERIALS TO BE FILED AS EXHIBITS
EXHIBIT NO.
Exhibit 1 Agreement and Plan of Merger dated as of May 5, 1997 among Parent,
Purchaser and the Company.
Exhibit 2 Stock Option Agreement dated as of May 5, 1997 between Parent and
the Company.
Exhibit 3 Confidentiality Agreement dated as of April 26, 1997 between Parent
and the Company.
Exhibit 4 Pages 4-8 and 18-31 of the Company's Proxy Statement dated October
2, 1996.
Exhibit 5 Letter to shareholders of the Company dated May 12, 1997.*
Exhibit 6 Press release issued by the Company dated May 6, 1997.
Exhibit 7 Opinion of Alex. Brown & Sons Incorporated dated May 6, 1997
(included as Annex II to this Statement).*
Exhibit 8 Section 6.9 of the Company's Restated Articles of Organization.
Exhibit 9 Section 9 of the Company's By-laws.
Exhibit 10 Amendment to Common Stock Rights Agreement.
- --------
* Included with Schedule 14D-9 mailed to shareholders of the Company.
24
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete, and
correct.
BBN Corporation
By: _________________________
/s/ John Montjoy
Name: John Montjoy
Title: Senior Vice President
Dated: May 12, 1997
25
<PAGE>
ANNEX I
BBN CORPORATION
150 CAMBRIDGEPARK DRIVE
CAMBRIDGE, MASSACHUSETTS 02140
----------------
INFORMATION STATEMENT PURSUANT
TO SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
----------------
NO VOTE OR OTHER ACTION OF THE COMPANY'S SHAREHOLDERS
IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND
YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY.
----------------
This Information Statement, which is being mailed on or about May 12, 1997
to the holders of shares of the common stock, par value $1.00 per share (the
"Common Stock"), of BBN Corporation, a Massachusetts corporation (the
"Company" or "BBN"), is being furnished in connection with the designation by
GTE Massachusetts Incorporated, a Massachusetts corporation (the "Purchaser")
and a wholly owned subsidiary of GTE Corporation, a New York corporation (the
"Parent"), of persons (the "Purchaser Designees") to the Board of Directors of
the Company (the "Board"). Such designation is to be made pursuant to an
Agreement and Plan of Merger dated as of May 5, 1997 (the "Merger Agreement")
among the Company, Parent, and Purchaser.
Pursuant to the Merger Agreement, among other things, Purchaser commenced a
cash tender offer on May 12, 1997 to purchase all of the issued and
outstanding shares of the Common Stock (together with the associated common
stock purchase rights, the "Shares") at a price of $29.00 per Share, net to
the seller in cash, as described in Purchaser's Offer to Purchase dated May
12, 1997 and the related Letter of Transmittal (which Offer to Purchase and
related Letter of Transmittal together constitute the "Offer"). The Offer is
scheduled to expire at 12:00 midnight on Monday, June 9, 1997, unless
extended. The Offer is subject to, among other things, the condition that a
number of Shares representing not less than two-thirds of the Company's
outstanding Shares are validly tendered and not withdrawn prior to the
expiration of the Offer (the "Minimum Condition"). The Merger Agreement also
provides for the merger (the "Merger") of Purchaser with and into the Company
as soon as practicable after consummation of the Offer. Following the
consummation of the Merger (the "Effective Time"), the Company will be the
surviving corporation (the "Surviving Corporation") and a wholly owned
subsidiary of Parent. In the Merger, each Share issued and outstanding
immediately prior to the Effective Time (other than Shares held in the
treasury of the Company or by Parent, Purchaser, or any indirect or direct
wholly owned subsidiary of Parent or the Company, all of which will be
canceled) will be converted into the right to receive cash in an amount of
$29.00.
Following the election or appointment of the Purchaser Designees and prior
to the Effective Time, any amendment of the Merger Agreement or any amendment
to the Restated Articles of Organization or By-laws 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 thereunder shall require the
concurrence of a majority of the Continuing Directors (as defined below).
The terms of the Merger Agreement, a summary of the events leading up to the
Offer and the execution of the Merger Agreement and other information
concerning the Offer and the Merger are contained in the Offer to Purchase and
in the Solicitation/Recommendation Statement on Schedule
I-1
<PAGE>
14D-9 of the Company (the "Schedule 14D-9") with respect to the Offer, copies
of which are being delivered to shareholders of the Company contemporaneously
herewith. Certain other documents (including the Merger Agreement) were filed
with the Securities and Exchange Commission (the "SEC") as exhibits to the
Schedule 14D-9 and as exhibits to the Tender Offer Statement on Schedule 14D-1
of Purchaser and Parent (the "Schedule 14D-1"). The exhibits to the Schedule
14D-9 and the Schedule 14D-1 may be examined at, and copies thereof may be
obtained from, the regional offices of and public reference facilities
maintained by the SEC (except that the exhibits thereto cannot be obtained
from the regional offices of the SEC) in the manner set forth in Sections 7
and 8 of the Offer to Purchase.
No action is required by the shareholders of the Company in connection with
the election or appointment of the Purchaser Designees to the Board. However,
Section 14(f) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the mailing to the Company's shareholders of the
information set forth in this Information Statement prior to a change in a
majority of the Company's directors otherwise than at a meeting of the
Company's shareholders.
The information contained in this Information Statement concerning Parent,
Purchaser, and Purchaser Designees has been furnished to the Company by such
persons, and the Company assumes no responsibility for the accuracy or
completeness of such information. The Schedule 14D-1 indicates that the
principal executive offices of Purchaser and Parent are located at One
Stamford Forum, Stamford, Connecticut 06904.
GENERAL
The shares of Common Stock are the only class of voting securities of the
Company outstanding. Each share of Common Stock is entitled to one vote. As of
May 5, 1997, there were 21,230,097 shares of Common Stock outstanding. The
Board of Directors of the Company currently consists of three classes, with
regular three year staggered terms. The Board of Directors has fixed at eight
the number of directors that presently constitute the Board. Each director
holds office until his successor is elected and qualified or until his earlier
death, resignation, or removal.
RIGHT TO DESIGNATE DIRECTORS; THE PURCHASER DESIGNEES
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. 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. Notwithstanding the
foregoing, the parties to the Merger Agreement 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 be, Continuing
Directors. For these purposes, the term "Continuing Director" shall mean (i)
any member of the Board as of the date of the Merger Agreement, (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.
I-2
<PAGE>
Purchaser has informed the Company that it will choose the Purchaser
Designees from the officers of Parent and its affiliates listed in the
following table, which contains certain biographical information regarding
such directors and executive officers:
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE
NAME AGE YEAR EMPLOYMENT HISTORY
---- --- -------------------------------------------------------
<C> <C> <S>
Kent B. Foster 53 President of Parent. Mr. Foster served as Vice Chairman
of the Board of Directors of Parent from October 1993
until June 1995 and President of GTE Telephone
Operations Group from January 1989 until June 1995. He
has been a director of Parent since 1992. Since joining
Parent in 1970, Mr. Foster served in a number of
positions of increasing responsibility through the
Parent system. Mr. Foster serves on the Board of
Directors of Campbell Soup Company and New York Life
Insurance Company.
Thomas W. White 51 Executive Vice President--Market Operations since 1997.
Prior to that time he was President, GTE Telephone
Operations, GTE Service Corporation, since July 1995.
Previously, he served as Executive Vice President--
Network Operations for GTE Telephone Operations since
1994. He serves on the Board of Directors for BC TEL.
Gerald K. Dinsmore 47 President--Business Development and Integration for
Parent since 1997. Prior to that time he was Senior
Vice President, Finance and Planning, Telephone
Operations since 1993. Mr. Dinsmore serves on the Board
of Directors of Quebec Telephone and Compania Anomia
Nacional Telefonos de Venezuela.
Robert C. Calafell 55 Senior Vice President--Corporate Planning and
Development of Parent since 1995. Prior to that time he
served as Vice President--Video Services for GTE
Telephone Operations, GTE Service Corporation since
1993.
J. Michael Kelly 40 Senior Vice President--Finance since 1994. Mr. Kelly
served as Vice President and Controller of Parent from
1991 to 1994. He is a director of Allendal Insurance.
</TABLE>
Purchaser has informed the Company that each of the directors and officers
listed above has consented to act as a director of the Company, if so
designated. None of such directors and officers (i) is currently a director
of, or holds any position with, the Company, (ii) has a familial relationship
with any of the directors or executive officers of the Company or (iii) to the
best knowledge of Purchaser, beneficially owns any securities (or rights to
acquire any securities) of the Company. The Company has been advised by
Purchaser that, to the best of Purchaser's knowledge, none of such directors
and officers has been involved in any transaction with the Company or any of
its directors, executive officers or affiliates which are required to be
disclosed pursuant to the rules and regulations of the Commission, except as
may be disclosed herein or in the Schedule 14D-9. The business address of each
such person is GTE Corporation, One Stamford Forum, Stamford, Connecticut
06904.
It is expected that the Purchaser Designees may assume office at any time
following the purchase by Purchaser of a majority of outstanding Shares
pursuant to the Offer, and that, upon assuming office, the Purchaser Designees
will thereafter constitute at least a majority of the Board.
I-3
<PAGE>
CURRENT DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The names of the current directors and executive officers of the Company,
their ages as of May 1, 1997, and certain other information about them are set
forth below. As indicated above, some of the current directors may resign
effective immediately following the purchase of Shares by Purchaser pursuant
to the Offer.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
George H. Conrades 58 President, Chief Executive Officer and Director
Ralph A. Goldwasser 50 Senior Vice President, Chief Financial Officer and Assistant Treasurer
David N. Campbell 55 Senior Vice President
John Montjoy 52 Senior Vice President and General Counsel
Paul Gudonis 43 Vice President
Paul F. Brauneis 52 Vice President and Controller
Steven R. Levy 57 Director
John M. Albertine 53 Director
Lucie J. Fjeldstad 53 Director
Max D. Hopper 62 Director
Regis McKenna 57 Director
Andrew L. Nichols 61 Director
Roger D. Wellington 70 Director
</TABLE>
The executive officers of the Company are elected annually by the Board of
Directors following the annual meeting of shareholders and serve at the
discretion of the Board of Directors.
Mr. Conrades has been the President and Chief Executive Officer of the
Company since January 1994 and has been a director of the Company since 1993.
Prior to that time, he had been employed for over 30 years at International
Business Machines Corporation. During his employment with IBM, Mr. Conrades
held a number of marketing-management and general-management positions,
including most recently senior vice president, corporate marketing and
services and general manager of IBM United States, including hardware,
software, maintenance, and services, with responsibility for all of that
company's customer-related operations in the United States. Mr. Conrades
retired from IBM in March 1992, and after that time and prior to his
appointment as President of the Company, Mr. Conrades was consulting in
venture capital businesses and was on the board of directors of several small
technology ventures, including a subsidiary of the Company. Mr. Conrades is a
director of Westinghouse Electric Corporation, Cubist Pharmaceuticals
Corporation, and CRA Managed Care, Inc.
Mr. Goldwasser has been Senior Vice President of the Company since 1991 and
has served as Chief Financial Officer since 1992. He served as Treasurer of
the Company from 1991 until November 1996, when he assumed the office of
Assistant Treasurer.
Mr. Campbell was elected Senior Vice President of the Company in July 1995,
and has served as President of the Company's BBN Systems and Technologies
Division since that time. Prior to that time, he was with Computer Task Group,
Inc. an international integrated information technology services company, from
1968 to 1994, most recently serving as its chairman and chief executive
officer. Mr. Campbell is a director of Dunn Tire Corp., First Empire State
Corporation, and Gibraltar Steel Corp.
Mr. Montjoy has served as General Counsel of the Company since 1984, served
as Vice President of the Company from 1991 to 1995, and since 1995 has served
as Senior Vice President of the Company.
Mr. Gudonis was elected Vice President of the Company in November 1994, and
has served as President of BBN Planet since that time. From October 1990 to
October 1994, Mr. Gudonis worked at
I-4
<PAGE>
Electronic Data Systems Corporation ("EDS"), a worldwide provider of
information technology services, most recently as vice president and general
manager of its Communications Industry Group. At EDS, Mr. Gudonis was
responsible for building a global division of EDS serving the communications
and media industry.
Mr. Brauneis joined BBN in September 1995 and has served as Vice President
and Controller of the Company since November 1995. Prior to joining BBN, Mr.
Brauneis worked from January 1993 to January 1995 at SoftKey International
Inc. (formerly Spinnaker Software Corporation) as chief financial officer and
financial consultant, and from 1980 to 1992 at M/A-Com, Inc., where he served
in the positions of vice president and comptroller, vice president/finance,
and financial consultant.
Mr. Levy is Chairman of the Board Emeritus of the Company and has been a
director of the Company since 1973. Since his retirement as an employee of the
Company in 1995, he has consulted for start-up ventures, in certain of which
he has made private investments. Mr. Levy was an officer of the Company from
1970 to 1995, serving as President and Chief Executive Officer from 1976 to
1983; as Chairman of the Board and Chief Executive Officer from 1983 to 1993;
as Chairman of the Board, President, and Chief Executive Officer in 1993; and
as Chairman of the Board in 1994 and 1995. Mr. Levy is also a director of
Thermo Optek, Inc. and OneWave Inc.
Dr. Albertine has been a director of the Company since 1986. He has been
Chairman of the Board and Chief Executive Officer of Albertine Enterprises,
Inc., economic and public policy consultants, since its organization by him in
1990. Dr. Albertine is also Chairman of the Board of JIAN Group Holdings, LLC,
a financial services consulting and holding company. Dr. Albertine is a
director of Thermo Electron Corporation, American Precision Industries, Inc.,
and Intermagnetics General Corporation.
Ms. Fjeldstad has been a director of the Company since 1994. She has been
the President of the Video and Networking business unit of Tektronix Inc., a
manufacturer of printers, displays, test instrumentation, and video equipment,
since January 1995. During 1993 and 1994, she was President and Chief
Executive Officer of Fjeldstad International, computing, telecommunications,
media/entertainment, and consumer electronics industries consultants. Prior to
that time, she had been employed for 25 years at International Business
Machines Corporation. During her employment with IBM, Ms. Fjeldstad held a
number of senior technical and management positions, including most recently
corporate vice president, and general manager of multimedia (1992 to 1993) and
corporate vice president, and president of the multimedia and education
division (1990 to 1992). Ms. Fjeldstad is a director of Entergy Corporation
and The Gap, Inc.
Mr. Hopper has been a director of the Company since April 1996. He serves as
president and is the principal owner of Max D. Hopper Associates, Inc., an
advanced information technologies consulting firm he founded in 1995. Prior to
that time, Mr. Hopper had been chairman of The SABRE Group (a technology
services group) of AMR Corporation since 1993, and a senior vice president of
AMR (the parent of American Airlines) since 1985. Mr. Hopper is a director of
Centura Software Corporation, Computer Language Research Inc., Gartner Group
Inc., Scopus Technology Corporation, USData Corp., VTEL Corp., and Worldtalk
Corporation.
Mr. McKenna has been a director of the Company since April 1996. He is
chairman of The McKenna Group, a management and marketing strategy firm
specializing in information and telecommunications technologies. He is also a
venture partner with the venture capital firm of Kleiner Perkins Caufield &
Byers. Mr. McKenna is on the board of directors of several pre-public, start-
up companies.
Mr. Nichols has been a director of the Company since 1978. He has been a
partner of the law firm of Choate, Hall & Stewart, Boston, Massachusetts,
since 1969. Choate, Hall & Stewart served as a counsel to the Company in
fiscal 1996 and is serving in such capacity in fiscal 1997.
I-5
<PAGE>
Mr. Wellington has been a director of the Company since 1981. He serves as
President and Chief Executive Officer of Wellington Consultants, Inc. and of
Wellington Associates, international business consulting firms he founded in
1994 and 1989, respectively. Prior to 1989, Mr. Wellington served as Chairman
of the Board of Augat Inc., a manufacturer of electromechanical components,
for more than five years. Prior to 1988, he also held the positions of
President and Chief Executive Officer of Augat Inc. Mr. Wellington is a
director of Thermo Electron Corporation and Photoelectron Corporation. Prior
to 1972, Mr. Wellington was a senior vice president of GTE International, Inc.
There is no family relationship between any directors or executive officers
of the Company.
DIRECTORS MEETINGS AND COMMITTEES
Compensation and Other Transactions. During the Company's fiscal year ended
June 30, 1996, the Board of Directors of the Company held a total of 16
meetings. Each director who was not a full-time employee of the Company
received an annual retainer of $10,000 for services as a director, plus $750
for each Board meeting attended by the individual during the year and for each
date (other than the date of a meeting of the Board) on which the individual
attended one or more meetings of committees of the Board, plus $375 for each
date of a meeting of the Board on which the individual also attended one or
more separate meetings of committees of the Board. Each incumbent director
attended not less than 75% of the aggregate of the meetings of the Board and
of the committees of which he or she was a member held during the fiscal year
ended June 30, 1996.
Under the Company's deferred compensation plan for non-employee directors,
each non-employee director has the option to make an annual election to defer
his or her compensation as a director and to receive the deferred amounts in
shares of Common Stock, either after the individual ceases to be a director or
after the individual retires from his or her principal occupation. Deferred
compensation is credited in units of stock of the Company, based on the value
of the Common Stock at the time so credited. Messrs. Albertine and McKenna
currently participate in this plan; until January 1, 1996, Mr. Wellington also
participated in the plan. At July 1, 1996, the three individuals had units
under the plan entitling them to an aggregate of 37,586 shares of Common
Stock.
The Company's 1986 Stock Incentive Plan provides that an option to purchase
3,000 shares of Common Stock is granted automatically on an annual basis to
each non-employee director, on the third business day following the date of
each annual meeting of shareholders at which the eligible director is elected
or continues to serve under an unexpired term. The exercise price of each
option is equal to the fair market value per share of the Common Stock on the
date the option is granted. Options granted to non-employee directors are for
a term of 5 years, and vest in equal annual installments over the first four
years (subject to acceleration in the event of the director's death, mandatory
retirement from the Board by reason of age, or retirement by reason of
disability).
Dr. Albertine has served as a member of the Company's Board of Visitors
since November 1995. The Board of Visitors is a business development group
organized by the Company to seek out new opportunities for government
business. Dr. Albertine has elected to defer his compensation as a member of
the Board of Visitors (currently $2,000 per meeting attended) and to receive
the deferred amounts in shares of Common Stock under the Company's deferred
compensation plan for non-employee directors.
Mr. McKenna provided consulting services relating to marketing and business
communications to the Company and its subsidiaries from September 1994 to
December 1995, for which services he received fees aggregating approximately
$175,000.
Mr. Hopper provided consulting services relating to strategic marketing to
the Company and its subsidiaries from March 1995 to March 1996, for which
services he received fees aggregating approximately $50,000.
I-6
<PAGE>
In fiscal 1996 the Company undertook a reorganization program to combine its
Internet and internetworking services operations, and to focus its business
principally on a range of Internet capabilities. A corollary of this focus was
the elimination or sale of subsidiaries. In this connection, the portion of
executive compensation related to subsidiary stock options has been largely
terminated, replaced in most part by a replacement option program for shares
in BBN. In this connection, Messrs. Hopper and McKenna, who each served as a
director of the Company's BBN Planet subsidiary prior to his election as a
director of BBN, received a replacement option for 3,750 shares of BBN Common
Stock in January 1996 in exchange for the termination of BBN Planet options
owned by him. Also in connection with termination of the subsidiary option
programs in BBN Planet Corporation and BBN HARK Systems Corporation, Mr.
Conrades received replacement options as set forth in the table on Option
Grants in Last Fiscal Year under the Caption "Compensation and Certain Other
Transactions Involving Executive Officers" below, and Mr. Levy received a cash
payment aggregating $79,688.
In August and September 1996, each of Messrs. Albertine, Conrades, Hopper,
and McKenna purchased 1,000, 15,000, 5,000, and 3,729 shares of Common Stock,
respectively, from the Company under the Company's 1996 Restricted Stock Plan
at 75% of the fair market value of the shares on the date of sale. The shares
are restricted as to transfer and the individual is required to offer the
shares back to the Company at the price paid if the individual terminates his
service relationship with the Company within 2 years of the date of the
acquisition of the shares.
Audit Committee. The Audit Committee of the Board of Directors held 4
meetings during the fiscal year ended June 30, 1996. In general, the function
of the Audit Committee is to recommend to the Board of Directors the
engagement or discharge of the independent auditors; to consider with the
independent auditors the scope of their audit and their audit fees; to review
with the independent auditors the scope and results of their audit and their
report and management letters; to review non-audit professional services by
generic classification to be provided by the independent auditors, to review
the magnitude of the range of fees for such non-audit services, and to
consider the independence of the independent auditors; to review with the
independent auditors and with the internal auditors and management of the
Company, the Company's policies and procedures with respect to internal
auditing, accounting, and financial controls; and to review the financial
reporting and accounting standards and principles of the Company. Messrs.
Albertine, Nichols, and Wellington, none of whom is or has been an officer or
employee of the Company, currently serve as the Audit Committee.
Compensation Committee; Compensation Committee Interlocks and Insider
Participation. The Compensation and Stock Option Committee of the Board of
Directors (the "Compensation Committee") held 13 meetings during the fiscal
year ended June 30, 1996. In general, the function of the Compensation
Committee is to administer the executive compensation and incentive
compensation and stock option programs of the Company; to establish the
compensation of the chief executive officer of the Company; to review salary
and incentive bonus awards for other executive officers; and to award stock
options.
Ms. Fjeldstad and Messrs. Hatsopoulos and Wellington served on the
Compensation Committee during the fiscal year ended June 30, 1996. None of
these individuals is or has been an officer or employee of the Company.
Customer Relationships Committee. The Board of Directors has a standing
Customer Relationships Committee, the function of which, in general, is to
monitor customer relationship processes, and to evaluate customer satisfaction
criteria. Ms. Fjeldstad and Messrs. Hopper, McKenna, Nichols, and Wellington
currently serve on the Customer Relationships Committee.
Nominating Committee. The Board of Directors has not appointed a standing
nominating committee.
I-7
<PAGE>
COMMON STOCK OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
As of May 5, 1997, there were 21,230,097 shares of Common Stock of the
Company outstanding. The Company knows of no person who may be deemed to own
beneficially more than five percent of the outstanding Common Stock, except as
follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
NAME AND ADDRESS OF BENEFICIALLY OF
TITLE OF BENEFICIAL OWNER OWNED CLASS
CLASS ------------------------------ ------------ -------
<S> <C> <C> <C>
Common Stock............ Kopp Investment Advisors, Inc. 3,365,096(1) 15.9%(1)
6600 France Avenue South
Edina, MN 55435
</TABLE>
- --------
(1) Kopp Investment Advisors, Inc., a registered investment advisor, has
informed the Company, by a report dated January 28, 1997 on Schedule 13G,
that at that time, it exercised investment discretion with respect to
3,196,096 of such shares for the benefit of investment accounts managed by
the firm, and as to which accounts it had no voting power but had shared
investment power.
The following table sets forth certain information with respect to the
beneficial ownership of shares of Common Stock as of May 1, 1997 (i)
individually by the Chief Executive Officer, each of the four other most
highly paid executive officers of the Company in fiscal 1996 (the "Named
Executive Officers") and each director of the Company and (ii) by all current
executive officers and directors of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT
TITLE OF BENEFICIALLY PERCENT OF
CLASS NAME OR GROUP OWNED(1)(2) CLASS(3)
-------- ------------------------------- ------------ ----------
<S> <C> <C> <C>
Common Stock George H. Conrades(4)(5) 701,952 3.2%
David N. Campbell.............. 66,325
John T. Kish, Jr.(6)........... 0
Paul R. Gudonis (4)............ 96,262
Ralph A. Goldwasser............ 59,986
Steven R. Levy(7).............. 72,227
John M. Albertine(4)(8)........ 37,785
Lucie J. Fjeldstad(9).......... 3,250
Max D. Hopper(4)(10)........... 8,750
Regis McKenna(4)(11)........... 8,304
Andrew L. Nichols(12).......... 15,150
Roger D. Wellington(13)........ 37,077
All current directors
and executive 1,146,175(4)(5)(7) 5.2%(4)(5)(7)
officers as a group (8)(9)(10) (8)(9)(10)
(13 persons)................... (11)(12)(13)(14) (11)(12)(13)(14)
</TABLE>
- --------
(1) The inclusion herein of any shares deemed beneficially owned under the
rules of the Securities and Exchange Commission does not constitute an
admission of beneficial ownership of such shares.
(2) The shares shown as owned beneficially by the named individuals include
662,750, 51,325, 86,262, and 49,938 shares, respectively, as to which
Messrs. Conrades, Campbell, Gudonis, and Goldwasser have the right to
acquire ownership through the exercise of those options, held by
I-8
<PAGE>
each under the stock option plans of the Company, which are exercisable
within 60 days of May 1, 1997.
(3) If such percentage exceeds 1%.
(4) The shares shown as owned beneficially include 15,000, 10,000, 1,000,
5,000 and 3,729 shares shown as owned by Messrs. Conrades, Gudonis,
Albertine, Hopper and McKenna, respectively, sold to the individual under
the Company's 1996 Restricted Stock Plan at 75% of the fair market value of
the shares on the date of sale. The shares are restricted as to transfer
and the individual is required to offer the shares back to the Company at
the price paid if the individual terminates his service relationship with
the Company within 2 years of the date of acquisition.
(5) The shares shown as owned beneficially by Mr. Conrades include 37,202
shares owned jointly with his spouse, as to which shares Mr. Conrades and
his spouse share voting and investment power, and 2,000 shares owned by Mr.
Conrades' adult child. Mr. Conrades also owns $50,000 principal amount of
the Company's 6% Convertible Subordinated Debentures due 2012.
(6) Mr. Kish is no longer an executive officer or in the employ of the
Company. Where included, information concerning Mr. Kish has been provided
to the Company by Mr. Kish.
(7) The shares shown as owned beneficially by Mr. Levy include 32,995 shares
held in his participant account under the BBN Retirement Trust.
(8) The shares shown as owned beneficially by Dr. Albertine include 324
shares owned by Dr. Albertine's spouse, as to which shares Dr. Albertine
disclaims beneficial ownership, and 2,250 shares as to which Dr. Albertine
has the right to acquire ownership through the exercise of those options,
held by him under the stock option plans of the Company, which are
exercisable within 60 days of May 1, 1997. The shares shown as owned
beneficially also include 18,677 shares represented by units allocated
under the Company's deferred compensation plan for non-employee directors
entitling Dr. Albertine as of March 31, 1997 to receive that number of
shares on or after his deferral termination date.
(9) The shares shown as owned beneficially by Ms. Fjeldstad include 2,250
shares as to which Ms. Fjeldstad has the right to acquire ownership through
the exercise of those options, held by her under the stock option plans of
the Company, which are exercisable within 60 days of May 1, 1997.
(10) The shares shown as owned beneficially by Mr. Hopper include 3,750 shares
as to which Mr. Hopper has the right to acquire ownership through the
exercise of those options, held by him under the stock option plans of the
Company, which are exercisable within 60 days of May 1, 1997.
(11) The shares shown as owned beneficially by Mr. McKenna include 3,750
shares as to which Mr. McKenna has the right to acquire ownership through
the exercise of those options, held by him under the stock option plans of
the Company, which are exercisable within 60 days of May 1, 1997. The
shares shown as owned beneficially also include 825 shares represented by
units allocated under the Company's deferred compensation plan for non-
employee directors entitling Mr. McKenna as of March 31, 1997 to receive
that number of shares on or after his deferral termination date.
(12) The shares shown as owned beneficially by Mr. Nichols include 900 shares
owned by a partnership of which Mr. Nichols is a general partner and in
which he has a 50% beneficial interest, and 2,250 shares as to which Mr.
Nichols has the right to acquire ownership through the exercise of those
options, held by him under the stock option plans of the Company, which are
exercisable within 60 days of May 1, 1997.
(13) The shares shown as owned beneficially by Mr. Wellington include 2,250
shares as to which Mr. Wellington has the right to acquire ownership
through the exercise of those options, held by him
I-9
<PAGE>
under the stock option plans of the Company, which are exercisable within
60 days of May 1, 1997. The shares shown as owned beneficially also
include 19,827 shares represented by units allocated under the Company's
deferred compensation plan for non-employee directors entitling Mr.
Wellington as of March 31, 1997 to receive that number of shares on or
after his deferral termination date.
(14) The shares shown as beneficially owned include an aggregate of 24,426
shares as to which two executive officers not named in the table have the
right to acquire ownership through the exercise of those options, held by
such officers under stock option plans of the Company, which are
exercisable within 60 days of May 1, 1997.
Information in the table above does not include options to acquire Common
Stock, but does include shares of Common Stock which have not been issued but
which are subject to options which either are currently exercisable or will
become exercisable within 60 days of May 1, 1997. In addition, all In the
Money Options (as defined in the Merger Agreement) will become exercisable
immediately prior to the consummation of the Offer.
I-10
<PAGE>
COMPENSATION AND CERTAIN OTHER TRANSACTIONS INVOLVING EXECUTIVE OFFICERS
Compensation. There is set forth below, on an accrual basis, the aggregate
amount of base salary, bonus, and other cash compensation paid by the Company,
and the number of shares of Common Stock of the Company and of common stock of
specified subsidiaries of the Company issuable upon exercise of stock options
granted under the respective company's stock option plans, during the fiscal
years ended June 30, 1996, 1995, and 1994 for services rendered, to the
individual (Mr. Conrades) who served during the fiscal year ended June 30,
1996 as chief executive officer of the Company, and to the four other most
highly compensated individuals (Messrs. Campbell, Kish, Gudonis, and
Goldwasser) who were serving as executive officers of the Company at the end
of the 1996 fiscal year. Mr. Kish is no longer in the employ of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- ---------------------
STOCK UNDERLYING
OPTIONS (NUMBER ALL
NAME AND PRINCIPAL FISCAL OTHER ANNUAL OF SHARES OTHER
POSITION YEAR SALARY BONUS COMPENSATION AND COMPANY(1)) COMPENSATION(2)
------------------ ------ -------- -------- ------------ --------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
George H. Conrades, 1996 $400,000 0 $270,928(3) 13,500 (BBN) (4) $ 7,688(5)
President and Chief 1995 400,000 0 176,871(6) 100,000 (PLT) (4) 14,860(5)
Executive Officer 100,000 (HRK) (4)
1994 206,154(7) 0 88,800(8) 800,000 (BBN) 0
100,000 (LSC) (9)
100,000 (DC) (10)
David N. Campbell, 1996 284,230 $150,000 79,600(11) 194,050 (BBN) (4) 0
Senior Vice President 30,000 (PLT) (4)
30,000 (HRK) (4)
30,000 (DC) (10)
John T. Kish, Jr., 1996 270,000 10,241(12) 675 (BBN) (4)(13) 4,500
Vice President 1995 225,000 125,000 170,874(14) 65,000 (BBN) (15) 0
5,000 (PLT) (4)
5,000 (HRK) (4)
1994 786(16) 300,000 (DC) (17) 0
<CAPTION>
Paul R. Gudonis, 1996 220,833 50,000 153,800 (BBN) (4) 5,625(5)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vice President 1995 125,000(18) 138,500 50,000 (BBN) 0
350,000 (PLT) (4)
5,000 (DC) (10)
5,000 (HRK) (4)
Ralph A. Goldwasser, 1996 210,000 50,000 42,500 (BBN) (4) 17,688(5)
Senior Vice President 20,000 (HRK) (4)
and Chief Financial 23,000 (DC) (10)
Officer
1995 182,500 25,000 40,000 (BBN) 15,423(5)
30,000 (PLT) (4)
10,000 (HRK) (4)
1994 172,500 0 25,000 (BBN) 12,527
7,000 (LSC) (9)
7,000 (DC) (10)
</TABLE>
- --------
(1) In addition to options granted to purchase Common Stock of the Company
(designated in the table as "BBN"), certain executive officers of the
Company have in the past been granted options to
I-11
<PAGE>
purchase common stock of specified subsidiaries of the Company, as
compensation for their services related to the subsidiary. Options were
granted during the fiscal years ended June 30, 1996, June 30, 1995, and June
30, 1994 to the specified executive officers in one or more of the following
subsidiaries of the Company: LightStream Corporation (designated in the
table as "LSC"), a majority-owned subsidiary of BBN; BBN Planet Corporation
(designated in the table as "PLT"), formerly a majority-owned subsidiary of
BBN; BBN Domain Corporation, formerly known as BBN Software Products
Corporation (designated in the table as "DC"), formerly a wholly-owned
subsidiary of BBN; and BBN HARK Systems Corporation (designated in the table
as "HRK"), formerly a wholly-owned subsidiary of BBN. In January 1995,
LightStream Corporation sold substantially all of its assets for
approximately $120,000,000 in cash. In connection with that transaction,
stock options held in LightStream by Messrs. Conrades and Goldwasser and
certain other executive officers of the Company were canceled by agreement,
without payment to the individuals. Stock options held by LightStream
employees were, in general, exchanged in that transaction for a cash payment
from LightStream. In fiscal 1996, BBN HARK Systems Corporation was merged
into the Company. In connection with that transaction, stock options held in
BBN HARK by Messrs. Conrades, Campbell, Kish, Gudonis, and Goldwasser and
certain other executive officers of the Company were replaced by options in
the Company's stock under the Company's 1986 Stock Incentive Plan. In fiscal
1996, in connection with the reorganization of the Company's Internet and
internetworking activities, stock options held in BBN Planet Corporation by
Messrs. Conrades, Campbell, Kish, Gudonis, and Goldwasser and certain other
executive officers of the Company were replaced by options in the Company's
stock under the Company's 1986 Stock Incentive Plan. BBN Planet has since
been merged into the Company. In July 1996, BBN Domain Corporation was
recapitalized and the majority of the Company's stock ownership in BBN
Domain was sold; in connection with the recapitalization and sale, stock
options held in BBN Domain by Messrs. Conrades, Campbell, Gudonis, and
Goldwasser and certain other executive officers of the Company who held
options but did not become employees of BBN Domain remain outstanding, to
the extent vested at the time of sale, at a reformulated price of $0.61 per
share. Mr. Kish, who left the employ of the Company in connection with the
sale and remains the president of BBN Domain (now called Domain Solutions
Corporation), continues in his options of Domain Solutions Corporation at
the reformulated price of $0.61 per share.
(2) Except as otherwise noted, indicated amounts are the Company's contribution
to the BBN Retirement Trust, the tax-qualified defined contribution
retirement plan of the Company and its subsidiaries, for the benefit of the
indicated individual.
(3) Amount represents expenses paid by the Company in connection with the
carrying expenses of Mr. Conrades' former residence, assumed by the Company
by agreement in connection with Mr. Conrades' relocation to Massachusetts,
and tax reimbursement for such expenses paid, in the fiscal year.
(4) In fiscal 1996 the Company undertook a program to combine its Internet and
internetworking services operations, and to focus its business principally
on a range of Internet capabilities. A corollary of this focus was the
elimination or sale of subsidiaries. In this connection, the portion of the
executive compensation package related to subsidiary stock options has been
largely terminated, replaced for those employees covered previously by
subsidiary options who remained or became employees of BBN by a replacement
option program for shares in BBN. Replacement options for BBN shares have
been awarded to recipients of options under the plans of BBN Planet and BBN
HARK, in general to the effect that for every 100 shares of stock of BBN
Planet covered by a replaced option, the individual received a BBN option
for 12.5 shares of BBN stock at an exercise price of $18.125 per share, as
to which 50% would vest after 6 months and an additional 50% would vest
after 12 months, and that for every 100 shares of stock of BBN HARK covered
by a replaced option, the individual received a BBN option for 1 share of
BBN stock at an exercise price of $28.875 per share, as to which 25% would
vest after 1 year and an additional 25% would
I-12
<PAGE>
vest annually thereafter. As a result, BBN Planet and BBN HARK options have
been canceled, unexercised; replacement options for BBN shares are included
in fiscal 1996 figures.
(5) Includes amounts credited by the Company to the account of the individual
under the Company's non-qualified deferred compensation plan for certain
key executives, established effective April 1, 1995. In general,
participation in the Deferred Compensation Plan is limited to executives
selected from among those with annual base salary in excess of $150,000.
Under the Deferred Compensation Plan, a participant may defer base salary
in excess of the $150,000 limit, plus bonuses; in addition, the Company
can make discretionary retirement contributions. Deferred amounts are
payable at a fixed future date selected in advance by the participant,
upon termination of employment, or in the case of certain hardships.
Accounts are adjusted for notional investment earnings based on
participant choices from among the same range of investment funds (other
than Company stock) as are available under the Company's tax-qualified
BBN Retirement Trust. The Company, although not obligated to do so under
the terms of the Deferred Compensation Plan, has established a trust to
help meet future payment obligations under the Deferred Compensation
Plan. Obligations under the Deferred Compensation Plan are general
obligations of the Company, and the rights of participants to benefits
remain those of general creditors of the Company. In the event of certain
changes in control of the Company, participants would be entitled to
reimbursement for certain costs incurred in enforcing rights under the
Deferred Compensation Plan. To make up for certain limitations imposed by
the Internal Revenue Code on contributions to the BBN Retirement Trust,
the Company credited the following amounts: for the year ended June 30,
1995, $3,750 and $4,313, respectively, for Messrs. Conrades and
Goldwasser; for the year ended June 30, 1996, $6,438, $1,125, and $6,438,
respectively, for Messrs. Conrades, Gudonis, and Goldwasser.
(6) Amount includes expenses incurred by the Company in connection with the
sale of Mr. Conrades' former residence, assumed by the Company by
agreement in connection with Mr. Conrades' relocation to Massachusetts,
aggregating $170,346. Amount also includes interim local living expenses
prior to Mr. Conrades' relocation to Massachusetts paid, and tax
reimbursement for interim local living expenses paid, in the fiscal year,
aggregating $6,525.
(7) Payments primarily constituting six months salary, at an annualized rate
of $400,000 per year.
(8) Amount includes interim local living expenses prior to Mr. Conrades'
relocation to Massachusetts paid, and tax reimbursement for interim local
living expenses paid, in the fiscal year, aggregating $51,300. Amount
also includes $37,500, the amount of the difference between the price
paid by Mr. Conrades for 20,202 shares of Common Stock of the Company
purchased from the Company upon Mr. Conrades joining the employ of the
Company, and the fair market value of such shares on the date of
purchase.
(9) Canceled by agreement, without compensation to the individual, upon sale
of the business of LightStream Corporation.
(10) Options for employees of BBN Domain were reformulated upon the
recapitalization and sale by BBN of the majority of the stock of that
company in July 1996. Following the sale, stock options in BBN Domain
held by certain executive officers of BBN who held options but did not
become employees of BBN Domain, remain outstanding, to the extent vested
at the time of the sale, at a reformulated price of $0.61 per share.
(11) Amount represents relocation expenses related to Mr. Campbell's
relocation to Massachusetts paid in the fiscal year, aggregating $41,000,
and expenses incurred by the Company in connection with the sale of Mr.
Campbell's former residence, assumed by the Company by agreement in
connection with Mr. Campbell's relocation to Massachusetts, aggregating
$38,600.
(12) Amount represents relocation expenses related to Mr. Kish's relocation to
Massachusetts and related tax reimbursement paid in the fiscal year.
(13) Options for 362 of such shares were unvested at, and terminated upon, Mr.
Kish's leaving the employ of the Company in July 1996.
I-13
<PAGE>
(14) Amount represents relocation expenses related to Mr. Kish's relocation to
Massachusetts and related tax reimbursement paid in the fiscal year,
aggregating $115,747, and expenses incurred by the Company in connection
with the sale of Mr. Kish's former residence, assumed by the Company by
agreement in connection with Mr. Kish's relocation to Massachusetts,
aggregating $55,127.
(15) Options for 46,250 of such shares were unvested at, and terminated upon,
Mr. Kish's leaving the employ of the Company in July 1996.
(16) Mr. Kish joined the employ of the Company in June 1994.
(17) In connection with the recapitalization and sale of a majority of the
stock of BBN Domain Corporation by the Company in July 1996, option was
continued at a reformulated price of $0.61 per share.
(18) Payments consisting of seven and one-half months of salary, at an
annualized rate of $200,000 per year.
The aggregate incremental cost of personal benefits provided by the Company
in each of fiscal 1996, 1995, and 1994, to each of the individuals named in
the Summary Compensation Table (other than to Messrs. Conrades, Campbell, and
Kish), did not exceed the lesser of $50,000 or 10% of the indicated amount of
total annual salary and bonus reported for the named individual in the Summary
Compensation Table.
Employment Agreements, Loans, and Separation Pay Arrangements.
The agreement with Mr. Conrades provides that if his employment is
terminated by the Company without cause, the Company will pay him an amount
equal to one year's base salary, as full termination benefits.
In connection with the sale by the Company of the majority of the stock of
BBN Domain Corporation, of which Mr. Kish serves as president, Mr. Kish left
the employ of the Company on July 31, 1996, after 2 years of service. At that
time Mr. Kish received $135,000 in incentive pay and the Company agreed that
in the event his employment with BBN Domain (the name of which has been
changed in connection with the sale to Domain Solutions Corporation) is
involuntarily terminated for any reason other than cause within 1 year
following July 31, 1996, and if the total severance package paid to him in
connection with such termination has a value of less than $270,000, BBN will
pay Mr. Kish at the time of such termination the difference between such value
and $270,000. In addition, the exercisability of options held by Mr. Kish for
15,000 shares of Common Stock of the Company granted in August 1994 was
accelerated to become exercisable through the period ending September 29,
1996. BBN also agreed with Domain Solutions Corporation to sell to Domain
Solutions Corporation, at the exercise price of $0.61 per share, a portion of
its shares of Domain Solutions Corporation necessary to fund the exercise by
Mr. Kish of the outstanding and vested options for 150,000 shares of common
stock of Domain Solutions Corporation held by Mr. Kish at the date of
termination, as well as for a supplemental grant to Mr. Kish by Domain
Solutions Corporation, if made, for 25,000 shares.
In connection with his relocation to Massachusetts to join the employ of the
Company, Mr. Kish borrowed from the Company in August 1994 an aggregate of
$150,000 to bridge the purchase of a house in Massachusetts pending the sale
of his previous home in California. The borrowing was represented by a term
note, due in two equal installments on August 1, 1995 and 1996, given by Mr.
Kish, which note carried simple interest at 8% per annum. The principal amount
of $75,000 outstanding at July 31, 1996, together with accrued interest, was
forgiven by the Company following the termination of employment with BBN of
Mr. Kish.
As part of the bonus payments made to Mr. Gudonis in the 1995 fiscal year,
$88,500 was paid to him to reimburse him for forfeitures under a bonus plan at
his former employer. Mr. Gudonis'
I-14
<PAGE>
agreement with the Company provides that in the event that he resigns from BBN
during the first four years of employment, he is responsible for reimbursing a
pro-rata share of this payment made to him.
Stock Option Grants. The table below sets forth information with respect to
stock options granted in fiscal year 1996 to the individuals named in the
Summary Compensation Table above; the options listed below are reflected in
the Summary Compensation Table. Information presented in the table below is
with respect to employee stock option plans; neither the Summary Compensation
Table above nor the tables on option grants and option exercises below
includes information related to the Company's employee stock purchase plan,
which is generally available to employees of the Company.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
FOR OPTION TERM (9)
------------------------------
NUMBER
OF SHARES
UNDERLYING
OPTIONS % OF TOTAL
GRANTED TO OPTIONS
PURCHASE COMMON GRANTED TO
STOCK OF BBN EMPLOYEES EXERCISE MARKET EXPIRATION
OR SPECIFIED IN FISCAL PRICE PRICE DATE
NAME SUBSIDIARIES (1)(4)(5) YEAR (6) ($/SH)(7) ($/SH)(8) (2)(3)(4)(5) 0% 5% 10%
---- ----------------------------------- --------- --------- ------------ -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
George H.
Conrades.......... 1,000 (BBN) (2) 0.05% $28.875 1/17/01 $ 7,978 $ 17,628
12,500 (BBN) (3) 0.6 18.125 $28.875 1/17/00 $134,375 212,159 301,886
David N. Campbell. 150,000 (BBN) 7.7 35.75 7/24/02 2,183,074 5,087,457
30,000 (PLT) (10) 11.1 8.00 7/27/05 (10) (10)
30,000 (HRK) (11) 17.2 1.00 8/4/05 (11) (11)
30,000 (DC) (12) 9.0 3.50 8/7/05 66,033(12) 167,339(12)
300 (BBN) (2) 0.0 28.875 1/17/01 2,393 5,288
3,750 (BBN) (3) 0.2 18.125 28.875 1/17/00 40,312 63,648 90,565
40,000 (BBN) 2.1 27.50 5/6/03 447,810 1,043,581
John T. Kish,
Jr. .............. 50 (BBN) (2) 0.0 28.875 1/17/01 399 881
625 (BBN) (3) 0.0 18.125 28.875 1/17/00 6,718 10,608 15,094
Paul R. Gudonis... 50 (BBN) (2) 0.0 28.875 1/17/01 399 881
43,750 (BBN) (3) 2.2 18.125 28.875 1/17/00 470,312 742,558 1,056,601
110,000 (BBN) 5.7 28.875 1/17/03 1,293,053 3,013,363
Ralph A.
Goldwasser........ 20,000 (HRK) (11) 11.4 1.00 8/4/05 (11) (11)
23,000 (DC) (12) 6.9 3.50 8/7/05 50,626(12) 128,293(12)
300 (BBN) (2) 0.0 28.875 1/17/01 2,393 5,288
3,750 (BBN) (3) 0.2 18.125 28.875 1/17/00 40,312 63,648 90,565
38,450 (BBN) 2.0 27.50 5/6/03 430,457 1,003,142
</TABLE>
INDIVIDUAL GRANTS
- --------
(1) BBN Corporation is designated in the table as "BBN"; BBN HARK Systems
Corporation, formerly a wholly-owned subsidiary of BBN, is designated in
the table as "HRK"; BBN Planet Corporation, formerly a majority-owned
subsidiary of BBN, is designated in the table as "PLT"; and BBN Domain
Corporation, formerly a wholly-owned subsidiary of BBN, is designated in
the table as "DC".
(2) These options for BBN shares were granted under the Company's 1986 Stock
Incentive Plan replacing options previously granted under the subsidiary
option plan for BBN HARK Systems Corporation. These BBN stock options are
exercisable as to 25% after one year from grant, an additional 25% after
two years, an additional 25% after three years, and the remainder after
four years from grant, if the optionee is employed by BBN at the
respective date. These options were granted for a term of 5 years.
I-15
<PAGE>
(3) These options for BBN shares were granted under the Company's 1986 Stock
Incentive Plan replacing options previously granted under the subsidiary
option plan for BBN Planet Corporation. These BBN stock options are
exercisable as to 50% after 6 months from grant, and the remainder after
12 months from grant, if the optionee is employed by BBN at the
respective date. These options were granted for a term of 4 years. The
fair market value of the BBN Common Stock on the date of grant was
$28.875.
(4) All BBN options (other than the BBN Planet replacement options) granted
in fiscal 1996 to named individuals vest 25% after one year from grant,
an additional 25% after two years, an additional 25% after three years,
and the remainder after four years from grant, if the optionee is
employed by BBN at the respective date. All BBN options (other than the
BBN Planet and BBN HARK replacement options) were each granted for terms
of 7 years. In general, all BBN options, including the BBN Planet and BBN
HARK replacement options granted to Messrs. Conrades, Campbell, Kish,
Gudonis, and Goldwasser, are subject to termination 60 days following
termination of the optionee's employment (180 days, in the event of
death). All BBN options (other than the BBN Planet replacement options)
were granted at fair market value (closing price of the Company's Common
Stock on the New York Stock Exchange) at date of grant. The BBN options
replacing options previously granted under the subsidiary option plan of
BBN Planet were granted at a reduced price from fair market value, which
took into consideration the spread in the estimated BBN Planet stock
value and the replaced option's exercise price. The exercise price and
tax withholding obligations related to exercise of all BBN options may be
paid by delivery of already-owned shares or by offset of the underlying
shares, subject to certain conditions.
(5) All subsidiary options granted in fiscal 1996 vested as to 25% after one
year from grant, an additional 25% after two years, an additional 25%
after three years, and the remainder after four years from grant, if the
optionee was employed at the respective date. None of the options was
exercisable until 90 days after the respective company's stock becomes
publicly traded. The options were each granted for terms of 10 years,
subject to termination 60 days following termination of the optionee's
employment (180 days, in the event of death), or if later, 90 days after
the company's stock becomes publicly traded. In general, options were
granted at the estimated fair value of the company's stock at the date of
grant. The exercise price and tax withholding obligations relating to
exercise could be paid by delivery of already owned shares or by offset
of the underlying shares, subject to certain conditions.
(6) Percentage figure is of the total options of shares of the respective
company granted in the fiscal year.
(7) Under the terms of the Company's stock option plans, the Committee or the
respective board retains the discretion, subject to plan limits, to
modify the terms of outstanding options and to reprice the options.
(8) Market price of the underlying security on the date of grant, if in
excess of the exercise price.
(9) Gains are calculated net of the option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates
of appreciation only. Actual gains, if any, in stock option exercises are
dependent upon the future performance of the respective common stock, as
well as the optionee's continued employment through the vesting period,
and for subsidiary options, on the respective company's stock becoming
publicly traded during the option period. The amounts reflected in these
columns may not necessarily be achieved.
(10) These options have been replaced by options for BBN shares. See footnote
3 above.
(11) These options have been replaced by options for BBN shares. See footnote
2 above.
(12) In connection with the recapitalization of BBN Domain Corporation and the
July 31, 1996 sale by the Company of the majority of the stock of that
company, options for 25% of the optioned shares, at a reformulated price
of $0.61 per share, were vested; the remainder were unvested, and were
canceled upon the termination of the service relationship of the
individual with BBN Domain Corporation.
I-16
<PAGE>
Stock Option Exercises and Options Outstanding. The table below sets forth
information with respect to stock options exercised by the individuals named in
the Summary Compensation Table in fiscal year 1996, and the number and value of
unexercised options held by such persons on June 30, 1996.
OPTION EXERCISES IN FISCAL YEAR 1996 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
COMPANY AND
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT JUNE 30, 1996 AT JUNE 30, 1996
------------------------------------ ----------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE REALIZED COMPANY(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ---------- ------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
George H. Conrades...... 0 -- BBN 500,000 313,500 $ 4,687,500(2) $ 2,857,813(2)
DC 0 100,000(4) (3) (3)(4)
David N. Campbell....... 0 -- BBN 0 194,050 0 13,594(2)
DC 0 30,000(4) 0 (3)(4)
John Kish............... 0 -- BBN 3,750 61,925(5) 13,594(2) 424,297(2)(5)
DC 0 300,000 (3) (3)
Paul R. Gudonis......... 0 -- BBN 0 203,800 0 302,344(2)
DC 0 5,000(4) (3) (3)(4)
Ralph A. Goldwasser..... 28,500 $779,625 BBN 19,000 90,000 164,125(2) 310,906(2)
DC 0 30,000(4) (3) (3)(4)
</TABLE>
- -------
(1) BBN Corporation is designated in the table as "BBN"; and BBN Domain
Corporation, formerly a wholly-owned subsidiary of BBN, is designated in
the table as "DC".
(2) Represents the excess, if any, between the closing price of the Company's
Common Stock on June 28, 1996 and the exercise price of the options.
(3) These options were vested as to 50,000 shares, 0 shares, 150,000 shares,
1,250 shares, and 3,500 shares, respectively, for each of Messrs. Conrades,
Campbell, Kish, Gudonis, and Goldwasser at June 30, 1996 but are
unexercisable until following public trading of the related common stock,
and no public market currently exists for the shares underlying these
options. Accordingly, no value in excess of the exercise price has been
attributed to these options.
(4) Option amounts in excess of the then-vested portion (vested as to 50,000
shares, 7,500 shares, 1,250 shares, and 9,250 shares, respectively, for
each of Messrs. Conrades, Campbell, Gudonis, and Goldwasser) were canceled,
unexercised under the terms of the options following the sale by BBN of the
majority of the stock of BBN Domain Corporation in July 1996.
(5) The exercisability of the options to the extent of 15,000 shares was
accelerated upon Mr. Kish leaving the employ of the Company in July 1996,
and the remaining unvested options were terminated at that time. Vested
options held by Mr. Kish at the date of termination of his employment
(aggregating 19,063 shares) were exercisable by Mr. Kish through the period
ended September 27, 1996. Of that amount, options for a total of 15,000
shares were exercised by Mr. Kish in September 1996, with a value realized
(representing the difference between the closing price of the Company's
Common Stock on the date of exercise and the exercise price of the options)
aggregating $48,750. The remaining options for 4,063 shares terminated
unexercised.
Change-of-Control Arrangements. The Company has termination agreements
with the individuals named in the Summary Compensation Table above, which
agreements obligate the respective 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 agrees 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
I-17
<PAGE>
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 as the result of
commission by him of a felony; 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" 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 Company's then-outstanding stock, and other changes of control as
determined by regulatory authorities. Such severance payments would not be
reduced for compensation received by the individual from any new
employment. The agreements provide that five years after commencement, the
change-of-control payment rights may be canceled by the Company by notice
given more than 30 days prior to the change of control. The five-year
period has run for Mr. Goldwasser. 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,
$900,000, $900,000, $800,000, and $515,000, respectively, for Messrs.
Conrades, Campbell, Kish, Gudonis, and Goldwasser. The agreement with Mr.
Kish has terminated as a result of his termination of employment with the
Company effective July 31, 1996.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater-than-ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company, during the fiscal year ended June 30, 1996,
all Section 16(a) filing requirements applicable to its officers, directors
and greater-than-ten-percent beneficial owners were complied with.
I-18
<PAGE>
[ALEX. BROWN LETTERHEAD]
ANNEX II
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.
II-1
<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
----------------------------------
II-2
<PAGE>
EXHIBIT 1
AGREEMENT AND PLAN OF MERGER
AMONG
GTE CORPORATION
GTE MASSACHUSETTS INCORPORATED
AND
BBN CORPORATION
DATED AS OF MAY 5, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 1.
THE OFFER................................................................ 1
Section 1.1 The Offer............................................... 1
Section 1.2 Company Actions......................................... 2
Section 1.3 Stockholder Lists....................................... 3
Section 1.4 Composition of the Board of Directors; Section 14(f).... 3
Section 1.5 Action by Continuing Directors.......................... 3
ARTICLE 2.
THE MERGER............................................................... 3
Section 2.1 The Merger.............................................. 3
Section 2.2 Effective Time.......................................... 4
Section 2.3 Effects of the Merger................................... 4
Section 2.4 Articles of Organization and By-Laws.................... 4
Section 2.5 Directors............................................... 4
Section 2.6 Officers................................................ 4
Section 2.7 Conversion of Shares.................................... 4
Section 2.8 Conversion of Purchaser's Common Stock.................. 5
Section 2.9 Stock Options........................................... 5
Restricted Stock Conversion and Directors Defined
Section 2.10 Compensation............................................ 6
Section 2.11 Employee Stock Purchase Plan............................ 7
Section 2.12 Stockholders' Meeting................................... 7
Section 2.13 Closing................................................. 8
ARTICLE 3.
DISSENTING SHARES; EXCHANGE OF SHARES.................................... 8
Section 3.1 Dissenting Shares....................................... 8
Section 3.2 Exchange of Shares...................................... 8
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................ 9
Section 4.1 Organization............................................ 9
Section 4.2 Capitalization.......................................... 10
Section 4.3 Authority............................................... 10
Section 4.4 No Default; Effect of Agreement......................... 10
Section 4.5 Financial Statements; SEC Reports....................... 11
Section 4.6 Absence of Certain Changes or Events.................... 11
Section 4.7 Compliance with Law; Litigation......................... 12
Section 4.8 Environmental Matters................................... 12
Section 4.9 Governmental Authorizations and Regulations............. 12
Section 4.10 Schedule 14D-9, Offer Documents and Schedule 14D-1...... 12
Section 4.11 Brokers................................................. 12
Section 4.12 Employee Agreements and Benefits........................ 13
Section 4.13 Fairness Opinion........................................ 14
Section 4.14 Material Agreements..................................... 14
Section 4.15 Title to Properties; Encumbrances....................... 14
Section 4.16 Intellectual Property................................... 15
Section 4.17 Tax Matters............................................. 15
Section 4.18 Interested Party Transactions........................... 17
Section 4.19 Government Contracts.................................... 17
Section 4.20 Takeover Statutes....................................... 18
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER................... 18
Section 5.1 Organization............................................ 18
Section 5.2 Authority............................................... 18
Section 5.3 Schedule 14D-1, Offer Documents and Schedule 14D-9...... 18
Section 5.4 Effect of Agreement..................................... 18
Section 5.5 Financing............................................... 19
Section 5.6 Brokers................................................. 19
ARTICLE 6.
COVENANTS................................................................ 19
Section 6.1 No Solicitation......................................... 19
Section 6.2 Appraisal Rights........................................ 20
Section 6.3 Conduct of Business of the Company...................... 20
Section 6.4 Access and Information.................................. 22
Section 6.5 Certain Filings, Consents and Arrangements.............. 22
Section 6.6 State Takeover Statutes................................. 23
Section 6.7 Compliance with Antitrust Laws.......................... 23
Section 6.8 Press Releases.......................................... 23
Section 6.9 Indemnification; Insurance.............................. 23
Section 6.10 Notification of Certain Matters......................... 24
Section 6.11 Fees and Expenses....................................... 24
Section 6.12 Actions Regarding the Rights............................ 24
Section 6.13 Shareholder Litigation.................................. 24
ARTICLE 7.
CONDITIONS TO THE MERGER................................................. 25
Conditions to the Obligations of Parent, Purchaser and
Section 7.1 the Company............................................. 25
Section 7.2 Conditions to the Obligations of Parent and Purchaser... 25
Section 7.3 Condition to the Company's Obligation................... 25
Section 7.4 Exception............................................... 26
ARTICLE 8.
MISCELLANEOUS............................................................ 26
Section 8.1 Termination............................................. 26
Section 8.2 Effect of Termination................................... 27
Non-Survival of Representations, Warranties and
Section 8.3 Agreements.............................................. 28
Section 8.4 Waiver and Amendment.................................... 28
Section 8.5 Entire Agreement........................................ 28
Section 8.6 Applicable Law.......................................... 28
Section 8.7 Headings................................................ 28
Section 8.8 Notices................................................. 28
Section 8.9 Counterparts............................................ 29
Section 8.10 Parties in Interest; Assignment......................... 29
Section 8.11 Specific Performance.................................... 29
Section 8.12 Certain Undertakings of Parent.......................... 29
Section 8.13 Interpretation.......................................... 30
Section 8.14 Severability............................................ 30
<CAPTION>
Exhibit A Conditions of the Offer.................................. A-1
<C> <S> <C>
Exhibit B Form of Termination Option.............................. B-1
</TABLE>
ii
<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.
<PAGE>
(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 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
2
<PAGE>
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 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
3
<PAGE>
"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."
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.
4
<PAGE>
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:
(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
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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 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
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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 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");
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(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 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.
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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 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.
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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 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
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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 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.
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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 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
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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
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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 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
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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 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,
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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.
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.
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(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 the 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.
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
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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.
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
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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.
(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:
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(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 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;
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(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;
(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.
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(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, 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'
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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 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.
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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;
(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.
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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 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
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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
(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
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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 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
28
<PAGE>
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 l0066
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.
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).
29
<PAGE>
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]
30
<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
S-1
<PAGE>
EXHIBIT A
TO
AGREEMENT AND PLAN OF MERGER
CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, Purchaser shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including without limitation, Rule 14e-1(c) under the
Exchange Act (relating to Purchaser's obligation to pay for or return Shares
promptly after termination or withdrawal of the Offer), pay for, or may delay
the acceptance for payment of or payment for, any tendered shares, or may, in
its sole discretion, terminate or amend the Offer as to any Shares not then
paid for, if (i) any applicable waiting period under the HSR Act shall not
have expired or been terminated, (ii) the number of Shares validly tendered
and not withdrawn when added to the Shares then beneficially owned by Parent
does not constitute two-thirds of the Shares then outstanding, or (iii) on or
after the date of this Agreement and at or before the time of payment for the
Shares, any of the following events shall occur and be continuing:
(a) there shall have occurred and be continuing (1) any general suspension
of trading in, or limitation on prices for, securities on the New York Stock
Exchange, Inc., (2) the declaration of a banking moratorium or any suspension
of payments in respect of banks in the United States (whether or not
mandatory), (3) the commencement of a war, armed hostilities or other
international or national calamity directly or indirectly involving the United
States and having had or being reasonably likely to have a Material Adverse
Effect or would restrain, prohibit or delay beyond the Final Termination Date
the consummation of the Offer, (4) any limitation or proposed limitation
(whether or not mandatory) by any Governmental Entity, or any other event,
that materially adversely affects generally the extension of credit by banks
or other financial institutions, (5) from the date of this Agreement through
the date of termination or expiration of the Offer, a decline of at least 25%
in the Standard & Poor's 500 Index or (6) in the case of any of the situations
described in clauses (1) through (5) inclusive, existing at the date of this
Agreement, a material acceleration, escalation or worsening thereof;
(b) (i) the representations and warranties of the Company set forth in this
Agreement shall not have been true and correct in any material respect on the
date hereof or (ii) the representations and warranties of the Company set
forth in this Agreement shall not be true and correct in any respect as of the
scheduled expiration date (as such date may be extended) of the Offer as
though made on or as of such date or the Company shall have breached or failed
in any respect to perform or comply with any obligation, agreement or covenant
required by this Agreement to be performed or complied with by it except, in
each case with respect to clause (ii), (x) for changes specifically permitted
by this Agreement and (y) (A) for those representations and warranties that
address matters only as of a particular date which are true and correct as of
such date or (B) where the failure of representations and warranties (without
giving effect to any limitation based on "materiality," "Material Adverse
Effect" or words of similar effect set forth therein) to be true and correct,
or the performance or compliance with such obligations, agreements or
covenants, would not in the aggregate reasonably be expected to have a
Material Adverse Effect;
(c) there shall be any action or proceeding commenced by or before, or
threatened in writing by, any Governmental Entity, which has a reasonable
likelihood of success and which, if decided adversely to the Company, would
have a Material Adverse Effect or would restrain, prohibit or delay beyond the
Final Termination Date the consummation of the Offer, and if decided adversely
to Parent, would have the effect of (i) making the purchase of, or payment
for, some or all of the Shares pursuant to the Offer or the Merger or
otherwise illegal, or resulting in a material delay in the ability of Parent
or Purchaser to accept for payment or pay for some or all of the Shares, (ii)
compelling Parent or Purchaser to dispose of or hold separately all or any
material portion of the Company's or Parent's business or assets, (iii) making
illegal, or otherwise directly or indirectly restraining or prohibiting or
A-1
<PAGE>
imposing material financial burdens, penalties or, fines or requiring the
payment of material damages in connection with the making of, the Offer, the
acceptance for payment of, payment for, or ownership, directly or indirectly,
of some of or all the Shares by Parent or Purchaser, the consummation of the
Offer or the Merger, (iv) otherwise preventing consummation of the Offer or
the Merger, or (v) imposing limitations on the ability of Parent or Purchaser
effectively (A) to acquire, hold or operate the business of the Company and
its Subsidiaries taken as a whole or (B) to exercise full rights of ownership
of the Shares acquired by it, including, but not limited to, the right to vote
the Shares purchased by it on all matters properly presented to the
stockholders of the Company, which, in either case, would effect a material
diminution in the value of the Company or the Shares;
(d) there shall been any Law enacted, promulgated, entered or deemed
applicable to the Offer or the Agreement or any other action shall have been
taken or threatened in writing, by any Governmental Entity on or after the
date of the Offer that would reasonably be expected to, directly or
indirectly, result in any of the consequences referred to in clauses (i)
through (v) of paragraph (c) above;
(e) the Board of Directors of the Company shall have publicly (including by
amendment of its Schedule 14D-9) withdrawn or adversely modified its
recommendation of acceptance of the Offer; or
(f) since the date hereof, there shall have occurred any event or events
that, singly or in the aggregate, have had or would reasonably be expected to
have a Material Adverse Effect; or
(g) the Agreement shall have been terminated in accordance with its terms,
or Parent or Purchaser shall have reached an agreement or understanding in
writing with the Company providing for termination or amendment of the Offer;
which, in any such case, and regardless of the circumstances (including any
action or inaction by Parent or Purchaser) giving rise to any such conditions,
makes it in the sole discretion of Parent inadvisable to proceed with the
Offer and/or with such acceptance for payment of or payment for the Shares.
The foregoing conditions are for the sole benefit of Parent and Purchaser
and may be asserted by Parent or Purchaser regardless of the circumstances
giving rise to any such condition and may be waived by Parent or Purchaser, in
whole or in part, at any time and from time to time, in the sole discretion of
Parent or Purchaser. The failure by Parent or Purchaser at any time to
exercise any of the foregoing rights will not be deemed a waiver of any right
and each right will be deemed an ongoing right which may be asserted at any
time and from time to time.
A-2
<PAGE>
EXHIBIT B
TO
AGREEMENT AND PLAN OF MERGER
FORM OF TERMINATION OPTION
B-1
<PAGE>
EXHIBIT 2
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of May 5, 1997, by and between BBN
Corporation, a Massachusetts corporation (the "COMPANY"), and GTE Corporation,
a New York corporation ("PARENT").
WHEREAS, as a condition to its willingness to enter into the Agreement and
Plan of Merger, dated as of May 5, 1997 (the "MERGER AGREEMENT"; capitalized
terms used herein without definition shall have the meanings set forth in the
Merger Agreement), among the Company, Parent and GTE Massachusetts
Incorporated, a Massachusetts corporation ("PURCHASER"), Parent has required
that the Company agree, and the Company has agreed, to grant Parent the option
as set forth herein to purchase up to 4,225,000 (subject to adjustment as set
forth herein) shares of Common Stock, $1.00 par value of the Company (the
"COMPANY COMMON STOCK").
NOW, THEREFORE, to induce Parent to enter into the Merger Agreement and in
consideration of the Merger Agreement and of the mutual covenants and
agreements set forth herein, the parties agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth herein,
the Company hereby grants to Parent an irrevocable option (the "OPTION") to
purchase up to 4,225,000 (subject to adjustment as set forth herein) shares of
Company Common Stock (the "OPTION SHARES") at a purchase price of $29 (subject
to adjustment as set forth herein) per Option Share (the "PURCHASE PRICE").
2. Exercise of Option. (a) Parent may exercise the Option, with respect to
all or any part of the Option Shares at any one time, subject to the
provisions of Section 2(c), after the occurrence of any event as a result of
which Parent is entitled to receive the Termination Fee pursuant to Section
8.2(b) of the Merger Agreement (a "PURCHASE EVENT"); provided, however, that
(i) except as provided in the last sentence of this Section 2(a), the Option
will terminate and be of no further force and effect upon the earliest to
occur of (A) the Effective Time, (B) 9 months after the first occurrence of a
Purchase Event described in clauses (i) or (ii) of Section 8.2(b) of the
Merger Agreement, (C) termination of the Merger Agreement in accordance with
its terms prior to the occurrence of a Purchase Event, unless, in the case of
clause (C), Parent has, or upon the occurrence of certain events would have,
the right to receive the Termination Fee under clause (iii) of Section 8.2(b)
following such termination, in which case the Option will not terminate until
the later of (x) six months following the time such Termination Fee becomes
payable and (y) the expiration of the period in which Parent has or may have
such right to receive the Termination Fee, and (D) when the aggregate amount
paid by the Company under Section 6 and in connection with the Termination Fee
equals or exceeds $21,231,000 and (ii) any purchase of Option Shares upon
exercise of the Option will be subject to compliance with the HSR Act and the
obtaining or making of any consents, approvals, orders, notifications or
authorizations, the failure of which to have obtained or made would have the
effect of making the issuance of Option Shares illegal (the "REGULATORY
APPROVALS"). Notwithstanding the termination of the Option, Parent will be
entitled to purchase the Option Shares if it has exercised the Option in
accordance with the terms hereof prior to the termination of the Option and
the termination of the Option will not affect any rights hereunder which by
their terms do not terminate or expire prior to or as of such termination.
(b) In the event that Parent wishes to exercise the Option, it will send to
the Company a written notice (an "EXERCISE NOTICE"; the date of which being
herein referred to as the "NOTICE DATE") to that effect, which Exercise Notice
also specifies the number of Option Shares, if any, Parent wishes to purchase
pursuant to this Section 2(b), the number of Option Shares, if any, with
respect to which Parent wishes to exercise its Cash-Out Right (as defined
herein) pursuant to Section 6(c), and a date not earlier than three business
days nor later than 20 business days from the Notice Date for the closing of
such purchase (an "OPTION CLOSING"; the date of which being referred to as the
"OPTION CLOSING DATE"). Any Option Closing will be at an agreed location and
time in New York, New York on
<PAGE>
the applicable Option Closing Date or at such later date as may be necessary
so as to comply with clause (ii) of Section 2(a).
(c) Notwithstanding anything to the contrary contained herein, any exercise
of the Option and purchase of Option Shares shall be subject to compliance
with applicable laws and regulations, which may prohibit the purchase of all
the Option Shares specified in the Exercise Notice without first obtaining or
making certain Regulatory Approvals. Notwithstanding anything in Section 2(a)
hereof to the contrary, in such event, if the Option is otherwise exercisable
and Parent wishes to exercise the number of Option Shares specified in the
Exercise Notice that Parent is then permitted to acquire under the applicable
laws and regulations, and if Parent thereafter obtains the Regulatory
Approvals to acquire the remaining balance of the Option Shares specified in
the Exercise Notice, then Parent shall be entitled to acquire such remaining
balance. The Company agrees to use its reasonable best efforts to assist
Parent in seeking the Regulatory Approvals.
In the event (i) Parent receives official notice that a Regulatory Approval
required for the purchase of any Option Shares will not be issued or granted,
(ii) such Regulatory Approval has not been issued or granted within six months
of the date of the Exercise Notice, or (iii) Parent in its sole discretion
shall so elect, Parent shall have the right to exercise its Cash-Out Right
pursuant to Section 6(c) with respect to the Option Shares for which such
Regulatory Approval will not be issued or granted or has not been issued or
granted.
3. Payment and Delivery of Certificates. (a) At any Option Closing, Parent
will pay to the Company in immediately available funds by wire transfer to a
bank account designated in writing by the Company an amount equal to the
Purchase Price multiplied by the number of Option Shares to be purchased at
such Option Closing.
(b) At any Option Closing, simultaneously with the delivery of immediately
available funds as provided in Section 3(a), the Company will deliver to
Parent a certificate or certificates representing the Option Shares to be
purchased at such Option Closing, which Option Shares will be free and clear
of all Liens of any kind whatsoever except as may generally obtain under
applicable securities laws. If at the time of issuance of Option Shares
pursuant to an exercise of the Option hereunder, any rights shall be
outstanding under the Company's shareholder rights plan, then each Option
Share issued pursuant to such exercise will also represent such a
corresponding right with terms substantially the same as and at least as
favorable to Parent as are provided under any shareholders rights agreement or
similar agreement relating to the Company or Company Common Stock then in
effect.
(c) Certificates for the Option Shares delivered at an Option Closing will
have typed or printed thereon a restrictive legend which will read
substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE."
It is understood and agreed that the reference to restrictions arising under
the Securities Act of 1933, as amended, together with any regulations
promulgated thereunder (the "SECURITIES ACT") in the above legend will be
removed by delivery of substitute certificate(s) without such reference if
such Option Shares have been registered pursuant to the Securities Act, such
Option Shares have been sold in reliance on and in accordance with Rule 144
under the Securities Act or Parent has delivered to the Company a copy of a
letter from the staff of the SEC, or an opinion of counsel in form and
substance reasonably satisfactory to the Company, to the effect that such
legend is not required for purposes of the Securities Act.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to Parent as follows:
2
<PAGE>
(a) The Company has taken all necessary corporate and other action to
authorize and reserve and to permit it to issue, and, at all times from the
date hereof until the obligation to deliver Option Shares upon the exercise of
the Option terminates, shall have reserved for issuance, upon exercise of the
Option, shares of Company Common Stock necessary for Parent to exercise the
Option, and will take all necessary corporate action to authorize and reserve
for issuance all additional shares of Company Common Stock or other securities
which may be issued pursuant to Section 6 upon exercise of the Option. The
Option Shares have been duly authorized and all additional shares of Company
Common Stock or other securities which may be issuable pursuant to Section 6
upon exercise of the Option, upon issuance pursuant hereto, will be duly and
validly issued, fully paid and nonassessable, and will be delivered free and
clear of all Liens of any kind or nature whatsoever except as may generally
obtain under applicable securities laws, including without limitation any
preemptive rights of any stock holder of the Company.
(b) The Company is a corporation duly organized and validly existing in good
standing under the laws of the Commonwealth of Massachusetts. The Company has
all requisite corporate power and authority to enter into and perform all of
its obligations under this Agreement. The execution, delivery and performance
of this Agreement and all the transactions contemplated hereby have been duly
authorized by the Company's Board of Directors and no other corporate
proceedings on the part of the Company are necessary to authorize this
Agreement or any of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by a duly authorized officer of the Company,
and constitutes a legal, valid and binding agreement of the Company, and
assuming this Agreement is a legal, valid and binding obligation of Parent,
this Agreement is enforceable against it 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 to the discretion of the courts before which any
proceedings thereafter may be brought.
(c) The Company has taken all necessary corporate action to authorize and
reserve for issuance upon exercise of the Option 4,225,000 authorized but
unissued shares of Company Common Stock.
(d) No consent of any court or governmental authority is necessary for the
execution, delivery and performance of this Agreement by the Company.
(e) The execution and delivery of this Agreement do not, and the performance
of this Agreement will not (i) violate the articles of organization or by-laws
of the Company, or (ii) conflict with or result in a breach of any terms or
provisions of, or constitute a default or give rise to a right of acceleration
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company under any Material
Contract or any existing applicable Law or any rule or regulation of any
national securities exchange having jurisdiction over the Company or any of
its property.
(f) The representations and warranties set forth in Section 4.2 of the
Merger Agreement are true and correct.
5. Representations and Warranties of Parent. Parent hereby represents and
warrants to the Company that the Option is being acquired for investment
purposes only, any Option Shares acquired by Parent upon exercise will be
acquired for investment purposes only, and the Options and any Option Shares
or other securities acquired by Parent upon exercise of the option will not be
transferred or otherwise disposed of except in a transaction registered, or
exempt from registration, under the Securities Act.
6. Adjustment upon Changes in Capitalization, Etc. (a) In the event of any
change in Company Common Stock by reason of a stock dividend, split-up,
merger, recapitalization, combination, exchange of shares, distribution of
assets or similar transaction, the type and number of shares or
3
<PAGE>
securities subject to the Option, and the Purchase Price thereof, will be
adjusted appropriately, and proper provision will be made in the agreements
governing such transaction, so that Parent will receive upon exercise of the
Option the number and class of shares or other securities or property that
Parent would have received in respect of Company Common Stock (after giving
effect to such event) if the Option had been exercised immediately prior to
such event or the record date therefor, as applicable. Subject to Section 1,
and without limiting the parties' relative rights and obligations under the
Merger Agreement, if any additional shares of Company Common Stock are issued
after the date of this Agreement (other than pursuant to an event described in
the first sentence of this Section 6(a)), the number of shares of Company
Common Stock subject to the Option will be adjusted so that, after such
issuance, it equals 19.9% of the number of shares of Company Common Stock then
issued and outstanding, without giving effect to any shares subject to or
issued pursuant to the Option, and the Purchase Price thereof will be adjusted
appropriately. The Company shall provide notice to Parent as soon as possible
of any event requiring an adjustment under this clause (a).
(b) Without limiting the parties' relative rights and obligations under the
Merger Agreement, in the event that the Company enters into an agreement (i)
to consolidate with or merge into any Person, other than Parent or one of its
Subsidiaries and the Company will not be the continuing or surviving
corporation in such consolidation or merger, (ii) to permit any Person, other
than Parent or one of its Subsidiaries, to merge into the Company and the
Company will be the continuing or surviving corporation, but in connection
with such merger, the shares of Company Common Stock outstanding immediately
prior to the consummation of such merger will be changed into or exchanged for
stock or other securities of the Company or any other Person or cash or any
other property, or the shares of Company Common Stock outstanding immediately
prior to the consummation of such merger will, after such merger, represent
less than 50% of the outstanding voting securities of the merged company, or
(iii) to sell or otherwise transfer all or substantially all of its assets to
any Person, other than Parent or one of its Subsidiaries, then, and in each
such case, notice of such transaction will be provided as soon as possible to
Parent by the Company, and the agreement governing such transaction will make
proper provision so that the Option will, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be converted
into, or exchanged for, an option with identical terms appropriately adjusted
to acquire the number and class of shares or other securities or property that
Parent would have received in respect of Company Common Stock in connection
with such transaction if the Option had been exercised immediately prior to
such consolidation, merger, sale or transfer, or the record date therefor, as
applicable and make any other necessary adjustments so that the holders of the
Option may benefit fully from such transaction.
(c) If, at any time during the period commencing on a Purchase Event and
ending on the termination of the Option in accordance with Section 2, Parent
sends to the Company an Exercise Notice indicating Parent's election to
exercise its right (the "CASH-OUT RIGHT") pursuant to this Section 6(c), then
the Company shall pay to Parent, on the Option Closing Date, in exchange for
the cancellation of the Option with respect to such number of Option Shares as
Parent specifies in the Exercise Notice, an amount in cash equal to such
number of Option Shares multiplied by the difference between (i) the average
closing price, for the 10 New York Stock Exchange ("NYSE") trading days
commencing on the 12th NYSE trading day immediately preceding the Notice Date
(or, at the election of Parent, the date of the Purchase Event in the event
the Option has become exercisable and is subject to termination under clause
(C) of Section 2(a)(i)), per share of Company Common Stock as reported on the
NYSE Composite Transaction Tape (or, if not listed on the NYSE, as reported on
any other national securities exchange or national securities quotation system
on which Company Common Stock is listed or quoted, as reported in The Wall
Street Journal (Northeast edition), or, if not reported thereby, any other
authoritative source) (the "CLOSING PRICE") and (ii) the Purchase Price. The
amount of cash that the Company will be obligated to pay under this Section 6,
when added to the Termination Fee, shall not exceed in the aggregate
$21,231,000. Notwithstanding the termination of the Option, Parent will be
entitled to exercise its rights under this Section 6(c) if it has exercised
such rights in accordance with the terms hereof prior to the termination of
the Option.
4
<PAGE>
7. Registration Rights. The Company will, if requested by Parent at any time
and from time to time within two years of the exercise of the Option, as
expeditiously as possible prepare and file up to two registration statements
under the Securities Act if such registration is necessary in order to permit
the sale or other disposition of any or all shares of securities that have
been acquired by or are issuable to Parent upon exercise of the Option in
accordance with the intended method of sale or other disposition stated by
Parent, including a "shelf" registration statement under Rule 415 under the
Securities Act or any successor provision, and the Company will use its best
efforts to qualify such shares or other securities under any applicable state
securities laws. The Company will use reasonable efforts to cause each such
registration statement to become effective, to obtain all consents or waivers
of other parties which are required therefor, and to keep such registration
statement effective for such period not in excess of 180 calendar days from
the day such registration statement first becomes effective as may be
reasonably necessary to effect such sale or other disposition. The obligations
of the Company hereunder to file a registration statement and to maintain its
effectiveness may be suspended for up to 60 calendar days in the aggregate if
the Board of Directors of the Company shall have determined that the filing of
such registration statement or the maintenance of its effectiveness would
require premature disclosure of material non-public information that would
materially and adversely affect the Company or otherwise interfere with or
adversely affect any pending or proposed offering of securities of the Company
or any other material transaction involving the Company. Any registration
statement prepared and filed under this Section 7, and any sale covered
thereby, will be at the Company's expense except for underwriting discounts or
commissions, brokers' fees and the fees and disbursements of Parent's counsel
related thereto. Parent will provide all information reasonably requested by
the Company for inclusion in any registration statement to be filed hereunder.
If, during the time periods referred to in the first sentence of this Section
7, the Company effects a registration under the Securities Act of Company
Common Stock for its own account or for any other stockholders of the Company
(other than on Form S-4 or Form S-8, or any successor form), it will allow
Parent the right to participate in such registration, and such participation
will not affect the obligation of the Company to effect demand registration
statements for Parent under this Section 7; provided that, if the managing
underwriters of such offering advise the Company in writing that in their
opinion the number of shares of Company Common Stock requested to be included
in such registration exceeds the number which can be sold in such offering,
the Company will include the shares requested to be included therein by Parent
pro rata with the shares intended to be included therein by the Company. In
connection with any registration pursuant to this Section 7, the Company and
Parent will provide each other and any underwriter of the offering with
customary representations, warranties, covenants, indemnification, and
contribution in connection with such registration.
8. Transfers. The Option Shares may not be sold, assigned, transferred, or
otherwise disposed of except (i) in an underwritten public offering as
provided in Section 7 or (ii) pursuant to an exemption from the registration
requirements under the Securities Act.
9. Listing. If Company Common Stock or any other securities to be acquired
upon exercise of the Option are then listed on the NYSE (or any other national
securities exchange or national securities quotation system), the Company,
upon the request of Parent, will promptly file an application to list the
Company Common Stock or other securities to be acquired upon exercise of the
Option on the NYSE (and any such other national securities exchange or
national securities quotation system) and will use reasonable efforts to
obtain approval of such listing as promptly as practicable.
10. Loss or Mutilation. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, the Company will execute and deliver a new Agreement
of like tenor and the date. Any such new Agreement executed and delivered will
constitute an additional contractual obligation on the part of the Company,
whether or not the Agreement so lost, stolen, destroyed, or mutilated shall at
any time be enforceable by anyone.
5
<PAGE>
11. Miscellaneous. (a) Expenses. Except as otherwise expressly provided
herein, each of the parties hereto will bear and pay all costs and expenses
incurred by to or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants, and counsel.
(b) Amendment. This Agreement may not be amended, except by an instrument in
writing signed on behalf of the parties.
(c) Extension; Waiver. Any agreement on the part of a party to waive any
provision of this Agreement, or to extend the time for performance, will be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise will not constitute a waiver of such rights.
(d) Governing Law. This Agreement will be governed by, and construed in
accordance with, the laws of the State of New York regardless of the laws that
might otherwise govern under applicable principles of conflict of the laws
thereof.
(e) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given (and shall be deemed to
have been duly received if so given) if personally delivered or sent by
telegram, cable, or telex, or by registered or certified mail, postage
prepaid, addressed to the respective parties as set forth in Section 8.7 of
the Merger Agreement.
(f) Assignment. None of this Agreement, the Option or any of the rights,
interests, or obligations under this Agreement may be assigned or delegated,
in whole or in part, by operation of law or otherwise, by either party without
the prior written consent of the other party except that Parent may assign its
rights to any of its Subsidiaries. Any assignment or delegation in violation
of the preceding sentence will be void. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
(g) Further Assurances. In the event of any exercise of the Option by
Parent, the Company and Parent will execute and deliver all other documents
and instruments and take all other actions that may be reasonably necessary in
order to consummate the transactions provided for by such exercise.
(h) Enforcement. The parties agree that irreparable damage would occur and
that the parties would not have any adequate remedy at law in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the parties will be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and
provisions of this Agreement in any court of competent jurisdiction, the
foregoing being in addition to any other remedy to which they are entitled at
law or in equity.
6
<PAGE>
IN WITNESS WHEREOF, the Company and Parent caused this Agreement to be
signed by their respective officers thereunto authorized 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
BBN CORPORATION
/s/ John Montjoy
By___________________________________
Name: John Montjoy
Title: Senior Vice President
7
<PAGE>
EXHIBIT 3
April 26, 1997
[Letterhead of BBN Corporation]
GTE Corporation
1 Stamford Forum
Stamford, CT 06901-3516
CONFIDENTIALITY AGREEMENT
Ladies and Gentlemen:
In connection with your possible interest in a transaction (the
"Transaction") involving BBN Corporation (the "Company"), it is likely that
technical and financial information and other information of a confidential or
proprietary nature will be disclosed by both parties, their respective
subsidiaries and affiliates. All such information (whether written or oral)
furnished by either party's directors, officers, employees, affiliates,
representatives, (including, without limitation, financial advisors, attorneys
and accountants) or agents (collectively, "Representatives") to the other
party and all analyses, compilations, forecasts, studies, or other documents
prepared by either party or its Representatives in connection with its or
their review of, or its interest in, the Transaction which contain or reflect
any such information is hereinafter referred to as the "Information". The term
Information will not, however, include information which (i) is or becomes
publicly available other than as a result of a disclosure by the receiving
party or its Representatives or (ii) is or becomes available to the receiving
party on a nonconditional basis from a source (other than the disclosing party
or its Representatives) which, to the best of the receiving party's knowledge
after due inquiry, is not prohibited from disclosing such information to the
receiving party by a legal, contractual, or fiduciary obligation.
Accordingly, it is hereby agreed:
1. Each party and its Representatives (i) will keep the Information received
from the other party confidential and will not (except as required by
applicable law, regulation, or legal process, and only after compliance with
paragraph 3 below), without the prior written consent of the disclosing party,
disclose any Information in any manner whatsoever, and (ii) will not use any
Information other than in connection with the evaluation of a Transaction;
provided, however, that the receiving party may reveal the Information to its
Representatives (a) who need to know the Information for the purpose of
evaluating the Transaction, (b) who are informed by the receiving party of the
confidential nature of the Information, and (c) who agree to act in accordance
with the terms of this letter agreement. Each party will cause its
Representatives to observe the terms of this letter agreement, and each party
will be responsible for any breach of this letter agreement by any of its
Representatives.
2. Each party and its Representatives will not (except as required by
applicable law, regulation, or legal process), without the prior written
consent of the other party, disclose to any person the fact that the
Information exists or has been made available, that the parties are or
negotiations are taking or have taken place concerning the Transaction or
involving the Company or any term, condition, or other fact relating to the
Transaction or such discussions or negotiations, including, without
limitation, the status thereof.
3. In the event that either party or any of their Representatives is
requested pursuant to, or required by, applicable law, regulation or legal
process to disclose any of the Information, that party will notify the other
promptly so that it may seek a protective order or other appropriate remedy
or, in its sole discretion, waive compliance with the terms of this letter
agreement.
4. If either party determines not to proceed with the Transaction, that
party will promptly inform the other party of that decision and, in that case,
and at any time upon the request of either party or any of their
Representatives, the party having such Information will, at its option, either
(i) promptly destroy all copies of the written Information in their or their
Representatives' possession and confirm such destruction to the other party in
writing, or (ii) promptly deliver to the other party all copies of the written
Information in its or its Representatives' possession. All Information,
including any oral Information will continue to be subject to the terms of
this letter agreement.
<PAGE>
5. The parties acknowledge that neither party or its Representatives, nor
any of their respective officers, directors, employees, agents, or controlling
persons within the meaning of Section 20 of the Securities Exchange Act of
1934, as amended, makes any express or implied representation or warranty as
to the accuracy or completeness of the Information, and the parties or
omissions therefrom. The parties further agree that they are not entitled to
rely on the accuracy or completeness of the Information and that they will be
entitled to rely solely on such representations and warranties as may be
included in any definitive agreement with respect to the Transaction, subject
to such limitations and restrictions as may be contained therein.
6. Each party is aware, and will advise its Representatives who are informed
of the matters that are the subject of this letter agreement, of the
restrictions imposed by the United States securities laws on the purchase or
sale of securities by any person who has received material, non-public
information from the issuer of such securities and on the communication of
such Information to any other person when it is reasonably foreseeable that
such other person is likely to purchase or sell such securities in reliance
upon such Information.
7. Each party will not for one year from the date hereof, directly or
indirectly, unless specifically requested or approved in writing in advance by
an executive officer of the Board of Directors of the other party, which
approval, in the case of subparagraph (i) below, shall not be unreasonably
withheld or delayed (in either case such other party being referred to for
purposes of this paragraph as the "Other Party"):
(i) acquire or agree, offer, seek, or propose to acquire (or request
permission to do so), ownership (including, but not limited to, beneficial
ownership as defined in Rule 13d-3 under the Exchange Act) of substantially
all of the Other Party's assets or businesses or in excess of 5% of the
outstanding voting securities issued by the Other Party, or any rights or
options to acquire such ownership (including from a third party), or
(ii) directly or indirectly solicit or try to induce any employee of the
Other Party to leave that employment, or agree to employ or to employ
anyone who is at the time of such action, or was within the three month
period prior thereto, an employee of the Other Party or any of its
subsidiaries.
Notwithstanding the foregoing, (a) the terms of the above subparagraph (i)
shall be null and void (A) upon the execution of a contract between the
parties hereto with respect to the Transaction or (B) in the event the Other
Party fails to negotiate in good faith with respect to the Transaction and any
agreement pertaining thereto or (C) if another person engages in any activity
(or comparable activity) in which a party would be precluded from engaging by
reason of this letter agreement or otherwise, or if another person proposes or
announces an intention to engage in such activity (or comparable activity),
and (b) the terms of the above subparagraph (i) shall not be applicable to the
purchase and sale of any securities of either party by independent third-party
managers of pension or other employee benefit plans who have not received any
of the Information and who are acting as passive investors.
8. The parties acknowledge that remedies at law may be inadequate to protect
against any actual or threatened breach of this letter agreement by either
party or by its Representatives, and, without prejudice to any rights and
remedies otherwise available to the non-breaching party, the breaching party
agrees to the granting of injunctive relief in favor of the non-breaching
party without proof of actual damages.
9. No failure or delay by a party in exercising any right, power or
privilege hereunder will operate as a waiver thereof, nor will single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any right, power or privilege hereunder.
2
<PAGE>
10. This letter agreement will be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts applicable to contracts
between residents of that state and executed in and to be performed in that
state.
11. This letter agreement contains the entire agreement between you and us
concerning the confidentiality of the Information, and no modifications of
this letter agreement or waiver of the terms and conditions hereof will be
binding upon you or us, unless approved in writing by each of you and us.
Please confirm your agreement with the foregoing by signing and returning to
the undersigned the duplicate copy of this letter enclosed herewith.
Very truly yours,
BBN CORPORATION
/s/ John Montjoy
By: _________________________________
John Montjoy
Name: _______________________________
Senior Vice President
Title: ______________________________
Accepted and Agreed as of the
date first written above:
GTE CORPORATION
/s/ Marianne Drost
By: _________________________________
Marianne Drost
Name: _______________________________
Secretary
Title: ______________________________
3
<PAGE>
EXHIBIT 4
BIOGRAPHICAL INFORMATION
The biographical information that follows includes (1) the name and age of
each nominee as a Class I director and for each director continuing in office,
(2) the principal occupation or employment of each during the past five years,
(3) the period during which each has served as a director of the Company, (4)
the principal other directorships held by each, (5) the number of whole shares
of Common Stock of the Company beneficially owned by each (as determined under
the rules and regulations of the Securities and Exchange Commission), directly
or indirectly, as of September 17, 1996, based upon information furnished by
the nominee or director, (6) the percentage of the class outstanding so owned
by each (where such percentage exceeds 1%), and (7) the date of the expiration
of the term for which the nominees are candidates and for which the continuing
directors hold office, and the class designation. Except as otherwise
indicated, beneficial ownership consists of sole voting and investment power.
Each of the nominees for election as a Class I director is currently a director
of the Company, in Mr. Conrades' case upon election in December 1993 by action
of the Board upon his employ by the Company as its chief executive officer, and
in Mr. Levy's case upon election most recently by the shareholders at the 1993
Annual Meeting.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY
TERM OWNED AS OF
DIRECTOR EXPIRES/ SEPTEMBER 17, 1996;
NAME AND PRINCIPAL OCCUPATION AGE SINCE CLASS PERCENT OF CLASS
----------------------------- --- -------- -------- -------------------
<S> <C> <C> <C> <C>
Nominees for Director:
George H. Conrades................. 57 1993 1999/I 553,452(2)(3)
President and Chief Executive Officer(1) 2.6%
Stephen R. Levy.................... 56 1973 1999/I 72,227(5)
Consultant and Private Investor(4)
DIRECTORS CONTINUING IN OFFICE:
+ John M. Albertine................ 52 1986 1997/II 36,617(3)(8)
Chairman of the Board and Chief
Executive
Officer of Albertine Enterprises,
Inc.(6)(7)
* Lucie J. Fjeldstad............... 52 1994 1998/III 3,250(10)
President of the multimedia
business unit of
Tektronix Inc. (9)
Max D. Hopper...................... 61 1996 1997/II 6,875(3)(12)
Consultant (11)
Regis McKenna...................... 56 1996 1998/III 5,854(3)(14)
Chairman of Gemini-McKenna, High
Tech
Strategies (13)
+ Andrew L. Nichols................ 60 1978 1998/III 15,150(16)
Partner of Choate, Hall & Stewart
(15)
*+ Roger D. Wellington............. 69 1981 1997/II 38,077(18)
Consultant (17)
</TABLE>
- --------
+ Member of the Audit Committee of the Board of Directors.
<PAGE>
* Member of the Compensation and Stock Option Committee of the Board of
Directors.
(1) Mr. Conrades has been the President and Chief Executive Officer of the
Company since January 1994. Prior to that time, he had been employed for
over 30 years at International Business Machines Corporation. During his
employment with IBM, Mr. Conrades held a number of marketing-management
and general-management positions, including most recently senior vice
president, corporate marketing and services and general manager of IBM
United States, including hardware, software, maintenance, and services,
with responsibility for all of that company's customer-related operations
in the United States. Mr. Conrades retired from IBM in March 1992, and
after that time and prior to his appointment as President of the Company,
Mr. Conrades was consulting in venture capital businesses and was on the
board of directors of several small technology ventures, including a
subsidiary of the Company. Mr. Conrades is a director of Westinghouse
Electric Corporation, Cubist Pharmaceuticals Corporation, and CRA Managed
Care, Inc.
(2) The shares shown as owned beneficially by Mr. Conrades include 32,202
shares owned jointly with his spouse, as to which shares Mr. Conrades and
his spouse share voting and investment power, and 506,250 shares as to
which Mr. Conrades has the right to acquire ownership through the exercise
of those options, held by him under the stock option plans of the Company,
which are exercisable within 60 days of September 17, 1996. Mr. Conrades
also owns $50,000 principal amount of the Company's 6% Convertible
Subordinated Debentures due 2012.
(3) The shares shown as owned beneficially by Messrs. Conrades, Albertine,
Hopper, and McKenna include 15,000, 1,000, 5,000, and 3,729 shares,
respectively, sold to the director under the Company's 1996 Restricted
Stock Plan at 75% of the fair market value of the shares on the date of
sale. The shares are restricted as to transfer and the individual is
required to offer the shares back to the Company at the price paid if the
individual terminates his service relationship with the Company within 2
years of the date of acquisition.
(4) Mr. Levy is Chairman of the Board Emeritus of the Company. Since his
retirement as an employee of the Company in 1995, he has consulted for
start-up ventures, in certain of which he has made private investments.
Mr. Levy was an officer of the Company from 1970 to 1995, serving as
President and Chief Executive Officer from 1976 to 1983; as Chairman of
the Board and Chief Executive Officer from 1983 to 1993; as Chairman of
the Board, President, and Chief Executive Officer in 1993; and as Chairman
of the Board in 1994 and 1995. Mr. Levy is a director of Thermo Optek,
Inc. and OneWave Inc.
(5) The shares shown as owned beneficially by Mr. Levy include 32,995 shares
held in his participant account under the BBN Retirement Trust.
(6) Dr. Albertine has been Chairman of the Board and Chief Executive Officer
of Albertine Enterprises, Inc., economic and public policy consultants,
since its organization by him in 1990. Dr. Albertine is also Chairman of
the Board of JIAN Group Holdings, LLC, a financial services consulting and
holding company. Dr. Albertine was Vice Chairman of the Board of Farley
Inc., a diversified manufacturing company, from 1986 to 1990, and Vice
Chairman of the Board of its affiliate, Fruit of the Loom, Inc., a
manufacturer of personal apparel, from 1987 to 1990. Dr. Albertine also
held the office of Vice Chairman of the Company of West Point-Pepperell
Inc., a textile manufacturer and an affiliate of Farley Inc., from 1989 to
1990. Dr. Albertine is a director of Thermo Electron Corporation and
American Precision Industries, Inc.
(7) In July 1991, an involuntary petition was filed against Farley Inc., of
which Dr. Albertine was Vice Chairman of the Board from 1986 to 1990,
under Chapter 7 of the Federal bankruptcy laws. In September 1991, Farley
Inc. converted the Chapter 7 proceeding into a Chapter 11 reorganization,
and a plan of reorganization was confirmed in December 1992. Also in 1992,
Farley Inc.'s holdings in West Point-Pepperell Inc., of which Dr.
Albertine served as Vice Chairman
<PAGE>
of the Company from 1989 to 1990, was financially restructured by
exchanging equity for debt forgiveness, as part of a so-called "pre-
packaged" Chapter 11 bankruptcy reorganization of the Farley Inc. affiliate
owning West Point-Pepperell. Dr. Albertine had also served as Vice Chairman
of the Farley Inc. affiliate owning West Point-Pepperell from 1989 to 1990.
(8) The shares shown as owned beneficially by Dr. Albertine include 324 shares
owned by Dr. Albertine's spouse, as to which shares Dr. Albertine
disclaims beneficial ownership, and 2,250 shares as to which Dr. Albertine
has the right to acquire ownership through the exercise of those options,
held by him under the stock option plans of the Company, which are
exercisable within 60 days of September 17, 1996. The shares shown as
owned beneficially also include 17,509 shares represented by units
allocated under the Company's deferred compensation plan for non-employee
directors entitling Dr. Albertine as of July 1, 1996 to receive that
number of shares on or after his deferral termination date.
(9) Ms. Fjeldstad has been the President of the Video and Networking business
unit of Tektronix Inc., a manufacturer of printers, displays, test
instrumentation, and video equipment, since January 1995. During 1993 and
1994, she was President and Chief Executive Officer of Fjeldstad
International, computing, telecommunications, media/entertainment, and
consumer electronics industries consultants. Prior to that time, she had
been employed for 25 years at International Business Machines Corporation.
During her employment with IBM, Ms. Fjeldstad held a number of senior
technical and management positions, including most recently corporate vice
president, and general manager of multimedia (1992 to 1993); corporate
vice president, and president of the multimedia and education division
(1990 to 1992); and corporate vice president, and general manager of the
general and public and academic section (1988 to 1990).
(10) The shares shown as owned beneficially by Ms. Fjeldstad include 2,250
shares as to which Ms. Fjeldstad has the right to acquire ownership
through the exercise of those options, held by her under the stock option
plans of the Company, which are exercisable within 60 days of September
17, 1996.
(11) Mr. Hopper serves as president and is the principal owner of Max D.
Hopper Associates, Inc., an advanced information technologies consulting
firm he founded in 1995. Prior to that time, Mr. Hopper had been chairman
of The SABRE Group (a technology services group) of AMR Corporation since
1993, and a senior vice president of AMR (the parent of American
Airlines) since 1985. Mr. Hopper is a director of Centura Software
Corporation, Computer Language Research Inc., Gartner Group Inc., Scopus
Technology Corporation, USData Corp., VTEL Corp., and Worldtalk
Corporation.
(12) The shares shown as owned beneficially by Mr. Hopper include 1,875 shares
as to which Mr. Hopper has the right to acquire ownership through the
exercise of those options, held by him under the stock option plans of
the Company, which are exercisable within 60 days of September 17, 1996.
(13) Mr. McKenna is chairman of Gemini McKenna, High Tech Strategies, a
management and marketing consulting firm. Gemini McKenna is a venture
formed in 1995 by Regis McKenna Inc., a marketing strategy company formed
by Mr. McKenna in 1970, and Gemini Consulting, Inc. Mr. McKenna is also a
venture partner of the venture capital firm of Kleiner Perkins Caufield &
Byers, and is a director of Radius Inc.
(14) The shares shown as owned beneficially by Mr. McKenna include 1,875
shares as to which Mr. McKenna has the right to acquire ownership through
the exercise of those options, held by him under the stock option plans
of the Company, which are exercisable within 60 days of September 17,
1996. The shares shown as owned beneficially also include 250 shares
represented by units allocated under the Company's deferred compensation
plan for non-employee directors entitling Mr. McKenna as of July 1, 1996
to receive that number of shares on or after his deferral termination
date.
<PAGE>
(15) Mr. Nichols has been a partner of the law firm of Choate, Hall & Stewart,
Boston, Massachusetts, since 1969. Choate, Hall & Stewart served as a
counsel to the Company in fiscal 1996 and is expected to serve in such
capacity in fiscal 1997.
(16) The shares shown as owned beneficially by Mr. Nichols include 900 shares
owned by a partnership of which Mr. Nichols is a general partner and in
which he has a 50% beneficial interest, and 12,250 shares as to which Mr.
Nichols has the right to acquire ownership through the exercise of those
options, held by him under the stock option plans of the Company, which
are exercisable within 60 days of September 17, 1996.
(17) Mr. Wellington serves as President and Chief Executive Officer of
Wellington Consultants, Inc. and of Wellington Associates, international
business consulting firms he founded in 1994 and 1989, respectively.
Prior to 1989, Mr. Wellington served as Chairman of the Board of Augat
Inc., a manufacturer of electromechanical components, for more than five
years. Prior to 1988, he also held the positions of President and Chief
Executive Officer of Augat Inc. Mr. Wellington is a director of Thermo
Electron Corporation.
(18) The shares shown as owned beneficially by Mr. Wellington include 12,250
shares as to which Mr. Wellington has the right to acquire ownership
through the exercise of those options, held by him under the stock option
plans of the Company, which are exercisable within 60 days of September
17, 1996. The shares shown as owned beneficially also include 19,827
shares represented by units allocated under the Company's deferred
compensation plan for non-employee directors entitling Mr. Wellington as
of July 1, 1996 to receive that number of shares on or after his deferral
termination date.
BOARD OF DIRECTORS AND COMMITTEE ORGANIZATION
Compensation and Other Transactions. During the Company's fiscal year ended
June 30, 1996, the Board of Directors of the Company held a total of 16
meetings. Each director who was not a full-time employee of the Company
received an annual retainer of $10,000 for services as a director, plus $750
for each Board meeting attended by the individual during the year and for each
date (other than the date of a meeting of the Board) on which the individual
attended one or more meetings of committees of the Board, plus $375 for each
date of a meeting of the Board on which the individual also attended one or
more separate meetings of committees of the Board. Each incumbent director
attended not less than 75% of the aggregate of the meetings of the Board and
of the committees of which he or she was a member held during the fiscal year
ended June 30, 1996.
Under the Company's deferred compensation plan for non-employee directors,
each non-employee director has the option to make an annual election to defer
his or her compensation as a director and to receive the deferred amounts in
shares of Common Stock, either after the individual ceases to be a director or
after the individual retires from his or her principal occupation. Deferred
compensation is credited in units of stock of the Company, based on the value
of the Common Stock at the time so credited. Messrs. Albertine and McKenna
currently participate in this plan; until January 1, 1996, Mr. Wellington also
participated in the plan. At July 1, 1996, the three individuals had units
under the plan entitling them to an aggregate of 37,586 shares of Common
Stock.
The Company's 1986 Stock Incentive Plan provides that an option to purchase
3,000 shares of Common Stock is granted automatically on an annual basis to
each non-employee director, on the third business day following the date of
each annual meeting of shareholders at which the eligible director is elected
or continues to serve under an unexpired term. The exercise price of each
option is equal to the fair market value per share of the Common Stock on the
date the option is granted.
<PAGE>
Options granted to non-employee directors are for a term of 5 years, and vest
in equal annual installments over the first four years (subject to
acceleration in the event of the director's death, mandatory retirement from
the Board by reason of age, or retirement by reason of disability).
Dr. Albertine has served as a member of the Company's Board of Visitors
since November 1995. The Board of Visitors is a business development group
organized by the Company to seek out new opportunities for government
business. Dr. Albertine has elected to defer his compensation as a member of
the Board of Visitors (currently $2,000 per meeting attended) and to receive
the deferred amounts in shares of Common Stock under the Company's deferred
compensation plan for non-employee directors.
Mr. McKenna provided consulting services relating to marketing and business
communications to the Company and its subsidiaries from September 1994 to
December 1995, for which services he received fees aggregating approximately
$175,000. Mr. McKenna's consulting arrangement with the Company has concluded,
and he became a director of the Company in April of 1996.
Mr. Hopper provided consulting services relating to strategic marketing to
the Company and its subsidiaries from March 1995 to March 1996, for which
services he received fees aggregating approximately $50,000. Mr. Hopper's
consulting arrangement with the Company has concluded, and he became a
director of the Company in April of 1996.
In fiscal 1996 the Company undertook a reorganization program to combine its
Internet and internetworking services operations, and to focus its business
principally on a range of Internet capabilities. A corollary of this focus was
the elimination or sale of subsidiaries. In this connection, the portion of
executive compensation related to subsidiary stock options has been largely
terminated, replaced in most part by a replacement option program for shares
in BBN. In this connection, Messrs. Hopper and McKenna, who each served as a
director of the Company's BBN Planet subsidiary prior to his election as a
director of BBN, received a replacement option for 3,750 shares of BBN Common
Stock in January 1996 in exchange for the termination of BBN Planet options
owned by him. Also in connection with termination of the subsidiary option
programs in BBN Planet Corporation and BBN HARK Systems Corporation, Mr.
Conrades received replacement options as set forth in the table on Option
Grants in Last Fiscal Year under the Caption "Compensation and Certain Other
Transactions Involving Executive Officers" below, and Mr. Levy received a cash
payment aggregating $79,688.
In August and September 1996, each of Messrs. Albertine, Conrades, Hopper,
and McKenna purchased 1,000, 15,000, 5,000, and 3,729 shares of Common Stock,
respectively, from the Company under the Company's 1996 Restricted Stock Plan
at 75% of the fair market value of the shares on the date of sale. The shares
are restricted as to transfer and the individual is required to offer the
shares back to the Company at the price paid if the individual terminates his
service relationship with the Company within 2 years of the date of
acquisition.
Audit Committee. The Audit Committee of the Board of Directors held 4
meetings during the fiscal year ended June 30, 1996. In general, the function
of the Audit Committee is to recommend to the Board of Directors the
engagement or discharge of the independent auditors; to consider with the
independent auditors the scope of their audit and their audit fees; to review
with the independent auditors the scope and results of their audit and their
report and management letters; to review non-audit professional services by
generic classification to be provided by the independent auditors, to review
the magnitude of the range of fees for such non-audit services, and to
consider the independence of the independent auditors; to review with the
independent auditors and with the internal auditors and management of the
Company, the Company's policies and procedures with respect to internal
auditing, accounting, and financial controls; and to review the financial
reporting and accounting standards and principles of the Company. Messrs.
Albertine, Nichols, and Wellington, none
<PAGE>
of whom is or has been an officer or employee of the Company, currently serve
as the Audit Committee.
Compensation Committee; Compensation Committee Interlocks and Insider
Participation. The Compensation and Stock Option Committee of the Board of
Directors (the "Compensation Committee") held 13 meetings during the fiscal
year ended June 30, 1996. In general, the function of the Compensation
Committee is to administer the executive compensation and incentive
compensation and stock option programs of the Company; to establish the
compensation of the chief executive officer of the Company; to review salary
and incentive bonus awards for other executive officers; and to award stock
options.
Ms. Fjeldstad and Messrs. Hatsopoulos and Wellington currently serve on the
Compensation Committee. None of these individuals is or has been an officer or
employee of the Company.
Customer Relationships Committee. The Board of Directors has a standing
Customer Relationships Committee, the function of which, in general, is to
monitor customer relationship processes, and to evaluate customer satisfaction
criteria. Ms. Fjeldstad and Messrs. Hopper, McKenna, Nichols, and Wellington
currently serve on the Customer Relationships Committee.
Nominating Committee. The Board of Directors has not appointed a standing
nominating committee.
----------------
As of September 17, 1996, the executive officers and former executive
officers of the Company named in the Summary Compensation Table below and all
directors and executive officers of the Company at that date as a group owned
beneficially shares of Common Stock as follows:
<TABLE>
<CAPTION>
AMOUNT
TITLE OF BENEFICIALLY PERCENT OF
CLASS NAME OR GROUP OWNED(1)(2) CLASS(3)
------------ ------------------------- ------------ ------------
<C> <S> <C> <C>
Common Stock George H. Conrades(4) 553,452 2.6%
David N. Campbell 54,375
John T. Kish, Jr.(5) 19,063
Paul R. Gudonis (4) 46,875
Ralph A. Goldwasser 35,623
All current directors and 905,051(4)(6)(7)(8)(9) 4.2%(4)
executive officers as a (6)(7)(8)(9)
group (14 persons)(5)
</TABLE>
(1) The inclusion herein of any shares deemed beneficially owned under the
rules of the Securities and Exchange Commission does not constitute an
admission of beneficial ownership of such shares.
(2) The shares shown as owned beneficially by the named individuals include
506,250, 39,375, 19,063, 36,875, and 25,375 shares, respectively, as to
which Messrs. Conrades, Campbell, Kish, Gudonis, and Goldwasser have the
right to acquire ownership through the exercise of those options, held by
each under the stock option plans of the Company, which are exercisable
within 60 days of September 17, 1996.
(3) If such percentage exceeds 1%.
(4) The shares shown as owned beneficially include 15,000 and 10,000 shares
shown as owned by Messrs. Conrades and Gudonis, respectively, and an
aggregate of 9,729 shares owned by three other included directors, sold
in August and September 1996 to the individual under the Company's 1996
Restricted Stock Plan at 75% of the fair market value of the shares on
the date of sale. The shares are restricted as to transfer and the
individual is required to offer the shares
<PAGE>
back to the Company at the price paid if the individual terminates his
service relationship with the Company within 2 years of the date of
acquisition.
(5) Mr. Kish is no longer an executive officer or in the employ of the
Company. Where included, information concerning Mr. Kish has been
provided to the Company by Mr. Kish.
(6) The shares shown as owned beneficially include 324 shares owned by the
spouse of one included director, as to which shares beneficial ownership
by the applicable director is disclaimed, and 900 shares owned by a
partnership of which a director is a general partner and has a 50%
beneficial interest. The shares shown as owned beneficially also include
an aggregate of 37,202 shares as to which two directors (one of whom is
also an executive officer named in the table) share voting and investment
power with their respective spouses.
(7) The shares shown as owned beneficially include 37,586 shares represented
by units allocated under the Company's deferred compensation plan for
non-employee directors entitling three directors as of July 1, 1996 to
receive in the aggregate that number of shares of Common Stock on or
after their respective deferral termination dates.
(8) The shares shown as owned beneficially include an aggregate of 658,313
shares as to which certain directors and current executive officers
(including current executive officers named in the table) have the right
to acquire ownership through the exercise of those options, held by such
directors and current executive officers under stock option plans of the
Company, which are exercisable within 60 days of September 17, 1996. The
shares shown as owned beneficially also include 3,750 shares issuable
upon exercise of a stock option, the exercisability of which will be
accelerated to become immediately exercisable by one current director
upon his retirement from the Board on November 6, 1996 by reason of the
Company's mandatory retirement age policy for directors.
(9) The shares shown as owned beneficially include 32,995 shares held in the
participant account of one included director under the BBN Retirement
Trust.
Information with respect to beneficial ownership of Common Stock by the
directors and nominees is contained in the table and footnotes under the
caption "1--Election of Directors--Biographical Information" above.
Information in the table above and in the table with respect to directors and
nominees under Item 1 does not include options to acquire Common Stock, or to
acquire common stock of subsidiaries, but does include shares of Common Stock
which have not been issued but which are subject to options which either are
currently exercisable or will become exercisable within 60 days of September
17, 1996; no shares of subsidiaries which are the subject of options are
included, since none of the subsidiary options are currently exercisable.
COMPENSATION AND CERTAIN OTHER TRANSACTIONS INVOLVING
EXECUTIVE OFFICERS
Compensation. There is set forth below, on an accrual basis, the aggregate
amount of base salary, bonus, and other cash compensation paid by the Company,
and the number of shares of Common Stock of the Company and of common stock of
specified subsidiaries of the Company issuable upon exercise of stock options
granted under the respective company's stock option plans, during the fiscal
years ended June 30, 1996, 1995, and 1994 for services rendered, to the
individual (Mr. Conrades) who served during the fiscal year ended June 30,
1996 as chief executive officer of the Company, and to the four other most
highly compensated individuals (Messrs. Campbell, Kish, Gudonis, and
Goldwasser) who were serving as executive officers of the Company at the end
of the 1996 fiscal year. Mr. Kish is no longer in the employ of the Company.
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- -----------------------
STOCK UNDERLYING
OPTIONS (NUMBER ALL
FISCAL OTHER ANNUAL OF SHARES OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AND COMPANY(1) COMPENSATION(2)
- --------------------------- ------ ---------- -------- ------------ ----------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
George H. Conrades, 1996 $ 400,000 0 $270,928(3) 13,500(BBN)(4) $7,688(5)
President and Chief
Executive Officer 1995 400,000 0 176,871(6) 100,000(FLT)(4) 14,860(5)
100,000(HRK)(4)
1994 206,154(7) 0 88,800(8) 800,000(BBN) 0
100,000(LSC)(9)
100,000(DC)(10)
David N. Campbell, 1996 284,230 $150,000 79,600(11) 194,050(BBN)(4)(12) 0
Senior Vice President
30,000(PLT)(4)
30,000(HRK)(4)
30,000(DC)(10)
John T. Kish, Jr., 1996 270,000 10,241(13) 675(BBN)(4)(14) 4,500
Vice President 1995 225,000 125,000 170,874(15) 65,000(BBN)(16) 0
5,000(PLT)(4)
5,000(HRK)(4)
1994 786(17) 300,000(DC)(18) 0
Paul R. Gudonis, 1996 220,833 50,000 153,800(BBN)(4) 5,625(5)
Vice President
1995 125,000(19) 138,500 50,000(BBN) 0
350,000(PLT)(4)
5,000(DC)(10)
5,000(HRK)(4)
Ralph A. Goldwasser, 1996 210,000 50,000 42,500(BBN)(4) 17,688(5)
Senior Vice President
and Chief Financial 20,000(HRK)(4)
Officer
23,000(DC)(10)
1995 182,500 25,000 40,000(BBN) 15,423(5)
30,000(PLT)(4)
10,000(HRK)(4)
1994 172,500 0 25,000(BBN) 12,527
7,000(LSC)(9)
7,000(DC)(10)
</TABLE>
- --------
(1) In addition to options granted to purchase Common Stock of the Company
(designated in the table as "BBN"), certain executive officers of the
Company have in the past been granted options to purchase common stock of
specified subsidiaries of the Company, as compensation for their services
related to the subsidiary. Options were granted during the fiscal years
ended June 30, 1996, June 30, 1995, and June 30, 1994 to the specified
executive officers in one or more of the following subsidiaries of the
Company: LightStream Corporation (designated in the table as "LSC"), a
majority-owned subsidiary of BBN; BBN Planet Corporation (designated in
the table as "PLT"), formerly a majority-owned subsidiary of BBN; BBN
Domain Corporation, formerly known as BBN Software Products Corporation
(designated in the table as "DC"), formerly a wholly-owned subsidiary of
BBN; and BBN HARK Systems Corporation (designated in the table as "HRK"),
formerly a wholly-owned subsidiary of BBN. In January 1995, LightStream
Corporation sold substantially all of its assets for approximately
$120,000,000 in cash. In connection with that transaction, stock options
held in LightStream by Messrs. Conrades and Goldwasser and certain other
executive officers of the Company were canceled by agreement, without
payment to the individuals. Stock options held by LightStream employees
were, in general, exchanged in that transaction for a cash payment from
LightStream. In fiscal 1996, BBN HARK Systems Corporation
<PAGE>
was merged into the Company. In connection with that transaction, stock
options held in BBN HARK by Messrs. Conrades, Campbell, Kish, Gudonis, and
Goldwasser and certain other executive officers of the Company were
replaced by options in the Company's stock under the Company's 1986 Stock
Incentive Plan. In fiscal 1996, in connection with the reorganization of
the Company's Internet and internetworking activities, stock options held
in BBN Planet Corporation by Messrs. Conrades, Campbell, Kish, Gudonis, and
Goldwasser and certain other executive officers of the Company were
replaced by options in the Company's stock under the Company's 1986 Stock
Incentive Plan. BBN Planet has since been merged into the Company. In July
1996, BBN Domain Corporation was recapitalized and the majority of the
Company's stock ownership in BBN Domain was sold; in connection with the
recapitalization and sale, stock options held in BBN Domain by Messrs.
Conrades, Campbell, Gudonis, and Goldwasser and certain other executive
officers of the Company who held options but did not become employees of
BBN Domain remain outstanding, to the extent vested at the time of sale, at
a reformulated price of $0.61 per share. Mr. Kish, who left the employ of
the Company in connection with the sale and remains the president of BBN
Domain (now called Domain Solutions Corporation), continues in his options
of Domain Solutions Corporation at the reformulated price of $0.61 per
share.
(2) Except as otherwise noted, indicated amounts are the Company's
contribution to the BBN Retirement Trust, the tax-qualified defined
contribution retirement plan of the Company and its subsidiaries, for the
benefit of the indicated individual.
(3) Amount represents expenses paid by the Company in connection with the
carrying expenses of Mr. Conrades' former residence, assumed by the
Company by agreement in connection with Mr. Conrades' relocation to
Massachusetts, and tax reimbursement for such expenses paid, in the fiscal
year.
(4) In fiscal 1996 the Company undertook a program to combine its Internet and
internetworking services operations, and to focus its business principally
on a range of Internet capabilities. A corollary of this focus was the
elimination or sale of subsidiaries. In this connection, the portion of
the executive compensation package related to subsidiary stock options has
been largely terminated, replaced for those employees covered previously
by subsidiary options who remained or became employees of BBN by a
replacement option program for shares in BBN. Replacement options for BBN
shares have been awarded to recipients of options under the plans of BBN
Planet and BBN HARK, in general to the effect that for every 100 shares of
stock of BBN Planet covered by a replaced option, the individual received
a BBN option for 12.5 shares of BBN stock at an exercise price of $18.125
per share, as to which 50% would vest after 6 months and an additional 50%
would vest after 12 months, and that for every 100 shares of stock of BBN
HARK covered by a replaced option, the individual received a BBN option
for 1 share of BBN stock at an exercise price of $28.875 per share, as to
which 25% would vest after 1 year and an additional 25% would vest
annually thereafter. As a result, BBN Planet and BBN HARK options have
been canceled, unexercised; replacement options for BBN shares are
included in fiscal 1996 figures.
(5) Includes amounts credited by the Company to the account of the individual
under the Company's non-qualified deferred compensation plan for certain
key executives, established effective April 1, 1995. In general,
participation in the Deferred Compensation Plan is limited to executives
selected from among those with annual base salary in excess of $150,000.
Under the Deferred Compensation Plan, a participant may defer base salary
in excess of the $150,000 limit, plus bonuses; in addition, the Company
can make discretionary retirement contributions. Deferred amounts are
payable at a fixed future date selected in advance by the participant,
upon termination of employment, or in the case of certain hardships.
Accounts are adjusted for notional investment earnings based on
participant choices from among the same range of investment funds (other
than Company stock) as are available under the Company's tax-qualified
BBN Retirement Trust. The Company, although not obligated to do so under
the terms of the Deferred Compensation Plan, has established a trust to
help meet future payment obligations under the
<PAGE>
Deferred Compensation Plan. Obligations under the Deferred Compensation
Plan are general obligations of the Company, and the rights of participants
to benefits remain those of general creditors of the Company. In the event
of certain changes in control of the Company, participants would be
entitled to reimbursement for certain costs incurred in enforcing rights
under the Deferred Compensation Plan. To make up for certain limitations
imposed by the Internal Revenue Code on contributions to the BBN Retirement
Trust the Company credited the following amounts: for the year ended June
30, 1995, $3,750 and $4,313, respectively, for Messrs. Conrades and
Goldwasser; for the year ended June 30, 1996, $6,438, $1,125, and $6,438,
respectively, for Messrs. Conrades, Gudonis, and Goldwasser.
(6) Amount includes expenses incurred by the Company in connection with the
sale of Mr. Conrades' former residence, assumed by the Company by
agreement in connection with Mr. Conrades' relocation to Massachusetts,
aggregating $170,346. Amount also includes interim local living expenses
prior to Mr. Conrades' relocation to Massachusetts paid, and tax
reimbursement for interim local living expenses paid, in the fiscal year,
aggregating $6,525.
(7) Payments primarily constituting six months salary, at an annualized rate
of $400,000 per year.
(8) Amount includes interim local living expenses prior to Mr. Conrades'
relocation to Massachusetts paid, and tax reimbursement for interim local
living expenses paid, in the fiscal year, aggregating $51,300. Amount
also includes $37,500, the amount of the difference between the price
paid by Mr. Conrades for 20,202 shares of Common Stock of the Company
purchased from the Company upon Mr. Conrades joining the employ of the
Company, and the fair market value of such shares on the date of
purchase.
(9) Canceled by agreement, without compensation to the individual, upon sale
of the business of LightStream Corporation.
(10) Options for employees of BBN Domain were reformulated upon the
recapitalization and sale by BBN of the majority of the stock of that
company in July 1996. Following the sale, stock options in BBN Domain
held by certain executive officers of BBN who held options but did not
become employees of BBN Domain, remain outstanding, to the extent vested
at the time of the sale, at a reformulated price of $0.61 per share.
(11) Amount represents relocation expenses related to Mr. Campbell's
relocation to Massachusetts paid in the fiscal year, aggregating $41,000,
and expenses incurred by the Company in connection with the sale of Mr.
Campbell's former residence, assumed by the Company by agreement in
connection with Mr. Campbell's relocation to Massachusetts, aggregating
$38,600.
(12) Included are options for 40,000 shares which were conditionally granted
under a proposed amendment to the Company's 1986 Stock Incentive Plan,
subject to stockholder approval at the 1996 Annual Meeting.
(13) Amount represents relocation expenses related to Mr. Kish's relocation to
Massachusetts and related tax reimbursement paid in the fiscal year.
(14) Options for 362 of such shares were unvested at, and terminated upon, Mr.
Kish's leaving the employ of the Company in July 1996.
(15) Amount represents relocation expenses related to Mr. Kish's relocation to
Massachusetts and related tax reimbursement paid in the fiscal year,
aggregating $115,747, and expenses incurred by the Company in connection
with the sale of Mr. Kish's former residence, assumed by the Company by
agreement in connection with Mr. Kish's relocation to Massachusetts,
aggregating $55,127.
(16) Options for 46,250 of such shares were unvested at, and terminated upon,
Mr. Kish's leaving the employ of the Company in July 1996.
<PAGE>
(17) Mr. Kish joined the employ of the Company in June 1994.
(18) In connection with the recapitalization and sale of a majority of the
stock of BBN Domain Corporation by the Company in July 1996, option was
continued at a reformulated price of $0.61 per share.
(19) Payments consisting of seven and one-half months of salary, at an
annualized rate of $200,000 per year.
The aggregate incremental cost of personal benefits provided by the Company
in each of fiscal 1996, 1995, and 1994, to each of the individuals named in
the Summary Compensation Table (other than to Messrs. Conrades, Campbell, and
Kish), did not exceed the lesser of $50,000 or 10% of the indicated amount of
total annual salary and bonus reported for the named individual in the Summary
Compensation Table.
Employment Agreements, Loans, and Separation Pay Arrangements.
The agreement with Mr. Conrades provides that if his employment is
terminated by the Company without cause, the Company will pay him an amount
equal to one year's base salary, as full termination benefits.
In connection with the sale by the Company of the majority of the stock of
BBN Domain Corporation, of which Mr. Kish serves as president, Mr. Kish left
the employ of the Company on July 31, 1996, after 2 years of service. At that
time Mr. Kish received $135,000 in incentive pay and the Company agreed that
in the event his employment with BBN Domain (the name of which has been
changed in connection with the sale to Domain Solutions Corporation) is
involuntarily terminated for any reason other than cause within 1 year
following July 31, 1996, and if the total severance package paid to him in
connection with such termination has a value of less than $270,000, BBN will
pay Mr. Kish at the time of such termination the difference between such value
and $270,000. In addition, the exercisability of options held by Mr. Kish for
15,000 shares of Common Stock of the Company granted in August 1994 was
accelerated to become exercisable through the period ending September 29,
1996. BBN also agreed with Domain Solutions Corporation to sell to Domain
Solutions Corporation, at the exercise price of $0.61 per share, a portion of
its shares of Domain Solutions Corporation necessary to fund the exercise by
Mr. Kish of the outstanding and vested options for 150,000 shares of common
stock of Domain Solutions Corporation held by Mr. Kish at the date of
termination, as well as for a supplemental grant to Mr. Kish by Domain
Solutions Corporation, if made, for 25,000 shares.
In connection with his relocation to Massachusetts to join the employ of the
Company, Mr. Kish borrowed from the Company in August 1994 an aggregate of
$150,000 to bridge the purchase of a house in Massachusetts pending the sale
of his previous home in California. The borrowing was represented by a term
note, due in two equal installments on August 1, 1995 and 1996, given by Mr.
Kish, which note carried simple interest at 8% per annum. The principal amount
of $75,000 outstanding at July 31, 1996, together with accrued interest, was
forgiven by the Company following the termination of employment with BBN of
Mr. Kish.
As part of the bonus payments made to Mr. Gudonis in the 1995 fiscal year,
$88,500 was paid to him to reimburse him for forfeitures under a bonus plan at
his former employer. Mr. Gudonis' agreement with the Company provides that in
the event that he resigns from BBN during the first four years of employment,
he is responsible for reimbursing a pro-rata share of this payment made to
him.
<PAGE>
Stock Option Grants. The table below sets forth information with respect to
stock options granted in fiscal year 1996 to the individuals named in the
Summary Compensation Table above; the options listed below are reflected in
the Summary Compensation Table. Information presented in the table below is
with respect to employee stock option plans; neither the Summary Compensation
Table above nor the tables on option grants and option exercises below
includes information related to the Company's employee stock purchase plan,
which is generally available to employees of the Company.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (9)
-------------------------------- ------------------------------
NUMBER
OF SHARES
UNDERLYING
OPTIONS % OF TOTAL
GRANTED TO OPTIONS
PURCHASE COMMON GRANTED TO
STOCK OF BBN EMPLOYEES EXERCISE MARKET EXPIRATION
OR SPECIFIED IN FISCAL PRICE PRICE DATE
NAME SUBSIDIARIES (1)(4)(5) YEAR (6) ($/SH)(7) ($/SH)(8) (2)(3)(4)(5) 0% 5% 10%
---- ----------------------------------- --------- --------- ------------ -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
George H.
Conrades.......... 1,000 (BBN) (2) 0.05% $28.875 1/17/01 $ 7,978 $ 17,628
12,500 (BBN) (3) 0.6 18.125 $28.875 1/17/00 $134,375 212,159 301,886
David N. Campbell. 150,000 (BBN) 7.7 35.75 7/24/02 2,183,074 5,087,457
30,000 (PLT) (10) 11.1 8.00 7/27/05 (10) (10)
30,000 (HRK) (11) 17.2 1.00 8/4/05 (11) (11)
30,000 (DC) (12) 9.0 3.50 8/7/05 66,033(12) 167,339(12)
300 (BBN) (2) 0.0 28.875 1/17/01 2,393 5,288
3,750 (BBN) (3) 0.2 18.125 28.875 1/17/00 40,312 63,648 90,565
40,000 (BBN) (13) 2.1 27.50 5/6/03 447,810 1,043,581
John T. Kish,
Jr. .............. 50 (BBN) (2) 0.0 28.875 1/17/01 399 881
625 (BBN) (3) 0.0 18.125 28.875 1/17/00 6,718 10,608 15,094
Paul R. Gudonis... 50 (BBN) (2) 0.0 28.875 1/17/01 399 881
43,750 (BBN) (3) 2.2 18.125 28.875 1/17/00 470,312 742,558 1,056,601
110,000 (BBN) 5.7 28.875 1/17/03 1,293,053 3,013,363
Ralph A.
Goldwasser........ 20,000 (HRK) (11) 11.4 1.00 8/4/05 (11) (11)
23,000 (DC) (12) 6.9 3.50 8/7/05 50,626(12) 128,293(12)
300 (BBN) (2) 0.0 28.875 1/17/01 2,393 5,288
3,750 (BBN) (3) 0.2 18.125 28.875 1/17/00 40,312 63,648 90,565
38,450 (BBN) 2.0 27.50 5/6/03 430,457 1,003,142
</TABLE>
- --------
(1) BBN Corporation is designated in the table as "BBN"; BBN HARK Systems
Corporation, formerly a wholly-owned subsidiary of BBN, is designated in
the table as "HRK"; BBN Planet Corporation, formerly a majority-owned
subsidiary of BBN, is designated in the table as "PLT"; and BBN Domain
Corporation, formerly a wholly-owned subsidiary of BBN, is designated in
the table as "DC".
(2) These options for BBN shares were granted under the Company's 1986 Stock
Incentive Plan replacing options previously granted under the subsidiary
option plan for BBN HARK Systems Corporation. These BBN stock options are
exercisable as to 25% after one year from grant, an additional 25% after
two years, an additional 25% after three years, and the remainder after
four years from grant, if the optionee is employed by BBN at the
respective date. These options were granted for a term of 5 years.
(3) These options for BBN shares were granted under the Company's 1986 Stock
Incentive Plan replacing options previously granted under the subsidiary
option plan for BBN Planet Corporation. These BBN stock options are
exercisable as to 50% after 6 months from grant, and the remainder after
12 months from grant, if the optionee is employed by BBN at the respective
date. These options were granted for a term of 4 years. The fair market
value of the BBN Common Stock on the date of grant was $28.875.
<PAGE>
(4) All BBN options (other than the BBN Planet replacement options) granted in
fiscal 1996 to named individuals vest 25% after one year from grant, an
additional 25% after two years, an additional 25% after three years, and
the remainder after four years from grant, if the optionee is employed by
BBN at the respective date. All BBN options (other than the BBN Planet and
BBN HARK replacement options) were each granted for terms of 7 years. In
general, all BBN options, including the BBN Planet and BBN HARK
replacement options granted to Messrs. Conrades, Campbell, Kish, Gudonis,
and Goldwasser, are subject to termination 60 days following termination
of the optionee's employment (180 days, in the event of death). All BBN
options (other than the BBN Planet replacement options) were granted at
fair market value (closing price of the Company's Common Stock on the New
York Stock Exchange) at date of grant. The BBN options replacing options
previously granted under the subsidiary option plan of BBN Planet were
granted at a reduced price from fair market value, which took into
consideration the spread in the estimated BBN Planet stock value and the
replaced option's exercise price. The exercise price and tax withholding
obligations related to exercise of all BBN options may be paid by delivery
of already-owned shares or by offset of the underlying shares, subject to
certain conditions.
(5) All subsidiary options granted in fiscal 1996 vested as to 25% after one
year from grant, an additional 25% after two years, an additional 25%
after three years, and the remainder after four years from grant, if the
optionee was employed at the respective date. None of the options was
exercisable until 90 days after the respective company's stock becomes
publicly traded. The options were each granted for terms of 10 years,
subject to termination 60 days following termination of the optionee's
employment (180 days, in the event of death), or if later, 90 days after
the company's stock becomes publicly traded. In general, options were
granted at the estimated fair value of the company's stock at the date of
grant. The exercise price and tax withholding obligations relating to
exercise could be paid by delivery of already owned shares or by offset of
the underlying shares, subject to certain conditions.
(6) Percentage figure is of the total options of shares of the respective
company granted in the fiscal year.
(7) Under the terms of the company's stock option plans, the Committee or the
respective board retains the discretion, subject to plan limits, to modify
the terms of outstanding options and to reprice the options.
(8) Market price of the underlying security on the date of grant, if in excess
of the exercise price.
(9) Gains are calculated net of the option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, in stock option exercises are
dependent upon the future performance of the respective common stock, as
well as the optionee's continued employment through the vesting period,
and for subsidiary options, on the respective company's stock becoming
publicly traded during the option period. The amounts reflected in these
columns may not necessarily be achieved.
(10) These options have been replaced by options for BBN shares. See footnote
3 above.
(11) These options have been replaced by options for BBN shares. See footnote
2 above.
(12) In connection with the recapitalization of BBN Domain Corporation and the
July 31, 1996 sale by the Company of the majority of the stock of that
company, options for 25% of the optioned shares, at a reformulated price
of $0.61 per share, were vested; the remainder were unvested, and were
canceled upon the termination of the service relationship of the
individual with BBN Domain Corporation.
(13) Options were conditionally granted under a proposed amendment to the
Company's 1986 Stock Incentive Plan, subject to stockholder approval of
the 1996 Annual Meeting.
<PAGE>
Stock Option Exercises and Options Outstanding. The table below sets forth
information with respect to stock options exercised by the individuals named
in the Summary Compensation Table in fiscal year 1996, and the number and
value of unexercised options held by such persons on June 30, 1996.
OPTION EXERCISES IN FISCAL YEAR 1996 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
COMPANY AND
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT JUNE 30, 1996 AT JUNE 30, 1996
ACQUIRED ON VALUE ------------------------------------ ---------------------------- --- ---
NAME EXERCISE REALIZED COMPANY(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ---------- ------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
George H. Conrades.... 0 -- BBN 500,000 313,500 $ 4,687,500(2) $ 2,857,813(2)
DC 0 100,000(4) (3) (3)(4)
David N. Campbell..... 0 -- BBN 0 194,050(5) 0 13,594(2)
DC 0 30,000(4) 0 (3)(4)
John Kish............. 0 -- BBN 3,750 61,925(6) 13,594(2) 424,297(2)(6)
DC 0 300,000 (3) (3)
Paul R. Gudonis....... 0 -- BBN 0 203,800 0 302,344(2)
DC 0 5,000(4) (3) (3)(4)
Ralph A. Goldwasser... 28,500 $779,625 BBN 19,000 90,000 164,125(2) 310,906(2)
DC 0 30,000(4) (3) (3)(4)
</TABLE>
- --------
(1) BBN Corporation is designated in the table as "BBN"; and BBN Domain
Corporation, formerly a wholly-owned subsidiary of BBN, is designated in
the table as "DC".
(2) Represents the excess, if any, between the closing price of the Company's
Common Stock on June 28, 1996 and the exercise price of the options.
(3) These options were vested as to 50,000 shares, 0 shares, 150,000 shares,
1,250 shares, and 3,500 shares, respectively, for each of Messrs.
Conrades, Campbell, Kish, Gudonis, and Goldwasser at June 30, 1996 but
are unexercisable until following public trading of the related common
stock, and no public market currently exists for the shares underlying
these options. Accordingly, no value in excess of the exercise price has
been attributed to these options.
(4) Option amounts in excess of the then-vested portion (vested as to 50,000
shares, 7,500 shares, 1,250 shares, and 9,250 shares, respectively, for
each of Messrs. Conrades, Campbell, Gudonis, and Goldwasser) were
canceled, unexercised under the terms of the options following the sale
by BBN of the majority of the stock of BBN Domain Corporation in July
1996.
(5) Included are options for 40,000 shares which were conditionally granted
under a proposed amendment to the Company's 1986 Stock Incentive Plan,
subject to stockholder approval at the 1996 Annual Meeting (see
information under the caption, "Proposal to Amend the 1986 Stock
Incentive Plan Relative to Increase in Shares" above).
(6) The exercisability of the options to the extent of 15,000 shares was
accelerated upon Mr. Kish leaving the employ of the Company in July 1996,
and the remaining unvested options were terminated at that time. The
vested options held by Mr. Kish (aggregating 19,063 shares) may be
exercised though the period ending September 27, 1996.
Change-of-Control Arrangements. The Company has termination agreements with
the individuals named in the Summary Compensation Table above, which
agreements obligate the respective 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 agrees 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
<PAGE>
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 as the result
of commission by him of a felony; 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" 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
Company's then-outstanding stock, and other changes of control as determined
by regulatory authorities. Such severance payments would not be reduced for
compensation received by the individual from any new employment. The
agreements provide that five years after commencement, the change-of-control
payment rights may be canceled by the Company by notice given more than 30
days prior to the change of control. The five-year period has run for Mr.
Goldwasser. 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, $900,000, $900,000, $800,000, and $515,000,
respectively, for Messrs. Conrades, Campbell, Kish, Gudonis, and Goldwasser.
The agreement with Mr. Kish has terminated as a result of his termination of
employment with the Company effective July 31, 1996.
REPORT OF COMPENSATION AND STOCK OPTION COMMITTEE
ON ANNUAL EXECUTIVE COMPENSATION
(The following Report of the Compensation and Stock Option Committee on
Annual Executive Compensation shall not be deemed incorporated by reference by
any general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act
of 1934.)
Report. The Compensation and Stock Option Committee of the Board of
Directors (the "Committee") was composed in fiscal 1996 of three outside
directors, none of whom is or has been an officer or employee of the Company.
The Committee is responsible for setting and administering policies which
relate to executive compensation and to the incentive compensation and stock
ownership programs of the Company, and in that regard, the Committee on an
annual basis reviews and evaluates the Company's executive compensation
programs. The Company's executive compensation is also subject to periodic
review, and approval as to reasonableness, by an audit agency of the
Department of Defense.
The objectives of the Company's executive compensation program are to
attract and retain the highest caliber of executive talent, to motivate the
individuals to achieve the goals inherent in the Company's business
strategies, to link executive and stockholder interests through incentive and
equity-based plans, and to provide a compensation package that recognizes
individual contributions as well as the financial results of operations. The
executive incentive and BBN stock option portions of the Company's executive
compensation package are designed to correlate individual performance with
operating income and stockholder value, and represent in the aggregate a
compensation strategy under which a significant portion of executive
compensation (depending on the cash incentive and option awards) may be
predicated upon achievement of specified financial goals. The subsidiary
option portion of the executive compensation package was designed to encourage
an entrepreneurial interest of the executive in, and a collaboration among
executives in, the developing subsidiaries of the Company, aligning
management's interest in the successful development of the subsidiaries to the
overall, long-term interests of the Company's stockholders; however, in fiscal
1996 the Company undertook a program to combine its Internet and
internetworking services operations, and to focus its
<PAGE>
business principally on a range of Internet capabilities. A corollary of this
focus was the elimination or sale of subsidiaries. In this connection, the
subsidiary option portion of the executive compensation package has been
terminated, replaced for those employees covered previously by subsidiary
options who remained or became employees of BBN by a replacement option
program for shares in BBN.
The key elements of the Company's executive compensation package are base
salary, performance-based cash incentives, and stock options. The Committee
establishes the base salary of Mr. Conrades and approves the salaries of the
other executive officers, including the executive officers named in the
Summary Compensation Table; the Committee establishes the performance-based
cash incentive plan for Mr. Conrades; the Committee at the end of the fiscal
year reviews cash incentive awards proposed by Mr. Conrades under the
incentive program for all of the executive officers other than Mr. Conrades
(the Committee and Mr. Conrades jointly reviewed the individual performances
of each executive officer other than Mr. Conrades, and the Committee gave
significant consideration to Mr. Conrades' views on the performance of each
such executive officer); and the Committee during the fiscal year, but not on
a fixed schedule, awards all BBN stock options, and in the past has reviewed
all stock options granted by subsidiaries. In fiscal 1996, the Committee also
reviewed and approved the awards of BBN stock options in connection with the
reorganization of the Internet and internetworking activities of the Company's
business, including replacing stock options previously granted by certain
subsidiaries. The Committee's policies with respect to each of these elements,
including the basis for the compensation awards to Mr. Conrades, are discussed
below.
Base Salaries. The base salary for Mr. Conrades was determined by direct
negotiations with Mr. Conrades at the time of his hiring in December of 1993,
with reference to the then-existing marketplace for executive ability and
experience comparable to Mr. Conrades'. The base salary amount, as established
in 1993, was continued for fiscal year 1996 without change. In determining
what the Committee was willing to approve as a base salary for Mr. Conrades,
the Committee focused on the subjective factor of the importance to the
Company of having a chief executive officer with an outstanding business and
marketing history who could provide the leadership necessary to improve the
Company's performance. (Mr. Conrades also has received relocation expenses
reimbursement and other non-recurring benefits in connection with his hiring
and relocation, as specified in the Summary Compensation Table provided
above.)
Base salaries for other executive officers of the Company are determined by
evaluating subjective factors, including the responsibilities of the position
and the experience of the individual, and by referring to the marketplace for
executive talent, including a comparison to base salaries for comparable
positions with other corporations. In this latter connection, the Committee
avails itself of internal, Company-prepared reports, which are based upon
major published surveys on salaries (including the American Electronics
Association Top Management Survey, the Radford Management Survey, The Mercer
Finance, Accounting, and Legal Survey, The Mercer Telecommunications Survey,
and SC Chips Executive Alliance Top Management Survey), comparing the
Company's executive salaries to survey information on compensation for like
positions in public (primarily high technology) corporations of similar size.
The Company believes that to be competitive, the mid-point of the salary range
for each of the Company's executive categories should be at or near the 50th
percentile of the surveyed companies. (The companies in the surveys include
some of, but are not the same as, the companies in the peer group index in the
Comparison of Five-Year Cumulative Total Return graph included elsewhere in
this Proxy Statement.)
Annual salary adjustments, if any, are determined by the subjective
evaluation of each executive officer's performance, with consideration given
to the performance of the Company for the preceding year, the responsibilities
of the individual, and in the case of officers with responsibility for
operating units, the perceived strategic importance of the unit to the future
performance of the Company.
<PAGE>
Incentive Compensation Plans. Provisions have been made since 1970 to pay
bonuses pursuant to cash incentive plans of the Company. The general bonus
program in effect for fiscal 1996 provided for cash incentives, in varying
amounts, to be paid out of separate pools for the staffs of the operating
units of the Company (BBN Systems and Technologies Division, BBN Domain, BBN
Planet, and BBN HARK), for the staff of the Corporate Services unit, and for
the members of the executive management staff of the Company (including the
CEO) not covered by one of the other plans. The operating units plans for the
fiscal year provided for separate pools equal to specific amounts to be
awarded in whole or in part based upon the level of attainment of the
respective operating unit's operating income and revenue objectives; the
corporate staff plan provided for a pool equal to a fixed percentage (10%) of
the aggregate total bonus pools of the operating units of the Company, and the
executive management staff plan provided for a bonus pool of up to $376,000,
in each case payable in whole or in part based upon the level of attainment of
operating income and revenue targets for the Company. (Notwithstanding the
formulas, the incentive program provided for maximum limits on the pools, and
provides a mechanism for the Board of Directors to establish a discretionary
pool, when a formula would otherwise result in a more limited pool or no
bonuses.) In addition, each of the operating units had at the start of the
fiscal year a predetermined pool which, at the discretion of the head of the
operating unit, could have been awarded to individuals for notable
achievements. Bonuses from this pool were payable at any time during the year.
Within the pools under the Company's general incentive program, individual
bonuses to executive officers are determined by the subjective evaluation of
the individual's contribution to the specific unit's performance for the year.
No bonus was paid to Mr. Conrades for fiscal 1996 under the general bonus
program of the Company. Bonuses totaling $287,500 were paid to the other
executive officers of the Company for the fiscal year.
Upon his hiring, the Committee established an incentive bonus plan for Mr.
Conrades under which he is eligible to receive an annual bonus equal to
$100,000 if the Company achieves a positive net income (after tax, and after
taking into account such bonus) on a quarterly basis; an additional $100,000
if the Company achieves a positive net income of at least $0.25 per share on a
quarterly basis; and an additional $200,000 if the Company achieves a positive
net income of at least $0.50 per share on a quarterly basis, in each case for
a number of consecutive quarters that would indicate that it would be
reasonable to expect the respective earnings would continue. The bonus level
achieved for each fiscal year, as well as the number of quarters to be taken
into account in each determination under the plan, is to be made by the
Committee. No bonus was paid under this plan to Mr. Conrades for fiscal 1996.
Included in the $287,500 paid in bonuses to the executive officers of the
Company for the fiscal year was a bonus to Mr. Campbell, $75,000 of which was
guaranteed for fiscal 1996 as part of his compensation package agreed to at
the time of his employment in 1995.
Stock Option Plans. Under the standard BBN stock option plans, stock options
are granted from time to time but not on a fixed schedule to key persons,
including executive officers of the Company. The Committee selects the option
recipients and sets the size of stock option awards based upon subjective
factors, including primarily the perceived importance of the individual's
contribution to the success of the Company, similar to the subjective factors
considered in setting base salary, and upon the amount of and value of options
otherwise currently held by the individual. The Committee also takes into
consideration in granting options to executive officers the relationship of
the number of options held by each of the executive officers to a subjective
rating of the degree of responsibility of the position held by each officer
compared to that of the other executive officers. While not having a target
ownership level of Common Stock by executive officers, the Committee has
endeavored to motivate executives by granting options at levels that present
executives with an opportunity for significant gains, commensurate with gains
in stockholder value.
<PAGE>
Stock options are designed to align the interests of the recipients with
those of the stockholders of the Company. Stock options are typically granted
by the Company with an exercise price equal to the market price of the
Company's Common Stock on the date of grant. The options generally vest over
four years. Accordingly, the full benefit of the options is realized when
stock price appreciation occurs over an extended period.
The Company, as majority shareholder of BBN Planet Corporation and as sole
shareholder of BBN Domain Corporation and BBN HARK Systems Corporation, had
previously approved, by action of the Board, stock option programs of those
subsidiaries, under which options for shares of the subsidiary's common stock
were granted to employees of the subsidiary or of the Company, including
certain executive officers of the Company, and to the presidents of the other
subsidiaries of the Company. The Committee reviewed the aggregate number of
options granted by each subsidiary's board of directors, and reviewed
individually options granted by each such board to executive officers of the
Company and to the presidents of other subsidiaries. The Committee's review of
the option recipients and the size of subsidiary stock options awarded to
executive officers of the Company was premised upon subjective factors,
including primarily the anticipated support to be provided to the subsidiary
by the executive officer and the perceived importance of the individual's
contribution to the success of the subsidiary's development. The Committee's
review of the size of subsidiary stock options awarded to the presidents of
other subsidiaries was premised upon subjective factors, including primarily
the desire to encourage collaboration among the subsidiaries and with the
Company, for the benefit of the Company as a whole. While the subsidiary
options generally vested over four years, they were not exercisable until
after the subsidiary's stock became publicly traded. Under the subsidiary
option programs, stock of the Company's participating subsidiaries reserved
for issuance under option awards was approximately 7% to 12% of the respective
subsidiary's outstanding stock.
In fiscal 1996 the Company undertook a reorganization program to combine its
Internet and internetworking services operations, and to focus its business
principally on a range of Internet capabilities. A corollary of this focus was
the elimination or sale of subsidiaries. In this connection, the portion of
the executive compensation package related to subsidiary stock options has
been largely terminated, replaced for those employees covered previously by
subsidiary options who remained or became employees of BBN by a replacement
option program for shares in BBN. In this connection, the Company's Board
adopted a 1996 Stock Incentive Plan to provide replacement options to
employees (other than certain executive officers, who were granted replacement
options under the Company's 1986 Stock Incentive Plan) previously covered by
the option programs of certain former subsidiaries and to provide options to
individuals (other than executive officers, to whom additional options, if
any, were granted under the 1986 Plan) undertaking additional or changed
responsibilities as a result of the reorganization. Replacement options for
BBN shares have been awarded to recipients of options under the plans of BBN
Planet and BBN HARK, in general to the effect that for every 100 shares of
stock of BBN Planet covered by a replaced option, the individual received a
BBN option for 12.5 shares of BBN stock at an exercise price of $18.125 per
share, as to which 50% would vest after 6 months and an additional 50% would
vest after 12 months, and that for every 100 shares of stock of BBN HARK
covered by a replaced option, the individual received a BBN option for 1 share
of BBN stock at an exercise price of $28.875 per share, as to which 25% would
vest after 1 year and an additional 25% would vest annually thereafter. The
replacement of the BBN Planet options resulted in the grant of options for
222,920 BBN shares (of which 156,670 shares were under the Replacement Plan
and 66,250 shares were under the 1986 Stock Incentive Plan) at an option
exercise price which was below the market value of BBN shares at the date of
grant in an aggregate amount of $2,400,000, which amount will be charged to
expense as compensation paid by the Company over the vesting period of such
options; $1,800,000 of such charge was recorded in the Company's 1996 fiscal
year. The replacement of the BBN HARK options resulted in the grant of options
for 5,833 BBN shares (of which 3,983 shares were under the Replacement Plan
and 1,850 shares were under the 1986 Stock
<PAGE>
Incentive Plan) at an option exercise price equal to the market value of BBN
shares at the date of grant. In addition to the subsidiary replacement
options, options were granted under the Replacement Plan as a result of the
reorganization for an aggregate of 607,199 shares to 324 individuals; such
options were at option prices equal to the market value of BBN shares at the
dates of grant. Options for employees of BBN Domain were reformulated upon the
recapitalization of BBN Domain and the sale by the Company of the majority of
the stock of that company in July 1996. Following the recapitalization and
sale, stock options in BBN Domain held by Mr. Conrades and certain other
executive officers of the Company who held options but did not become
employees of BBN Domain, remain outstanding, to the extent vested at the time
of the sale, at a reformulated price of $0.61 per share. The reformulated
price, effected in connection with the recapitalization, equally affected all
holders of the class of securities underlying the options.
In connection with the hiring by the Company of Mr. Conrades in fiscal 1994,
and based upon what the Committee deemed necessary and appropriate for the
hiring of a person of the capability and experience of Mr. Conrades, he
received options for 800,000 shares of BBN Common Stock and 100,000 shares of
BBN Domain common stock and 100,000 shares of common stock of LightStream
Corporation. Following his hiring, Mr. Conrades received options for 100,000
shares of each of BBN Planet and BBN HARK. The grant of subsidiary options to
Mr. Conrades was based upon the Committee's subjective view of the
contributions to the operations of the subsidiaries expected to be provided by
Mr. Conrades.
At June 30, 1996, Mr. Conrades owned 32,202 shares of Common Stock of the
Company, exclusive of exercisable stock options. He also has options granting
him the right to acquire an additional 800,000 shares of Common Stock of the
Company, which options are exercisable in full by December 1997, and options
for 13,500 shares of Common Stock of the Company (of which 6,250 are vested
and exercisable) received in replacement of options held by Mr. Conrades in
BBN Planet and BBN HARK. He also has options granting him the right to acquire
50,000 shares of the common stock of BBN Domain (now called Domain Solutions
Corporation) which are vested although not currently exercisable. Options in
LightStream held by Mr. Conrades were canceled by agreement, without payment
to Mr. Conrades, upon the sale by the Company of the assets of that
subsidiary. In addition, Mr. Conrades owns $50,000 principal amount of the
Company's 6% Convertible Subordinated Debentures due 2012.
Section 162(m) of the Internal Revenue Code. Subject to specific exemptions
for certain performance-based compensation, Internal Revenue Code Section
162(m) precludes a public corporation from taking a tax deduction for
compensation in excess of $1 million for its chief executive officer or any of
its four other highest-paid executive officers in office on the last day of a
tax year.
The Section 162(m) limits did not affect the Company's tax deductions with
respect to compensation paid in the 1996 fiscal year. The fiscal 1996 cash
compensation paid by the Company did not, and the fiscal 1997 cash
compensation to be paid to the specified individual executive officers of the
Company is not expected to, exceed in any case the $1 million figure. Further,
it is believed that stock options exercises in fiscal 1996 qualified as
performance-based compensation. In general, stock options granted at an
exercise price equal to the underlying stock's fair market value under the
Company's 1986 Stock Incentive Plan are intended to qualify as performance-
based compensation, with the intended result that the deduction of
compensation resulting from the exercises of such options would not be
affected by the Section 162(m) deduction limit as it may apply in the future.
However, during fiscal 1996 certain stock options were granted to the
specified individual officers at an exercise price below fair market value of
the underlying shares on the date of grant, in replacement of options held by
the individuals in BBN Planet; such options were not intended to qualify for
exemption from the Section 162(m) limits and consequently the deductibility of
any compensation arising by reason of exercises of such options could be
affected in the year of exercise by the $1 million deduction limit.
<PAGE>
The Committee will continue to assess the implications of the legislation on
executive compensation to determine what action, if any, may be appropriate in
the Company's case. In adopting and administering executive compensation plans
and arrangements, the Committee will consider whether the deductibility of
such compensation will be limited under Section 162(m) and, in appropriate
cases, will strive to structure such compensation so that any such limitation
will not apply.
Conclusion. The programs described above are intended to link a significant
portion of the Company's executive compensation to individual performance and
to corporate performance and stock price appreciation. The Committee intends
to continue the policy of linking executive compensation to corporate
performance and improvement in stockholder value, recognizing that economic
factors beyond management's control may result in imbalances for particular
periods, but that consistent improvement in corporate performance over the
long term would inure to the mutual benefit of the Company's executives and
its stockholders.
The foregoing report has been furnished by the members of the Committee
during fiscal 1996,Ms. Fjeldstad and Messrs. Hatsopoulos and Wellington.
<PAGE>
EXHIBIT 5
BBN CORPORATION
150 CAMBRIDGEPARK DRIVE
CAMBRIDGE, MASSACHUSETTS 02140
May 12, 1997
Dear Stockholder:
We are pleased to report that BBN Corporation (the "Company") has entered
into a merger agreement with GTE Corporation ("GTE") and one of its
subsidiaries that provides for the acquisition of the Company by GTE at a
price of $29.00 per share in cash. Under the terms of the proposed
transaction, a GTE subsidiary is today commencing a cash tender offer for all
outstanding shares of the Company's common stock at $29.00 per share.
Following the successful completion of the GTE tender offer, the GTE
subsidiary will be merged into the Company and all shares not purchased in the
GTE tender offer will be converted into the right to receive $29.00 per share
in cash in the merger.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE GTE TENDER OFFER AND
DETERMINED THAT THE TERMS OF THE TENDER OFFER AND THE MERGER, TAKEN TOGETHER,
ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS SHAREHOLDERS.
ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS ACCEPTANCE OF THE
GTE TENDER OFFER AND APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
MERGER BY THE SHAREHOLDERS OF THE COMPANY.
In arriving at its recommendations, the Board of Directors gave careful
consideration to a number of factors. These factors included the opinion dated
May 6, 1997 of Alex. Brown & Sons Incorporated ("Alex. Brown"), financial
advisor to the Company, 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 Company shareholders (other than GTE and
its affiliates) in the offer and the merger was fair from a financial point of
view to such shareholders.
Accompanying this letter is a copy of the Company's
Solicitation/Recommendation Statement on Schedule 14D-9. Also enclosed is
GTE's Offer to Purchase and related materials, including a Letter of
Transmittal for use in tendering shares. We urge you to read the enclosed
materials, including Alex. Brown's opinion which is attached to the Schedule
14D-9, carefully.
The management and directors of BBN Corporation thank you for the support
you have given the Company.
Sincerely,
/s/ George H. Conrades
George H. Conrades
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
EXHIBIT 6
Cambridge, Mass., May 6, 1997 --- BBN Corporation (NYSE:BBN) today said that
GTE Corp. (NYSE: GTE) has agreed to acquire BBN in a transaction valued at
approximately $616 million. Under the terms of the transaction, GTE will
shortly commence a cash tender offer to acquire all the outstanding shares of
BBN common stock at a price of $29 per share.
BBN also reported third quarter revenue of $95.9 million, a 58 percent
increase from $60.8 million in the third quarter of a year ago. Revenue for
the nine month period ended March 31, 1997 was $254.1 million, an increase of
53 percent over $165.6 million for the nine months ended March 31, 1996.
The revenue growth in the third quarter ended March 31, 1997 reflects
continued significant growth in BBN Planet, BBN's Internet services division.
BBN Planet had third quarter revenue of $48.2 million, a 134 percent increase
over revenue of $20.6 million for the comparable quarter ended March 31, 1996
and a 23 percent sequential increase over $39.2 million in the quarter ended
December 31, 1996. America Online-related revenue was $23.2 million,
representing 48 percent of BBN Planet revenue. Revenue from BBN Planet's
value-added services, which include web hosting, managed security, consulting
and systems integration services, grew by approximately 18 percent
sequentially over the previous quarter, and currently represents 15 percent of
BBN Planet revenue.
For the third quarter ended March 31, 1997, BBN's operating loss was $12.1
million, compared to an operating loss of $29.8 million in the third quarter
of fiscal year 1996 and $10.5 million in the preceding quarter ended December
31, 1996. The operating loss for the nine months ended March 31, 1997 was
$33.6 million compared to $44.0 million in the nine-month period of fiscal
year 1996. The third quarter and year-to-date operating losses for the prior
fiscal year periods ended March 31, 1996 include a one time charge of $20.7
million for the write-off of goodwill and other costs associated with the
company's reorganization.
The loss from continuing operations for the three and nine-month periods
ended March 31, 1997 was $12.2 million, or $.58 per share, and $33.1 million,
or $1.54 per share, respectively, compared to a loss from continuing
operations of $28.7 million, or $1.61 per share, and $38.7 million, or $2.19
per share, respectively, for the three and nine-month periods ended March 31,
1996. The loss from continuing operations for all periods includes interest
income and interest expense, and for the three and nine-month periods ended
March 31, 1996, an income tax benefit of utilizing fiscal year 1996 losses to
recover taxes previously paid. There is no tax benefit for fiscal year 1997.
Income from discontinued operations for the nine months ended March 31, 1997
was $20 million, or $.93 per share compared to a loss from discontinued
operations of $7 million, or $.40 per share for the prior year nine-month
period. The loss from discontinued operations for the third quarter of the
prior fiscal year was $.5 million, or $.03 per share. Income from discontinued
operations for the nine months ended March 31, 1997 results from the gain on
the sale of a majority interest in BBN's former subsidiary, BBN Domain
Corporation, which occurred in the first quarter of fiscal 1997. The loss from
discontinued operations for the three and nine-month periods ended March 31,
1996 relates to the operating results of the former subsidiary.
The net loss was $12.2 million, or $.58 per share, for the third quarter
ended March 31, 1997, compared to $29.1 million, or $1.64 per share in the
comparable quarter ended March 31, 1996. For the nine-month period ended March
31, 1997, net loss was $13.1 million, or $.61 per share compared to $45.7
million, or $2.59 per share for the nine months ended March 31, 1996.
BBN today also said that it is in discussions with AT&T concerning the
Internet services agreement between the two companies, and that BBN and AT&T
have initiated the dispute resolution procedures provided for in the agreement
in order to resolve material disagreements regarding the terms of the
contract. These disagreements may limit the number of new AT&T customers being
added to BBN's network. BBN said that performance of services for customers
under the agreement will continue unaffected by the dispute resolution
proceedings.
BBN is a leading provider of Internet services for businesses and
organizations. For more information visit BBN's web site at
http://www.bbn.com.
<PAGE>
EXHIBIT 8
6.9 A director of the corporation shall not be liable to the corporation or
its shareholders for monetary damages for breach of fiduciary duty as a
director, except to the extent that such exculpation from liability is not
permitted by the Business Corporation Law as the same exists or may hereafter
be amended. No amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director for or with
respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
<PAGE>
EXHIBIT 9
SECTION 9. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the extent legally permissible, indemnify each of
its directors and officers (including persons who serve at its request as
directors, officers, or trustees of another organization in which it has any
interest, as a shareholder, creditor or otherwise) against all liabilities and
expenses, including amounts paid in satisfaction of judgments, in compromise
or as fines and penalties, and counsel fees, reasonable incurred by him in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which he may be involved or with
which he may be threatened, while in office or thereafter, by reason of his
being or having been such a director or officer, except with respect to any
matter as to which he shall have been adjudicated in any proceeding not to
have acted in good faith in the reasonable belief that his action was in the
best interests of the corporation; provided, however, that as to any matter
disposed of by a compromise payment by such director or officer, pursuant to a
consent decree or otherwise, no indemnification either for said payment or for
any other expenses shall be provided unless such compromise shall be approved
as in the best interests of the corporation, after notice that it involves
such indemnification, (a) by a disinterested majority of the directors then in
office; or (b) by a majority of the disinterested directors then in office,
provided that there has been obtained an opinion in writing of independent
legal counsel to the effect that such director or officer appears to have
acted in good faith in the reasonable belief that his action was in the best
interests of the corporation; or (c) by the holders of a majority of the
outstanding stock at the time entitled to vote for directors, voting as a
single class, exclusive of any stock owned by any interested director or
officer. The right of indemnification hereby provided shall not be exclusive
of or affect any other rights to which any director or officer may be
entitled. As used in this paragraph, the terms "director" and "officer"
include their respective heirs, executors and administrators, and an
"interest" director or officer is one against whom in such capacity the
proceedings in questions or another proceeding on the same or similar grounds
is then pending. Nothing contained in this Section shall affect any rights to
indemnification to which corporate personnel other than directors and officers
may be entitled by contract or otherwise under law.
<PAGE>
EXHIBIT 10
AMENDMENT NO. 1 TO COMMON STOCK RIGHTS AGREEMENT
This amendment, dated as of May 5, 1997, amends the Common Stock Rights
Agreement dated as of June 23, 1988 (the "Rights Agreement") between BBN
Corporation (the "Company") and The First National Bank of Boston, as Rights
Agent (the "Rights Agent"). Terms defined in the Rights Agreement and not
otherwise defined herein are used herein as so defined.
W I T N E S S E T H
WHEREAS, on June 23, 1988, the Board of Directors of the Company authorized
the issuance of Rights to purchase, on the terms and subject to the provisions
of the Rights Agreement, one share of the Company's Common Stock; and
WHEREAS, on June 23, 1988, the Board of Directors of the Company authorized
and declared a dividend distribution of one Right for every share of Common
Stock of the Company outstanding on the Dividend Record Date and authorized
the issuance of one Right (subject to certain adjustments) for each share of
Common Stock of the Company issued between the Dividend Record Date and the
Distribution Date; and
WHEREAS, on June 23, 1988, the Company and the Rights Agent entered into the
Rights Agreement to set forth the description and terms of the Rights; and
WHEREAS, pursuant to Section 26 of the Rights Agreement, the Continuing
Directors now unanimously desire to amend certain provisions of the Rights
Agreement in order to supplement certain provisions therein;
NOW, THEREFORE, the Rights Agreement is hereby amended as follows:
1.Section 1(a) is amended by adding the following at the end thereof:
"; and, provided, further, that no Person who or which, together with
all Affiliates of such Person, becomes the Beneficial Owner of 20% or
more of the outstanding shares of Common Stock of the Company solely as
a result of the transactions relating to and contemplated by the
Agreement and Plan of Merger dated as of May 5, 1997 by and among the
Company, GTE Corporation, and an acquisition subsidiary of GTE
Corporation (the "Merger Agreement") shall be deemed an Acquiring
Person for any purpose of this Agreement."
2.Section 1(k) is amended to read in its entirety as follows:
(k) The term "Offer Commencement Date" shall mean the date of the
commencement of, or the first public announcement of the intent of any
Person, other than (i) the Company, (ii) a Wholly Owned Subsidiary of
the Company, (iii) any employee benefit plan of the Company or of any
Wholly Owned Subsidiary of the Company or any Person organized,
appointed, or established by the Company or a Wholly Owned Subsidiary
pursuant to the terms of any such plan, or (iv) GTE Corporation or any
of its Affiliates acting pursuant to the terms of the Merger Agreement
(including any statement of such intention appearing in any publicly
available document filed with any governmental authority, other than
documents made publicly available as a result of a subpoena or other
legal process) to commence a tender or exchange offer if upon
consummation thereof the Person and Affiliates thereof would be the
Beneficial Owner of 30% or more of the then outstanding shares of
Common Stock (including any such date which is after the date of this
Agreement and prior to the issuance of the Rights).
<PAGE>
3. Except as expressly herein set forth, the remaining provisions of the
Rights Agreements shall remain in full force and effect.
IN WITNESS WHEREOF, this Amendment No. 1 has been signed to be effective as
of the close of business on this 5th day of May, 1997 by authorized
representatives of each of the Company and the Rights Agent.
BBN CORPORATION
/s/ John Montjoy
By: _________________________________
John Montjoy Senior Vice President
THE FIRST NATIONAL BANK OF BOSTON
/s/ Colleen H. Shea
By: _________________________________
Colleen H. Shea
