<PAGE>
PRELIMINARY COPY
SCHEDULE 14C
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
Check the appropriate box:
[X] Preliminary Information Statement
[_] Definitive Information Statement
[_] Confidential, for the Use of the Commission Only (as permitted by Rule 14c-
5(d)(2))
BBN CORPORATION
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $1.00 par value
(2) Aggregate number of securities to which transaction applies:
21,582,426 shares of Common Stock*
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$29.00
(4) Proposed maximum aggregate value of transaction:
$625,890,354
(5) Total fee paid:
$125,178.07
[_] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$123,135
(2) Form, Schedule or Registration Statement No.:
Schedule 14D-1/Schedule 13D
(3) Filing Party:
GTE Massachusetts Incorporated/GTE Corporation
(4) Date Filed: May 12, 1997
* Estimated for purposes of calculating the amount of the filing fee
only. The amount assumes that 21,582,426 shares of common stock, $1.00 par
value, of BBN Corporation (the "Company") (including the associated common stock
purchase rights) (collectively, the "Shares") are outstanding upon consummation
of the merger of GTE Massachusetts with and into the Company. Such number of
shares represents all the Shares outstanding as of June 17, 1997. Such number
does not include any Shares issuable upon additional conversion of any of the
Company's 6% Convertible Subordinated Notes due 2012.
<PAGE>
PRELIMINARY COPY
BBN CORPORATION
______________________, 1997
To the Stockholders of
BBN Corporation:
BBN Corporation (the "Company") cordially invites you to attend a Special
Meeting of Stockholders of BBN Corporation to be held on [________, 1997,] at
10:00 a.m., local time, at Room 36-1, 36th Floor, One International Place,
Boston, Massachusetts (the "Meeting"). At the Meeting, a proposal to adopt and
approve the Agreement and Plan of Merger dated as of May 5, 1997 (the "Merger
Agreement"), by and among GTE Corporation ("Parent"), GTE Massachusetts
Incorporated, a wholly owned subsidiary of Parent ("Purchaser"), and the
Company, which provides for the merger of Purchaser with and into the Company
(the "Merger"), will be voted upon.
The proposed Merger is the second and final step in the acquisition of the
Company by Parent. The first step was a tender offer (the "Offer") by Purchaser
to acquire all of the shares of common stock, $1.00 par value per share
(including the associated common stock purchase rights) (the "Shares"), of the
Company for $29.00 per Share in cash. The Offer has been completed, and
approximately 20,492,853 Shares, including Shares subject to guarantee of
delivery, were tendered and not withdrawn. Purchaser acquired 20,432,435 Shares
in the Offer (which number excludes Shares tendered pursuant to guarantee of
delivery for which Share certificates were not received), representing
approximately 94.67% of the Shares outstanding on June 17, 1997 (or 85.81% of
the Shares that would be outstanding if all of the Subordinated Notes (as
defined herein) were converted). Massachusetts law requires the affirmative
vote of the holders of at least two-thirds of the outstanding Shares entitled to
vote to cause the Merger to be approved and adopted at the Meeting. In the
Merger Agreement, Parent agreed to vote, or cause to be voted, all Shares it
beneficially owns for the approval and adoption of the Merger Agreement.
Accordingly, the adoption and approval of the Merger Agreement at the Meeting is
assured without the affirmative vote of any other stockholder and we are not
asking you for a proxy and you are requested not to send us a proxy.
If the Merger is consummated, each Share (other than Shares owned by
Parent, Purchaser or any other wholly owned subsidiary of Parent, or Shares held
by dissenting stockholders who properly exercise and perfect their appraisal
rights under Massachusetts law) will be converted into the right to receive
$29.00 per Share in cash, without interest thereon, all as more fully set forth
and described in the accompanying Information Statement and the Merger
Agreement, a copy of which is attached as Exhibit B to the accompanying
Information Statement.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, THE OFFER AND THE MERGER, DETERMINED THAT THE OFFER AND THE MERGER
ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY, AND
UNANIMOUSLY RECOMMENDS APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
MERGER BY THE STOCKHOLDERS OF THE COMPANY.
We urge you to read and carefully consider the information presented in the
accompanying Information Statement.
Sincerely,
George H. Conrades
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
PRELIMINARY COPY
BBN CORPORATION
NOTICE OF A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD [_________, 1997]
To the Stockholders of
BBN Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of BBN
Corporation (the "Company") will be held on [_________, 1997,] at 10:00 a.m.,
local time, at Room 36-1, 36th Floor, One International Place, Boston,
Massachusetts, and at any adjournment, continuation or postponement thereof (the
"Meeting"), for the following purposes:
1. To consider and act on the Agreement and Plan of Merger dated as of May
5, 1997 (the "Merger Agreement"), by and among the Company, GTE Corporation
("Parent") and GTE Massachusetts Incorporated, a wholly owned subsidiary of
Parent ("Purchaser"). The Merger Agreement provides, among other things, for
(i) the merger of Purchaser with and into the Company (the "Merger"), with the
Company as the surviving corporation (the "Surviving Corporation"); and (ii) the
conversion of all of the issued and outstanding shares of common stock, $1.00
par value per share, of the Company (including the associated common stock
purchase rights) (the "Shares"), other than the Shares owned by Parent,
Purchaser or any other wholly owned subsidiary of Parent, or Shares held by
dissenting stockholders who properly exercise and perfect their appraisal rights
under Massachusetts law, into the right to receive $29.00 per share in cash,
without interest, all as more fully described in the accompanying Information
Statement.
2. To transact such other business as may properly be brought before the
Meeting.
If the Merger Agreement is approved by the stockholders of the Company at
the Meeting and the Merger is effected, any stockholder (1) who files with the
Company before the taking of the vote on the approval of the Merger Agreement,
written objection to the proposed action stating that he or she intends to
demand payment for his or her Shares if the Merger Agreement is approved and
adopted and (2) whose Shares are not voted in favor of such approval and
adoption has or may have the right to demand in writing from the Surviving
Corporation, within twenty days after the date of mailing to him of notice in
writing that the Merger has become effective, payment for his Shares and an
appraisal of the value thereof. The Surviving Corporation and any such
stockholder shall in such cases have the rights and duties and shall follow the
procedure set forth in Sections 88 to 98, inclusive, of Chapter 156B of the
General Laws of Massachusetts, a copy of which is attached as Exhibit A to the
Information Statement accompanying this notice. For further information about
appraisal rights and the procedures to assert those rights, see "The Merger --
Appraisal Rights" in the accompanying Information Statement.
The Board of Directors has fixed the close of business on [_______, 1997]
as the record date (the "Record Date") for the determination of the stockholders
entitled to notice of and to vote at the Meeting.
The Bylaws require that the holders of a majority of the Shares issued,
outstanding and entitled to vote be present or be represented by proxy at the
Meeting in order to constitute a quorum for the transaction of business.
The approval and adoption of the Merger Agreement requires the affirmative
vote of the holders of at least two-thirds of the outstanding Shares entitled to
vote as of the Record Date. The Merger Agreement requires Parent to vote, or
cause to be voted, all of the Shares beneficially owned by it in favor of
approving and adopting the Merger Agreement. As a result of the purchase of the
Shares pursuant to the Offer, Parent and Purchaser have acquired the right to
vote a sufficient number of Shares to cause the Merger Agreement to be approved
and adopted without the affirmative vote of any other stockholder. Accordingly,
approval and adoption of the Merger Agreement at the Meeting is assured.
The Merger Agreement is attached as Exhibit B to the Information Statement
accompanying this notice.
<PAGE>
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, THE OFFER AND THE MERGER, DETERMINED THAT THE OFFER AND THE MERGER
ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY, AND
UNANIMOUSLY RECOMMENDS APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
MERGER BY THE STOCKHOLDERS OF THE COMPANY.
This letter constitutes the notice to stockholders required by Sections 36
and 78 of Chapter 156B of the General Laws of Massachusetts.
You should not send any Share certificates at this time. You will receive
a Letter of Transmittal promptly after the Merger has been consummated. The
Letter of Transmittal will give you instructions on where you should send your
Shares.
Nancy J. Nitikman
Clerk
Cambridge, Massachusetts
[__________, 1997]
<PAGE>
PRELIMINARY COPY
BBN Corporation
150 CambridgePark Drive
Cambridge, Massachusetts 02140
---------------------
INFORMATION STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
[________, 1997]
---------------------
GENERAL MATTERS
---------------------
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
---------------------
This Information Statement is being furnished by BBN Corporation (the
"Company"), for use at the Special Meeting of Stockholders to be held on
[___________, 1997] at 10:00 a.m., local time, at Room 36-1, 36th Floor, One
International Place, Boston, Massachusetts, and any adjournment, continuation,
or postponement thereof (the "Meeting"). This Information Statement is being
first mailed to stockholders of the Company Shares beginning on
[________, 1997.]
The purpose of the Meeting is to consider and vote upon a proposal to
approve and adopt the Agreement and Plan of Merger dated as of May 5, 1997 (the
"Merger Agreement"), by and among the Company, GTE Corporation ("Parent") and
GTE Massachusetts Incorporated, a wholly owned subsidiary of Parent
("Purchaser"). Pursuant to the Merger Agreement, Purchaser will be merged with
and into the Company, and the Company will be the surviving corporation (the
"Merger") as a wholly owned subsidiary of Parent. The Merger Agreement is
included as Exhibit B to this Information Statement. Pursuant to the Merger
Agreement, as the first step in the acquisition of the Company by Parent and
Purchaser, Purchaser commenced a cash tender offer, pursuant to an Offer to
Purchase dated May 12, 1997 (the "Offer to Purchase"), for all outstanding
shares of common stock, $1.00 par value per share (the "Company Common Stock"),
and the associated common stock purchase rights (the "Rights," and together with
the Company Common Stock, the "Shares"), of the Company at $29.00 per Share in
cash (the "Offer Price"), upon the terms and subject to the conditions set forth
in the Offer to Purchase and in the related Letter of Transmittal (which, as
amended or supplemented from time to time, together constitute the "Offer").
The Offer expired at 12:00 midnight, New York City time, on June 9, 1997, at
which time approximately 20,492,853 Shares, including Shares tendered subject to
guarantee of delivery, had been tendered pursuant to the Offer and not
withdrawn, representing approximately 95.78% of the total number of Shares
outstanding on June 9, 1997. Purchaser acquired 20,432,435 Shares (which number
excludes Shares tendered subject to guarantee of delivery for which Share
certificates were not received), representing approximately 94.67% of the Shares
outstanding on June 17, 1997 (or 85.81% of the Shares that would be outstanding
if all of the Company's 6% Convertible Subordinated Debentures due 2012 (the
"Subordinated Notes") were converted). The aggregate consideration paid by
Purchaser for the Shares tendered was $592,540,615. The Merger is the second
and final step in the acquisition of all of the Shares by Parent and Purchaser.
The Merger will be consummated on the terms and subject to the conditions
set forth in the Merger Agreement. At the effective time of the Merger, (a) the
Company will continue as the surviving corporation and will become a wholly
owned subsidiary of Parent; and (b) each Share issued and outstanding, other
than the Shares owned by Parent, Purchaser or any other wholly owned subsidiary
of Parent, or Shares held by dissenting stockholders who properly exercise and
perfect their appraisal rights under Massachusetts law, will be converted into
the right to receive $29.00 per Share in cash, without interest.
The approval and adoption of the Merger Agreement requires the affirmative
vote of the holders of at least two-thirds of the outstanding Shares entitled to
vote as of the Record Date. The Merger Agreement requires Parent to vote, or
cause to be voted, all of the Shares beneficially owned by it in favor of
approving and adopting the
<PAGE>
Merger Agreement. As a result of the purchase of the Shares pursuant to the
Offer, Parent and Purchaser have acquired the right to vote a sufficient number
of Shares to cause the Merger Agreement to be approved and adopted without the
affirmative vote of any other stockholder. Accordingly, approval and adoption of
the Merger Agreement at the Meeting is assured.
The Board of Directors of the Company (the "Board of Directors" or "Board")
has unanimously approved the Merger Agreement, the Offer and the Merger,
determined that the Offer and the Merger are fair to and in the best interests
of the stockholders of the Company. Accordingly, the Board unanimously
recommends that all stockholders vote FOR the approval and adoption of the
Merger Agreement and the Merger. In arriving at its decision, the Board
considered a number of factors, including the opinion of its financial advisor,
Alex. Brown & Sons Incorporated ("Alex. Brown"), that the Offer and the Merger
are fair, from a financial point of view, to the Company and its stockholders.
See "Opinion of the Company's Financial Advisor" below.
All information contained in this Information Statement concerning Parent,
Purchaser and their affiliates other than the Company, the financing of the
Merger and plans for Parent and the Company after the Merger has been supplied
by Parent and Purchaser. With the exception of the aforementioned information,
all information contained in this Information Statement has been supplied by the
Company.
Stockholders should not send any Share certificates at this time.
Stockholders will receive a Letter of Transmittal promptly after the Merger has
been consummated. The Letter of Transmittal will give stockholders instructions
on where they should send their Shares.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS INFORMATION STATEMENT OR THE DOCUMENTS INCORPORATED HEREIN
BY REFERENCE IN CONNECTION WITH THE SOLICITATIONS MADE HEREBY AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY PARENT, PURCHASER OR THE COMPANY. THIS INFORMATION STATEMENT
DOES NOT CONSTITUTE A SOLICITATION OF A PROXY. THE DELIVERY OF THIS INFORMATION
STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS NOT BEEN ANY CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF
PARENT, PURCHASER OR THE COMPANY SINCE THE DATE OF THIS INFORMATION STATEMENT.
-----------------
The Depository for the Merger is
THE FIRST NATIONAL BANK OF BOSTON
-----------------
The date of this Information Statement is [_________, 1997]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION............................................................. 1
The Meeting......................................................... 1
Voting Rights and Record Date....................................... 1
INFORMATION CONCERNING PARENT AND PURCHASER.............................. 3
THE MERGER............................................................... 3
General............................................................. 3
Background.......................................................... 4
Recommendation of the Board and Reasons for the Merger.............. 6
Opinion of the Company's Financial Advisor.......................... 7
Payment of Merger Consideration for the Shares...................... 11
Purpose of the Merger and Plans for the Company..................... 12
Accounting Treatment................................................ 12
Financing of the Merger............................................. 12
Regulatory and Other Approvals...................................... 12
Antitrust........................................................... 13
State Anti-takeover Statutes........................................ 13
Appraisal Rights.................................................... 13
The Merger Agreement................................................ 15
Certain Effects of the Merger....................................... 22
Certain Tax Considerations.......................................... 22
INTERESTS OF CERTAIN PERSONS IN THE MERGER............................... 23
Common Stock Ownership of Certain Beneficial Owners and Management.. 23
Change-of-Control Arrangements...................................... 26
Certain Provisions in the Merger Agreement.......................... 27
SUMMARY FINANCIAL OUTLOOK OF THE COMPANY................................. 30
MARKET PRICES AND DIVIDEND MATTERS....................................... 32
SELECTED HISTORICAL CONSOLIDATED FINANCIAL
INFORMATION OF THE COMPANY............................................... 33
INDEPENDENT PUBLIC ACCOUNTANTS........................................... 35
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... 36
</TABLE>
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit A MBCL Appraisal Rights Provisions....................... A-1
Exhibit B Merger Agreement....................................... B-1
Exhibit C Opinion of Alex. Brown & Sons Incorporated............. C-1
</TABLE>
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<PAGE>
INTRODUCTION
The Meeting
This Information Statement is being furnished to stockholders of the
Company by the Board of Directors in connection with the Meeting. At the
Meeting, stockholders will be asked to consider and vote upon a proposal to
approve and adopt the Merger Agreement pursuant to which Purchaser will be
merged with and into the Company, with the Company as the surviving corporation
("Surviving Corporation") in the Merger. As a result of the Merger, the Company
will become a wholly owned subsidiary of Parent. The Offer expired at 12:00
midnight, New York City time, on June 9, 1997, at which time approximately
20,492,853 Shares, including Shares tendered subject to guarantee of delivery,
had been tendered pursuant to the Offer and not withdrawn, representing
approximately 95.78% of the total number of Shares outstanding on June 9, 1997.
Purchaser acquired 20,432,435 Shares (which number excludes Shares tendered
subject to guarantee of delivery for which Share certificates were not
received), representing approximately 94.67% of the Shares outstanding on June
17, 1997 (or 85.81% of the Shares that would be outstanding if all of the
Subordinated Notes were converted). The aggregate consideration paid by
Purchaser for the Shares tendered was approximately $592,540,615. The Merger is
intended to follow the purchase of the Shares pursuant to Offer as the second
and final step in the acquisition of the Company pursuant to the Merger
Agreement.
Voting Rights and Record Date
Only stockholders of record ("Record Holders") at the close of business on
[___________, 1997] (the ("Record Date") will be entitled to notice of and to
vote at the Meeting. On [__________, 1997] there were [_____] Shares outstanding
and entitled to vote; each of the Shares is entitled to one vote.
The presence at the Meeting, in person or by proxy, of a majority of all
the Shares outstanding on the Record Date and entitled to vote will constitute a
quorum for the transaction of business. The approval and adoption of the Merger
Agreement requires the affirmative vote of the holders of at least two-thirds of
the outstanding Shares entitled to vote as of the Record Date. It is not
expected that any matters other than those referred to in this Information
Statement will be brought before the Meeting.
While the Company is not requesting proxies in connection with the Meeting,
Shares which are represented by properly executed proxies, unless such proxies
shall have previously been properly revoked, will be voted in accordance with
the instructions indicated in such proxies. If no contrary instructions are
indicated, such Shares will be voted for approval and adoption of the Merger
Agreement. Under the rules of the New York Stock Exchange (the "NYSE"), while
brokers who hold shares in "street" name have the authority to vote on certain
items for which they have not received instructions from beneficial owners,
brokers will not be entitled to vote on the Merger Agreement absent
instructions. Brokers who do not receive instructions but who are present, in
person or by proxy, at the meeting will be counted present for quorum purposes.
Because the approval and adoption of the Merger Agreement by stockholders of the
Company requires the affirmative vote of at least two-thirds of the Shares
outstanding as of the Record Date, failure to submit a proxy, abstentions and
broker non-votes will have the same effect as a vote against approval of the
Merger Agreement.
As a result of the purchase of the Shares pursuant to the Offer, Purchaser
holds a total of 20,432,435 Shares, constituting approximately 94.67% of the
Shares outstanding as of June 17, 1997 and entitled to vote at the Meeting.
Accordingly, Parent beneficially owns a sufficient number of Shares to adopt and
approve the Merger Agreement without the affirmative vote of any other
stockholder. In the Merger Agreement, Parent has agreed to vote, or cause to be
voted, all Shares beneficially owned by it for the approval and adoption of the
Merger Agreement. Accordingly, approval and adoption of the Merger Agreement at
the Meeting is assured.
Pursuant to the terms of the Merger Agreement, after the approval and
adoption of the Merger Agreement by the stockholders of the Company, the
satisfaction or waiver of the other conditions to the Merger and the filing
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<PAGE>
of Articles of Merger with the Massachusetts Secretary of State in accordance
with the provisions of Chapter 156B of the General Laws of Massachusetts (the
"MBCL") (the date and time of such filing being hereinafter referred to as the
"Effective Time"), each Share outstanding immediately prior to the Effective
Time (other than the Shares owned by Parent, Purchaser or any other wholly owned
subsidiary of Parent, or Shares held by dissenting stockholders who properly
exercise and perfect their appraisal rights under the MBCL) (hereinafter, the
"Outstanding Shares") will be cancelled, extinguished and converted into the
right to receive $29.00 per Share in cash, without interest. See "The Merger --
Appraisal Rights." At the Effective Time, the stock transfer books of the
Company will be closed and no transfer of the Shares will thereafter be made.
TO RECEIVE PAYMENT AFTER THE MERGER OF $29.00 PER SHARE IN CASH (WITHOUT
INTEREST), HOLDERS OF THE SHARES MUST DELIVER CERTIFICATES EVIDENCING SUCH
SHARES ALONG WITH A PROPERLY COMPLETED LETTER OF TRANSMITTAL TO THE FIRST
NATIONAL BANK OF BOSTON ("PAYING AGENT"). INSTRUCTIONS WITH REGARD TO THE
SURRENDER OF SHARE CERTIFICATES TO THE PAYING AGENT, TOGETHER WITH A LETTER OF
TRANSMITTAL TO BE USED FOR THIS PURPOSE, WILL BE FORWARDED TO THE COMPANY'S
STOCKHOLDERS AS PROMPTLY AS PRACTICABLE FOLLOWING THE EFFECTIVE TIME.
STOCKHOLDERS SHOULD SURRENDER SHARE CERTIFICATES ONLY AFTER RECEIVING A LETTER
OF TRANSMITTAL. STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES AT THIS
TIME.
The obligations of the Company and Parent to consummate the Merger are
subject to certain conditions. In the unlikely event that the Merger Agreement
is terminated without the Merger being consummated, certificates delivered to
the Paying Agent will be promptly returned.
INFORMATION CONCERNING THE COMPANY
The Company is a Massachusetts corporation with its principal executive
offices located at 150 CambridgePark Drive, Cambridge, Massachusetts 02140. The
telephone number of the Company at such offices is (617) 873-2000.
The Company is a leading provider of Internet and internetworking services
and solutions to businesses and other organizations, and a provider of contract
research, development, and consulting services to governmental and other
organizations. The Company operates through two principal business units: BBN
Planet and BBN Systems and Technologies. BBN Planet is responsible for the
Company's Internet offerings to business and other organizational customers, and
includes the Company's managed Internet access and value-added services and
related network operations and Internet dial-up access capabilities. BBN
Systems and Technologies focuses on providing networking solutions and contract
research and development, principally for the federal government, as well as
creating next generation technology for advanced Internet applications, and is
organized into three principal groups: Internetwork Technologies, Information
Systems and Technologies, and Physical Systems and Technologies. The Company's
commercial speech recognition activities are included in BBN Systems and
Technologies. The Company also has minority equity positions in a number of
ancillary ventures which in the aggregate are immaterial to the Company's
current financial condition.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and is required to file
reports and other information with the Securities and Exchange Commission (the
"SEC") relating to its business, financial condition and other matters.
Information, as of particular dates, concerning the Company's directors and
officers, their remuneration, options granted to them, the principal holders of
the Company's securities and any material interest of such persons in
transactions with the Company is required to be described in periodic statements
distributed to the Company's stockholders and filed with the SEC. These reports,
proxy statements, and other information, including the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1996 (the "Company 10-K"), the
Company's Quarterly Reports on Form 10-Q for the quarters ended September 30,
1996, December 31, 1996 and March 31, 1997 and the Schedule 14D-9, should be
available for inspection and copying at the SEC's principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC
located at Seven World Trade Center, Suite 1300, New York,
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<PAGE>
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may also be obtained by mail,
upon payment of the SEC's customary fees, from the SEC's principal office. Such
material should also be available for inspection at the offices of the NYSE, 20
Broad Street, New York, New York 10005. The SEC also maintains an Internet site
on the World Wide Web at http://www.sec.gov that contains reports and other
information.
INFORMATION CONCERNING PARENT AND PURCHASER
Purchaser is a newly formed Massachusetts corporation and a wholly owned
subsidiary of Parent. To date, Purchaser has not conducted any business other
than in connection with the Offer and the Merger. Other than the Shares
purchased pursuant to the Offer, Purchaser does not have any significant assets
or liabilities and does not engage in activities other than those incident to
its formation and capitalization and the transactions contemplated by the Offer
and the Merger. Because Purchaser is a newly formed corporation and has minimal
assets and capitalization (other than the Shares as described above), no
meaningful financial information regarding Purchaser is available.
Parent is a New York corporation. Parent, together with its consolidated
subsidiaries, is one of the largest publicly held telecommunications companies
in the world. It is the largest U.S.-based local telephone company. Parent's
domestic and international operations serve 25.9 million access lines through
subsidiaries in the United States, Canada, and the Dominican Republic and an
affiliate in Venezuela. Parent is a leading mobile-cellular operator in the
United States, with the potential of serving 61.9 million cellular and personal
communications service customers. Outside the United States, Parent operates
mobile-cellular networks serving some 16.4 million POPs through subsidiaries in
Canada and the Dominican Republic and affiliates in Venezuela and Argentina.
Beginning in 1996, Parent became the first among its peers to offer "one-stop
shopping" for local, long-distance and Internet access services. Parent is also
a leader in government and defense communications systems and equipment,
aircraft-passenger telecommunications, directories and telecommunications-based
information services and systems. Parent also has subsidiaries engaged in
financing, insurance, leasing and other activities offering financial and
related services primarily to its operating companies. One of these
subsidiaries, GTE Service Corporation, furnishes, at cost, advisory and
consulting services related to administration, operations, accounting methods
and procedures, insurance, human resources, financing, Federal and state taxes
and other matters to operating companies of Parent. Parent and its subsidiaries
had approximately 102,000 employees at December 31, 1996. The principal
executive offices of Parent and Purchaser are located at One Stamford Forum,
Stamford, Connecticut 06904. The telephone number of Parent and Purchaser such
offices is (203) 965-2000.
THE MERGER
General
Pursuant to the terms of the Merger Agreement, as soon as practicable after
the satisfaction or waiver of the conditions set forth in the Merger Agreement,
Parent will acquire the Company through the merger of Purchaser with and into
the Company. Following the Merger, the Company will be the surviving
corporation and will continue in existence as a wholly owned subsidiary of
Parent. The Merger will become effective upon the filing of Articles of Merger
with the Massachusetts Secretary of State in accordance with the MBCL. Such
filing shall be made no later than the second business day after the last of the
conditions to the Merger set forth in the Merger Agreement is satisfied or
waived.
At the Effective Time, each Outstanding Share will be cancelled,
extinguished and converted into the right to receive $29.00 per Share in cash,
without interest, all as more fully set forth and described in this Information
Statement and the Merger Agreement, a copy of which is attached as Exhibit B to
this Information Statement.
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<PAGE>
Background
In an effort to meet the competitive demands of the Internet industry, the
Company has, on an ongoing basis, sought to obtain additional sources of capital
and strategic partners to continue to expand the Company's Internet business and
pursue other growth opportunities. In order to facilitate this effort, in June
1996 the Company authorized Alex. Brown, the Company's financial advisor, to
seek out sources of capital and strategic partners for the Company, as well as
to explore other strategic opportunities.
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 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.
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During the week of April 28, 1997, both Parent and the other potential
acquiror submitted draft merger agreements to the Company for review. The draft
merger agreement from Parent contemplated a cash tender offer for the Shares,
followed by a merger of a subsidiary of Parent into the Company after completion
of the tender offer. No price was proposed in the draft merger agreement from
Parent.
On May 2, 1997, representatives of the Company, the other potential
acquiror, and their respective legal counsel met to review the stock-for-stock
merger agreement proposed by the other potential acquiror and to discuss the
conditions required by the other potential acquiror.
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 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 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 Offer and
subsequently stated that subject to the terms of a final merger agreement, Alex.
Brown was of the opinion that the $29.00 cash price to be paid in the
transaction was fair to the stockholders of the Company from a financial point
of view. The Board instructed management to continue to negotiate the terms of
a merger agreement with Parent.
From May 3, 1997 through May 6, 1997, representatives of Parent and the
Company negotiated the final terms of the Merger Agreement and the other
definitive documents for the transaction.
On the evening of May 5, 1997 the Board of Directors of the Company met to
further consider the Offer 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 stockholders of the
Company. On the morning of May 6, 1997, the Board of Directors of the Company
met again to review the final terms of the Merger Agreement. After discussion
and following confirmation by Alex.
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Brown of its fairness opinion, the Board of Directors confirmed the resolutions
taken at the May 5, 1997 Board meeting. The Merger Agreement and Stock Option
Agreement were finalized and executed promptly thereafter.
On May 6, 1997, prior to the opening of trading, the Company and Parent
separately announced the transaction. On May 12, 1997, Purchaser commenced the
Offer. The Offer expired at 12:00 midnight, New York City time, on June 9,
1997, at which time approximately 20,492,853 Shares, including Shares tendered
subject to guarantee of delivery, had been tendered pursuant to the Offer and
not withdrawn, representing approximately 95.78% of the total number of Shares
outstanding on June 9, 1997. Purchaser acquired 20,432,435 Shares (which number
excludes Shares tendered subject to guarantee of delivery for which Share
certificates were not received), representing approximately 94.67% of the Shares
outstanding on June 17, 1997 (or 85.81% of the Shares that would be outstanding
if all of the Subordinated Notes were converted). The aggregate consideration
paid by Purchaser for the Shares tendered was $592,540,615.
Effective June 10, 1997, Messrs. Albertine, Hopper, McKenna and Wellington
and Ms. Fjeldstad resigned as directors of the Company and effective June 17,
1997, the remaining directors (Messrs. Conrades, Levy and Nichols (the
"Continuing Directors")) elected Kent B. Foster, Thomas W. White, Gerald K.
Dinsmore, Robert C. Calafell and J. Michael Kelly, each an officer of Parent or
GTE Service Corporation, to fill the resulting vacancies on the Board. The
Continuing Directors (other than Mr. Conrades) have indicated that they will
resign as of the Effective Time.
Recommendation of the Board and Reasons for the Merger
In light of the Board's review of the Company's competitive and financial
position, recent operating results and prospects, the Board determined that the
Offer and the Merger, taken together, are fair to, and in the best interests of,
the Company and its stockholders. In making such recommendation and in
approving the Merger Agreement and the transactions contemplated thereby, the
Board considered a number of factors, including, but not limited to, the
following:
(i) the terms and conditions of the Merger Agreement and associated
agreements;
(ii) the financial condition, results of operations, business and
prospects of the Company and the need for additional capital for the Company;
(iii) the prospects of the Company if the Company were to remain
independent and the risks inherent in remaining independent;
(iv) the current status of the Internet industry and the competitive
advantage in the industry of large telecommunications companies with significant
distribution capacity, installed infrastructure, compatible service offerings
and financial resources;
(v) the trading price of the Shares prior to entering into the Merger
Agreement and that the $29.00 per Share paid in the Offer and to be paid as the
consideration in the Merger represents a premium of approximately 28.2% over the
$22.63 closing sale price for the Shares on the NYSE on May 5, 1997, the last
trading day prior to the public announcement of the execution of the Merger
Agreement, and a premium of approximately 64.5% over the $17.63 closing sale
price for the Shares on the NYSE one month prior, on April 7, 1997;
(vi) the fact that the proposal made by the other potential acquiror
was contingent on certain significant conditions which had to be satisfied prior
to signing a definitive agreement, and that, although the stock-for-stock
transaction proposed implied a nominally higher price for the Shares based on
the then current market price of the other potential acquiror's stock, the
stock-for-stock proposal was subject to significant risk, including market risk
with respect to the other potential acquiror's stock and potential damage to
significant business relationships of the Company;
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(vii) that in view of the efforts of the Company and Alex. Brown to
find strategic partners and potential acquirors, it was not likely that any
other party or Parent would consider a transaction that was more favorable to
the Company and its stockholders;
(viii) the financial presentations of Alex. Brown made on May 4 and May
5, 1997 and the oral opinion of Alex. Brown delivered to the Board at the May 5,
1997 Board meeting (subsequently confirmed orally at the Board meeting on May 6,
1997 and by delivery of a written opinion dated May 6, 1997) to the effect that,
as of such date and based upon and subject to certain matters stated in such
opinion, the cash consideration of $29.00 per Share to be received by holders of
Shares (other than Parent and its affiliates) in the Offer and the Merger was
fair, from a financial point of view, to such holders. Alex. Brown's opinion is
directed only to the fairness, from a financial point of view, of the cash
consideration to be received in the Offer and the Merger to holders of Shares
(other than Parent and its affiliates) and is not intended to constitute, and
does not constitute, a recommendation as to whether any stockholder should
tender Shares pursuant to the Offer. The full text of the opinion of Alex.
Brown is attached as Exhibit C to this Information Statement and is incorporated
herein by reference. Stockholders are urged to read the opinion of Alex. Brown
in its entirety;
(ix) the Merger Agreement 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 stockholders;
(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 must pay Parent a fee
of $13.5 million (representing approximately 2.2% of the total value of the
consideration to be paid in the Offer and the Merger with respect to currently
outstanding Shares) and Parent will be permitted to exercise an option to
purchase 4,225,000 Shares at an exercise price of $29.00; and
(xi) the transactions contemplated by the Merger Agreement provided
for an all cash payment to stockholders, with no financing condition.
The Board did not assign relative weights to the above factors or determine
that any factor was of particular importance. Rather, the Board viewed its
position and recommendations as being based on the totality of the information
presented to and considered by it. In addition, it is possible that different
members of the Board assigned different weights to the factors.
Opinion of the Company's Financial Advisor
The Company retained Alex. Brown on April 6, 1995 to act as the Company's
financial advisor with regard to the Company's review and analysis of available
financial alternatives consistent with its strategic objectives. Alex. Brown
acted as the Company's financial advisor in connection with the Offer and the
Merger, including rendering its opinion to the Board of Directors of the Company
as to the fairness, from a financial point of view, of the consideration to be
received by the Company's stockholders in the Offer and the Merger.
At the May 5, 1997 meeting of the Board of Directors, representatives of
Alex. Brown made a presentation with respect to the Offer and the Merger and
rendered to the Board its oral opinion, subsequently confirmed orally and in
writing on May 6, 1997, that, as of such date, and subject to the assumptions
made, matters considered and limitations set forth in such opinion and
summarized below, the consideration to be received by the Company's stockholders
in the Offer and the Merger was fair, from a financial point of view, to the
Company's stockholders. No limitations were imposed by the Board upon Alex.
Brown with respect to the investigations made or procedures followed by it in
rendering its opinion.
The full text of Alex. Brown's written opinion dated May 6, 1997 (the "Alex
Brown Opinion"), which sets forth, among other things, assumptions made, matters
considered and limitations on the review undertaken, is attached hereto as
Exhibit C and is incorporated herein by reference. The Company's stockholders
are urged to
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read the Alex. Brown Opinion in its entirety. The Alex. Brown Opinion is
directed to the Board, addresses only the fairness, from a financial point of
view, to the Company's stockholders, of the consideration to be received by the
Company's stockholders in the Offer and the Merger and does not constitute a
recommendation to the Company's stockholders as to whether they should tender
their Shares in the Offer or how they should vote their Shares at the Meeting.
The Alex. Brown Opinion was rendered to the Board for its consideration in
determining whether to approve the Merger Agreement. The discussion of the Alex.
Brown Opinion in this Information Statement is qualified in its entirety by
reference to the full text of the Alex. Brown Opinion.
In connection with the Alex. Brown Opinion, Alex. Brown reviewed certain
publicly available financial information and other information concerning the
Company and Parent and certain internal analyses and other information furnished
to it by the Company. Alex. Brown also held discussions with the members of the
senior management of the Company regarding the business and prospects of the
Company. In addition, Alex. Brown (i) reviewed the reported prices and trading
activity for the Shares, (ii) compared certain financial and stock market
information for the Company with similar information for certain other companies
whose securities are publicly traded, (iii) reviewed the financial terms of
certain recent business combinations which it deemed comparable in whole or in
part, (iv) reviewed the terms of the Merger Agreement, and (v) performed such
other studies and analyses and considered such other factors as it deemed
appropriate.
In conducting its review and arriving at its opinion, Alex. Brown assumed
and relied upon, without independent verification, the accuracy, completeness
and fairness of the information furnished to or otherwise reviewed by or
discussed with it for purposes of rendering its opinion. With respect to the
financial projections of the Company, Alex. Brown assumed that such projections
and other information were reasonably prepared and reflected the best currently
available judgments and estimates of the management of the Company. The
financial projections of the Company that were provided to Alex. Brown and were
utilized and relied upon by Alex. Brown are described under the headings
"Analysis of Certain Other Publicly Traded Companies" and "Discounted Cash
Flow Analysis" summarized below. Alex. Brown did not make an independent
evaluation or appraisal of the assets of the Company and Parent, nor has Alex.
Brown been furnished with any such evaluations or appraisals. The Alex. Brown
Opinion is based on market, economic and other conditions as they existed and
could be evaluated as of the date of the opinion letter.
The following is a summary of the analyses performed and factors considered
by Alex. Brown in connection with the rendering of the Alex. Brown Opinion.
Historical Financial Position
In rendering its opinion, Alex. Brown reviewed and analyzed the historical
and current financial condition of the Company which included (i) an assessment
of the Company's recent financial statements and (ii) an analysis of the
Company's revenue, growth and operating performance trends.
Historical Stock Price Performance
Alex. Brown reviewed and analyzed the daily closing market prices and
trading volume for the Shares from May 3, 1992 to May 2, 1997. Alex. Brown also
reviewed the daily closing market prices of the Shares and compared the movement
of such daily closing prices with the movement of the S&P 500 index over the
period from May 3, 1995 through May 2, 1997. Alex. Brown noted that, on a
relative basis, the Company underperformed the S&P 500 index. Alex. Brown also
reviewed the daily closing market prices of the Shares and compared the movement
of such closing prices with the movement of an Internet Service Providers and
Online Services composite average (consisting of America Online, Inc.,
Compuserve Corp., Digex Inc., IDT Corp., Netcom On-Line Communication Services
Inc. and PSINet Inc., the "ISPs/OSPs") and a Government Contractors and
Technology Consultants composite average (consisting of BDM International Inc.,
CACI International Inc, Logicon Inc., Nichols Research Corp. and VSE Corp., the
Government Contractors") over the period from May 3, 1995 through May 2, 1997.
On a relative basis the price of the Shares outperformed the ISPs/OSPs composite
average and
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underperformed the Government Contractors composite average. This information
was presented to give the Board background information regarding the stock
prices of the Company over the periods indicated.
Analysis of Certain Other Publicly Traded Companies
This analysis examines a company's valuation in the public market as
compared to the valuation in the public market of other selected publicly traded
companies. Alex. Brown calculated certain financial information (based on the
commonly used valuation measurements described below) from two groups of
publicly traded related companies (consisting of the ISPs/OSPs and the
Government Contractors, collectively, the "Selected Companies") and compared
that to corresponding financial information for the Offer, based on the
consideration of $29.00 per Share. Such financial information included, among
other things, (i) common equity market valuation; (ii) capitalization ratios;
(iii) operating performance; (iv) ratios of common equity market value as
adjusted for debt and cash ("Adjusted Value") to revenues and operating
income, each for the latest reported 12 month period ("LTM") and to revenues
for estimated calendar years 1997 and 1998, as derived from publicly available
information, Alex. Brown research and third-party research; and (v) ratios of
common equity market prices per share ("Equity Value") to earnings per share
("EPS"). The financial information used in connection with the multiples
provided below with respect to the Company and the Selected Companies was based
on the LTM period as derived from publicly available information and on
estimated EPS for calendar years 1997 and 1998 for the Company as provided by
the Company's management and for the Selected Companies as reported by the
Institutional Brokers Estimating System ("IBES"). Alex. Brown noted that, on
a trailing LTM basis, the multiple of Adjusted Value to revenues was 0.6x to
4.0x, with a mean of 2.0x, for the ISPs/OSPs, and a range of 0.2x to 0.9x, with
a mean of 0.7x for the Government Contractors. The Company's LTM revenue
multiple based on the Offer was 2.0x. The multiple of Adjusted Value to LTM
operating income was not meaningful for the Company since the Company had an
operating loss for the LTM period. Alex. Brown also noted that on an estimated
basis, the multiple of Adjusted Value to calendar 1997 revenues was 0.4x to
2.2x, with a mean of 1.1x, for the ISPs/OSPs, and a range of 0.6x to 0.9x, with
a mean of 0.7x, for the Government Contractors. The Company's estimated 1997
revenue multiple based on the Offer was 1.5x based on Alex. Brown research
estimates and 1.4x based on Company management estimates. The multiple of
Adjusted Value to 1998 revenues was 0.3x to 1.7x, with a mean of 0.9x, for the
ISPs/OSPs, and a range of 0.5x to 0.8x, with a mean of 0.7x, for the Government
Contractors. The Company's estimated 1998 revenue multiple based on the Offer
was 1.1x based on Alex. Brown research estimates and 1.0x based on Company
management estimates. Alex. Brown also weighted the mean revenue multiples of
the two groups of Selected Companies by the Company's historical and projected
revenue mix and noted that the implied weighted revenue multiples (the "Blended
Multiples") were 1.3x, 0.9x and 0.8x on an LTM, estimated 1997 and estimated
1998 basis, respectively. Alex. Brown further noted that the multiples of
Equity Value to trailing LTM EPS, calendar year 1997 EPS and calendar year 1998
EPS were not meaningful for the Company since the Company was not and is not
estimated to be materially profitable. As a result of the foregoing procedures,
Alex. Brown noted that the multiples for the Offer were within the range of the
multiples for the ISPs/OSPs and above the range for the Government Contractors
and above the Blended Multiples. In addition, Alex. Brown calculated an implied
Adjusted Value of the Company's Internet business segment, BBN Planet, by
subtracting the proposed adjusted purchase price by the implied Adjusted Value
of the Company's Government Contractor business segment, BBN Systems and
Technologies, which was determined by multiplying the BBN Systems and
Technologies LTM revenue by the mean LTM revenue multiple for the Government
Contractors.
Analysis of Selected Mergers and Acquisitions
Alex. Brown reviewed the financial terms, to the extent publicly available,
of eight proposed, pending or completed mergers and acquisitions since November
1994 in the Internet Service Provider industry segment and 10 proposed, pending
or completed mergers and acquisitions since August 1994 in the Government
Contractors and Technology Consultants industry segment (collectively, the
"Selected Transactions"). Alex. Brown calculated various financial multiples
based on certain publicly available information for each of the Selected
Transactions and compared them to corresponding financial multiples for the
Offer, based on the consideration of $29.00 per Share. The Internet Service
Provider transactions reviewed, in reverse chronological order of public
announcement, were: CERFnet Services, Inc./Teleport Communications Group Inc.,
EUnet Deutschland/UUNET Technologies, Inc.,
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ImagiNation Network, Inc./America Online, Inc., UUNET Technologies, Inc./MFS
Communications Co., Inc., Unipalm Group plc/UUNET Technologies, Inc., SPRY
Inc./H&R Block (Compuserve Corp.), The Pipeline Network Inc./Performance Systems
International (PSINet Inc.) and Advanced Network & Services (ANS)/America
Online, Inc. The Government Contractors and Technology Consultants transactions
reviewed in reverse chronological order of public announcement, were:
Bellcore/Science Applications International Corporation, Cordant, Inc./Tracor,
Inc., I-Net, Inc./Wang, Advanced Marine Enterprises, Inc./Nichols Research
Corp., SHL Systemhouse, Inc./MCI Communications Corp., IMI Systems, Inc./Olsten
Corporation, Geodynamics Corp./Logicon Inc., Syscon Corp./Logicon Inc., GDE
Systems, Inc./Tracor, Inc. and Coleman Research Corp./Thermo Electron Corp.
Alex. Brown noted that the multiple of adjusted purchase price (value of
consideration paid for common equity adjusted for debt, preferred stock and
cash) to trailing LTM revenues was 2.0x for the Offer and 3.5x for the implied
Adjusted Value of BBN Planet, as described above, versus a range of 3.9x to
16.8x, with a mean of 9.5x, for the Internet Service Provider transactions, and
a range of 0.3x to 1.3x, with a mean of 0.6x for the Government Contractors and
Technology Consultants. Alex. Brown also calculated the premium paid over market
for 12 transactions involving a publicly traded target in the Internet Service
Provider, Government Contractors and Technology Consultants, and Communications
Services industry segments. These transactions were effected at a range of
premiums to the target's per share market price one day prior to announcement
and to the target's per share market price four weeks prior to announcement of -
5.8% to 125.6%, with a mean of 36.4%, and -9.6% to 125.9%, with a mean of 48.3%,
respectively, versus transaction premiums of 28.2% and 64.5%, respectively, for
the Offer (based on the per Share market price one day prior to and four weeks
prior to the May 6, 1997 announcement of the proposed transaction). All
multiples for the transactions were based on public information available at the
time of announcement of such transaction, without taking into account differing
market and other conditions during the period which the transactions occurred.
Discounted Cash Flow Analysis
Alex. Brown performed a discounted cash flow analysis for the Company.
The discounted cash flow approach values a business based on the current value
of the future cash flow that the business will generate. To establish a current
value under this approach, future cash flow must be estimated and an appropriate
discount rate determined. Alex. Brown used estimates of projected financial
performance for the Company for the fiscal years ended June 30, 1998 through
2002 prepared by the Company's management. Alex. Brown aggregated the present
value of the cash flows through 2002 with the present value of a range of
terminal values. Alex. Brown discounted these cash flows at discount rates
ranging from 18% to 22%. The terminal values were computed based on projected
revenue in fiscal year 2002 at a range of terminal multiples of 1.1x to 1.5x and
based on projected earnings before interest, taxes, depreciation and
amortization in fiscal year 2002 at a range of 7.0x to 9.0x. Alex. Brown
arrived at such discount rates based on its judgment of the weighted average
cost of capital of the Company and the Selected Companies, and arrived at such
terminal values based on its review of the trading characteristics of the common
stock of the Selected Companies as well as certain companies providing
communications services and exhibiting growth characteristics similar to those
projected in fiscal year 2002. This analysis indicated a range of values of
$17.90 to $27.89 per Share.
Relevant Market and Economic Factors
In rendering its opinion, Alex. Brown considered, among other factors, the
condition of the U.S. stock markets, particularly in the Internet Service
Provider sector, and the current level of economic activity. Alex. Brown also
considered the overall changes in the telecommunications industry, with respect
to recent deregulation, industry consolidation and competition, and their
effects on the Internet Service Provider sector in general, and the Company in
particular.
No company used in the analysis of other publicly traded companies nor any
transaction used in the analysis of selected mergers and acquisitions summarized
above is identical to the Company, or the Offer or Merger. Accordingly, such
analyses must take into account differences in the financial and operating
characteristics of the Selected Companies and the companies in the Selected
Transactions and other factors that would affect the public trading value and
acquisition value of the Selected Companies and the Selected Transactions,
respectively.
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While the foregoing summary describes all analyses and factors that Alex.
Brown deemed material in its presentation to the Board, it is not a
comprehensive description of all analyses and factors considered by Alex. Brown.
The preparation of a fairness opinion is a complex process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the applications of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. Alex. Brown believes that its analyses must be considered as a
whole and that selecting portions of its analyses and of the factors considered
by it, without considering all analyses and factors, would create an incomplete
view of the evaluation process underlying the Alex. Brown Opinion. In
performing its analyses, Alex. Brown considered general economic, market and
financial conditions and other matters, many of which are beyond the control of
the Company. The analyses performed by Alex. Brown are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by such analyses. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty.
Additionally, analyses relating to the value of a business do not purport to be
appraisals or to reflect the prices at which the business actually may be sold.
Pursuant to a letter agreement dated April 6, 1995, as amended, between the
Company and Alex. Brown, the fees to date payable to Alex. Brown for rendering
the Alex. Brown Opinion have been $500,000, which amount will be credited
against the final fee of $7.0 million, payable upon consummation of the Offer.
In addition, the Company has agreed to reimburse Alex. Brown for its reasonable
out-of-pocket expenses incurred in connection with rendering financial advisory
services, including fees and disbursements of its legal counsel. The Company
has agreed to indemnify Alex. Brown and its directors, officers, agents,
employees and controlling persons, for certain costs, expenses, losses, claims,
damages and liabilities related to or arising out of its rendering of services
under its engagement as financial advisor.
The Board retained Alex. Brown to act as its advisor based upon Alex. Brown
having served as placement agent for a private offering of the Company's common
stock, having provided financial advisory services with respect to the sale of
its Lightstream subsidiary and the divestiture of a majority interest in its BBN
Domain subsidiary, general advisory services, and based upon Alex. Brown's
qualifications, reputation, experience and expertise. Alex. Brown may actively
trade the equity securities of the Company and Parent for its own account and
for the account of its customers and accordingly may at any time hold a long or
short position in such securities. Alex. Brown regularly publishes research
reports regarding the communications services industry and the businesses and
securities of the Company and other publicly traded companies in the
communications services industry.
Payment of Merger Consideration for the Shares
Promptly after consummation of the Merger, the Paying Agent will send a
transmittal letter and instructions to each person that was a Record Holder of
the Outstanding Shares immediately prior to the Effective Time advising such
holder of the procedure for surrendering his or her certificate or certificates
in exchange for $29.00 in cash for each formerly outstanding Share. To receive
the payment to which they are entitled pursuant to the terms of the Merger
Agreement, stockholders must comply with the instructions on such transmittal
letter and return it, along with their certificates, to the Paying Agent
pursuant to the terms thereof. Properly surrendered Share certificates will be
cancelled and the stockholder will receive $29.00 per Share, without interest,
for each Share represented by such certificates. DO NOT SEND SHARE CERTIFICATES
AT THIS TIME.
All questions as to the form of all documents and the validity, form and
acceptance of any certificates representing the Shares for payment will be
determined by the Company, whose determination will be final and binding.
Interest will not be paid on the amounts payable upon surrender of
certificates which formerly represented the Shares. It is therefore recommended
that certificates be surrendered promptly after consummation of the Merger. If,
with respect to any Shares, the cash price of $29.00 per Share is to be paid to
a person who is not the holder of record of such Shares, the amount of any
applicable stock transfer taxes will be required to be paid by the record
holders or such other person prior to the payment of the $29.00 amount per Share
unless satisfactory evidence of the payment of such taxes, or exemption
therefrom, is submitted to the Paying Agent. None of the
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Paying Agent, Parent, Purchaser or the Company shall be liable to a holder of
Shares for any cash delivered pursuant to the Merger Agreement to any public
official pursuant to applicable abandoned property, escheat and similar laws.
Purpose of the Merger and Plans for the Company
The purpose of the Merger is for Purchaser to acquire the entire equity
interest in the Company. Consummation of the Offer resulted in Purchaser owning
in excess of two-thirds equity interest in the Company. The Merger will allow
Purchaser to acquire all outstanding Shares not tendered and purchased pursuant
to the Offer. The acquisition of the entire equity interest in the Company has
been structured as a cash tender offer and a cash merger in order to provide a
prompt and orderly transfer of ownership of the Company from the public
stockholders of the Company to Parent. The purchase of Shares pursuant to the
Offer increased the likelihood that the Merger will be consummated.
Parent has announced its strategy of being a national provider of a full
bundle of communications services--voice, video and data. Parent plans to offer
customers end to end managed network solutions and a superior high speed network
that is affordable, reliable and secure. By acquiring the Company, Parent will
acquire significant expertise and value-added services to supplement its data
initiatives. Parent and Purchaser plan to assess various aspects of the
Company's business and operations to identify how best to maximize the Company's
strengths in implementing Parent's long-term strategy.
Accounting Treatment
In accordance with generally accepted accounting principles, the Merger
will be accounted for under the "purchase" method of accounting, whereby the
purchase price for the Company and certain costs of the Merger will be allocated
to the identifiable assets and liabilities of the Company and its subsidiaries
based on their estimated fair values with the excess purchase price allocated to
goodwill.
Financing of the Merger
Purchaser estimates that the total amount of consideration required in
connection with the Merger based on the number of Shares outstanding on June 17,
1997, assuming no additional Subordinated Notes are converted and no Rights are
exercised, and to pay fees and expenses related to the Merger will be
approximately $33.5 million. If all Subordinated Notes are converted, the total
funds needed would increase by approximately $64.6 million.
Purchaser plans to obtain all funds needed for the Merger through a capital
contribution, which will be made by Parent to Purchaser prior to the Effective
Time. Parent intends to obtain the funds necessary to make this capital
contribution from internally generated funds. Parent does not expect to make any
borrowings under any of its existing credit agreements to obtain funds needed
for the Merger.
Regulatory and Other Approvals
There are no material federal or state regulatory requirements which remain
to be complied with to consummate the Merger. The Company is not aware of any
license or regulatory permit that appears to be material to the business of the
Company and its subsidiaries, taken as a whole, that might be adversely affected
by the Merger or, except for the filing of Articles of Merger with the Secretary
of State of the Commonwealth of Massachusetts, of any approval or other action
by any governmental, administrative or regulatory agency or authority, domestic
or foreign, that would be required prior to the Merger.
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Antitrust
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Offer could not be consummated until notifications
had been given and certain information had been furnished to the FTC and the
Antitrust Division of the U.S. Department of Justice (the "Antitrust Division").
The waiting period under the HSR Act expired on May 31, 1997.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger. The termination of the
HSR Act waiting period does not preclude the Antitrust Division or the FTC from
challenging the Merger on antitrust grounds. Accordingly, at any time, before
or after the Effective Time, either the Antitrust Division or the FTC could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest.
State Anti-takeover Statutes
A number of states, including Massachusetts, have adopted "takeover"
statutes that purport to apply to attempts to acquire corporations that are
incorporated in such states, or whose business operations have substantial
economic effects in such states, or which have substantial assets, security
holders, employees, principal executive offices or principal places of business
in such states.
In Edgar v. MITE Corporation, the Supreme Court of the United States
invalidated on constitutional grounds the Illinois Business Takeover Act, which,
as a matter of state securities law, made takeovers of corporations meeting
certain requirements more difficult. However, in CTS Corp. v. Dynamics Corp. of
America, addressing Indiana's Control Share Acquisition Act, the Supreme Court
held that a state may, as a matter of corporate law and, in particular, those
laws concerning corporate governance, constitutionally disqualify a potential
acquiror from voting on the affairs of a target corporation without prior
approval of the remaining stockholders, provided that such laws were applicable
under certain conditions, in particular, that the corporation has a substantial
number of stockholders in the state and is incorporated there.
The Company conducts business in a number of states throughout the United
States, some of which have enacted "takeover" statutes. Purchaser does not know
whether any of these statutes, by their terms, apply to the Offer or the Merger,
and has not complied with any such statutes. To the extent that certain
provisions of these statutes purport to apply to the Offer or the Merger,
Purchaser believes that there are reasonable bases for contesting such statutes.
If any person should seek to apply any state takeover statute, Purchaser would
take such action as then appears desirable, which action may include challenging
the validity or applicability of any such statute in appropriate court
proceedings. If it is asserted that one or more takeover statutes apply to the
Offer or the Merger, and it is not determined by an appropriate court that such
statute or statutes do not apply or are invalid as applied to the Offer or the
Merger, Purchaser might be required to file certain information with, or receive
approvals from, the relevant state authorities, and Purchaser might be unable to
consummate the Merger, or be delayed in continuing or consummating the Merger.
Appraisal Rights
A Record Holder may exercise appraisal rights by complying with Sections 86
through 98 of the MBCL. The rights described in Sections 85 through 98 of the
MBCL are referred to as "Appraisal Rights" and stockholders who exercise their
Appraisal Rights are called "Dissenting Stockholders." The shares owned by
the Dissenting Shareholders are called "Dissenting Shares." If your Shares
are held in the name of a bank, broker or another third party, you must direct
the third party to follow the procedures described below in order to exercise
your Appraisal Rights.
Prior to the vote on the Merger, you must notify the Company in writing
that you intend to exercise your Appraisal Rights. In addition, if you intend
to exercise these rights, you may not vote for the Merger.
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IF YOU ARE CONSIDERING EXERCISING APPRAISAL RIGHTS, YOU SHOULD CAREFULLY
REVIEW SECTIONS 85 THROUGH 98 OF THE MBCL. THESE SECTIONS ARE REPRINTED IN
EXHIBIT A TO THIS INFORMATION STATEMENT.
THE FOLLOWING MATERIAL SUMMARIZES THE MASSACHUSETTS LAW RELATING TO
APPRAISAL RIGHTS. IT IS ONLY A SUMMARY OF SUCH LAWS AND YOU SHOULD REFER TO
EXHIBIT A FOR A COMPLETE DISCUSSION OF APPRAISAL RIGHTS AND THE PROCEDURES FOR
EXERCISING THOSE RIGHTS. IN ORDER TO EXERCISE APPRAISAL RIGHTS, YOU MUST FOLLOW
THE REQUIREMENTS IN THE MBCL EXACTLY. IF YOU FAIL TO COMPLY WITH THE
PROCEDURES, YOU WILL LOSE YOUR APPRAISAL RIGHTS. IF YOU ARE CONSIDERING
EXERCISING APPRAISAL RIGHTS, WE STRONGLY URGE YOU TO CONSULT WITH YOUR LEGAL
ADVISOR.
If you elect to exercise your Appraisal Rights, you must dissent with
respect to all of the Shares you own. If your Shares are held in the name of a
---
third party, that third party can only dissent with respect to those of your
Shares that such third party holds.
Written Notice to the Company
To exercise Appraisal Rights, a Record Holder must (1) file with the
Company, before the vote on the Merger at the Meeting, a written objection to
the Merger stating that the stockholder intends to demand payment for his or her
Shares if the Merger is consummated and (2) not vote in favor of the Merger
Agreement. A vote in favor of the Merger Agreement with respect to any Shares
beneficially owned by a Record Holder will waive such Record Holder's Appraisal
Rights with respect to all of such Record Holder's Shares. However, a failure
to vote on the Merger Agreement will not in itself be a waiver of the Record
Holder's Appraisal Rights. APPRAISAL RIGHTS ARE NOT AVAILABLE UNLESS THE
FOREGOING WRITTEN OBJECTION REQUIREMENT IS FULFILLED. The Company requests that
such written objection (i) state the name and address of the Record Holder(s),
(ii) include the number of Shares as to which Appraisal Rights are being
asserted and (iii) be sent to BBN Corporation, Attention: Clerk, 150
CambridgePark Drive, Cambridge, Massachusetts 02140.
Notice to Dissenters
If the Merger Agreement is approved and adopted by the stockholders of the
Company, within 10 days after the Effective Date of the Merger the Surviving
Corporation must give written notice that the Merger has become effective to
each stockholder who gave notice before the Meeting of such stockholder's
intention to demand payment for his or her Shares and who did not vote in favor
of the Merger Agreement.
Payment Demand
If a Record Holder timely files written objection to the Merger and does
not vote in favor of the Merger Agreement, such Dissenting Stockholder may,
within 20 days after the mailing by the Company to the Dissenting Stockholders
of the notice that the Merger is effective, make written demand (the "Demand
Notice") on the Surviving Corporation for the payment of the fair value of such
stockholder's Dissenting Shares. Any Record Holder failing to make such Demand
Notice for payment within the 20-day period shall be bound by the Merger and
such Record Holder's Shares will be treated as having been tendered pursuant to
the Merger.
Payment by the Company
Within 30 days after the expiration of such 20-day notice period for
Dissenting Stockholders, the Surviving Corporation will pay the Dissenting
Shareholders who have met all statutory conditions the fair value of the
Dissenting Shareholders' Shares, plus accrued interest. Pursuant to the MBCL,
the fair value of the Dissenting
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Shares is the value thereof as of the day immediately preceding the Meeting,
excluding any element of value arising from expectation of the Merger.
Payment for Determination of Value
If, within such 30-day period the Dissenting Stockholders and the Surviving
Corporation do not agree as to the fair value of the Dissenting Shares, then
within four months after the expiration of such 30-day period any Dissenting
Stockholder may file a bill with the Superior Court in the county where the
Company has its principal Massachusetts office (the "Court"), in his or her own
behalf and in behalf of all other Dissenting Stockholders with whom the
Surviving Corporation has not reached agreement as to the fair value of any
Dissenting Shares, demanding a determination of the value of the Dissenting
Shares. The Surviving Corporation must then file with its answer a duly
verified list of all such Dissenting Stockholders with whom the Surviving
Corporation has not reached agreement as to the fair value of their Dissenting
Shares. A notice of the hearing on the bill will then be sent to all Dissenting
Stockholders on such list.
At the hearing on the bill, the Court will determine which, if any,
stockholders have complied with the MBCL and have become entitled to Appraisal
Rights and may refer the bill or any question to a special master, who shall
file a report of such master's findings with the Court. After the hearing, the
Court will determine the fair value of the Dissenting Shares and shall direct
payment of that value by the Surviving Corporation, together with interest
thereon, subject to receipt of duly endorsed certificates for the Dissenting
Shares. All court costs, including reasonable compensation and expenses of any
master appointed by the Court, shall be allocated by the Court in a manner it
determines to be equitable.
Effect on Dividends and Voting Rights
Upon consummation of the Merger, each Dissenting Stockholder will cease to
have any rights of a stockholder of the Company except the right to be paid the
fair value of the Dissenting Shares and the right to receive other
distributions, if any, payable to Record Holders prior to the Meeting and any
other rights under applicable Massachusetts law. No dividends will be paid on
any Dissenting Shares.
The Merger Agreement
The Merger Agreement
The following is a summary of certain provisions of the Merger Agreement
that continue to be applicable after the conclusion of the Offer, a copy of
which is attached as Exhibit B and which is incorporated herein by reference.
The following summary is qualified in its entirety by reference to the Merger
Agreement.
Recommendation
In the Merger Agreement, the Company states that the Board has unanimously
(i) determined that the Offer and the Merger are fair to and in the best
interests of the stockholders of the Company and (ii) resolved to recommend
acceptance of the Offer and approval and adoption of the Merger Agreement and
the Merger by the stockholders of the Company.
The Merger
The Merger Agreement provides that, as soon as practicable following the
purchase of Shares pursuant to the Offer, and the satisfaction or waiver of the
other conditions to the Merger, or on such other date as the parties thereto may
agree (such agreement to require the approval of the majority of the Continuing
Directors, if at that time there shall be any Continuing Directors), Purchaser
will be merged with and into the Company. The Merger will become effective by
filing with the Secretary of State of Massachusetts articles of merger (the
"Articles of
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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, without interest
thereon (the "Merger Price"); (ii) (a) each Share held in the treasury of the
Company or held by any wholly owned subsidiary of the Company and each Share
held by Parent or any wholly owned subsidiary of Parent immediately prior to the
Effective Time will be cancelled and retired and cease to exist; (b) each
Dissenting Share will not be converted into or be exchangeable for the right to
receive the Merger Price; and (iii) each share of common stock of Purchaser
issued and outstanding immediately prior to the Effective Time will be converted
into and exchangeable for one share of common stock of the Surviving
Corporation.
The Merger Agreement provides that the Articles of Organization and Bylaws
of the Company as in effect at the Effective Time (including such amendments to
the Articles of Organization as are effected by the Articles of Merger) will be
the Articles of Organization and Bylaws of the Surviving Corporation until
amended in accordance with applicable law. The Merger Agreement also provides
that (i) the directors of Purchaser at the Effective Time will be the initial
directors of the Surviving Corporation, (ii) the officers of the Company at the
Effective Time will be the initial officers of the Surviving Corporation, and
(iii) the initial 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 Bylaws of the Surviving Corporation, or as otherwise provided
by applicable law.
Representations and Warranties
The Merger Agreement contains certain representations and warranties of the
parties including representations by the Company as to organization,
capitalization, authority relative to the Merger Agreement, no defaults,
consents and approvals, financial statements and SEC reports, absence of certain
changes concerning the Company's business, litigation and compliance with law,
environmental matters, governmental authorizations, offer documents, brokers,
employee agreements and benefits, receipt of a fairness opinion, material
agreements, title to properties and encumbrances thereon, intellectual property,
tax matters, interested party transactions, governmental contracts and takeover
statutes.
Certain Agreements Regarding the Board
The Merger Agreement provides that in the event that Purchaser acquires at
least a majority of the Shares outstanding pursuant to the Offer, Parent shall
be entitled to designate for appointment or election to the Board, upon written
notice to the Company, such number of persons so that the designees of Parent
constitute the same percentage (but in no event less than a majority) of the
Board (rounded up to the next whole number) as the percentage of Shares acquired
pursuant to the Offer. As contemplated by the Merger Agreement, the Board
currently consists of six Parent designees and two additional persons who were
directors prior to the consummation of the Offer.
Prior to the Effective Time, any amendment of the Merger Agreement or any
amendment to the Articles of Organization or Bylaws of the Company inconsistent
with the Merger Agreement, any termination of the Merger Agreement by the
Company, any extension by the Company of the time for the performance of any of
the obligations or other acts of Parent or Purchaser or any waiver of any of the
Company's rights under the Merger Agreement will require the concurrence of a
majority of the Continuing Directors.
Interim Operations of the Company
Except as contemplated by the Merger Agreement, the Company has covenanted
and agreed that, during the period from the date of the Merger Agreement to the
Effective Time, the Company and its subsidiaries will each conduct its
operations according to its ordinary course of business, consistent with past
practice, and will use its
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reasonable best efforts to preserve intact its business organization, to keep
available the services of its officers and employees and to maintain
satisfactory relationships with all persons and entities with which the Company
has significant business relations. Without limiting the generality of the
foregoing, the Company has agreed that, except as otherwise provided in the
Merger Agreement, prior to the Effective Date, neither Company nor any of its
subsidiaries will, without the prior consent of Purchaser:
(i) amend or propose to amend its Articles of Organization or Bylaws (or
comparable governing instruments); (ii) authorize for issuance, issue, grant,
sell, pledge, dispose of or propose to issue, grant, sell, pledge or dispose of
any shares of, or any options, warrants, commitments, subscriptions or rights of
any kind to acquire or sell any shares of, the capital stock or other securities
of the Company or any of its subsidiaries including any securities convertible
into or exchangeable for shares of stock of any class of the Company or any of
its subsidiaries, or enter into any agreement, understanding or arrangement with
respect to the purchase or voting of shares of its capital stock, except for the
issuance of Shares pursuant to the exercise of Options or the conversion of the
Subordinated Notes outstanding on the date of the Merger Agreement, in
accordance with their present terms, and issuances of up to 120,000 Shares and
options under the ESPP (as defined below) to employees in the ordinary course of
business; (iii) split, combine or reclassify any shares of its capital stock,
make any other changes in its capital structure, or declare, pay or set aside
any dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, other than dividends or
distributions to the Company or a subsidiary wholly owned by the Company, or
redeem, purchase or otherwise acquire or offer to acquire any shares of its
capital stock or other securities, except for the repurchase of shares of common
stock from employees, consultants or directors of the Company upon termination
of their relationship with the Company in accordance with existing contractual
rights or obligations of repurchase; (iv) (A) except for debt (including, but
not limited to, obligations in respect of capital leases) not in excess of
$7,000,000 per month or $30,000,000 in the aggregate for all entities combined,
create, incur or assume any short-term debt, long-term debt or obligations in
respect of capital leases, (B) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, indirectly, contingently or otherwise)
for the obligations of any person or entity, except for obligations of the
Company or any wholly owned subsidiary of the Company in the ordinary course of
business consistent with past practice, (C) make any capital expenditures other
than in the ordinary course in amounts not to exceed $7,000,000 per month or
$30,000,000 in the aggregate, (D) 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,
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which action or omission would result in a breach of any of the covenants,
representations and warranties of the Company set forth in the Merger Agreement;
(xi) enter into any lease or amend any lease of real property other than in the
ordinary course of business consistent with past practice; (xii) change any
accounting practices, other than in the ordinary course and consistent with past
practice; (xiii) fail to use reasonable business efforts to keep in full force
and effect insurance comparable in amount and scope of coverage to insurance now
carried by it; (xiv) fail to pay all accounts payable and other obligations,
when they become due and payable, in the ordinary course of business consistent
with past practice and with the provisions of the Merger Agreement, except if
the same are contested in good faith, and, in the case of the failure to pay any
material accounts payable or other obligations which are contested in good
faith, only after consultation with Purchaser; (xv) fail to comply in all
material respects with all laws applicable to it or any of its properties,
assets or business and maintain in full force and effect all permits necessary
for, or otherwise material to, such business; or (xvi) agree, commit or arrange
to do the foregoing.
No Solicitation
In the Merger Agreement, the Company agreed that the Company and its
subsidiaries will not and they will cause each of their respective officers,
directors, employees, investment bankers, attorneys and other agents not to (i)
initiate, solicit or encourage, directly or indirectly, any inquiries or the
making of any Acquisition Proposal (as defined below), (ii) except as described
below, engage in negotiations or discussions with, or furnish any information or
data to any third party relating to an Acquisition Proposal, (iii) except as
described below, enter into any agreement with respect to any Acquisition
Proposal or approve or resolve to approve any Acquisition Proposal or (iv)
except as described below, participate in any discussions regarding, or take any
other action to facilitate any inquiries or the making of any proposal that
constitutes or may reasonably be expected to lead to any Acquisition Proposal
(other than the transactions contemplated by the Merger Agreement).
Notwithstanding the foregoing, in response to any unsolicited Acquisition
Proposal, the Company may (at any time prior to the consummation of the Offer)
furnish information concerning its business, properties or assets to the person
or group (a "Potential Acquiror") that was an unsolicited Acquisition Proposal
and participate in negotiations with the Potential Acquiror if (x) the Board is
advised by one or more of its independent financial advisors that such Potential
Acquiror has the financial wherewithal to consummate without undue delay the
transaction contemplated by the Potential Acquiror's Acquisition Proposal, (y)
the Board reasonably determines, after receiving advice from the Company's
financial advisor, that such Potential Acquiror has submitted an Acquisition
Proposal that involves consideration to the Company's stockholders that is
superior to the Offer and the Merger, and (z) based upon advice of counsel to
such effect, the Board determines in good faith that it is necessary to so
furnish information and/or negotiate in order to comply with its fiduciary duty
to stockholders of the Company. In the event the Company determines to provide
any information as described above or receives any offer of the type referred
above, it has agreed in the Merger Agreement to (x) promptly inform Parent as to
the fact that such an offer has been received and/or information is to be
provided, (y) promptly provide Parent with a copy of any written offer or other
materials received by Company, its subsidiaries or their respective
representatives in connection therewith, and (z) if such offer is not in
writing, promptly furnish to Parent in writing the identity of the recipient of
such information and/or the proponent of such offer and the terms thereof. The
Company has agreed that any non-public information furnished to a Potential
Acquiror will be pursuant to a confidentiality agreement with confidential
information and no solicitation/no hire provisions substantially similar to
those set forth in the Confidentiality Agreement dated April 26, 1997 between
the Company and Parent set forth as an exhibit to the Schedule 14D-1/Schedule
13D filed with the SEC by Parent and Purchaser on May 12, 1997. The Company has
agreed to keep Parent fully informed of the status and details, including
amendments or proposed amendments to any such Acquisition Proposal.
The Board has agreed in the Merger Agreement that it will not (x) withdraw
or modify or propose to withdraw or modify, in any manner adverse to Parent, the
approval or recommendation of the Board of the Merger Agreement or the Merger or
(y) approve or recommend, or propose to approve or recommend, any Acquisition
Proposal unless, in each case, in connection with a Superior Offer (as defined
below), the Board determines in good faith, based on advice of outside legal
counsel, that it is necessary to do so in order to comply with the Board's
fiduciary duties under applicable law.
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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 Common Stock Rights Agreement dated as of
June 23, 1988 (the "Rights Agreement"), between the Company and The First
National Bank of Boston, as Rights Agent, amended the Rights Agreement so that
the transactions relating to and contemplated by the Merger Agreement are
exempted from certain provisions of the Rights Agreement and a "Common Stock
Event" thereunder will not occur as a result of such transactions. In the Merger
Agreement the Company has agreed that it will, with the consent of Parent,
continue to take all actions necessary to cause the transactions contemplated by
the Merger Agreement to remain exempted from such provisions of the Rights
Agreement, including, if desirable, entering into further amendments to the
Rights Agreement or causing the rights issued under the Rights Agreement to be
extinguished, canceled or redeemed.
Miscellaneous Undertakings
Pursuant to the Merger Agreement, the Company, acting through the Board and
in accordance with applicable law, its Articles of Organization and its Bylaws,
has: (i) duly called and given notice of, and will convene and hold, the Meeting
for the purpose of considering and taking action on the Merger Agreement; (ii)
subject to its fiduciary duties under applicable laws as advised as to legal
matters by counsel, included herein the recommendation of the Board; and (iii)
(A) obtained and furnished the information required to be included by it herein,
and will, after consultation with Parent, respond promptly to any comments made
by the SEC with respect hereto and cause this Information Statement to be mailed
to its stockholders following the consummation of the Offer and (B) obtain the
necessary approvals of the Merger Agreement and the Merger by its stockholders.
Parent has provided the Company with the information concerning Parent and
Purchaser required to be included herein and will vote, or cause to be voted,
all Shares owned by it or its subsidiaries in favor of approval and adoption of
the Merger Agreement and the transactions contemplated thereby.
Pursuant to the Merger Agreement, each of Parent, Purchaser and the Company
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
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<PAGE>
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.
Indemnification
In the Merger Agreement, Parent agreed that from and after the consummation
of the Offer, it will cause the Company, and from and after the Effective Time
it will cause the Surviving Corporation, to indemnify, defend and hold harmless
the present and former officers and directors of the Company and its
subsidiaries (each an "Indemnified Party"), against all losses, claims, damages
or liabilities arising out of actions or omissions in their capacity as a
director or officer of the Company or a subsidiary occurring on or prior to the
consummation of the Offer to the maximum extent permitted or required under the
MBCL and the Company's Bylaws in effect on the date of the Merger Agreement,
including provisions with respect to advances of expenses incurred in the
defense of any action or suit, provided that any determination required to be
made with respect to whether an Indemnified Party's conduct complies with the
standards set forth under the MBCL and the Company's Bylaws shall be made by
independent legal counsel selected in good faith by the Surviving Corporation.
Parent further agreed in the Merger Agreement that from and after consummation
of the Offer it will cause the Company or the Surviving Corporation to advance
litigation costs reasonably incurred by any Indemnified Party provided that such
party undertakes to repay amounts so advanced if it is ultimately determined
that indemnification for such expenses is not authorized under the Merger
Agreement or otherwise.
Pursuant to the Merger Agreement, Parent agreed that from and after
consummation of the Offer it will cause the Company and from and after the
Effective Time it will cause the Surviving Corporation to maintain the Company's
existing directors' and officers' liability insurance ("D&O Insurance") in full
force and effect without reduction of coverage for a period of three years after
the Effective Time; provided that the Surviving Corporation will not be required
to pay an annual premium therefor in excess of 200% of the last annual premium
paid prior to the date of the Merger Agreement (the "Current Premium"); and,
provided, further, that if the existing D&O Insurance expires, is terminated or
cancelled during the 3-year period, the Surviving Corporation will use
reasonable efforts to obtain as much D&O Insurance as can be obtained for the
remainder of such period for a premium on an annualized basis not in excess of
200% of the Current Premium. The Company will maintain, through the Effective
Time, the Company's existing D&O Insurance in full force and effect without
reduction of coverage.
The Merger Agreement also provides that if the Surviving Corporation or any
of its successors or assigns (i) consolidates with or merges into any other
person or entity and shall not be the continuing or surviving corporation or
entity of such consolidation or merger and the continuing or surviving entity
does not assume the indemnification obligations of the Surviving Corporation, or
(ii) transfers all or substantially all of its properties and assets to any
person or entity, then, and in each such case, proper provision will be made so
that the successors and assigns of the Surviving Corporation assume the
indemnification obligations of the Surviving Corporation.
Conditions to Merger
Pursuant to the Merger Agreement, the respective obligations of each of
Parent, Purchaser and the Company to consummate the Merger are subject to the
satisfaction at or prior to the Effective Time of the following conditions: (a)
the Merger Agreement shall have been adopted by the affirmative vote of the
stockholders of the Company by the requisite vote in accordance with applicable
law, if required by applicable law; and (b) the consummation of the Merger shall
not be precluded by any order, decree, ruling or injunction of a court of
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competent jurisdiction and there shall not have been any action taken or
statute, rule or regulation enacted, promulgated or deemed applicable to the
Merger by any governmental entity that makes consummation of the Merger illegal.
Termination
Pursuant to Section 8.1 of the Merger Agreement, the Merger Agreement may
be terminated and the Merger may be abandoned at any time (whether before or
after approval of the Merger by the stockholders of the Company) prior to the
Effective Time: (a) by mutual written consent of each of Parent and the Company;
(b) by either Parent and Purchaser or the Company, if any governmental authority
has issued an order, decree or ruling or taken any other action (which order,
decree, ruling or other action the parties will use their respective reasonable
best efforts to lift), in each case permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by the Merger Agreement or
prohibiting Parent or Purchaser from acquiring or holding or exercising rights
of ownership of the Shares except such prohibitions which would not reasonably
be expected to have a Material Adverse Effect or prevent the consummation of the
Offer prior to the Final Termination Date, and such order, decree, ruling or
other action shall have become final and non-appealable; or (c) by Parent and
Purchaser if any person or group (other than Parent or Purchaser) shall have
become the beneficial owner of 20% or more of the outstanding Shares.
In the event of the termination of the Merger Agreement in accordance with
its terms, the Merger Agreement shall become null void and have no effect,
without any liability on the part of any party thereto or its affiliates,
directors, officers or stockholders, other than the provisions of the Merger
Agreement relating to fees and expenses (including the Termination Fee), the
Termination Option (as defined below), governing law and confidentiality of
information. Notwithstanding the foregoing, no party will be relieved from
liability that it may have for willful breach of the Merger Agreement.
Termination Fee and Termination Option
The Company has agreed to pay to Parent by wire transfer $13.5 million (the
"Termination Fee"), upon demand, if (i) the Company terminates the Merger
Agreement pursuant to Section 8.1(c)(i) thereof (which generally relates to a
change in the Board's recommendation adverse to Parent as a result of a Superior
Offer), in which case the Termination Fee must be paid simultaneously with such
termination, (ii) Parent or Purchaser terminates the Merger Agreement pursuant
to Section 8.1(d)(i) thereof (which generally relates to a change in the Board's
recommendation adverse to Parent or an agreement relating to an Acquisition
Proposal with a third party), or (iii) the Merger Agreement is terminated for
any reason (other than as a result of (x) the failure of Parent or Purchaser to
fulfill any material obligation under the Merger Agreement, (y) the applicable
waiting period under the HSR Act not having expired or been terminated on or
prior to the Final Termination Date or (z) the failure of certain Conditions of
the Offer to be satisfied or waived by Parent on or prior to the Final
Termination Date), at any time after an Acquisition Proposal has been made and
within nine months after such a termination, the Company completes either (x) a
merger, consolidation or other business combination between the Company or a
subsidiary of the Company and any other person or entity (other than Parent,
Purchaser or an affiliate of Parent) or (y) the sale of 30% or more (in voting
power) of the voting securities of the Company or of 30% or more (in market
value) of the assets of the Company and its subsidiaries, on a consolidated
basis.
Concurrently with the execution of the Merger Agreement the Company issued
to Parent the Termination Option to purchase 4,225,000 Shares at a price per
Share equal to $29.00 pursuant to a Stock Option Agreement dated as of May 5,
1997 between the Company and Parent. Such option becomes exercisable by Parent
when a Termination Fee is payable to Parent.
Amendment
The Merger Agreement may be amended by action taken by the Company, Parent
and Purchaser provided that after the date of adoption of the Merger Agreement
by the stockholders of the Company (if stockholder approval
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of the Merger is required by applicable law), no amendment shall be made which
decreases the cash price per Share or that in any other way adversely affects
the rights of the Company's stockholders (other than termination of the Merger
Agreement) without the approval of such stockholders. The Merger Agreement may
not be amended except by an instrument in writing signed on behalf of the
parties or party intended to be bound thereby.
Fees and Expenses
Except as specifically provided in the Merger Agreement, each party bears
its own respective expenses incurred in connection with the Merger Agreement,
the Offer and the Merger, including the preparation, execution and performance
of the Merger Agreement and the transactions contemplated thereby, and all fees
and expenses of investment bankers, finders, brokers, agents, representatives,
counsel and accountants.
Certain Effects of the Merger
If the Merger is consummated, stockholders will not have an opportunity to
continue their common equity interest in the Company as an ongoing operation and
therefore will not have the opportunity to share in its future earnings and
potential growth, if any.
Certain Tax Considerations
The following summary addresses the material federal income tax
consequences to holders of Shares who sell their Shares in the Merger. The
summary does not address all aspects of federal income taxation that may be
relevant to particular holders of Shares and thus, for example, may not be
applicable to holders of Shares who are not citizens or residents of the United
States, who are employees and who acquired their Shares pursuant to the exercise
of compensatory stock options, or who are entities that are otherwise subject to
special tax treatment under the Internal Revenue Code of 1986, as amended (the
"Code") (such as insurance companies, tax-exempt entities and regulated
investment companies); nor does this summary address the effect of any
applicable foreign, state, local or other tax laws. The discussion assumes that
each holder of Shares holds such Shares as a capital asset within the meaning of
Section 1221 of the Code. The federal income tax discussion set forth below is
included for general information only and is based upon present law. The precise
tax consequences of the Merger will depend on the particular circumstances of
the holder. Stockholders are urged to consult their own tax advisors as to the
specific federal, state, local, foreign and other tax consequences to them of
the proposed transaction.
The receipt of cash for Shares pursuant to the Merger will be a taxable
transaction for federal income tax purposes and may also be a taxable
transaction under applicable state, local or foreign tax laws. In general, a
stockholder who receives cash for Shares pursuant to the Merger will recognize
gain or loss for federal income tax purposes equal to the difference between the
amount of cash received in exchange for the Shares sold and such stockholder's
adjusted tax basis in such Shares. Such gain or loss will be capital gain or
loss, and will be long-term capital gain or loss if the holder has held the
Shares for more than one year at the time of sale. Gain or loss will be
calculated separately for each block of Shares tendered pursuant to the Merger.
Under current law, the maximum federal tax rate applicable to long-term
capital gains recognized by an individual is 28%, and the maximum federal tax
rate applicable to ordinary income (including dividends and short-term capital
gains recognized by individuals) is 39.6%. The maximum federal tax rate
applicable to all capital gains and ordinary income recognized by a corporation
is 35%. It is possible that legislation may be enacted that would reduce the
maximum federal tax rate applicable to long-term capital gains, possibly with
retroactive effect. It is not possible to predict whether or in what form any
such legislation may be enacted, or the effective date of such legislation if
enacted.
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<PAGE>
Withholding
Unless a stockholder complies with certain reporting and/or certification
procedures, or is an exempt recipient under applicable provisions of the Code
(and regulations promulgated thereunder), such stockholder may be subject to a
"backup" withholding tax of 31% with respect to any payments received in the
Merger or as a result of the exercise of the holder's Appraisal Rights.
Stockholders should contact their brokers to ensure compliance with such
procedures. Foreign stockholders should consult with their tax advisors
regarding U.S. withholding taxes in general.
Dissenters
A stockholder who does not sell Shares in the Merger and who exercises and
perfects such stockholder's rights under the MBCL to demand fair value for such
Shares will recognize capital gain or loss (and may recognize an amount of
interest income) attributable to any payment received pursuant to the exercise
of such rights based upon the principles described above.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED UPON PRESENT LAW. STOCKHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF THE ALTERNATIVE MINIMUM
TAX, AND STATE, LOCAL AND FOREIGN TAX LAWS. IN ADDITION, THE DISCUSSION SET
FORTH ABOVE MAY NOT APPLY TO PARTICULAR CATEGORIES OF STOCKHOLDERS, INCLUDING
STOCKHOLDERS WHO ACQUIRED SHARES PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK
OPTIONS OR OTHERWISE AS COMPENSATION, INDIVIDUALS WHO ARE NOT CITIZENS OR
RESIDENTS OF THE UNITED STATES, FOREIGN CORPORATIONS, OR ENTITIES THAT ARE
OTHERWISE SUBJECT TO SPECIAL TAX TREATMENT.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
With respect to the Merger, stockholders should be aware that certain current
and former members of the Company's management and Board have certain interests
that are described below.
Common Stock Ownership of Certain Beneficial Owners and Management
As of June 17, 1997, there were 21,582,426 Shares outstanding. The Company
knows of no person who may be deemed to own beneficially more than five percent
of the Shares outstanding as of such date, except as follows:
<TABLE>
<CAPTION>
Amount Percent
Title of Name and Address of Beneficially of
Class Beneficial Owner Owned Class
----- ---------------- ----- -----
<S> <C> <C> <C>
Common Stock................. GTE Massachusetts Incorporated 20,432,435 94.67%
</TABLE>
The following table sets forth certain information with respect to the
beneficial ownership of Shares as of June 17, 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:
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<PAGE>
<TABLE>
<CAPTION>
Amount
Beneficially Percent of
Title of Class Name or Group Owned(1) Class(2)
-------------- --------------------------- -------- --------
<S> <C> <C> <C>
Common Stock George H. Conrades(3)(4)....... 0
David N. Campbell(5)........... 0
John T. Kish, Jr.(6)........... 0
Paul R. Gudonis (7)............ 0
Ralph A. Goldwasser (8)........ 0
Steven R. Levy (9)............. 0
John M. Albertine (10)......... 0
Lucie J. Fjeldstad (10)........ 0
Max D. Hopper (10)............. 0
Regis McKenna (10)............. 0
Andrew L. Nichols (11)......... 0
Roger D. Wellington (10)....... 0
Kent B. Foster (12)............ 0
Thomas W. White (12)........... 0
Gerald K. Dinsmore (12)........ 0
Robert C. Calafell (12)........ 0
J. Michael Kelly (12).......... 0
All current directors
and executive
officers as a group
(8 persons)(12)(13)(14)........ 0
</TABLE>
- ---------
(1) The inclusion herein of any Shares deemed beneficially owned under the rules
of the SEC does not constitute an admission of beneficial ownership of such
Shares.
(2) If such percentage exceeds 1%.
(3) Mr. Conrades owns $50,000 principal amount of the Subordinated Notes.
(4) In connection with the Offer, Mr. Conrades tendered to Purchaser an
aggregate of 37,202 Shares beneficially owned by him (including Shares
beneficially owned with his spouse) and is entitled to received therefore an
aggregate of $1,078,858 in cash. Mr. Conrades also elected under the terms of
the Merger Agreement to (i) convert an option for 1,000 Shares into a fully
vested option for 1,500 shares of Parent common stock expiring in January 2001;
and (ii) deposit into an account (denominated in Parent common stock units)
established on his behalf in the GTE deferred compensation plan an aggregate of
approximately $13,436,000, being the difference between the Offer price and the
option prices of other Company options held by him under the Company's option
plans, all of which became fully vested on the Closing Date of the Offer.
(5) In connection with the Offer, Mr. Campbell tendered to Purchaser an
aggregate of 15,000 Shares beneficially owned by him and is entitled to received
therefore an aggregate of $435,000 in cash. Mr. Campbell also elected under the
terms of the Merger Agreement to (i) convert options for an aggregate of 40,300
Shares into fully vested options for 60,450 shares of Parent common stock
expiring at various dates to May 2003; (ii) deposit into an account (denominated
in Parent common stock units) established on his behalf in the GTE deferred
compensation plan an aggregate of approximately $40,800, being the difference
between the Offer price and the option prices of certain Company options held by
him under the Company's option plans, which became fully vested on the Closing
Date of the Offer; and (iii) convert options for an aggregate of 150,000 Shares
into options for that number of shares of Parent common stock vesting over a
period to and expiring in July 2002.
(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.
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<PAGE>
(7) In connection with the Offer, Mr. Gudonis tendered to Purchaser an aggregate
of 53,750 Shares beneficially owned by him and is entitled to received therefore
an aggregate of $1,558,750 in cash. Mr. Gudonis also elected under the terms of
the Merger Agreement to (i) convert options for an aggregate of 110,050 Shares
into fully vested options for 165,075 shares of Parent common stock expiring at
various dates to January 2003; and (ii) deposit into an account (denominated in
Parent common stock units) established on his behalf in the GTE deferred
compensation plan an aggregate of approximately $506,250, being the difference
between the Offer price and the option prices of other Company options held by
him under the company's option plans, all of which became fully vested on the
Closing Date of the Offer.
(8) In connection with the Offer, Mr. Goldwasser tendered to Purchaser an
aggregate of 20,492 Shares beneficially owned by him and is entitled to received
therefore an aggregate of $594,268 in cash. Mr. Goldwasser also elected under
the terms of the Merger Agreement to (i) convert options for an aggregate of
35,114 Shares into fully vested options for 52,671 shares of Parent common stock
expiring at various dates to May 2003; and (ii) deposit into an account
(denominated in Parent common stock units) established on his behalf in the GTE
deferred compensation plan an aggregate of approximately $728,500, being the
difference between the Offer price and the option prices of Company options held
by him under the Company's option plans, all of which became fully vested on the
Closing Date of the Offer.
(9) In connection with the Offer, Mr. Levy tendered to Purchaser an aggregate of
72,227 Shares beneficially owned by him and is entitled to received therefore an
aggregate of $2,094,583 in cash. Mr. Levy also is entitled to receive under the
terms of the Merger Agreement an aggregate of $15,000, being the difference
between the Offer price and the option prices of Company options held by him
under the Company's option plans, which became fully vested on the Closing Date
of the Offer.
(10) Consistent with the terms of the Merger Agreement, effective June 10, 1997,
the following directors of the Company resigned: John M. Ablertine, Lucie J.
Fjeldstad, Max D. Hopper, Regis McKenna, and Roger D. Wellington. In connection
with the Offer, all such former directors tendered to Purchaser an aggregate of
41,587 Shares beneficially owned by them (including Shares beneficially owned
with their spouses) and are entitled to received therefore an aggregate of
$1,206,023 in cash. As a group, they also are entitled to receive an aggregate
of $243,187, being the difference between the Offer price and the option prices
of Company options held by them under the Company's option plans, all of which
became fully vested on the Closing Date of the Offer. In addition, three of the
directors are entitled to receive an aggregate of $1,140,514, being the Offer
price times the number of share units held in their deferred compensation
account with the Company under the deferred compensation plan for non-employee
directors.
(11) In connection with the Offer, Mr. Nichols tendered to Purchaser an
aggregate of 12,450 Shares beneficially owned by him and is entitled to received
therefore an aggregate of $361,050 in cash. Mr. Nichols also is entitled to
receive under the terms of the Merger Agreement an aggregate of $43,875, being
the difference between the Offer price and the option prices of Company options
held by him under the Company's option plans, all of which became fully vested
on the Closing Date of the Offer.
(12) Each individual is an officer of Parent or GTE Service Corporation, and is
a designee of Parent on the Board of Directors. Purchaser owns 20,432,435
Shares, constituting approximately 94.67% of the Shares outstanding on June 17,
1997.
(13) In connection with the Offer, all current directors (excluding the
designees of Parent) and executive officers as a group (8 persons) tendered to
Purchaser an aggregate of 19,959 Shares beneficially owned by them (including
Shares beneficially owned with their spouses) and are entitled to receive
therefor an aggregate of $578,811 in cash. As a group, they also elected under
the terms of the Merger Agreement to (i) convert options for an aggregate of
24,265 Shares into fully vested options for 36,397.5 shares of Parent common
stock expiring at various dates to May 2003; (ii) deposit into accounts
(denominated in Parent common stock units) established on their behalf in the
GTE deferred compensation plan an aggregate of approximately $671,000, being the
difference between the Offer price and the option prices of certain Company
options held by them under the Company's option plans, all
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<PAGE>
of which became fully vested on the Closing Date of the Offer; and (iii) convert
options for an aggregate of 25,000 Shares into options for that number of shares
of Parent common stock vesting over a period to and expiring no later than
December 2002; in addition, 2 directors are entitled to receive an aggregate of
$58,875, being the difference between the Offer price and the option prices of
Company options held by them under the Company's option plans, all of which
became fully vested on the Closing Date of the Offer.
(14) In connection with the Offer, all current officers of the Company
(excluding executive officers) as a group (5 persons) tendered to Purchaser an
aggregate of 19,959 Shares beneficially owned by them (including Shares
beneficially owned with their spouses) and are entitled to received therefore an
aggregate of $578,811 in cash. As a group, they also elected under the terms of
the Merger Agreement to (i) convert options for an aggregate of 24,265 Shares
into fully vested options for 36,397.5 shares of Parent common stock expiring at
various dates to May 2003; (ii) deposit into accounts (denominated in Parent
common stock units) established on their behalf in the GTE deferred compensation
plan an aggregate of approximately $671,000, being the difference between the
Offer price and the option prices of certain Company options held by them under
the Company's option plans, all of which became fully vested on the Closing Date
of the Offer; and (iii) convert options for an aggregate of 25,000 Shares into
options for that number of shares of Parent common stock vesting over a period
to and expiring in no later than December 2002.
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. It is currently contemplated
by Parent and Mr. Conrades that Mr. Conrades will become an Executive Vice
President of Parent.
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 the Company during the first four years of
employment, he is responsible for reimbursing a pro-rata share of this payment
made to him.
In connection with the successful completion of the Offer the Company paid
bonuses to each of Messrs. Goldwasser, Montjoy and Gudonis and four of the other
current officers of the Company (excluding executive officers) as a group, of
$75,000, $50,000, $10,000 and $62,500, respectively.
Change-of-Control Arrangements
The Company has termination agreements with Messrs. Conrades, Campbell,
Gudonis, and Goldwasser. Such agreements obligate the related employee to
remain in the employ of the Company during the pendency of any change-of-control
proposal. In consideration for such agreement, the Company agreed to pay
severance benefits to each such individual, consisting of payment of
approximately three times his then most recent five-year average annual salary
and cash bonus, together with certain other benefits (including the acceleration
of the exercisability of outstanding stock options and continued participation
for one year in accident and health insurance) and payment of an amount equal to
a "gross-up" payment with respect to any excise taxes payable by the individual
as a result of the severance benefits. The benefits are payable in the case of
Mr. Conrades if his employment terminates (including a voluntary termination on
his part) for any reason other than death, disability, normal retirement, or 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 then-
outstanding Shares, and other changes of control as determined by regulatory
authorities. Pursuant to the Offer, Purchaser acquired more than two-thirds of
Shares and, therefore, the consummation of the Offer resulted in a change of
control. Such severance payments would not be reduced for compensation received
by the individual from any new employment. Under the agreements, based upon the
average annual compensation
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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, $800,000, and $515,000, respectively, for
Messrs. Conrades, Campbell, Gudonis, and Goldwasser.
Certain Provisions in the Merger Agreement
In the Merger Agreement, the Company agreed, with certain exceptions, that
it would not grant to any non-employees, including non-employee members of the
Board of Directors ("Directors"), and former employees (collectively "Non-
Employees"), or to any current employees any options to purchase Shares, stock
appreciation rights, restricted stock, restricted stock units or any other real
or phantom stock or stock equivalents on or after the date of the Merger
Agreement. Options to acquire Shares which were outstanding as of the date of
the Merger Agreement and which were granted to employees or Non-Employees under
any stock option plan, program or similar arrangement of the Company or any of
its subsidiaries ("Options"), other than Options which constitute Restricted
Stock (as defined below) and Options under the ESPP were treated in the Merger
Agreement as follows:
(i) Each employee of the Company as of the date of the Merger
Agreement whose annual base salary was $80,000 or more ("Key Employee") and who
held Options which had an exercise price ("Exercise Price") less than the Offer
Price ("In the Money Options") and which were vested as of the date on which the
consummation of the Offer occurred (the "Closing Date") could make an
irrevocable election on a grant by grant basis to be effective immediately
following the Closing Date to receive in exchange for cancellation of each such
vested In the Money Option either (A) a credit to an individual deferred
compensation book account equal to the excess of the Offer Price over the
Exercise Price of such In the Money Option times the number of Shares subject to
such In the Money Option, such deferred compensation book account to have the
terms described below, or (B) an option to purchase a number of shares of Parent
common stock (a "Parent Option") equal to 150% of the number of Shares subject
to the Key Employee's In the Money Option; provided that (x) the Parent Option
received in the exchange is fully vested and has the same expiration date as the
vested In the Money Option exchanged therefor, (y) the Exercise Price of the
Parent Option is equal to the Fair Market Value (as defined below), and (z) the
Parent Option is governed by the provisions of the GTE Corporation 1997 Long-
Term Incentive Plan ("LTIP") and by applicable LTIP award agreements. For
purposes of the relevant portions of the Merger Agreement, the deferred
compensation book account is denominated in Parent phantom stock units, and
dividend equivalent payments will be credited to such deferred compensation book
account at such time and in such manner as dividends are paid on Parent common
stock. Before the third anniversary of the Closing Date, no distribution may be
made in respect of the deferred compensation book account to a Key Employee who
is employed by Parent or an affiliate of Parent. The dividend equivalent
payments on the deferred compensation book account are subject to forfeiture in
the event the Key Employee is not employed by Parent or an affiliate of Parent
on any date that precedes the third anniversary of the Closing Date. Parent will
determine administrative procedures and provisions with regard to the deferred
compensation book account. In the event a Key Employee did not make such an
irrevocable election before the Closing Date, the Key Employee was deemed to
have irrevocably elected the deferred compensation book account credit as
described in clause (A) of the first sentence of this paragraph (i), and all In
the Money Options were canceled. "Fair Market Value" means the average of the
high and low sales price of the Parent common stock on the composite tape of the
NYSE issues as of the Closing Date.
(ii) Each employee of the Company whose annual base salary as of the
date of the Merger Agreement was less than $80,000 ("Employee") who held In the
Money Options which were vested as of the Closing Date could make an irrevocable
election on a grant by grant basis to be effective immediately following the
Closing Date to receive in exchange for cancellation of each such vested In the
Money Option either (A) a cash payment equal, for each such In the Money Option,
to the excess of the Offer Price of a Share over the Exercise Price of such In
-27-
<PAGE>
the Money Option times the number of Shares subject to such In the Money Option,
or (B) a Parent Option to purchase a number of shares of Parent common stock
equal to 150% of the number of Shares subject to the Employee's In the Money
Option; provided that (x) the Parent Option received in the exchange is fully
vested and has the same expiration date as the vested In the Money Option
exchanged therefor, (y) the Exercise Price of the Parent Option is equal to the
Fair Market Value, and (z) the Parent Option is governed by the provisions of
the LTIP and by applicable LTIP award agreements. In the event an Employee did
not make such election before the Closing Date, the Employee was deemed to have
irrevocably elected the cash payment described in clause (A) of the preceding
sentence, and all In the Money Options were canceled.
(iii) Options of Key Employees or Employees had an Exercise Price equal
to or in excess of the Offer Price ("Under-Water Options"), regardless of
whether such Under-Water Options were vested as of the Closing Date, were
cancelled immediately following the Closing Date and exchanged for Parent
Options to purchase a number of shares of Parent common stock equal to 100% of
the number of Shares subject to the Key Employee's or Employee's Under-Water
Options, provided that (x) the Parent Options received in the exchange have the
same vesting schedule and expiration date as the Under-Water Options exchanged
therefor, (y) the Exercise Price of the Parent Options is equal to the Fair
Market Value, and (z) the Parent Options are governed by the provisions of the
LTIP and by applicable LTIP award agreements. Notwithstanding the foregoing, if,
on or after the date of the Merger Agreement, a Key Employee exercised vested In
the Money Options that, on the date of the Merger Agreement, represent 50% or
more of the dollar value of the Key Employee's vested In the Money Options, all
of such Key Employee's Under-Water Options were canceled immediately, the
exchange provisions of this paragraph (iii) did not apply to such Key Employee,
and such Key Employee received the sum of one dollar ($1.00) as good and
valuable consideration for all of such Key Employee's Under-Water Options. For
purposes of the immediately preceding sentence, the dollar value of a vested In
the Money Option equals the excess of the Offer Price over the Exercise Price of
such In the Money Option times the number of Shares subject to the vested In the
Money Option.
(iv) In the Money Options of individuals who were Non-Employees as of
the date of the Merger Agreement, including Directors, which were vested as of
the Closing Date were canceled immediately following the Closing Date and
exchanged for a cash payment equal, for each vested In the Money Option, to the
excess of the Offer Price of a Share over the Exercise Price of such In the
Money Option times the number of Shares subject to such In the Money Option. All
other Options of Non-Employees, including Directors, were canceled immediately
as of the Closing Date and each such Non-Employee received the sum of one dollar
($1.00) as good and valuable consideration for all such Options.
(v) With respect to In the Money Options of Key Employees, Employees
and Non-Employees, including Directors, the Board of Directors or an appropriate
committee thereof, provided for the full and immediate vesting of such In the
Money Options as of the Closing Date. Except as provided in the immediately
preceding sentence on or after the date of the Merger Agreement, the Board of
Directors did not make any other changes to the terms and conditions of any
outstanding Options, stock appreciation rights, restricted stock, restricted
stock units or any other real or phantom stock or stock equivalents.
Pursuant to the Merger Agreement, on the Closing Date, employees of the
Company who held Shares subject to a risk of forfeiture within the meaning of
Section 83(a) of the Code, or Options with an exercise price of zero dollars
($0.00) ("Restricted Stock") received in exchange for such Restricted Stock a
right to receive a number of Parent phantom stock units pursuant to a phantom
stock plan ("Phantom Stock Units") determined by dividing (A) the product of (i)
the number of shares of Restricted Stock held by such employee on the Closing
Date, and (ii) the Offer Price, by (B) the Fair Market Value. Such Phantom Stock
Units will be credited with dividend equivalent units at such time and in such
manner as dividends are normally paid on Parent common stock, and the Phantom
Stock Units and dividend equivalent units will be subject to the same vesting
schedule as the Restricted Stock which was exchanged for the Phantom Stock
Units. Upon the Phantom Stock Units vesting, the employee will receive payment
of the vested amounts in cash (less applicable withholding taxes). Parent will
determine administrative procedures and provisions with regard to Phantom Stock
Units. The Merger Agreement also provides that immediately following the Closing
Date, Restricted Stock purchased by certain Key Employees and Directors pursuant
to the Company's 1996 Restricted Stock Plan will no longer be subject to a risk
of forfeiture within the
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<PAGE>
meaning of Section 83(a) of the Code and will be tendered to Purchaser in
exchange for cash equal to the Offer Price times the number of Shares so
tendered. At the Closing Date, Company stock units in the deferred compensation
account of each Director who participated in the Company's Deferred Compensation
Plan for Directors (the "DCP") were converted into a number of Phantom Stock
Units determined by dividing (A) the product of (i) the number of Company stock
units credited to the Director's deferred compensation account under the DCP as
of the Closing Date, and (ii) the Offer Price, by (B) the Fair Market Value.
Such Phantom Stock Units will be credited with dividend equivalent units at such
time and in such manner as dividends are paid on Parent common stock. A cash
payment equal to the Phantom Stock Units will be made to the Directors as soon
as practicable after January 1, 1998. Parent will determine administrative
procedures and provisions with regard to the Phantom Stock Units.
The Merger Agreement also required that, prior to the Closing Date, the
Board of Directors, or an appropriate committee thereof, cause written notice of
the Merger Agreement to be given to persons holding "options" (as defined in the
Company's Employee Stock Purchase Plan (the "ESPP")) to purchase Shares
("Purchase Rights") under the ESPP. The Merger Agreement required that
immediately following the Closing Date, all Purchase Rights be accelerated as if
the Closing Date was the last day of the "option period" (as defined in the
ESPP), such Purchase Rights be automatically canceled and terminated on such day
and the contributions to the ESPP during such option period be refunded to the
holder of the Purchase Right (the "Refund Amount"), and each holder of a
Purchase Right be entitled to receive as soon as practicable thereafter from the
Company in consideration for such cancellation an amount in cash (less
applicable withholding taxes, but without interest) equal to (a) the product of
(i) the number of Shares (and fractions thereof) subject to such Purchase Right
of such holder as of the Closing Date, multiplied by (ii) the Offer Price, less
(b) the Refund Amount of such holder. The foregoing is subject to the right of
an ESPP participant to terminate the participant's payroll deduction
authorization under the ESPP and to cancel the participant's option and withdraw
from the ESPP at any time prior to the Closing Date.
In the Merger Agreement, Parent agreed that from and after the
consummation of the Offer, it will cause the Company, and from and after the
Effective Time it will cause the Surviving Corporation, to indemnify, defend and
hold harmless the present and former officers and directors of the Company and
its subsidiaries (each an "Indemnified Party"), against all losses, claims,
damages or liabilities arising out of actions or omissions in their capacity as
a director or officer of the Company or a subsidiary occurring on or prior to
the consummation of the Offer to the maximum extent permitted or required under
the MBCL and the Company's Bylaws in effect on the date of the Merger Agreement,
including provisions with respect to advances of expenses incurred in the
defense of any action or suit, provided that any determination required to be
made with respect to whether an Indemnified Party's conduct complies with the
standards set forth under the MBCL and the Company's Bylaws shall be made by
independent legal counsel selected in good faith by the Surviving Corporation.
Parent further agreed in the Merger Agreement that from and after consummation
of the Offer it will cause the Company or the Surviving Corporation to advance
litigation costs reasonably incurred by any Indemnified Party provided that such
party undertakes to repay amounts so advanced if it is ultimately determined
that indemnification for such expenses is not authorized under the Merger
Agreement or otherwise.
Pursuant to the Merger Agreement, Parent agreed that from and after
consummation of the Offer it will cause the Company and from and after the
Effective Time it will cause the Surviving Corporation to maintain the Company's
existing directors' and officers' liability insurance ("D&O Insurance") in full
force and effect without reduction of coverage for a period of three years after
the Effective Time; provided that the Surviving Corporation will not be required
to pay an annual premium therefor in excess of 200% of the last annual premium
paid prior to the date of the Merger Agreement (the "Current Premium"); and,
provided, further, that if the existing D&O Insurance expires, is terminated or
cancelled during the 3-year period, the Surviving Corporation will use
reasonable efforts to obtain as much D&O Insurance as can be obtained for the
remainder of such period for a premium on an annualized basis not in excess of
200% of the Current Premium. The Company will maintain, through the Effective
Time, the Company's existing D&O Insurance in full force and effect without
reduction of coverage.
The Merger Agreement also provides that if the Surviving Corporation or
any of its successors or assigns (i) consolidates with or merges into any other
person or entity and shall not be the continuing or surviving
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<PAGE>
corporation or entity of such consolidation or merger and the continuing or
surviving entity does not assume the indemnification obligations of the
Surviving Corporation, or (ii) transfers all or substantially all of its
properties and assets to any person or entity, then, and in each such case,
proper provision will be made so that the successors and assigns of the
Surviving Corporation assume the indemnification obligations of the Surviving
Corporation.
SUMMARY FINANCIAL OUTLOOK OF THE COMPANY
Projected Financial Information
In connection with Parent's review of the Company and in the course of
the negotiations described in the section above entitled "The Merger--
Background," the Company and its representatives provided Parent with certain
business and financial information which Parent and Purchaser believe is not
publicly available. Following is a summary of the material forecast and
financial model information:
SUMMARY FINANCIAL OUTLOOK (as of February 7, 1997)
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Forecast Financial Model
-------- ---------------
Fiscal Year Fiscal Year
----------- -----------
Ending June 30, Ending June 30,
--------------- ---------------
1997 1998
---- ----
<S> <C> <C>
INCOME STATEMENT DATA
Revenue
BBN Planet.............................. $ 180.8 $ 345.1
BBN System & Technologies............... 186.3 215.0
Eliminations of interdivisional sales
between business units................ (2.7) (3.8)
---------- ----------
$ 364.4 $ 556.3
Loss from operations
Planet.................................. $ (48.5) $ (22.2)
System & Technologies................... 5.8 10.0
Unallocated corporate expenses, net..... (3.1) (4.1)
---------- ----------
$ (45.8) $ (16.3)
Interest expense, net....................... $ (0.2) $ (4.0)
---------- ----------
Net loss.................................... $ (46.0) $ (20.3)
========== ==========
Net loss per share.......................... $ (2.15) $ (0.94)
========== ==========
</TABLE>
According to the Company, the fiscal year 1998 financial model
information (i) reflects revenue from an Internet Services Agreement with AT&T
Corp. ("AT&T"), but does not reflect the impact of certain material
disagreements between the Company and AT&T regarding the terms of such agreement
and (ii) assumes that the percentage of BBN Planet's revenue derived from the
Company's contract with America OnLine, Incorporated will be consistent with the
percentage of revenue derived from such contract reported for fiscal year 1997.
The costs estimate was based on historical experience and the achievement of
certain operating efficiencies, as well as other estimates. The model was
prepared on a stand-alone basis and does not give effect to the Offer or the
Merger.
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<PAGE>
In reaching its decision to acquire the Company, Parent made certain
assumptions of its own with regard to revenues and operations of the Company's
businesses as a wholly owned subsidiary, which assumptions are not reflected in
the above financial information.
Further, the Company has advised Parent and Purchaser that the foregoing
forecast and financial model information (the "projections") were not prepared
with a view to public disclosure or compliance with the published guidelines of
the SEC or the guidelines established by the American Institute of Certified
Public Accountants regarding projections. The projections are included in this
Information Statement only because they were provided to Parent. None of Parent,
Purchaser, the Company or any of their respective advisors or any other party
who received such information assumes any responsibility for the validity,
reasonableness, accuracy or completeness of the projections. Although presented
with numerical specificity, the projections are based upon a variety of
assumptions relating to the businesses of the Company, industry performance,
general business and economic conditions and other matters, all of which may not
be realized and are subject to significant uncertainties and contingencies, many
of which are beyond the control of the Company. There can be no assurance that
the projections set forth above will be realized, and actual results may vary
materially from those shown. The projections have not been examined or compiled
by the Company's independent public accountants. For these reasons, as well as
the bases on which such projections were compiled, there can be no assurance
that actual results will not differ materially from those estimated. The
inclusion of such projections herein should not be regarded as an indication
that Parent, Purchaser, the Company, any of their respective advisors or any
other party who received such information considers it an accurate prediction of
future events. Parent did an independent assessment of the Company's value and
did not rely to any material degree upon the foregoing projections. None of the
Company, Parent, Purchaser or any other party intends publicly to update or
otherwise publicly revise the projections set forth above even if experience or
future changes make it clear that such projections will not be realized.
The projections set forth above constitute forward-looking information.
For a discussion of factors regarding such forward-looking information see "--
Cautionary Statement Regarding Forward-Looking Information."
Cautionary Statement Regarding Forward-Looking Information
For purposes of the Private Securities Litigation Reform Act of 1995,
Parent and Purchaser identify the following important factors which could cause
the Company's actual results to differ materially from the foregoing
projections:
(a) the development and expansion of the market for Internet access
services and products and of the networks which comprise the Internet;
(b) the Company's ability to continue and expand its business
relationships, including relationships with existing major customers;
(c) the capacity, reliability, cost and security of the Company's network
infrastructure;
(d) the Company's ability to finance expansion of its network;
(e) the Company's ability to develop or acquire the rights to price
competitive products and services;
(f) competition from larger competitors with more resources;
(g) the Company's ability to attract and retain highly qualified
management, technical, marketing and sales personnel;
(h) the Company's ability to manage growth;
-31-
<PAGE>
(i) the Company's ability to improve its operating margins; and
(j) effects of the Offer and Merger.
With respect to the factor described in clause (b) above, Parent and
Purchaser note that the Company and AT&T have initiated the dispute resolution
procedures provided in the Internet Services Agreement between the two companies
in order to resolve material disagreements regarding the terms of such
agreement.
Many of the foregoing factors have been discussed in more detail in the
Company's prior filings with the SEC. The foregoing review of factors pursuant
to the Private Litigation Securities Reform Act of 1995 should not be construed
as exhaustive.
MARKET PRICES AND DIVIDEND MATTERS
The Shares are traded under the symbol "BBN" primarily on the NYSE and
to a lesser extent on the Boston, Cincinnati, Midwest, Pacific and Philadelphia
exchanges. The following table sets forth, for the fiscal quarters indicated,
the high and low sales prices per Share on the NYSE.
<TABLE>
<CAPTION>
High Low
--------- ---------
<S> <C> <C>
Fiscal Year Ended June 30, 1995:
Quarter ended September 30, 1994................ $18 3/4 $10
Quarter ended December 31, 1994................. $20 7/8 $12 5/8
Quarter ended March 31, 1995.................... $22 1/4 $14 5/8
Quarter ended June 30, 1995..................... $30 $16 1/2
Fiscal Year Ended June 30, 1996:
Quarter ended September 30, 1995................ $39 3/8 $27 1/4
Quarter ended December 31, 1995................. $48 3/4 $28 1/4
Quarter ended March 31, 1996.................... $40 7/8 $24 1/8
Quarter ended June 30, 1996..................... $30 3/4 $20 1/4
Fiscal Year Ended June 30, 1997:
Quarter ended September 30, 1996................ $22 3/4 $15 5/8
Quarter ended December 31, 1996................. $24 3/4 $17
Quarter ended March 31, 1997.................... $27 5/8 $16 1/2
Quarter ended June 30, 1997 [(through June 9,
1997)]........................................ $29 3/8 $15 1/8
</TABLE>
No cash dividends have been declared or paid on the Shares since June 30,
1992. The Merger Agreement prohibits the Company from declaring or paying any
dividends until the effectiveness of the Merger.
On April 7, 1997, approximately one month prior to the public announcement
of the execution of the Merger Agreement, the closing sale price on the NYSE was
$17 5/8. On May 5, 1997, the last full trading day prior to the announcement of
the terms of the Merger Agreement, the last reported sales price per Share on
the NYSE was $22 5/8. On May 9, 1997, the last full trading day prior to the
commencement of the Offer, the last reported sales price per Share on the NYSE
was $28 5/8. On [_____________, 1997,] the latest practicable date prior to the
printing of this Information Statement, the reported closing sales price per
share on the NYSE was [$__________.] Stockholders are urged to obtain a current
market quotation for the Shares.
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<PAGE>
The purchase of the Shares pursuant to the Offer has reduced the number of
Shares that trade publicly and the number of holders of the Shares and could
adversely affect the liquidity and market value of the remaining Shares held by
the public.
While the Company expects that the Shares will continue to be listed and
traded on the NYSE until the consummation of the Merger, no assurances can be
given that the NYSE will not (i) determine at any time prior to the consummation
of the Merger that the Shares and/or the Company no longer satisfy the NYSE's
listing criteria and (ii) initiate delisting proceedings against the Company.
Were the Shares to be delisted from the NYSE, no assurances can be given that an
alternative trading market would develop for the Shares. Any delisting of the
Shares could adversely affect the liquidity and market value of the remaining
Shares held by the public.
Following the consummation of the Merger, the Shares will be delisted by
the NYSE and application will be made by the Company, pursuant to Section
12(g)(4) of the Exchange Act, to terminate the registration of the Shares under
the Exchange Act. Such termination will substantially reduce the information
required to be furnished by the company to the commission and will render
inapplicable certain provisions of the Exchange Act, such as the short-swing
profit recovery provisions of Section 16(b). Additionally, following termination
of registration of the Shares under the Exchange Act, the Shares will cease to
be "margin securities" under the rules of the Board of Governors of the Federal
Reserve System.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL
INFORMATION OF THE COMPANY
The following table sets forth certain summary consolidated financial
information with respect to the Company and its subsidiaries excerpted or
derived from the audited financial statements contained in the Company 10-K and
the unaudited financial information contained in the Company's Quarterly Reports
on Form 10-Q for the nine months ended March 31, 1996 and 1997. More
comprehensive financial information is included in such reports and other
documents filed by the Company with the SEC, and the following summary is
qualified in its entirety by reference to such documents (which may be inspected
and obtained as described above), including the financial statements and related
notes contained therein.
BBN CORPORATION
SELECTED FINANCIAL INFORMATION
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
March 31 YEAR ENDED JUNE 30,
----------------- ------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF
OPERATIONS $254,145 $165,607 $234,339 $175,603 $160,711 $197,655 $216,588
======== ======== ======== ======== ======== ======== ========
Revenue........................
Income (loss) from
operations(1)................. (33,574) (44,024) (56,382) (16,507) (9,748) (33,397) 4,035
Interest and other income
(expense),
net(2)........................ 428 418 (120) 97,392 779 242 (2,611)
-------- -------- -------- -------- -------- -------- --------
</TABLE>
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<PAGE>
BBN CORPORATION
SELECTED FINANCIAL INFORMATION
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
March 31 YEAR ENDED JUNE 30,
----------------- ------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from
continuing operations before
income taxes and
extraordinary item............. (33,146) (43,606) (56,502) 80,885 (8,969) (33,155) 1,424
Income tax provision
(benefit)..................... (4,953) (6,600) 13,783
-------- -------- -------- -------- -------- -------- --------
Income (loss) from
continuing operations before
extraordinary
item........................... (33,146) (38,653) (49,902) 67,102 (8,969) (33,155) 1,424
Income (loss) from
discontinued operations net
of applicable income
taxes(3)....................... 20,000 (7,029) (6,740) (2,258) 1,145 891 2,729
Extraordinary
item(4)........................ 3,648
-------- -------- -------- -------- -------- -------- --------
Net income
(loss)......................... $(13,146) $(45,682) $(56,642) $ 64,844 $ (7,824) $ (32,264) $ 7,801
========= ========= ========= ========= ========== ========== ========
Per-share amounts:
Continuing
operations..................... $ (1.54) $ (2.19) $ (2.80) $ 3.73 $ (0.55) $ (2.11) $ 0.09
Discontinued
operations(3).................. .93 (.40) (0.38) (0.12) 0.07 0.06 0.16
Extraordinary
item(4)........................ 0.22
-------- -------- -------- -------- -------- -------- --------
Net income
(loss)......................... $ (.61) $ (2.59) $ (3.18) $ 3.61 $ (0.48) $ (2.05) $ 0.47
======== ========= ========= ======== ======== ======== ========
Cash dividends declared per
share.......................... $ 0.06
Shares used in per-share
calculations................... 21,566,000 17,670,000 17,818,000 17,984,000 16,179,000 15,705,000 16,504,000
=========== =========== =========== =========== =========== =========== ===========
FINANCIAL POSITION
(at end of period)
Cash, cash equivalents and
temporary investments(5)....... $104,442 $70,961 $120,275 $107,608 $ 63,115 $54,552 $ 43,541
Working capital................ 85,099 83,275 120,111 116,003 65,308 66,829 88,132
Property, plant and
equipment, net................. 73,327 33,963 48,069 24,195 16,346 16,922 23,057
Total assets................... 272,107 177,836 249,337 203,964 122,712 128,036 147,799
</TABLE>
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<PAGE>
BBN CORPORATION
SELECTED FINANCIAL INFORMATION
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
March 31 YEAR ENDED JUNE 30,
----------------- ------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Redeemable convertible
preferred stock of
subsidiary..................... 8,000 8,000
Redeemable common
stock(6)....................... 8,000
Capital lease
obligations.................... 24,323 12,733
Convertible
debentures..................... 73,170 73,170 73,170 73,510 73,510 73,775 73,912
Shareholders'
equity......................... 69,016 36,832 79,336 82,552 7,271 10,042 41,887
GENERAL
INFORMATION AND
RATIOS
Additions to property, plant
and equipment.................. $40,546 $17,289 $34,407 $14,133 $5,595 $6,703 10,701
Revenue per average
number of
employees...................... 165 128 132 112 110 120 112
Employees at end of
period......................... 2,200 1,788 1,895 1,662 1,466 1,445 1,861
Shareholders of record at
end of period.................. 2,183 2,027 2,234 2,080 2,225 2,709 3,108
Current ratio.................. 1.8 2.4 2.5 3.6 2.6 2.5 3.8
Debt to equity ratio........... 1.4 2.0 1.1 0.9 10.1 7.3 1.8
</TABLE>
(1) The nine months ended 3/31/96 and FY 1996 include a charge of $20.7 million
or $1.16 per share related primarily to the write-off of goodwill and
related costs in association with the Company's reorganization effective
April 1, 1996. FY1993 includes a restructuring charge of $20.5 million, or
$1.30 per share, associated with employee severance and related facilities
costs.
(2) Interest and other income (expense), net for the year ended June 30, 1995
includes the gain on the sale of assets of LightStream Corporation,
amounting to approximately $105.0 million before minority interest of $11.8
million and provision for income taxes of $13.5 million and amounts arising
from contracts which were substantially completed in prior years.
(3) In July FY1997 the Company completed the divestiture of a majority interest
in BBN Domain Corporation.
(4) Results for fiscal year 1992 included an extraordinary gain of $3.6
million, or S.22 per share, from the purchase and early retirement of $9.8
million of the Subordinated Notes.
(5) Includes restricted cash of $4.7 million and $12.1 million at June 30, 1996
and June 30, 1995, respectively.
(6) On August 6, 1996 the redeemable convertible preferred stock of subsidiary
was exchanged for 400,000 shares of the Company's redeemable common stock.
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions of documents filed with the SEC by
the Company (File No. 1-6435) pursuant to the Exchange Act are incorporated by
reference in this Information Statement and are deemed to be a part hereof:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1996;
(2) The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996;
(3) The Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996;
(4) The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997; and
(5) The Company's Current Reports on Form 8-K dated November 14, 1996,
May 8, 1997 (and amended pursuant to the Form 8-K/A filed on May 9, 1997) and
June 19, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Information
Statement and prior to the date of the Meeting shall be deemed to be
incorporated by reference into this Information Statement. Any statement
contained in a documents incorporated by reference shall be deemed to be
modified or superseded for all purposes to the extent that a statement contained
in this Information Statement modified or replaces such statement.
The Company undertakes to provide by first class mail, without charge,
to any person to whom a copy of this Information Statement has been delivered,
on the written or oral request of such person, a copy of any or all of the
documents referred to above which have been incorporated in this Information
Statement by reference, other than exhibits to such documents (unless such
exhibits are specifically incorporated by reference therein). Requests for such
copies should be directed to Investor Relations, BBN Corporation, 150
CambridgePark Drive, Cambridge, Massachusetts 02140, telephone number (617) 873-
4000. In order to ensure delivery prior to the Meeting, requests should be
received by the Company by [____________, 1997.]
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EXHIBIT A
TO
SCHEDULE 14C
MASSACHUSETTS APPRAISAL
RIGHTS PROVISIONS
(S)85 Dissenting stockholder; right to demand payment for stock; exception --
A stockholder in any corporation organized under the laws of Massachusetts which
shall have duly voted to consolidate or merge with another corporation or
corporations under the provisions of sections seventy-eight or seventy-nine who
objects to such consolidation or merger may demand payment for his stock from
the resulting or surviving corporation and an appraisal in accordance with the
provisions of sections eighty-six to ninety-eight, inclusive, and such
stockholder and the resulting or surviving corporation shall have the rights and
duties and follow the procedure set forth in those sections. This section shall
not apply to the holders of any shares of stock of a constituent corporation
surviving a merger if, as permitted by subsection (c) of section seventy-eight,
the merger did not require for its approval a vote of the stockholders of the
surviving corporation.
(S)86 Sections applicable to appraisal; prerequisites -- If a corporation
proposes to take a corporate action as to which any section of this chapter
provides that a stockholder who objects to such action shall have the right to
demand payment for his shares and an appraisal thereof, sections eighty-seven to
ninety-eight, inclusive, shall apply except as otherwise specifically provided
in any section of this chapter. Except as provided in sections eighty-two and
eighty-three, no stockholder shall have such right unless (1) he files with the
corporation before the taking of the vote of the shareholders on such corporate
action, written objection to the proposed action stating that he intends to
demand payment for his shares if the action is taken and (2) his shares are not
voted in favor of the proposed action.
(S)87 Statement of rights of objecting stockholders in notice of meeting;
form -- The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock, and the directors may authorize the inclusion in any such notice of a
statement of opinion by the management as to the existence or non-existence of
the right of the stockholders to demand payment for their stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of notice
shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting and
effected by the corporation, any stockholder (1) who files with the corporation
before the taking of the vote on the approval of such action, written objection
to the proposed action stating that he intends to demand payment for his shares
if the action is taken and (2) whose shares are not voted in favor of such
action has or may have the right to demand in writing from the corporation (or,
in the case of a consolidation or merger, the name of the resulting or surviving
corporation shall
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be inserted), within twenty days after the date of mailing to him of notice in
writing that the corporate action has become effective, payment for his shares
and an appraisal of the value thereof. Such corporation and any such
stockholder shall in such cases have the rights and duties and shall follow the
procedure set forth in sections 88 to 98, inclusive, of chapter 156B of the
General Laws of Massachusetts."
(S)88 Notice of effectiveness of action objected to -- The corporation
taking such action, or in the case of a merger or consolidation the surviving or
resulting corporation, shall, within ten days after the date on which such
corporate action became effective, notify each stockholder who filed written
objection meeting the requirements of section eighty-six and whose shares were
not voted in favor of the approval of such action, that the action approved at
the meeting of the corporation of which he is a stockholder has become
effective. The giving of such notice shall not be deemed to create any rights in
any stockholder receiving the same to demand payment for his stock. The notice
shall be sent by registered or certified mail, addressed to the stockholder at
his last known address as it appears in the records of the corporation.
(S)89 Demand for payment; time for payment -- If within twenty days after
the date of mailing of a notice under subsection (e) of section eighty-two,
subsection (f) of section eighty-three, or section eighty-eight, any stockholder
to whom the corporation was required to give such notice shall demand in writing
from the corporation taking such action, or in the case of a consolidation or
merger from the resulting or surviving corporation, payment for his stock, the
corporation upon which such demand is made shall pay to him the fair value of
his stock within thirty days after the expiration of the period during which
such demand may be made.
(S)90 Demand for determination of value; bill in equity; venue -- If during
the period of thirty days provided for in section eighty-nine the corporation
upon which such demand is made and any such objecting stockholder fail to agree
as to the value of such stock, such corporation or any such stockholder may
within four months after the expiration of such thirty-day period demand a
determination of the value of the stock of all such objecting stockholders by a
bill in equity filed in the superior court in the county where the corporation
in which such objecting stockholder held stock had or has its principal office
in the commonwealth.
(S)91 Parties to suit to determine value; service -- If the bill is filed
by the corporation, it shall name as parties respondent all stockholders who
have demanded payment for their shares and with whom the corporation has not
reached agreement as to the value thereof. If the bill is filed by a
stockholder, he shall bring the bill in his own behalf and in behalf of all
other stockholders who have demanded payment for their shares and with whom the
corporation has not reached agreement as to the value thereof, and service of
the bill shall be made upon the corporation by subpoena with a copy of the bill
annexed. The corporation shall file with its answer a duly verified list of all
such other stockholders, and such stockholders shall thereupon be deemed to have
been added as parties to the bill. The corporation shall give notice in such
form and returnable on such date as the court shall order to each stockholder
party to the bill by registered or certified mail, addressed to the last known
address of such stockholder as shown in the records of the corporation, and the
court may order such additional notice by publication
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or otherwise as it deems advisable. Each stockholder who makes demand as
provided in section eighty-nine shall be deemed to have consented to the
provisions of this section relating to notice, and the giving of notice by the
corporation to any such stockholder in compliance with the order of the court
shall be a sufficient service of process on him. Failure to give notice to any
stockholder making demand shall not invalidate the proceedings as to other
stockholders to whom notice was properly given, and the court may at any time
before the entry of a final decree make supplementary orders of notice.
(S)92 Decree determining value and ordering payment; valuation date --
After hearing the court shall enter a decree determining the fair value of the
stock of those stockholders who have become entitled to the valuation of and
payment for their shares, and shall order the corporation to make payment of
such value, together with interest, if any, as hereinafter provided, to the
stockholders entitled thereto upon the transfer by them to the corporation of
the certificates representing such stock if certificated or if uncertificated,
upon receipt of an instruction transferring such stock to the corporation. For
this purpose, the value of the shares shall be determined as of the day
preceding the date of the vote approving the proposed corporate action and shall
be exclusive of any element of value arising from the expectation or
accomplishment of the proposed corporate action.
(S)93 Reference to special master -- The court in its discretion may refer
the bill or any question arising thereunder to a special master to hear the
parties, make findings and report the same to the court, all in accordance with
the usual practice in suits in equity in the superior court.
(S)94 Notation on stock certificates of pendency of bill -- On motion the
court may order stockholder parties to the bill to submit their certificates of
stock to the corporation for notation thereon of the pendency of the bill and
may order the corporation to note such pendency in its records with respect to
any uncertificated shares held by such stockholder parties, and may on motion
dismiss the bill as to any stockholder who fails to comply with such order.
(S)95 Costs; interest -- The costs of the bill, including the reasonable
compensation and expenses of any master appointed by the court, but exclusive of
fees of counsel or of experts retained by any party, shall be determined by the
court and taxed upon the parties to the bill, or any of them, in such manner as
appears to be equitable, except that all costs of giving notice to stockholders
as provided in this chapter shall be paid by the corporation. Interest shall be
paid upon any award from the date of the vote approving the proposed corporate
action, and the court may on application of any interested party determine the
amount of interest to be paid in the case of any stockholder.
(S)96 Dividends and voting rights after demand for payment -- Any
stockholder who has demanded payment for his stock as provided in this chapter
shall not thereafter be entitled to notice of any meeting of stockholders or to
vote such stock for any purpose and shall not be entitled to the payment of
dividends or other distribution on the stock (except dividends or other
distributions payable to stockholders of record at a date which is prior to the
date of the vote approving the proposed corporate action) unless:
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(1) A bill shall not be filed within the time provided in section ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the corporation,
or in the case of a consolidation or merger, the resulting or surviving
corporation, deliver to it a written withdrawal of his objections to and an
acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
(S)97 Status of shares paid for -- The shares of the corporation paid for
by the corporation pursuant to the provisions of this chapter shall have the
status of treasury stock, or in the case of a consolidation or merger the shares
or the securities of the resulting or surviving corporation into which the
shares of such objecting stockholder would have been converted had he not
objected to such consolidation or merger shall have the status of treasury stock
or securities.
(S)98 Exclusive remedy; exception -- The enforcement by a stockholder of
his right to receive payment for his shares in the manner provided in this
chapter shall be an exclusive remedy except that this chapter shall not exclude
the right of such stockholder to bring or maintain an appropriate proceeding to
obtain relief on the ground that such corporate action will be or is illegal or
fraudulent as to him.
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EXHIBIT B
TO
SCHEDULE 14C
AGREEMENT AND PLAN OF MERGER
AMONG
GTE CORPORATION
GTE MASSACHUSETTS INCORPORATED
AND
BBN CORPORATION
DATED AS OF MAY 5, 1997
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TABLE OF CONTENTS
<TABLE>
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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>
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<TABLE>
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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
Exhibit A Conditions of the Offer................................. A-1
Exhibit B Form of Termination Option.............................. B-1
</TABLE>
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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.
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(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
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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
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"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.
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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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<PAGE>
(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
B-30
<PAGE>
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
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<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).
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<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]
B-33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
under seal as of the date first written above.
GTE CORPORATION
By:/s/ Kent B. Foster
----------------------------------
Name: Kent B. Foster
Title: President
By:/s/ Marianne Drost
----------------------------------
Name: Marianne Drost
Title: Secretary
GTE MASSACHUSETTS INCORPORATED
By:/s/ Robert C. Calafell
----------------------------------
Name: Robert C. Calafell
President
By:/s/ James A. Attwood
----------------------------------
Name: James A. Attwood
Treasurer
BBN CORPORATION
By:/s/ John Montjoy
----------------------------------
Name: John Montjoy
Senior Vice President
By:/s/ Bruce Haskin
----------------------------------
Name: Bruce Haskin
Treasurer
B-34
<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
B-35
<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.
B-36
<PAGE>
EXHIBIT B
TO
AGREEMENT AND PLAN OF MERGER
FORM OF TERMINATION OPTION
B-37
<PAGE>
[ALEX. BROWN LETTERHEAD]
EXHIBIT C
TO
SCHEDULE 14C
May 6, 1997
BBN Corporation
150 Cambridge Park Drive
Cambridge, MA 02140
Dear Sirs:
BBN Corporation (the "Company"), GTE Corporation ("Buyer") and GTE
Massachusetts Incorporated, a Massachusetts corporation and a wholly owned
subsidiary of Buyer ("Purchaser"), have entered into the Agreement and Plan of
Merger dated as of May 5, 1997 (the "Agreement"). Pursuant to the Agreement,
Purchaser shall commence a tender offer (the "Offer") to purchase all shares
of the Company's common stock issued and outstanding at a price of $29.00 per
share, net to the seller in cash (the "Cash Consideration"). Thereafter,
Purchaser shall be merged with and into the Company and the Company shall
continue as the surviving corporation as a subsidiary of Buyer (the "Merger").
Stockholders of the Company other than Buyer shall receive the Cash
Consideration in the Merger. You have requested our opinion as to whether the
Cash Consideration is fair, from a financial point of view, to the Company's
stockholders.
Alex. Brown & Sons Incorporated ("Alex. Brown"), as a customary part of its
investment banking business, is engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and
other purposes. We have acted as financial advisor to the Board of Directors
of the Company in connection with the transaction described above and will
receive a fee for our services, a portion of which is contingent upon the
consummation of the Offer. We have also acted as placement agent for a private
offering of the Company's common stock and as the Company's financial advisor
with respect to the sale of Lightstream Corporation, the divestiture of a
majority interest in its BBN Domain subsidiary and general advisory services.
Alex. Brown regularly publishes research reports regarding the communications
services industry and the businesses and securities of the Company and other
publicly owned companies in the communications services industry. In the
ordinary course of business, Alex. Brown may actively trade the securities of
both the Company and the Buyer for our own account and the account of our
customers and, accordingly, may at any time hold a long or short position in
securities of the Company and the Buyer.
In connection with this opinion, we have reviewed certain publicly available
financial information and other information concerning the Company and Buyer
and certain internal analyses and other information furnished to us by the
Company. We have also held discussions with the members of the senior
management of the Company regarding the business and prospects of the Company.
In addition, we have (i) reviewed the reported prices and trading activity for
the common stock of the Company, (ii) compared certain financial and stock
market information for the Company with similar information for certain other
companies whose securities are publicly traded, (iii) reviewed the financial
terms of certain recent business combinations which we deemed comparable in
whole or in part, (iv) reviewed the terms of the Agreement, and (v) performed
such other studies and analyses and considered such other factors as we deemed
appropriate.
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<PAGE>
We have not independently verified the information described above, and for
purposes of this opinion have assumed the accuracy, completeness and fairness
thereof. With respect to the information relating to the prospects of the
Company, we have assumed that such information reflects the best currently
available judgments and estimates of the management of the Company as to the
likely future financial performance of the Company. In addition, we have not
made an independent evaluation or appraisal of the assets of the Company and
Buyer, nor have we been furnished with any such evaluations or appraisals. Our
opinion is based on market, economic and other conditions as they exist and
can be evaluated as of the date of this letter.
Our advisory services and the opinion expressed herein were prepared for the
use of the Board of Directors of the Company and do not constitute a
recommendation to the Company's stockholders as to whether they should tender
their shares in the Offer. We hereby consent, however, to the inclusion of
this opinion in its entirety in any filing required to be made by the Company
with the Securities and Exchange Commission with respect to the Offer and the
Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the Cash Consideration is fair, from a financial point of
view, to the Company's stockholders.
Very truly yours,
ALEX. BROWN & SONS INCORPORATED
By:/s/ Alex. Brown & Sons Incorporated
-----------------------------------
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