<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/X/ Preliminary proxy statement
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
MCI COMMUNICATIONS CORPORATION
(Name of Registrant as Specified in Its Charter)
MCI COMMUNICATIONS CORPORATION
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / 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:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
/ / 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 registrations statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
- ---------------
(1)Set forth the amount on which the filing fee is calculated and state
how it was determined.
<PAGE> 2
MCI COMMUNICATIONS
CORPORATION
[LOGO] 1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
February , 1994
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
MCI Communications Corporation (the "Company") to be held at 10:00 A.M., local
time, on March 11, 1994, at The Four Seasons Hotel, 2800 Pennsylvania Avenue,
N.W., Washington, D.C.
At this meeting, you will be asked to consider a set of proposals (Items 1,
2 and 3 on your Proxy) relating to an investment of approximately $4.3 billion
by British Telecommunications plc ("BT") in the Company. Please note that unless
all three proposals are approved by stockholders none will be effected by the
Company. The investment by BT would result in BT owning voting securities
representing approximately 20% of the Company's then outstanding shares and
would comprise one aspect of a worldwide strategic alliance between the Company
and BT. This strategic alliance would also involve the formation of a joint
venture between the Company and BT to provide enhanced and value added
telecommunications services throughout the world as well as the purchase by the
Company of BT's principal investments in the Americas and the purchase by BT of
the Company's principal investments outside the Americas.
The terms of the securities to be issued to BT would entitle BT to be
represented on the Board of Directors of the Company in proportion to its 20%
equity interest. BT would also receive certain investor protections which the
Board of Directors believes would be commensurate with the size of BT's
investment in the Company and its strategic relationship with the Company.
After careful consideration of a number of factors, including the terms
relating to BT's investment in the Company and the long-term benefits that may
be derived from a strategic alliance with BT, the Board of Directors unanimously
recommends that you vote FOR all three proposals.
Details of all three proposals are set forth in the accompanying Proxy
Statement. We urge you to read the entire Proxy Statement carefully. It is
important that your shares be represented at the meeting. Even if you plan to
attend the meeting, please sign, date and mail promptly the enclosed Proxy in
the postage-paid envelope. This action will not limit your right to vote in
person if you wish to attend the Special Meeting.
On behalf of the Board of Directors, thank you for your cooperation and
continued support.
Very truly yours,
BERT C. ROBERTS, JR.
Chairman of the Board of Directors
<PAGE> 3
MCI COMMUNICATIONS CORPORATION
1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
MARCH , 1994
WASHINGTON, D.C.
------------------------------
February , 1994
To the Stockholders of
MCI COMMUNICATIONS CORPORATION:
A special meeting of stockholders of MCI Communications Corporation (the
"Company") will be held at The Four Seasons Hotel, 2800 Pennsylvania Avenue,
N.W., Washington, D.C., on March 11, 1994 at 10:00 A.M., local time, to consider
and act on three proposals (the "Investment Proposals") related to the
Investment Agreement, dated as of August 4, 1993, between the Company and
British Telecommunications plc. ("BT"), as it may be amended from time to time
(the "Investment Agreement"). The three Investment Proposals are summarized as
follows:
(1) To approve the Investment Agreement and the performance by the
Company of all transactions and acts on the part of the Company
contemplated under the Investment Agreement, including the issuance and
sale to BT of shares of the Company's Class A Common Stock, par value $.10
per share (the "Class A Common Stock"), and the issuance of shares of
common stock, par value $.10 per share (the "Common Stock"), of the Company
upon the conversion of the shares of Class A Common Stock in accordance
with their terms (Item No. 1);
(2) To adopt certain amendments to the Company's Restated Certificate
of Incorporation (the "Restated Certificate") to, among other things, (i)
increase the number of authorized shares of capital stock of the Company,
(ii) establish the terms of the Class A Common Stock which include class
voting rights to approve specified transactions and matters and the right
to elect a number of directors of the Company, (iii) permit the redemption
of shares of the Company's stock to the extent necessary to prevent the
loss or secure the renewal or reinstatement of any license or franchise
from any governmental agency held by the Company or any of its
subsidiaries, (iv) provide that, until the fourth anniversary of the
closing of the transactions under the Investment Agreement, if any shares
of Class A Common Stock remain outstanding, the Board of Directors of the
Company (the "Board of Directors") may not redeem the rights to be issued
under a proposed stockholders rights plan of the Company without the
approval of the holders of at least 75% in voting power of the Company's
outstanding voting securities (including the Class A Common Stock), (v)
repeal Section 9 of the Restated Certificate (which imposes special
requirements for business combinations with certain significant
stockholders) and Section 10 of the Restated Certificate (which restricts
the voting power of certain stockholders who own more than 10% of the
outstanding voting securities of the Company), (vi) prohibit the holders of
Common Stock from acting by written consent without a meeting, and (vii)
move to the Restated Certificate (from the by-laws of the Company) and
revise certain provisions relating to the removal of directors (Item No.
2); and
(3) To approve the adoption by the Board of Directors of a
stockholders rights plan (Item No. 3).
The approval of each Investment Proposal is contingent on the approval of
all Investment Proposals. Unless all Investment Proposals are approved by the
stockholders at the meeting, none will be effected by the Company. The
affirmative vote of a majority of the votes entitled to be cast by the holders
of all the outstanding shares of Common Stock is required to approve each of the
Investment Proposals.
<PAGE> 4
Only holders of record of the Common Stock at the close of business on
January 24, 1994 are entitled to notice of, and to vote at, the special meeting
or any adjournment thereof. A complete list of stockholders entitled to vote at
the special meeting will be kept at the Company's offices at 1801 Pennsylvania
Avenue, N.W., Washington, D.C., for a period of ten days prior to the special
meeting.
By Order of the Board of Directors,
C. BOLTON-SMITH, JR.
Secretary
IF YOU DO NOT EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE SIGN
AND DATE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
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SUMMARY................................................................................ 1
The Special Meeting.................................................................. 1
Investment Proposals................................................................. 1
Background of and Reasons for the Investment Proposals............................... 2
Board of Directors' Recommendations.................................................. 2
Opinion of Financial Advisor......................................................... 3
Use of Proceeds...................................................................... 3
Certain Considerations............................................................... 4
Regulatory Approvals................................................................. 4
The Investment Agreement............................................................. 5
General........................................................................... 5
Purchase and Sale of Class A Common Stock......................................... 5
Terms of Class A Common Stock..................................................... 5
Standstill and Related Provisions................................................. 6
Transfer Restrictions and Related Provisions...................................... 6
Provisions Relating to a Change in Control of the Company......................... 7
Provisions Relating to the Maintenance of BT's Proportionate Ownership Interest... 8
Board Representation and Voting Provisions........................................ 9
Cumulative Voting................................................................. 9
Release of Certain Rights and Obligations......................................... 9
By-Law Amendments................................................................. 10
Pre-Closing Covenants............................................................. 10
Conditions to Closing............................................................. 10
Charter Amendment.................................................................... 10
Rights Plan.......................................................................... 11
Related Transactions................................................................. 12
The Joint Venture................................................................. 12
Acquisition by the Company of the Business of BT North America.................... 14
Stentor........................................................................... 14
Disposition of the Company's Interest in Infonet.................................. 14
McCaw Indemnity Agreement......................................................... 14
AAP, Clear and Belize............................................................. 15
Price Range of Common Stock.......................................................... 15
INTRODUCTION........................................................................... 16
Proxy Solicitation................................................................... 16
Voting at the Special Meeting........................................................ 16
Revocability of Proxies.............................................................. 17
Interest of Certain Person in Matters to be Acted Upon............................... 17
BENEFICIAL SECURITY OWNERSHIP.......................................................... 18
INVESTMENT PROPOSALS................................................................... 20
Background of and Reasons for the Investment Proposals............................... 20
Board of Directors' Recommendations.................................................. 22
Opinion of Financial Advisor......................................................... 24
Use of Proceeds...................................................................... 28
</TABLE>
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<TABLE>
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Information Concerning BT.............................................................. 28
Certain Considerations................................................................. 29
Diminished Ability to Sell the Company; Certain Antitakeover Effects................... 29
Board Representation; Consent Rights................................................... 33
Redemption Provision; Possible Redemption of Shares held by Non-U.S. Persons...... 34
Dilution.......................................................................... 34
Regulatory Approvals................................................................. 35
INVESTMENT AGREEMENT (ITEM NO. 1)...................................................... 38
Purchase and Sale of Class A Common Stock............................................ 38
Terms of the Class A Common Stock.................................................... 39
Standstill and Related Provisions.................................................... 41
Transfer Restrictions and Related Provisions......................................... 43
Provisions Relating to a Change in Control of the Company............................ 45
No Shopping....................................................................... 45
Business Combinations............................................................. 45
Charter Amendment; Rights Plan.................................................... 47
Section 203 of the DGCL........................................................... 47
Provisions Relating to the Maintenance of BT's Proportionate Ownership Interest...... 47
Equity Purchase Rights............................................................ 47
Limitation on Issuance of Stock to Non-U.S. Persons or Entities;
Redemption of Stock Held by Non-U.S. Persons or Entities........................ 49
Board Representation and Voting Provisions........................................... 50
Board of Directors................................................................ 50
Voting of Shares by BT............................................................ 51
Cumulative Voting................................................................. 52
Approval of Certain Matters.......................................................... 52
Access to Information................................................................ 52
Sale of Non-Core Businesses.......................................................... 53
Release of Rights and Obligations.................................................... 53
Continuance of Certain Rights........................................................ 54
Reinstatement of Rights under Certain Circumstances.................................. 55
By-Law Amendments.................................................................... 55
Pre-Closing Covenants................................................................ 56
Conditions to Closing................................................................ 57
Termination.......................................................................... 58
CHARTER AMENDMENT (ITEM NO. 2)......................................................... 58
Increase of Authorized Capital Stock................................................. 59
Terms of Class A Common Stock and Revisions To Terms of Common Stock................. 60
Redemption Provision; Possible Redemption of Shares held by Non-U.S. Persons......... 60
Redemption of Rights................................................................. 62
Repeal of the Capped Voting and Business Combination Provisions...................... 62
The Consent Amendment................................................................ 65
Removal of Directors................................................................. 65
Additional Provisions................................................................ 66
</TABLE>
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<TABLE>
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STOCKHOLDERS RIGHTS PLAN (ITEM NO. 3).................................................. 66
RELATED TRANSACTIONS................................................................... 69
The Joint Venture.................................................................... 69
Corporate Structure; Ownership Interests; Board Representation.................... 70
Business of the Newco Group....................................................... 70
Management and Control of Newco................................................... 70
Business Plan and AOPB............................................................ 71
Consent and Related Rights........................................................ 71
Capitalization/Funding............................................................ 71
Non-Compete....................................................................... 72
Transfer Restrictions............................................................. 72
Termination of the Joint Venture.................................................. 72
Conditions to Closing............................................................. 74
Distribution Agreements........................................................... 74
Intellectual Property Agreement................................................... 75
Services Agreements............................................................... 76
Sale by BT to Newco of Syncordia and Certain Other Assets......................... 77
Acquisition of BT North America...................................................... 77
*Stentor.............................................................................
Disposition of the Company's Interest in Infonet..................................... 78
McCaw Indemnity Agreement............................................................ 78
AAP, Clear and Belize................................................................ 79
STOCKHOLDER PROPOSALS.................................................................. 79
INDEPENDENT ACCOUNTANTS................................................................ 79
INCORPORATION OF DOCUMENTS BY REFERENCE................................................ 80
INDEX OF DEFINED TERMS................................................................. 81
</TABLE>
iii
<PAGE> 8
SUMMARY
The following is a brief summary (the "Summary") of the information in this
Proxy Statement. The Summary is not intended to be complete and is qualified in
its entirety by the more detailed information contained elsewhere in this Proxy
Statement and in the Appendices to this Proxy Statement. Cross references in the
Summary are to the captions of sections of this Proxy Statement unless otherwise
indicated. Stockholders are urged to read this Proxy Statement and the
Appendices to this Proxy Statement in their entirety.
THE SPECIAL MEETING
Proxy Solicitation. This Proxy Statement is being furnished in connection
with the solicitation of proxies by the board of directors (the "Board of
Directors") of MCI COMMUNICATIONS CORPORATION, a Delaware corporation (the
"Company"), for use at the special meeting of stockholders of the Company to be
held on March 11, 1994, at 10:00 a.m., local time, at The Four Seasons Hotel,
2800 Pennsylvania Avenue, N.W., Washington, D.C., or at any adjournment thereof
(the "Special Meeting").
Vote Required. The affirmative vote of a majority of the votes entitled to
be cast by the holders of all outstanding shares of common stock, par value $.10
per share (the "Common Stock"), of the Company is required to approve the three
Investment Proposals summarized below under "Investment Proposals". THE APPROVAL
OF EACH INVESTMENT PROPOSAL IS CONTINGENT ON THE APPROVAL OF ALL INVESTMENT
PROPOSALS. UNLESS ALL INVESTMENT PROPOSALS ARE APPROVED BY THE STOCKHOLDERS AT
THE SPECIAL MEETING, NONE WILL BE EFFECTED BY THE COMPANY.
Record Date. The record date for the Special Meeting was January 24, 1994.
INVESTMENT PROPOSALS
The investment proposals described in this Proxy Statement (the "Investment
Proposals") relate to the transactions and acts contemplated on the part of the
Company by the Investment Agreement, dated as of August 4, 1993, between the
Company and British Telecommunications plc ("BT"), as it may be amended from
time to time (the "Investment Agreement"), and consist of (a) approval of the
Investment Agreement and the performance by the Company of all transactions and
acts on the part of the Company contemplated under the Investment Agreement,
including, without limitation, the issuance to BT of shares of the Company's
Class A Common Stock, par value $.10 per share (the "Class A Common Stock"),
representing approximately 20% of the aggregate outstanding shares of Common
Stock and Class A Common Stock after giving effect to such issuance (Item No.
1); (b) adoption of certain amendments (the "Charter Amendment") to the
Company's Restated Certificate of Incorporation (the "Restated Certificate") to,
among other things, (i) increase the number of authorized shares of capital
stock of the Company, (ii) establish the terms of the Class A Common Stock which
include class voting rights to approve specified transactions and matters and
the right to elect a number of directors of the Company, (iii) permit the
redemption of shares of the Company's stock to the extent necessary to prevent
the loss or secure the renewal or reinstatement of any license or franchise from
any governmental agency held by the Company or any of its subsidiaries, (iv)
provide that, until the fourth anniversary of the closing of the transactions
under the Investment Agreement, if any shares of Class A Common Stock remain
outstanding, the Board of Directors may not redeem the rights to be issued under
a proposed stockholders rights plan of the Company without the approval of the
holders of at least 75% in voting power of the Company's outstanding voting
securities (including the Class A Common Stock), (v) repeal Section 9 of the
Restated Certificate (which imposes special requirements for business
combinations with certain significant stockholders) and Section 10 of the
Restated Certificate (which restricts the voting power of certain stockholders
who own more than 10% of the outstanding voting securities of the Company), (vi)
prohibit the holders of Common Stock from acting by written consent without a
meeting, and (vii) move to the Restated Certificate (from the by-laws of the
Company (the "By-Laws")) and revise certain provisions relating to the removal
of directors (Item No. 2); and (c) approve the adoption by the Board of
Directors of a stockholders rights plan (Item No. 3). See "INVESTMENT
PROPOSALS."
1
<PAGE> 9
BACKGROUND OF AND REASONS FOR THE INVESTMENT PROPOSALS
In recent years, the Company's principal strategic objectives have been to
(i) grow market share profitably, (ii) expand globally through strategic
ventures and alliances and (iii) explore new competitive opportunities in local
access and in emerging telecommunications markets such as wireless, cable,
multimedia, information services and other value-added services. The Company
believes that the profitable development and deployment of a global intelligent
network that will permit seamless voice and data communications services between
two or more countries will require a significant market presence in more than
one area of the world, the rapid development of such a network and access to the
technology and capital necessary to develop and build such a network. Similarly,
any significant expansion into local access or value-added services will likely
require significant expenditures by the Company and will be facilitated to the
extent that the Company has the financial resources to respond quickly to
opportunities.
For several years the Company has been increasing its global presence and
products through correspondent relationships and by entering into alliances
with, or investments in, other telecommunications companies in various parts of
the world. The Company, while pursuing its long term global strategy, has been
willing to consider a substantial equity investment in the Company by a
prospective global telecommunications partner that otherwise satisfies the
Company's long term strategic objectives. The Company has been willing to
consider such an investment due to its belief that the increase in the Company's
available cash and access to capital that would result from such an investment
would increase the ability of the Company to make the necessary expenditures to
take advantage of strategic opportunities in local access and in value-added
services within the United States that may be available from time to time and to
generally strengthen its competitive position in the telecommunications industry
throughout the Americas. The Company anticipates that in the event that the
investment by BT in the Company that is contemplated by the Investment Proposals
does not occur, the Company will seek additional sources of equity or debt
financing in order to pursue its strategic objectives.
At various times beginning in early 1991, members of senior management of
the Company and BT discussed the possibility of a strategic relationship between
the two companies. During the period that the Company was considering the
possibility of a strategic alliance with BT and until May 1993, the Company also
explored the possibility of various forms of strategic alliances with other
major international telecommunications providers.
On June 2, 1993, the Company and BT entered into a letter of intent (the
"Letter of Intent") contemplating the transactions provided for in the
Investment Agreement, the Joint Venture Agreement (as hereafter defined) and
related documents. In connection with the execution of the Letter of Intent, the
Company issued to BT shares of Series C Convertible Preferred Stock, par value
$.10 per share ("Series C Convertible Preferred Stock"), of the Company for an
aggregate purchase price in cash of approximately $830 million (or $30.20 per
share of Common Stock issuable upon conversion of the Series C Convertible
Preferred Stock). On June 29, 1993, BT exchanged its shares of Series C
Convertible Preferred Stock for shares of Series D Convertible Preferred Stock,
par value $.10 per share (the "Convertible Preferred Stock"), of the Company.
On August 4, 1993, the Company and BT entered into the Investment
Agreement, the Joint Venture Agreement dated August 4, 1993 (as amended through
the date of this Proxy Statement, the "Joint Venture Agreement") and certain
related agreements. See "INVESTMENT PROPOSALS -- Background of and Reasons for
the Investment Proposals."
BOARD OF DIRECTORS' RECOMMENDATIONS
At a meeting on August 4, 1993, the Board of Directors unanimously approved
the Investment Agreement, the Charter Amendment, the Joint Venture Agreement,
the BTNA Agreement (as hereafter defined) and other related agreements and
determined that the transactions provided for in such agreements are in the best
interests of the Company's stockholders. The Board of Directors, in approving
the transactions contemplated by the Investment Proposals, considered a number
of factors, including the following: (a) the potential operational and economic
benefits to the Company from the Joint Venture (as hereafter defined),
2
<PAGE> 10
including the anticipated enhancement of the Company's global presence; (b) the
current business, properties and prospects of the Company and its subsidiaries,
the financial and operational condition of the Company and its subsidiaries and
the long-term strategy of the Company; (c) their belief that a strategic
alliance with BT, including the formation of the Joint Venture, will
significantly enhance the Company's competitive position in the U.S. market; (d)
the substantial increase in the Company's available cash and access to capital
that will occur as a result of BT's investment; (e) the blended price of $32 per
share of Class A Common Stock that would be issued to BT at the Closing (as
hereafter defined), which represents a premium of approximately 23.1% over the
closing market price of the Common Stock on June 1, 1993, the last trading day
before the Company and BT announced the signing of the Letter of Intent; (f) the
terms of the Investment Agreement, the Charter Amendment, the Rights Plan (as
hereafter defined), the Joint Venture Agreement and the other documents relating
to the Investment Proposals and the Joint Venture; (g) the extent of
independence that the Company will retain following the consummation of the
transactions contemplated by the Investment Agreement; (h) the Board of
Directors' belief that the strategic and competitive position of the Company
will be significantly enhanced beyond what could be achieved by the Company
alone or through other available international alliances that the Company could
alternatively pursue; (i) the opinion of Goldman, Sachs & Co. ("Goldman Sachs")
to the effect that BT's investment in the Class A Common Stock pursuant to the
Investment Agreement is at a fair price to the Company (see "INVESTMENT
PROPOSALS -- Opinion of Financial Advisor"); (j) the possible impact of the
transactions contemplated by the Investment Proposals on existing alliances and
other relationships of the Company (see "RELATED TRANSACTIONS -- Stentor;"
"-- Disposition of the Company's Interest in Infonet;" and "AAP, Clear and
Belize"); (k) certain consequences that could result from the transactions
contemplated by the Investment Proposals that are described below under "Certain
Considerations;" (1) the advice of Goldman Sachs that, based upon Goldman Sachs'
understanding of applicable antitrust and regulatory constraints, there are only
a very limited number of potential buyers with adequate financial resources that
could reasonably pursue an acquisition of the Company; (m) that the Closing is
conditioned upon approval by the Company's stockholders of the Investment
Proposals; and (n) certain possible implications of a single large minority
shareholding in the Company. See "INVESTMENT PROPOSALS -- Board of Directors'
Recommendations", " -- Opinion of Financial Advisor" and "-- Certain
Considerations."
OPINION OF FINANCIAL ADVISOR
The Board of Directors retained Goldman Sachs to act as its financial
advisor in connection with the investment by BT, pursuant to the terms of the
Investment Agreement, of approximately $4.3 billion to acquire an approximate
20% equity interest in the Company (after giving effect to the issuance and
conversion of the Convertible Preferred Stock) through the purchase by BT of
Class A Common Stock at a blended price of $32.00 per share (the "Investment").
On August 4, 1993, Goldman Sachs delivered to the Board of Directors its oral
opinion, which was subsequently confirmed in writing as of the date hereof, to
the effect that, as of the respective dates of such opinions and based upon and
subject to certain matters as stated in such opinions, the Investment is at a
fair price to the Company. See "INVESTMENT PROPOSALS -- Board of Directors'
Recommendations" and " -- Opinion of Financial Advisor." A copy of Goldman
Sachs' written opinion dated the date of this Proxy Statement, which sets forth
the assumptions made, matters considered and limits on the review undertaken, is
attached to this Proxy Statement as Appendix IV and should be read carefully by
stockholders in its entirety.
USE OF PROCEEDS
On June 4, 1993 the Company received approximately $830 million in cash in
consideration for the issuance of shares of Series C Convertible Preferred Stock
to BT of which approximately $777 million was initially used to repay
indebtedness of the Company. The Company believes that it has sufficient
borrowing capacity to borrow an amount at least equal to the funds used to repay
such previously outstanding indebtedness and therefore considers such repayment
an alternative to investing such proceeds in short-term investments.
On the date of the initial purchase by BT of shares of Class A Common Stock
under the Investment Agreement (the "Closing"), the Company will receive
approximately $3.5 billion in cash (such proceeds
3
<PAGE> 11
together with the $830 million in cash previously received from BT are referred
to herein as the "Transaction Proceeds") from BT in consideration for the
issuance to BT of shares of Class A Common Stock. The Company anticipates that,
pending the application of the Transaction Proceeds as described below, the
Transaction Proceeds will be invested in short-term interest bearing securities
or, alternatively, used to reduce outstanding borrowings of the Company.
The Transaction Proceeds will be available to the Company for general
corporate purposes and to pursue strategic investments and acquisitions. The
Company does not currently have any commitments or understandings regarding the
use of the Transaction Proceeds. The Company anticipates, however, that it will
principally utilize the Transaction Proceeds (i) to continue to develop the
Company's long distance services; (ii) to pursue the Company's global
development in connection with which the Company expects both to invest at least
$250 million in the Joint Venture during the five years following the Closing
and to apply additional Transaction Proceeds to develop further the Company's
distribution channels outside the United States; and (iii) to pursue
opportunities in local access and in emerging telecommunications markets
including wireless, cable, multimedia, information services and other
value-added services.
There can be no assurance that the Company will be successful in its
efforts to utilize the Transaction Proceeds in a manner that contributes to the
profitable growth of the Company's business or that the Transaction Proceeds
will not be used in such a way as to dilute the per share earnings or equity of
the Company after giving effect to the purchase of shares of Class A Common
Stock by BT. See "INVESTMENT AGREEMENT -- Use of Proceeds."
CERTAIN CONSIDERATIONS
While the Board of Directors is of the opinion that the Investment
Proposals are in the best interests of the Company and its stockholders,
stockholders should consider the following effects in evaluating the Investment
Proposals: (i) certain antitakeover effects on the Company, including the
diminished possibility that the Company may be sold to any person other than BT
even if the Board of Directors were otherwise prepared to authorize the sale of
the Company; (ii) BT's representation on the Board of Directors and consent
rights in respect of certain significant actions by the Company and the
possibility that BT may have interests that diverge or even conflict with those
of the Company; (iii) the redemption provision contained in the Charter
Amendment which would enable the Company to redeem outstanding shares of the
Company's capital stock to the extent necessary to prevent the loss or secure
the renewal or reinstatement of any license or franchise from any governmental
agency held by the Company or any of its subsidiaries, which provision could be
used by the Company to redeem shares of Common Stock held by non-U.S. persons to
the extent necessary to comply with applicable law and could have an adverse
effect on the price of Common Stock; and (iv) dilution of the economic and
voting rights of the existing holders of Common Stock. See "INVESTMENT PROPOSALS
- -- Certain Considerations."
REGULATORY APPROVALS
The Company and BT are generally obligated to make all necessary filings in
connection with the transactions contemplated by the Investment Agreement, the
Joint Venture Agreement and the agreement (the "BTNA Agreement") relating to the
acquisition by the Company of BT North America, Inc. ("BTNA") (collectively, the
"Transactions") under the Communications Act, the Hart-Scott Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and applicable European
Community and U.K. competition laws and to use their best efforts to obtain all
required regulatory approvals. The Company and BT have also filed a voluntary
notification under Section 721 of the Defense Production Act of 1950, as amended
(the "Exon-Florio Amendment"). There can be no assurance that the Company and BT
will obtain in a timely manner all necessary regulatory approvals or other
actions that are required to consummate the Transactions. Furthermore, it is
possible that any one or more of such regulatory approvals or other actions that
have not already been received or taken may be denied or be conditioned on
material modifications being made to the Transactions or the receipt of
undertakings from the Company or BT which either party is unwilling to accept.
Subject to applicable law, if the Company's stockholders approve the Investment
Proposals, the Board of Directors reserves the right to amend the Investment
Agreement, the Joint Venture Agreement or any agreement relating thereto without
further stockholder action and for any reason, including
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<PAGE> 12
in order to obtain receipt of necessary regulatory approvals in a timely manner.
See "INVESTMENT PROPOSALS -- Regulatory Approvals."
THE INVESTMENT AGREEMENT
General
The Company and BT entered into the Investment Agreement on August 4, 1993.
The Board of Directors reserves its right, pursuant to the Investment Agreement,
to amend the provisions of the Investment Agreement in all respects in
accordance with its terms and without stockholder approval before or after
approval of the Investment Proposals by the Company's stockholders.
Purchase and Sale of Class A Common Stock
Pursuant to the terms of the Investment Agreement the Company has agreed,
subject to the terms and conditions set forth therein, to issue to BT at the
Closing shares of Class A Common Stock representing approximately 20% of the
aggregate number of shares of Common Stock and Class A Common Stock outstanding
after giving effect to such issuance. The shares of Class A Common Stock to be
issued to BT in connection with the Closing will be issued at a blended purchase
price of $32 per share and will consist of (i) 106,752,106 shares to be sold to
BT for a cash purchase price of $32.46 per share, (ii) 27,472,976 shares to be
issued to BT in exchange for the shares of Common Stock to be received by BT
upon conversion of its shares of Convertible Preferred Stock (reflecting a
purchase price of $30.20 per share of Class A Common Stock) and (iii) at BT's
option and for a cash purchase price of $32.00 per share, such additional number
of shares that would enable BT to acquire a 20% interest in the Company after
taking into account certain shares issued after August 4, 1993 under employee
benefit plans and programs of the Company. See "INVESTMENT AGREEMENT -- Purchase
and Sale of Class A Common Stock" and "-- Pre-Closing Covenants -- Repurchases."
Terms of Class A Common Stock
Dividends; Voting Rights; Election of Directors. The Class A Common Stock,
which can only be issued to BT and its affiliates, is equivalent on a per share
basis to the existing Common Stock in all respects other than voting rights and
conversion rights. Except with respect to the election of directors and certain
consent rights summarized below, and except as may otherwise be required by law,
the shares of Class A Common Stock will be entitled to one vote per share and
will vote together with the Common Stock as a single class on any matter
submitted to a vote of the holders of Common Stock. The holders of Class A
Common Stock will vote separately as a class for directors and will generally
elect a number of directors (the "Class A Directors") that is roughly
proportionate to the aggregate voting power of the Company's voting securities
represented by the Class A Common Stock. Accordingly, because BT's investment in
the Company will initially represent approximately 20% of the outstanding voting
securities of the Company, BT will initially elect 3 of an expanded 15-member
Board of Directors. See "INVESTMENT AGREEMENT -- Terms of Class A Common Stock
- -- Election of Directors."
Consent Rights on Certain Matters. BT is being issued shares of Class A
Common Stock rather than Common Stock primarily to enable BT to elect directly
its designees to the Board of Directors and to exercise certain consent rights
in its capacity as a stockholder by providing the Class A Common Stock with a
class vote on such matters. The shares of Class A Common Stock are entitled to a
class vote on each of the following matters: (i) any amendment to the Restated
Certificate that would adversely affect the rights of the holders of Class A
Common Stock; (ii) any Business Combination (as hereafter defined) involving the
Company during the first four years following the Closing; (iii) any issuance of
supervoting capital stock of the Company; (iv) the adoption or amendment by the
Company of any stockholders rights plan that would adversely affect BT in
relation to its position upon the Closing; (v) certain issuances of voting
securities of the Company (excluding grants and issuances under employee benefit
plans and programs and certain other issuances) exceeding, after giving effect
to such issuances, 10% of the outstanding voting securities of the Company in
any single or related series of transactions or 15% of the outstanding voting
securities of the Company over a rolling three-year period; (vi) certain
issuances of voting securities of the Company to, and
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<PAGE> 13
certain transactions with, a more-than 5% stockholder of the Company (other than
BT); (vii) any single or related series of acquisitions exceeding 20% of the
Company's market capitalization; (viii) any single or related series of
acquisitions of a non-core business exceeding 5% of the Company's market
capitalization; (ix) the disposition or encumbrance of assets with a fair market
value exceeding 15% of the total fair market value of the Company's assets
(other than a sale of all or substantially all of the assets of the Company);
(x) borrowings that would cause the Company's ratio of consolidated
debt-to-total capitalization to exceed 65%; and (xi) extraordinary cash
dividends or distributions exceeding 5% of the Company's market capitalization.
See "INVESTMENT AGREEMENT -- Terms of Class A Common Stock -- Matters Requiring
Class A Common Stock Consent."
Conversion to Common Stock. Shares of Class A Common Stock will
automatically convert into shares of Common Stock if: (i) such shares are
transferred by BT to any third party (but only with respect to those shares
transferred), (ii) BT's percentage ownership of the Company's voting securities
(as determined in accordance with provisions of the Investment Agreement (the
"Outstanding Interest"), which exclude from the determination of the number of
outstanding voting securities certain securities, including securities issued
pursuant to employee benefit plans and programs of the Company in respect of
which BT has not exercised its equity purchase rights described below under
"INVESTMENT AGREEMENT -- Provisions Relating to the Maintenance of BT's
Proportionate Ownership Interest -- Equity Purchase Rights") is less than 10%
(or 15% if BT has sold in the aggregate voting securities of the Company
representing more than 25% of the largest number of voting securities owned by
BT), (iii) if either the Company or BT no longer holds its interest in the
company through which the Joint Venture will be conducted ("Newco"), subject to
certain exceptions, or (iv) there is any judicial determination that BT has
materially breached the transfer, standstill or voting provisions of the
Investment Agreement or if BT is found to have engaged in certain activities
relating to the core business of the Company in the Americas (subject to certain
exceptions). See "INVESTMENT AGREEMENT -- Terms of Class A Common Stock --
Conversion."
Standstill and Related Provisions
Standstill Period. Under the Investment Agreement, during the ten year
period following the Closing (the "Standstill Period"), BT is prohibited from
acquiring additional equity of the Company if such acquisition would result in
BT beneficially owning more than 20% of the outstanding voting securities of the
Company. The Standstill Period is subject to early termination in certain
circumstances. See "INVESTMENT AGREEMENT -- Standstill and Related Provisions --
Standstill Period."
Post-Standstill Provisions. The Investment Agreement generally provides
that, following the expiration of the Standstill Period, BT, so long as its
Outstanding Interest is at least 10%, may not: (i) take any action that could
result in less than a majority of the directors of the Company being independent
directors, (ii) acquire any equity of the Company if BT would as a result own in
excess of 35% of the outstanding voting securities of the Company (or 30%, if
Section 310(b) of the Communications Act of 1934, as amended (the
"Communications Act"), or any successor thereto ("Section 310(b)") is not in
effect) except, among other exceptions, pursuant to a Business Combination that
has been approved by a majority of the Company's independent directors and a
majority of the Company's stockholders other than BT, or pursuant to a tender or
exchange offer that has been recommended by a majority of the Company's
independent directors and accepted by a majority of stockholders other than BT,
or (iii) engage in certain other transactions with the Company without the
approval of a majority of the independent directors. The post-standstill
provisions described in clauses (i) and (ii) of the preceding sentence terminate
upon the occurrence of specified third party tender or exchange offers for the
capital stock of the Company or stock purchases. See "INVESTMENT AGREEMENT --
Standstill and Related Provisions -- Post-Standstill Provisions."
Transfer Restrictions and Related Provisions
The Investment Agreement contains certain restrictions on BT's right to
transfer equity securities of the Company. During the period ending four years
after Closing, BT will generally be prohibited from transferring any equity
securities of the Company to any person, subject to limited exceptions.
Thereafter, any sale by BT of equity securities of the Company to a third party
would be subject to the right of first refusal procedures
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<PAGE> 14
specified in the Investment Agreement. See "INVESTMENT AGREEMENT -- Transfer
Restrictions" and " -- Right of First Refusal." The Investment Agreement also
contains a mutual covenant to enter into an agreement providing BT certain
registration rights. See "INVESTMENT AGREEMENT -- Transfer Restrictions and
Related Provisions -- Registration Rights."
Provisions Relating to a Change in Control of the Company
Supermajority Stockholder Vote Provision and Consent Right to Business
Combination. The Closing is conditioned on the Restated Certificate being
amended to provide that during the first four years following the Closing, so
long as any shares of Class A Common Stock remain outstanding, the Rights (as
hereafter defined) may not be redeemed by the Board of Directors without the
approval of 75% in voting power of all outstanding voting securities of the
Company (including the Class A Common Stock) voting together as a single class.
Since BT will initially own approximately 20% of the outstanding voting
securities of the Company following the Closing, unless the shares of Class A
Common Stock are converted into Common Stock, stockholder approval of the
redemption of the Rights during the four years following the Closing would be
difficult to obtain without the consent of BT. See "CHARTER AMENDMENT --
Redemption of Rights" and "INVESTMENT PROPOSALS -- Certain Considerations --
Diminished Ability to Sell the Company; Certain Antitakeover Effects -- Interim
Investment Period." Moreover, BT in its capacity as the holder of Class A Common
Stock would be entitled to a consent right with respect to a Business
Combination involving the Company during the first four years following the
Closing. See "INVESTMENT AGREEMENT -- Terms of the Class A Common
Stock -- Matters Requiring Class A Common Stock Consent" and "INVESTMENT
PROPOSALS -- Certain Considerations -- Diminished Ability to Sell the Company;
Certain Antitakeover Effects -- Interim Investment Period."
No Shopping. The Investment Agreement provides that, during the period
ending seven years after the Closing, the Company may not solicit a third party
acquisition of the Company, although the Board of Directors is permitted to,
among other actions, provide information to and engage in negotiations with a
third party who has made an unsolicited proposal if such action is required by
the Board of Directors to discharge its fiduciary duties. In addition, between
the seventh and the tenth anniversaries of the Closing, the Company must provide
BT with 60 days prior notice if the Board of Directors decides to solicit a
third party acquisition of the Company unless such action is taken in response
to an unsolicited acquisition proposal by a third party and in order to
discharge the Board of Directors' fiduciary duty, in which case such notice need
only be provided to BT as soon as practicable. The foregoing provisions will
terminate if the shares of Class A Common Stock are no longer outstanding or if
the Board of Directors determines to pursue a sale of the Company after the
fourth anniversary of the Closing in accordance with certain auction procedures
specified in the Investment Agreement. See "INVESTMENT AGREEMENT -- Provisions
Relating to a Change in Control of the Company -- No Shopping" and "INVESTMENT
PROPOSALS -- Certain Considerations -- Diminished Ability to Sell the Company;
Certain Antitakeover Effects."
Auction Period. The Investment Agreement provides that, except as provided
therein, during the period from the fourth anniversary of the Closing through
the tenth anniversary of the Closing, so long as any shares of Class A Common
Stock remain outstanding, the Board of Directors may not, without the prior
consent of BT, redeem the Rights or approve any Business Combination involving
the Company unless the Board of Directors follows certain auction procedures
specified in the Investment Agreement in connection with an acquisition proposal
for all the outstanding shares of Common Stock (including shares issuable upon
conversion of the shares of Class A Common Stock). Such auction procedures could
require, among other things, that the Company conduct an auction for the sale of
the Company on commercially reasonable terms over a period of no less than seven
months notwithstanding that such procedures may not attract the highest bid for
the Company based upon the facts and circumstances at that time. See "INVESTMENT
AGREEMENT -- Provisions Relating to a Change in Control of the Company --
Business Combinations" and "INVESTMENT PROPOSALS -- Certain Considerations --
Diminished Ability to Sell the Company; Certain Antitakeover Effects." Under
certain circumstances, even if the auction procedures are no longer applicable
due to the conversion of the Class A Common Stock, if the Board of Directors
decides to sell the
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<PAGE> 15
Company it must, among other things, provide BT a reasonable opportunity to
submit an acquisition proposal. See "INVESTMENT AGREEMENT -- Continuance of
Certain Rights."
During negotiations BT sought the auction procedures requirement in order
to provide it with a meaningful opportunity to bid for the Company in light of
the foreign ownership provisions of Section 310(b). If Section 310(b) is
repealed, the auction period need only be 30 business days. Moreover, the Board
of Directors need not continue an auction in connection with a sale of the
Company if, among other things, (i) BT is not prepared to submit an acquisition
proposal that exceeds the consideration that another bidder is prepared to pay
for the Company and certain other conditions are satisfied, or (ii) the
Company's independent directors are advised in writing by counsel that BT will
not obtain FCC approval to acquire the Company and the Company's independent
directors determine that no good faith purpose could reasonably be served by
providing BT with a continued opportunity to seek such approval. The timing and
other requirements of the auction procedures could delay or impede a change in
control of the Company should the Board of Directors seek to pursue a change in
control of the Company. The auction procedures could also discourage certain
third parties from seeking control of the Company on an unsolicited basis. See
"INVESTMENT AGREEMENT -- Provisions Relating to a Change in Control of the
Company -- Business Combinations -- Auction Period" and " -- Auction Procedures"
and "INVESTMENT PROPOSALS -- Certain Considerations -- Diminished Ability to
Sell the Company; Certain Antitakeover Effects -- Auction Period."
Recommendation of Third Party Tender Offer. The Investment Agreement
provides that during the period ending four years after the Closing, the Board
of Directors will not, without the consent of BT, recommend acceptance of any
third party tender offer except to the extent legally required for the discharge
of the Board of Directors' fiduciary duties. The Company has also agreed that,
from the fourth anniversary of the Closing through the tenth anniversary of the
Closing, the Board of Directors will not, without the consent of BT, recommend
acceptance of any third party tender offer except (i) to the extent legally
required for the discharge of the Board of Directors' fiduciary duties, or (ii)
in connection with an acquisition proposal for all the outstanding shares of
Common Stock (including shares issuable upon conversion of the shares of Class A
Common Stock) in respect of which the Company complies with the auction
procedures set forth in the Investment Agreement. The foregoing restrictions do
not apply if the shares of Class A Common Stock are no longer outstanding. See
"INVESTMENT AGREEMENT -- Provisions Relating to a Change in Control of the
Company -- Business Combinations -- Third Party Tender Offers" and "INVESTMENT
PROPOSALS -- Certain Considerations -- Diminished Ability to Sell the Company;
Certain Antitakeover Effects."
Tag-Along Rights. The Investment Agreement requires that the Board of
Directors not approve any transaction that otherwise would require board
approval involving the sale of capital stock of the Company by any stockholder
unless BT is provided the same right to sell in such transaction subject to
certain conditions. See "INVESTMENT AGREEMENT -- Provisions Relating to a Change
in Control of the Company -- Business Combinations -- Tag-Along Rights."
Section 203 of the DGCL. As required by the Investment Agreement, the
Board of Directors has taken appropriate action so that, if the Closing occurs,
the provisions of Section 203 of the Delaware General Corporation Law (the
"DGCL") restricting "business combinations" with "interested stockholders" (each
as defined in Section 203 of the DGCL) will not apply to BT or any person who
was an affiliate of BT as of August 4, 1993. See "INVESTMENT AGREEMENT --
Provisions Relating to a Change in Control of the Company -- Section 203 of the
DGCL."
Provisions Relating to the Maintenance of BT's Proportionate Ownership
Interest
Equity Purchase Rights. Under the Investment Agreement, for so long as the
Outstanding Interest is at least 10%, BT will have the right, subject to certain
restrictions, to maintain its proportionate ownership of the Company's voting
securities through the exercise of certain purchase rights in respect of new
issuances of voting securities of the Company and options, warrants and other
securities convertible into or exchangeable for such voting securities. See
"INVESTMENT AGREEMENT -- Provisions Relating to the Maintenance of BT's
Proportionate Ownership Interest -- Equity Purchase Rights."
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<PAGE> 16
Foreign Ownership and FCC Matters. The Investment Agreement would
significantly restrict the ability of the Company to issue stock to non-U.S.
persons for so long as BT's Outstanding Interest is at least 10% and Section
310(b) remains in effect. Furthermore, the Closing is conditioned on the
adoption of a provision in the Restated Certificate that would enable the
Company to redeem shares of the Company's stock from non-U.S. persons to the
extent necessary to comply with Section 310(b). See "INVESTMENT AGREEMENT --
Provisions Relating to the Maintenance of BT's Proportionate Interest --
Limitation on Issuance of Stock to Non-U.S. Persons or Entities; Redemption of
Stock Held by Non-U.S. Persons or Entities"; "CHARTER AMENDMENT -- Redemption
Provision; Possible Redemption of Shares held by Non-U.S. Persons" and
"INVESTMENT PROPOSALS -- Certain Considerations -- Redemption Provision."
Board Representation and Voting Provisions
Board Representation and Related Rights. As long as BT holds shares of
Class A Common Stock, BT will be entitled to elect a number of directors of the
Company that is roughly proportionate to the aggregate voting power of the
Company's voting securities represented by the Class A Common Stock. In
addition, the Investment Agreement provides, subject to termination under
certain circumstances, that so long as BT's Outstanding Interest is at least 10%
a majority of the Board of Directors must consist of independent directors. If
there are no longer any shares of Class A Common Stock outstanding, the Board of
Directors will remain obligated under the Investment Agreement, subject to
certain exceptions, to nominate for election to the Board of Directors a number
of BT designees roughly equal to BT's proportionate ownership of voting
securities of the Company. See "INVESTMENT AGREEMENT -- Board Representation and
Voting Provisions -- Board of Directors."
Voting of Shares Held by BT. As noted, the Class A Common Stock is voted
directly for the Class A Directors. If no shares of Class A Common Stock are
outstanding, BT is generally required to vote its securities of the Company
cumulatively in favor of its designees to the Board of Directors or, if BT is
not entitled to designate a nominee for director, equally among the nominees
proposed by the Board of Directors. Other than in connection with the election
of directors, matters on which the Class A Common Stock is entitled to a class
vote and business combinations proposed by BT, BT is required, subject to
certain exceptions, to vote its securities of the Company, at the option of the
Company, either (x) in the same proportion as the securities owned by other
stockholders of the Company are voted on the applicable matter or (y) at BT's
discretion. See "INVESTMENT AGREEMENT -- Board Representation and Voting
Provisions -- Voting of Shares by BT."
Cumulative Voting. BT has agreed that in the event that a proposal is
presented to the stockholders of the Company to amend the Restated Certificate
to eliminate cumulative voting for the election of directors of the Company, BT
and its affiliates will vote all Voting Securities owned by them on such matter
in favor of such proposal provided that a majority of the outstanding Voting
Securities owned by stockholders other than BT and its affiliates are voted in
favor of such proposal. If cumulative voting for the election of directors were
to be eliminated and no shares of Class A Common Stock were outstanding, and
certain other conditions were satisfied, BT would be required to cast all of the
votes it is entitled to cast in any election of directors of the Company in
favor of the nominees to the Board of Directors nominated by the Board of
Directors. See "INVESTMENT AGREEMENT -- Board Representation and Voting
Provisions -- Cumulative Voting."
Release of Certain Rights and Obligations
If, pursuant to certain arbitration procedures specified in the Investment
Agreement, the Company is found to have engaged in certain activities relating
to the core business of BT outside the Americas, then, subject to certain
exceptions, BT will no longer be subject to the standstill, voting and stock
transfer provisions of the Investment Agreement although BT will remain subject
to the post-standstill provisions. See "INVESTMENT AGREEMENT -- Release of
Rights and Obligations -- Loss of Company Rights." Similarly, if, pursuant to
certain arbitration procedures specified in the Investment Agreement, BT is
found to have engaged in certain activities relating to the core business of the
Company in the Americas, then, subject to certain exceptions, the Class A Common
Stock will automatically convert into Common Stock resulting in a related loss
of rights of BT including its consent rights and its right to designate nominees
for election to the
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<PAGE> 17
Board of Directors. See "INVESTMENT AGREEMENT -- Release of Rights and
Obligations -- Loss of BT Rights."
By-Law Amendments
The Investment Agreement provides for the adoption by the Board of
Directors, effective as of the Closing, of certain amendments to the By-Laws
(the "By-Law Amendments"). See "THE INVESTMENT AGREEMENT -- By-Law Amendments."
Pre-Closing Covenants
Under the Investment Agreement, the Company has generally agreed that prior
to the Closing it will (i) provide BT with reasonable access to such financial,
operating and other information as BT may reasonably request, (ii) conduct its
business in the ordinary and normal course, (iii) not solicit or encourage
acquisition proposals for the Company, (iv) allow an observer designated by BT
to attend meetings of the Board of Directors, (v) not issue derivative
securities (with certain exceptions) convertible into or exercisable for in
excess of 59,845,453 shares of Common Stock and (vi) if shares of Common Stock
are issued during such period other than pursuant to certain employee benefit
plans or programs of the Company, use its best efforts to repurchase an
equivalent number of shares of Common Stock following the Closing, subject to
certain limitations. See "INVESTMENT AGREEMENT -- Pre-Closing Covenants."
Conditions to Closing
The obligations of the Company and BT to effect the Closing are subject to
the satisfaction of various conditions which include, in addition to certain
other customary closing conditions, (i) the approval of the Investment Proposals
by the Company's stockholders; (ii) the receipt of certain specified
governmental approvals, including (A) receipt of a written order or other
determination from the staff of the FCC or the FCC itself either (x) approving
the consummation of the transactions contemplated by the Investment Agreement or
(y) stating that no such approval is required; (B) expiration or termination of
all applicable waiting periods under the HSR Act; and (C) termination of review
and investigation under the Exon-Florio Amendment without any action authorized
under the Exon-Florio Amendment being commenced by the President; (iii) the
satisfaction of all conditions precedent to the closing of the Joint Venture
Agreement and the BTNA Agreement, including receipt of certain required
regulatory approvals; (iv) the adoption of the Rights Plan by the Company; (v)
that the total number of shares that BT is entitled to purchase in connection
with the Closing represents at least 19% of the total number of outstanding
shares of Common Stock and Class A Common Stock (collectively, the "Common
Shares") after giving effect to the purchase of the shares of Class A Common
Stock by BT at the Closing; and (vi) that the aggregate percentage of the
outstanding capital stock of the Company owned of record or voted by Non-U.S.
Persons or Entities (including BT) immediately following the Closing does not
exceed 1/10 of 1% less than the maximum holding permitted under Section 310(b)
or any FCC order received by the Company. There can be no assurance that each of
the conditions to the Closing will be satisfied prior to August 4, 1994, at
which time each of the Company and BT will, subject to the terms of the
Investment Agreement, have the right to terminate the Investment Agreement. See
"INVESTMENT AGREEMENT -- Conditions to Closing."
CHARTER AMENDMENT
The Closing is conditioned on stockholder approval of the Charter Amendment
and the filing of the Charter Amendment with the Secretary of State of the State
of Delaware. The Charter Amendment will increase the authorized capital stock of
the Company from 820,000,000 shares to 2,550,000,000 shares and establish the
terms of the Class A Common Stock, which include class voting rights to approve
specified transactions and matters and the right of the holders of Class A
Common Stock to elect a number of directors of the Company (see "INVESTMENT
AGREEMENT -- Terms of the Class A Common Stock"). The Charter Amendment will
also permit the redemption of shares of the Company's stock to the extent
necessary to prevent the loss or secure the renewal or reinstatement of any
license or franchise from any governmental agency held by the Company or any of
its subsidiaries. In addition, the Charter Amendment will, until the
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fourth anniversary of the Closing, prohibit redemption of the rights issued
under the Rights Plan without the vote of a majority of the Board of Directors
and the holders of at least 75% in voting power of the Company's voting
securities. The Charter Amendment will also, among other things, (i) repeal
Section 9 of the Restated Certificate (which imposes special requirements on
business combinations with certain significant stockholders) and Section 10 of
the Restated Certificate (which restricts the voting power of certain
stockholders who own more than 10% of the outstanding voting securities of the
Company), (ii) eliminate the ability of the holders of Common Stock to act by
written consent and (iii) move to the Restated Certificate (from the By-Laws)
and revise certain provisions relating to removal of directors. The Board of
Directors reserves the right, at any time prior to the filing of the Charter
Amendment with the Secretary of State of the State of Delaware, to abandon such
proposed amendment without further action by the stockholders, notwithstanding
authorization of the Charter Amendment by the stockholders of the Company. See
"CHARTER AMENDMENT."
RIGHTS PLAN
The Closing is conditioned upon the Board of Directors adopting, subject to
stockholder approval, a stockholders rights plan (the "Rights Plan") in
accordance with the terms of a Rights Agreement substantially in the form
attached hereto as Appendix III. If the stockholders approve the adoption of the
Rights Plan, the Board of Directors intends to adopt the Rights Plan, although
the effectiveness of the adoption of the Rights Plan will be conditioned on the
Closing having occurred. The Rights Plan contemplates that on the date of the
Closing (the "Closing Date") the Company will declare a dividend of one
preferred stock purchase right (a "Right") for each Common Share outstanding and
that, until the Rights become exercisable, Rights will be attached to all future
issuances of Common Shares. Each Right will entitle the registered holder to
purchase from the Company a fractional amount of Series E Preferred Stock, par
value $.10 per share ("Series E Preferred Stock"), of the Company at a price to
be determined by the Board of Directors at the time of adoption of the Rights
Plan and that is expected to be two to four times the then current market value
of the Common Stock. The Rights will not be exercisable until the earlier of (i)
the tenth day following the public announcement that a person or group (an
"Acquiring Person") has acquired 10% or more of the outstanding Common Shares
(more than 20% in the case of BT) or (ii) the tenth day (or a later date if
determined by timely action of the Board of Directors) following the
commencement or announcement of an intention to make a tender offer or exchange
offer the consummation of which would result in a person or group owning 10% or
more of the outstanding Common Shares (more than 20% in the case of BT). The
Rights will expire ten years after the Closing Date (the "Final Expiration
Date"), unless the Final Expiration Date is extended or unless the Rights are
earlier redeemed or exchanged by the Company. BT will not be deemed an Acquiring
Person solely by virtue of its ownership of the shares of Class A Common Stock
it acquires pursuant to the Investment Agreement or any shares of Common Stock
issued upon conversion of such shares of Class A Common Stock. See "STOCKHOLDERS
RIGHTS PLAN."
In the event that any person or group becomes an Acquiring Person, each
holder of a Right (other than Rights beneficially owned by the Acquiring Person,
which will thereupon become void), will thereafter have the right to receive
upon exercise of a Right that number of shares of Common Stock having a market
value of two times the exercise price of the Right. In the event that, after a
person or group has become an Acquiring Person, the Company is acquired in a
merger or other business combination or 50% or more of its assets or earning
power are sold, each holder of a Right will thereafter have the right to
receive, upon the exercise thereof at the exercise price of the Right, that
number of shares of common stock of the acquiring company which at the time of
such transaction have a market value of two times the exercise price of the
Right. At any time prior to the time an Acquiring Person becomes such, the Board
of Directors may redeem the Rights in whole, but not in part, at a price of $.01
per Right, subject to the requirement set forth in the Charter Amendment that,
so long as any shares of Class A Common Stock remain outstanding, during the
four years following the Closing such redemption will also require the
affirmative vote of the holders of 75% in voting power of all outstanding voting
securities of the Company. In addition, during the six years thereafter,
pursuant to the terms of the Investment Agreement, the Company may only redeem
the Rights if certain auction procedures set forth in the Investment Agreement
are followed. See "STOCKHOLDERS RIGHTS PLAN." The overall effect of the Rights
Plan may be to render more difficult or discourage certain attempts to acquire
the Company even if such acquisition would otherwise be accepted by a majority
of the Company's
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<PAGE> 19
stockholders. See "STOCKHOLDERS RIGHTS PLAN -- Reasons for and Effects of the
Rights Plan" and "INVESTMENT PROPOSALS -- Certain Considerations -- Diminished
Ability to sell the Company; Certain Antitakeover Effects."
RELATED TRANSACTIONS
The Joint Venture
General. As summarized above under "SUMMARY -- Background of and Reasons
for the Investment Proposals," the transactions contemplated by the Investment
Proposals form part of a strategic alliance between the Company and BT. A
principal component of such alliance is the formation by the Company and BT of a
joint venture (the "Joint Venture") to provide enhanced and value-added
telecommunications services between two or more countries and international
telecommunications-related outsourcing. The terms of the Joint Venture are
contained in the Joint Venture Agreement, among BT, Moorgate (Twelve) Limited, a
wholly-owned subsidiary of BT, the Company, MCI Ventures Corporation, a
wholly-owned subsidiary of the Company, and Newco (which is currently a
wholly-owned subsidiary of BT), and certain related agreements. The Closing
under the Investment Agreement is conditioned on the simultaneous closing of the
transactions contemplated by the Joint Venture Agreement (the "Joint Venture
Closing") and the Joint Venture Closing is conditioned on the simultaneous
Closing under the Investment Agreement. The terms of the Joint Venture can be
modified (including to provide for one or more additional participants in the
Joint Venture or one or more additional distributors of Newco's services) by
agreement of the Company, BT and Newco.
Ownership Interests; Board Representation; Business of the Newco
Group. The operations of the Joint Venture will be conducted through Newco and
its subsidiaries (the "Newco Group"). BT and the Company will initially own
75.1% and 24.9%, respectively, of the outstanding equity of Newco. Newco's Board
of Directors (the "Newco Board") will consist of eight members, six of whom
shall be elected by BT and two of whom shall be elected by the Company. Newco
will build and manage a global telecommunications network and the business of
the Newco Group will consist of the provision of Global Products to Newco's
distributors. Newco will initially appoint MCI Telecommunications Corporation, a
wholly-owned subsidiary of the Company ("MCI Telecommunications"), as its
exclusive distributor in the Americas and BT as Newco's exclusive distributor in
the rest of the world. "Global Products" include any current or future
International Enhanced or Value-Added Services and international
telecommunications-related outsourcings. "International Enhanced and Value-Added
Services" include any international telecommunications services that are
permitted by applicable regulations to be offered between two or more countries
by a single group (i.e., a corporation and its subsidiaries) and which
regulations permit to be managed end to end, but exclude: (i) voice
international simple resale, (ii) international direct distance dialing provided
on a correspondent basis, (iii) the provision of international private leased
circuits and (iv) any services which for regulatory reasons must be offered on a
correspondent basis. See "RELATED TRANSACTIONS -- The Joint Venture -- Corporate
Structure; Ownership Interests; Board Representation" and " -- Business of the
Newco Group." Newco will operate in a highly competitive and regulated
environment and there is no assurance that the Joint Venture will achieve the
current objectives of the Company or that the business of the Newco Group will
not materially change.
Management of and Control of Newco. Because BT will be entitled to appoint
a majority of the Newco Board, BT will generally have the ability to control
Newco, subject to certain significant consent rights of the Company and to a
requirement that the direction and management of Newco be carried out in a
manner which is consistent with Newco's then current five year business plan
("Business Plan") and annual operating plan and budget ("AOPB"). See "RELATED
TRANSACTIONS -- The Joint Venture -- Management and Control of Newco."
Consent and Related Rights. Subject to the terms of the Joint Venture
Agreement, each of the Company and BT will have specified consent rights with
respect to certain significant actions by the Newco Group, including the
adoption of Business Plans and AOPBs. See "RELATED TRANSACTIONS -- The Joint
Venture -- Consent and Related Rights."
Capitalization/Funding. At the Joint Venture Closing, the Company will
purchase its 24.9% equity interest in Newco for approximately L49.7 million in
cash, subject to adjustment based on the net asset value
12
<PAGE> 20
as of the Joint Venture Closing of certain assets that are being transferred to
Newco. After the Joint Venture Closing, each of BT and the Company will have
ongoing funding obligations as set forth in the then current AOPB and Business
Plan and all such funding by the Company and BT shall be made in proportion to
their respective ownership interests. The Company and BT currently expect to
invest in Newco an aggregate
of approximately $1 billion (including their initial capital contributions)
during the period ending
five years after the Joint Venture Closing. See "RELATED TRANSACTIONS -- The
Joint Venture -- Capitalization/Funding."
Non-Compete. For so long as BT or the Company holds its interest in Newco
such party is prohibited from providing Global Products other than through
Newco, subject to certain limited exceptions. See "RELATED TRANSACTIONS -- The
Joint Venture -- Non-Compete".
Transfer Restrictions. Each of the Company and BT is prohibited from
transferring its interest in Newco to any third party during an initial
five-year period following the Joint Venture Closing. Thereafter, transfers will
be permitted only under very limited circumstances and will be subject to a
right of first refusal of the other party. See "RELATED TRANSACTIONS -- The
Joint Venture -- Transfer Restrictions."
Termination of the Joint Venture. BT and the Company have only limited
rights to terminate the Joint Venture, particularly during the first five years
after the Joint Venture Closing. Generally, if either BT or the Company
exercises its right to terminate the Joint Venture, then BT will be entitled to
purchase the Company's interest in Newco at a price equal to the fair market
value thereof (determined in a manner set forth in the Joint Venture Agreement).
Among the circumstances under which BT can purchase the Company's interest in
Newco is if any person or group (other than BT) acquires 50% or more of the
outstanding voting securities of the Company. The ability of BT to purchase the
Company's interest in Newco upon a change in control of the Company and the
attendant loss of MCI Telecommunications' right to distribute Newco services
could have certain antitakeover effects on the Company. See "RELATED
TRANSACTIONS -- The Joint Venture -- Termination of the Joint Venture" and "THE
INVESTMENT PROPOSALS -- Certain Considerations -- Diminished Ability to Sell the
Company; Certain Antitakeover Effects -- Newco Change of Control Provision."
Conditions to Closing. The obligations of the Company and BT to effect the
Joint Venture Closing are subject to various conditions which include, in
addition to certain other customary closing conditions, receipt of requisite
European Community and U.K. regulatory clearances. See "RELATED TRANSACTIONS --
The Joint Venture -- Conditions to Closing."
Distribution Agreements. The Joint Venture Agreement provides that at the
time of the Joint Venture Closing, each of MCI Telecommunications and BT (the
term "Distributor" is used herein to refer to each of MCI Telecommunications and
BT in their roles as distributors of Newco services) will enter into
distribution agreements (the "Distribution Agreements") with Newco. Each of the
Distributors and their respective affiliates will generally be obligated to
obtain from Newco all of their requirements for Global Products. A Distribution
Agreement will terminate upon notice by either party if (i) certain bankruptcy
or insolvency related events occur in relation to the other party or (ii) the
respective Distributor or its affiliate no longer holds its interest in Newco,
subject to limited transition provisions. See "RELATED TRANSACTIONS -- The Joint
Venture -- Distribution Agreements."
Intellectual Property Agreement. At the time of the Joint Venture Closing,
the Company, MCI Telecommunications, BT and Newco will enter into an
intellectual property agreement (the "Intellectual Property Agreement")
governing the licensing of technology relating to Newco and certain other
matters. In consideration for the use of the Company's and BT's technology,
Newco will pay in arrears an aggregate annual royalty to BT and the Company of
5% of Newco's annual revenues. The annual royalty will be allocated between the
Company and BT in accordance with certain principles which are generally based
on the relative values of the rights contributed by the Company and BT. Newco
will create additional technology principally through development contracts with
the Company and BT, but also, from time to time, with third parties. Newco will
own the technology that it sponsors unless otherwise agreed by Newco and the
party developing such technology. Each of the Company and BT will have the right
to receive a non-exclusive and non-transferrable license to use the technology
developed by Newco alone or in conjunction with the other Distributor both for
Newco-related and domestic purposes. The Company and BT will pay Newco royalties
on
13
<PAGE> 21
the Newco-sponsored technology in amounts designed to recover Newco's
development cost plus a reasonable rate of return over a reasonable useful life
for the technology. On termination of the Joint Venture, the licenses granted to
the Distributors continue in force but become worldwide and unrestricted as to
territory, use and sublicensing. See "RELATED TRANSACTIONS -- The Joint Venture
- -- Intellectual Property Agreement."
Services Agreements. Pursuant to services agreements with Newco (the
"Services Agreements"), each of MCI Telecommunications and BT will be appointed
a non-exclusive supplier to Newco of telecommunications and other products and
services. Under the terms of the Joint Venture Agreement, Newco will purchase
all products, services and facilities from BT or the Company or their respective
affiliates to the extent such party can provide such products, services or
facilities on terms at least as favorable to Newco as would be obtainable in an
arm's length transaction from a third party supplier. See "RELATED TRANSACTIONS
- -- The Joint Venture -- Services."
Sale by BT to Newco of Syncordia and Certain Other Assets. BT and Newco
will enter into agreements providing for the purchase by Newco of the assets and
business of Syncordia, BT's outsourcing business, and certain other assets of
BT. Such transfers will occur prior to the Closing and will therefore permit
Newco to commence operations while still a wholly-owned subsidiary of BT. See
"RELATED TRANSACTIONS -- The Joint Venture -- Sale by BT to Newco of Syncordia
and Certain Other Assets."
Acquisition by the Company of the Business of BT North America
The Company and BT have entered into purchase agreements providing for the
acquisition by wholly owned subsidiaries of the Company of the assets of, and
businesses conducted by, BTNA and BT Canada Inc. ("BT Canada") for an aggregate
consideration of $125 million in cash, subject to certain purchase price
adjustments. The business of BTNA and BT Canada consists primarily of the
provision of value-added data network services. The purchase agreements contain
customary representations and warranties relating to such assets and businesses
and BT has, subject to certain limitations, agreed to indemnify the Company in
respect of any breach of such representations and warranties and certain
liabilities relating to the assets or businesses of BTNA and BT Canada. The
purchase of BTNA and BT Canada will occur as promptly as practicable and is
expected to occur prior to the Closing. See "RELATED TRANSACTIONS -- Acquisition
of BT North America."
Stentor
Certain provisions of the Joint Venture relating to technology development
and the distribution of Newco services conflict with certain terms of the
Company's alliance with the Canadian telephone companies that comprise the
Stentor alliance. The Company is currently negotiating with such Canadian
telephone companies to agree on terms for such telephone companies to become
sub-distributors of Newco services in Canada and for the further development and
licensing of technology. The Company expects to enter into satisfactory
arrangements with the Canadian telephone companies to eliminate the conflict of
terms. There is no assurance, however, that the Company's negotiations will be
successful. The Company believes that the failure to reach an acceptable
agreement with the Canadian telephone companies would not have a material
adverse effect on the financial condition or results of the Company. See
"RELATED TRANSACTIONS -- Stentor."
Disposition of the Company's Interest in Infonet
The Company has sold its 25 percent interest in Infonet Services
Corporation ("Infonet"). The divestiture of the Company's interest in Infonet
was a condition precedent to the Joint Venture Closing. See "RELATED
TRANSACTIONS -- Disposition of the Company's Interest in Infonet."
McCaw Indemnity Agreement
BT and the Company have entered into an indemnity agreement pursuant to
which BT has agreed, subject to the terms and conditions of such indemnity
agreement, to indemnify the Company against certain damages resulting from any
action by McCaw Cellular Communications Inc. ("McCaw") against the Company which
may arise from certain agreements between BT and McCaw relating to BT's indirect
14
<PAGE> 22
ownership of shares of capital stock of McCaw. See "RELATED TRANSACTIONS --
Indemnity Agreements."
AAP, Clear and Belize
Pursuant to the Investment Agreement each of the Company and BT are
negotiating to enter into agreements on terms mutually acceptable providing for
(i) the purchase by BT of the Company's minority equity investments in AAP
Telecommunications Pty. Ltd. and Clear Communications Limited and (ii) the
purchase by the Company of BT's minority equity investment in Belize
Telecommunications Limited. See "RELATED TRANSACTIONS -- AAP, Clear and Belize."
PRICE RANGE OF COMMON STOCK
The following table sets forth, for the periods indicated, the range of
high and low sales prices of the Common Stock on the NASDAQ Stock Exchange,
adjusted for prior periods to reflect the one for one stock dividend effected on
July 9, 1993:
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------------------------------------------------------- ---- ---
<S> <C> <C>
1991
First Quarter.......................................... 14 1/6 8 15/16
Second Quarter......................................... 15 15/16 12 11/16
Third Quarter.......................................... 15 1/16 13 1/4
Fourth Quarter......................................... 15 3/8 12 5/8
1992
First Quarter.......................................... 18 1/16 14 3/4
Second Quarter......................................... 17 3/8 14 3/4
Third Quarter.......................................... 18 1/8 15 3/8
Fourth Quarter......................................... 20 7/16 16 13/16
1993
First Quarter.......................................... 23 18 15/16
Second Quarter......................................... 28 15/16 21 7/16
Third Quarter.......................................... 29 7/8 26 1/4
Fourth Quarter.........................................
1994
First Quarter through January..........................
Closing Price on:
June 1, 1993 (1)....................................... 26 3/8
June 2, 1993 (2)....................................... 27 3/8
August 4, 1993 (3)..................................... 28 5/8
August 5, 1993 (4)..................................... 29
</TABLE>
- ---------------
(1) The last trading day before the Company and BT publicly announced the
signing of the Letter of Intent.
(2) The day the Company and BT publicly announced the signing of the Letter
of Intent.
(3) The last trading day before the Company and BT publicly announced the
signing of the Investment Agreement and the Joint Venture Agreement.
(4) The day the Company and BT publicly announced the signing of the
Investment Agreement and the Joint Venture Agreement.
Holders of Common Stock are entitled to receive such dividends as may be
lawfully declared by the Board of Directors of the Company. Semi-annual
dividends of $.025 per share (as adjusted to reflect the one for one stock
dividend effected on July 9, 1993) were paid by the Company in June and December
of 1991 and 1992 and in July and December of 1993.
15
<PAGE> 23
MCI COMMUNICATIONS CORPORATION
1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
------------------------------
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
MARCH , 1994
------------------------------
INTRODUCTION
PROXY SOLICITATION
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the board of directors (the "Board of Directors") of MCI
COMMUNICATIONS CORPORATION, a Delaware corporation (the "Company"), for use at
the special meeting of stockholders of the Company to be held on March 11, 1994,
at 10:00 a.m., local time, at The Four Seasons Hotel, 2800 Pennsylvania Avenue,
N.W., Washington, D.C., or at any adjournment thereof (the "Special Meeting"),
for the purposes set forth in the foregoing Notice of Special Meeting of
Stockholders. This Proxy Statement and a form of proxy are first being mailed on
or about , 1994, to stockholders of record (other than holders of the
Series D Convertible Preferred Stock, par value $.10 per share (the "Convertible
Preferred Stock"), of the Company) at the close of business on January 24, 1994,
the record date for the meeting.
The cost of soliciting proxies will be borne by the Company and will
consist of expenses of printing, postage and handling, including the expenses of
brokerage houses, custodians, nominees and fiduciaries in forwarding documents
to beneficial owners. Solicitation may also be made by the Company's officers,
directors or regular employees personally or by telephone. The firm of Georgeson
& Co. Inc., New York, New York, has been retained to assist in the solicitation
of proxies for the Special Meeting at an estimated fee of $22,500 plus direct
out-of-pocket expenses.
The principal executive offices of the Company are located at 1801
Pennsylvania Avenue, N.W., Washington, D.C. 20006.
VOTING AT THE SPECIAL MEETING
Vote Required. The three investment proposals set forth in the foregoing
Notice of Special Meeting of Stockholders (the "Investment Proposals") are being
submitted to the stockholders pursuant to a condition of the Investment
Agreement, dated as of August 4, 1993 (as amended from time to time, the
"Investment Agreement"), between the Company and British Telecommunications plc
("BT"), that such matters be approved by the stockholders of the Company. In
addition, under the Delaware General Corporation Law (the "DGCL"), the adoption
of the amendments to the Restated Certificate of Incorporation of the Company
(the "Restated Certificate") as proposed in the Investment Proposals (the
"Charter Amendment") requires the affirmative vote of a majority of the votes
entitled to be cast by the holders of all of the outstanding shares of common
stock, par value $.10 per share (the "Common Stock"), of the Company.
The presence, in person or by properly executed proxy, of the holders of
shares entitled to cast a majority of the votes entitled to be cast by the
holders of all outstanding shares of the Common Stock is necessary to constitute
a quorum. Shares of Common Stock represented by a properly signed, dated and
returned proxy will be treated as present at the meeting for purposes of
determining a quorum, without regard to whether the proxy is marked as casting a
vote or abstaining. Proxies relating to "street name" shares that are voted by
brokers will be counted as shares present for purposes of determining the
presence of a quorum, but will not be treated as shares having voted at the
Special Meeting as to any proposal as to which authority to vote is withheld by
the broker. The affirmative vote of a majority of the votes entitled to be cast
by the holders of all
16
<PAGE> 24
the outstanding shares of Common Stock is required to approve the Investment
Proposals. Accordingly, abstentions and broker non-votes will have the same
effect as votes against the Investment Proposals. THE APPROVAL OF EACH
INVESTMENT PROPOSAL IS CONTINGENT ON THE APPROVAL OF ALL INVESTMENT PROPOSALS.
UNLESS ALL INVESTMENT PROPOSALS ARE APPROVED BY THE STOCKHOLDERS AT THE MEETING,
NONE WILL BE EFFECTED BY THE COMPANY.
Record Date; Voting Rights. Stockholders of record at the close of
business on January 24, 1994 (the "Record Date") (other than holders of the
Convertible Preferred Stock) are entitled to vote at the Special Meeting or any
adjournment thereof. As of the close of business on the Record Date, there were
shares of Common Stock outstanding and entitled to vote at the
Special Meeting. The holders of Common Stock vote as a single class with regard
to all matters to be acted upon at the Special Meeting. On all of the Investment
Proposals each stockholder, other than any stockholder who beneficially owned in
excess of 10% of the outstanding shares of Common Stock on the Record Date, may
cast one vote for each share of Common Stock entitled to be voted. Any holder
who beneficially owned in excess of 10% of the outstanding shares of Common
Stock on the Record Date is entitled to only one hundredth (1/100) of a vote for
each share beneficially owned on the Record Date in excess of 10%, and is, under
any circumstances, entitled to cast a maximum of 15% of all votes entitled to be
cast at the Special Meeting. Based on the Company's understanding that no holder
beneficially owned in excess of 10% of the outstanding shares of Common Stock on
the Record Date (see "Beneficial Security Ownership" below), the record holders
of the Common Stock will be entitled to cast an aggregate of votes. The
Company's directors and executive officers (who currently hold shares of Common
Stock representing less than 1% of the outstanding Common Stock) have indicated
that they intend to vote in favor of the Investment Proposals.
Stockholders are not entitled to appraisal rights in respect of the
Investment Proposals.
REVOCABILITY OF PROXIES
Shares of the Company's Common Stock represented by properly executed
proxies received prior to or at the Special Meeting, unless such proxies have
been revoked, will be voted in accordance with the instructions indicated on the
proxies. If no instructions are indicated on a properly executed proxy, the
shares will be voted FOR the Investment Proposals.
Any proxy given pursuant to this solicitation or otherwise may be revoked
by the person giving it any time before it is voted by delivering to the
Secretary of the Company, at 1801 Pennsylvania Avenue, N.W., Washington, D.C.
20006, on or before the business day prior to the Special Meeting or at the
Special Meeting itself, a subsequent written notice of revocation or subsequent
proxy relating to the same shares or by attending the Special Meeting and voting
in person. Attendance at the Special Meeting will not in itself constitute the
revocation of a proxy.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Bert C. Roberts, Jr., Chairman of the Board of Directors and Chief
Executive Officer of the Company, has been invited to join the Board of
Directors of BT following the Closing (as hereafter defined). The Company
anticipates that the invitation for Mr. Roberts to join the Board of Directors
of BT will be withdrawn if the stockholders of the Company do not approve the
Investment Proposals or if the Closing does not occur for any other reason. Also
see "INVESTMENT PROPOSALS--Certain Considerations--Diminished Ability to Sell
the Company; Certain Antitakeover Effects."
17
<PAGE> 25
BENEFICIAL SECURITY OWNERSHIP
The following table sets forth the number of shares of Common Stock
beneficially owned by all directors and executive officers of the Company as of
September 30, 1993. Unless indicated otherwise by footnote, the owner exercises
sole voting and investment power over the securities (other than unissued
securities, the ownership of which has been imputed to such owner).
<TABLE>
<CAPTION>
AMOUNT
AND
NATURE OF
BENEFICIAL
OWNERSHIP
OF COMMON
OWNER STOCK (1)
- -------------------------------------------------------------------------------- ---------
<S> <C>
DIRECTORS
Clifford L. Alexander, Jr..................................................... 30,000(2)
Judith C. Areen............................................................... 10,000
Michael H. Bader.............................................................. 401,274(3)
Richard M. Jones.............................................................. 20,000
Richard T. Liebhaber.......................................................... 485,565(4)
Gordon S. Macklin............................................................. 24,000(5)
Bert C. Roberts, Jr........................................................... 904,055(6)
C.B. Rogers, Jr............................................................... 58,000
Richard B. Sayford............................................................ 20,909(7)
Judith Whittaker.............................................................. 26,000
John R. Worthington........................................................... 559,233(8)
All executive officers and
directors as a group (10)....................................................... 4,733,961(9)
</TABLE>
- ---------------
(1) Unless otherwise noted, each person has sole voting power and sole
investment power with respect to the securities reported, except with respect to
shares of Common Stock allocated to accounts under the Company's Employee Stock
Ownership Plan ("ESOP"), which includes a Retirement Savings Plan, with respect
to which shares such person has sole voting power only. The data also include
shares which each person had the right to acquire upon exercise of stock options
within sixty days of September 30, 1993, and grants of restricted stock awards.
As of September 30, 1993, no individual officer or director of the Company
beneficially owned more than 1% of the outstanding shares of Common Stock.
(2) Mr. Alexander shares voting and investment power with respect to all
these shares.
(3) Mr. Bader shares voting and investment power with respect to all these
shares.
(4) Includes 10,685 shares of Common Stock allocated to Mr. Liebhaber's
account under the ESOP, 369,160 shares of Common Stock he has the right to
acquire pursuant to the exercise of stock options and 60,000 shares of Common
Stock granted pursuant to a restricted stock award. Mr. Liebhaber is also Chief
Strategy and Technology Officer of the Company.
(5) Does not include 3,200 shares of Common Stock owned solely by Mr.
Macklin's wife, in which shares he disclaims beneficial ownership.
(6) Includes 44,567 shares of Common Stock allocated to Mr. Roberts'
account under the ESOP, 497,600 shares of Common Stock he has the right to
acquire pursuant to the exercise of stock options and 161,736 shares of Common
Stock granted pursuant to restricted stock awards. Does not include 24,000
shares of Common Stock held by his wife as custodian for the benefit of their
minor children and 12,000 shares held by his son, in all of which shares Mr.
Roberts disclaims beneficial ownership. Mr. Roberts is also Chairman of the
Board and Chief Executive Officer of the Company.
18
<PAGE> 26
(7) Does not include 800 shares of Common Stock owned solely by Mr.
Sayford's wife, in which shares he disclaims beneficial ownership.
(8) Includes 29,276 shares of Common Stock allocated to Mr. Worthington's
account under the ESOP and 248,564 shares of Common Stock he has the right to
acquire pursuant to the exercise of stock options. Does not include 152,470
shares of Common Stock owned solely by Mr. Worthington's wife, in which shares
he disclaims beneficial ownership. Mr. Worthington is also Senior Vice President
and General Counsel of the Company.
(9) Includes 174,903 shares of Common Stock allocated to officers' accounts
under the ESOP, 2,337,420 shares of Common Stock that officers and directors
have the right to acquire pursuant to the exercise of stock options and 681,736
shares granted to officers pursuant to restricted stock awards. Officers and
directors have shared voting and investment power with respect to 431,274 of
these shares of Common Stock.
(10) Consists of the Company's executive officers, as such term is defined
in Rule 3b-7 of the Securities Exchange Act of 1934, as amended, and its
directors, a total of 21 persons.
The Company is not aware of any person (from statements on Schedules 13D
and 13G filed with the Securities and Exchange Commission (the "SEC ")) which
owned, as of September 30, 1993, more than 5% of its Common Stock.
If the transactions contemplated by the Investment Proposals are
consummated BT will become the largest single beneficial owner of the Common
Stock.
19
<PAGE> 27
INVESTMENT PROPOSALS
THE APPROVAL OF EACH INVESTMENT PROPOSAL IS CONTINGENT ON THE APPROVAL OF
ALL INVESTMENT PROPOSALS. UNLESS ALL INVESTMENT PROPOSALS ARE APPROVED BY THE
STOCKHOLDERS AT THE SPECIAL MEETING, ALL INVESTMENT PROPOSALS WILL BE DEEMED TO
HAVE BEEN REJECTED BY THE STOCKHOLDERS.
BACKGROUND OF AND REASONS FOR THE INVESTMENT PROPOSALS
In recent years, the Company's principal strategic objectives have been to
(i) grow market share profitably, (ii) expand globally through strategic
ventures and alliances and (iii) explore new competitive opportunities in local
access and in emerging telecommunications markets such as wireless, cable,
multimedia, information services and other value-added services. The Company
believes that the expanding global telecommunications needs of its customers are
pointing towards the development of global intelligent networks that will permit
seamless voice and data communications services between two or more countries.
The trend towards the development of global networks and the opportunities
associated therewith has been accelerated by the increasing privatization of
foreign telecommunications carriers and liberalization of the regulatory regimes
governing entry into certain foreign telecommunications markets. The Company
also believes that the profitable development and deployment of a global
intelligent network will require a significant market presence in more than one
area of the world, the rapid development of such a network and access to the
technology and capital necessary to develop and build such a network. Similarly,
any significant expansion into local access or value-added services will likely
require significant expenditures by the Company and will be facilitated to the
extent that the Company has the financial resources to respond quickly to
opportunities.
The Company believes that the telecommunications companies that quickly
develop global intelligent networks with significant economies of scale will
have a significant competitive advantage over competitors who lack such scale or
are slow to develop such networks. The Company believes that to achieve global
economies of scale it must enter the market through an alliance with another
major international telecommunications company. Furthermore, other major
international telecommunications companies have been entering into alliances or
other strategic ventures in order to pursue opportunities in international
enhanced and value-added markets thereby increasing the importance to the
Company of expeditiously pursuing its own alliances and other initiatives
relating to such markets. Accordingly, for several years the Company has been
increasing its global presence and products through correspondent relationships
and by entering into alliances with, or investments in, other telecommunications
companies in various parts of the world. Such ventures include the Company's
1992 alliance with the Canadian telephone companies that comprise the Stentor
alliance to develop integrated telecommunications services between the United
States and Canada. The Company, in connection with its effort to expand its
global presence by means of developing strategic ventures and alliances, has
sought to ally itself with global telecommunications companies that complement
the Company's existing capabilities. The Company, while pursuing its long term
global strategy, has been willing to consider a substantial equity investment in
the Company by a prospective global telecommunications partner that otherwise
satisfies the Company's long term strategic objectives. The Company has been
willing to consider such an investment due to its belief that the increase in
the Company's available cash and access to capital that would result from such
an investment would increase the ability of the Company to make the necessary
expenditures to take advantage of strategic opportunities in local access and in
value-added services within the United States that may be available from time to
time and to generally strengthen its competitive position in the
telecommunications industry throughout the Americas. The Company anticipates
that in the event that the investment by BT in the Company that is contemplated
by the Investment Proposals does not occur, the Company will seek additional
sources of equity and/or debt financing in order to pursue its strategic
objectives.
In early 1991, members of senior management of the Company and BT discussed
the possibility of a strategic relationship between the two companies. In March
1991, the Company retained Goldman, Sachs & Co. ("Goldman Sachs") to provide
financial advice and assistance in connection with any possible transaction with
BT. At various times during the period from April through October 1992, members
of senior management of the Company and BT discussed the possibility of various
forms of strategic alliances, including
20
<PAGE> 28
a substantial equity investment in the Company by BT. Throughout such period the
Board of Directors was periodically advised by senior management of the content
and status of the discussions with BT. In June 1992, a confidentiality agreement
was executed by the Company and BT. Thereafter, nonpublic information concerning
the Company was provided to BT and nonpublic information concerning BT was
provided to the Company. In late October 1992, discussions between the Company
and BT ended due to a failure to reach agreement with respect to, among other
matters, the extent of influence that BT would have with respect to certain
corporate actions that might be undertaken by the Company and the terms of a
proposed joint venture to develop a fully integrated international intelligent
network for worldwide telecommunications services.
During the period that the Company was considering the possibility of a
strategic alliance with BT and until May 1993, the Company also explored the
possibility of various forms of strategic alliances with other major
international telecommunications providers. Discussions were held between
members of senior management of the Company and certain other international
companies regarding possible alliances, joint ventures and direct investments,
and the Board of Directors was periodically informed by senior management as to
the content and status of such discussions. The Company believes that the
alternative strategic alliances pursued by the Company were not as advantageous
to the Company as the proposed transactions with BT because, among other
reasons, BT was willing to make a much larger equity investment in the Company
than the amount that the participants in the other potential alliances were
willing or able to invest. In addition, the contemplated scope of the global
strategic relationship with BT was broader than that contemplated by the other
strategic alliances that the Company considered, although one of the alternative
strategic alliances would have involved major international telecommunications
providers whose operations were on a scale with BT's operations. The Company
does not believe that any party to the alternative strategic alliances
considered by the Company would have obtained the extent of influence that BT
will obtain under the terms of the Investment Agreement and the Class A Common
Stock because such alternative strategic alliances would not have included an
investment of the same magnitude as the amount invested by BT. The Company has
no reason to believe that the alternative strategies considered by the Company
are viable alternatives today.
On May 7, 1993, discussions between the Company and BT were resumed when
Bert C. Roberts, Jr., Chairman of the Board of Directors and Chief Executive
Officer of the Company, met with Iain D. T. Vallance, Chairman of BT. At such
meeting Messrs. Roberts and Vallance discussed the principal reasons that the
prior negotiations between the Company and BT had terminated and concluded that
the issues that were the source of the termination of the prior negotiations
could be overcome. Immediately following the meeting between Messrs. Roberts and
Vallance members of management of the Company and BT and their respective
financial and legal advisors commenced detailed discussions regarding the terms
of an equity investment by BT in the Company and the structure and terms of a
proposed joint venture and related agreements. On May 24, the Board of Directors
was briefed by senior management on the status of the negotiations with BT. At a
June 1, 1993 special meeting of the Board of Directors, the Company's senior
management and financial and legal advisors made detailed presentations
concerning a proposed equity investment by BT in the Company, a proposed joint
venture and related transactions. At the June 1 meeting, Goldman Sachs advised
the Board of Directors that, based on the terms of the Letter of Intent (as
defined below) and the work performed through such date by Goldman Sachs, which
included analyses as of such date that were substantially similar to the
analyses described below under "Opinion of Financial Adviser," Goldman Sachs was
not aware of any reason that, upon execution of definitive agreements and
completion of Goldman Sachs' review, would prevent Goldman Sachs from rendering
an opinion that the investment by BT contemplated by the Letter of Intent would
be at a fair price to the Company. At its June 1 meeting the Board of Directors
approved, and the Company and BT subsequently executed, a letter of intent (the
"Letter of Intent") contemplating the transactions provided for in the
Investment Agreement, the Joint Venture Agreement (as hereafter defined) and
related documents. In connection with the execution of the Letter of Intent, the
Company issued to BT 13,736,488 shares of Series C Convertible Preferred Stock,
par value $.10 per share ("Series C Convertible Preferred Stock"), of the
Company for an aggregate purchase price in cash of $829,683,875 (or $30.20 per
share of Common Stock issuable upon conversion of the Series C Convertible
Preferred Stock). On June 29, 1993, BT exchanged its shares of Series C
Convertible Preferred Stock for 13,736,488 shares of Convertible Preferred Stock
pursuant to an Exchange Agreement, dated as of June 24, 1993. The terms of the
Convertible Preferred Stock and the Series C Convertible Preferred Stock are the
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same except that the Convertible Preferred Stock does not contain any redemption
provisions. In general, the shares of Convertible Preferred Stock are not
entitled to any voting rights and will automatically convert into an aggregate
of 27,472,976 shares of Common Stock (representing approximately [4.9%] of the
shares of Common Stock outstanding as of the Record Date) upon expiration of the
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act").
After the execution of the Letter of Intent, the Company and BT began
preparing and negotiating definitive agreements relating to the transactions
contemplated by the Letter of Intent, and the Company retained Merrill Lynch to
provide additional financial advice relating to such transactions. At regular
meetings of the Board of Directors held on June 22 and July 26, 1993, members of
senior management of the Company briefed the Board of Directors on the status
and content of the negotiations with BT. The July 26 meeting of the Board of
Directors also included detailed presentations by the Company's senior
management and financial and legal advisors concerning the material aspects of a
stockholders rights plan, the adoption of which is a condition to the Closing.
At a special meeting of the Board of Directors on August 4, 1993, the Company's
senior management and financial and legal advisors made detailed presentations
concerning BT's equity investment in the Company, the joint venture and the
related transactions. At the August 4 meeting, the Board of Directors
unanimously approved the Investment Agreement, the Charter Amendment, the Joint
Venture Agreement, the BTNA Agreement (as hereafter defined) and other related
agreements, and the transactions contemplated thereby, and determined that the
transactions provided for in such agreements are in the best interests of the
Company's stockholders. On August 4, 1993, the Company and BT entered into the
Investment Agreement, the Joint Venture Agreement dated August 4, 1993 (as
amended through the date of this Proxy Statement, the "Joint Venture Agreement")
and definitive agreements relating to the acquisition by the Company of BT North
America Inc. ("BTNA") and BT Canada Inc. ("BT Canada").
BOARD OF DIRECTORS' RECOMMENDATIONS
At a meeting on August 4, 1993, the Board of Directors unanimously approved
the Investment Agreement, the Charter Amendment, the Joint Venture Agreement,
the BTNA Agreement and other related agreements and determined that the
transactions provided for in such agreements are in the best interests of the
Company's stockholders. The Board of Directors, in approving the transactions
contemplated by the Investment Proposals, considered a number of factors,
including the following, which constitute a summary of all material factors
considered by the Board of Directors:
(a) the potential operational and economic benefits to the Company
from the Joint Venture, including the following, which the Company believes
constitute the material potential operational and economic benefits to the
Company from the Joint Venture: (i) the anticipated enhancement of the
Company's global presence through the rapid development by the Joint
Venture of a global intelligent network on a sufficient scale to compete
with global competitors while limiting the Company's capital commitment to
preserve capital for other initiatives; (ii) the development of the
Company's technology strategy both by using the Company's intelligent
network innovations to support global products and by securing access to
BT's expertise in areas such as network management, video and transaction
processing for use in the Company's domestic business; (iii) the ability of
the Company to better serve its multinational customers by providing a
greater variety of international enhanced and value-added services and in
turn make additional services available to other customer segments over
time; and (iv) the economic value of an approximate 25% interest in a
venture that the Company hopes will be a robust international competitor
and whose value will be enhanced by BT's expertise and customer
relationships;
(b) the current business, properties and prospects of the Company and
its subsidiaries, the financial and operational condition of the Company
and its subsidiaries and the long-term strategy of the Company;
(c) their belief that a strategic alliance with BT, including the
formation of the Joint Venture, will significantly enhance the Company's
competitive position in the U.S. market by permitting the Company to
provide a greater variety of international enhanced and value-added
services to U.S.-based multinational customers;
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(d) the substantial increase in the Company's available cash and
access to capital that will occur as a result of BT's investment and the
resulting increased ability of the Company to take advantage of strategic
opportunities in local access and in value-added services within the United
States which may be available from time to time and to generally strengthen
its competitive position in the telecommunications industry throughout the
Americas;
(e) the blended price of $32 per share of Class A Common Stock, par
value $.10 per share (the "Class A Common Stock"), of the Company which
would be issued to BT at the Closing (as hereafter defined), which
represented a premium of approximately 23.1% over the closing market price
of the Common Stock on June 1, 1993, the last trading day before the
Company and BT announced the signing of the Letter of Intent;
(f) the terms of the Investment Agreement, the Charter Amendment, the
Rights Plan, (as hereafter defined) the Joint Venture Agreement and the
other documents relating to the Investment Proposals and the Joint Venture;
(g) the extent of independence that the Company will retain following
the consummation of the transactions contemplated by the Investment
Agreement;
(h) the Board of Directors' belief that the strategic and competitive
position of the Company will be significantly enhanced beyond what could be
achieved by the Company alone or through other available international
alliances that the Company could alternatively pursue;
(i) the opinion of Goldman Sachs to the effect that the Investment (as
hereafter defined) is at a fair price to the Company (see "Opinion of
Financial Advisor" below);
(j) the possible impact of the transactions contemplated by the
Investment Proposals on existing alliances and other relationships of the
Company (see "RELATED TRANSACTIONS -- Stentor;" "-- Disposition of the
Company's Interest in Infonet;" and "AAP, Clear and Belize");
(k) certain consequences that could result from the transactions
contemplated by the Investment Proposals that are described below under
"Certain Considerations;"
(l) the advice of Goldman Sachs that, based upon Goldman Sachs'
understanding of applicable antitrust and regulatory constraints, there are
only a very limited number of potential buyers with adequate financial
resources that could reasonably pursue an acquisition of the Company;
(m) that the Closing is conditioned upon approval by the Company's
stockholders of the Investment Proposals; and
(n) certain possible implications of a single large minority
shareholding in the Company, including the conflicts of interest that might
arise and the potential discouraging effect on other transactions that
might result from such shareholding.
THE BOARD OF DIRECTORS BELIEVES THAT THE INVESTMENT PROPOSALS ARE FAIR TO,
AND ARE ADVISABLE AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS STOCKHOLDERS
AND HAS UNANIMOUSLY APPROVED THE INVESTMENT PROPOSALS AND UNANIMOUSLY RECOMMENDS
THAT THE STOCKHOLDERS OF THE COMPANY VOTE "FOR" APPROVAL OF THE INVESTMENT
PROPOSALS.
The Board of Directors reserves its rights, pursuant to the Investment
Agreement, to (i) amend the provisions of the Investment Agreement in all
respects in accordance with its terms and without stockholder approval before or
after approval of the Investment Proposals by the Company's stockholders and
(ii) to terminate the Investment Agreement in accordance with its terms
notwithstanding stockholder approval. The Board of Directors also reserves the
right, subject to the terms of the Investment Agreement, to (i) adopt the Rights
Plan in a form other than that presented to stockholders or to determine not to
adopt the Rights Plan notwithstanding stockholder approval thereof and (ii)
amend the provisions of the Rights Plan following its adoption, in accordance
with its terms, without further stockholder approval. In addition, approval of
the Charter Amendment by the stockholders shall be deemed also to constitute
approval of a resolution
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authorizing the Board of Directors, at any time prior to the filing of the
Charter Amendment with the Delaware Secretary of State, to abandon the Charter
Amendment notwithstanding its approval by the stockholders.
OPINION OF FINANCIAL ADVISOR
As described under "Background of and Reasons for the Investment Proposals"
above, the Company engaged Goldman Sachs to act as its financial advisor in
connection with BT's investment (the "Investment") in the Company, through the
issuance to it, pursuant to the Investment Agreement, of (i) 106,752,106 shares
of Class A Common Stock, representing approximately 15.9% of the voting power of
the Company's outstanding voting securities, as determined as of August 4, 1993
and after giving effect to the issuance of Class A Common Stock as described in
this clause (i) and the subsequent clause (ii), at a cash purchase price of
$32.46 per share, (ii) 27,492,976 shares of Class A Common Stock to be issued to
BT in exchange for shares of Common Stock representing approximately 4.1% of the
voting power of the Company's voting securities, as determined as of August 4,
1993 and after giving effect to the issuance of Class A Common Stock as
described in this clause (ii) and the preceding clause (i), to be received by BT
upon conversion of its shares of Convertible Preferred Stock and (iii) at BT's
option, and at a cash purchase price of $32.00 per share, such additional number
of shares of Class A Common Stock that would enable BT to acquire a 20% interest
in the Company after taking into account certain shares issued after August 4,
1993 under employee benefit plans and programs of the Company. In connection
with the engagement, the Company requested that Goldman Sachs evaluate the
fairness to the Company of the consideration to be received by the Company in
connection with the Investment. On August 4, 1993, Goldman Sachs delivered to
the Board of Directors its oral opinion, which was subsequently confirmed in
writing as of the date hereof, to the effect that, as of the respective dates of
such opinions and based upon and subject to certain matters as stated in such
opinions, the Investment is at a fair price to the Company. No limitations were
imposed by the Board of Directors upon Goldman Sachs with respect to the
investigations made or procedures followed by Goldman Sachs in rendering its
opinion except that Goldman Sachs was not authorized to seek any other potential
investors in the Company.
A COPY OF GOLDMAN SACHS' OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN, IS ATTACHED TO THIS
PROXY STATEMENT AS APPENDIX IV AND SHOULD BE READ BY STOCKHOLDERS CAREFULLY IN
ITS ENTIRETY.
Prior to the delivery of its written opinion, Goldman Sachs performed
certain procedures to update some of the analyses performed in connection with
the delivery of its oral opinion and reviewed with the management of the Company
the assumptions on which such analyses were based. The results of such analyses
were consistent with those described above as having been arrived at in
connection with the August 4 oral opinion of Goldman Sachs.
In connection with its written opinion, Goldman Sachs reviewed, among other
things, the Investment Agreement, the Joint Venture Agreement, the Restated
Certificate, the Charter Amendment and the Rights Plan; this Proxy Statement;
the Annual Reports to Stockholders and Annual Reports on Form 10-K of the
Company for the five years ended December 31, 1992; certain interim reports to
stockholders and Quarterly Reports on Form 10-Q; certain other communications
from the Company to its stockholders; and certain internal financial analyses
and forecasts for the Company prepared by its management, including analyses and
forecasts giving effect to the Investment. Goldman Sachs also had discussions
with members of the senior management of the Company regarding its past and
current business operations, financial condition and future prospects. Goldman
Sachs considered the view of senior management of the Company that the
Investment represents a significant business opportunity for the Company and
that certain strategic and operational benefits will be derived from the
transactions contemplated by the Investment Agreement. In addition, Goldman
Sachs reviewed the reported price and trading activity for the Common Stock,
compared certain financial and stock market information for the Company with
similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations and strategic investment transactions and performed such other
studies and analyses as Goldman Sachs considered appropriate. Goldman Sachs, in
rendering its opinion, took into account the extent to which certain provisions
contained in the Investment Agreement, the Joint Venture Agreement, the Restated
Certificate,
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the Charter Amendment and the Rights Plan could impede a change of control of
the Company. Goldman Sachs relied without independent verification upon the
accuracy and completeness of all of the financial and other information reviewed
by it for purposes of its opinion. In rendering its opinion Goldman Sachs
understood, based upon its discussions with senior management and counsel to the
Company and Goldman Sachs' review of the Investment Agreement, the Joint Venture
Agreement, the Restated Certificate, the Charter Amendment and the Rights Plan,
that BT will not acquire control of the management and direction of the business
and affairs of the Company as a result of the Investment. Goldman Sachs assumed
that the financial forecasts and pro forma analyses for the Company, both with
and without giving effect to the Investment, have been reasonably prepared on a
basis reflecting the best currently available judgments and estimates of the
management of the Company. In addition, Goldman Sachs made no independent
evaluation or appraisal of the assets and liabilities of the Company or any of
its subsidiaries, and Goldman Sachs was not furnished with any such evaluation
or appraisal.
The following is a summary of certain financial analyses performed by
Goldman Sachs in arriving at its oral opinion delivered August 4, 1993, but does
not purport to be a complete description of the analyses performed by Goldman
Sachs for such purposes.
Comparable Public Company Analysis. Goldman Sachs reviewed and compared
certain actual and estimated financial, operating and stock market information
for the Company with similar information for certain selected publicly traded
long distance telecommunications companies: ACC Corporation, ALC Communications,
American Telephone and Telegraph Company ("AT&T"), LCI International, LDDS
Communications, Resurgens Communications Group, U.S. Long Distance and Sprint
(collectively, the "Comparable Companies"). The Comparable Companies were
selected because they were publicly-traded telecommunications companies that
conducted most of their operations in the United States and derived a majority
of their revenues from the provision of long distance or inter-exchange carrier
services. Goldman Sachs reviewed the Comparable Companies in terms of various
historical financial measures and in terms of various multiples that certain of
this information represents in comparison to certain other information. In
particular, such analysis indicated that, as of August 2, 1993, the market price
of shares (a) as a multiple of latest twelve month ("LTM") earnings, research
analysts' consensus 1993 estimated earnings and research analysts' consensus
1994 estimated earnings, ranged from 17.3x to 79.6x, 19.0x to 53.6x and 14.8x to
28.9x, respectively, for the Comparable Companies, versus multiples of 24.6x,
22.4x and 19.3x, respectively, for the Company; and (b) as a multiple of stated
book value, ranged from -13.6x to 225.6x for the Comparable Companies, versus a
multiple of 4.5x for the Company. The analysis further indicated that the total
value (defined as equity market capitalization plus the principal amount of
outstanding debt plus the book value of preferred stock, if any, less cash) of
the Comparable Companies as a multiple of revenue, earnings before interest,
taxes, depreciation and amortization ("EBITDA") and earnings before interest and
taxes ("EBIT") (in each case based on the LTM financial results) ranged from
1.4x to 3.1x, 7.6x to 16.5x and 15.2x to 35.4x, respectively, as compared to
multiples of 1.8x, 8.9x and 15.2x for the Company. The analysis further
indicated that the total value of the Comparable Companies as a multiple of
revenues, EBITDA and EBIT (in each case based on latest quarter results stated
on an annualized basis) ranged from 1.3x to 3.0x, 6.3x to 15.4x and 12.2x to
26.7x, respectively, as compared to multiples of 1.7x, 8.4x and 14.2x for the
Company.
Comparison With Other Transactions. Goldman Sachs reviewed
publicly-available information regarding certain transactions, either
consummated or pending, in the past five years involving the acquisition of or a
strategic investment in certain long distance telecommunications companies. In
this regard, and to the extent such information was publicly available, Goldman
Sachs analyzed the aggregate consideration paid in such transactions as a
multiple of LTM revenues, LTM EBIT and LTM EBITD. Goldman Sachs analyzed the
foregoing data with respect to the Company by utilizing imputed multiples based
on 1992 results for the Company and assuming, for sake of comparative analysis,
that BT's purchase price applied to all the Company's outstanding shares.
Goldman Sachs' analysis of the foregoing transactions indicated multiples of LTM
revenues which ranged from 0.7x to 2.1x, with a mean of 1.5x, as compared to a
corresponding multiple of 2.0x for BT's investment in the Company; multiples of
LTM EBIT ranging from 9.1x to 20.8x, with a mean of 14.4x, as compared to a
corresponding multiple 17.2x for BT's investment in the Company; and multiples
of LTM EBITD ranging from 7.1x to 12.3x, with a mean of 9.2x, as compared to a
corresponding multiple 10.0x
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for BT's investment in the Company. Goldman Sachs noted that certain of the
foregoing transactions analyzed were not comparable to the Investment because
such transactions involved a change in control. Additionally, Goldman Sachs
examined eight transactions involving the purchase of a minority interest for an
aggregate consideration exceeding $500 million in various industries that had
occurred, or were then pending, since 1988. Goldman Sachs' analysis of the
foregoing transactions indicated premiums versus the respective closing prices
immediately preceding the relevant announcement dates which ranged from a high
of 68.3%, in connection with the proposed purchase of a 33% equity stake
including control provisions, to a low of 5.8%, as compared to a corresponding
premium, as determined as of the last trading day immediately preceding the
announcement of the execution of the Letter of Intent, of 23.1% to be paid by BT
in connection with the Investment. Goldman Sachs then analyzed the premium to be
paid by BT in connection with the Investment, expressed as a percentage of the
average closing prices for the Common Stock over each of the last twenty trading
days, the 1993 year-to-date and the last twelve months, in each case, determined
as of the day preceding the announcement date (June 1, 1993), which equalled
28.3%, 45.1% and 65.8%, respectively. Goldman Sachs also determined, as of
August 2, 1993, that the premium represented by the price to be paid by BT in
connection with the Investment was 11.8%.
Discounted Cash Flow Analysis. Goldman Sachs analyzed the net present
value of the future cash flows accruing to current shareholders of the Company
based on financial projections prepared, and capital structure assumptions
provided, by the management of the Company, terminal values based on multiples
of the estimated 1997 price per share divided by the estimated earnings per
share ("P/E Ratio") ranging from 14x to 22x and after-tax discount rates ranging
from 10% to 14%.
Pro Forma Analysis. Goldman Sachs analyzed certain pro forma effects that
would be expected to result from the Investment based on various earnings
projections prepared by the management of the Company; the assumption that,
prior to the investment of proceeds to be received from the Investment in
projects by the Company, such proceeds would be invested in cash and cash
equivalents earning a 4.5% pre-tax annual return in 1993 and a 5% pre-tax annual
return thereafter; the assumption that projects funded from the proceeds
received from the Investment will achieve their expected rates of return two
years after such investment and certain sensitivity analyses as to the
investment horizon and timing by which such proceeds would be fully invested and
the applicable after-tax annual rates of return to be earned on such invested
proceeds. The analysis indicated, among other things, that although the effect
of the Investment on 1993 and 1994 pro forma estimated earnings per share of
Common Stock and Class A Common Stock ("EPS") would reduce such EPS, by less
than 4.0%, in each case, assuming an annual after-tax rate of return of 10%, and
by less than 3.5%, in each case, assuming an annual after-tax rate of return of
15%, (a) if the proceeds from the Investment were fully invested by December
1995 and such proceeds earned either a 15% or a 10% after-tax rate of return,
the accretion to 1997 EPS attributable to such Investment would be approximately
24.7% and 20.1% higher, respectively, than comparable projections for the
Company not giving effect to the Investment and (b) if the proceeds from the
Investment were fully invested by December 1996 and such proceeds earned a 15%
or a 10% annual after-tax rate of return, the accretion to 1997 EPS attributable
to such Investment would be approximately 19.6% and 16.7% higher, respectively,
than comparable projections for the Company not giving effect to the Investment.
The rates of return that were assumed for purposes of Goldman Sachs' analyses
were selected by the management of the Company for comparison purposes only and
there can be no assurances as to the actual rates of return that the Company
will be able to realize on the proceeds from the Investment. See "Use of
Proceeds" above and "Certain Considerations -- Dilution" below.
Public Offering Analysis. Goldman Sachs analyzed a public offering by the
Company of its Common Stock as an alternative financing method for the Company
to raise capital in an aggregate amount equal to the aggregate consideration to
be paid by BT pursuant to the Investment. Without taking into consideration
higher transactions costs associated with public financings, assuming that the
proceeds from the Investment or such public offering were invested over thirty
months in projects earning a 10% annual after-tax rate of return and that such
projects would achieve the foregoing rate of return two years after the initial
investment therein, and based on the financial projections prepared by
management, Goldman Sachs' analysis indicated that the accretion to 1997 EPS
attributable to the Investment as compared to a public offering would be 14.4%
over the base 5-year forecast (assuming that neither the Investment nor a public
offering were completed). The
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after-tax rate of return that was assumed for purposes of Goldman Sachs'
analyses was selected by the management of the Company for comparison purposes
only and there can be no assurances as to the actual rates of return that the
Company will be able to realize on the proceeds from the Investment. See "Use of
Proceeds" above and "Certain Considerations -- Dilution" below. This EPS
differential is primarily attributable to the need to issue a greater number of
shares in a public offering in order to achieve the same proceeds the Company
will receive from the Investment due to the lower price associated with such
offerings.
Historical Relative Trading and Valuation Comparisons. Goldman Sachs has
examined the history of the trading prices for the Company and AT&T common
stock, certain financial ratios thereof and the relationship between the
movements in the prices of such shares and ratios and movements in certain stock
indices. Goldman Sachs also compared the consideration to be received by the
Company pursuant to the Investment to the historical public trading prices of
the Common Stock. Goldman Sachs determined that such consideration represented a
premium over the public trading price of the Common Stock, notwithstanding the
fact that (i) the market price per share of the Company's Common Stock on the
announcement date was within 5% of a historic high and, on August 2, 1993, two
months after such announcement date, was within 5% of such historic high market
price; (ii) the P/E Ratio for the Common Stock at August 2, 1993, based on
research analysts' consensus 1993 estimated earnings for the Company, was at or
near the highest level achieved since 1988; and (iii) the relative P/E Ratio for
the Common Stock versus that of each of AT&T's common stock and the S&P 500
index at August 2, 1993 compared favorably to that obtaining on June 1 of each
of 1991, 1992 and 1993.
Other Analyses. Goldman Sachs also reviewed and analyzed selected
investment research reports on the Company and the telecommunications industry
and analyzed certain publicly available information regarding the foregoing.
The preparation of a fairness opinion is a complex process and is not
susceptible to partial analysis or summary description. Selecting portions of
the analyses or of the summary set forth above, without considering the analyses
as a whole, could create an incomplete view of the processes underlying Goldman
Sachs' opinion. In arriving at its opinion, Goldman Sachs considered the results
of all such analyses and did not assign any particular weight to the results of
any particular analysis. The analyses were prepared for the purpose of Goldman
Sachs' providing its opinion as to the Investment being at a fair price to the
Company and do not purport to be appraisals or to necessarily reflect the prices
at which businesses or securities of the Company actually may be sold. Analyses
based upon forecasts of future results are not necessarily indicative of actual
future results, which may be significantly more or less favorable than suggested
by such analyses. The foregoing summary is qualified by reference to the written
opinion of Goldman Sachs which is attached to this Proxy Statement as Appendix
IV.
Goldman Sachs has advised the Company that, in the ordinary course of
business, it may actively trade the debt and equity securities of the Company
and BT for its own account or for the account of its customers and, accordingly,
may at any time hold a long or short position in such securities.
Goldman Sachs was selected by the Company as its financial advisor based on
its reputation, experience and expertise. Goldman Sachs is an internationally
recognized investment banking firm that is continually engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive bids, secondary distributions of listed
and unlisted securities, private placements and valuations for estate, corporate
and other purposes. Goldman Sachs is familiar with the Company, having acted as
its financial advisor in connection with, and having participated in certain of
the negotiations leading to, the Investment Agreement.
The Company retained Goldman Sachs as its financial advisor in connection
with the Investment pursuant to a letter agreement dated March 5, 1991, as
amended (the "Goldman Engagement Letter"). Pursuant to the Goldman Engagement
Letter, as compensation for its services in connection with the Investment, the
Company paid $175,000 to Goldman Sachs upon the date of execution of the Goldman
Engagement Letter (the "Engagement Fee") and will pay Goldman Sachs a
transaction fee of approximately $11 million, less the amount of the Engagement
Fee, if the Investment is consummated. Whether or not the Investment is
consummated, the Company has agreed, pursuant to the Goldman Engagement Letter,
to
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reimburse Goldman Sachs for all its reasonable out-of-pocket expenses, including
the fees and disbursements of its counsel, incurred in connection with its
engagement by the Company and to indemnify Goldman Sachs against certain
liabilities and expenses in connection with its engagement.
During the past two years, Goldman Sachs has provided certain other
advisory and investment banking services to the Company in connection with
financings and has received customary fees for such services in the aggregate
amount of approximately $1,489,000 (exclusive of compensation to be received in
connection with the Investment). Goldman Sachs has not rendered financial
advisory or investment banking services to BT during the past two years other
than acting as a dealer in respect of BT's commercial paper program.
USE OF PROCEEDS
On June 4, 1993 the Company received approximately $830 million in cash in
consideration for the issuance of 13,736,488 shares of Series C Convertible
Preferred Stock to BT. Approximately $322 million of such proceeds was initially
used to retire $292 million principal amount of the Company's 10% Subordinated
Debentures due 2011 prior to maturity and approximately $455 million was
initially used to repay credit facility and commercial paper borrowing which had
interest rates of from 3.22% to 3.43% per annum. The Company believes that it
has sufficient borrowing capacity to borrow an amount at least equal to the
funds used to repay such previously outstanding indebtedness and therefore
considers such repayment an alternative to investing such proceeds in short term
investments.
On the date of the initial purchase by BT of shares of Class A Common Stock
under the Investment Agreement (the "Closing"), the Company will receive
approximately $3.5 billion in cash (such proceeds together with the $830 million
in cash previously received from BT are referred to herein as the "Transaction
Proceeds") from BT in consideration for the issuance to BT of shares of Class A
Common Stock. The Company anticipates that, pending the application of the
Transaction Proceeds as described below, the Transaction Proceeds will be
invested in interest bearing securities or, alternatively, used to reduce
outstanding borrowings of the Company.
The Transaction Proceeds will be available to the Company for general
corporate purposes and to pursue strategic investments and acquisitions. The
Company does not currently have any commitments or understandings regarding the
use of the Transaction Proceeds. The Company anticipates, however, that it will
principally utilize the Transaction Proceeds (i) to continue to develop the
Company's long distance services; (ii) to pursue, through ventures, acquisition
or otherwise, the development of the Company's global business, in connection
with which the Company expects both to invest at least $250 million in the Joint
Venture during the five years following the Closing (including the Company's
initial contribution to the Joint Venture) and to apply additional Transaction
Proceeds to develop further the Company's distribution channels outside the
United States; and (iii) to pursue, through ventures, acquisition or otherwise,
opportunities in local access and in emerging telecommunications markets such as
wireless, cable, multimedia, information services and other value-added
services.
There can be no assurance that the Company will be successful in its
efforts to utilize the Transaction Proceeds in a manner that contributes to the
profitable growth of the Company's business or that the Transaction Proceeds
will not be used in such a way as to dilute the per share earnings or equity of
the Company after giving effect to the purchase of shares of Class A Common
Stock by BT. In addition, the terms of the Class A Common Stock prohibit the
Company from making acquisitions or investments in excess of specified
percentages of the Company's market capitalization without the consent of BT.
See "INVESTMENT AGREEMENT -- Terms of the Class A Common Stock -- Matters
Requiring Class A Common Stock Consent" and "INVESTMENT PROPOSALS -- Certain
Considerations -- Board Representation; Consent Rights."
INFORMATION CONCERNING BT
BT is a public limited company organized and existing under the laws of
England and Wales. BT is the largest telecommunications provider in the United
Kingdom of Great Britain and Northern Ireland (the "U.K."). Its main services
and products are local and long-distance telephone calls in the U.K., the
provision
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of telephone exchange lines to homes and businesses, international telephone
calls made from and to the U.K., and the supply of telecommunications equipment
for customers' premises. BT also offers a range of other products and services,
including private circuits and mobile communications services and products. For
the year ended March 31, 1993 BT reported profit attributable to ordinary
shareholders of L1,220 million (equal to approximately $1,842 million at the
exchange rate of $1.51 per L1 prevailing on March 31, 1993), on revenues of
L13,242 million (equal to approximately $19,995 million at the exchange rate of
$1.51 per L1 prevailing on March 31, 1993), determined according to generally
accepted accounting principles in the U.K. BT's ordinary shares are listed on
the London Stock Exchange and the Tokyo Stock Exchange, and American Depository
Receipts relating to BT's ordinary shares are listed on the New York Stock
Exchange and the Toronto Stock Exchange. The principal office of BT is located
at BT Centre, 81 Newgate Street, London EC1A 7AJ, England. BT is subject to the
informational filing requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and, in accordance therewith, files reports and
other information with the SEC relating to its business, financial condition and
other matters.
CERTAIN CONSIDERATIONS
While the Board of Directors is of the opinion that the Investment
Proposals are fair to, and their approval is advisable and in the best interests
of, the Company and its stockholders, stockholders should consider the following
possible effects when evaluating the Investment Proposals.
Diminished Ability to Sell the Company; Certain Antitakeover Effects
Interim Investment Period. The Class A Common Stock, which can be owned
only by BT and its affiliates, will be entitled to a class vote on any Business
Combination (as hereafter defined) involving the Company during the first four
years (the "Interim Investment Period") following the Closing. See "INVESTMENT
AGREEMENT -- Terms of the Class A Common Stock -- Matters Requiring Class A
Common Stock Consent." As a result of such class voting rights, during the
Interim Investment Period, so long as any shares of Class A Common Stock remain
outstanding, it will be impracticable for any third party to acquire the Company
through a merger or similar business combination without the consent of BT. In
addition, during the Interim Investment Period, so long as any shares of Class A
Common Stock remain outstanding, the Rights (as hereafter defined) issued under
the Rights Plan (as hereafter defined) may not be redeemed by the Board of
Directors without the approval of the holders of at least 75% in voting power of
all voting securities of the Company (including the Class A Common Stock) voting
together as a single class (the "Supermajority Stockholder Vote Provision"), and
the Board of Directors may not, without the prior consent of BT, except to the
extent legally required to discharge its fiduciary duties, recommend acceptance
of any third party tender offer. Assuming BT owns shares of Class A Common Stock
representing 20% of the outstanding voting securities of the Company (which is
the approximate percentage interest which BT is expected to own immediately
following the Closing), redemption of the Rights during the Interim Investment
Period would require the approval of the holders of approximately 94% of all
outstanding voting securities of the Company not owned by BT, making approval of
such redemption, and therefore any acquisition of control of the Company,
unlikely without BT's consent. See "CHARTER AMENDMENT -- Redemption of Rights"
and "THE RIGHTS PLAN." During negotiations BT sought the foregoing provisions,
in part, to avoid a sale of the Company without BT's consent prior to the time
that BT was able to realize the benefits from its $4.3 billion investment in the
Company and the Joint Venture.
Auction Period. During the six year period following the Interim
Investment Period (i.e., the fourth anniversary of the date of the Closing (the
"Closing Date") until the tenth anniversary of the Closing Date, which period is
referred to herein as the "Auction Period"), so long as shares of Class A Common
Stock remain outstanding, the Board of Directors may not redeem the Rights,
approve any Business Combination or, except to the extent legally required to
discharge its fiduciary duties, recommend acceptance of any third party tender
offer, in each case other than with the consent of BT or in connection with an
acquisition proposal for all the shares of Common Stock and Class A Common Stock
(collectively, "Common Shares") in which all stockholders of the Company
(including BT) are permitted to participate on an equal basis and in connection
with which the Board of Directors conducts an auction for the Company pursuant
to certain procedures
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<PAGE> 37
specified in the Investment Agreement. Such auction procedures could require,
among other things, that the Board of Directors conduct an auction for the sale
of the Company on commercially reasonable terms over a period of no less than
seven months notwithstanding that such procedures may not attract the highest
bid for the Company based upon the facts and circumstances at that time. During
negotiations BT sought the auction procedures in order to provide it with a
meaningful opportunity to bid for the Company in light of the foreign ownership
provisions of Section 310(b) of the Communications Act of 1934, as amended (the
"Communications Act"), or any successor thereto ("Section 310(b)"). Under
Section 310(b), if more than 25% (or such greater percentage as may be specified
in an order of the Federal Communications Commission (the "FCC")) of the
outstanding capital stock of the Company is owned of record or voted by Non-U.S.
Persons or Entities (as hereafter defined), the FCC may revoke certain licenses
that are material to the conduct of the business of the Company and its
subsidiaries if the FCC determines that such revocation is in the public
interest. See "INVESTMENT PROPOSALS -- Regulatory Approvals -- Section 310 of
the Communications Act." BT believed that if it sought to acquire the Company,
it would need a number of months to seek to obtain an FCC order with respect to
Section 310(b). If Section 310(b) is repealed, however, the auction period need
not be more than 30 business days. Moreover, the Board of Directors need not
continue the auction in connection with a sale of the Company if, among other
things, (i) BT is not prepared to submit an acquisition proposal that exceeds
the consideration that another bidder is prepared to pay to acquire the Company
pursuant to a definitive agreement or letter of intent and certain other
conditions are satisfied, or (ii) the Company's independent directors are
advised by counsel that BT will not obtain FCC approval to acquire the Company
and, on the basis of such advice, determine that no good faith purpose could
reasonably be served by providing BT with a continued opportunity to seek such
approval. The timing and other requirements of the auction procedures could
delay a change in control of the Company should the Board of Directors seek to
pursue a change in control of the Company. The auction procedures could also
discourage certain third parties from seeking control of the Company. In
addition, so long as shares of Class A Common Stock remain outstanding, during
the Auction Period the restrictions on redemption of the Rights will make it
impractical for any third party to acquire 10% or more of the outstanding Common
Shares except pursuant to an acquisition proposal for all the Common Shares or
with the consent of BT. See "INVESTMENT AGREEMENT -- Provisions Relating to a
Change in Control of the Company -- Business Combinations -- Auction Period" and
" -- Auction Procedures." Under certain circumstances, even if the auction
procedures are no longer applicable due to the conversion of the Class A Common
Stock, if the Board of Directors decides to sell the Company it must, among
other things, provide BT a reasonable opportunity to submit an acquisition
proposal.
No Shopping. The Company has agreed in the Investment Agreement that
during the seven years following the Closing, so long as any shares of Class A
Common Stock remain outstanding, the Company will not solicit or encourage any
third party acquisition of the Company. Such prohibition would prevent the Board
of Directors from initiating any sale of the Company even if the Board of
Directors were to determine that a sale would be in the best interests of the
stockholders of the Company and could therefore impede a change in control of
the Company. The Board of Directors would be permitted, however, to provide
information to and engage in negotiations with a third party who has made an
unsolicited proposal if such actions are legally required for the Board of
Directors to discharge its fiduciary duties. After the expiration of such seven
year period, until the tenth anniversary of the Closing Date, if any shares of
Class A Common Stock are outstanding the Company must provide BT with 60 days
prior notice if the Board of Directors determines to solicit a third party
acquisition unless such action is taken in response to an unsolicited
acquisition proposal by a third party in order to discharge the Board of
Directors' fiduciary duty, in which event such notice must only be provided to
BT as soon as practical. After the fourth anniversary of the Closing Date, the
obligations of the Company described in this paragraph will terminate, subject
to reinstatement under certain circumstances, if the Board of Directors notifies
BT that the Board of Directors has decided to pursue a sale of the Company in
accordance with the auction procedures specified in the Investment Agreement.
See "INVESTMENT AGREEMENT -- Provisions Relating to a Change in Control of the
Company -- No Shopping."
Newco Change of Control Provision. The development and operation of the
Joint Venture is expected to involve significant interdependence and cooperation
between the Company and BT. Indeed, the Company and BT will, through the entity
pursuant to which the Joint Venture will be conducted ("Newco"), receive access
to certain intellectual property of the other party and the board of directors
of Newco will consist of
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representatives of the Company and BT. Based upon the foregoing, in the event of
a change in control of the Company, BT did not want to be obligated to remain in
a business relationship with the Company through Newco. Accordingly, under the
terms of the Joint Venture Agreement, BT is entitled to acquire the Company's
interest in Newco if any person or group (other than BT) acquires 50% or more of
the outstanding voting securities of the Company (the "Newco Change of Control
Provision"). Notwithstanding that any purchase of Newco would be at fair market
value (as determined in accordance with the Joint Venture Agreement), because
the Company and its subsidiaries are required to obtain all of their
requirements for Global Products (as hereafter defined) from Newco and will be
relying on Newco to provide the necessary infrastructure to supply international
enhanced and value-added services to customers of the Company and its
subsidiaries, BT's purchase of the Company's interest in Newco and the attendant
loss of the Company's right to distribute Newco products could, depending upon
the circumstances, have a material adverse effect on the Company, particularly
in the event that the strategic and operational significance of Newco to the
Company increases over time as is currently anticipated by the Company.
Accordingly, the Newco Change of Control Provision could deter third party
takeover proposals and could also reduce the price that a third party is willing
to pay to acquire control of the Company. See "RELATED TRANSACTIONS -- The Joint
Venture -- Termination of the Joint Venture -- BT Termination Rights" and " --
Determination of Fair Market Value."
Repeal of Capped Voting and Business Combination Provisions. The Closing
is conditioned on the repeal of Section 10 of the Restated Certificate, which
restricts the voting power of a stockholder of the Company who owns 10% or more
of the Company's outstanding voting securities unless such stockholder shall
have consummated a tender offer that conforms to certain specified requirements
(the "Capped Voting Provision"). Repeal of the Capped Voting Provision was
insisted upon by BT because, absent such repeal, BT's holdings in excess of 10%
of the Company's outstanding voting securities would not be entitled to full
voting rights. Similarly, the Closing is conditioned on repeal of Section 9 of
the Restated Certificate which imposes special requirements on business
combinations with certain significant stockholders (the "Business Combination
Provision"). The repeal of the Capped Voting Provision and the Business
Combination Provision would, absent the adoption of the Rights Plan and the
other provisions sought by BT that have an antitakeover effect, meaningfully
increase the Company's vulnerability to (i) coercive two-tiered, front-end
loaded or partial offers which may not offer fair value to all stockholders; and
(ii) market accumulators who through open market or private purchases would be
able to exercise a controlling influence over the policies of the Company
without paying to selling or remaining stockholders a fair and adequate price,
including a sufficient premium for such controlling interest, or who are simply
interested in putting the Company into "play." See "THE CHARTER AMENDMENT --
Repeal of the Business Combination and Capped Voting Provisions."
The Rights Plan. The Closing is conditioned on the adoption of the Rights
Plan by the Board of Directors and stockholder approval of such adoption. The
Rights Plan is designed to enhance the Board of Directors' ability to negotiate,
on behalf of all stockholders, in the event of an unsolicited tender offer or
other attempt to accumulate a significant percentage of the Common Shares, and
seeks to preserve the Company's ability to maximize long-term stockholder value.
The adoption of the Rights Plan should meaningfully reduce the Company's
vulnerability to unsolicited takeover attempts by means of coercive two-tiered,
front-end loaded or partial offers, open market purchase programs or other means
that otherwise might result from the repeal of the Capped Voting Provision and
Business Combination Provision. BT sought contractually to obligate the Company
to adopt the Rights Plan in order to reduce the likelihood that 10% or more of
the Company's voting securities would be acquired by another person or that the
Company would be sold pursuant to a transaction not approved by the Board of
Directors and, during the Interim Investment Period, by BT. The adoption of the
Rights Plan will have certain antitakeover effects, even if the Class A Common
Stock is converted into Common Stock and BT is no longer entitled to its related
rights under the Investment Agreement. The exercise of the Rights would cause
substantial dilution to any person or group (including BT) that attempted to
acquire the Company without the approval of the Board of Directors. As a result,
the overall effect of the Rights Plan may be to render more difficult or
discourage any attempt to acquire the Company even if such acquisition would
otherwise be accepted by a majority of the Company's stockholders. Since the
Rights are redeemable by the Board of Directors, the Rights Plan should not
interfere with a merger or other business combination approved by the Board of
Directors, except to the extent that such redemption is subject
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to the Supermajority Stockholder Vote Provision during the Interim Investment
Period or is otherwise restricted by the terms of the Investment Agreement
during the Auction Period. See "STOCKHOLDERS RIGHTS PLAN."
Authorization of Additional Shares of Capital Stock and Elimination of
Ability of Public Stockholders to Act by Written Consent. The authorization of
additional shares of capital stock pursuant to the Charter Amendment and the
elimination of the ability of the holders of Common Stock to act by written
consent without a meeting may also have certain antitakeover effects. See
"CHARTER AMENDMENT -- Increase of Authorized Capital Stock" and "-- The Consent
Amendment."
Existing Provisions in the By-Laws and Restated Certificate That May Be
Considered Anti-Takeover Provisions. Under the by-laws of the Company (the
"By-Laws"), the Board of Directors is divided into three classes having
staggered three-year terms. The Restated Certificate provides for cumulative
voting. These provisions (as well as certain other provisions of the Restated
Certificate described below) and all other By-Law provisions may be amended only
by the affirmative vote of the holders of at least 80% of the Company's
outstanding voting shares or, in the case of amendments to the By-Laws, by a
majority of the whole Board of Directors. The effect of these provisions, even
in the absence of the adoption of the Investment Proposals, may be to prevent a
holder of a large block of voting shares from gaining control of the Board of
Directors for at least two successive annual meetings. The Board of Directors
currently has 11 members, but the Company expects that the Board will be
expanded to 12 members on or prior to the Closing Date. Under the By-Laws, the
Board of Directors currently has the authority to increase the size of the Board
to 15 members (or three classes of five directors), and to increase the size of
the Board even further by approving an amendment to the By-Laws providing for
such an increase. Under the Investment Proposals, the Board of Directors would
be maintained at 15 members, of whom three directors would be initially elected
directly by the holders of the Class A Common Stock (which directors would be
elected annually and not serve staggered terms). Vacancies created by an
increase in the size of the Board of Directors or for any other reason (other
than with respect to directors to be elected by holders of Class A Common Stock
under the Investment Proposals) may be filled by the remaining directors then in
office. Implementation of this authority could further slow the pace of any
change in the Board of Directors.
The By-Laws also require that notice of proposed nominations by
stockholders for the election of directors be given to the Secretary of the
Company not less than 60 days prior to the first anniversary of the date of the
last meeting of the stockholders for the election of directors. The provision
also requires that such notice must contain certain information about each
proposed nominee, including his or her age, business and residence addresses and
principal occupation, and the number of shares of stock of the Company
beneficially owned by such person. The provision is not applicable to
nominations by the Board of Directors. This advance notice requirement, by
regulating nominations from the floor at any meeting of stockholders, affords
management the opportunity to consider the qualifications of the proposed
non-management nominees and, to the extent deemed necessary or desirable by
management, to inform the stockholders about such qualifications in the
Company's proxy statement for the annual meeting.
Under the By-Laws, directors may be removed only for cause and then only by
the affirmative vote of the holders of not less than 80% of the outstanding
voting shares. The proposed Charter Amendment would move these provisions to the
Restated Certificate and would also add provisions governing removal of the
directors elected by holders of the Class A Common Stock. Moreover, under the
Restated Certificate, a special meeting of stockholders may be called only by
the Chairman of the Board of Directors, by a majority of the Board of Directors
or at the request of the holders of not less than two-thirds of the outstanding
voting shares.
The provisions for a classified Board of Directors and cumulative voting,
together with the limitation on removal of directors, make it more difficult to
remove directors, and ultimately incumbent management, even if a majority of
stockholders desire to do so and even where the only reason for the proposed
removal may be stockholder dissatisfaction with the performance of the incumbent
directors. A person who has gained as much as majority voting control of the
Company will be unable to gain immediate control of the Board of Directors
unless such person can obtain sufficient additional votes to amend various
provisions of the Restated Certificate and By-Laws, and even then, under the
DGCL, an amendment to the Restated Certificate may
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only be presented to stockholders for approval if adopted and declared advisable
by the then sitting Board of Directors.
The Capped Voting Provision and the Business Combination Provision, which
are proposed to be repealed under the Charter Amendment, could also discourage
tender offers or takeover attempts. See "THE CHARTER AMENDMENT -- Repeal of the
Business Combination and Capped Voting Provisions."
Other than the Charter Amendment, management does not presently intend to
propose for stockholder approval any other amendments to the Restated
Certificate which may discourage tender offers or takeover attempts.
Board Representation; Consent Rights
The Class A Common Stock will vote separately as a class for directors and
will elect a number of Class A Directors that is roughly proportionate (subject
to rounding) to the aggregate voting power of the Company's voting securities
represented by the Class A Common Stock. Accordingly, because BT's investment in
the Company will initially represent approximately 20% of the outstanding voting
securities of the Company and assuming that the Board of Directors is increased
to 15 members, the Class A Common Stock would initially elect 3 of the
anticipated 15 directors. This is roughly equivalent to the same representation
that would be available to BT if it were issued Common Stock in lieu of Class A
Common Stock and cumulated its votes for election of directors as currently
permitted under the Restated Certificate. See "INVESTMENT AGREEMENT -- Terms of
the Class A Common Stock -- Election of Directors." So long as any shares of
Class A Common Stock remain outstanding, BT will also be entitled to consent
rights in respect of certain significant actions by the Company, including
acquisitions, investments and dispositions in excess of specified percentages of
the Company's market capitalization. See "INVESTMENT AGREEMENT -- Terms of the
Class A Common Stock -- Matters Requiring Class A Common Stock Consent." Under
certain circumstances, even if the shares of Class A Common Stock are converted
into shares of Common Stock, so long as BT's percentage ownership of the
Company's voting securities (as determined in accordance with provisions of the
Investment Agreement (the "Outstanding Interest") which exclude from the
determination of the number of outstanding voting securities certain securities,
including securities issued pursuant to Employee Stock Plans (as hereafter
defined), in respect of which BT has not exercised its Equity Purchase Rights
described below under "INVESTMENT AGREEMENT -- Provisions Relating to the
Maintenance of BT's Proportionate Ownership Interest -- Equity Purchase Rights")
is at least 10% and certain other conditions are satisfied, under the Investment
Agreement the Board of Directors will be required to nominate for election to
the Board of Directors a number of designees of BT that is roughly proportionate
(subject to rounding) to the percentage of the Company's outstanding voting
securities then owned by BT. See "INVESTMENT AGREEMENT -- Board Representation
and Voting Provisions -- Board of Directors."
BT may have interests that diverge from or even conflict with those of the
Company. The Investment Agreement contains certain provisions to address and
reduce the possibility of conflicts of interest between BT and the other
stockholders by providing that the shares of Class A Common Stock will convert
to Common Stock and that BT will no longer be entitled to be represented on the
Board of Directors if, among other things, (i) BT's ownership interest in the
Company falls below certain specified thresholds, (ii) subject to certain
exceptions, BT is found to have engaged in certain activities relating to the
Core Business (as hereafter defined) of the Company in the Americas (see
"INVESTMENT AGREEMENT -- Release of Rights and Obligations -- Loss of BT
Rights") or (iii) either BT or the Company no longer holds its interest in Newco
and, in respect only of the loss of BT's right to be represented on the Board of
Directors, the Board of Directors, including a majority of the Independent
Directors (as hereafter defined), determines in its sole discretion that it
would not be in the best interest of the Company for the BT designees to remain
on the Board of Directors or certain other conditions are satisfied. See
"INVESTMENT AGREEMENT -- Terms of the Class A Common Stock -- Conversion" and "
- -- Board Representation and Voting Provisions -- Board of Directors." Such
potential conflicts of interest are also addressed by provisions of the
Investment Agreement relating to (i) Independent Directors comprising a majority
of the Board of Directors and the role of the Independent Directors in certain
determinations and (ii) the constraints on BT taking certain actions during
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the post-standstill period. See "INVESTMENT AGREEMENT -- Standstill and Related
Provisions -- Standstill Period" and " -- Post-Standstill Provisions"; " --
Provisions Relating to a Change in Control of the Company -- Business
Combinations -- Auction Procedures"; " -- Provisions Relating to the Maintenance
of BT's Proportionate Ownership Interest -- Equity Purchase Rights -- Voting
Equity Purchase Rights" and " -- Limitation on Issuance of Stock to Non-U.S.
Persons or Entities; Redemption of Stock Held by Non-U.S. Persons or Entities --
Redemptions"; " -- Board Representation and Voting Provisions -- Board of
Directors"; and " -- Continuance of Certain Rights."
Redemption Provision; Possible Redemption of Shares held by Non-U.S.
Persons
The Charter Amendment would, among other things, allow the Company to
redeem outstanding shares of the Company's capital stock to the extent necessary
to prevent the loss or secure the renewal or reinstatement of any license or
franchise from any governmental agency held by the Company or any of its
subsidiaries (such provision of the Charter Amendment is referred to as the
"Redemption Provision"). The Redemption Provision is being proposed in order to
assure that the Company will be able to comply with the foreign ownership
provisions contained in Section 310(b), although the Redemption Provision could
be used in other circumstances if necessary to prevent the loss of any
governmental license or franchise. Section 310(b) currently provides that,
absent an FCC order expressly permitting a higher level of foreign ownership, if
more than 25% of the Company's capital stock is owned of record or voted by
Non-U.S. Persons or Entities (as hereafter defined) the FCC may revoke certain
licenses that are material to the conduct of the business of the Company and its
subsidiaries if the FCC finds that such revocation is in the public interest.
Based upon the results of a survey of the Company's public stockholders
conducted in July 1993 in accordance with FCC guidelines, and assuming that BT
had then been issued shares of Class A Common Stock representing 20% of the
Common Shares outstanding after such issuance, the aggregate foreign ownership
of the Company's outstanding capital stock (including shares owned by BT) at
such time would have equaled 24.98 percent, plus or minus 1.32 percent (at a
survey confidence level of 97.5 percent). Although the Company has filed a
Petition for Declaratory Ruling (the "FCC Petition") with the FCC requesting,
among other things, that the FCC permit up to 28 percent of the Company's
capital stock to be owned by Non-U.S. Persons or Entities, the Company cannot
predict whether the FCC will grant such request. See "CHARTER AMENDMENT --
Redemption Provision" and "INVESTMENT PROPOSALS -- Regulatory Approvals --
Section 310 of the Communications Act."
If at any time following the Closing the percentage of the Company's
outstanding capital stock owned by Non-U.S. Persons or Entities were to exceed
25 percent or such greater percentage as may be set forth in an FCC order, under
the Redemption Provision the Company could redeem shares of the Company's
capital stock held by Non-U.S. Persons or Entities at a price equal to the fair
market value of such shares, except that the redemption price in respect of any
shares purchased by any relevant Non-U.S. Person or Entity after ,
1994 and within one year of the redemption date will not (unless otherwise
determined by the Board of Directors) exceed the purchase price paid for such
shares by such Non-U.S. Person or Entity. If the Company were to redeem shares
of its stock in order to comply with Section 310(b), the shares to be redeemed
would be selected in a manner determined by the Board of Directors which may
include selection first of the most recently purchased shares, selection by lot
or selection in any other manner determined by the Board of Directors to be
equitable, provided that the Board of Directors would, to the fullest extent
permitted by law, redeem shares of Common Stock before redeeming shares of Class
A Common Stock. See "CHARTER AMENDMENT -- Redemption Provision." The Redemption
Provision could have an adverse effect on the price of the Common Stock.
Dilution
The Investment Agreement contemplates the issuance by the Company of a
substantial amount of Class A Common Stock at the Closing. This issuance will
dilute the voting rights of existing holders of the Common Stock and could have
the effect of diluting the economic interests of the existing holders of Common
Stock. The Class A Common Stock will share ratably in dividends and liquidating
distributions with Common Stock. Whether the initial issuance of shares of Class
A Common Stock will have a dilutive effect
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on the earnings per share of Common Stock and, if so, the extent of such
dilution will depend upon, among other factors, the actual earnings generated by
the application of the Transaction Proceeds. See "Use of Proceeds" above. In
addition, for so long as BT's Outstanding Interest is at least 10%, BT will have
the right, subject to certain restrictions, to maintain its proportionate
ownership of the Company's equity securities through the exercise of certain
purchase rights in respect of all new issuances of voting securities of the
Company and options, warrants, rights and other securities convertible into or
exchangeable for such voting securities. See "INVESTMENT AGREEMENT -- Provisions
Relating to the Maintenance of BT's Proportionate Ownership Interest -- Equity
Purchase Rights." The issuance of additional securities pursuant to the exercise
of such purchase rights could also have a dilutive effect on the current holders
of Common Stock.
REGULATORY APPROVALS
General. The Company and BT are generally obligated under the Investment
Agreement and the Joint Venture Agreement, as applicable, to make all necessary
filings relating to the transactions contemplated by the Investment Agreement,
the Joint Venture Agreement and the BTNA Agreement (collectively, the
"Transactions") under the Communications Act, the HSR Act, and applicable
European Community and U.K. competition laws and to use their best effort to
furnish, as promptly as practicable, all information and documents requested
under each of such laws and to otherwise cooperate with the applicable
regulatory authorities in order to obtain all required regulatory approvals in
as expeditious a manner as possible. The Company and BT have also filed a
voluntary notification under Section 721 of the Defense Production Act of 1950,
as amended (the "Exon-Florio Amendment"), and are obligated under the Investment
Agreement to use their best efforts to furnish, as promptly as practicable, all
information and documents requested pursuant to the Exon-Florio Amendment. In
addition, the Company has filed with the Defense Investigative Service necessary
documents to demonstrate that foreign ownership, control or influence ("FOCI")
of the Company will not result from the transactions contemplated by the
Investment Agreement.
There can be no assurance that the Company and BT will be able to obtain
all necessary regulatory approvals or other actions that are required to
consummate the Transactions. Furthermore, it is possible that any one or more of
such regulatory approvals or other actions which have not yet been received or
taken may impose conditions on the Company or BT or may be conditioned on
material modifications being made to the Transactions or the receipt of
undertakings from the Company or BT. Each of the Company and BT have agreed to
use their respective best efforts to resolve such objections, if any, as the
applicable regulatory authorities may assert with respect to the Transactions.
In the event that a suit is instituted by any person or regulatory authority
challenging the Investment Agreement and the transactions contemplated therein
as violative of the Communications Act or applicable antitrust or competition
laws, each of the Company and BT have agreed to use their best efforts to resist
or resolve such suit. Each of the Company and BT have also agreed to appeal
and/or litigate any adverse ruling of the European Commission or applicable U.K.
regulatory authorities relating to the Joint Venture. Generally, neither the
Company nor BT is required, however, to provide any undertakings or comply with
any condition that would materially and adversely affect their respective rights
under the Joint Venture Agreement and the agreements relating thereto or would,
in their respective reasonable opinion, materially diminish, taken as a whole,
the Company's or BT's, respectively, rights or protections under the Investment
Agreement, the Restated Certificate and the By-Law Amendments or materially and
adversely affect their respective businesses taken as a whole. In addition, the
Joint Venture Agreement provides that the obligations of the Company and BT to
use their respective best efforts to obtain regulatory clearance for the
transactions relating to the Joint Venture do not require the divestiture of any
business having a fair market value in excess of $15 million. Subject to
applicable law, if the Company's stockholders approve the Investment Proposals,
the Board of Directors reserves the right to amend the Investment Agreement, the
Joint Venture Agreement or any agreement relating thereto without further
stockholder action and for any reason including in order to obtain receipt of
necessary regulatory approvals in a timely manner.
Section 310 of the Communications Act. Certain subsidiaries of the Company
hold licenses granted by the FCC that are material to the business of the
Company and its subsidiaries. Section 310(b) permits the
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FCC to revoke such licenses if, among other things, more than 25% of the capital
stock of the Company is owned of record or voted by Non-U.S. Persons or Entities
and the FCC finds that the public interest would be served by such revocation.
Section 310(d) of the Communications Act ("Section 310(d)") requires FCC
approval prior to the transfer of control of any entity such as the Company
which owns subsidiaries that hold common carrier radio licenses.
On August 23, 1993, the Company and BT filed the FCC Petition requesting
written confirmation from the FCC that the transactions contemplated by the
Investment Agreement do not require FCC approval pursuant to Section 310(d) and
that BT's investment in the Company contemplated by the Investment Agreement,
even when aggregated with non-BT foreign ownership of the Company, is consistent
with and permissible under Section 310(b). Based upon a survey of the Company's
public stockholders conducted in July 1993 in accordance with FCC guidelines,
and assuming that BT had then been issued shares of Class A Common Stock
representing 20% of the Common Shares outstanding after such issuance, the
aggregate foreign ownership of the Company's outstanding capital stock
(including shares owned by BT) at such time would have equaled 24.98 percent,
plus or minus 1.32 percent (at a survey confidence level of 97.5 percent). In
order to cover the possibility of minor fluctuations in the amount of shares
held by the Company's public stockholders who are Non-U.S. Persons or Entities,
the FCC Petition also requests that the FCC find that aggregate foreign
ownership of 28 percent of the Company's outstanding capital stock would be
permissible under Section 310(b). While the Company believes that BT's proposed
investment in the Company is consistent with Section 310(b) and does not require
approval pursuant to Section 310(d), the Company cannot predict the outcome of
the FCC Petition. Furthermore, even if the FCC were to confirm that BT's
proposed investment is consistent with Section 310(b), the FCC may be unwilling
to permit foreign ownership of up to 28 percent, which could have an adverse
impact on the ability of the Company and BT to consummate the transactions
contemplated by the Investment Agreement.
U.S. Antitrust Laws. Under the HSR Act and the rules promulgated
thereunder by the Federal Trade Commission (the "FTC"), the Closing under the
Investment Agreement, the simultaneous closing of the transactions contemplated
by the Joint Venture Agreement (the "Joint Venture Closing") and closing of the
transactions under the BTNA Agreement may not be consummated until notifications
have been given and certain information has been furnished to the FTC and the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
the applicable waiting period has expired or been terminated. On August 24,
1993, the Company and BT filed notification and report forms under the HSR Act
with the FTC and the Antitrust Division relating to the transactions
contemplated by the Investment Agreement and the Joint Venture Agreement. On
September 23, 1993, the Company and BT received from the Antitrust Division a
request for additional information concerning the transactions contemplated by
the Investment Agreement and the Joint Venture Agreement. Under the HSR Act, the
Closing and the Joint Venture Closing may not occur until 20 days after both the
Company and BT have substantially complied with the applicable requests. The
Company and BT will file as promptly as practicable notification and report
forms under the HSR Act with the FTC and the Antitrust Division regarding the
transactions contemplated by the BTNA Agreement. On December 6, 1993, the
Company and BT filed report forms under the HSR Act with the FTC and the
Antitrust Division regarding the transactions contemplated by the BTNA Agreement
and on December 21, 1993 received early termination of the applicable waiting
period under the HSR Act to permit the closing of the transactions under the
BTNA Agreement. While the Company believes that the Transactions will promote
competition in U.S. and international telecommunications markets, there can be
no assurance that the Antitrust Division will not challenge or seek to modify
the Transactions in their present form or that the Company or BT will be able to
satisfy any objections that the Antitrust Division may have regarding the
Transactions.
At any time before or after the consummation of the Transactions,
notwithstanding that the waiting period under the HSR Act has expired, the
Antitrust Division, the FTC or any state could take such action under U.S.
antitrust laws as it deems necessary or desirable in the public interest. Such
action could include seeking to enjoin the consummation of the Transaction or
seeking divestiture of substantial assets of the Company. Private parties may
also seek to take legal action under U.S. antitrust laws under certain
circumstances.
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The Exon-Florio Amendment. The Exon-Florio Amendment empowers the
President of the United States to prohibit or suspend an acquisition of, or
investment in, a United States company by a foreign person if the President
finds, after investigation, credible evidence that the foreign person might take
action that threatens to impair the national security of the United States and
that other provisions of existing law do not provide adequate and appropriate
authority to protect the national security. The Exon-Florio Amendment permits
parties that it might affect to voluntarily submit notification to the Chairman
of the Committee on Foreign Investment in the United States ("CFIUS"). Any
determination that an investigation is called for must be made within 30 days of
such notice. In the event such a determination is made, any such investigation
must be completed within 45 days of such determination. Thereafter, any decision
to take action must be announced within 15 days of completion of the
Investigation. The Company and BT jointly notified CFIUS in writing of the
transactions contemplated by the Investment Agreement on December 20, 1993. The
Company does not anticipate that an investigation will be initiated under the
Exon-Florio Act.
Defense Investigative Service. Because the Company's subsidiaries hold
Department of Defense ("DOD") facility clearances and are federal contractors
eligible for access to classified information, the Company is subject to FOCI
restrictions. Defense Investigative Service ("DIS") is the government entity
responsible for all DOD related security matters including FOCI. The Company has
submitted to DIS a proposal to negate any potential FOCI issues generated by the
Investment Agreement. This proposal includes provisions from the Investment
Agreement that restrict BT, including its designees to the Company's Board of
Directors, from access to classified information. On December 16, 1993, DIS
advised the Company that it had found the proposal acceptable.
European Community Competition Regulations. Article 85 of the Treaty of
Rome ("Article 85") prohibits parties from entering into agreements or
arrangements which restrict competition in the European Community (the "EC") and
affect trade between EC member states without seeking the approval of the EC
Commission. Breach of Article 85 exposes the parties to, among other things, the
risk of substantial fines from the EC Commission and the risk of third party
actions for injunctions or damages. The Company and BT notified the EC
Commission of the Transactions in an application for negative clearance (i.e.,
that Article 85 does not apply) or exemption (i.e. that Article 85 applies but
the agreement is not unduly restrictive) under Article 85. The parties are thus
protected from the risk of fines. Requests for further information were made by
the EC Commission on September 24, 1993 and October 25, 1993, to which each of
the Company and BT responded on October 15, 1993 and November 3, 1993,
respectively. The EC Commission has agreed to deal with the filing under its
accelerated review procedures. Under Article 85, the EC Commission may either
grant a negative clearance or an exemption (in either case, with or without
requiring amendments to the agreements constituting the Transactions and/or
requiring the parties to agree to conditions or undertakings) or notify the
parties that it intends to take no action in respect of the agreements. The EC
Commission has developed a procedure whereby it issues a "comfort letter" to the
parties in which it informs them of the view it takes of the agreements. Such a
letter does not constitute a formal decision and does not preclude the EC
Commission from reviewing the relevant transactions and issuing a formal
decision regarding the notified transactions. No assurance as to the final
outcome of the procedure can be given.
U.K. Merger Control. The Transactions are subject to preliminary
assessment by the U.K. Office of Fair Trading (the "OFT") under the merger
provisions of the U.K. Fair Trading Act 1973 (the "FTA"). Following receipt of a
recommendation from the U.K. Director General of Fair Trading, the U.K.
Secretary for Trade and Industry (the "Secretary of State") has discretion to
decide whether or not to refer a transaction to the U.K. Monopolies and Mergers
Commission (the "MMC") which, in the event of a reference, would be required to
determine whether or not the transaction "operates or may be expected to operate
against the public interest". A joint submission to the OFT was made by the
Company and BT on November 2, 1993 requesting confirmation from the Secretary of
State that the Transactions will not be referred to the MMC. On December 16,
1993, the OFT advised the Company and BT that the Secretary of State had decided
not to refer the matter to the MMC.
U.K. Restrictive Trade Practices Act 1976. The U.K. Restrictive Trade
Practices Act 1976 (the "RTPA") applies to agreements under which, broadly, two
or more persons carrying on business within the
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U.K. in the production or supply of goods or the supply of services accept
certain types of restrictions. On September 17, 1993, the OFT decided that the
Transactions were not currently registrable under the RTPA.
U.K. Telecommunications Regulation. Pursuant to the U.K.
Telecommunications Act 1984 (the "U.K. Telecommunications Act"), operation of a
telecommunications system in the U.K. requires use of an individual or class
license issued by the Secretary of State. The Transactions are conditional upon
either the Secretary of State notifying the Company or BT that no class license
has been or is to be revoked or that Newco otherwise possesses the necessary
license to carry on its business and that such license is not subject to any
conditions that would have a material adverse effect on the business of Newco
taken as a whole. In either case, if as a direct result of the above, the
Secretary of State or the Director General of Telecommunications shall have
formally proposed to amend BT's license, it is a condition to the Transactions
that such proposed amendment not have a material adverse effect on the business
of BT taken as a whole. The parties intend to comply with the requirements of
the U.K. Telecommunications Act. There can be no assurance that the Secretary of
State will provide the requisite notice or grant an individual notice to Newco.
INVESTMENT AGREEMENT (ITEM NO. 1)
The stockholders are being asked to approve the Investment Agreement and
the performance by the Company of all transactions and acts on the part of the
Company contemplated under the Investment Agreement, including the issuance and
sale to BT of shares of Class A Common Stock and any shares of Common Stock
issued upon the conversion of the shares of Class A Common Stock. The following
is a summary of certain provisions of the Investment Agreement, which, as
amended through the date of this Proxy Statement, is attached as Appendix I to
this Proxy Statement and is incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Investment Agreement.
The Board of Directors reserves its right, pursuant to the Investment
Agreement, to amend the provisions of the Investment Agreement in all respects
in accordance with its terms and without stockholder approval before or after
approval of the Investment Proposals by the Company's stockholders. The Board of
Directors also reserves the right to terminate the Investment Agreement in
accordance with its terms notwithstanding stockholder approval.
PURCHASE AND SALE OF CLASS A COMMON STOCK
Pursuant to the terms of the Investment Agreement the Company has agreed,
subject to the terms and conditions set forth therein, to issue to BT on the
Closing Date shares of Class A Common Stock representing approximately 20% of
the aggregate number of shares of Common Stock and Class A Common Stock
outstanding after giving effect to such issuance. The shares of Class A Common
Stock to be issued to BT on the Closing Date include (i) the 106,752,106 shares
to be sold to BT for a cash purchase price of $32.46 per share and (ii) the
27,472,976 shares to be issued to BT on the Closing Date in exchange for the
shares of Common Stock to be received by BT upon conversion of the shares of
Convertible Preferred Stock. After taking into account the price paid by BT for
the Convertible Preferred Stock, BT will have acquired the shares of Class A
Common Stock to be issued in connection with the Closing at an average price of
$32.00 per share.
Subject to the terms and conditions of the Investment Agreement, BT will
have the option to purchase from the Company on the Closing Date, at a cash
price of $32.00 per share, all but not less than all of that number of
additional shares of Class A Common Stock equal to 25% of the aggregate number
of shares of Common Stock actually issued between July 28, 1993 and the Closing
pursuant to the exercise of options or any other rights to acquire shares of
Common Stock granted, issued or otherwise existing prior to August 4, 1993
pursuant to the Company's employee benefit plans and programs pursuant to which
employees or directors of the Company or its subsidiaries may acquire shares of
Common Stock or options, warrants or other rights to acquire capital stock of
the Company (all such present, past or future plans or programs are referred to
herein as "Employee Stock Plans" and all such options or other rights to acquire
Common Stock are referred to herein as "Existing Options").
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The Investment Agreement provides that the number of shares of Class A
Common Stock to be issued to BT in connection with the Closing will be reduced
to the extent necessary so that the aggregate percentage of the outstanding
capital stock of the Company owned of record or voted by BT and all other
Non-U.S. Persons or Entities does not exceed 1/10th of 1% less than the Foreign
Ownership Limitation (as hereafter defined) (the "Closing Foreign Ownership
Limitation"). If the number of shares of Class A Common Stock issued to BT has
been so reduced, within one year following the Closing the Company will sell to
BT at a price of $32.00 per share the number of shares of Class A Common Stock
so reduced. "Foreign Ownership Limitation" means the maximum aggregate
percentage of the capital stock of the Company that may be owned of record or
voted (as such terms are used in Section 310(b) and interpretations thereof by
the FCC) by Non-U.S. Persons or Entities under Section 310(b). As of the date
hereof, the Foreign Ownership Limitation equals 25 percent. Although the Company
has filed the FCC Petition requesting, among other things, that the FCC permit
up to 28 percent of the Company's capital stock to be owned by Non-U.S. Person
or Entities, the Company cannot predict whether the FCC will grant such request.
See "INVESTMENT PROPOSALS -- Regulatory Approvals -- Section 310 of the
Communications Act." "Non-U.S. Persons or Entities" means any foreign government
or the representative thereof, any alien or the representative of any alien or
any corporation organized under the laws of any foreign country, as those terms
are used in Section 310(b).
TERMS OF THE CLASS A COMMON STOCK
General. The Class A Common Stock is equivalent on a per share basis to
the existing Common Stock in all respects other than voting rights and
conversion rights. BT will be issued shares of Class A Common Stock rather than
Common Stock primarily to enable BT to elect directly its designees to the Board
of Directors and to exercise certain consent rights in its capacity as a
stockholder.
Dividends. The holders of shares of Class A Common Stock will be entitled
to receive, when, as and if declared by the Board of Directors, dividends in an
amount per share equal to the per share amount of any dividend paid on the
Common Stock, payable on the same date of payment as the corresponding dividend
on the Common Stock. If the Company pays any dividend on the Common Stock in
shares of Common Stock or effects a subdivision, combination or consolidation of
the outstanding shares of Common Stock into a greater or lesser number of shares
of Common Stock, then the Company will declare and pay an equivalent dividend
per share on the Class A Common Stock payable in shares of Class A Common Stock
or effect an equivalent subdivision or combination or consolidation of the
outstanding shares of Class A Common Stock into a greater or lesser number of
shares of Class A Common Stock.
Liquidation Rights. After distribution in full of any preferential amount
to be distributed to the holders of preferred stock of the Company, in the event
of any voluntary or involuntary liquidation, dissolution or winding-up of the
Company, the holders of the Class A Common Stock are, subject to the right, if
any, of the holders of any series of preferred stock to participate therein,
entitled together with the holders of the Common Stock to receive all the
remaining assets of the Company available for distribution to stockholders,
ratably in proportion to the number of shares held by each such holder.
Voting Rights. Except as may otherwise be required by law or be provided
for under the terms of any preferred stock issued by the Company, and except in
connection with the election of directors or certain consent rights as set forth
below, each share of Class A Common Stock will be entitled to one vote on each
matter in respect of which the holders of the Common Stock are entitled to vote,
and the holders of the Class A Common Stock will vote together with the holders
of the Common Stock as a single class.
Election of Directors. The holders of the Class A Common Stock will have
the right, voting separately as a class, to elect that number of directors of
the Company (the "Class A Directors") equal to the product (rounded to the
nearest whole number) of (x) the percentage of the aggregate voting power of the
Outstanding Voting Securities represented by shares of Class A Common Stock
times (y) the total number of directors constituting the whole Board of
Directors, unless the percentage of aggregate voting power of the Outstanding
Voting Securities owned by BT and its affiliates (the "Outstanding Voting
Interest") is between 15% and 20% (inclusive), in which event the multiplier set
forth in clause (x) will be 20% in lieu of the then Outstanding Voting Interest.
The directors of the Company other than the Class A Directors will be elected by
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the holders of the class or classes or series of stock entitled to vote therefor
(currently consisting only of Common Stock), but excluding the Class A Common
Stock.
Since the Outstanding Voting Interest will initially equal approximately
20%, BT will initially elect 3 of an expanded 15 member Board of Directors after
the Closing. This is roughly equivalent to the same representation that would be
available to BT if it were issued Common Stock in lieu of Class A Common Stock
and cumulated its votes for election of directors as currently permitted under
the Restated Certificate.
Matters Requiring Class A Common Stock Consent. So long as any shares of
Class A Common Stock are outstanding, the consent or affirmative vote of the
holders of a majority of the outstanding shares of Class A Common Stock, voting
separately as a class, will be needed for the Company to (i) amend the Restated
Certificate so as to affect adversely the rights of holders of shares of Class A
Common Stock; (ii) effect any Business Combination prior to the fourth
anniversary of the Closing Date; (iii) issue any capital stock having either
more than one vote per share (other than pursuant to the Rights Plan) or a class
vote on any matter, except to the extent such class vote is required by the DGCL
or to the extent that the holders of any series of preferred stock may have the
right, voting separately as a class, to elect a number of directors of the
Company upon the occurrence of a default in payment of dividends or redemption
price; (iv) adopt any stockholder rights plan, or any other plan or arrangement
that could reasonably be expected to disadvantage any stockholder on the basis
of the size of its shareholding, such that BT or any of its affiliates would be
adversely affected in relation to their position under the Rights Plan as in
effect on the Closing Date, or amend, modify or terminate the Rights Plan
(excluding any redemption or exchange of the Rights and excluding any amendment
of the Rights Plan made in order that the execution of a definitive agreement
providing for a business combination or the consummation thereof would not
result in the Rights becoming exercisable if at the time of such amendment the
Company would otherwise be entitled to redeem the Rights) if such action would
adversely affect the rights of BT and its affiliates in relation to their
position under the Rights Plan as in effect on the Closing Date; (v) issue
shares of Common Stock, Class A Common Stock or any other securities of the
Company having voting power under ordinary circumstances with respect to
election of directors of the Company ("Voting Securities") (other than pursuant
to or upon (v) the terms of the Class A Common Stock, (w) the exercise or
exchange of the Rights, (x) grants or issuances of capital stock or any options
or other rights to acquire shares of capital stock pursuant to Employee Stock
Plans and any Voting Securities issuable upon the exercise of any such options
or other rights (y) the exercise of any options to purchase Voting Securities
granted in connection with the execution of a definitive agreement providing for
a business combination or (z) the reissuance of Voting Securities purchased by
the Company subsequent to August 4, 1993) representing voting power in excess of
(A) 10% of the aggregate voting power of the outstanding Voting Securities of
the Company as of the date of such issuance in any single or related series of
transactions or (B) 15% of the aggregate voting power of the average number of
Voting Securities of the Company outstanding over a rolling three-year period,
in each case after giving effect to the issuance or issuances in question; (vi)
issue Voting Securities (other than (x) on a pro rata basis to all holders of a
class or series of capital stock generally, (y) upon the exercise or exchange of
the Rights or (z) upon exercise of any options to purchase Voting Securities
granted in connection with the execution of a definitive agreement providing for
a business combination) to any person (other than BT and its affiliates) that
beneficially owns, or as a result thereof would beneficially own more than 5% of
the outstanding Voting Securities, or effect transactions (other than (A) on an
equal basis to all holders of a class or series of capital stock generally, (B)
in accordance with the Rights Plan or (C) any Business Combination effected
subsequent to the fourth anniversary of the Closing Date) with any person that
beneficially owns more than 5% of the outstanding shares of capital stock of the
Company; (vii) any single or related series of acquisitions of businesses or
assets or investments therein (including, without limitation, the formation of a
joint venture with persons other than BT), other than money market types of
investments and trade receivables, pursuant to which the aggregate purchase
price paid by the Company will exceed 20% of the Company's then current market
capitalization (determined in the manner set forth in the Investment Agreement);
(viii) effect any single or related series of acquisitions of businesses or
assets or investments in a Non-Core Business (as hereafter defined) pursuant to
which the aggregate purchase price paid by the Company will exceed 5% of the
Company's market capitalization (determined in the manner set forth in the
Investment Agreement) except to the extent that any such Non-Core Business is
obtained in the course of a bona fide transaction the principal purpose of which
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is the acquisition of a Core Business (also see " -- Sale of Non-Core Business"
below); (ix) effect any single or related series of sales, transfers or other
dispositions or encumbrances of assets having a fair market value in excess of
15% of the aggregate fair market value of the total assets of the Company and
its subsidiaries (other than a sale of all or substantially all of the assets of
the Company); (x) incur indebtedness for money borrowed (including financing
whether or not required to be presented on the consolidated balance sheet of the
Company and its subsidiaries) that would cause the Company's ratio of
consolidated debt-to-total capitalization (determined in the manner set forth in
the Charter Amendment) to exceed 65%; or (xi) declare any extraordinary cash
dividend or other distribution to holders of any capital stock in excess of 5%
of the market capitalization (determined in the manner set forth in the
Investment Agreement) of the Company at the time of such dividend or
distribution. Because all of the shares of Class A Common Stock will be owned by
BT or its affiliates, for so long as any shares of Class A Common Stock remain
outstanding, except as described below, the Company will be prohibited from
taking any of the foregoing actions without the consent of BT. "Non-Core
Business" means any business that is not a Core Business and "Core Business"
means all telecommunications and other electronic information services and
equipment for the provision of such services, as they now or may hereafter
exist, including, without limitation, all forms of telecommunications access and
egress (landline and wireless), and value-added consumer and business services
generated through or as a result of underlying telecommunications services using
all technology (voice, data and image) and physical transport, network
intelligence, and software applications, and including, without limitation, (i)
information processing, (ii) systems integration and outsourcing, (iii)
transaction processing and (iv) cable television.
Notwithstanding the consent rights described above, no consent of the
holders of Class A Common Stock will be required for actions involving
transactions solely between or among the Company and one or more of its
subsidiaries, in order for the Company to satisfy its obligations or exercise
its rights under the Investment Agreement, the Joint Venture Agreement or any
related agreement, for any transactions pursuant to the terms of the Class A
Common Stock, for any other transaction between or in respect of the Company or
any of its affiliates, on the one hand, and any holder of the Class A Common
Stock or any of their affiliates, on the other hand, or in connection with any
action pursuant to a requirement of law.
Conversion. If any share of Class A Common Stock is sold, transferred,
pledged or otherwise disposed of (each such act a "Transfer") to any person
other than a wholly-owned subsidiary of BT, each such share will be
automatically converted into one share of Common Stock. Upon the occurrence of a
Conversion Event (as hereafter defined), each share of Class A Common Stock then
outstanding will automatically be converted into one share of Common Stock. A
"Conversion Event" is, in general, any of the following occurrences: (i) the
Outstanding Interest becomes less than 10% other than solely as a result of the
redemption of Voting Securities beneficially owned by BT pursuant to the
Redemption Provision; (ii) BT has Transferred in the aggregate Voting Securities
representing more than 25% of the largest amount in voting power of Voting
Securities at any time beneficially owned by BT and its affiliates and the
Outstanding Interest is less than 15% (other than solely as a result of the
redemption of Voting Securities beneficially owned by BT pursuant to the
Redemption Provision); (iii) either the Company or BT no longer holds an
interest in Newco, subject to the requirement under certain limited
circumstances that a Conversion Event shall occur only if the Company delivers
notice to BT consenting to the conversion of the Class A Common Stock (see
"RELATED TRANSACTIONS -- The Joint Venture -- Transfer Restrictions" and "--
Termination of the Joint Venture"; see also "Standstill and Related Provisions"
below); (iv) there has been any judicial determination (other than in an ex
parte proceeding), following certain specified procedures, that BT or any of its
affiliates has materially breached the transfer, standstill or voting provisions
of the Investment Agreement; or (v) BT has engaged in the Core Business of the
Company in the Americas to an extent not contemplated by the Investment
Agreement as described below under "Release of Rights and Obligations -- Loss of
BT Rights."
STANDSTILL AND RELATED PROVISIONS
Standstill Period. The Investment Agreement provides that during the ten
year period following the Closing Date (the "Standstill Period"), neither BT nor
any of its affiliates may acquire beneficial ownership of any additional shares
of capital stock of the Company or securities convertible into such shares or
options,
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warrants or other rights to acquire such shares (collectively, "Equity") such
that BT and its affiliates would beneficially own more than 20% of all Voting
Securities outstanding. This restriction on the acquisition of additional Equity
by BT and its affiliates (the "Standstill") does not apply if, and then only to
the extent permitted by the then existing Foreign Ownership Limitation and any
other requirements of law the violation of which would have an adverse effect on
the Company, (i) there is a judicial determination (other than in an ex parte
proceeding) that the Company has materially breached certain obligations under
the Investment Agreement or (ii) there is a final non-appealable court order,
judgment or decree declaring the Rights Plan or any successor plan thereto
invalid (a "Rights Plan Invalidation Decree") and either (x) a third party not
affiliated with BT or any of its affiliates had commenced a bona fide tender
offer or exchange offer (a "Bona Fide Offer") for at least 20% of the
outstanding shares of capital stock of the Company or (y) a third party not
affiliated with BT or any of its affiliates has acquired beneficial ownership of
at least 10% of the outstanding shares of capital stock of the Company and has
publicly disclosed a present intent that is other than passive in all material
respects (such acquisition is hereafter referred to as a "Third Party
Acquisition"). If the Standstill is terminated by reason of a Bona Fide Offer
for all of the outstanding Common Shares, then, during the pendency of such Bona
Fide Offer, BT and its affiliates may only acquire additional shares of Common
Stock pursuant to a tender offer or exchange offer for all of the outstanding
shares of Common Stock. The Investment Agreement provides for different
standstill termination events if the Rights Plan (or any successor plan thereto)
has been terminated or the Rights redeemed other than in connection with a Bona
Fide Offer.
BT has agreed that during the Standstill Period neither BT nor any of its
affiliates will seek to have the Company waive, amend or modify any of the
restrictions contained in the Investment Agreement, the Restated Certificate or
the By-Laws of the Company, make any Acquisition Proposal (as hereafter
defined), take any initiatives involving the Company that would otherwise
require the Company to make a public announcement, make any public comment or
proposal with respect to any Acquisition Proposal, become a member of any
"group" involving the ownership of the Company's securities, enter into any
discussions, negotiations, arrangements or understandings with any third party
with respect to any of the foregoing or otherwise seek to control or influence
the Company, except that BT has the right to make a tender offer or exchange
offer for all the outstanding shares of Common Stock if the Company fails to
consent to the automatic conversion of the Class A Common Stock arising from
BT's acquisition of the Company's interest in Newco as a result of the Company
materially breaching certain of its obligations under the Joint Venture
Agreement or the Intellectual Property Agreement (as hereafter defined) and
certain other limited circumstances. The obligations of BT and its affiliates
described in this paragraph will terminate at such time as the Standstill
terminates as described above. "Acquisition Proposal" means any tender offer or
exchange offer or proposal with respect to a Business Combination or a sale of
10 percent or more of the outstanding Voting Securities.
Post-Standstill Provisions. The Investment Agreement provides that, in
general, following the expiration of the Standstill Period, or earlier
termination under certain circumstances, for as long as the Outstanding Interest
is at least 10%, neither BT nor any of its affiliates may (i) take any action
that could result in less than a majority of the directors of the Company being
Independent Directors; (ii) acquire, except as described below, the beneficial
ownership of any Equity to the extent that, after such acquisition, BT and its
affiliates would beneficially own more than 35% of all Voting Securities
outstanding (or 30% if Section 310(b) has been repealed or otherwise would not
in the reasonable judgment of BT affect in any material respect the consummation
of an Acquisition Proposal by BT) other than (A) pursuant to a Business
Combination that has been approved by the Independent Directors and by a
majority of the stockholders other than BT and its affiliates, (B) pursuant to a
tender offer or exchange offer that has been recommended by the Independent
Directors and accepted by a majority of the stockholders other than BT and its
affiliates, except this clause (B) shall be deemed satisfied if BT consummates a
tender offer or exchange offer for all outstanding Voting Securities following
the Company's failure to consent to the conversion of the Class A Common Stock
arising from BT's acquisition of the Company's interest in Newco as a result of
the Company materially breaching certain of its obligations under the Joint
Venture Agreement or the Intellectual Property Agreement and certain other
limited circumstances, (C) pursuant to a transaction that occurs within one year
of the termination of a tender offer or exchange offer by BT or any of its
affiliates that satisfied the requirements described in clause (B) above, or (D)
if prior to such acquisition BT and its affiliates own at least 90% of each
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class of the outstanding capital stock of the Company; or (iii) take any action
that could result in the Company, directly or indirectly, engaging in any of the
following actions (other than pursuant to a transaction in which all
stockholders are participating in proportion to their equity interests) without
the approval of a majority of the Independent Directors: (1) the acquisition or
redemption during any one-year period of more than 1% of the shares of capital
stock outstanding at the beginning of such period, (2) the acquisition or
redemption of any Equity beneficially owned by BT and its affiliates, other than
as expressly permitted in the Investment Agreement, (3) the issuance or transfer
of any Equity to BT or any of its affiliates, other than as expressly permitted
by the Investment Agreement, (4) a sale, lease, exchange, pledge, transfer or
other disposition in which BT or any of its affiliates has a material interest
or a loan, advance, guarantee, pledge or other arrangement in which BT or any of
its affiliates would receive a financial benefit, other than, in each case, to
the extent expressly permitted in the Investment Agreement, (5) the redemption
of the Rights, or (6) any amendment of any agreement between BT or any of its
affiliates, on the one hand, and the Company or any of its affiliates, on the
other hand, or of the Restated Certificate or the By-laws of the Company.
The obligations of BT described in clauses (i) and (ii) of the immediately
preceding paragraph will terminate in the event there is a Rights Plan
Invalidation Decree and either (x) a Bona Fide Offer for at least 30% of the
outstanding shares of capital stock of the Company (or 35% if Section 310(b) has
been repealed or otherwise would not in the reasonable judgment of BT affect in
any material respect the consummation of an Acquisition Proposal by BT) (a
"Post-Standstill Bona Fide Offer") has been commenced or (y) a Third-Party
Acquisition of at least 20% of the outstanding shares of capital stock of the
Company occurs. If the obligations of BT referred to in clauses (i) and (ii) of
the preceding paragraph terminate as a result of the occurrence of a Rights Plan
Invalidation Decree and a Post-Standstill Bona Fide Offer is commenced for all
of the outstanding shares of Common Stock, then during the pendency of such
offer BT and its affiliates may only acquire additional shares of Common Stock
pursuant to a tender offer or exchange offer for all of the outstanding shares
of Common Stock. The Investment Agreement provides for different termination
events if the Rights Plan (or the successor plan thereto) has been terminated or
the Rights redeemed other than as a result of the occurrence of a Rights Plan
Invalidation Decree.
Other Restrictions. BT has agreed that BT and its affiliates will not
purchase additional Equity if the aggregate percentage of the outstanding
capital stock of the Company owned of record or voted by Non-U.S. Persons or
Entities (including BT and its affiliates) would, after giving effect to such
purchase, exceed the then existing Foreign Ownership Limitation. See "--
Provisions Relating to the Maintenance of BT's Proportionate Ownership Interest
- -- Other Permitted Purchases."
TRANSFER RESTRICTIONS AND RELATED PROVISIONS
Transfer Restrictions. Under the Investment Agreement BT has agreed that
prior to the fourth anniversary of the Closing Date, neither BT nor any of its
affiliates will Transfer any Equity except Transfers (i) to wholly owned
subsidiaries of BT, (ii) to the Company, (iii) pursuant to a merger or
consolidation in which the Company is a constituent corporation and (iv) subject
to the Company's right of first refusal described below under "Right of First
Refusal" (except with respect to clause (1) below), pursuant to a bona fide
third party tender offer or exchange offer (1) that is recommended by the Board
of Directors, (2) in connection with which a final non-appealable court order
has declared the Rights Plan or any successor plan thereto invalid and required
the redemption of the Rights or (3) except as contemplated by the preceding
clause (2), commenced subsequent to the date that the Rights Plan is terminated
or the Rights redeemed and all conditions to such offer (other than with respect
to the number of shares tendered) will have been satisfied, provided that, in
the case of clause (2) or (3), the Board of Directors of BT reasonably believes
that such tender offer will result in shares being purchased (without the
extension of the scheduled expiration date and without giving effect to shares
that might be tendered by BT or any of its affiliates).
The Investment Agreement provides that, from and including the fourth
anniversary of the Closing Date, so long as the Outstanding Interest is at least
5%, neither BT nor any of its affiliates will Transfer any Equity except for
Transfers (i) permitted pursuant to the provisions described in the immediately
preceding paragraph, (ii) in bona fide open market "brokers' transactions" as
permitted by the provisions of Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"), or in a bona fide underwritten public
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offering pursuant to the Registration Rights Agreement (as hereafter defined) (a
"Permitted Offering"), provided that BT or its affiliates, as the case may be,
take all reasonable steps to assure that any such Transfer will not be made to
any person or group that would, following such Transfer, beneficially own more
than 5% of the outstanding Voting Securities unless the transferee is eligible
to file a statement on Schedule 13G under the Exchange Act and certain other
conditions are satisfied, (iii) to the stockholders of BT pursuant to which all
stockholders of BT have the right (except as may be otherwise prohibited by
applicable law) to receive their pro rata portion of the Equity owned by BT,
(iv) in a privately negotiated transaction if the transferee, or any group of
which the transferee is a member, would not, following such Transfer,
beneficially own more than 5% of the outstanding Voting Securities and (v) of
all Equity of the Company then beneficially owned by BT and its affiliates as a
single block in a privately negotiated transaction (a "Block Sale") if such
Equity is Transferred without the benefits and burdens of the Investment
Agreement (other than the benefits and burdens of the Registration Rights
Agreement, which may be assigned to, and assumed by, the transferee). Any
Transfer in a Permitted Offering and any Transfer described in clause (iii),
(iv) or (v) of the preceding sentence will be subject to the Company's right of
first refusal described below.
Right of First Refusal. The Investment Agreement provides that, prior to
any Transfer that is subject to the Company's right of first refusal as
described above, BT is required to deliver written notice (an "Offer Notice") to
the Company specifying (i) the number or amount and description of the Equity to
be transferred, (ii) the price per share or other security determined in the
manner set forth in the Investment Agreement (the "Offer Price") and (iii) in
the case of a privately negotiated transaction, any other proposed terms of the
Transfer and certain other specified information. In the case of a Block Sale,
such Offer Notice must be preceded by at least two months written notice of BT's
bona fide intention to undertake such a transaction and BT may not provide more
than one such advance notice in any two-month period. Pursuant to its right of
first refusal, the Company may, subject to certain limitations, elect to
purchase all, but not less than all, of the securities at the Offer Price and
upon the terms and conditions specified in the Offer Notice. If the Company
elects to purchase the offered securities, it must give notice to BT within 60
days of its receipt of the Offer Notice (or, in the case of a Block Sale, within
120 days) of its election, subject to shorter periods in connection with a third
party tender offer or exchange offer. The Company may assign its rights to
purchase the offered securities to any other person. If the Company does not
respond to the Offer Notice within the required response time period or elects
not to purchase the offered securities, BT or its affiliate, as the case may be,
may complete the proposed Transfer (to the same proposed transferee in the case
of a privately negotiated transaction) on terms no less favorable to BT or its
affiliate, as the case may be, than those set forth in the Offer Notice and such
Transfer must be completed within certain time periods specified in the
Investment Agreement. The Company has agreed that the Board of Directors will
take all necessary actions to permit the consummation of a Block Sale without
triggering the Rights Plan.
Registration Rights. Under the Investment Agreement the Company and BT
have agreed to enter into a registration rights agreement (the "Registration
Rights Agreement") at or prior to Closing containing customary terms and
conditions and which will provide, among other things, that BT will have the
right to require the Company to use its best efforts to register under the
Securities Act Registrable Securities (as defined below) for resale in up to
three demand registrations and an unlimited number of incidental ("piggyback")
registrations. For purposes of the Registration Rights Agreement, "Registrable
Securities" means the Common Stock issued or issuable upon the conversion of the
Class A Common Stock or any other Common Stock issued pursuant to the Investment
Agreement or otherwise acquired by BT at such time that either (x) shares of the
Class A Common Stock remain outstanding or (y) no shares of Class A Common Stock
are outstanding but BT is nevertheless entitled to designate a nominee for
director pursuant to its Right of Nomination as defined below under "Board
Representation and Voting Provisions -- Board of Directors" or pursuant to the
provisions described below under "Continuance of Certain Rights," or issuable
upon exercise or conversion of any options, warrants, or other securities
acquired pursuant to the Investment Agreement, and Common Stock which may be
issued or distributed in respect thereof by way of stock dividend or stock split
or other distribution, recapitalization or reclassification. The Company will
pay all registration expenses in connection with each registration of
Registrable Securities pursuant to the Registration Rights Agreement.
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The Company and BT have also agreed to enter into a registration rights
agreement with respect to shares of Common Stock issued or issuable upon the
conversion of the shares of Convertible Preferred Stock owned by BT, which
agreement will be superseded upon execution of the Registration Rights
Agreement. This agreement will be substantially similar to the Registration
Rights Agreement except that BT will only be entitled to one demand registration
thereunder.
PROVISIONS RELATING TO A CHANGE IN CONTROL OF THE COMPANY
No Shopping
Under the Investment Agreement the Company has agreed that from the Closing
until the seventh anniversary of the Closing Date, so long as any shares of
Class A Common Stock remain outstanding, neither the Company nor any of its
subsidiaries nor any of their respective officers and directors will, and the
Company has agreed to direct and use its best efforts to cause its employees,
agents and representatives not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making of any Acquisition Proposal or, except
to the extent legally required for the discharge by the Board of Directors of
its fiduciary duties or to comply with the requirements of Rule 14e-2 under the
Exchange Act with regard to a tender offer or exchange offer, engage in any
negotiations concerning or provide any confidential information or data to, or
have any discussions with, any person relating to an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal. The Company must immediately notify BT if any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with, the
Company, or if the Board of Directors has determined that in order to discharge
its fiduciary duties the Company is engaging in any negotiations concerning or
providing any confidential information or data to, or having any discussions
with, any person relating to an Acquisition Proposal.
From the seventh anniversary of the Closing Date until the tenth
anniversary of the Closing Date, so long as any shares of Class A Common Stock
remain outstanding, the Company must provide BT with at least 60 days prior
written notice if the Board of Directors decides to initiate, solicit or
encourage any inquiries or the making of any Acquisition Proposal or to engage
in any negotiations concerning or provide any confidential information or data
to, or have any discussions with, any person relating to an Acquisition
Proposal, unless the Board of Directors determines to engage in any such actions
in response to an unsolicited Acquisition Proposal by a third party in order to
discharge the Board of Directors' fiduciary duty, in which event such notice
need only be provided to BT as soon as reasonably practicable following such
determination.
The obligations and restrictions described in the two preceding paragraphs
will terminate in the event the Company delivers a Sale Notice (as hereafter
defined) to BT in accordance with the provisions described below under "Business
Combinations -- Auction Period." Such obligations will be reinstated, however,
if the Board of Directors subsequently abandons its effort to sell the Company.
Business Combinations
Auction Period. The Company has agreed that, except as otherwise described
below, during the period (the "Auction Period") from the fourth anniversary of
the Closing Date to the tenth anniversary of the Closing Date, so long as any
shares of Class A Common Stock remain outstanding, the Board of Directors will
not, without the consent of BT, redeem the Rights or approve any Business
Combination, except that the consent of BT will not be required in connection
with an Acquisition Proposal for all of the outstanding shares of Common Stock
(and all shares of Common Stock issuable upon conversion of the outstanding
shares of Class A Common Stock) in which all stockholders (including BT) are
permitted to participate on an equal basis if the Company complies in all
material respects with its obligations described below under "Auction
Procedures". During the Auction Period, so long as any shares of Class A Common
Stock remain outstanding, if the Board of Directors decides to sell the Company
then the Board of Directors must give BT written notice of such decision (the
"Sale Notice") and follow the auction procedures described below if the Board of
Directors of BT, within 30 days thereafter (ten business days if Section 310(b)
has been repealed or an unsolicited tender offer or exchange offer has been
commenced), provides the Board of Directors written
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notice of a good faith intention to submit an Acquisition Proposal for all the
outstanding Voting Securities. The delivery of a Sale Notice will not obligate
the Company to sell the Company and the Company may terminate such auction at
any time. "Business Combination" is defined to mean a merger or consolidation in
which the Company is a constituent corporation and pursuant to which the Common
Stock is exchanged for cash, securities or other property or a sale of all or
substantially all of the assets of the Company and its subsidiaries taken as a
whole, but does not include (i) a transaction in which the beneficial ownership
of the capital stock of the Company or of the sole surviving corporation of the
transaction (or of the ultimate parent of the Company or of such sole surviving
corporation) immediately after the consummation of such transaction is
substantially the same as the beneficial ownership of the Company's capital
stock immediately prior to the consummation thereof nor (ii) a merger in which
the Company is the surviving corporation, in which all shares of the Common
Stock outstanding immediately prior to the consummation of such merger remain
outstanding and the only change in the capital stock of the Company resulting
from such merger is the issuance of shares of capital stock pursuant thereto,
and in connection with which no consent of the holders of Class A Common Stock
would be required under the Restated Certificate (as amended by the proposed
Charter Amendment) (See " -- Terms of the Class A Common Stock -- Matters
Requiring Class A Common Stock Consent").
Auction Procedures. The Company has agreed that if it has delivered a Sale
Notice to BT and the Board of Directors of BT has, in accordance with the
provisions described under "Auction Period" above, provided notice of its good
faith intention to submit an Acquisition Proposal for all outstanding Voting
Securities, any sale of the Company will be made pursuant to an auction upon
commercially reasonable terms as established by a majority of the Independent
Directors, unless otherwise consented to by BT. The time between the
commencement of such auction and the execution of a definitive agreement for
such sale of the Company must be at least six months unless Section 310(b) has
been repealed or otherwise would not in the reasonable judgment of BT affect in
any material respect the consummation of an Acquisition Proposal by BT, in which
event such minimum time period will be reduced to 21 business days. In addition,
the time between BT's receipt of the Sale Notice and execution of a definitive
sale agreement must be at least seven months unless Section 310(b) has been
repealed or otherwise would not in the reasonable judgment of BT affect in any
material respect the consummation of an Acquisition Proposal by BT, in which
event such minimum time period shall be reduced to 30 business days. If Section
310(b) remains in effect, then in connection with any such auction, the Company
is obligated to use its best efforts to assist BT in obtaining approval from the
FCC to consummate an Acquisition Proposal.
The Company will not be required to comply with the foregoing auction
procedures, however, if the Company notifies BT of the terms and conditions of a
definitive agreement or a bona fide letter of intent providing for a Business
Combination that the Company is prepared to execute with a third party and BT
fails to deliver to the Company within 15 business days thereafter a resolution
of the Board of Directors of BT setting forth its good faith intention, subject
to the restrictions set forth in Section 310(b), to submit an Acquisition
Proposal containing a per share financial consideration that, upon the
reasonable advice of BT's financial advisor, exceeds the per share consideration
offered by such third party and, following such failure to deliver such
resolution, a majority of the Independent Directors determines that continuing
the auction would not be in the best interests of the stockholders of the
Company. In the event the Company fails to execute such definitive agreement or
fails to consummate such Business Combination, the foregoing auction procedures
and the obligations described above under "Auction Period" will be reinstated.
The Company will also not be required to comply with the foregoing auction
procedures if the Independent Directors are advised in writing by FCC counsel
that such counsel believes that BT's request to obtain FCC approval to
consummate an Acquisition Proposal will not be granted in light of the then
current regulatory, competitive and political environment and that such action
by the FCC would not be overturned by a court of competent jurisdiction, and, on
the basis of such advice, a majority of the Independent Directors determines
that no good faith purpose could reasonably be served by providing BT with a
continued opportunity to seek such approval.
Third Party Tender Offers. The Investment Agreement provides that during
the first four years following the Closing Date, so long as any shares of Class
A Common Stock remain outstanding, the Board of Directors will not, without the
consent of BT, recommend acceptance of any third party tender offer except to
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the extent legally required for the discharge by the Board of Directors of its
fiduciary duties or to comply with requirements of Rule 14e-2 under the Exchange
Act with respect to a tender offer or exchange offer. The Company has also
agreed that from the fourth anniversary of the Closing Date until the tenth
anniversary of the Closing Date so long as any shares of Class A Common Stock
remain outstanding, the Board of Directors will not, without the consent of BT,
except to the extent legally required for the discharge by the Board of
Directors of its fiduciary duties or to comply with requirements of Rule 14e-2
under the Exchange Act with respect to a tender offer or exchange offer,
recommend acceptance of any third party tender offer other than in connection
with an Acquisition Proposal for all of the outstanding shares of Common Stock
in which all stockholders are permitted to participate on an equal basis and the
Company has not breached in any material respect its obligations to comply with
the auction procedures described above.
Tag-Along Rights. The Investment Agreement provides that the Board of
Directors will not approve any transaction that otherwise requires its approval
involving the sale by any stockholder of shares of capital stock of the Company
unless BT and its affiliates are provided the same right to sell in such
transaction, subject to the receipt of all necessary consents and approvals, all
of their shares of capital stock of the Company for the same price and upon the
same terms and conditions applicable to such holder or holders of capital stock
generally.
Charter Amendment; Rights Plan
The Closing is conditioned on the Restated Certificate being amended to
include the Supermajority Stockholder Vote Provision and to require a class vote
of holders of Class A Common Stock to effect any Business Combination involving
the Company during the first four years following the Closing. See "CHARTER
AMENDMENT -- Redemption of Rights" and "-- Terms of the Class A Common Stock --
Matters Requiring Class A Common Stock Consent." The Closing is also conditioned
on the adoption of the Rights Plan. See "STOCKHOLDER RIGHTS PLAN."
Section 203 of the DGCL
The Company is a Delaware corporation and subject to Section 203 of the
DGCL. Generally, Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date the person became an interested
stockholder, unless (i) prior to such date, either the business combination in
question or the transaction resulting in such person becoming an interested
stockholder is approved by the board of directors of the relevant corporation,
(ii) upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at least 85%
of the outstanding voting stock of the relevant corporation or (iii) on or after
such date the business combination is approved by the board of directors of the
relevant corporation and by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder. A
"business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates,
beneficially owns 15% or more of the relevant corporation's outstanding voting
stock. As required by the Investment Agreement, the Board of Directors has taken
appropriate action so that, if the Closing occurs, the provisions of Section 203
of the DGCL will not apply to BT or any person who was an affiliate of BT as of
August 4, 1993. BT will, however, remain subject to the Rights Plan, if adopted,
so long as the Rights Plan remains in place. See "STOCKHOLDER RIGHTS PLAN."
PROVISIONS RELATING TO THE MAINTENANCE OF BT'S PROPORTIONATE OWNERSHIP INTEREST
Equity Purchase Rights
Voting Equity Purchase Rights. The Investment Agreement provides that from
the Closing Date and for so long as the Outstanding Interest is at least 10%, if
the Company issues any Voting Securities, securities of the Company convertible
into Voting Securities, or any options, warrants or other rights to acquire
Voting Securities (collectively, "Voting Equity"), BT will have the right (an
"Equity Purchase Right"), exercisable in whole or in part, to acquire from the
Company an amount of such Voting Equity equal to (A) the
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Outstanding Interest prior to giving effect to the consummation of such issuance
and any acquisition by BT pursuant to its Equity Purchase Right times the number
of shares or other amount of such Voting Equity to be issued to persons other
than BT or any of its affiliates, divided by (B) one minus the Outstanding
Interest. Such equity purchase right will not apply (i) to grants of any options
or any other rights to acquire Voting Securities pursuant to Employee Stock
Plans, (ii) upon the exercise or exchange of any Rights, (iii) to issuances of
shares of Common Stock upon the conversion or exercise of any options, warrants,
rights or other securities convertible into or exercisable for Common Stock that
are outstanding as of the Closing Date to the extent that an equal number of
outstanding shares of Common Stock are repurchased by the Company in accordance
with the terms of the Investment Agreement, (iv) upon the conversion or exercise
of any options, warrants, rights or other securities convertible into or
exercisable for Voting Securities the issuance of which was subject to an Equity
Purchase Right, (v) in certain de minimis offerings for consideration other than
cash, (vi) to the reissuance of Voting Securities purchased by the Company
subsequent to the Closing Date and (vii) issuances of Voting Equity to BT or any
of its affiliates. In addition, BT will not have any Equity Purchase Rights in
connection with any pro rata stock split, stock dividend or other combination or
reclassification of any capital stock of the Company.
Generally, if BT exercises its Equity Purchase Rights it will purchase the
applicable Voting Equity at the same price (the "Equity Purchase Right Price")
and on the same terms and conditions as those relating to the issuance of the
Voting Equity to which the Equity Purchase Right relates. If BT purchases any
Voting Equity pursuant to its Equity Purchase Rights on a date later than 15
days after the consummation of such other issuances, however, BT will also be
required to pay interest on the Equity Purchase Right Price as set forth under
the Investment Agreement. In addition, if BT purchases any Voting Equity
pursuant to its Equity Purchase Rights on a later date than the issuance of
securities that gave rise to such right, the Equity Purchase Right Price will be
adjusted (i) for any dividends or distributions received in respect of such
Voting Equity after the date of such issuance and (ii) to reflect any stock
split, stock dividend, or other combination or reclassification of the Company's
capital stock during such time.
The Investment Agreement generally provides that so long as any shares of
Class A Common Stock remain outstanding, with respect to that portion of the
Outstanding Interest represented by shares of Class A Common Stock, BT's
purchase rights arising from issuance of Common Stock or securities convertible
into or exchangeable for Common Stock will be exercisable for Class A Common
Stock or securities convertible into or exchangeable for Class A Common Stock.
In addition, the Investment Agreement provides that the purchase price of any
Voting Securities acquired by BT pursuant to its Equity Purchase Rights in
connection with any issuance of Voting Securities upon the exercise of options
or any other rights to acquire Voting Securities granted or issued pursuant to
Employee Stock Plans will be based on the Current Market Value (as defined in
the Investment Agreement) of such securities at the end of the calendar quarter
that gives rise to BT's Equity Purchase Right in connection with such
securities.
Certain Limitations. The Investment Agreement provides that if BT is not
permitted to exercise any Equity Purchase Right due to applicable governmental
restrictions on foreign ownership or control of the Company or its securities
the breach of which, or non-compliance with which, could result in the loss, or
failure to secure the renewal or reinstatement, of any governmental license or
franchise held by the Company or any of its subsidiaries to conduct any portion
of its business ("Foreign Ownership Restrictions"), then BT will be entitled to
exercise such purchase right at such time that such exercise would not breach
any then existing Foreign Ownership Limitations. In addition, in the event that
the percentage of the outstanding Voting Securities beneficially owned by BT and
its affiliates exceeds the higher of 20% or the percentage of the outstanding
Voting Securities that BT beneficially owned immediately following the Closing,
then BT will only be entitled to Equity Purchase Rights to the extent necessary
to maintain such higher percentage. In calculating such entitlement any issuance
of Voting Equity that gives rise to Equity Purchase Rights that is convertible
into or exchangeable for Voting Securities will be assumed to be so converted or
exchanged.
Other Permitted Purchases. In addition to the standstill provisions
described above under "Standstill and Related Provisions", BT has agreed that BT
and its affiliates will not purchase additional Equity (whether pursuant to the
Equity Purchase Rights or otherwise) if the aggregate percentage of the
outstanding capital stock of the Company owned of record or voted by Non-U.S.
Persons or Entities (including BT and its
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affiliates) would, after giving effect to such purchase, exceed the then
existing Foreign Ownership Limitation, provided that BT will be entitled to
purchase additional Equity at such time that such purchase would not breach any
then existing Foreign Ownership Restrictions or the provisions of the Investment
Agreement.
Limitation on Issuance of Stock to Non-U.S. Persons or Entities; Redemption
of Stock Held by Non-U.S. Persons or Entities
The Investment Agreement provides that, from the Closing Date and
thereafter so long as the Outstanding Interest is at least 10% and the Foreign
Ownership Limitation remains in effect, the Company will take, or refrain from
taking, the actions described below.
Issuances of Capital Stock. The Company will, to the extent practicable,
use its best efforts not to issue any shares of capital stock to Non-U.S.
Persons or Entities if, after giving effect to such issuance, the total number
of shares of capital stock of the Company owned or voted by Non-U.S. Persons or
Entities (including BT and its affiliates) would exceed 5% less than the Foreign
Ownership Limitation. The foregoing restriction will not apply to (i) issuances
of Employee Shares, (ii) issuances upon the conversion or exercise of any other
options, warrants, rights or convertible or exchangeable securities outstanding
at the Closing, (iii) transfers of ownership by operation of law, (iv) issuances
to BT and its affiliates or (v) issuances to Non-U.S. Persons or Entities in
connection with a public offering or private placement of Equity if the Company
reasonably believes that the aggregate percentage of the capital stock of the
Company owned or voted by Non-U.S. Persons or Entities will be lower immediately
subsequent to such public offering or private placement, as the case may be,
than such aggregate percentage was prior to such transaction.
Reasonable Steps to Maintain Ownership. The Company will not, without BT's
consent, take any action which would proximately result in BT and its affiliates
not being permitted, under existing law or regulation, to maintain their
ownership of Voting Equity at the then current Outstanding Interest. In
addition, except as otherwise provided in the Investment Agreement, the Company
must take such steps as are reasonably necessary to maintain the ownership of
Voting Equity by BT and its affiliates at the then current Outstanding Interest
in the event such level of ownership is threatened under existing law or
regulation. Any such action by the Company will be subject to a determination by
a majority of the Independent Directors that the detriment to the Company of not
taking any such action, or the cost to or the burdens imposed on the Company as
a result of taking any such steps, are not unreasonable. In the event that at
any time the maximum aggregate amount of capital stock that may be held by
Non-U.S. Persons or Entities under applicable state or local laws or regulations
is less than the Foreign Ownership Limitation (and less than the amount of
capital stock of the Company then held by BT and its affiliates), except as
described below, the Company will not redeem any Common Shares held by BT or its
affiliates pursuant to the Redemption Provision. Instead the Company and BT will
in good faith promptly attempt to agree upon the means by which the Company can
comply with such laws and regulations, taking into account the relative benefits
and detriments thereof to the Company and to BT. Notwithstanding the foregoing,
the Company may, after consultation in good faith with BT to consider
alternatives to such redemption, redeem Common Shares held by BT or its
affiliates if a majority of the Independent Directors determine that the failure
to redeem such shares would have a material adverse effect on the Company and
its subsidiaries taken as a whole.
Redemptions. The Company will not redeem or repurchase outstanding shares
of its capital stock held by persons other than BT and its affiliates if as a
result thereof, to the knowledge of the Company, shares held by BT and its
affiliates would also be required to be redeemed or repurchased, unless (1)
required to do so by applicable requirements of law, (2) such redemption or
repurchase affects all stockholders proportionately or (3) BT consents thereto.
If the Company is to redeem capital stock under the Redemption Provision, the
Company must, to the fullest extent legally permissible in the good faith
judgment of the Company, first designate for redemption securities other than
Common Shares held by BT and its affiliates before designating for redemption
any Common Shares held by BT and its affiliates. Any capital stock acquired by
BT or any of its affiliates other than the shares of Class A Common Stock issued
in connection with the Closing will, to the extent practicable and legally
permissible, be redeemed prior to the redemption of any shares of Class A Common
Stock issued in connection with the Closing.
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Any redemptions of capital stock owned by BT or its affiliates pursuant to
the Redemption Provision will be effected at the following purchase prices: (i)
redemptions within two years after the Closing of any shares of Class A Common
Stock issued in connection with the Closing will be at the greater of (a)
current market value as determined in accordance with the Redemption Provision
(see "CHARTER AMENDMENT -- Redemption Provision; Possible Redemption of Shares
held by Non-U.S. Persons") and (b) an amount equal to BT's purchase price for
such shares plus interest thereon accrued from the purchase date to the
redemption date; (ii) redemptions more than two years but less than ten years
after the Closing of any shares of Class A Common Stock issued in connection
with the Closing will be at the greater of (a) current market value as
determined in accordance with the Redemption Provision and (b) an amount equal
to BT's purchase price for such shares plus interest thereon accrued through the
date which is two years after the Closing; (iii) redemptions less than ten years
after the Closing of shares of capital stock acquired by BT after the Closing to
maintain its Outstanding Interest at 20% ("Maintenance Shares") will be at the
greater of (a) current market value as determined in accordance with the
Redemption Provision and (b) an amount equal to BT's purchase price for such
shares; (iv) redemptions less than ten years after the Closing of capital stock
(other than shares of Class A Common Stock issued in connection with the Closing
and Maintenance Shares) will be at current market value as determined in
accordance with the Redemption Provision; and (v) redemptions ten or more years
after the Closing of any shares of capital stock will be at current market value
as determined in accordance with the Redemption Provision. The redemption price
in respect of any shares of Class A Common Stock issued in connection with the
Closing or any Maintenance Shares will be reduced by the fair market value (as
established by a determination of a majority of the Independent Directors) of
any dividends or distributions received by BT in respect of such shares.
Repurchase of Redeemed Shares. If, within two years of any redemption of
stock owned by BT, circumstances change so as to allow BT to regain its
ownership of such stock, BT will have the right to repurchase such stock from
the Company and the Company will have the right to require BT to so repurchase
the stock. The repurchase price will be an amount equal to the applicable
redemption price paid plus interest thereon accrued from the redemption date to
the repurchase date minus the fair market value of any dividends or
distributions otherwise payable in respect of such stock since the date of
redemption.
Charter Amendment. See "CHARTER AMENDMENT -- Redemption Provision;
Possible Redemption of Shares held by Non-U.S. Persons" for further description
of the Redemption Provision.
BOARD REPRESENTATION AND VOTING PROVISIONS
Board of Directors
The Investment Agreement provides that, subject to the terms thereof, the
Board of Directors will, unless BT consents otherwise, consist of 15 members
(including the Class A Directors, if any) and the nominees put forth by the
Board of Directors of the Company for election as directors will, to the extent
permitted by law, be selected such that a majority of the directors will be
Independent Directors who are nominated by a nominating committee comprised of
the Chief Executive Officer of the Company and at least four other directors of
the Company, each of whom shall be Independent Directors. "Independent
Directors" are directors who are not officers of the Company and who satisfy
certain additional criteria of independence set forth in the Investment
Agreement that are derived from New York Stock Exchange rules requiring that
listed companies have at least two independent directors. Each current director
of the Company who is not an executive officer of the Company shall
automatically be deemed to be an Independent Director for purposes of the
Investment Agreement.
As described above under "Terms of Class A Common Stock -- Election of
Directors," the Class A Common Stock will vote separately as a class for
directors and will generally elect a number of Class A Directors based upon the
percentage of aggregate voting power of all Voting Securities of the Company
which the Class A Common Stock represents. The Investment Agreement provides
that if no shares of Class A Common Stock are outstanding, BT has the right to
designate a number of nominees (the "BT Nominees") in connection with each
election of directors of the Company such that the number of BT Nominees serving
on the Board of Directors equals the product of the Outstanding Voting Interest
times the number of directors
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then constituting the whole Board of Directors. If at any time the Outstanding
Voting Interest is between 15% and 20% (inclusive), then the Outstanding Voting
Interest will be deemed to equal 20% for purposes of calculating the number of
BT Nominees. Notwithstanding the foregoing, while Section 310(b) remains in
effect, under no circumstances will the number of BT Nominees serving on the
Board of Directors exceed the maximum percentage of the total directors of the
Company permitted under Section 310(b) (which is currently equal to 25%). For so
long as the Board of Directors includes any Class A Directors or BT Nominees,
each committee of the Board of Directors (other than the nominating committee)
will include a number of Class A Directors or BT Nominees, as applicable,
(rounded to the nearest whole number, but in no event less than one such Class A
Director or BT Nominee) equivalent to the proportion of Class A Directors or BT
Nominees, as applicable, then serving on the Board of Directors. The Board of
Directors will be subject to certain procedural requirements set forth in the
Investment Agreement, including that an executive committee of the Board of
Directors not be established without the prior consent of BT.
Under the Investment Agreement the foregoing provisions will apply from the
Closing Date and thereafter so long as (i) the Outstanding Interest is at least
10%, (ii) each of the Company and BT continue to hold their interests in Newco
or, under certain limited circumstances, the Company or BT no longer holds its
interest in Newco but the Class A Common Stock remains outstanding, (iii) the
shares of Class A Common Stock have not automatically converted into shares of
Common Stock by reason of BT engaging in the Core Business of the Company in the
Americas as described below under "Release of Rights and Obligations -- Loss of
BT Rights" or BT having materially breached the transfer, standstill or voting
provisions of the Investment Agreement and (iv) BT has not materially breached,
or ceased to be subject to (other than as provided under the terms of the
Investment Agreement), its obligations relating to the voting of BT's Voting
Securities (see "Voting of Shares by BT" below) or to the requirement that a
majority of the Board of Directors be Independent Directors as described above
under "Standstill and Related Provisions -- Post Standstill Period".
Voting of Shares by BT
The Investment Agreement provides that so long as the Outstanding Interest
is at least 10% and no event has occurred that has caused (x) the Standstill to
be terminated prior to the expiration of the Standstill Period (without the
Standstill having been reinstated) (see "Standstill and Related Provisions --
Standstill Period" above) or (y) certain of the post-standstill obligations of
BT described in clauses (i) and (ii) of the section entitled "Standstill and
Related Provisions -- Post-Standstill Provisions" to be terminated (without such
obligations having been reinstated), BT must vote its Voting Securities in
accordance with the provisions described below.
If no shares of Class A Common Stock are outstanding but BT remains
entitled to designate nominees for director (see "Board of Directors" above), in
each election of directors BT and its affiliates will cast all of their votes
for the election of the applicable BT Nominees unless cumulative voting for the
election of directors has been eliminated, in which case BT and its affiliates
will cast all of their votes for the nominees to the Board of Directors
nominated by the Board of Directors. Except as described below, on all matters
other than the election of directors BT and its affiliates will vote their
Voting Securities at the option of the Company either (A) in the same proportion
as the Voting Securities owned by other stockholders are voted with respect to
any matter other than a Business Combination proposed by BT or (B) in BT's
discretion. The foregoing voting requirements will not apply to (i) any proposal
to redeem the Rights (which would be subject to the Supermajority Stockholder
Vote Provision only prior to the earlier of the fourth anniversary of the
Closing Date or the date that shares of the Class A Common Stock are no longer
outstanding), or (ii) BT's voting of Class A Common Stock in connection with any
matter on which the holders of Class A Common Stock are entitled to vote
separately as a class under the terms of the Class A Common Stock or under the
DGCL (see "INVESTMENT AGREEMENT -- Matters Requiring Class A Common Stock
Consent").
Neither BT nor any of its affiliates will solicit any proxies in connection
with any matter to be voted upon by the stockholders of the Company, become a
participant, or encourage any person to become a participant, in any such
solicitation or publicly take a position with respect to any issue that is the
subject of such solicitation, become part of a voting group or deposit shares in
a voting trust. If BT is not entitled to designate
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a nominee for director under the terms of the Class A Common Stock or the
Investment Agreement, then BT and its affiliates are obligated to cast all of
the votes they are entitled to cast in any election of directors equally among
the nominees proposed by the Board of Directors unless cumulative voting for the
election of directors has been eliminated, in which case BT and its affiliates
will cast all of their votes for the nominees to the Board of Directors
nominated by the Board of Directors.
Cumulative Voting
BT has agreed that in the event that a proposal is presented to the
stockholders of the Company to amend the Restated Certificate to eliminate
cumulative voting for the election of directors of the Company, BT and its
affiliates will vote all Voting Securities owned by them on such matter in favor
of such proposal provided that a majority of the outstanding Voting Securities
owned by stockholders other than BT and its affiliates are voted in favor of
such proposal. If cumulative voting for the election of directors were to be
eliminated and no shares of Class A Common Stock were outstanding and certain
other conditions were satisfied, BT and its affiliates would be required to cast
all of the votes they are entitled to cast in any election of directors of the
Company in favor of the nominees to the Board of Directors nominated by the
Board of Directors. See "-- Voting of Shares by BT" above.
APPROVAL OF CERTAIN MATTERS
The Investment Agreement provides that in the event that no shares of Class
A Common Stock are outstanding as a result of (i) either the Company or BT no
longer holding its interest in Newco or (ii) BT engaging in the Core Business of
the Company in the Americas (see "Terms of Class A Common Stock -- Conversion"
above), then so long as neither the Outstanding Interest is less than 10% nor
certain other events specified in the Investment Agreement have occurred, the
Company will not take any of the following actions without the consent of BT:
(a) issue any series or class of capital stock having either more than one vote
per share (other than pursuant to the Rights Plan or any successor thereto) or a
class vote on any matter, except to the extent such class vote is required by
the DGCL or to the extent that the holders of any series of preferred stock have
the right, voting separately as a class, to elect a number of directors of the
Company upon the occurrence of a default in the payment of dividends or
redemption price; (b) adopt any stockholder rights plan (other than a
stockholder rights plan that is substantially similar to the Rights Plan as in
effect on the Closing Date), or any other plan or arrangement that could
reasonably be expected to disadvantage any stockholder on the basis of the size
of its shareholding, or amend, modify or terminate the Rights Plan (other than
in connection with the redemption or exchange of the Rights in accordance with
the Rights Plan or any successor thereto and other than any amendment of the
Rights Plan made in order that the execution of a definitive agreement providing
for a business combination or the consummation thereof would not result in the
Rights becoming exercisable if at the time of such amendment the Company would
otherwise be entitled to redeem the Rights, the Restated Certificate and the
Investment Agreement) if in either case BT or any of its affiliates would be
adversely affected in relation to their position under the Rights Plan as in
effect on the Closing Date; or (c) amend the Restated Certificate or By-laws of
the Company so as to affect adversely the rights of BT and its affiliates under
the Investment Agreement.
ACCESS TO INFORMATION
The Investment Agreement provides that after the Closing and for as long as
(i) the Outstanding Interest is at least 10%, (ii) each of the Company and BT
continues to hold its interest in Newco, subject to certain exceptions, and
(iii) the shares of Class A Common Stock have not automatically converted into
shares of Common Stock by reason of certain conditions specified in the
Investment Agreement, the Company will, subject to limited exceptions, permit
representatives of BT at their expense to visit and inspect all properties,
books and records of the Company and its subsidiaries and to discuss the
affairs, finances and accounts of the Company with the principal officers of the
Company, its attorneys and auditors, all at such reasonable times and as often
as may reasonably be requested in order to enable BT to reasonably monitor its
investment in the Company.
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SALE OF NON-CORE BUSINESSES
As described above under "Terms of the Class A Common Stock -- Matters
Requiring Class A Common Stock," in its capacity as the holder of Class A Common
Stock BT will have consent rights in respect of certain acquisitions or
investments by the Company in a Non-Core Business except to the extent that any
such Non-Core Business is obtained in the course of a bona fide transaction the
principal purpose of which is the acquisition of a Core Business. The Investment
Agreement provides that as long as shares of Class A Common Stock remain
outstanding, in the event that (i) the Company acquires any businesses or assets
or investments in a Non-Core Business in the course of a bona fide transaction
the principal purpose of which is the acquisition of a Core Business and (ii)
such acquisition or investment was not subject to the consent of the holders of
Class A Common Stock voting as a separate class pursuant to the Restated
Certificate (as amended by the Charter Amendment) (i.e. the purchase price for
the entire acquisition or investment did not exceed 20% of the Company's market
capitalization), then unless BT otherwise consents, the Company will dispose of
the portion of any such Non-Core Business to the extent that the portion of the
cost of such acquisition or investment allocable to such Non-Core Business
exceeds 5% of the market capitalization of the Company at the time of such
acquisition or investment as promptly as practicable consistent with good
commercial practices.
RELEASE OF RIGHTS AND OBLIGATIONS
Loss of BT Rights. The Investment Agreement provides that if subsequent to
the Closing BT or any of its affiliates engages directly or indirectly in the
Core Business of the Company in the Americas (which consists of North, Central
and South America, the Caribbean region, and any state, territory or possession
of the United States wherever located), or transfers or provides sales and
marketing support, technology or customer traffic in connection with any person
or entity engaged in the Core Business of the Company in the Americas or holds
or acquires an interest in any entity that is engaged in the Core Business of
the Company in the Americas (such activities, whether or not engaged in the
Americas, are collectively referred to as being "Engaged in the Core Business of
the Company"), then, subject to the terms of the Investment Agreement, any
outstanding shares of Class A Common Stock will be subject to conversion into
shares of Common Stock pursuant to the Restated Certificate (as amended by the
Charter Amendment) and the obligations of the Company under the provisions of
the Investment Agreement described above under "Provisions Relating to a Change
in Control of the Company", "Board Representation and Voting Provisions -- Board
of Directors", "Access to Information" and "Disposition of Non-Core Businesses"
will terminate (such consequences, including the conversion of the Class A
Common Stock, are collectively referred to herein as the "Loss of BT Rights"),
in each case following a determination that BT has Engaged in the Core Business
of the Company in the Americas in accordance with certain arbitration procedures
specified in the Investment Agreement. There will be no Loss of BT Rights,
however, as a result of (i) BT acquiring or owning for investment purposes
securities of any publicly traded company not principally Engaged in the Core
Business of the Company (or if such company is principally Engaged in the Core
Business of the Company, less than 10% of its revenues from such business are
derived within the Americas) if BT and its affiliates own less than 5% of such
company's voting securities and such investment does not exceed 0.5% of BT's
total consolidated assets (which equaled approximately L22.2 billion at
September 30, 1993); (ii) correspondent relationships in the ordinary course of
business or BT engaging in certain specified activities which the parties have
agreed are not inconsistent with BT retaining the rights referred to in the
first sentence of this paragraph; (iii) any activity undertaken by BT or its
affiliates pursuant to requirement of law if the failure to comply with such
requirement of law would contravene BT's U.K. telecommunications license in any
material respect or would otherwise have a material adverse effect on the
business or results of operations of BT; (iv) a transaction whereby control of,
or all or substantially all of the assets of, any person Engaged in the Core
Business of the Company in the Americas are transferred to BT or any of its
affiliates if (A) less than 20% of such acquired person's consolidated revenues
are derived from sales in the Americas contributed by operations within the Core
Business of the Company and (B) BT, at the request of the Company, sells or
causes the sale of such operations in accordance with certain procedures
specified in the Investment Agreement (which include a right of first offer of
the Company), but such operations are not required to be sold until such time as
they generate annual revenues of $25 million or more per year; (v) any
inadvertent condition or act (each an "Inadvertent Condition") that
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would otherwise result in a Loss of BT Rights if certain conditions are
satisfied; (vi) BT's ownership of Newco and the activities contemplated by the
Joint Venture Agreement and the agreements relating thereto; or (vii) any
activity undertaken with confirmation in writing by the Company that such
activity will not result in a Loss of BT Rights. Notwithstanding the foregoing,
in the event that either the Company or BT no longer holds its interest in Newco
(subject to certain limited exceptions) or if the Class A Common Stock is
otherwise no longer outstanding or if a Loss of Company Rights (as hereafter
defined) occurs pursuant to certain arbitration procedures specified in the
Investment Agreement, then BT may become engaged in the Core Business of the
Company without suffering any Loss of BT Rights.
Loss of Company Rights. The Investment Agreement provides that if
subsequent to the Closing the Company or any of its affiliates engages directly
or indirectly in the Core Business of BT outside the Americas or transfers or
provides sales and marketing support, technology or customer traffic in
connection with any person engaged in the Core Business of BT outside the
Americas or holds or acquires an interest in any person who is engaged in the
Core Business of BT outside the Americas (such activities, whether or not
engaged in outside the Americas, are collectively referred to as being "Engaged
in the Core Business of BT"), then, subject to the terms of the Investment
Agreement, the obligations of BT under the provisions of the Investment
Agreement described above under "Transfer Restrictions and Related Provisions"
(other than the subsection entitled "Registration Rights"), "Standstill and
Related Provisions -- Standstill Period" and "Board Representation and Voting
Provisions -- Voting of Shares by BT" will terminate (such consequences are
collectively referred to herein as the "Loss of Company Rights"), in each case
following a determination that the Company has Engaged in the Core Business of
BT outside the Americas made in accordance with certain arbitration procedures
specified in the Investment Agreement. There will be no Loss of Company Rights,
however as a result of (i) the Company acquiring or owning for investment
purposes securities of any publicly traded company not principally Engaged in
the Core Business of BT (or if such company is principally Engaged in the Core
Business of BT, less than 10% of its revenues from such business are derived
outside the Americas) if the Company and its affiliates own less than 5% of such
company's voting securities and such investment does not exceed 0.5% of the
Company's total consolidated assets (which equaled approximately $10.9 billion
on September 30, 1993); (ii) correspondent relationships entered into by the
Company in the ordinary course of business or the Company engaging in certain
specified activities which the parties have agreed are not inconsistent with the
Company retaining the rights referred to in the first sentence of this
paragraph; (iii) any activity undertaken by the Company or its affiliates
pursuant to requirements of law if the failure to comply with such law would
have a material adverse effect on the business or results of operations of the
Company; (iv) a transaction whereby control of, or all or substantially all of
the assets of, any person Engaged in the Core Business of BT outside the
Americas are transferred to the Company or any of its affiliates if (A) less
than 20% of such acquired person's consolidated revenues are derived from sales
outside the Americas contributed by operations within the Core Business of BT
and (B) the Company, at the request of BT, sells or causes the sale of such
operations in accordance with certain procedures specified in the Investment
Agreement (which include a right of first offer of BT), but such operations are
not required to be sold until such time as they generate annual revenues of $25
million or more per year; (v) any Inadvertent Condition that would otherwise
result in a Loss of Company Rights if certain conditions are satisfied; (vi) the
Company's ownership of Newco and the activities contemplated by the Joint
Venture Agreement and the agreements relating thereto; or (vii) any activity
undertaken with confirmation in writing by BT that such activity will not result
in a Loss of Company Rights. Notwithstanding the foregoing, in the event that
either the Company or BT no longer holds its interest in Newco (subject to
certain exceptions) or if the Class A Common Stock is otherwise no longer
outstanding or a Loss of BT Rights occurs pursuant to certain arbitration
procedures specified in the Investment Agreement, then the Company may become
engaged in the Core Business of BT without suffering any Loss of Company Rights.
CONTINUANCE OF CERTAIN RIGHTS
The Investment Agreement provides that if the shares of Class A Common
Stock are converted into shares of Common Stock by reason of the Company or BT
no longer holding its interest in Newco (other than by reason of the breach by
BT of certain obligations to the Company or the breach by the Company of certain
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obligations to BT), then, so long as the Outstanding Voting Interest is at least
15%, the following provisions will apply:
(i) Subject to the discharge by the Board of Directors of its fiduciary
duties and requirements of law, BT will be entitled to designate BT Nominees for
election to the Board of Directors in accordance with the provisions described
under "Board Representation and Voting Provisions -- Board of Directors" unless
a majority of the Board of Directors (excluding for such purpose any remaining
Class A Directors and all BT Nominees and including a majority of the
Independent Directors) determines that the service by BT Nominees on the Board
or Directors would not be in the best interests of the Company taking into
account certain factors specified in the Investment Agreement.
(ii) Subject to applicable requirements of law, the extent of BT's and its
representatives' right of access to the properties, books, records, officers,
attorneys and auditors of the Company will be established by a majority of the
Independent Directors by balancing the detriment to the Company of any such
access and the benefits to or the burdens imposed on BT as a result of being
permitted or denied any such access and taking into account certain factors
specified in the Investment Agreement.
(iii) If the Board of Directors decides to sell the Company, then the Board
of Directors must provide BT with a reasonable opportunity (as determined by the
Independent Directors) to submit an Acquisition Proposal in accordance with
commercial practice. In the event the Board of Directors decides to sell the
Company pursuant to an auction, such auction must be conducted on commercially
reasonable terms as established by a majority of the Independent Directors and
BT will be entitled to participate in such auction on the same terms and
conditions as any other prospective bidder.
(iv) Without the consent of BT, the Company will not: (x) sell, transfer,
dispose of or encumber in any single or related series of transactions assets
having a fair market value in excess of 15% of the aggregate fair market value
of all of the assets of the Company and its subsidiaries (other than in
connection with the sale of all or substantially all of the assets of the
Company); or (y) declare any extraordinary cash dividends or other distribution
to holders of any capital stock of the Company in excess of 5% of the current
market value of the outstanding equity of the Company at the time of such
dividend or other distribution.
REINSTATEMENT OF RIGHTS UNDER CERTAIN CIRCUMSTANCES
If at any time the Outstanding Interest or Outstanding Voting Interest is
less than the percentage specified in any provision of the Investment Agreement
as a condition to the applicability of any covenants contained therein, the
rights and obligations of the Company and BT under such provision will terminate
and will not be reinstated. Notwithstanding the foregoing, if the Outstanding
Interest or Outstanding Voting Interest has fallen below the required percentage
solely as a result of an acquisition of Voting Securities owned by BT or any of
its affiliates by the Company pursuant to the Redemption Provision and, within
two years of any redemption of shares of capital stock held by BT or any of its
affiliates pursuant to the Redemption Provision, BT or its affiliates have
repurchased from the Company any shares so redeemed such that solely as a result
of such repurchase the Outstanding Interest or Outstanding Voting Interest, as
the case may be, is equal to or greater than the percentage required for any
provision in the Investment Agreement so terminated to be applicable, then the
rights and obligations of the Company and BT under such provision that had
previously been terminated will thereupon be reinstated. Such reinstatement will
not apply to any conversion of the Class A Common Stock and any conversion of
the Class A Common Stock will be irrevocable.
BY-LAW AMENDMENTS
The Closing is conditioned upon the adoption of the By-Law Amendments by
the Board of Directors. The By-Law Amendments will be effective upon the Closing
and, among other things, (i) will reflect the establishment of the Class A
Common Stock and the Class A Directors (see "INVESTMENT AGREEMENT -- Terms of
the Class A Common Stock"), (ii) will increase the maximum number of directors
of the Company from 15 to 16, (iii) will reflect the moving of the provisions
with respect to the removal of directors to the Restated Certificate (see
"CHARTER AMENDMENT -- Removal of Directors"), (iv) will reflect certain
technical revisions relating to the powers that committees of a board of
directors may exercise
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and (v) will eliminate certain provisions authorizing the designation of, and
setting forth the powers of, an Executive Committee of the Board of Directors
(reflecting a provision of the Investment Agreement that prohibits the Company
from creating an executive committee without BT's consent).
The By-Law Amendments will also add a new provision to the By-Laws that
requires the Company to indemnify any current or former director, officer,
employee or agent of the Company to the fullest extent permitted by the DGCL
against all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such person in connection
with any threatened, pending or completed action, suit or proceeding, to which
such person was or is a party or threatened to be made a party by reason of his
current or former position with the Company or by reason of the fact that such
person is or was serving, at the request of the Company, as a director, officer,
partner, trustee, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. This new provision will reflect and expand
on the current provisions of the Restated Certificate which require the Company
to indemnify such persons to the fullest extent permitted by Delaware law. The
By-Law Amendments will also provide that expenses (including attorneys' fees)
incurred by a current or former director or officer of the corporation in
defending any threatened or pending action, suit or proceeding must be paid by
the Company in advance of the final disposition of any such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it is ultimately determined that such person is
not entitled to be indemnified by the Company under the Restated Certificate,
the by-laws, the DGCL or otherwise. Such expenses (including attorneys' fees)
incurred by other current or former employees or agents of the Company may be
paid upon such terms and conditions as the Board of Directors deems appropriate.
Under the DGCL, absent a charter, by-law or contract provision to the contrary,
advancement of such expenses is permitted but not required.
PRE-CLOSING COVENANTS
Access to Information. Under the Investment Agreement the Company has
agreed that during the period from August 4, 1993 to the Closing (the
"Pre-Closing Period"), the Company will, and will cause its subsidiaries and its
and their directors, officers, employees and agents to, afford to BT and its
advisors, officers, employees and agents reasonable access at all reasonable
times to its officers, employees, agents, properties, books, records and
contracts and will furnish to BT and its advisors all financial, operating and
other data and information as BT or its advisors may reasonably request in
connection with the transactions contemplated by the Investment Agreement.
Conduct of the Company's Business. The Company has agreed that during the
Pre-Closing Period, the Company and its subsidiaries will conduct their
respective businesses in the ordinary and normal course thereof. Any transaction
that would not require the consent of the holders of Class A Common Stock
following the Closing (see "Terms of the Class A Common Stock -- Matters
Requiring Class A Common Stock Consent") will be deemed to be in the ordinary
course for purposes of the Investment Agreement.
No Shopping. The Company has agreed that during the Pre-Closing Period,
neither the Company nor any of its subsidiaries nor any of their respective
officers and directors will, and the Company will direct and use its best
efforts to cause its employees, agents and representatives not to, initiate,
solicit or encourage, directly or indirectly, any inquiries or the making of any
Acquisition Proposal or, except to the extent legally required for the discharge
by the Board of Directors of its fiduciary duties or to comply with the
requirements of Rule 14e-2 under the Exchange Act with regard to a tender offer
or exchange offer, engage in any negotiations concerning or provide any
confidential information or data to, or have any discussions with, any person
relating to an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal. The Company has agreed to
notify BT immediately if any such inquiries or proposals are received by, any
such information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, the Company, or if the Board of
Directors has undertaken to engage in any negotiations concerning or provide any
confidential information or data to, or have any discussions with, any person
relating to an Acquisition Proposal.
BT Observer. During the Pre-Closing Period, BT is entitled to designate an
observer to attend meetings of the Board of Directors. Such observer will be
excluded from such meetings at all times during which the
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Board of Directors is discussing or considering any of the Transactions, any
transaction competing with or alternative to the Transactions, and any other
matter for which the attendance of such observer would not be in the best
interests of the stockholders as determined by the Chairman of the Board of
Directors.
Issuances of Derivative Securities. The Company has agreed that during the
Pre-Closing Period it will not issue any options, warrants, rights or other
securities convertible into or exercisable for shares of Common Stock (except
pursuant to the terms of the Convertible Preferred Stock, Employee Stock Plans,
the Investment Agreement and reissuances of Voting Securities purchased by the
Company after August 4, 1993) in excess of 59,845,453 shares.
Repurchases. The Company has agreed that if any shares of Common Stock are
issued by the Company during the Pre-Closing Period (other than issuances in
connection with Existing Options), the Company will, to the extent legally
permissible, use its best efforts to repurchase a number of shares of Common
Stock equal to the number of such shares issued during the Pre-Closing Period
(to the extent that such issuances exceed the number of shares of Common Stock
otherwise repurchased during such period) as soon as reasonably practicable
following the Closing. Notwithstanding the foregoing, the Company is obligated
to make such repurchases only to the extent that the Company reasonably believes
that they will not have a material effect on the market price of the Common
Stock.
CONDITIONS TO CLOSING
Each of the Company's and BT's obligation to effect the Closing is subject
to various conditions which include the following: (i) the approval of the
Investment Proposals by the Company's stockholders; (ii) an FCC Order (as
defined below) shall have been obtained which has not been revoked or stayed as
of the Closing Date (see "INVESTMENT PROPOSALS -- Regulatory
Approvals -- Section 310 of the Communications Act"), the waiting period under
the HSR Act with respect to the transactions contemplated by the Investment
Agreement shall have expired or been terminated (see "INVESTMENT PROPOSALS --
Regulatory Approvals -- U.S. Antitrust Laws") and review under the Exon-Florio
Act shall have terminated without the President of the United States having
taken any action (see "INVESTMENT PROPOSALS -- Regulatory Approvals -- The
Exon-Florio Act"), in each case without any Adverse Condition (as defined below)
having been imposed on such party; (iii) the representations and warranties of
the other party set forth in the Investment Agreement are true and correct in
all material respects, in each case as of the date of the Investment Agreement
and as of the Closing Date as if made on and as of such date; (iv) the other
party has performed and complied in all material respects with all agreements,
covenants and conditions contained in the Investment Agreement that are required
to be performed or complied with by it on or before the Closing Date; (v) the
sale of the shares of Class A Common Stock to BT shall not have been enjoined
(temporarily or permanently) as of the Closing Date; (vi) all actions required
to be performed under the Joint Venture Agreement and the BTNA Agreement by the
other party prior to the Closing have been performed and all other conditions
thereto have been satisfied or waived, including the receipt of certain required
regulatory approvals (see "RELATED TRANSACTIONS -- the Joint Venture --
Conditions to Closing" and "-- Acquisition of BT North America -- Acquisition by
the Company of the Business of BT North America Inc."); and (vii) the aggregate
percentage of the outstanding capital stock of the Company to be owned of record
or voted by Non-U.S. Persons or Entities (determined in a manner set forth in
the Investment Agreement and including all Common Shares owned of record or
voted by BT), after giving effect to the purchase of Class A Common Stock by BT
in connection with the Closing, does not exceed the Closing Foreign Ownership
Limitation. "FCC Order" generally means a written determination approving the
consummation of the transactions contemplated by the Investment Agreement or
stating that no such approval is required which is received from (x) the staff
of the FCC and is no longer subject to further administrative review by the FCC
or (y) the FCC itself. "Adverse Condition" generally means a condition or
restriction that, (a) in the case of the Company, would materially and adversely
affect the business of the Company and its subsidiaries, taken as a whole, or,
in the reasonable opinion of the Company, would materially diminish, taken as a
whole, the Company's rights under the Investment Agreement, or (b) in the case
of BT, in the reasonable opinion of BT would materially diminish, taken as a
whole, BT's rights under the Investment Agreement, the Charter Amendment or the
By-Law Amendments.
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BT's obligation to effect the Closing is subject to certain additional
conditions which include the adoption of the Rights Plan by the Company (see
"THE RIGHTS PLAN") and that the total number of shares that BT is entitled to
purchase in connection with the Closing, after giving effect to any reduction
pursuant to the Investment Agreement, represent at least 19% of the outstanding
Common Shares, calculated as provided in the Investment Agreement.
The Company's obligation to effect the Closing is subject to the additional
condition that the total number of shares of Class A Common Stock that are
issuable to BT in connection with the Closing, after giving effect to any
reduction pursuant to the Investment Agreement, represents at least 19% of the
outstanding Common Shares, calculated as provided in the Investment Agreement.
There can be no assurance that each of the conditions to the Closing will
be satisfied prior to August 4, 1994. In particular, the Company cannot predict
whether all applicable regulatory authorities will have completed their review
of the Transactions prior to such date or whether the required approvals or
other actions will be forthcoming. See "INVESTMENT PROPOSALS -- Regulatory
Approvals." If the Closing does not occur prior to August 4, 1994, each of the
Company and BT has the right, subject to the terms of the Investment Agreement,
to terminate the Investment Agreement (see "Termination" below).
TERMINATION
The Investment Agreement may be terminated and the transactions
contemplated thereby may be abandoned at any time (but not later than the
Closing Date), notwithstanding approval thereof by stockholders of the Company,
by mutual consent of the Company and BT. The Investment Agreement may also be
terminated by either the Company or BT: (i) if consummation of the Transactions
would violate any final non-appealable order, decree or judgment of any court or
governmental body having competent jurisdiction; (ii) at any time after August
4, 1994, if any condition is not waived or satisfied by such date, until such
time as all conditions are waived or satisfied; provided, that if any condition
has not been waived or satisfied by such date due to the willful act or omission
of one of the parties, that party may not terminate the Investment Agreement;
(iii) if an FCC Order shall be permanently and unconditionally denied; (iv) if
the other party shall have failed to perform or comply in any material respect
with any agreement or covenant contained in the Investment Agreement that is
required to be performed or complied with by it on or before the Closing Date
after having been provided by the other party written notice of, and a
reasonable opportunity to cure, such failure; or (v) if the stockholders of the
Company fail to approve the Investment Proposals at the Special Meeting. BT may
also terminate the Investment Agreement if (A) the Board of Directors recommends
the acceptance of a tender offer or exchange offer by a third party for
outstanding shares of Common Stock, (B) prior to the Special Meeting the Board
of Directors withdraws its recommendation that the stockholders approve the
Investment Proposals, or (C) the Company enters into an agreement in principle
or a definitive agreement with a person other than BT with respect to an
Acquisition Proposal.
CHARTER AMENDMENT (ITEM NO. 2)
The Closing is conditioned upon the approval of the Charter Amendment by
the stockholders of the Company and the filing of the Charter Amendment with the
Delaware Secretary of State. The stockholders are being asked to approve the
Charter Amendment substantially in a form that would result in the provisions of
the Restated Certificate, as so amended, reading in their entirety substantially
as set forth in the composite form of Restated Certificate included in Appendix
II. The following is a summary of certain provisions of the Charter Amendment,
which is set forth as Exhibit A to the Investment Agreement which is attached as
Appendix I to this Proxy Statement and is incorporated herein by reference. Such
summary is qualified in its entirety by reference to the Charter Amendment.
Approval of the Charter Amendment by the stockholders shall be deemed also
to constitute approval of a resolution authorizing the Board of Directors, at
any time prior to the filing of the Charter Amendment with the Delaware
Secretary of State, to abandon such proposed amendment without further action by
the stockholders, in connection with the termination of the Investment Agreement
or otherwise, notwithstanding approval of the Charter Amendment by the
stockholders of the Company. Furthermore, the Company does
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not intend to file the Charter Amendment with the Delaware Secretary of State
until the time of the Closing under the Investment Agreement.
INCREASE OF AUTHORIZED CAPITAL STOCK
General. The Restated Certificate currently authorizes the Company to
issue 820,000,000 shares of stock of par value of $.10 each. 20,000,000 of such
shares are designated as preferred stock and 800,000,000 are designated as
Common Stock. The Charter Amendment would increase the number of shares of stock
which the Company is authorized to issue to 2,550,000,000 shares of par value of
$.10 each and would divide such shares into three classes: 50,000,000 shares
would be designated Preferred Stock; 500,000,000 shares would be designated
Class A Common Stock; and 2,000,000,000 shares would be designated Common Stock.
Reasons for and Effects of the Increase of Authorized Capital Stock. In
addition to authorizing the Class A Common Stock, the Charter Amendment would
increase the number of authorized shares of Common Stock and Preferred Stock. Of
the 820,000,000 shares currently authorized, at the Record Date shares
of Common Stock and shares of Preferred Stock were outstanding and an
additional million shares of Common Stock were reserved for issuance
pursuant to Employee Stock Plans. Furthermore, following the Closing, for each
share of Class A Common Stock issued or reserved for issuance the Company will
be required to reserve one share of Common Stock for issuance upon conversion of
the Class A Common Stock. Assuming the issuance of shares of Class A
Common Stock at Closing, the Company would have fewer than million
authorized, unissued and unreserved shares of Common Stock following Closing
unless the number of authorized shares of Common Stock were increased.
Accordingly, the Company could not engage in a transaction requiring the
issuance of a number of shares of Common Stock greater than million
without obtaining stockholder approval for the authorization of the excess at
the time.
The Board of Directors believes that it is in the best interests of the
Company and its stockholders to increase the number of authorized shares of
Common Stock and Preferred Stock so that a sufficient number of additional
shares of Common Stock and Preferred Stock will be available for issuance from
time to time in connection with possible future financing programs, stock
dividends, acquisitions, stock option and other employee benefit plans and other
general corporate purposes. Having such additional authorized shares of Common
Stock and Preferred Stock available for issuance in the future will give the
Company greater flexibility and allow additional shares of Common Stock and
Preferred Stock, in excess of the number of such shares presently authorized, to
be issued without the expense and delay of a special meeting of stockholders
unless such meeting is required for the particular transaction by applicable law
or regulations or the rules of any stock exchange on which the shares of Common
Stock may then be listed or quoted. Although generally the newly authorized
Common Stock and Preferred Stock could be issued at the discretion of the Board
of Directors, subject in certain instances to the consent rights of BT as the
holder of the shares of Class A Common Stock and under the Investment Agreement
(see "INVESTMENT AGREEMENT -- Terms of the Class A Common Stock -- Matters
Requiring Class A Common Stock Consent" and " -- Approval of Certain Matters"),
in certain circumstances (involving the establishment of certain employee stock
option or purchase plans or certain issuances of stock (i) in connection with
the acquisition of another company where the amount of the issuance exceeds
certain specified percentages of voting power or Common Stock outstanding and/or
involves certain related parties, (ii) in connection with a transaction other
than a public offering where Common Stock is sold for less than the greater of
book or market value and in an amount that exceeds certain specified percentages
of voting power or Common Stock outstanding or (iii) resulting in a change in
control of the Company) the rules of the NASDAQ Stock Exchange may require
specific stockholder authorization of a proposed issuance of the newly
authorized shares of Common Stock or Preferred Stock.
Stockholders will have no preemptive rights with respect to any issuance of
the newly authorized Common Stock or Preferred Stock, although BT will have
certain equity purchase rights described above under "INVESTMENT AGREEMENT --
Provisions Relating to Maintenance of BT's Proportionate Ownership Interest --
Equity Purchase Rights". The issuance of additional shares of Common Stock or
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Preferred Stock could have the effect of diluting the economic and voting rights
of the existing holders of Common Stock.
The Board of Directors has authority (without action by the stockholders,
but subject to the consent rights of BT as the holder of the shares of Class A
Common Stock and under the Investment Agreement (see "INVESTMENT AGREEMENT --
Terms of the Class A Common Stock -- Matters Requiring Class A Common Stock
Consent" and " -- Approval of Certain Matters")) to issue the authorized and
unissued Preferred Stock in one or more series and to determine the voting
rights, preferences as to dividends and in liquidation, conversion and other
rights of each such series. Although the Company has no current plans to issue
Preferred Stock, the issuance of shares of Preferred Stock, or the issuance of
rights to purchase such shares, could be used to discourage an unsolicited
acquisition proposal. For instance, the issuance of a series of Preferred Stock
might impede a proposed business combination by including class voting rights
that would enable the holders of shares of such series to block such a
transaction, or facilitate a business combination by including voting rights
that would provide a required percentage vote of the holders thereof with
respect to specified matters, subject in each case to the consent rights of BT
as the holder of Class A Common Stock and under the Investment Agreement (see
"INVESTMENT AGREEMENT -- Terms of the Class A Common Stock -- Matters requiring
Class A Common Stock Consent" and " -- Approval of certain matters") and to any
applicable requirements of the NASDAQ Stock Exchange. The issuance of additional
shares of Common Stock could also be used to discourage an unsolicited takeover
proposal. For example, shares of Common Stock could, subject to the consent
rights of BT as the holder of the Class A Common Stock and under the Investment
Agreement (see "INVESTMENT AGREEMENT -- Terms of the Class A Common Stock --
Matters Requiring Class A Common Stock Consent" and "-- Approval of Certain
Matters"), be privately placed with purchasers who would be likely to support
the Board of Directors in opposing a hostile takeover bid. Although the Board of
Directors is required to make any determination to issue such stock based on its
judgment as to the best interests of the stockholders of the Company, the Board
of Directors could act in a manner that would discourage an acquisition attempt
or other transaction that some, or a majority, of the stockholders might believe
to be in their best interests or in which stockholders might receive a premium
for their stock over the then market price of such stock. The Board of Directors
does not at present intend to seek stockholder approval prior to any issuance of
authorized stock, unless otherwise required by law, the Restated Certificate or
the requirements of the NASDAQ Stock Exchange.
TERMS OF CLASS A COMMON STOCK AND REVISIONS TO TERMS OF COMMON STOCK
The Charter Amendment would establish the terms of the Class A Common Stock
including voting rights, see "INVESTMENT AGREEMENT -- Terms of Class A Common
Stock", and would also supplement the terms of the Common Stock in order to set
forth the rights of the holders of the Common Stock in relation to those of the
holders of the Class A Common Stock. The Charter Amendment would provide that
the payment of dividends to holders of the Common Stock will be subject to the
right of the holders of the Class A Common Stock to have the Company declare a
dividend on the Class A Common Stock in an amount per share equal to the per
share amount of the dividend paid on the Common Stock. The Charter Amendment
also provides that in the event of the voluntary or involuntary liquidation,
dissolution or winding-up of the Company the holders of Class A Common Stock and
Common Stock will participate ratably in proportion to the number of shares held
by each such holder in any distribution of assets of the Company to such
stockholders. See "INVESTMENT AGREEMENT -- Terms of Class A Common Stock." In
addition, the Charter Amendment would add a new provision which provides that in
the event the Company effects a subdivision or combination or consolidation of
the outstanding shares of Class A Common Stock into a greater or lesser number
of shares of Class A Common Stock, then in each such case the Company will
effect an equivalent subdivision or combination or consolidation of the
outstanding shares of Common Stock into a greater or lesser number of shares of
Common Stock.
REDEMPTION PROVISION; POSSIBLE REDEMPTION OF SHARES HELD BY NON-U.S. PERSONS
General. The Redemption Provision provides that, subject to the express
terms of any series of preferred stock, outstanding shares of the Company's
stock held by Disqualified Holders (as hereafter defined) may be
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redeemed by action of the Board of Directors to the extent necessary, in the
judgment of the Board of Directors, to prevent the loss or secure the renewal or
reinstatement of any license or franchise from any governmental agency held by
the Company or any of its subsidiaries to conduct any portion of the business of
the Company or any of its subsidiaries, which license or franchise is
conditioned upon some or all of the holders of the stock of the Company
possessing prescribed qualifications. "Disqualified Holder" is defined in the
Charter Amendment to mean any holder of shares of stock of the Company whose
continued holding of such stock, either individually or taken together with the
holding of shares of stock of the Company by any other holder or holders of
shares of stock of the Company, may, in the judgment of the Board of Directors,
result in the loss of, or the failure to secure the renewal or reinstatement of,
any license or franchise from any governmental agency held by the Company or any
of its subsidiaries to conduct any portion of the business of the Company or any
of its subsidiaries.
The Redemption Provision provides that, subject to any additional or
different rights of a particular Disqualified Holder or of the Company pursuant
to any contract or arrangement between such Disqualified Holder and the Company
(see "INVESTMENT AGREEMENT -- Provisions Relating to Maintenance of BT's
Proportionate Ownership Interest-Limitation on Issuance of Stock to Non-U.S.
Persons on Entities; Redemption of Stock Held by Non-U.S. Persons or Entities"),
(i) the redemption price of any shares so redeemed will equal the current market
value of such shares (based on the average of the daily closing prices over the
twenty day trading period commencing on the twenty-second trading day prior to
the date on which notice of redemption is given), provided that the redemption
price payable to any Disqualified Holder who purchased such shares after
, 1994 and within one year of the redemption date will not
(unless otherwise determined by the Board of Directors) exceed the purchase
price paid by such Disqualified Holder for such shares; (ii) the redemption
price may be paid in cash, debt or equity securities of the Company or any other
corporation or any combination thereof (any such securities being referred to
herein as "Redemption Securities"); (iii) any Redemption Securities will have
such terms and conditions which, together with any cash to be paid as part of
the redemption price, in the opinion of any nationally recognized investment
banking firm selected by the Board of Directors, has a value, at the time notice
of redemption is given, at least equal to the applicable redemption price; and
(iv) if less than all the shares held by Disqualified Holders are to be
redeemed, the shares to be redeemed shall be selected in a manner determined by
the Board of Directors which may include selection first of the most recently
purchased shares, selection by lot or selection in any other manner determined
by the Board of Directors to be equitable. The Board of Directors is expressly
permitted to select shares of the Common Stock for redemption prior to redeeming
shares of Class A Common Stock. At least ten days' written notice of the
redemption date must be given to the record holders of the shares selected to be
redeemed (unless waived in writing by any such record holder). The redemption
date, however, may be the date on which written notice is given to record
holders if the cash or Redemption Securities necessary to effect the redemption
have been deposited in trust for the benefit of such record holders and subject
to immediate withdrawal by them upon surrender of the stock certificates for
their shares to be redeemed. Notwithstanding the foregoing, if any shares of
Class A Common Stock or any other capital stock held by BT or its affiliates are
redeemed pursuant to the Redemption Provision, the redemption price and the
other terms and conditions of such redemption will be as set forth in the
Investment Agreement. In addition, the Investment Agreement provides that, to
the fullest extent legally permissible, the Company must first designate for
redemption securities other than shares of Class A Common Stock or Common Stock
held by BT. See "INVESTMENT AGREEMENT -- Provisions Relating to Maintenance of
BT's Proportionate Ownership Interest -- Limitation on Issuance of Stock to
Non-U.S. Persons or Entities; Redemption of Stock Held by Non-U.S. Persons or
Entities."
Reasons for and Effects of the Redemption Provision. The Redemption
Provision is being proposed in order to assure that the Company will be able to
comply with the foreign ownership provisions contained in Section 310(b),
although the Redemption Provision could be used in other circumstances if
necessary to prevent the loss of any governmental license or franchise. Section
310(b) currently provides that, absent an FCC order expressly permitting a
higher level of foreign ownership, if more than 25% of the Company's capital
stock is owned of record or voted by Non-U.S. Persons or Entities the FCC may
revoke certain licenses that are material to the business of the Company and its
subsidiaries. Based upon the results of a survey of the Company's public
stockholders conducted in July 1993 in accordance with FCC guidelines, and
assuming that
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BT had then been issued shares of Class A Common Stock representing 20% of the
Common Shares outstanding after such issuance, the aggregate foreign ownership
of the Company's outstanding capital stock (including shares owned by BT) at
such time would have equaled 24.98 percent, plus or minus 1.32 percent (at a
survey confidence level of 97.5 percent). Although the Company has filed the FCC
Petition requesting, among other things, that the FCC permit up to 28 percent of
the Company's capital stock to be owned by Non-U.S. Persons or Entities, the
Company cannot predict whether the FCC will grant such request. See "INVESTMENT
PROPOSALS -- Regulatory Approvals -- Section 310 of the Communications Act." If
at any time following the Closing the percentage of the Company's outstanding
capital stock owned by Non-U.S. Person or Entities were to exceed 25% or such
greater percentage as may be set forth in an FCC order, under the Redemption
Provision the Company could redeem shares of the Company's capital stock held by
Non-U.S. Persons or Entities in the manner and at the redemption prices
described above. The Redemption Provision could have an adverse effect on the
price of the Common Stock.
REDEMPTION OF RIGHTS
The Charter Amendment provides that until the fourth anniversary of the
Closing Date, so long as any shares of Class A Common Stock remain outstanding,
the Board of Directors may not redeem the Rights without the affirmative vote of
the holders of at least 75% in voting power of the Voting Securities at the time
outstanding, voting together as a single class. Since BT will initially own
approximately 20% of the outstanding Voting Securities following the Closing,
unless the shares of Class A Common Stock are converted to Common Stock,
stockholder approval of redemption of the Rights, and therefore any acquisition
of control of the Company, during the four years following Closing will be
unlikely without the consent of BT. See "INVESTMENT PROPOSALS -- Certain
Considerations -- Diminished Ability to Sell the Company; Certain Anti-takeover
Effects."
REPEAL OF THE CAPPED VOTING AND BUSINESS COMBINATION PROVISIONS
The Business Combination Provision. Delaware law generally requires the
affirmative vote of the holders of a majority of the outstanding shares entitled
to vote to approve a merger, consolidation or dissolution of the Company or a
sale, lease or exchange of all or substantially all of the Company's assets. The
Business Combination Provision raises the required affirmative vote to 80% of
the total number of votes entitled to be cast to approve these and certain other
significant corporate transactions ("business combinations") if a "Substantial
Stockholder" (as defined in the Business Combination Provision) is a party to
the transaction or its percentage equity interest in the Company would increase
as a result of the transaction. Two-thirds of the Board of Directors may, in all
such cases, determine not to require such 80% affirmative vote, but only if a
majority of the directors acting upon such matter are "continuing directors" (as
defined in the Business Combination Provision). Such determination may only be
made prior to the time any Substantial Stockholder in question achieves such
status. The required 80% approval of any such business combination must include
at least a majority of all votes entitled to be cast by shares not beneficially
owned by any Substantial Stockholder.
A "Substantial Stockholder" generally is defined in the Business
Combination Provision as the "beneficial owner" of 15% or more of the
outstanding shares of stock of the Company entitled to vote generally in the
election of directors ("voting shares"). "Beneficial ownership" generally is
defined in accordance with the definition of beneficial ownership under Rule
13d-3 of the General Rules and Regulations under the Exchange Act and includes
all shares as to which the Substantial Stockholder in question has sole or
shared voting or investment power. However, for purposes of the Business
Combination Provision, a Substantial Stockholder is also deemed to own
beneficially shares owned, directly or indirectly, by any "Affiliate" or
"Associate" (each as defined in the Business Combination Provision) of the
Substantial Stockholder, as well as (i) shares which it or any such Affiliate or
Associate has a right to acquire, (ii) shares issuable upon the exercise of
options or rights, or upon conversion of convertible securities, held by the
Substantial Stockholder, and (iii) shares beneficially owned by any other person
with whom the Substantial Stockholder or any of his Affiliates or Associates
acts as a partnership, syndicate or other group pursuant to an agreement,
arrangement
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or understanding for the purpose of acquiring, holding, voting or disposing of
shares of capital stock of the Company.
A "business combination" subject to the Business Combination Provision
includes: a merger or consolidation involving the Company or any of its
subsidiaries and a Substantial Stockholder; a sale, lease or other disposition
of a "substantial part" of the assets of the Company or any of its subsidiaries
(that is, assets constituting in excess of 10% of the book value of the total
consolidated assets of the Company) to a Substantial Stockholder; an issuance of
equity securities of the Company or any of its subsidiaries to a Substantial
Stockholder for consideration aggregating $25,000,000 or more; a liquidation or
dissolution of the Company (if as of the record date for the determination of
stockholders entitled to vote with respect thereto any person is a Substantial
Stockholder); and a reclassification or recapitalization of securities
(including any reverse stock split) of the Company or any of its subsidiaries or
a reorganization, in any case having the effect, directly or indirectly, of
increasing the percentage interest of a Substantial Stockholder in any class of
equity securities of the Company or such subsidiary.
The Business Combination Provision is intended to encourage a person or
entity that is interested in a business combination with or a substantial equity
investment in the Company to negotiate the terms of such business combination or
investment in advance thereby enabling the Board of Directors to negotiate with
such person or entity for the best interest of all stockholders.
The Capped Voting Provision. The Capped Voting Provision provides that,
unless and until the procedural requirements of the Capped Voting Provision are
satisfied, any person who becomes a "Substantial Stockholder" (as defined in the
Capped Voting Provision) shall be entitled to one vote for each voting share of
any class or series of stock beneficially owned by such person up to 10% of the
outstanding voting shares of such class or series, but for each voting share in
excess of 10% of the outstanding shares of such class or series, such person
shall, except as to certain specified matters, be entitled to only one hundredth
(1/100) of one vote per share. The Capped Voting Provision specifies that,
notwithstanding the foregoing, in no event shall a Substantial Stockholder, by
virtue of its ownership of voting shares of any class or series, be entitled,
except as to certain specified matters, to cast more than 15% of the total
number of votes (after giving effect to the reduction in his voting rights)
entitled to be cast in respect of all outstanding voting shares of such class or
series.
The limitation on voting rights of a Substantial Stockholder remains in
effect until the Substantial Stockholder has consummated a tender offer for any
and all shares of Common Stock (i) at a price per share not less than the
minimum "Offer Price" specified in the Capped Voting Provision and (ii) which
satisfies certain procedural requirements set forth in the Capped Voting
Provision. Upon such consummation, each voting share beneficially owned by the
Substantial Stockholder may be fully voted the same as would a share in the
hands of any other holder. A person who otherwise would be a Substantial
Stockholder for purposes of the Capped Voting Provision will not be deemed such
if such person commences, prior to the time it would otherwise be deemed to have
become a Substantial Stockholder, and thereafter consummates, a tender offer for
any and all shares of Common Stock (including a tender offer made at a price
less than the minimum "Offer Price") which is approved by two-thirds of the
Board of Directors, but only if a majority of the directors acting upon such
matter are "continuing directors".
A "Substantial Stockholder" for purposes of the Capped Voting Provision is
defined as any "beneficial owner" of more than 10% of the outstanding voting
shares (as opposed to the 15% test of the Business Combination Provision).
"Beneficial ownership" for purposes of the Capped Voting Provision generally is
defined in accordance with the definition utilized in the Business Combination
Provision, except that, for purposes of the Capped Voting Provision, a
Substantial Stockholder is deemed to beneficially own shares owned, directly or
indirectly, by any "Affiliate" of the Substantial Stockholder (defined as any
person directly or indirectly controlling, controlled by, or under common
control with, the Substantial Stockholder) but not by an "Associate" (as defined
in the Capped Voting Provision) thereof.
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The "Offer Price" for a tender offer referred to in the Capped Voting
Provision (which will relieve the Substantial Stockholder of the voting
limitations set forth therein) must equal or exceed a price equal to the greater
of:
(A) the market price (as defined in the Capped Voting Provision) of
the Common Stock immediately prior to the public announcement of the tender
offer, multiplied by a fraction, the numerator of which is the highest per
share price paid (or agreed to be paid) by the Substantial Stockholder (or
any of its Affiliates or any other person who is deemed to be the
beneficial owner of shares also beneficially owned by the Substantial
Stockholder) during the preceding two year period, and the denominator of
which is the market price of the Common Stock immediately prior to the
initial acquisition of shares by the Substantial Stockholder (or any of its
Affiliates or any such other person) during such two year period;
(B) the highest per share price paid (or agreed to be paid) by the
Substantial Stockholder (or any of its Affiliates or any such other person)
in acquiring shares of Common Stock;
(C) the highest sale or bid price for the Common Stock during the
preceding 12 months; or
(D) the earnings per share of the Common Stock for the four preceding
fiscal quarters multiplied by the then highest price/earnings ratio
reported for the Substantial Stockholder or any of its Affiliates.
In lieu of a price determined on the basis of these formulae, a majority of
the Board of Directors (but only if a majority of the Board of Directors then
consists of continuing directors) or, if a majority of the Board of Directors
does not then consist of continuing directors, then a majority of the continuing
directors, may choose, by notice to the Substantial Stockholder, within 90 days
after a written request by the Substantial Stockholder for advice as to the
directors' decision, to require that any such Offer Price may not be less than a
price per share (the "Established Price") established by an independent,
nationally recognized investment banking firm selected by the directors (in the
above manner) as a fair and appropriate price for the sale of the Company in a
privately negotiated arm's length acquisition of the Company. For these
purposes, consideration will be given to the value of the Company as a going
concern and in liquidation, and the Established Price will reflect the
circumstance which will result in the highest price.
The purpose of the Capped Voting Provision is to enable all stockholders to
participate, through an election to sell or otherwise dispose of their shares,
in any proposed acquisition of control of the Company by another person, and to
be offered a price for their shares which is fair and equitable under the
circumstances and which includes an appropriate premium for the acquisition of
such control.
Reasons for and Effects of Deletion of the Capped Voting and Business
Combination Provisions. The Charter Amendment would delete the Business
Combination Provision and the Capped Voting Provision from the Restated
Certificate. In connection with the negotiation of the Investment Agreement, BT
sought repeal of the Capped Voting Provision because absent such repeal BT's
holdings over 10% of the outstanding Common Shares would not be entitled to full
voting rights. Similarly, BT insisted on repeal of the Business Combination
Provision in order to ensure its flexibility to effect a business combination
subsequent to the Closing on the same terms and conditions as any other
acquiror. Absent repeal of such provisions any business combination with BT
after the Closing would require an 80% vote. The Business Combination Provision
and the Capped Voting Provision are designed to encourage persons seeking to
acquire control of the Company to consult first with the Board of Directors to
negotiate the terms of any proposed business combination or tender offer.
Furthermore, an important purpose of the Capped Voting Provisions is to increase
the likelihood that, in connection with an attempt to acquire control of the
Company, all of the Company's stockholders will be offered the opportunity to
sell their shares at a fair and appropriate price, whether or not the acquiring
person intends to effect any subsequent business combination involving the
remaining minority interests in the Company. The repeal of the Capped Voting
Provision and the Business Combination Provision would, absent the adoption of
the Rights Plan and other other provisions sought by BT that have an
antitakeover effect, meaningfully increase the Company's vulnerability to (i)
coercive two-tiered, front-end loaded or partial offers which may not offer fair
value to all stockholders; and (ii) market accumulators who through open market
or private purchases would be able to exercise a controlling influence over the
policies of the Company without
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paying to selling or remaining stockholders a fair and adequate price, including
a sufficient premium for such controlling interest, or who are simply interested
in putting the Company into "play." The adoption of the Rights Plan and the
other provisions sought by BT that have an antitakeover effect should
meaningfully reduce the Company's exposure to unsolicited takeover attempts that
might otherwise result from repeal of the Business Combination Provision and the
Capped Voting Provision.
THE CONSENT AMENDMENT
General. Under Delaware law, unless otherwise provided in a corporation's
certificate of incorporation, any action which is required or permitted to be
taken at an annual or special meeting of stockholders may instead be taken
without prior notice, without a meeting and without a vote if a written consent
setting forth the action to be taken is signed by the holders of outstanding
shares of stock having at least the number of votes as would be required to
authorize such action at a meeting of stockholders at which all shares entitled
to vote thereon were present and voted. The Charter Amendment would eliminate
the ability of the holders of Common Stock (but not Class A Common Stock) to
take action by written consent (such provision of the Charter Amendment is
referred to herein as the "Consent Amendment").
Reasons for and Effects of the Consent Amendment. The Consent Amendment
eliminates the ability of holders of Common Stock (but not Class A Common Stock)
to take action by written consent immediately and without prior notice. The
Consent Amendment would allow holders of Common Stock to act only at an annual
or special meeting, and under the Restated Certificate special meetings of
stockholders may be called only by the Board of Directors or the Chairman of the
Board or upon the written request of holders of at least two-thirds of the
outstanding shares entitled to vote in the election of directors. By requiring
that actions by holders of Common Stock be taken only at a meeting, the Consent
Amendment ensures that all such stockholders will have the opportunity to
consider any matter that could affect their rights. The Board of Directors
believes it is appropriate and important for public stockholders of the Company
to be afforded the protection of a stockholders' meeting.
If the Consent Amendment is adopted, a majority stockholder would no longer
be able to take unannounced action. The inability of a majority stockholder to
act without a meeting might impact upon such person's decision to purchase
voting securities of the Company. For example, a person may be discouraged or
deterred from attempting to obtain control of the Company if a necessary
ingredient of such program is to take action immediately and without any prior
notice.
REMOVAL OF DIRECTORS
General. The By-Laws of the Company currently contain provisions with
respect to the removal of directors, including a supermajority voting
requirement of four-fifths of the votes entitled to be cast by the holders of
all outstanding shares that would be entitled to elect such director's successor
if such director's term had naturally expired. The Charter Amendment would (i)
move the provisions related to the removal of directors to the Restated
Certificate, (ii) establish removal provisions with respect to the Class A
Directors and (iii) conform the removal provisions to the current provisions of
the DGCL, as amended. The provisions of the Charter Amendment relating to the
removal of directors are designed to reflect the statutory requirements
applicable to such removal, taking into account directors elected by holders of
a class of stock, cumulative voting, a classified board, a supermajority voting
requirement and removal of certain directors with and without cause.
Removal of Ordinary Directors. The Charter Amendment would add a provision
to the Restated Certificate providing that any director of the Company elected
to one of the three staggered classes of the Board of Directors may be removed
from office, but only for cause and only by the affirmative vote of the holders
of not less than four-fifths of the votes entitled to be cast by the holders of
all outstanding shares (considered as one class) entitled to vote thereon. The
stockholders entitled to vote for the election of such removed director's
successor may, at the meeting at which such removal was effectuated, elect a
successor to any director so removed, which successor will hold office until the
next election of the class of directors of which the director so removed was a
member. The remaining directors may, to the extent that the vacancy is not
filled by election by the stockholders, fill such vacancy for such term.
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Removal of Class A Directors. The Charter Amendment would amend the
Restated Certificate to provide that any Class A Director may be removed from
office (i) for cause only by the affirmative vote of the holders of not less
than four-fifths of the votes entitled to be cast by the holders of all
outstanding shares (considered as one class) entitled to vote thereon and (ii)
without cause only by the affirmative vote of the holders of not less than a
majority of the outstanding Class A Common Stock, voting separately as a class.
Notwithstanding the foregoing, if less than all the Class A Directors are to be
removed, no Class A Director may be removed without cause if the votes cast
against such director's removal would be sufficient to elect such director if
then cumulatively voted at an election of all Class A Directors. In case of any
vacancy resulting from any such removal of a Class A Director, the remaining
Class A Director or Directors may appoint a successor to hold office for the
unexpired term of the Class A Director whose place shall be vacant. If the
offices of all Class A Directors are vacant, then the holders of the Class A
Common Stock may elect successors.
Removal of Other Directors. The Charter Amendment would amend the Restated
Certificate to provide that any director of the Company other than a director
described under "Removal of Ordinary Directors" or "Removal of Class A
Directors" above may be removed from office, with or without cause, and the
vacancy resulting therefrom may be filled, in accordance with applicable law and
any other provision of the Restated Certificate (including any applicable terms
of any class or series of Preferred Stock) or by-laws applicable thereto.
Currently there are no directors nor any plans for any directors who would fall
within the purview of this provision.
ADDITIONAL PROVISIONS
The Charter Amendment would repeal a provision of the Restated Certificate
that provides that all shares of preferred stock of the Company that are
acquired by the Company, whether by purchase or redemption or by their having
been converted or exchanged for other shares of the Company or otherwise, shall
be retired and shall not be reissued. Following repeal of such provision of the
Restated Certificate, shares of the Company's preferred stock that are acquired
by the Company could, by resolution of the Board of Directors, be retired and
thereby resume the status of authorized and unissued shares of the class or
series to which they belong and thereafter be available for issuance by the
Company. Such amendment to the Restated Certificate is being proposed in order
to give the Company greater flexibility to issue additional shares of preferred
stock following the acquisition by the Company of outstanding shares of its
preferred stock.
The Restated Certificate currently provides that the authorized amount of
shares of the Common Stock and of the Preferred Stock may, without a class or
series vote, be increased or decreased from time to time by the affirmative vote
of a majority of the votes entitled to be cast thereon. The Charter Amendment
would add the newly created Class A Common Stock to this list.
STOCKHOLDERS RIGHTS PLAN (ITEM NO. 3)
General. The Closing is conditioned upon the Board of Directors adopting,
subject to stockholder approval, a stockholders rights plan (the "Rights Plan")
in accordance with the terms of a Rights Agreement substantially in the form
attached hereto as Appendix III (the "Rights Agreement"). Under the Investment
Agreement, the Board of Directors is not required to adopt the Rights Plan prior
to the time that all other conditions to the Closing have been satisfied or
waived, and the Board of Directors does not intend to adopt the Rights Plan
unless and until the Closing has occurred under the Investment Agreement. The
following is a summary of certain provisions of the Rights Agreement, which is
attached as Appendix III to this Proxy Statement and is incorporated herein by
reference. Such summary is qualified in its entirety by reference to the Rights
Agreement.
The Board of Directors reserves the right to adopt the Rights Plan in a
form other than as set forth as Appendix III hereto or to determine not to adopt
the Rights Plan notwithstanding stockholder approval. The Board of Directors
also reserves the right, subject to the terms of the Investment Agreement, to
amend the
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provisions of the Rights Plan in all respects in accordance with its terms and
without stockholder approval after approval of the Investment Proposals by the
Company's stockholders.
The Rights Plan contemplates that the Board of Directors declare a dividend
of one preferred stock purchase right (a "Right") for each outstanding Common
Share, payable on a date after the Closing (the "Rights Plan Record Date") to
the stockholders of record on that date. Prior to the Distribution Date (as
defined below), the Rights will also be attached to all future issuances of
Common Shares. From and after the Distribution Date, each Right will entitle the
registered holder to purchase from the Company one-hundredth of a share of
Series E Preferred Stock, par value $.10 per share (the "Series E Preferred
Stock"), of the Company, at a price per one-hundredth of a share of Series E
Preferred Stock to be established by the Board of Directors at the time of its
adoption of the Rights Plan and that is expected to be two to four times the
then current market value of the Common Stock (the "Purchase Price"), subject to
adjustment.
The Rights become exercisable on the date (the "Distribution Date") that is
the earlier of (i) the tenth day following the public announcement that a person
or group (an "Acquiring Person") has acquired beneficial ownership of 10% or
more of the outstanding Common Shares (more than 20% in the case of BT) or (ii)
the tenth day (or such later date as determined by action of the Board of
Directors prior to such time as any such person or group becomes an Acquiring
Person) following the commencement or announcement of an intention to make a
tender offer or exchange offer the consummation of which would result in the
beneficial ownership by a person or group of 10% or more of the outstanding
Common Shares (more than 20% in the case of BT). BT will not be deemed an
Acquiring Person solely by virtue of the shares of Class A Common Stock it
acquires pursuant to the Investment Agreement or any shares of Common Stock
issued upon conversion of such shares of Class A Common Stock. The Rights will
be evidenced, with respect to any of the Common Share certificates outstanding
as of the Rights Plan Record Date, by such Common Share certificate together
with the Summary of Rights which is included in the Rights Agreement as Exhibit
C (the "Summary of Rights").
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with and
only with the Common Shares. Until the Distribution Date (or earlier redemption
or expiration of the Rights), new Common Share certificates issued after the
Rights Plan Record Date upon transfer or new issuance of Common Shares will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for Common Shares outstanding as of
the Rights Plan Record Date, even without such notation or a copy of the Summary
of Rights, will also constitute the transfer of the Rights associated with the
Common Shares represented by such certificate. As soon as practicable following
the Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Common Shares as of
the close of business on the Distribution Date and thereafter such separate
Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire ten years after the date of the Rights Agreement (the "Final Expiration
Date"), unless the Final Expiration Date is extended or unless the Rights are
earlier redeemed or exchanged by the Company, in each case as described below.
The Purchase Price payable, and the number of shares of Series E Preferred
Stock or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution in the event of a
stock dividend on, or a subdivision, combination or reclassification of, the
Series E Preferred Stock. The number of outstanding Rights is subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares.
Series E Preferred Stock purchasable upon exercise of the Rights will not
be redeemable. Each share of Series E Preferred Stock will be entitled to a
minimum preferential quarterly dividend payment of $1 per share but will be
entitled to an aggregate dividend of 100 times the dividend declared per share
of Common Stock. In the event of liquidation, the holders of the Series E
Preferred Stock will be entitled to a minimum preferential liquidation payment
of $100 per share but will be entitled to an aggregate payment of 100 times the
payment made per share of Common Stock. Each share of Series E Preferred Stock
will have 100 votes,
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voting together with the Common Shares. Because of the nature of the Series E
Preferred Stock's dividend, liquidation and voting rights, the value of the
one-hundredth interest in a share of Series E Preferred Stock purchasable upon
exercise of each Right should approximate the value of one share of Common
Stock.
In the event that any person or group becomes an Acquiring Person, each
holder of a Right (other than Rights beneficially owned by the Acquiring Person,
which will thereupon become void), will thereafter have the right to receive
upon exercise that number of shares of Common Stock having a market value of two
times the exercise price of the Right. In the event that, after a person or
group has become an Acquiring Person, the Company is acquired in a merger or
other business combination transaction or 50% or more of its assets or earning
power are sold, each holder of a Right will thereafter have the right to
receive, upon the exercise thereof at the then current exercise price of the
Right, that number of shares of common stock of the acquiring company which at
the time of such transaction will have a market value of two times the exercise
price of the Right.
At any time prior to the time an Acquiring Person becomes such, the Board
of Directors may redeem the Rights in whole, but not in part, at a price of $.01
per Right (the "Redemption Price"), provided that pursuant to the Charter
Amendment, during the four years following the Closing, so long as any shares of
Class A Common Stock remain outstanding, such redemption will also require the
affirmative vote of the holders of 75% in voting power of all outstanding Voting
Securities. See "CHARTER AMENDMENT -- Redemption of the Rights" and "INVESTMENT
PROPOSALS -- Certain Considerations -- Diminished Ability to Sell the Company;
Certain Antitakeover Effects -- Interim Investment Period." In addition, during
the six years thereafter, the Company has agreed with BT that, without BT's
consent, it will not redeem the Rights unless it has followed certain auction
procedures set forth in the Investment Agreement. See "THE INVESTMENT AGREEMENT
- -- Provisions Relating to a Change in Control of the Company -- Business
Combinations -- Auction Period" and "INVESTMENT PROPOSALS -- Certain
Considerations -- Diminished Ability to Sell the Company; Certain Antitakeover
Effects -- Auction Period." The redemption of the Rights may be made effective
at such time, on such basis and with such conditions as the Board of Directors
in its sole discretion may establish. Immediately upon any redemption of the
Rights, the right to exercise the Rights will terminate and the only right of
the holders of Rights will be to receive the Redemption Price.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
Common Shares, the Board of Directors may exchange the Rights (other than Rights
owned by such Acquiring Person, which will have become void), in whole or in
part, at an exchange ratio of one share of Common Stock, or one-hundredth of a
share of Series E Preferred Stock, per Right (subject to adjustment).
Subject to the consent rights of BT under the Investment Agreement and the
Restated Certificate (as amended by the Charter Amendment) (see "INVESTMENT
AGREEMENT -- Terms of the Class A Common Stock -- Matters Requiring Class A
Common Stock Consent," "-- Provisions Relating to a Change in Control of the
Company" and "Continuance of Certain Rights"), the terms of the Rights may be
amended by the Board of Directors without the consent of the holders of the
Rights or the stockholders of the Company, except that, from and after such time
as any person or group becomes an Acquiring Person, no such amendment may
adversely affect the interests of the holders of the Rights or cause the Rights
again to become redeemable.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
Reasons for and Effects of the Rights Plan. The Board of Directors views
the Rights Plan as a desirable measure to protect the Company and its
stockholders from certain nonnegotiated takeover attempts which present the risk
of a change of control on terms which may be less favorable to the Company's
stockholders than would be available in a transaction negotiated with and
approved by the Board of Directors. Although there can be no certainty as to the
results of any particular negotiation, the Board of Directors believes that the
interests of the stockholders are best served if any acquisition of the Company
or a substantial percentage of the Common Shares results from arm's-length
negotiations and reflects the Board of Directors' careful consideration of the
proposed terms of a transaction. In particular, the Rights Plan is intended to
help (i) to encourage a potential acquiror to negotiate with the Board of
Directors and thereby preserve for stockholders,
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in the event of a takeover attempt, the value of the Company; (ii) reduce the
risk of coercive two-tiered, front-end loaded or partial offers which may not
offer fair value to all stockholders; (iii) mitigate against market accumulators
who through open market or private purchases may be able to exercise a
controlling influence over the policies of the Company without paying to selling
or remaining stockholders a fair and adequate price, including a sufficient
premium for such controlling interest; and (iv) deter market accumulators who
are simply interested in putting the Company into "play". The Rights Plan is
expected to achieve these goals by confronting a potential acquiror of the
Company's stock with the threat of a substantial dilution of the acquiror's
equity interest resulting from the exercise of the Rights to buy additional
stock in the Company (or in certain cases, stock of the acquiror) at a
substantial discount in the event that the acquiror engages in a triggering
transaction described above.
The adoption of the Rights Plan should meaningfully reduce the Company's
vulnerability to coercive two-tiered, front-end loaded or partial offers and
market accumulators as described above that otherwise might result from the
repeal of the Capped Voting Provision and the Business Combination Provision.
See "CHARTER AMENDMENT -- Repeal of the Capped Voting and Business Combination
Provisions." In that connection, BT sought contractually to obligate the
Company, subject to stockholder approval, to adopt the Rights Plan in order to
reduce the likelihood that the Company would be sold pursuant to a transaction
not approved by the Board of Directors and, during the Interim Investment
Period, by BT. In addition, while the Investment Agreement contains standstill
protections against certain future acquisitions of shares of Common Stock by BT
(see "THE INVESTMENT AGREEMENT -- Standstill and Related Provisions"), the
Rights Plan will provide additional protection to the stockholders from any
potential future acquisitions of shares of Common Stock by BT without the
approval of the Board of Directors.
The overall effect of the Rights Plan may be to render more difficult or
discourage any attempt to acquire the Company even if such acquisition may be in
the best interests of the Company's stockholders. As a result of the
Supermajority Stockholder Vote Provision, so long as shares of the Class A
Common Stock remain outstanding, redemption of the Rights during the first four
years after Closing will be unlikely without BT's consent, making any
acquisition of control of the Company during those four years unlikely without
BT's consent. Thereafter, since the Rights are redeemable by the Board of
Directors, in general the Rights Plan would interfere with a merger or other
business combination approved by the Board of Directors only to the extent that
such redemption is restricted by the terms of the Investment Agreement during
the Auction Period. See "THE INVESTMENT AGREEMENT -- Provisions Relating to a
Change in Control of the Company -- Business Combinations -- Auction Period" and
"INVESTMENT PROPOSALS -- Certain Considerations -- Diminished Ability to sell
the Company; Certain Antitakeover Effects -- Auction Period."
RELATED TRANSACTIONS
THE JOINT VENTURE
As described above under "INVESTMENT PROPOSALS -- Background of and Reasons
for the Investment Proposals," the transactions contemplated by the Investment
Agreement form part of a strategic alliance between the Company and BT. A
principal component of such alliance is the formation by the Company and BT of a
joint venture (the "Joint Venture") to provide enhanced and value-added services
between two or more countries and international telecommunications-related
outsourcing. The Closing under the Investment Agreement is conditioned on the
simultaneous occurrence of the Joint Venture Closing and the Joint Venture
Closing is conditioned on the occurrence of the Closing.
Certain terms of the Joint Venture are summarized below. Copies of the
Joint Venture Agreement, the form of MCI Distribution Agreement, the form of MCI
Services Agreement and the form of Intellectual Property Agreement have been
filed as exhibits to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ending June 30, 1993. The Terms of the Joint Venture can be modified
(including to provide for one or more additional participants in the Joint
Venture or one or more additional distributors of Newco's services) by agreement
of the Company, BT and Newco. Such modification would not require the consent of
the stockholders of the Company and Company does not anticipate that it would
solicit such consent.
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Corporate Structure; Ownership Interests; Board Representation
Newco is an unlimited liability company incorporated in England and Wales,
and the Company's interest in Newco will initially be held by a wholly-owned
subsidiary of the Company. BT's interest in Newco will initially be held by a
wholly-owned subsidiary of BT. Through their subsidiary holding companies BT and
the Company will initially own 75.1% and 24.9%, respectively, of the outstanding
equity of Newco following the Joint Venture Closing. The Board of Directors of
Newco (the "Newco Board") will consist of eight members, six of whom shall be
elected by BT and two of whom shall be elected by the Company. Most of the
rights of the Company and BT which are summarized herein must be exercised
through their respective subsidiary companies that directly hold the shares of
Newco.
Business of the Newco Group
The operations of the Joint Venture will be conducted through Newco and its
subsidiaries (the "Newco Group"). The business of the Newco Group will consist
of the provision of Global Products to Newco's distributors. Newco will
initially appoint MCI Telecommunications Corporation, a wholly-owned subsidiary
of the Company ("MCI Telecommunications"), as its exclusive distributor in the
Americas and BT as Newco's exclusive distributor in the rest of the world (the
term "Distributors" is used herein to refer to each of MCI Telecommunications
and BT in their roles as distributors of Newco's services). See "Distribution
Agreements" below. "Global Products" include any current or future Enhanced or
Value Added Service between two or more countries and the provision of
telecommunication services management to a customer in two or more countries
(i.e. telecommunications-related outsourcing). "International Enhanced and
Value-Added Services" include any international telecommunications services that
are permitted by applicable regulations to be offered between two or more
countries by a single group (i.e., a corporation and its subsidiaries) and which
regulations permit to be managed end to end, but exclude: (i) voice
international simple resale, (ii) international direct distance dialing provided
on a correspondent basis, (iii) the provision of international private leased
circuits and (iv) any services which for regulatory reasons must be offered on a
correspondent basis. The scope of Newco's business may expand over time to the
extent that additional services are permitted to be offered outside of
correspondent relations by applicable regulations.
The Newco Group will build and manage a global telecommunications network
consisting of hardware and related software (the "Global Platform") providing
its services between points of access and egress to the Global Platform ("Global
Points of Presence"). Each of the Distributors will be responsible for network
links to and from the Global Points of Presence at each end when providing
service within the territory (a "Territory") for which each respectively serves
as exclusive distributor. For service between Territories, the Distributor in
the Territory where the communication originates will be responsible for
transporting the communication to the nearest Global Point of Presence and Newco
will provide service from such Global Point of Presence to the terminating
Global Point of Presence in the other Distributor's Territory and will be
responsible for obtaining service from the Global Point of Presence to the
terminating point.
Newco will operate in a highly competitive and regulated environment and
there is no assurance that the Joint Venture will achieve the current objectives
of the Company or that the business of the Newco Group will not materially
change.
Management and Control of Newco
Because BT will be entitled to appoint a majority of the Newco Board, BT
will generally have the ability to control Newco, subject to certain significant
consent rights of the Company summarized below (see "Consent and Related Rights"
below) and to a requirement in the Joint Venture Agreement that the direction
and management of Newco be carried out in a manner which is consistent with
Newco's then current Business Plan and AOPB (each as defined below). Under the
Joint Venture Agreement, the consent of both the Company and BT is required for
the appointment of Newco's chief executive officer, chief operating officer,
chief finance officer, chief technology officer and senior marketing officer.
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Business Plan and AOPB
The Joint Venture Agreement provides for the annual adoption by Newco of an
annual operating plan and budget (an "AOPB") and a revised rolling five year
business plan (a "Business Plan"). An initial Business Plan has been approved by
the Company and BT and each of the Company and BT must use all reasonable
efforts to agree upon an initial AOPB prior to the Joint Venture Closing. Absent
such agreement, the Newco Board, a majority of whose members are appointed by
BT, may approve by majority vote an initial AOPB that is consistent with the
initial Business Plan. Subject to the foregoing, each AOPB and Business Plan
must be approved by unanimous vote of the Newco Board. If the Newco Board fails
to timely adopt an AOPB for a fiscal year (other than the first year), the chief
executive officer of the Company and the chairman of BT will attempt to agree
upon the relevant AOPB. Failing such agreement, the Newco Group will be operated
in accordance with the provisions for such year contained in the most recently
adopted Business Plan with such modifications as are necessary to reflect
changes from such Business Plan that have already properly occurred and timing
differences.
Consent and Related Rights
The Joint Venture Agreement provides that, subject to the terms thereof,
each of the Company and BT will have specified consent rights with respect to:
(i) changes in Newco's corporate charter; (ii) any issuance by Newco of equity
securities other than pursuant to the Company's and BT's agreed funding
commitment; (iii) any issuance of equity by a subsidiary of Newco other than to
Newco or a wholly owned subsidiary of Newco; (iv) any non-cash dividend or
distribution by Newco or any cash dividends by Newco in excess of the sum of 65%
of the Newco Group's distributable reserves and combined after-tax net profits
for any fiscal year; (v) any repurchase of shares of Newco held by the Company
or BT or any redemption of capital; (vi) borrowings which would result in the
outstanding borrowings of the Newco Group exceeding the aggregate capital and
retained earnings of Newco; (vii) any decision regarding technology and/or
architecture which, if implemented, would have material effect either on the
continued compatibility of the Company's systems with that of Newco or on the
Company's plans for technology development to the extent such plans are not
inconsistent with the Company's obligations in respect of the Joint Venture or
Newco's technology plans as set out in the then current AOPB; (viii) the Newco
Group engaging in any business outside its agreed scope of business as set forth
in the Joint Venture Agreement; (ix) any single or related series of
dispositions or encumbrances of assets exceeding 7.5% of the aggregate net
assets of the Newco Group; (x) acquisitions (including participation in joint
ventures) involving a value or commitment in excess of 7.5% of the aggregate
fixed assets of the Newco Group; (xi) material transactions between the Newco
Group and BT or any of BT's subsidiaries other than as contemplated by the Joint
Venture Agreement and the agreements relating thereto; (xii) any merger or
similar business combination involving a member of the Newco Group or, subject
to a specified exception, the voluntary liquidation of any member of the Newco
Group; (xiii) any single or related series of expenditures in any fiscal year in
excess of 7.5% of Newco's annual budget or 7.5% of Newco's capital expenditure
plan for such fiscal year; (xiv) the adoption or change of the AOPB or the
Business Plan; (xv) the appointment of Newco's chief executive officer, chief
operating officer, chief financial officer, chief technology officer and senior
marketing officer; (xvi) material deviations from any product plan included in
the AOPB; (xvii) the incurrence of material commitments or liabilities outside
the ordinary course of business other than as provided in the then current AOPB;
(xviii) the amendment of any material provision of the Distribution Agreement
with BT or the Services Agreement (as hereafter defined) with BT; and (xix) any
change in the status of Newco from an unlimited company or any change in Newco's
tax residence. If the Company or BT has exercised its consent rights and the
Company and BT are otherwise unable to resolve their differences, the matter
must be referred to the chief executive officer of the Company and the chairman
of BT for resolution. If the deadlock is not resolved, then the veto prevails.
Capitalization/Funding
Pursuant to the Joint Venture Agreement, prior to the Joint Venture Closing
BT will purchase its equity interest in Newco for L150,000,000 in cash and such
funds will be used in part by Newco to acquire BT's Syncordia outsourcing
business and certain other assets from BT as described under "Sale by BT to
Newco of
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Syncordia and Certain Other Assets" below. At the Joint Venture Closing, the
Company will purchase its 24.9% equity interest in Newco for approximately L49.7
million in cash. As described under "Sale by BT to Newco of Syncordia and
Certain Other Assets" below, the amount of the initial capital contributions of
BT and the Company are subject to adjustment based on the net asset value of
Newco at the time of the Joint Venture Closing.
After the Joint Venture Closing, each of the Company and BT will have
ongoing funding obligations to Newco as set forth in the then current AOPB and
Business Plan and the Joint Venture Agreement requires that all such funding by
the Company and BT be made pro rata in proportion to their respective ownership
interests of voting securities of Newco. If either party defaults in its funding
obligation, the non-defaulting party shall, in addition to its other contractual
remedies but subject to a 30 day cure period and certain other procedural
requirements, have the right to contribute such defaulted amount to Newco in
exchange for a proportionate increase in its ownership interest in Newco. The
Company and BT currently expect to invest in Newco an aggregate of approximately
$1 billion (including their initial capital contributions) during the period
ending five years after the Joint Venture Closing.
Non-Compete
The Joint Venture Agreement generally requires that, for so long as BT or
the Company holds its interest in Newco, such party will not, except in
accordance with the Distribution Agreements, (i) carry on or be engaged or
interested in the provision of Global Products or appoint any person to be a
director of a business that provides such services (other than Newco and its
subsidiaries), or (ii) solicit the business of any person for the purpose of
offering to that person Global Products. The non-compete obligations of the
Company and BT described above are subject to certain specified exceptions,
including the continued provision by the Company or BT other than through Newco
of relevant products to the extent necessary to fulfill contractual arrangements
existing at the time of the Joint Venture Closing.
Transfer Restrictions
Each of the Company and BT is prohibited from transferring its interest in
Newco to any third party during an initial five year period following the Joint
Venture Closing. Thereafter, either party may transfer all (but not less than
all) of its interest in Newco, subject to a right of first refusal of the other
party and certain procedural requirements set forth in the Joint Venture
Agreement, if either (i) Newco fails to meet its target revenue forecasts set
forth in the applicable AOPBs by more than 20% for any two out of the three
preceding fiscal years or (ii) such party would have the right to terminate the
Joint Venture as described below.
Termination of the Joint Venture
General. BT and the Company have limited rights to terminate the Joint
Venture, which rights are especially limited during the first five years after
the Joint Venture Closing. Generally, if either BT or the Company exercises its
right to terminate the Joint Venture, then BT will be entitled to purchase the
Company's interest in Newco at a price equal to the fair market value thereof
(determined as described below). Notwithstanding that any purchase of the
Company's interest in Newco would be at fair market value (determined as
described under "Determination of Fair Market Value" below), because the Company
and its subsidiaries are required to obtain all of their requirements for Global
Products from Newco and will be relying on Newco to provide the necessary
infrastructure for the supply of Global Products to customers of the Company and
its subsidiaries, BT's purchase of the Company's interest in Newco and the
attendant loss of the Company's right to distribute Newco products could,
depending upon the circumstances, have a material adverse effect on the Company,
particularly in the event that the strategic and operational significance of
Newco to the Company increases over time as is currently anticipated by the
Company.
The Company's Termination Rights. The Company has the right to terminate
the Joint Venture by requiring BT to purchase all, but not less than all, of the
Company's interest in Newco at a price equal to the fair market value thereof
(determined as described below under "Determination of Fair Market Value") upon
the occurrence of any of the following: (i) a final non-appealable judgment that
a BT Material Breach (as
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defined below) has occurred; (ii) conversion of the shares of Class A Common
Stock as a result of a breach by BT of the standstill, voting or transfer
provisions of the Investment Agreement (see "INVESTMENT AGREEMENT -- Terms of
the Class A Common Stock -- Conversion;" " -- Standstill and Related
Provisions;" " -- Voting of Shares by BT" and "Transfer Restrictions and Related
Provisions"); (iii) a third party or group (other than the Company) acquiring
securities representing 50% or more of the total voting power of the issued
shares of BT; (iv) certain bankruptcy or insolvency events in respect of BT or
its subsidiary which directly holds the Newco shares; (v) after the fifth
anniversary of the Joint Venture Closing only, if BT breaches its funding
obligations to Newco (subject to a 30-day cure period) (see
"Capitalization/Funding" above); or (vi) after the fifth anniversary of the
Joint Venture Closing only, if Newco fails to meet its target revenue forecasts
by more than 20% for any two out of the three preceding fiscal years. "BT
Material Breaches" consist of (a) BT knowingly acting in a manner which
constitutes a breach of its covenant not to compete with Newco (see
"Non-Compete" above); (b) after the fifth anniversary of the Joint Venture
Closing only, BT knowingly acting in a manner which constitutes a breach of the
Company's consent rights under the Joint Venture Agreement (see "Consent and
Related Rights" above); (c) BT knowingly failing to make certain intellectual
property available to Newco under the Intellectual Property Agreement or to make
certain intellectual property available to the Company under the Intellectual
Property Agreement; (d) a breach of MCI Telecommunications' right to be Newco's
exclusive distributor in the Americas; and (e) failure of Newco to supply Global
Products under its Distribution Agreement with MCI Telecommunications when there
is no reason for Newco not to do so. The Company will not have the right to
terminate the Joint Venture due to BT's or Newco's breach of any other
obligation.
The Company has the right to purchase BT's interest in Newco at a price
equal to the fair market value thereof (determined as described below under
"Determination of Fair Market Value") upon the occurrence of an event summarized
in clause (iii) or clause (iv) of the immediately preceding paragraph. The
Company does not have the right to acquire BT's interest in Newco under any
other circumstances.
BT's Termination Rights. BT has the right to purchase all, but not less
than all, of the Company's interest in Newco at a price equal to the fair market
value thereof (determined as described below under "Determination of Fair Market
Value") upon the occurrence of (i) a third party or group (other than BT)
acquiring securities representing 50% or more of the total voting power of the
issued shares of the Company; (ii) certain bankruptcy or insolvency events in
respect of the Company or its subsidiary which directly holds the Newco shares;
(iii) after the fifth anniversary of the Joint Venture Closing only, if the
Company breaches its funding obligation to Newco (subject to a 30 day cure
period) (see "Capitalization/Funding" above); (iv) the Company breaches its
obligations under the Investment Agreement described above under "INVESTMENT
AGREEMENT -- No Shopping," " -- Business Combinations" or " -- Board
Representation and Voting Provisions -- Board of Directors," or (v) a final
non-appealable judicial determination that a Company Material Breach (as defined
below) has occurred. "Company Material Breaches" consist of (a) the Company
knowingly acting in a manner which constitutes a breach of its covenant not to
compete with Newco and (b) the Company knowingly failing to make certain
intellectual property available to Newco under the Intellectual Property
Agreement. The ability of BT to purchase the Company's interest in Newco at fair
market value and the attendant loss of the Company's right to distribute Newco
services could deter third party takeover proposals and could also reduce the
price that a third party is willing to pay to acquire control of the Company.
See "INVESTMENT PROPOSALS -- Certain Considerations -- Diminished Ability to
Sell the Company; Certain Antitakeover Effects -- Newco Change of Control
Provision." In order to limit the uncertainty regarding whether BT would acquire
the Company's interest in Newco upon a change in control of the Company, the
Company may, subject to certain conditions, require BT to confirm prior to the
Company's agreeing to any such sale whether BT would exercise its right to
acquire the Company's interest in Newco upon such change in control.
Determination of Fair Market Value. The fair market value of a party's
interest in Newco shall be determined by agreement of the Company and BT or,
absent such agreement, by an independent London investment bank based on certain
principles set forth in the Joint Venture Agreement.
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Conditions to Closing
Each of the Company's and BT's obligation to effect the Joint Venture
Closing is subject to various conditions which include the following: (i) the
Company and BT shall have received from the EC Commission a formal decision or a
comfort letter satisfying certain conditions which, in either case, is generally
to the effect that the Transactions are not prohibited under Article 85 and that
is not subject to any Unacceptable Condition (as defined below) (see "INVESTMENT
PROPOSALS -- Regulatory Approvals -- European Community Competition
Regulations"); (ii) the OFT shall have indicated to the Company and BT that it
is not the intention of the Secretary of State to refer the Transactions to the
MMC or following a reference to the MMC the Secretary of State shall have
permitted the Transactions, in either case without the imposition of any
Unacceptable Condition (see "INVESTMENT PROPOSALS -- Regulatory
Approvals -- U.K. Merger Control"); (iii) the OFT shall have indicated that the
Transactions are not registrable under the RTPA or the Transactions shall have
received clearance under the RTPA without the imposition of any Unacceptable
Condition (see "INVESTMENT PROPOSALS -- Regulatory Approvals -- U.K. Restrictive
Trade Practices Act 1976"); (iv) either the Secretary of State notifying the
Company or BT that no class license has been or is to be revoked or that Newco
otherwise possesses the necessary license to carry on its business and that such
license is not subject to any conditions that would have a material adverse
effect on the business of Newco taken as a whole and if, as a direct result of
the above, the Secretary of State or the Director General of Telecommunications
shall have formally proposed to amend BT's license, such proposed amendment
shall not have a material adverse effect on the business of BT taken as a whole
(see "INVESTMENT PROPOSALS -- Regulatory Approvals -- U.K. Telecommunications
Regulation"); (v) the waiting period under the HSR Act with respect to the Joint
Venture shall have expired or been terminated (see "INVESTMENT PROPOSALS --
Regulatory Approvals -- U.S. Antitrust Laws") without any condition or
restriction being imposed that, in the reasonable opinion of the Company or BT,
would materially diminish, taken as a whole, the Company or BT's rights under
the Joint Venture Agreement; (vi) the Company shall have divested of its
interest in Infonet Services Corporation ("Infonet") (see "Disposition of the
Company's Interest in Infonet" below); and (vii) all conditions to the Closing
and the closing under the BTNA Agreement shall have been satisfied or waived
(see "THE INVESTMENT AGREEMENT -- Conditions Precedent" and "RELATED
TRANSACTIONS -- Acquisition of BT North America -- Acquisition by the Company of
the Business of BT North America Inc"). "Unacceptable Condition" generally means
a condition or undertaking that, (a) in the case of the Company, would have a
material adverse effect on the business of the Company taken as a whole or on
the Company's rights under the Joint Venture Agreement, the Investment Agreement
and the agreements relating thereto, or (b) in the case of BT, would have a
material adverse effect on the business of BT taken as a whole or on BT's rights
under the Joint Venture Agreement and the agreements relating thereto or which,
in BT's reasonable opinion, would materially diminish, taken as a whole, BT's
rights or protections with respect to its investment in the Company under the
Investment Agreement or the Charter Amendment.
Distribution Agreements
General. The Joint Venture Agreement provides that at the time of the
Joint Venture Closing, MCI Telecommunications and BT will enter into
Distribution Agreements (the "Distribution Agreements") with Newco pursuant to
which MCI Telecommunications will be appointed the exclusive distributor of
Newco's services in the Americas and BT will be appointed Newco's exclusive
distributor in the rest of the world. If the Company and BT agree, however,
Newco may appoint one or more additional distributors.
Scope of Exclusive Distributorship; Exclusive Dealings. Each of MCI
Telecommunications and BT will have the exclusive right to distribute Newco's
services to customers located in such Distributor's Territory, subject to
certain account management principles which will be contained in the Business
Plan and AOPB. Each of MCI Telecommunications, BT and their respective
affiliates will generally be obligated to obtain from Newco all of their
requirements for Global Products except to the extent necessary to fulfill
obligations under contracts entered into prior to the Joint Venture Closing.
Newco may promote and sell Global Products only through the Distributors, except
that each of the Distributors may permit Newco to sell international
telecommunications - related outsourcing services directly to end users in its
Territory.
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Provision of Services. Each of the Distributors will be required to
provide Newco with annual forecasts ("Forecasts") of the requirements of its
customers during the applicable fiscal year for Global Products then offered by
Newco ("Standard Global Products") and Newco will be obligated to satisfy such
forecasted requirements. Newco must use all reasonable efforts to satisfy
requests for Standard Global Products in excess of the amounts specified in the
applicable Forecast ("Excess Requests"). Provision of Global Products other than
Standard Global Products shall be subject to the mutual agreement of the
relevant Distributor and Newco, including in respect of pricing. Specific terms
for Global Products, including service levels and guarantees, will be set out in
schedules that remain to be negotiated and attached to the Distribution
Agreements.
Pricing of Standard Global Products. Newco will establish pricing for
Standard Global Products based on two components: (i) a variable annual charge
calculated on the basis of the applicable Distributor's Forecast for the
relevant period; and (ii) a charge based on actual usage. In addition, each
Distributor will pay an annual technology licensing fee established by Newco of
between 3% and 7% of the relevant Distributor's Forecasted annual revenue, but
in any event not less than $6.5 million per year. The annual charges will be
payable in advance and are intended to provide Newco with a source of funding
for its fixed costs, including the technology licensing fees payable by Newco to
the Company and BT under the Intellectual Property Agreement described below.
The annual charges based on the Distributors' Forecasts and the technology
licensing fees are not refundable under any circumstances, including termination
of the Distribution Agreement. Newco will have the ability to vary the pricing
for any Excess Request to the extent necessary to cover the additional costs to
Newco of satisfying such request plus a reasonable rate of return.
Termination. A Distribution Agreement will terminate upon notice by either
party if (i) certain bankruptcy or insolvency-related events occur in relation
to the other party or (ii) the respective Distributor or its affiliate, as
applicable, no longer holds its interest in Newco. Following termination of a
Distribution Agreement under (ii) above, Newco will continue to provide services
to the former Distributor only to the extent necessary to enable the former
Distributor to fulfill its existing contractual obligations for up to five
years.
Intellectual Property Agreement
General. At the time of the Joint Venture Closing, the Company, MCI
Telecommunications, BT and Newco will enter into an Intellectual Property
Agreement governing the licensing of technology relating to Newco and certain
other matters (the "Intellectual Property Agreement").
Contribution and Use of the Company and BT Technology. At the time of the
Joint Venture Closing, the Company and BT will grant Newco an irrevocable,
perpetual, non-exclusive and non-transferable license to use certain of their
existing technology in Newco's business including the creation and distribution
of Global Products. The Intellectual Property Agreement permits Newco to license
any technology that is reasonably necessary to carry on its business. Prior to
the Joint Venture Closing, the Company and BT will review their respective
technology portfolios and agree upon the actual technology to be licensed and
the value thereof. Technology developed after the Joint Venture Closing by
either the Company or BT will be subject to review and licensing by Newco by
agreement among the Company, BT and Newco. Notwithstanding the foregoing, if
Newco requests from the Company or BT the use of any technology that is owned by
a third party or subject to a third party's intellectual property rights, then
the Company or BT, as applicable, shall, at the request of Newco and subject to
the reimbursement by Newco of all the expenses it reasonably incurs by such
party, be obligated to use its reasonable efforts to negotiate fair and
reasonable license terms and conditions with such third party to enable Newco to
use and, subject to the other provisions of the Intellectual Property Agreement,
sublicense the right to use the relevant technology.
In consideration for the use of the Company's and BT's technology, Newco
will pay in arrears an aggregate annual royalty to BT and the Company equal to
5% of Newco's annual revenues. Prior to the Joint Venture Closing, the parties
will review and value the respective rights to be initially licensed by BT and
the Company. Technology will be valued at the historic cost of developing, or
acquiring, the technology minus any costs incurred by Newco to license third
party technology relating to the parent-contributed technology.
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If the parties conclude that either the Company or BT is contributing more than
60% of the total value of licensed technology, the proportion of the royalty
payable to each of the Company and BT will be adjusted to reflect the relative
values.
If additional existing technology of the Company or BT is licensed to Newco
the relative value of the technology licensed by each of the Company and BT will
be updated and, if required, the proportion of the royalty payable to each of
the Company and BT will be adjusted in accordance with the principles described
above.
Newco Created Technology. Newco will develop additional technology,
principally through specific development contracts with the Company and BT
pursuant to services agreements with Newco (the "Services Agreements") to be
entered into at the Joint Venture Closing, but also from time to time with third
parties. Newco will own the technology that it sponsors unless otherwise agreed
by Newco and the party developing such technology. The Company or BT will be
licensed at its request to use the Newco-sponsored technology. The Company and
BT will pay Newco royalties on the Newco-sponsored technology in amounts
designed to recover Newco's development cost plus a reasonable rate of return
over a reasonable useful life for the technology (the "Cost of Development").
Third party technology will be available to the Distributors on the best terms
and conditions that Newco can negotiate.
Scope of the Licenses. Newco will grant irrevocable, perpetual,
non-exclusive and non-transferrable licenses to the Company and BT to use the
technology developed by Newco alone or in conjunction with the other Distributor
in their respective Territories both for Newco-related and domestic purposes.
However, where Newco contracts with the Company or BT (the Company or BT is
referred to in such capacity as the "Developer") to develop additional
technology, the Developer will either (i) be granted a non-exclusive,
irrevocable, perpetual license on terms that are fair and reasonable (together
with the right to sublicense) to use the sponsored technology for any purpose or
(ii) own the sponsored technology, in which event Newco will be licensed
irrevocably, perpetually, non-exclusively and royalty free (other than any
royalty payable for the performance of the relevant work) to use and license the
sponsored technology. Prior to termination of the Joint Venture, the Company and
BT will only be permitted to sublicense the technology received from Newco to
customers and sub-distributors within their respective Territories.
Sub-distributors may onward license such technology to customers, but not other
distributors. Licensees may also subcontract with third parties such as service
bureaus to be suppliers to them, their distributors and their customers.
Consequences of Termination of the Joint Venture or Transfer of a Party's
Interest in Newco. If either the Company or BT no longer holds its indirect
interest in Newco, the licenses granted to the Company and BT continue in force
but become worldwide and unrestricted as to territory, use and sublicensing.
Upon termination of the Joint Venture or transfer of the Company's or BT's
interest in Newco, and in each of the next four years, each of the Company and
BT essentially assumes the royalty obligation of Newco to BT, in the case of MCI
Telecommunications, or the Company, in the case of BT, except royalties will be
fixed at the amount payable by Newco immediately prior to termination of the
Joint Venture or transfer of the Company's or BT's interest in Newco, as
applicable. The royalty for Newco-developed technology will cease as to
technology for which the relevant parent company has paid 50% or more of the
Cost of Development. Any excess will not be refunded. If less than 50% of the
Cost of Development has been paid, the royalty shall continue until 50% has been
paid.
Services Agreements
General. At the time of the Joint Venture Closing, MCI Telecommunications
and BT will enter into Services Agreements with Newco pursuant to which each
will be appointed a non-exclusive supplier to Newco of telecommunications and
other products and services.
Scope of Services. Newco may request general telecommunications services,
research and development services, and any other products and services required
to construct and maintain the Global Platform and to fulfill Newco's obligations
to obtain network access services outside of a Distributor's Territory. Specific
terms for requested services, including service levels and guarantees, will be
set out in Schedules that remain to be negotiated and attached to the Services
Agreements.
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The Joint Venture Agreement requires that the Newco Group purchase all
products, services and facilities from the Company or BT (or their respective
affiliates) to the extent such party can provide such products, services or
facilities on terms at least as favorable to Newco as regards price, quality and
service as would be obtainable in an arm's length transaction from a third party
supplier. In the event that both the Company and BT (or their respective
affiliates) offer to provide competitive products, services or facilities which
are comparable, Newco must purchase the same from the Company or BT (or their
affiliates) based on which party offers to supply the same to Newco on more
favorable terms. In addition, each of the Company and BT must offer to supply
products, services and facilities to the Newco Group on terms that are as
favorable as those offered to other customers, having regard to all relevant
circumstances.
Term and Termination. The term of the Services Agreements is open ended.
The Services Agreements contain customary default and termination provisions.
Sale by BT to Newco of Syncordia and Certain Other Assets
General. BT and Newco have entered into agreements (the "Newco Transfer
Agreements") providing for the purchase by Newco of the assets and business of
Syncordia, BT's outsourcing business, and certain other assets of BT. The
aggregate purchase price for Syncordia will be $61,864,000 in cash and the
assumption by Newco of specified liabilities of Syncordia, and the aggregate
purchase price for BT's other assets will be the aggregate book value of the
assets at closing and the assumption by Newco of specified liabilities of BT.
The parties intend that the sale of Syncordia and such other assets will be
completed prior to the Joint Venture Closing and will thereby permit Newco to
commence operations while still a wholly-owned subsidiary of BT. The definitive
purchase agreement contains representations and warranties and related
indemnification provisions customary for transactions of this type.
At the time of the Joint Venture Closing, the net asset value of the assets
sold pursuant to the Newco Transfer Agreements will be calculated. To the extent
that the net asset value determined on such date is higher than the net asset
value calculated for purposes of the purchase price in the Newco Transfer
Agreements, the Company will contribute an amount of additional cash to Newco
equal to 33 percent of such excess; and to the extent net asset value is lower,
BT shall contribute 100% of such deficiency in cash to Newco.
ACQUISITION OF BT NORTH AMERICA
General. The Company and BT have entered into purchase agreements
providing for the acquisition by wholly owned subsidiaries of the Company of the
assets of, and business conducted by, BTNA and BT Canada. The business of BTNA
and BT Canada consists primarily of the provision of value-added data network
services. The purchase of BTNA and BT Canada will occur as promptly as
practicable and is expected to occur prior to the Closing.
Acquisition by the Company of Business of BT North America Inc. BTNA, BT,
the Company and a subsidiary of the Company ("MCI Sub") have entered into a
Stock Purchase Agreement (the "BTNA Agreement") which provides for the purchase
by MCI Sub of the assets and business of BTNA. Prior to the closing under the
BTNA Agreement, BTNA will transfer specified assets to a newly formed Delaware
corporation ("Transco") in exchange for all of the issued shares of Transco and
the assumption by Transco of specified liabilities of BTNA. On the closing date,
MCI Sub will purchase from BTNA all of the issued shares of Transco. The
aggregate purchase price for the Transco shares at closing will be $122,739,000
plus a capital expenditure adjustment not to exceed $5 million. BT will grant
Transco a fully paid, non-transferable, non-exclusive license to use the
intellectual property currently owned by BT and used by BTNA.
The BTNA Agreement contains representations and warranties and related
indemnification provisions customary for this type of transaction. In addition,
BT has agreed to enter into a separate tax indemnification agreement pursuant to
which BT will indemnify the Company and its subsidiaries for certain tax
liabilities. The closing under the BTNA Agreement is subject to customary
conditions precedent, including termination of the waiting period under the HSR
Act (See "INVESTMENT PROPOSALS -- Regulatory Approvals -- U.S. Antitrust Laws").
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Acquisition by MCI of Business of BT Canada Inc. BT Canada, BT, the
Company and a subsidiary of the Company will enter into an Asset Purchase
Agreement (the "BT Canada Asset Purchase Agreement") which provides for the
purchase by the subsidiary of the Company of specified assets of BT Canada in
consideration of its assumption of specified liabilities of BT Canada and its
payment of $2,261,000. The BT Canada Asset Purchase Agreement will contain other
terms and conditions substantially similar to the BTNA Stock Purchase Agreement.
STENTOR
Certain provisions of the Joint Venture relating to technology development
and the distribution of Newco services conflict with certain terms of the
Company's alliance with the Canadian telephone companies that comprise the
Stentor alliance. The Company is currently negotiating with such Canadian
telephone companies to agree on terms for such telephone companies to become
sub-distributors of Newco services in Canada and for the further development and
licensing of technology. The Company expects to enter into satisfactory
arrangements with the Canadian telephone companies to eliminate the conflict of
terms. There is no assurance, however, that the Company's negotiations will be
successful. The Company believes that the failure to reach an acceptable
agreement with the Canadian telephone companies would not have a material
adverse effect on the financial conditions or results of the Company.
DISPOSITION OF THE COMPANY'S INTEREST IN INFONET
Since 1990 the Company has offered its customers certain enhanced and
value-added services through the Company's affiliation with Infonet. The Joint
Venture Agreement generally requires that the Company obtain all international
enhanced and value-added services from Newco following the Joint Venture Closing
and the Joint Venture Closing is conditioned on the Company's divestiture of
Infonet. Following the execution of the Investment Agreement and the Joint
Venture Agreement, the Company entered into arrangements with Infonet that
provided for the purchase of the Company's 25 percent equity interest in Infonet
by the other stockholders of Infonet for an aggregate purchase price
approximately equal to the book value of the Company's investment. Such sale of
the Company's interest in Infonet was completed in December 1993. If the Closing
is effected, the Company will obtain most services previously provided by
Infonet from Newco and the businesses currently conducted by BTNA. If, however,
the Closing does not occur, the Company will need to develop or acquire an
alternative method of offering the services previously provided by Infonet
outside the United States. Also see "Indemnity Agreements -- Infonet" below.
MCCAW INDEMNITY AGREEMENT
A subsidiary of BT currently owns shares of capital stock of McCaw Cellular
Communications Inc. ("McCaw"). Pursuant to certain agreements between BT and
McCaw relating to BT's indirect ownership of the capital stock of McCaw (the
"BT-McCaw Agreements"), BT has agreed that it will not, among other things,
directly or indirectly "(i) engage in the United States in the business of
acquiring, constructing or operating cellular telephone systems [or] (ii) assist
any person in relation to any such business in the United States . . . ." While
the Company does not believe that the BT-McCaw Agreements could result in any
liability of the Company to McCaw, BT and the Company have entered into an
Indemnity Agreement, dated as of June 2, 1993 (the "McCaw Indemnity Agreement")
pursuant to which BT has agreed, subject to the terms of the McCaw Indemnity
Agreement, to indemnify the Company against certain damages resulting from any
action by McCaw against the Company which may arise from the BT McCaw
Agreements.
On August 16, 1993, McCaw and AT&T announced that they had entered into
definitive agreements providing for the merger (the "AT&T-McCaw Merger") of a
wholly-owned subsidiary of AT&T into McCaw. In connection with such agreements,
BT entered into agreements with each of McCaw and AT&T pursuant to which, among
other things, McCaw agreed that BT's investment in and relationship with the
Company on the terms that had previously been publicly announced would not be
deemed to constitute a breach of BT's obligations under the BT-McCaw Agreements
described in the preceding paragraph. Such agreement by McCaw will automatically
terminate if the AT&T-McCaw Merger is not completed. There can be no assurance
that the AT&T-McCaw Merger will be completed.
78
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AAP, CLEAR AND BELIZE
Pursuant to the Investment Agreement each of the Company and BT are
negotiating to enter into agreements on terms mutually acceptable (including in
respect of price) providing for (i) the purchase by BT of the Company's minority
equity investments in AAP Telecommunications Pty Ltd ("AAP") and Clear
Communications Limited ("Clear"), which provide long distance telecommunications
service in Australia and New Zealand, respectively, and (ii) the purchase by the
Company of BT's minority equity investment in Belize Telecommunications Limited
("Belize Telecom"), which provides local and long distance telecommunications
service in Belize. Management believes that the disposition of the Company's
investment in AAP and Clear would not have a material impact on the Company. The
Company's interests in AAP and Clear cannot be transferred to BT without the
prior consent of the other shareholders of AAP or Clear, respectively. The
Company expects, however, that the requisite shareholder consents will be
obtained. In the event that the Company is unable to transfer its shares in AAP
or Clear to BT, the Company may seek to sell such interests to one or more third
parties subject to the consent rights of the shareholders of such company. The
acquisition by the Company of BT's shares in Belize Telecom is subject to the
consent of the other shareholders of Belize Telecom and there is no assurance
that such consent will be forthcoming. Management believes that the acquisition
of Belize Telecom would not be material to the Company.
STOCKHOLDER PROPOSALS
Any stockholder proposals to be considered by the Company for inclusion in
the proxy material for the 1994 Annual Meeting of Stockholders of the Company
must have been received by the Company at 1801 Pennsylvania Avenue, N.W.,
Washington D.C. 20006, no later than December 8, 1993.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of the Company and its subsidiaries
at December 31, 1992 and 1991 and for each of the three years in the period
ended December 31, 1992 incorporated by reference in this Proxy Statement have
been audited by Price Waterhouse, independent accountants, as stated in their
report included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992. Representatives of Price Waterhouse will attend the
Special Meeting and will have an opportunity to make a statement and to respond
to appropriate questions from stockholders.
79
<PAGE> 87
INCORPORATION OF DOCUMENTS BY REFERENCE
This Proxy Statement incorporates by reference the financial statements,
supplementary financial information and management's discussion and analysis of
financial condition and results of operations regarding the Company included in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1992, its Quarterly Reports on Form 10-Q for the quarterly periods ended March
31, 1993, June 30, 1993 and September 30, 1993. This Proxy Statement also
incorporates by reference any Current Reports on Form 8-K filed by the Company
before the date of the meeting.
Any statement contained in a document incorporated by reference in this
Proxy Statement will be deemed to be modified or superseded for purposes of this
Proxy Statement to the extent that a statement contained in this Proxy Statement
or in any other subsequently filed document which is also incorporated by
reference in this Proxy Statement modifies or supersedes such statement. Any
Statement so modified or superseded will not be deemed, except as modified or
superseded, to constitute a part of this Proxy Statement.
The Company will provide, without charge, to each person to whom this Proxy
Statement is delivered, upon written or oral request of such person, by first
class mail or other equally prompt means within one business day of receipt of
such request, a copy of any and all the information that has been incorporated
by reference in the Proxy Statement (not including the exhibits to the
information that is incorporated by reference unless such exhibits are
specifically incorporated by reference to the information that this Proxy
Statement incorporates). Written requests should be addressed to the Secretary,
MCI Communications Corporation, 1801 Pennsylvania Avenue, N.W., Washington, D.C.
20006. Oral request may be made by telephone to the following number:
( ).
By Order of the Board of Directors,
C. BOLTON-SMITH, JR.
Secretary
80
<PAGE> 88
INDEX OF DEFINED TERMS
<TABLE>
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Page
<S> <C>
AAP................................... 79
Acquiring Person...................... 69
Acquisition Proposal.................. 42
Adverse Condition..................... 57
Antitrust Division.................... 36
AOPB.................................. 71
Article 85............................ 37
AT&T.................................. 25
AT&T-McCaw Merger..................... 78
Auction Period........................ 29
Belize Telecom........................ 79
Block Sale............................ 44
Board of Directors.................... 16
Bona Fide Offer....................... 42
BT Canada Asset Purchase Agreement.... 78
BT Nominees........................... 50
BT Canada............................. 22
BT.................................... 16
BT Material Breaches.................. 73
BT-McCaw Agreements................... 78
BTNA.................................. 22
BTNA Agreement........................ 77
Business Plan......................... 71
Business Combination.................. 46
Business Combination Provision........ 31
By-Laws............................... 32
Capped Voting Provision............... 31
CFIUS................................. 34
Charter Amendment..................... 16
Class A Directors..................... 39
Class A Common Stock.................. 23
Clear................................. 79
Closing............................... 28
Closing Date.......................... 29
Closing Foreign Ownership
Limitation.......................... 39
Common Shares......................... 29
Common Stock.......................... 16
Communications Act.................... 30
Company............................... 16
Company Material Breaches............. 73
Comparable Companies.................. 25
Consent Amendment..................... 65
Conversion Event...................... 41
Convertible Preferred Stock........... 16
Cost of Development................... 76
Core Business......................... 41
Developer............................. 76
DGCL.................................. 16
DIS................................... 37
Distribution Agreements............... 74
Distribution Date..................... 67
Distributors.......................... 70
Disqualified Holder................... 61
EBIDA................................. 25
EBIT.................................. 25
DOD................................... 37
EC.................................... 37
Employee Stock Plans.................. 38
Engaged in the Core Business of BT.... 54
Engaged in the Core Business of the
Company............................. 53
Engagement Fee........................ 27
EPS................................... 26
Equity................................ 42
Equity Purchase Right................. 47
Equity Purchase Right Price........... 48
ESOP.................................. 18
Established Price..................... 64
Excess Requests....................... 75
Exchange Act.......................... 29
Existing Options...................... 38
Exon-Florio Amendment................. 35
FCC................................... 30
FCC Order............................. 57
FCC Petition.......................... 34
Final Expiration Date................. 67
FOCI.................................. 35
Forecasts............................. 75
Foreign Ownership Limitation.......... 39
Foreign Ownership Restrictions........ 48
FTA................................... 37
FTC................................... 36
Global Platform....................... 70
Global Points of Presence............. 70
Global Products....................... 70
Goldman Engagement Letter............. 27
Goldman Sachs......................... 20
HSR Act............................... 22
Inadvertent Condition................. 53
Independent Directors................. 50
Infonet............................... 74
Intellectual Property Agreement....... 75
</TABLE>
81
<PAGE> 89
<TABLE>
<CAPTION>
Page
<S> <C>
Interim Investment Period............. 29
International Enhanced and Value Added
Services............................ 70
Investment............................ 24
Investment Agreement.................. 16
Investment Proposals.................. 16
Joint Venture......................... 69
Joint Venture Agreement............... 22
Joint Venture Closing................. 36
Letter of Intent...................... 21
Loss of Company Rights................ 54
Loss of BT Rights..................... 53
LTM................................... 25
Maintenance Shares.................... 50
McCaw................................. 78
McCaw Indemnity Agreement............. 78
MCI Sub............................... 77
MCI Telecommunications................ 70
MMC................................... 37
Newco Board........................... 70
Newco................................. 30
Newco Change of Control Provision..... 31
Newco Group........................... 70
Newco Transfer Agreements............. 77
Non-Core Business..................... 41
Non-U.S. Persons or Entities.......... 39
Offer Price........................... 44
Offer Notice.......................... 44
OFT................................... 37
Outstanding Interest.................. 33
Outstanding Voting Interest........... 39
P/E Ratio............................. 26
Permitted Offering.................... 44
Post-Standstill Bona Fide Offer....... 43
Pre-Closing Period.................... 56
Purchase Price........................ 67
Record Date........................... 17
Redemption Securities................. 61
Redemption Price...................... 68
Redemption Provision.................. 34
Registrable Securities................ 44
Registration Rights Agreement......... 44
Restated Certificate.................. 16
Right................................. 67
Right Certificates.................... 67
Rights Plan Invalidation Decree....... 42
Rights Agreement...................... 66
Rights Plan........................... 66
Rights Plan Record Date............... 67
RTPA.................................. 37
Sale Notice........................... 45
SEC................................... 19
Section 310(b)........................ 30
Section 310(d)........................ 36
Series C Convertible Preferred
Stocks.............................. 21
Series E Preferred Stock.............. 67
Secretary of State.................... 37
Securities Act........................ 42
Services Agreements................... 76
Special Meeting....................... 16
Standard Global Products.............. 75
Standstill Period..................... 41
Standstill............................ 42
Summary of Rights..................... 67
Supermajority Stockholder Vote
Provision........................... 29
Territory............................. 70
Third-Party Acquisition............... 42
Transaction Proceeds.................. 28
Transactions.......................... 35
Transco............................... 77
Transfer.............................. 41
U.K................................... 28
U.K. Telecommunications Act........... 38
Unacceptable Condition................ 74
Voting Equity......................... 47
Voting Securities..................... 40
</TABLE>
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APPENDIX I
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- --------------------------------------------------------------------------------
INVESTMENT AGREEMENT
DATED AS OF AUGUST 4, 1993
BETWEEN
BRITISH TELECOMMUNICATIONS PLC
AND
MCI COMMUNICATIONS CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 91
TABLE OF CONTENTS
<TABLE>
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<S> <C>
SECTION 1. DEFINITIONS................................................................ I-1
1.1. Defined Terms................................................................. I-1
1.2. Beneficial Ownership.......................................................... I-7
1.3. Securities Outstanding........................................................ I-7
SECTION 2. PURCHASE AND SALE OF CLASS A COMMON STOCK.................................. I-7
2.1. Purchase and Sale of Class A Common Stock..................................... I-7
2.2. Closing Date.................................................................. I-9
2.3. Exchange of Shares............................................................ I-9
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................. I-10
3.1. Existence; Power.............................................................. I-10
3.2. Authority..................................................................... I-10
3.3. Compliance with Laws.......................................................... I-10
3.4. No Conflict................................................................... I-10
3.5. Validity of Shares............................................................ I-10
3.6. Capital Stock................................................................. I-11
3.7. Reports and Financial Statements.............................................. I-11
3.8. Absence of Certain Changes or Events.......................................... I-11
3.9. Offering of Shares............................................................ I-11
3.10. Section 203................................................................... I-11
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BT....................................... I-11
4.1. Existence; Power.............................................................. I-11
4.2. Authority..................................................................... I-11
4.3. Compliance with Laws.......................................................... I-12
4.4. No Conflict................................................................... I-12
4.5. Nature of Purchase............................................................ I-12
4.6. Accredited Investor........................................................... I-12
4.7. Access to Information......................................................... I-12
4.8. Ownership of Securities of the Company........................................ I-12
SECTION 5. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.............................. I-13
5.1. Restrictions on Transfer...................................................... I-13
5.2. Legends....................................................................... I-14
5.3. Right of First Refusal........................................................ I-15
5.4. Reorganization, Reclassification, Merger, Consolidation or Disposition of
Assets........................................................................ I-17
5.5. Registration Rights........................................................... I-17
SECTION 6. EQUITY PURCHASE RIGHTS..................................................... I-18
6.1. Voting Equity Purchase Rights................................................. I-18
6.2. Limitations................................................................... I-20
6.3. Adjustments................................................................... I-21
6.4. Other Permitted Purchases..................................................... I-21
SECTION 7. STANDSTILL................................................................. I-21
7.1. Restriction on Acquisition by BT of Company Securities........................ I-21
7.2. Restrictions on Permitted Acquisition......................................... I-22
7.3. Other Restrictions............................................................ I-23
7.4. Post-Standstill Period........................................................ I-23
SECTION 8. COVENANTS OF BT AND THE COMPANY............................................ I-25
8.1. Antitrust Filings............................................................. I-25
8.2. Compliance with Antitrust or Competition Laws, Exon-Florio and the
Communications Act............................................................ I-25
</TABLE>
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<TABLE>
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8.3. Public Announcements.......................................................... I-25
8.4. Further Assurances............................................................ I-25
8.5. Cooperation................................................................... I-26
8.6. Exon-Florio................................................................... I-26
8.7. Agreements With Respect to AAP, Clear and Belize.............................. I-26
SECTION 9. COVENANTS OF THE COMPANY................................................... I-26
9.1. Pre-Closing Covenants......................................................... I-26
9.2. Repurchases................................................................... I-28
9.3. Access to Information......................................................... I-28
9.4. No Shopping................................................................... I-29
9.5. Business Combinations......................................................... I-29
9.6. Core Business of the Company.................................................. I-31
9.7. Board of Directors............................................................ I-31
9.8. Maintenance of BT's Share Ownership........................................... I-34
9.9. Termination................................................................... I-37
9.10. Approval of Certain Matters................................................... I-37
9.11. Continuance of Certain Rights................................................. I-38
9.12. Release of Rights and Obligations............................................. I-39
9.13. FCC Licenses.................................................................. I-44
9.14. Notice of Breach.............................................................. I-44
SECTION 10. COVENANTS OF BT........................................................... I-44
10.1. Pre-Closing Covenants......................................................... I-44
10.2. Notice of Acquisition Proposals............................................... I-44
10.3. Voting of Shares.............................................................. I-45
10.4. Notice of Changes to Outstanding Interest..................................... I-46
SECTION 11. CONDITIONS TO BT'S OBLIGATIONS............................................ I-46
11.1. Representations and Warranties................................................ I-46
11.2. Agreements and Conditions..................................................... I-46
11.3. Governmental Approvals........................................................ I-46
11.4. Purchase of Shares Not Enjoined............................................... I-46
11.5. Stockholder Approval.......................................................... I-46
11.6. Other Agreements.............................................................. I-47
11.7. Non-U.S. Ownership Certificate................................................ I-47
11.8. Rights Plan................................................................... I-47
11.9. Section 203................................................................... I-47
11.10. NASDAQ Notification........................................................... I-47
11.11. Number of Shares to be Delivered.............................................. I-47
SECTION 12. CONDITIONS TO THE COMPANY'S OBLIGATIONS................................... I-47
12.1. Representations and Warranties................................................ I-47
12.2. Agreements and Conditions..................................................... I-47
12.3. Governmental Approvals........................................................ I-47
12.4. Sale of Shares Not Enjoined................................................... I-47
12.5. Stockholder Approval.......................................................... I-48
12.6. Other Agreements.............................................................. I-48
12.7. NASD Approval................................................................. I-48
12.8. Foreign Ownership Limitation.................................................. I-48
SECTION 13. TERMINATION............................................................... I-48
13.1. Termination................................................................... I-48
13.2. Effect of Termination......................................................... I-48
SECTION 14. MISCELLANEOUS............................................................. I-49
</TABLE>
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<TABLE>
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14.1. Notices....................................................................... I-49
14.2. Expenses...................................................................... I-50
14.3. Restrictive Trade Practices Act............................................... I-50
14.4. Survival...................................................................... I-50
14.5. Benefits; Assignment.......................................................... I-50
14.6. Entire Agreement; Amendment and Waiver........................................ I-50
14.7. Headings...................................................................... I-50
14.8. Governing Law................................................................. I-50
14.9. Remedies...................................................................... I-50
14.10. SUBMISSION TO JURISDICTION; WAIVERS........................................... I-51
14.11. Severability.................................................................. I-51
14.12. Counterparts.................................................................. I-52
</TABLE>
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<PAGE> 94
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT dated as of August 4, 1993 between BRITISH
TELECOMMUNICATIONS plc, a public limited company incorporated under the laws of
England and Wales ("BT"), and MCI COMMUNICATIONS CORPORATION, a Delaware
corporation (the "Company").
In consideration of the mutual promises contained herein, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1. Defined Terms. As used in this Agreement, the following terms shall
have the following meanings:
"Acquisition Proposal" shall mean any tender offer or exchange offer
or proposal (including, without limitation, any proposal or offer to
stockholders of the Company) with respect to a Business Combination or a
sale of 10% or more of the outstanding Voting Securities (excluding the
Transactions).
"Affiliate" shall mean, as applied to a specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such
specified Person and, for purposes of Section 7 hereof, Affiliate shall
also mean any Associate.
"Americas" shall mean North, Central and South America and the
Caribbean region, and, notwithstanding the foregoing, expressly including
all of the United States and all of its territories and possessions as of
the date hereof wherever located.
"Antitrust Division" shall mean the Antitrust Division of the United
States Department of Justice or its successor.
"Associate" shall mean, when used to indicate a relationship with any
Person, a corporation or organization of which such Person is, directly or
indirectly, the beneficial owner of 20% or more of any class of voting
securities, provided that, with respect to a corporation or organization
that would otherwise be an Associate as of the date hereof, such percentage
shall be 23% or more and such percentage shall be applied with reference to
all outstanding voting securities, provided further that the applicable
percentage shall be 10% or more and such percentage shall be applied with
reference to any class of voting securities if such corporation or
organization holds Voting Securities in order to circumvent the purposes of
this Agreement.
"BT Nominees" shall have the meaning set forth in Section 9.7 of this
Agreement.
"BT North America Agreement" shall mean the agreement providing for
the sale of BT's North American operations to the Company, substantially in
the form attached hereto as Exhibit E.
"Business Combination" shall mean a merger or consolidation in which
the Company is a constituent corporation and pursuant to which the Common
Stock is exchanged for cash, securities or other property or a sale of all
or substantially all of the assets of the Company and its Subsidiaries
taken as a whole, provided that neither (i) a transaction in which the
beneficial ownership of the capital stock of the Company or of the sole
surviving corporation of the transaction (or of the ultimate parent of the
Company or of such sole surviving corporation) immediately after the
consummation of such transaction is substantially the same as the
beneficial ownership of the Company's capital stock immediately prior to
the consummation thereof nor (ii) at any time that shares of Class A Common
Stock are outstanding, a merger in which the Company is the surviving
corporation, in which all shares of the Common Stock outstanding
immediately prior to the consummation of such merger remain outstanding
immediately after the consummation thereof and the only change in the
capital stock of the Company resulting from such merger is the issuance of
shares of capital stock pursuant thereto, and in connection with which no
consent or affirmative vote of the holders of Class A Common Stock would be
required under the Certificate of Incorporation (as amended by the
Certificate of Amendment), shall be deemed a Business Combination.
I-1
<PAGE> 95
"Business Day" shall mean any day that is not a Saturday, a Sunday, a
bank holiday or any other day on which commercial banking institutions in
New York, New York or London, England are not generally open for business.
"By-Law Amendments" shall have the meaning set forth in Section 9.1 of
this Agreement.
"CFIUS" shall mean the Committee on Foreign Investment in the United
States.
"Certificate of Amendment" shall mean the Certificate of Amendment to
the Certificate of Incorporation, substantially in the form of Exhibit A
hereto, which certificate is to be filed with the Secretary of State of the
State of Delaware pursuant to Section 9.1(e) of this Agreement.
"Certificate of Designation" shall mean the Certificate of Designation
relating to the Preferred Stock, filed with the Secretary of State of the
State of Delaware on June 25, 1993.
"Certificate of Incorporation" shall mean the Restated Certificate of
Incorporation of the Company as the same may be hereinafter amended or
supplemented.
"Class A Common Stock" shall mean the Class A Common Stock, par value
$.10 per share, of the Company as designated in the Certificate of
Amendment.
"Class A Directors" shall mean the directors of the Company elected by
the holders of Class A Common Stock.
"Closing" shall have the meaning set forth in Section 2.2 of this
Agreement.
"Closing Date" shall have the meaning set forth in Section 2.2 of this
Agreement.
"Closing Foreign Ownership Limitation" shall mean the aggregate
percentage of the capital stock of the Company Owned of Record or Voted by
Non-U.S. Persons or Entities that is 1/10th of 1% less than the Foreign
Ownership Limitation.
"Common Shares" shall mean shares of the Class A Common Stock and the
Common Stock.
"Common Stock" shall mean the Common Stock, par value $.10 per share,
of the Company.
"Communications Act" shall mean the Communications Act of 1934, as
amended, or any successor thereto.
"Constating Documents" shall mean as to any Person the certificate of
incorporation and by-laws or other organizational or governing documents of
such Person.
"Conversion Shares" shall mean the shares of the Common Stock issued
or issuable upon the conversion of the Preferred Shares in accordance with
the terms of the Preferred Stock or the shares of Class A Common Stock
issued in exchange for such shares of Common Stock pursuant to Section 2.3
of this Agreement.
"Core Business", for purposes of this Agreement, shall mean all
telecommunications and other electronic information services and equipment
for the provision of such services, as they exist on the date of this
Agreement or hereafter exist, including, without limitation, all forms of
telecommunications access and egress (landline and wireless), and
value-added consumer and business services generated through or as a result
of underlying telecommunications services using all technology (voice, data
and image) and physical transport, network intelligence, and software
applications, and including, without limitation, (i) information
processing, (ii) systems integration and outsourcing, (iii) transaction
processing and (iv) cable television.
"Current Market Value" shall mean, with respect to any security, the
average of the daily closing prices on the NASDAQ National Market System
(or such principal exchange on which such security may be listed) for such
security for the 20 consecutive trading days commencing on the 22nd trading
day prior to the date with respect to which the Current Market Value is
being determined. The closing price for each day shall be the closing
price, if reported, or, if the closing price is not reported, the average
of the closing bid and asked prices as reported by NASDAQ or a similar
source selected from time to time by the Company for the purpose. In the
event such closing prices are unavailable, the Current Market Value shall
be the Fair Market Value of such security established by a Determination of
the Independent
I-2
<PAGE> 96
Directors. Notwithstanding anything to the contrary contained herein, the
Independent Directors shall establish the Current Market Value of the Class
A Common Stock to be equal to the Current Market Value of the Common Stock
and shall establish the Current Market Value of any options, warrants,
rights or other securities convertible into or exercisable for Class A
Common Stock to be equal to the Current Market Value of options, warrants,
rights or other securities convertible into or exercisable for Common Stock
upon the same terms and otherwise containing the same terms as such
options, warrants, rights or other securities convertible into or
exercisable for Class A Common Stock.
"DGCL" shall mean the General Corporation Law of the State of
Delaware.
"Determination of the Independent Directors" shall mean, with respect
to any matter, a determination made in good faith, on the basis of such
relevant factors as the Independent Directors consider, in their reasonable
judgment, appropriate, by the vote of a majority of the Independent
Directors present at a meeting of the Independent Directors called for such
purpose, a quorum being present (or at a meeting of the Board of Directors
of the Company if a quorum of the Independent Directors is present at such
meeting), or without a meeting if a majority of all Independent Directors
consent thereto in writing. For these purposes, a majority of all
Independent Directors, acting at a meeting duly assembled, shall constitute
a quorum for the making of any such determination at such meeting.
"EC Commission" shall mean the Commission of the European Communities.
"Employee Shares" shall have the meaning set forth in Section 6.1
hereof.
"Employee Stock Plan" shall mean the Company's Employee Stock Option
Plan, Directors' Stock Option Plan, Employee Stock Purchase Plan, Employee
Stock Ownership Plan and any other past, current or future employee stock
ownership, thrift, savings, stock bonus, stock purchase, restricted stock
or stock option plan or similar arrangement, or any grantor trust
established to fund any such plan or otherwise for the benefit of employees
or directors, pursuant to which employees or directors of the Company or
any of its Subsidiaries may acquire Equity. Any rights of an employee or
director to purchase Equity under the Employee Stock Purchase Plan, the
Employee Stock Ownership Plan or any similar plans shall be deemed a right
to acquire Equity for all purposes hereunder.
"Equity" shall mean any and all shares of capital stock of the
Company, securities of the Company convertible into such shares, and
options, warrants or other rights to acquire such shares.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of
the SEC thereunder, all as the same shall be in effect from time to time.
"Exon-Florio" shall mean sec.721 of the Defense Production Act of
1950, as amended, and the rules promulgated thereunder.
"Existing Options" shall have the meaning set forth in Section 2.1 of
this Agreement.
"FCC" shall mean the Federal Communications Commission or its
successor.
"FCC Order" shall mean either:
(i) A written order or other determination from the staff of the
FCC (either in the first instance or upon review, reconsideration or
other action subsequent to an order or other determination of the staff)
either approving the consummation of the transactions contemplated by
this Agreement or stating that no such approval is required (or, in the
case of such review, reconsideration or other subsequent action, a
written order or other determination to the effect set forth above or
affirming or upholding, or having the effect of affirming or upholding,
whether by dismissing or denying a petition for reconsideration or
terminating the consideration thereof or otherwise, a previous order or
determination to the effect set forth in this paragraph (i)), which
order or determination shall no longer be subject to further
administrative review by the FCC; or,
(ii) A written or other determination from the FCC itself (either
in the first instance or upon review, reconsideration or other action
subsequent to an order or other determination of the staff of the FCC)
either approving the consummation of the transactions contemplated by
this Agreement
I-3
<PAGE> 97
or stating that no such approval is required (or, in the case of such
review, reconsideration or other action subsequent to an order or
determination of the staff of the FCC, a written order or other
determination from the FCC itself to the effect set forth above or
affirming, upholding or having the effect of affirming or upholding,
whether by dismissing or denying a petition for reconsideration or
application for review or terminating the consideration thereof or
otherwise, an order or other determination of the staff of the FCC to
the effect set forth in paragraph (i)).
For purposes of this definition, an order or other determination of the
staff shall be deemed no longer subject to further administrative review by
the FCC:
(x) If no petition for reconsideration or application for review by
the FCC of the order or determination of the staff has been filed within
30 days after the date of public notice of the order or determination,
as such 30-day period is computed and as such date is defined in
sections 1.104 and 1.4, as applicable, of the FCC's rules, and the FCC
has not initiated review of the order or determination of the staff on
its own motion within 40 days after the date of public notice of the
order or determination, as such 40-day period is computed and as such
date is defined in sections 1.117 and 1.4 of the FCC's rules, or
(y) If any such petition for reconsideration or application for
review has been filed, or, if the FCC has initiated review of the order
or determination of the staff on its own motion, the FCC itself has
issued a written order or other determination or taken other action to
the effect set forth in paragraph (ii) above.
"FTC" shall mean the Federal Trade Commission or its successor.
"Fair Market Value" shall mean, as to any shares or other property,
the cash price at which a willing seller would sell and a willing buyer
would buy such shares or property in an arms'-length negotiated transaction
without time constraints.
"Fixed Shares" shall have the meaning set forth in Section 2.1 of this
Agreement.
"Foreign Ownership Limitation" shall mean the maximum aggregate
percentage of the capital stock of the Company that may be Owned of Record
or Voted by Non-U.S. Persons or Entities under Section 310(b)(4) of the
Communications Act.
"Foreign Ownership Restrictions" shall mean any applicable
restrictions of a Governmental Authority on foreign ownership or control of
the Company or its securities the breach of which, or non-compliance with
which, could result in the loss, or failure to secure the renewal or
reinstatement, of any license or franchise of any Governmental Authority
held by the Company or any of its Subsidiaries to conduct any portion of
the business of the Company or such Subsidiary.
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules promulgated thereunder.
"Independent Directors" shall have the meaning set forth in Section
9.7 of this Agreement.
"Interest Rate" shall mean the interest rate per annum publicly
announced by Citibank, N.A. as its "Prime Rate" as in effect from time to
time.
"Maintenance Shares" shall mean such Voting Equity of the Company as
BT or any of its Affiliates may from time to time acquire subsequent to the
Closing pursuant to the terms of this Agreement (excluding any Shares
purchased subsequent to the Closing) in order to maintain a level of
beneficial ownership of Voting Securities equating to an Outstanding
Interest of up to 20%.
"Market Capitalization" shall mean the aggregate of the Current Market
Value, on a fully diluted basis, of the outstanding Equity of the Company.
"Merger Control Regulation" shall mean EC Council Regulation 4064/89.
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"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean the electronic inter-dealer quotation system
operated by NASDAQ, Inc.
"Newco" shall mean the international joint venture between BT and the
Company to be formed and established and governed and operated in
accordance with the Newco Agreement.
"Newco Agreement" shall mean the agreement providing for (i) the
formation and establishment of Newco and (ii) certain governance and
operational terms relating to Newco, substantially in the form attached
hereto as Exhibit D.
"Newco Triggering Events" shall mean the occurrence of any of the
following: (i) the Company or any of its Affiliates has exercised its right
to require BT or any of its Affiliates to purchase the Company's direct or
indirect interest in Newco pursuant to Clause 26 of the Newco Agreement,
(ii) the Company or any of its Affiliates has exercised its right to
require BT or any of its Affiliates to sell to the Company or any of its
Affiliates BT's direct or indirect interest in Newco pursuant to the terms
of the Newco Agreement, provided that such exercise shall be deemed not to
be a Newco Triggering Event (other than for purposes of Sections 9.12(i)
and 9.12(j)) until such time as the shares of Class A Common Stock are
automatically converted into shares of Common Stock in connection therewith
pursuant to section 4(b)(9)(ii) of the Certificate of Incorporation (as
amended by the Certificate of Amendment) by reason of the occurrence of an
event described in section 4(b)(11)(vi)(F) of the Certificate of
Incorporation (as amended by the Certificate of Amendment), (iii) the
Company or any of its Affiliates has transferred the Company's direct or
indirect interest in Newco to a third party in accordance with Clause 25.8
or 25.9 of the Newco Agreement or BT or any of its Affiliates has exercised
its right of first refusal and acquired the Company's direct or indirect
interest in Newco pursuant to Clauses 25.6 and 25.7 or Clause 25.9 of the
Newco Agreement in connection with a proposed transfer of the Company's
direct or indirect interest in Newco, (iv) BT or any of its Affiliates has
transferred BT's direct or indirect interest in Newco to a third party in
accordance with Clause 25.8 or 25.9 of the Newco Agreement or the Company
or any of its Affiliates has exercised its right of first refusal and
acquired BT's direct or indirect interest in Newco pursuant to Clauses 25.6
and 25.7 or Clause 25.9 of the Newco Agreement in connection with a
proposed transfer of BT's direct or indirect interest in Newco or (v) BT or
any of its Affiliates has exercised its right to require the Company or any
of its Affiliates to sell to BT or any of its Affiliates the Company's
direct or indirect interest in Newco pursuant to Clause 30 of the Newco
Agreement, provided that such exercise as a result of a material breach by
the Company pursuant to Clause 29.1(a) of the Newco Agreement shall be
deemed not to be a Newco Triggering Event (other than for purposes of
Sections 9.12(i) and 9.12(j)) until such time as the shares of Class A
Common Stock are automatically converted into shares of Common Stock in
connection therewith pursuant to section 4(b)(9)(ii) of the Certificate of
Incorporation (as amended by the Certificate of Amendment) by reason of the
occurrence of an event described in section 4(b)(11)(vi)(D) of the
Certificate of Incorporation (as amended by the Certificate of Amendment).
"Non-Core Business" shall mean any business that is not a Core
Business of the Company.
"Non-U.S. Ownership Certificate" shall have the meaning set forth in
Section 11.7 of this Agreement.
"Non-U.S. Persons or Entities" shall mean any foreign government or
the representative thereof, any alien or the representative of any alien or
any corporation organized under the laws of any foreign country, as those
terms are used in 47 U.S.C. sec. 310(b).
"Optional Shares" shall have the meaning set forth in Section 2.1 of
this Agreement.
"Outstanding Interest" shall mean the percentage of the aggregate
voting power of the outstanding Voting Securities represented by the Voting
Securities beneficially owned by BT or any of its Affiliates, provided
that, for purposes of calculating such percentage, Uncounted Shares shall
be deemed not to be outstanding Voting Securities, provided, however, that
the foregoing proviso shall not apply if the Outstanding Interest has
become, or to the extent that, without the benefit of such proviso, the
Outstanding Interest would be, less than 7 1/2%.
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"Outstanding Voting Interest" shall mean the percentage of the
aggregate voting power of the outstanding Voting Securities represented by
the Voting Securities beneficially owned by BT or any of its Affiliates,
provided that, for purposes of calculating the Outstanding Voting Interest,
BT shall not be deemed to beneficially own any Voting Securities that are
not then outstanding.
"Owned of Record or Voted by" shall have the meaning used in 47 U.S.C.
sec. 310(b)(4) and interpretations thereof by the FCC.
"Permitted Offering" shall have the meaning set forth in Section 5.1
of this Agreement.
"Person" shall mean an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, Governmental Authority or other entity of whatever nature.
"Preferred Shares" shall mean the 13,736.488 (Thirteen Thousand Seven
Hundred Thirty-Six Point Four Hundred Eighty-Eight) shares of the Preferred
Stock issued by the Company to BT pursuant to the Preferred Stock Exchange
Agreement dated as of June 24, 1993 between BT and the Company.
"Preferred Stock" shall mean that series of Preferred Stock, par value
$0.10 per share, of the Company designated as the Series D Convertible
Preferred Stock, whose powers, preferences and rights and qualifications,
limitations and restrictions are set forth in the Certificate of
Designation.
"Proposals" shall have the meaning set forth in Section 9.1 of this
Agreement.
"Proxy Statement" shall have the meaning set forth in Section 9.1 of
this Agreement.
"RTPA" shall mean the Restrictive Trade Practices Act 1976.
"Redemption Provision" shall mean Section 9 of the Certificate of
Incorporation as amended by the Certificate of Amendment or any similar
provision under any amendment thereto.
"Registration Rights Agreement" shall have the meaning set forth in
Section 5.5 of this Agreement.
"Requirement of Law" shall mean as to any Person, any law, treaty,
rule or regulation of any Governmental Authority applicable to such Person
or any of its property or to which such Person or any of its property is
subject.
"Rights" shall mean any rights issued or distributed to stockholders
pursuant to the Rights Plan or any successor plan thereto.
"Rights Plan" shall mean the Rights Agreement, substantially in the
form of Exhibit C hereto, to be adopted by the Company pursuant to Section
9.1(e) of this Agreement, as the same may be amended from time to time. For
purposes of this Agreement, any rights plan adopted by the Company
subsequent to the termination of the Rights Plan or the expiration,
redemption or exchange of the Rights shall be a successor plan, and a
successor plan shall include such successor plan as the same may be amended
from time to time.
"SEC" shall mean the Securities and Exchange Commission or its
successor.
"Sale Notice" shall have the meaning set forth in Section 9.5 of this
Agreement.
"Section 9.2 Shares" shall mean any shares of Common Stock that the
Company is obligated to use its best efforts to repurchase under Section
9.2 to the extent that such shares have not been so repurchased.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the SEC
thereunder, all as the same shall be in effect from time to time.
"Shares" shall mean the Fixed Shares, the Optional Shares and the
Additional Optional Shares, and any shares of Common Stock issued upon the
conversion of such shares in accordance with the terms of the Class A
Common Stock.
"Small Offering" shall have the meaning set forth in Section 6.3 of
this Agreement.
"Small Offering Shares" shall have the meaning set forth in Section
6.1 of this Agreement.
"Stockholders' Meeting" shall have the meaning set forth in Section
9.1 of this Agreement.
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"Subsidiary" shall mean, with respect to any Person, any corporation
or other entity of which at least a majority of the voting power of the
voting equity securities or equity interest is owned, directly or
indirectly, by such Person.
"Transactions" shall mean the transactions contemplated by this
Agreement, the Newco Agreement and the BT North America Agreement.
"Transfer" shall have the meaning set forth in Section 5.1 of this
Agreement.
"Uncounted Shares" shall mean (i) capital stock subject to purchase
rights under Section 6.1 to the extent that the purchase rights provided
under Section 6.1 in respect thereof are not yet exercisable, including,
without limitation, Small Offering Shares, (ii) Employee Shares issued
after the date hereof to the extent that the purchase rights provided under
Section 6.1 in respect thereof became exercisable and neither BT nor any of
its Affiliates shall have elected to exercise the purchase rights provided
under Section 2.1(b), 2.1(d) or 6.1 in respect thereof, (iii) Section 9.2
Shares and (iv) any capital stock subject to purchase rights under Section
6.1 to the extent that either (x) the time period during which BT has been
provided the opportunity to deliver notice of its irrevocable commitment to
purchase Voting Equity pursuant to its purchase rights provided under
Section 6.1 in respect of such capital stock shall not have expired or (y)
BT shall have delivered notice of its irrevocable commitment to purchase
Voting Equity pursuant to its purchase rights provided under Section 6.1 in
respect of such capital stock, but such commitment to purchase Voting
Equity shall not yet have been consummated, provided that such capital
stock shall not be deemed Uncounted Shares to the extent that the Company's
obligation to issue and sell Voting Equity to BT in respect thereof shall
have been terminated pursuant to Section 6.1(a).
"Voting Equity" shall mean any and all Voting Securities, securities
of the Company convertible into Voting Securities, and options, warrants or
other rights to acquire Voting Securities.
"Voting Securities" shall mean the Common Stock, the Class A Common
Stock and any other securities of the Company having voting power under
ordinary circumstances with respect to the election of directors of the
Company.
1.2. Beneficial Ownership. Unless otherwise provided in this Agreement, a
Person shall be deemed to "beneficially own" any securities in accordance with
the provisions of Rule 13d-3 under the Exchange Act, provided that (except with
respect to Section 7.1) capital stock of the Company underlying any options,
warrants, rights or other securities convertible into or exercisable for such
capital stock shall not be deemed to be beneficially owned by any Person if the
applicable conversion price or exercise price, as the case may be, of such
option, warrant, right or other security is more than the Current Market Value
of the underlying capital stock.
1.3. Securities Outstanding. In determining the number or other amount
outstanding of any securities of the Company, securities owned by the Company or
any of its Subsidiaries shall be deemed to be not outstanding.
SECTION 2. PURCHASE AND SALE OF CLASS A COMMON STOCK
2.1. Purchase and Sale of Class A Common Stock. (a) On the terms and
subject to the conditions of this Agreement, the Company shall, on the Closing
Date, issue and sell to BT, and BT shall purchase from the Company, subject to
Sections 2.1(b) and 2.1(c), 106,752,106 shares of the Class A Common Stock (the
"Fixed Shares") at a price of $32.46 per share. The delivery of the Fixed Shares
at the Closing shall be against BT's payment to the account designated by the
Company of immediately available funds in the amount of the purchase price
therefor.
(b) If any shares of Common Stock are issued by the Company subsequent to
July 28, 1993 and on or prior to the seventh Business Day prior to the Closing
pursuant to the exercise of options or any other rights to acquire Equity
granted, issued or otherwise existing prior to the date hereof pursuant to
Employee Stock Plans ("Existing Options"), then on the terms and subject to the
conditions of this Agreement, at the option of BT, the Company shall, on the
Closing Date, issue and sell to BT, and BT, if it so elects, shall, subject to
Section 2.1(c), purchase from the Company, at a price of $32.00 per share, all
but not less than all of that number of shares of Class A Common Stock (the
"Optional Shares") equal to 25% of the aggregate number
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of shares of Common Stock issued subsequent to July 28, 1993 and on or prior to
the seventh Business Day prior to the Closing pursuant to the exercise of
Existing Options, provided that the Company shall be entitled to reduce the
number of Fixed Shares or Optional Shares to be issued to BT to the extent that
as a result of such issuance BT would otherwise become the beneficial owner of
in excess of 20% of the outstanding Common Shares (excluding Section 9.2
Shares), as of the seventh Business Day prior to the Closing, after giving
effect to the shares of Class A Common Stock to be issued to BT at the Closing.
The Company shall give written notice to BT of the number of such shares issued
during such period pursuant to Existing Options on the seventh Business Day
prior to the Closing, and prior thereto, upon the request of BT, shall from time
to time provide BT promptly with information as to the number of shares of
Common Stock issued by the Company between the date hereof and the date of such
request. BT shall, if it elects to purchase the Optional Shares pursuant hereto,
give notice to the Company of its irrevocable commitment to purchase the
Optional Shares, if any, at the Closing no later than five Business Days prior
to the Closing Date. The delivery of the Optional Shares at the Closing shall be
against BT's payment to the account designated by the Company of immediately
available funds in the amount of the purchase price therefor.
(c) Notwithstanding the foregoing, the number of Shares to be issued to BT
at the Closing shall be reduced, but only to the extent necessary, so that the
aggregate percentage of the outstanding capital stock of the Company represented
by all shares of such capital stock Owned of Record or Voted by BT, after giving
effect to the Shares otherwise to be purchased by BT at the Closing, together
with all other capital stock Owned of Record or Voted by Non-U.S. Persons or
Entities as set forth in the survey conducted in connection with the Non-U.S.
Ownership Certificate (or as otherwise known to the Company), does not exceed
the Closing Foreign Ownership Limitation. If (x) the number of Shares otherwise
to have been issued at Closing has been reduced pursuant to Section 2.1(b) or
this Section 2.1(c), (i) the number of Optional Shares shall be reduced first
(but to no less than zero) before there is any reduction in the number of Fixed
Shares and (ii) to the extent that the number of Fixed Shares issued at the
Closing has been reduced, the price per share of the Fixed Shares purchased at
the Closing shall be increased so that the average price per share of the
aggregate of the Fixed Shares so purchased and the shares of Common Stock
issuable upon the conversion of the Preferred Shares shall be $32.00 per share
and (y) the number of Shares otherwise to have been issued at the Closing has
been reduced pursuant to this Section 2.1(c), then no more than one year
following the Closing, the Company shall issue and sell to BT, at a price of
$32.00 per share, and BT shall purchase, the number of Shares reduced pursuant
to the first sentence of this Section 2.1(c), provided that the Company shall
not be obligated to issue and sell a number of Shares under this clause (y) that
would result in BT beneficially owning in excess of 20% of the then outstanding
Common Shares (excluding Section 9.2 Shares). Without limiting the foregoing,
promptly following such time as the Company may acquire actual knowledge of
facts or circumstances that would cause it to reduce the number of Shares to be
issued at the Closing pursuant to this Section 2.1(c), the Company shall use its
best efforts to obtain an FCC Order to permit the Company to issue to BT the
number of Shares reduced pursuant to the first sentence of this Section 2.1(c)
without exceeding the Foreign Ownership Limitation. The Company shall take such
steps as shall be reasonably necessary to ensure that BT, within one year of the
Closing, shall be permitted to acquire the number of Shares reduced pursuant to
this Section 2.1(c) without exceeding the Foreign Ownership Limitation.
(d) If any shares of Common Stock are issued by the Company following the
seventh Business Day prior to the Closing and on or prior to the Closing Date
pursuant to the exercise of Existing Options, then on the terms and subject to
the conditions of this Agreement, at the sole option of BT, the Company shall
issue and sell to BT, and BT, if it so elects, shall, subject to the provisions
hereof, purchase from the Company, at a price of $32.00 per share, all but not
less than all of that number of shares of Class A Common Stock (the "Additional
Optional Shares") equal to 25% of the aggregate number of shares of Common Stock
issued following the seventh Business Day prior to the Closing and on or prior
to the Closing Date pursuant to the exercise of Existing Options, provided that
the Company shall be entitled to reduce the number of Additional Optional Shares
to be issued to BT to the extent that as a result of such issuance BT would
otherwise become the beneficial owner of in excess of 20% of the outstanding
Common Shares (excluding Section 9.2 Shares) after giving effect to any such
issuance of Additional Optional Shares. The Company shall give written notice to
BT of the number of such shares issued during such period pursuant to Existing
Options as promptly as
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practicable following the Closing. BT shall give notice to the Company of its
irrevocable commitment to purchase the Additional Optional Shares, if any, no
later than five Business Days following such written notice to BT, provided that
if BT shall not have responded to such written notice within such time period
and BT shall have previously elected to purchase Optional Shares, if any,
pursuant to Section 2.1(b), then BT's election to purchase such Optional Shares
shall be deemed also to be its irrevocable commitment to purchase the Additional
Optional Shares, if any. The purchase, if any, by BT of the Additional Optional
Shares shall be consummated within ten Business Days of BT's exercise of its
option to purchase the Additional Optional Shares, if any (or, in the case of a
deemed election to purchase such shares, within 15 Business Days of the
Company's written notice to BT). The delivery of the Additional Optional Shares
shall be against BT's payment to the account designated by the Company of
immediately available funds in the amount of the purchase price therefor.
Notwithstanding the foregoing, the number of Additional Optional Shares to be
issued to BT at such closing shall be reduced, but only to the extent necessary,
so that the aggregate percentage of the outstanding capital stock of the Company
represented by all shares of such capital stock Owned of Record or Voted by BT,
after giving effect to the Additional Optional Shares otherwise to be purchased
by BT at such closing, together with all other capital stock Owned of Record or
Voted by Non-U.S. Persons or Entities as set forth in the survey conducted in
connection with the Non-U.S. Ownership Certificate (or as otherwise known to the
Company), does not exceed the Closing Foreign Ownership Limitation. If the
number of Additional Optional Shares issued at such closing has been reduced
pursuant hereto, no more than one year following such closing, the Company
shall, upon reasonable notice to BT, issue and sell to BT, at a price of $32.00
per share, and BT shall purchase, the number of Additional Optional Shares
reduced under the first sentence this Section 2.1(d), provided that the Company
shall not be obligated to issue and sell a number of Additional Optional Shares
under this Section 2.1(d) that would result in BT beneficially owning in excess
of 20% of the then outstanding Common Shares (excluding Section 9.2 Shares). The
Company shall take such steps as shall reasonably be necessary to ensure that
BT, within such one-year period, shall be permitted to acquire the number of
Additional Optional Shares reduced under this Section 2.1(d) without exceeding
the Foreign Ownership Limitation.
(e) Notwithstanding anything to the contrary contained in this Section 2.1,
the purchase price and number of Fixed Shares, Optional Shares and Additional
Optional Shares to be purchased by BT hereunder shall be adjusted to reflect any
stock split, stock dividend, or other combination or reclassification of the
Company's capital stock during the time from the date hereof until the Closing
Date.
2.2. Closing Date. (a) The closing (the "Closing") of the purchase and
sale of the Fixed Shares and the Optional Shares, if any, provided for in
Section 2.1 shall take place at the offices of Simpson Thacher & Bartlett, 425
Lexington Avenue, New York, New York on the tenth Business Day following the
satisfaction of all of the conditions to each party's obligations set forth in
Sections 11 and 12 (or, with respect to any condition not satisfied, the waiver
thereof by the party for whose benefit the condition exists) or at such other
place and date as the parties may mutually agree. The date and time of such
Closing are herein referred to as the "Closing Date".
(b) The closing of the purchase and sale of the Additional Optional Shares,
if any, provided for in Section 2.1(d) shall take place at the offices of
Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York within the
time period set forth in Section 2.1(d) or at such other place and date as the
parties may mutually agree.
2.3. Exchange of Shares. If prior to the Closing the Preferred Shares
shall have been converted into shares of Common Stock pursuant to the terms set
forth in the Certificate of Designation, then immediately prior to the Closing,
upon the surrender to the Company of either the certificates formerly
representing the Preferred Shares so converted or the certificates for the
shares of Common Stock issued upon such conversion, as the case may be, the
Company shall issue to BT one share of Class A Common Stock for each such share
of Common Stock.
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SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to BT that, as of the date
hereof and as of the Closing Date:
3.1. Existence; Power. The Company has been duly incorporated and is
validly existing and in good standing as a corporation under the laws of the
State of Delaware, and has all necessary corporate power and authority to
transact in all material respects all business conducted by it, to enter into
this Agreement and, subject to approval by the stockholders of the Company at
the Stockholders' Meeting and to the filing of the Certificate of Amendment with
the Secretary of State of the State of Delaware, to issue and sell the Shares
and to carry out the provisions of this Agreement.
3.2. Authority. This Agreement has been duly authorized by all necessary
corporate action on the part of the Company and duly executed and delivered by
the Company and constitutes a legal, valid and binding agreement of the Company,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors generally,
by general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law) or by an implied covenant of
good faith and fair dealing.
3.3. Compliance with Laws. Except for applicable requirements under the
Communications Act, state communications laws, the Exchange Act, state
securities or blue sky laws, foreign competition or antitrust laws, Exon-Florio,
regulations promulgated by or in respect of the Department of Defense and the
NASDAQ National Market System and the expiration or termination of the waiting
period under the HSR Act, no consent, approval or authorization of, or filing,
registration, qualification, declaration or designation with, any Governmental
Authority is required on the part of the Company as a condition to the valid
execution and delivery of this Agreement and, subject to approval by the
stockholders of the Company at the Stockholders' Meeting and to the filing of
the Certificate of Amendment with the Secretary of State of the State of
Delaware, the valid issue and sale of the Shares in the manner contemplated by
this Agreement, except where the absence of any such consent, approval or
authorization of, or the failure to make any such filing, registration,
qualification, declaration or designation with any Governmental Authority would
not have a material adverse effect on the Company and its Subsidiaries taken as
a whole, the Shares or the Company's ability to consummate the transactions
contemplated hereby.
3.4. No Conflict. Subject to applicable requirements under the
Communications Act, state communications laws, the Exchange Act, state
securities or blue sky laws, foreign competition or antitrust laws, Exon-Florio,
regulations promulgated by or in respect of the Department of Defense and the
NASDAQ National Market System and the expiration or termination of the waiting
period under the HSR Act, and except as set forth on Schedule 3.4 hereto, the
execution, delivery and, subject to the approval of the Proposals by the
stockholders of the Company and the filing of the Certificate of Amendment with
the Secretary of State of the State of Delaware, performance by the Company of
this Agreement and the issue and sale of the Shares will not (i) conflict with
the Constating Documents of the Company, (ii) conflict with, result in a breach
of, or constitute a default under, any loan or credit agreement, indenture,
mortgage, note or other agreement or instrument affecting the Company or to
which the Company or any of its Subsidiaries or Affiliates is a party or by
which any of their respective properties or assets are or may be bound, (iii)
violate any Requirement of Law applicable to the Company or (iv) violate any
order, judgment or decree of any court or other Governmental Authority or any
determination of an arbitrator, except where any such conflict, breach or
default under clause (ii) or any such violation under clauses (iii) or (iv)
would not have a material adverse effect on the Company and its Subsidiaries
taken as a whole, the Shares or materially impair the Company's ability to
consummate the transactions contemplated herein.
3.5. Validity of Shares. Subject to approval by the stockholders of the
Company at the Stockholders' Meeting and to the filing of the Certificate of
Amendment with the Secretary of State of the State of Delaware, the issuance of
the Shares has been duly authorized by all necessary corporate action on the
part of the Company, and, when the Shares are issued and delivered against
payment therefor at the Closing, the Shares will be validly issued, fully paid
and nonassessable shares of capital stock of the Company.
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3.6. Capital Stock. As of July 28, 1993, the authorized capital stock of
the Company consists of (a) 800,000,000 shares of Common Stock, of which
536,900,329 shares are outstanding and (b) 20,000,000 shares of preferred stock,
par value $0.10 per share, of which 13,736.488 (Thirteen Thousand Seven Hundred
Thirty-Six Point Four Hundred Eighty-Eight) shares of the Preferred Stock are
outstanding. All outstanding shares of capital stock are duly authorized,
validly issued, fully paid and nonassessable, and no class of capital stock is
entitled to preemptive rights. There are outstanding as of July 28, 1993 no
options, warrants or other rights to acquire capital stock from the Company
other than (x) options representing in the aggregate the right to purchase
56,051,108 shares of Common Stock, (y) rights under the Company's Employee Stock
Purchase Plan permitting the purchase of up to an aggregate of 8,604,963 shares
of Common Stock and (z) shares of Preferred Stock convertible into an aggregate
of 27,472,976 shares of Common Stock.
3.7. Reports and Financial Statements. The Company has filed all reports
required to be filed with the SEC since January 1, 1992 (collectively, including
all exhibits thereto, the "SEC Reports"). None of such SEC Reports, as of their
respective dates (as amended through the date hereof), contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the financial
statements (including the related notes) included in the SEC Reports presents
fairly, in all material respects, the consolidated financial position and
consolidated results of operations and cash flows of the Company and its
subsidiaries as of the respective dates or for the respective periods set forth
therein, all in conformity with generally accepted accounting principles
consistently applied during the periods involved, except as otherwise noted
therein, and subject, in the case of the unaudited interim financial statements,
to normal year-end adjustments and any other adjustments described therein. All
of such SEC Reports, as of their respective dates (as amended through the date
hereof), complied in all material respects with the requirements of the Exchange
Act.
3.8. Absence of Certain Changes or Events. During the period since
December 31, 1992 (the date of the Company's last audited consolidated financial
statements), there has not been any material adverse change in the business,
financial condition or results of operations of the Company and its subsidiaries
taken as a whole other than as a result of changes in general business
conditions, legal or regulatory changes affecting the U.S. telecommunications
industry generally, or actions by a competitor of the Company in the U.S.
telecommunications industry.
3.9. Offering of Shares. Neither the Company, directly or indirectly, nor
any agent on its behalf has offered or will offer the Shares or any similar
securities or has solicited or will solicit an offer to acquire the Shares or
any similar securities from any Person so as to require registration of the
issuance and sale of the Shares to be sold to BT under the circumstances
contemplated by this Agreement under the provisions of Section 5 of the
Securities Act.
3.10. Section 203. The Board of Directors of the Company has taken
appropriate action so that the provisions of Section 203 of the DGCL restricting
"business combinations" with "interested stockholders" (each as defined in such
Section 203) will not, prior to the termination of this Agreement pursuant to
Section 13.1, apply to BT or any Person who as of the date hereof is an
Affiliate of BT.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BT
BT represents and warrants to the Company that, as of the date hereof and
as of the Closing Date:
4.1. Existence; Power. BT has been duly incorporated under the laws of
England and Wales, having all power and authority under its Memorandum and
Articles of Association to transact in all material respects all business
conducted by it, to enter into this Agreement, to purchase the Shares and to
carry out the provisions of this Agreement.
4.2. Authority. This Agreement has been duly authorized by all necessary
corporate action on the part of BT and duly executed and delivered by BT and
constitutes a legal, valid and binding agreement of BT, enforceable against it
in accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors generally, by general equity principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) or by an implied covenant of good faith and fair dealing.
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4.3. Compliance with Laws. Except for applicable requirements under the
Communications Act, state communications laws, the Exchange Act, state
securities or blue sky laws, foreign competition or antitrust laws, Exon-Florio,
regulations promulgated by or in respect of the Department of Defense and the
NASDAQ National Market System and the expiration or termination of the waiting
period under the HSR Act, no consent, approval or authorization of, or filing,
registration, qualification, declaration or designation with, any Governmental
Authority is required on the part of BT as a condition to the valid execution
and delivery of this Agreement and the purchase of the Shares in the manner
contemplated by this Agreement, except where the absence of any such consent,
approval or authorization of, or the failure to make any such filing,
registration, qualification, declaration or designation with any Governmental
Authority would not have a material adverse effect on BT and its Subsidiaries
taken as a whole or its ability to consummate the transactions contemplated
hereby.
4.4. No Conflict. Subject to applicable requirements under the
Communications Act, state communications laws, the Exchange Act, state
securities or blue sky laws, foreign competition or antitrust laws, Exon-Florio,
regulations promulgated by or in respect of the Department of Defense and the
NASDAQ National Market System and the expiration or termination of the waiting
period under the HSR Act, and except as set forth on Schedule 4.4 hereto, the
execution, delivery and performance by BT of this Agreement and the purchase of
the Shares will not (i) conflict with the Constating Documents of BT, (ii)
conflict with, result in a breach of, or constitute a default under, any loan or
credit agreement, indenture, mortgage, note or other agreement or instrument
affecting BT or to which BT or any of its Subsidiaries or Affiliates is a party
or by which any of their respective properties or assets are or may be bound,
(iii) violate any Requirement of Law applicable to BT or (iv) violate any order,
judgment or decree of any court or other Governmental Authority or any
determination of an arbitrator, except where any such conflict, breach or
default under clause (ii) or any such violation under clauses (iii) or (iv)
would not have a material adverse effect on BT and its Subsidiaries taken as a
whole or its ability to consummate the transactions contemplated hereby.
4.5. Nature of Purchase. BT is purchasing the Shares and the Conversion
Shares for its own account for investment, not as a nominee or agent, and not
with a view to the resale or distribution of the Shares or the Conversion Shares
or any part thereof, and BT has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, BT further represents that there is no contract, undertaking,
agreement or arrangement with any Person for resale in connection with a
distribution to any Person with respect to any of the Shares or the Conversion
Shares. BT acknowledges that the offering of the Shares and the Conversion
Shares pursuant to this Agreement will not be registered under the Securities
Act or any state securities or blue sky law, on the grounds that the offering
and sale of Shares and the Conversion Shares contemplated by this Agreement are
exempt from registration pursuant to exceptions available under such laws, and
that the Company's reliance upon such exemptions is predicated upon BT's
representations set forth in this Agreement. BT acknowledges and understands
that the Shares and the Conversion Shares must be held for an indefinite period
of time unless the Shares and/or the Conversion Shares, as the case may be, are
subsequently registered under the Securities Act and/or applicable state
securities or blue sky laws or an exemption from such registration is available.
4.6. Accredited Investor. BT is an "accredited investor" within the
meaning of Regulation D promulgated under the Securities Act.
4.7. Access to Information. The Company has made available to BT the
opportunity to ask questions of, and receive answers from, and conduct due
diligence meetings with management of the Company, and BT has had the
opportunity to obtain any additional information necessary to verify the
accuracy of the information provided to BT by the Company and in order for it to
make an informed investment decision with respect to its investment in the
Shares to the extent that the Company possessed such information or could have
acquired it without unreasonable effort or expense.
4.8. Ownership of Securities of the Company. Except for the Preferred
Shares or the Conversion Shares, as the case may be, and such rights as may be
conferred on BT under this Agreement, BT does not, directly or indirectly,
beneficially own any Equity.
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SECTION 5. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS
5.1. Restrictions on Transfer. (a) BT covenants and agrees with the
Company that, prior to the fourth anniversary of the Closing Date, neither BT
nor any of its Affiliates will, directly or indirectly, offer, sell, transfer,
assign, pledge, hypothecate or otherwise dispose of the beneficial ownership of
(any such act, a "Transfer") any Equity except for, and subject in each case to
compliance with all applicable Requirements of Law and the receipt of any
necessary governmental approvals, (i) a Transfer by BT to a wholly owned direct
or indirect subsidiary of BT, provided that prior to such Transfer each such
transferee consents in writing with the Company to be bound by the restrictions
on transfer set forth in this Section 5.1 and assumes all other rights and
obligations of BT under this Agreement and the Registration Rights Agreement,
provided further that BT (A) shall remain liable for the performance by any such
subsidiary of its obligations under this Agreement, (B) shall act as agent for
any and all such subsidiaries in connection with the receipt or giving of any
and all notices under this Agreement and (C) shall not cause or permit any such
subsidiary to be other than a wholly owned direct or indirect subsidiary of BT,
(ii) a Transfer to the Company or to a wholly owned direct or indirect
subsidiary of the Company pursuant to a self-tender offer or otherwise, (iii) a
Transfer pursuant to a merger or consolidation in which the Company is a
constituent corporation and (iv) provided that the Company has waived its right
of first refusal set forth in Section 5.3 (except with respect to clause (y)(1)
below), a Transfer pursuant to (x) prior to the repeal of Section 10 of the
Certificate of Incorporation as in effect on the date hereof, a "Tender Offer"
(as defined in paragraph (g)(9) of such Section 10), which was not induced
directly or indirectly by BT or any of its Affiliates, conforming with the
provisions of paragraphs (d) and (e) of such Section 10 or meeting the
requirements set forth in the proviso to paragraph (g)(2)(i) of such Section 10
pursuant to which the Person consummating such Tender Offer would not be deemed
to be a "Substantial Stockholder" or (y) subsequent to the date of the repeal of
such Section 10, a bona fide third party tender offer or exchange offer, which
was not induced directly or indirectly by BT or any of its Affiliates, (1) that
is recommended by the Board of Directors of the Company, (2) in connection with
which a final non-appealable court order has declared the Rights Plan or any
successor plan thereto invalid and required the redemption of the Rights or (3)
except as contemplated by the preceding clause (2), commenced subsequent to the
date that the Rights Plan or any successor plan thereto is terminated or the
Rights redeemed and all conditions to such offer (other than with respect to the
number of shares tendered) shall have been satisfied or waived, provided that,
in the case of clause (2) or (3), the Board of Directors of BT, upon the advice
of legal counsel and financial advisors, reasonably believes in good faith,
taking into account the conditions of such offer, that such tender offer will
result in shares being purchased (without the extension of the scheduled
expiration date and without giving effect to shares that might be tendered by BT
or any of its Affiliates). The certificate or certificates representing any such
Equity transferred as provided above shall bear the legend or legends described
in Section 5.2 to the extent required by such Section 5.2.
(b) From and including the fourth anniversary of the Closing Date so long
as the Outstanding Interest is at least 5%, neither BT nor any of its Affiliates
will, directly or indirectly, transfer any Equity except for, and in each case
in compliance with all applicable Requirements of Law and the receipt of any
necessary governmental approvals, (i) a Transfer permitted pursuant to Section
5.1(a), (ii) a Transfer by BT or any of its Affiliates in bona fide open market
"brokers' transactions" as permitted by the provisions of Rule 144 under the
Securities Act or in a bona fide underwritten public offering pursuant to the
Registration Rights Agreement (a "Permitted Offering"), provided that in the
case of a Permitted Offering the Company has waived its right of first refusal
set forth in Section 5.3, and provided further that BT or its Affiliates, as the
case may be, will take all reasonable steps to assure that, in connection with
any such open market transactions or Permitted Offering, Transfers shall not be
made to any Person or "group" (as defined in Section 13(d) of the Exchange Act)
that would, following such Transfer, beneficially own more than 5% of the
outstanding Voting Securities (determined pursuant to the provisions of
Regulation 13D under the Exchange Act, except that a Person shall be deemed to
be the beneficial owner of a security if that Person has the right to acquire
beneficial ownership of such security without regard to the 60-day provision in
Rule 13d3(d)(1)(i)), provided, however, that BT shall be permitted to transfer
Equity, directly or indirectly, to a Person eligible to file a statement on
Schedule 13G under the Exchange Act pursuant to Rule 13d-1(b) under the Exchange
Act notwithstanding that such Person would, following such Transfer,
beneficially own more than 5% of the
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outstanding Voting Securities (as determined as provided above) if the failure
of BT to transfer, directly or indirectly, to such Person would adversely affect
such Permitted Offering in the reasonable good faith judgment of the managing
underwriter, (iii) a Transfer by BT pursuant to a dividend or other distribution
or rights offering to the shareholders of BT pursuant to which all shareholders
of BT have the right (except as may be otherwise prohibited by applicable law)
to receive their pro rata portion of the Equity owned by BT, provided that the
Company has waived its right of first refusal set forth in Section 5.3, (iv) a
Transfer by BT or any of its Affiliates in a privately negotiated transaction if
the transferee, or any "group" (as defined in Section 13(d) of the Exchange Act)
of which the transferee is a member, would not, following such Transfer,
beneficially own more than 5% of the outstanding Voting Securities (determined
pursuant to the provisions of Regulation 13D under the Exchange Act, except that
a Person shall be deemed to be the beneficial owner of a security if that Person
has the right to acquire beneficial ownership of such security without regard to
the 60-day provision in Rule 13d-3(d)(1)(i)), provided that the Company has
waived its right of first refusal set forth in Section 5.3 and (v) a Transfer by
BT or any of its Affiliates of all Equity of the Company then beneficially owned
by it (without giving effect to the proviso contained in Section 1.2) as a
single block in a privately negotiated transaction if BT or its Affiliate, as
the case may be, transfers such Equity without the benefits and burdens of this
Agreement (other than the benefits and burdens of the Registration Rights
Agreement, which may be assigned to, and assumed by, the transferee), provided
that the Company has waived its right of first refusal set forth in Section 5.3.
The certificate or certificates representing any such Equity transferred as
provided above (other than pursuant to clause (ii) in the preceding sentence)
shall bear the legend or legends described in Section 5.2 to the extent required
by such Section 5.2.
(c) No Transfer of any Equity in violation of this Section 5 shall be made
or recorded on the books of the Company and any such Transfer shall be void and
of no effect.
(d) Subject to the provisions of the Registration Rights Agreement, the
expenses incurred by the transferor and/or transferee in connection with any
Transfer permitted under this Section 5.1 shall be borne by the purchaser and/or
seller party to such sale.
5.2. Legends. (a) (i) Upon original issuance thereof (or, in the case of
the Preferred Shares, upon the exchange of certificates therefor), and until
such time as the same is no longer required hereunder or under the applicable
requirements of the Securities Act or applicable state securities or blue sky
laws, any certificate issued representing any of the Shares, the Preferred
Shares, the Conversion Shares or any Maintenance Shares (including, without
limitation, all certificates issued upon transfer or in exchange thereof or in
substitution therefor) shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY ARE SO
REGISTERED OR UNLESS AN EXEMPTION FROM REGISTRATION IS
AVAILABLE. SUCH SHARES MAY ONLY BE TRANSFERRED PURSUANT TO
THE PROVISIONS OF SECTION 5 OF A CERTAIN AGREEMENT DATED
AS OF AUGUST 4, 1993 BETWEEN BRITISH TELECOMMUNICATIONS
PLC AND MCI COMMUNICATIONS CORPORATION (THE "COMPANY"),
COPIES OF WHICH AGREEMENT ARE ON FILE AT THE PRINCIPAL
OFFICE OF THE COMPANY."
(b) The certificates representing the Shares, the Preferred Shares, the
Conversion Shares or any Maintenance Shares (including, without limitation, any
certificate issued upon transfer or in exchange thereof or in substitution
therefor) shall also bear any legend required under any applicable state
securities or blue sky laws.
(c) The Company may make a notation on its records or give instructions to
any transfer agents or registrars for the Preferred Stock, the Class A Common
Stock or the Common Stock in order to implement the restrictions on transfer set
forth in this Section 5.
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(d) BT shall submit any and all certificates representing Equity
beneficially owned by BT or any of its Affiliates to the Company so that the
legend or legends required by this Section 5.2 may be placed thereon. All Equity
beneficially owned by BT or any of its Affiliates that is neither a Share, a
Preferred Share, a Conversion Share or a Maintenance Share shall be treated in
the same manner as a "Maintenance Share" for purposes of this Section 5.2.
(e) In connection with any Transfer of Equity, the transferor shall provide
the Company with such customary certificates, opinions and other documents as
the Company may reasonably request to assure that such Transfer complies fully
with applicable securities and other laws.
(f) The Company shall not incur any liability for any delay in recognizing
any Transfer of Equity if the Company in good faith reasonably believes that
such Transfer may have been or would be in violation in any material respect of
the provisions of the Securities Act, applicable state securities or blue sky
laws, or this Agreement.
(g) After such time as any of the legends described by this Section 5.2 are
no longer required on any certificate or certificates representing the Shares,
the Preferred Shares, the Conversion Shares or any Maintenance Shares, upon the
request of BT, the Company will cause such certificate or certificates to be
exchanged for a certificate or certificates that do not bear such legend.
5.3. Right of First Refusal. (a) Prior to any Transfer pursuant to clause
(iv) of Section 5.1(a) (other than with respect to clause (y)(1) thereof), any
Permitted Offering described in clause (ii) of Section 5.1(b), any dividend or
other distribution or rights offering described in clause (iii) of Section
5.1(b) or any privately negotiated transaction described in either clause (iv)
or (v) of Section 5.1(b), BT shall deliver a written notice (the "Offer Notice")
to the Company, which Offer Notice shall specify (i) the number or amount and
description of the Equity to be sold or otherwise transferred, (ii) the Offer
Price (as defined below) and (iii) in the case of a privately negotiated
transaction, any other proposed terms of the Transfer, the identity of the
proposed transferee and, if the proposed transferee would (following such
Transfer) beneficially own more than 5% of the outstanding Voting Securities
(determined pursuant to the provisions of Regulation 13D under the Exchange Act,
except that a Person shall be deemed to be the beneficial owner of a security if
that Person has the right to acquire beneficial ownership of such security
without regard to the 60-day provision in Rule 13d-3(d)(1)(i)), any other
information, to BT's best knowledge after reasonable inquiries, with respect to
the proposed transferee or the proposed transaction that would be required to be
disclosed if a Schedule 13D under the Exchange Act were to be filed on behalf of
such proposed transferee. The Offer Notice shall constitute an irrevocable offer
to the Company or its designee, for the period of time described below, to
purchase such securities upon the same terms specified in the Offer Notice,
subject to Section 5.3(c). BT shall deliver the Offer Notice either with respect
to a bona fide specific transaction on the specified terms or with respect to
its intention to consummate a Permitted Offering, provided that, if applicable,
such Offer Notice in connection with a privately negotiated transaction
described in clause (v) of Section 5.1(b) shall, in order to be valid hereunder,
have been preceded by the notice required by Section 5.3(b). For purposes of
this Section 5.3, "Offer Price" shall be defined to mean on a per share or other
amount of Equity basis (i) in the case of a third party tender offer or exchange
offer, the tender offer or exchange offer price per share taking into account
any provisions thereof with respect to proration and any proposed second step or
"backend" transaction, (ii) in the case of a Permitted Offering or a dividend or
other distribution or rights offering to the shareholders of BT, the Current
Market Value per share or other amount of Equity as of the date that the
election notice by the Company hereinafter described is delivered, less, in the
case of a Permitted Offering, the cost and expenses, including underwriting
commissions, reasonably expected to be incurred by BT and any of its Affiliates
in connection with such Permitted Offering on a per share or other amount of
Equity basis and (iii) in the case of a privately negotiated transaction, the
proposed sales price per share or other amount of Equity. The Company may elect
to purchase all, but not less than all (except in the case of a Permitted
Offering, in which case the Company may elect to purchase all or any portion),
of the securities at the Offer Price and upon the terms and conditions specified
in the Offer Notice, provided that, if the Company elects to purchase less than
all of the offered securities in connection with a Permitted Offering, the
number of shares or other amount of such offered securities that the Company has
elected to purchase shall be subject to a reduction (determined by the managing
underwriter after consultation
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with a financial advisor selected by BT) to the extent the managing underwriter
(after consultation with BT's financial advisor) determines that the full number
of shares or other amount of such offered securities that the Company has
elected to purchase would so reduce the number of shares or other amount of
Equity to be sold pursuant to the Permitted Offering so as to have an adverse
effect on such offering as contemplated by BT (including the price at which BT
proposes to sell such securities), provided further that if the managing
underwriter determines that the number of shares or other amount of such offered
securities that the Company has elected to purchase hereunder should be reduced
in accordance with the criteria set forth in the preceding proviso in this
sentence, then the Company shall be given the opportunity to make a further
election either (i) to purchase the number of shares or other amount of such
offered securities as so reduced (or, at the Company's sole option, a lesser
number of shares or other amount of such offered securities), (ii) to purchase
all of such offered securities or (iii) to withdraw its earlier election and to
be released from any obligation to purchase any of such offered securities,
provided that such election shall be made within five Business Days of notice to
the Company of the managing underwriter's determination. If the Company elects
to purchase the offered securities, it shall give notice to BT within 60 days of
its receipt of the Offer Notice (or (A) in the case of a third party tender
offer or exchange offer, not later than three Business Days prior to the
expiration date of such offer, provided that all conditions to such offer (other
than with respect to the number of shares tendered) shall have been satisfied or
waived and the Offer Notice shall have been provided at least ten Business Days
prior to the expiration date of such offer or (B) in the case of a privately
negotiated transaction described in clause (v) of Section 5.1(b), within a
period of 120 days) of its election, which shall constitute a binding
obligation, subject to standard terms and conditions for a stock purchase
contract between an issuer and a significant stockholder, to purchase the
offered securities, which notice shall include the date set for the closing of
such purchase, which date shall be no later than 90 days following the delivery
of such election notice. Notwithstanding the foregoing, such time periods shall
not be deemed to commence with respect to, and the Company shall not be
obligated to respond to, any purported notice that does not comply in all
material respects with the requirements of this Section 5.3(a), which purported
notice shall not be deemed to be an Offer Notice for purposes of this Agreement
and shall be null and void under this Agreement, provided that if such purported
notice is actually received by the Company and the Company does not within five
Business Days of such receipt notify BT that such purported notice does not
comply in all material respects with such requirements, such purported notice
shall be deemed not to be defective in any material respect with regard to such
requirements. The Company may assign its rights to purchase under this Section
5.3 to any Person. If the Company does not respond to the Offer Notice within
the required response time period or elects not to purchase the offered
securities, BT or its Affiliate, as the case may be, shall be free to complete
the proposed Transfer (to the same proposed transferee, in the case of privately
negotiated transaction) on terms no less favorable to BT or its Affiliate, as
the case may be, than those set forth in the Offer Notice, provided that (x)
such Transfer is closed within 90 days of the latest of (A) the expiration of
the foregoing required response time period, or (B) the receipt by BT of the
foregoing election notice by the Company, or, in the case of a Permitted
Offering, within 60 days of the declaration by the SEC of the effectiveness of a
registration statement filed with the SEC pursuant to the Registration Rights
Agreement and (y) the price at which the securities are transferred must be
equal to or higher than the Offer Price (except in the case of a Permitted
Offering, in which case the price at which the securities are sold may be equal
to, higher than or less than the Offer Price), provided, however, that such
periods within which such Transfer must be closed shall be extended to the
extent necessary to obtain required governmental approvals and BT shall use its
best efforts to obtain such approvals, provided further that the terms and
conditions of the Transfer other than the financial terms thereof (and, in the
case of a privately negotiated transaction, other than the identity of the
proposed transferee) may be varied in non-material respects from those set forth
in the Offer Notice if BT gives notice to the Company of the nature of such
variations at least five Business Days prior to the consummation of the
Transfer, provided that compliance with such five Business Day period shall not
operate to terminate any of BT's rights under this Section 5.3.
(b) Notwithstanding anything to the contrary contained in Section 5.3(a),
in the case of a privately negotiated transaction described in clause (v) of
Section 5.1(b), BT shall provide the Company with at least two months written
notice (measured from the date of the most recent such notice) prior to the
delivery of the Offer Notice with respect thereto of BT's bona fide intention to
undertake such a transaction (with such
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additional information as BT can reasonably provide as to the type of sale and
such information as would otherwise be required under clause (iii) of the first
sentence of Section 5.3(a) to the extent and when known), provided that BT may
not provide more than one such advance notice in any two-month period. If the
Company waives or does not exercise timely its right of first refusal in
connection with such a transaction, the Board of Directors of the Company shall
take such necessary actions in relation to the Rights Plan to permit the
consummation of such transaction by BT or its Affiliate, as the case may be, so
as to avoid triggering the Rights Plan. In connection with such transaction, BT
covenants and agrees (i) if the Company so requests, to cooperate with the
Company in proposing and having the stockholders of the Company approve an
amendment to the Certificate of Incorporation, to be effective following the
consummation of such transaction, that eliminates cumulative voting for the
election of directors of the Company and (ii) to cause its designees on the
Board of Directors of the Company to resign immediately upon the closing of such
transaction. If cumulative voting has not been so eliminated, such transaction
shall not be effective as provided in Section 5.1(c) unless the transferee has
agreed for a period of at least ten years, on terms and conditions reasonably
satisfactory to the Company, to distribute all of the votes it is entitled to
cast in any election of directors of the Company (whether at an annual or
special meeting of stockholders or by written consent in lieu of a meeting or
otherwise and whether it is so entitled to cast such votes as a result of
ownership or other control of capital stock or by proxy or otherwise) equally
among the number of directors to be elected to the Board of Directors of the
Company (whether or not nominees of the Board of Directors).
(c) If (i) the consideration specified in the Offer Notice consists of, or
includes, consideration other than cash or a publicly traded security for which
a closing market price is published for each Business Day, or (ii) any property
other than Equity of the Company is proposed to be transferred in connection
with the transaction to which the Offer Notice relates, then the price payable
by the Company under this Section 5.3 for the Equity being transferred shall be
the Fair Market Value of the consideration in the case of clause (i) and the
Determination of the Independent Directors of the Fair Market Value of the
consideration determined to be properly allocable to the Equity in the case of
clause (ii). In the case of a Permitted Offering, BT shall provide the Company
with a good faith estimate of the costs and expenses, including underwriting
commissions, reasonably expected to be incurred by BT and any of its Affiliates
in connection with such Permitted Offering, provided, however, that, if the
Company in good faith disputes such estimate, the amount of the costs and
expenses, including underwriting commissions, reasonably expected to be incurred
by BT and any of its Affiliates in connection with such Permitted Offering shall
be established by a Determination of the Independent Directors, which
determination shall be conclusive on the parties. Notwithstanding anything to
the contrary contained in this Section 5.3, the time periods applicable to an
election by the Company to purchase the offered securities set forth in Section
5.3(a) shall not be deemed to commence until the Determinations of the
Independent Directors under this Section 5.3(c) have been made, provided that,
in the case of a third party tender offer or exchange offer, in no event shall
any such election be permitted later than 24 hours prior to the latest time by
which Equity must be tendered in order to be accepted pursuant to such offer or
to qualify for any proration applicable to such offer if all conditions to such
offer (other than the number of shares tendered) have been satisfied or waived.
The Company agrees to use its best efforts to cause the Determinations of the
Independent Directors under this Section 5.3(c) to be made as promptly as
practicable but in no event later than 15 Business Days after the receipt by the
Company of the Offer Notice.
5.4. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. The provisions of this Section 5 shall apply, to the
full extent set forth herein with respect to the Equity of the Company, to any
and all Equity or other securities of the Company or any successor or assign of
the Company (whether by merger, consolidation, sale of assets or otherwise) that
may be issued in respect of, in exchange for, or in substitution of such Equity,
including, without limitation, in connection with any stock dividends, splits,
reverse splits, combinations, reclassifications, recapitalizations, mergers,
consolidations and the like occurring after the date hereof.
5.5. Registration Rights. At or prior to the Closing, the Company and BT
shall enter into the agreement (the "Registration Rights Agreement") providing
for registration rights with respect to shares of Common Stock issued or
issuable upon the conversion of any shares of Class A Common Stock and, to the
extent necessary, certain other shares of Common Stock owned by BT to the extent
provided under such agreement, substantially in the form attached hereto as
Exhibit F. The registration rights provided to BT
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under the Registration Rights Agreement shall not be transferrable to any Person
other than a transferee to which BT has transferred Equity pursuant to either
(A) clause (i) of the first sentence of Section 5.1(a) or (B) clause (iv) of the
first sentence of Section 5.1(b). Reasonably promptly after the date hereof, the
Company and BT shall enter into a registration rights agreement with respect to
shares of Common Stock issued or issuable upon the conversion of the Preferred
Shares or the Conversion Shares, as the case may be, on mutually agreeable terms
and conditions based substantially on the form attached hereto as Exhibit F,
provided that BT shall only be entitled to one demand registration thereunder.
SECTION 6. EQUITY PURCHASE RIGHTS
6.1. Voting Equity Purchase Rights. (a) Subject to Section 6.2(d), from
the Closing Date and for so long as the Outstanding Interest is at least 10%, if
the Company issues or proposes to issue for cash or any other consideration
(excluding (i) pursuant to the terms of presently outstanding Preferred Stock,
(ii) grants of any options or any other rights to acquire Voting Securities
pursuant to Employee Stock Plans, (iii) upon the exercise or exchange of any
Rights, (iv) issuances of shares of Common Stock upon the conversion or exercise
of any options, warrants, rights or other securities convertible into or
exercisable for Common Stock that are outstanding as of the Closing Date to the
extent that an equal number of outstanding shares of Common Stock are purchased
by the Company in accordance with Section 6.1(c), (v) upon the conversion or
exercise of any options, warrants, rights or other securities convertible into
or exercisable for Voting Securities the issuance of which was subject to the
provisions of this Section 6.1, (vi) in a Small Offering and (vii) the
reissuance of Voting Securities purchased by the Company subsequent to the
Closing Date) any Voting Equity, BT shall have the right (to the extent
permitted by applicable Requirements of Law, and exercisable in whole or in part
as set forth in this Section 6.1) to acquire from the Company a number of shares
or other amount of such Voting Equity, subject to Section 6.1(b), equal to the
sum of (A) the result of (1) the Outstanding Interest prior to giving effect to
the consummation of such issuance and any acquisition by BT pursuant hereto
times the number of shares or other amount of such Voting Equity issued or to be
issued to Persons other than BT or any of its Affiliates, divided by (2) one
minus the Outstanding Interest, plus (B) if applicable, the number of shares or
other amount of Voting Equity described in Section 6.1(d)(v). Unless the Company
has elected to repurchase outstanding shares of Common Stock in accordance with
the provisions of Section 6.1(c), (i) the Company shall give written notice to
BT of any issuance or proposed issuance of Voting Equity in respect of which BT
is entitled to purchase rights under this Section 6.1 no later than the date of
any such issuance, which notice shall set forth the terms and conditions of such
issuance, and (ii) BT shall, if it elects to acquire any Voting Equity as
provided in this Section 6.1, give notice to the Company of its irrevocable
commitment to purchase such Voting Equity (including, without limitation, the
Voting Equity described in clause (B) in the preceding sentence) as promptly as
reasonably practicable but in no event more than 15 Business Days following such
written notice to BT, with such acquisition to be consummated (except as
hereinafter provided) within 30 days of such exercise (but not in any event
prior to the issuance by the Company of the Voting Equity that gave rise to BT's
purchase right hereunder), at a price and on other terms and conditions equal to
the price paid and the other terms and conditions pertaining to the other
issuances of Voting Equity (but if BT purchases such Voting Equity on a date
later than 15 days after the consummation of such other issuances (whether
because of a delay in obtaining required governmental approvals or otherwise),
together with interest at the Interest Rate as of the date of such other
issuances compounded annually from the date that is 15 days after the date of
the consummation of such other issuances to the date of BT's purchase), except
as otherwise provided in this Section 6.1. If the consummation of BT's
acquisition of Voting Equity pursuant to this Section 6.1(a) shall not have
occurred within 30 days of BT's exercise of its purchase right hereunder (or as
of such later date that the securities that gave rise to BT's purchase right are
issued by the Company) as provided in the preceding sentence (other than due to
a good faith delay in obtaining required government approvals, a temporary
injunction enjoining BT's purchase of such Voting Equity or other delays not due
to BT's bad faith or conditions within BT's control), then the Company's
obligation to issue and sell such Voting Equity to BT under this Section 6 shall
terminate without further liability.
(b) So long as any shares of Class A Common Stock remain outstanding, with
respect to that portion of the Outstanding Interest represented by shares of
Class A Common Stock (or other Equity that is convertible
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into, or otherwise having the right to acquire, shares of Class A Common Stock)
beneficially owned by BT, (i) if the Voting Equity issued or proposed to be
issued in respect of which BT is entitled to a purchase right under this Section
6.1 consists of shares of Common Stock, BT's right to acquire Voting Equity
under Section 6.1(a) shall be the right to acquire the number of shares of Class
A Common Stock determined in all other respects in accordance with the
provisions of Section 6.1(a) (except to the extent subject to clause (ii) of
this sentence), (ii) if the Voting Equity issued or proposed to be issued in
respect of which BT is entitled to a purchase right under this Section 6.1
consists of securities of the Company convertible into shares of Common Stock or
options, warrants or other rights to acquire shares of Common Stock
(collectively, "Option Securities"), BT's right to acquire Voting Equity under
Section 6.1(a) shall be the right to acquire Voting Equity convertible into
shares of Class A Common Stock or options, warrants or other rights to acquire
shares of Class A Common Stock, in each case upon the same terms as the Option
Securities issued or proposed to be issued by the Company and otherwise
containing the same terms as such Option Securities and (iii) if the Voting
Equity issued or proposed to be issued in respect of which BT is entitled to a
purchase right under this Section 6.1 consists of Voting Securities other than
shares of Common Stock (whether or not convertible into shares of Common Stock),
BT's right to acquire Voting Equity under Section 6.1(a) shall be the right to
acquire the number of shares or other amount (determined in accordance with the
provisions of Section 6.1(a)) of a separate series of such Voting Securities,
which series shall have the right (together with the Class A Common Stock) to
elect directors of the Company as set forth in the Certificate of Amendment with
respect to the Class A Common Stock, voting together with the Class A Common
Stock as a single class.
(c) (i) For purposes of determining the number of Common Shares that BT
otherwise has the right to acquire in accordance with this Section 6.1 in
connection with the issuance by the Company of shares of Common Stock upon the
conversion or exercise of any options, warrants, rights or other securities
convertible into or exercisable for shares of Common Stock that are outstanding
as of the Closing Date, the number of shares of Common Stock deemed issued by
the Company pursuant to such conversion or exercise shall be reduced, on a share
for share basis, to the extent that the Company elects to purchase a number of
outstanding shares of Common Stock through open market purchases or otherwise up
to the number of shares of Common Stock issued.
(ii) All repurchases of outstanding shares of Common Stock pursuant to this
Section 6.1(c) shall be consummated within 90 days after the time that BT would
otherwise be entitled to purchase rights under this Section 6.1 with respect to
the shares of Common Stock to which such repurchases relate. To the extent that
the Company has not consummated any such repurchases within such 90-day period,
BT shall be entitled to a purchase right under this Section 6.1 as of the
expiration of such time period with respect to the number of shares of Common
Stock that were not so repurchased within such period, and the Company shall
give written notice to BT promptly after the expiration of such 90-day period,
which notice shall state the number of shares of Common Stock that were not
repurchased within such time period and include the terms and conditions of the
issuance of Voting Equity in respect of which BT is then entitled to purchase
rights under this Section 6.1 as otherwise provided under this Section 6.1.
(d) Notwithstanding the foregoing:
(i) The purchase price of any Common Shares by BT pursuant to this
Section 6.1 in connection with any issuance of shares of Common Stock after
the Closing upon the exercise or conversion of options, warrants, rights or
other securities that were outstanding on the Closing Date shall be the per
share equivalent to the Current Market Value of the Common Shares as of the
date of BT's purchase of such Common Shares, except as otherwise provided
in Section 6.1(d)(ii);
(ii) The purchase price of any Voting Securities acquired by BT
pursuant to this Section 6.1 after the Closing Date in connection with any
issuance of Voting Securities upon the exercise of options or any other
Voting Securities or rights to acquire Voting Securities granted or issued
pursuant to Employee Stock Plans shall be the per share equivalent to the
Current Market Value of the Voting Equity so granted or issued as of the
end of the calendar quarter that gives rise to the exercisability of BT's
purchase right under Section 6.1(d)(iv);
(iii) If the Company issues or proposes to issue any Voting Equity in
respect of which BT is entitled to a purchase right under this Section 6.1
for consideration other than cash (or partly for cash and partly
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for consideration other than cash), the purchase price of any Voting Equity
by BT in connection with its purchase right with respect thereto pursuant
to this Section 6.1 shall be the cash price per share or other amount
equivalent to the value per share or other amount of the consideration
obtained or to be obtained in the issuances of such Voting Equity
established by a Determination of the Independent Directors, which
determination shall be conclusive on the parties;
(iv) BT's right to purchase Voting Equity pursuant to this Section 6.1
in connection with any issuance of Voting Securities upon the exercise of
options or any other Voting Securities or rights to acquire Voting
Securities granted or issued pursuant to Employee Stock Plans (whether
granted or issued before, on or after the Closing Date) (the "Employee
Shares") shall only be exercisable within 45 days (or such longer period as
may be necessary to obtain required governmental approvals) after the end
of each calendar quarter in which the aggregate number of Employee Shares
issued (aggregated together with Employee Shares issued in preceding
calendar quarters that have not yet given rise to the exercisability of
BT's purchase right under this Section 6.1(d)(iv)) was at least 1% of the
total outstanding Voting Securities, at which time BT shall be entitled to
acquire a number of shares or other amount of Voting Equity in respect of
all such issuances of Employee Shares, and the Company shall advise BT in
writing of the number of Employee Shares issued during each calendar
quarter no later than 30 days after the end of such calendar quarter;
(v) If there have been issuances of Voting Equity in respect of which
BT has a purchase right under this Section 6.1 in Small Offerings as to
which BT's rights to acquire Voting Equity hereunder have not yet become
exercisable (the "Small Offering Shares"), then, as of and in connection
with the immediately following issuance of Voting Equity of the same class
that is subject to the purchase rights of this Section 6.1, BT shall also
have a right to acquire (on the same terms and conditions applicable herein
to such issuance, including, without limitation, price) additional shares
or other amounts of a class of Voting Equity equal to the number of shares
or other amounts BT would have been entitled to acquire at the time or
times of issuance of the Small Offering Shares but for the inapplicability
of its purchase rights to such issuances; and
(vi) To the extent that, after BT's election to acquire Voting Equity
pursuant to its purchase right under Section 6.1(a), the number of shares
or other amount of Voting Equity to be issued to Persons other than BT and
any of its Affiliates that gave rise to BT's purchase right under this
Section 6 shall be reduced (whether at the discretion of the Company or
otherwise), then the number of shares or other amount of Voting Equity that
BT has the right to acquire under Section 6.1(a) shall be reduced pro rata
and BT's election shall be deemed to have been its irrevocable commitment
to purchase such reduced number of shares or other amount of such Voting
Equity.
6.2. Limitations. (a) Notwithstanding anything to the contrary contained
in this Section 6, BT shall not be entitled to purchase any securities pursuant
to Section 6.1(i) unless and until the Company actually issues the securities
that gave rise to BT's purchase right under Section 6.1 (and the Company may in
its sole discretion elect at any time to abandon any such issuance) or (ii) in
connection with any pro rata stock split, stock dividend or other combination or
reclassification of any capital stock of the Company.
(b) Notwithstanding anything to the contrary contained in this Section 6,
BT shall not be entitled to purchase any securities pursuant to Section 6.1 in
connection with the issuance for consideration other than cash (or partly for
cash and partly for consideration other than cash) of a number of shares or
other amounts of Voting Equity representing less than 1% of the total number of
shares of capital stock of the Company outstanding as of the date of such
issuance (a "Small Offering"), except as otherwise provided in Section
6.1(d)(v), unless the Company elects to otherwise provide BT with Voting Equity
purchase rights in connection therewith on the terms and conditions set forth in
Section 6.1(a).
(c) If at any time, because of Foreign Ownership Restrictions, BT is not
permitted to exercise or enforce any purchase right under Section 6.1, then BT
shall be entitled to exercise or enforce any such purchase right at such time
that such exercise or enforcement would not breach any then existing Foreign
Ownership Restrictions.
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(d) Notwithstanding anything to the contrary contained in this Section 6,
in the event that the percentage of the outstanding Voting Securities
beneficially owned by BT and its Affiliates exceeds the higher of 20% or the
percentage of the outstanding Voting Securities that BT beneficially owned
immediately following the Closing, then BT shall only be entitled to purchase
rights under Section 6.1 to the extent necessary to maintain such higher
percentage, provided that in calculating such entitlement any issuance of Voting
Equity that gives rise to purchase rights under Section 6.1 that is convertible
into or exchangeable for Voting Securities shall be assumed to be so converted
or exchanged.
6.3. Adjustments. Notwithstanding anything to the contrary contained in
this Section 6, upon any purchase of Voting Equity by BT pursuant to Section 6.1
on a later date than the issuance of securities that gave rise to BT's purchase
right under Section 6.1, (x) the purchase price shall be adjusted by subtracting
therefrom the Fair Market Value (as established by a Determination of the
Independent Directors) of any dividend or distribution received in respect of
such Voting Equity after the date of such issuance and prior to the purchase by
BT hereunder, (y) the purchase price and number of shares or amount to be
purchased shall be adjusted to reflect any stock split, stock dividend, or other
combination or reclassification of the Company's capital stock during such time
and (z) BT shall be entitled to exercise any rights to purchase additional
Voting Equity (other than the Rights) available to all holders of Voting Equity
proportionately ("distributed rights") that it would have been entitled to
exercise if it had been the owner of the Voting Equity purchased by BT hereunder
on the record date for the distribution of such distributed rights, unless BT
shall have failed to irrevocably commit to exercise such distributed rights on
the last day for the exercise thereof in accordance with their terms or, if
earlier, the date of the purchase by BT hereunder, at the stated exercise price
thereof together with interest thereon at the Interest Rate as of the last date
that such distributed rights would have been exercisable but for the provisions
of this clause (z), compounded annually for the period, if any, from the date 30
days after the last day that such distributed rights would have been exercisable
but for the provisions of this clause (z) to the date of exercise.
6.4. Other Permitted Purchases. BT and its Affiliates shall not purchase
additional Equity (whether from the Company pursuant to this Agreement or
otherwise) if the aggregate percentage of the outstanding capital stock of the
Company represented by all shares of such capital stock Owned of Record or Voted
by BT and its Affiliates, together with all other capital stock Owned of Record
or Voted by Non-U.S. Persons or Entities as set forth in the survey conducted in
connection with the Non-U.S. Ownership Certificate (or as otherwise known to
BT), after giving effect to such purchase by BT or any of its Affiliates, would
exceed the then existing Foreign Ownership Limitation, provided that BT shall be
entitled to purchase additional Equity at such time that such purchase would not
breach any then existing Foreign Ownership Restrictions or the provisions of
this Agreement and, if BT is precluded hereby from purchasing additional Equity
at such time that the Voting Securities beneficially owned by BT and its
Affiliates represent in the aggregate less than 20% of all Voting Securities
outstanding, then the Company shall consult in good faith with BT to consider
reasonable alternatives to permit BT to purchase additional Equity up to 20% of
all Voting Securities outstanding. BT shall provide the Company with written
notice not less than two Business Days prior to any purchase of Equity and the
Company, if it responds to BT within two Business Days of receiving such notice,
shall have the right to sell such Equity to BT directly before BT or any of its
Affiliates purchases such Equity in the market or otherwise, at the price to be
paid by BT or any of its Affiliates therefor in the market or otherwise.
SECTION 7. STANDSTILL
7.1. Restriction on Acquisition by BT of Company Securities. BT covenants
and agrees with the Company that, from the date hereof until the tenth
anniversary of the Closing Date, neither BT nor any of its Affiliates will
acquire directly or indirectly the beneficial ownership of any additional Equity
of the Company such that the Voting Securities beneficially owned by BT and its
Affiliates would represent in the aggregate more than 20% of all Voting
Securities outstanding unless, and then only to the extent permitted by the then
existing Foreign Ownership Limitation and any other Requirements of Law (other
than such Requirements of Law the violation of which would not have an adverse
effect on the Company), (i) there is a judicial determination (other than in an
ex parte proceeding) that the Company has materially breached its obligations
under either Section 9.4(a) (other than the Company's failure to have given
timely any required
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notice thereunder, unless BT has been materially adversely affected by such
failure) or Section 9.5, provided further that such restriction on acquisitions
shall be reinstated (at the higher of (A) 20% or (B) one-tenth of one percent
more than the percentage of all Voting Securities outstanding represented by
Voting Securities beneficially owned by BT and its Affiliates at the time of
such reinstatement) if such judicial determination is subsequently reversed, or
(ii) there is a final non-appealable court order, judgment or decree declaring
the Rights Plan or any successor plan thereto invalid and either (x) in
connection therewith a third party not affiliated with BT or any of its
Affiliates had commenced a bona fide tender offer or exchange offer, which was
not induced directly or indirectly by BT or any of its Affiliates, for at least
20% of the outstanding shares of capital stock of the Company or (y) a third
party not affiliated with BT or any of its Affiliates shall have acquired
beneficial ownership of at least 10% of the outstanding shares of capital stock
of the Company, which acquisition was not induced directly or indirectly by BT
or any of its Affiliates, and shall have filed a Schedule 13D under the Exchange
Act with the SEC that sets forth a present intent that is other than passive in
all material respects, provided that an acquisition for investment purposes only
shall be deemed passive, provided further that, if the foregoing tender offer or
exchange offer referred to in clause (x) shall have been terminated without BT
having made a bona fide Acquisition Proposal or if the foregoing third party
referred to in clause (y) shall have reduced its beneficial ownership of the
outstanding shares of capital stock of the Company to below 10% without BT
having made a bona fide Acquisition Proposal, then the restrictions on
acquisition set forth in this Section 7.1 shall be reinstated at the higher of
(A) 20% or (B) one-tenth of one percent more than the percentage of all Voting
Securities outstanding represented by Voting Securities beneficially owned by BT
and its Affiliates at the time of such reinstatement. BT shall provide the
Company with ten days' prior written notice of any alleged violation by the
Company of its obligations under Section 9.4(a) or Section 9.5, specifying in
reasonable detail the nature of BT's objections, and provide the Company an
opportunity to cure such objections within such ten-day period prior to seeking
the judicial determination described in clause (i) of the preceding sentence,
provided that such violation is reasonably capable of being cured. If, after
having followed such procedures, BT has applied for such a judicial
determination, the Company shall reasonably cooperate with BT in seeking an
expedited judicial resolution of the question of whether the Company has
committed a violation described in such clause (i). Neither BT nor any of its
Affiliates shall be deemed in violation of the foregoing 20% (or such higher
percentage) limitation if their beneficial ownership of Voting Securities
exceeds such limitation solely as a result of (x) an acquisition of Voting
Securities by the Company that, by reducing the number of Voting Securities
outstanding, increases the proportionate number of Voting Securities
beneficially owned by BT and its Affiliates in the aggregate to more than 20%
(or such higher percentage) of the Voting Securities outstanding or (y)
purchases of Voting Equity by BT under Section 2 or 6 or pursuant to the
exercise or conversion of such Voting Equity, provided that in each case such
limitation shall be deemed crossed if BT or any of its Affiliates thereafter
becomes the beneficial owner of any additional Voting Securities (other than
pursuant to purchases of Voting Equity by BT under Section 2 or 6) unless upon
the consummation of the acquisition of such additional Voting Securities BT and
its Affiliates do not beneficially own in the aggregate more than 20% (or such
higher percentage) of the Voting Securities outstanding.
7.2. Restrictions on Permitted Acquisition. Notwithstanding anything to
the contrary contained in Section 7.1, (a) if the restrictions on acquisition by
BT and its Affiliates of additional Equity set forth in Section 7.1 are
terminated pursuant to clause (ii) of the first sentence of Section 7.1 and the
third party referred to in such clause (ii) has commenced a tender offer or
exchange offer for all of the outstanding Common Shares, then during the
pendency of such tender offer or exchange offer BT and its Affiliates may only
acquire any additional shares of Common Stock pursuant to a tender offer or
exchange offer for all of the outstanding shares of Common Stock, and (b) if the
Rights Plan (or the successor plan thereto) has been terminated or the Rights
redeemed other than as contemplated in clause (ii)(x) of the first sentence of
Section 7.1, then, following the commencement of a bona fide tender offer or
exchange offer by a third party for the higher of 20% of the outstanding shares
of capital stock of the Company or the then existing Outstanding Voting
Interest, the obligations of BT and its Affiliates under Section 7.1 shall
terminate upon the earlier of (A) such time as the Board of Directors of the
Company resolves that a sale of the Company would be in the best interests of
the stockholders of the Company or (B) such time as the Independent Directors,
pursuant to a Determination of the Independent Directors, upon the advice of
outside legal counsel and
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independent financial advisors, reasonably conclude in good faith, taking into
account the conditions of such tender offer or exchange offer, that such offer
will result in Common Shares being purchased or exchanged, as the case may be
(without the extension of the scheduled expiration date and without giving
effect to Common Shares that might be tendered by BT or any of its Affiliates),
provided that the Independent Directors will undertake to consider such matter
promptly following the request of BT.
7.3. Other Restrictions. From the Closing Date until the tenth
anniversary of the Closing Date, neither BT nor any of its Affiliates shall seek
to have the Company waive, amend or modify any of the restrictions contained in
this Agreement, the Certificate of Incorporation or the by-laws of the Company,
make any Acquisition Proposal or proposal with respect to a Business
Combination, take any initiatives involving the Company that would otherwise
require the Company to make a public announcement, make any public comment or
proposal with respect to any Acquisition Proposal, become a member of a "group"
within the meaning of Section 13(d) of the Exchange Act (other than a group
composed solely of BT and any of its wholly owned direct or indirect
subsidiaries), enter into any discussions, negotiations, arrangements or
understandings with any third party with respect to any of the foregoing or
otherwise seek to control or influence the Company, in all cases except as
expressly contemplated by this Agreement, including, without limitation, in
connection with a permitted transfer of the Equity held by BT or any of its
Affiliates or in connection with BT's participation in the auction procedures
set forth in Section 9.5, provided that, in the event the shares of Class A
Common Stock have automatically converted into shares of Common Stock pursuant
to section 4(b)(9)(ii) of the Certificate of Incorporation (as amended by the
Certificate of Amendment) by reason of the occurrence of an event described in
either section 4(b)(11)(vi)(D) or 4(b)(11)(vi)(F) of the Certificate of
Incorporation (as amended by the Certificate of Amendment), then BT shall
thereafter be entitled to make a tender offer or exchange offer for all the
outstanding shares of Common Stock. The obligations of BT and its Affiliates
under this Section 7.3 shall terminate at such time as the obligations of BT and
its Affiliates under Section 7.1 terminate.
7.4. Post-Standstill Period. (a) Following the expiration of the period
ending on the tenth anniversary of the Closing Date (unless the restrictions set
forth in Section 7.1 have been terminated and not reinstated prior to the tenth
anniversary of the Closing Date due to the occurrence of one of the events
described in the first sentence of Section 7.1), then for as long as the
Outstanding Interest is at least 10% BT covenants and agrees with the Company
that:
(i) Neither BT nor any of its Affiliates shall take any action or
cause any action to be taken that could result in less than a majority of
the directors of the Company being Independent Directors;
(ii) Neither BT nor any of its Affiliates shall acquire the beneficial
ownership of any Equity to the extent that, after such acquisition, BT and
its Affiliates would beneficially own Voting Securities representing in
excess of 35% of all Voting Securities outstanding (or 30% if Section
310(b) of the Communications Act has been repealed or otherwise would not
in the reasonable judgment of BT affect in any material respect the
consummation of an Acquisition Proposal by BT), except (A) pursuant to a
Business Combination that has been approved pursuant to a Determination of
the Independent Directors and by a majority of the stockholders other than
BT and its Affiliates, (B) pursuant to a tender offer or exchange offer
that has been recommended pursuant to a Determination of the Independent
Directors and accepted by a majority of the stockholders other than BT and
its Affiliates, provided that, in the event the shares of Class A Common
Stock have automatically converted into shares of Common Stock pursuant to
section 4(b)(9)(ii) of the Certificate of Incorporation (as amended by the
Certificate of Amendment) by reason of the occurrence of an event described
in either section 4(b)(11)(vi)(D) or 4(b)(11)(vi)(F) of the Certificate of
Incorporation (as amended by the Certificate of Amendment), then this
clause (B) shall be deemed satisfied if BT has consummated a tender offer
or exchange offer for all outstanding Voting Securities, (C) pursuant to a
transaction that occurs within one year of the date of termination of a
tender offer or exchange offer by BT or any of its Affiliates that
satisfied the requirements of clause (B), or (D) if prior to such
acquisition BT and its Affiliates own at least 90% of each class of the
outstanding capital stock of the Company, provided, that BT and its
Affiliates shall not be deemed to beneficially own Voting Securities in
excess of the applicable threshold percentage for purposes of this clause
(ii) if their beneficial ownership of Voting Securities exceeds the
applicable
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threshold solely as a result of an acquisition of Voting Securities by the
Company that, by reducing the number of Voting Securities outstanding,
increases the proportionate number of Voting Securities beneficially owned
by BT and its Affiliates to more than the applicable threshold, provided
that in each case such limitation shall be deemed crossed if BT or any of
its Affiliates thereafter becomes the beneficial owner of any additional
Voting Securities unless upon the consummation of the acquisition of
additional Voting Securities BT and its affiliates do not beneficially own
in the aggregate more than the applicable percentage.
(iii) Neither BT nor any of its Affiliates shall take any action that
could result in the Company, directly or indirectly, engaging in any of the
following actions without the approval of a majority of the Independent
Directors:
(A) The acquisition or redemption of capital stock of the Company
during any one-year period in excess of 1% of the shares of capital
stock outstanding at the beginning of such one-year period;
(B) The acquisition or redemption of any Equity beneficially owned
by BT and its Affiliates, other than as expressly permitted in this
Agreement;
(C) The issuance or transfer of any Equity to BT or any of its
Affiliates, other than as expressly permitted in this Agreement;
(D) A sale, lease, exchange, pledge, transfer or other disposition
(in one transaction or a series of transactions) in which BT or any of
its Affiliates has a material interest or a loan, advance, guarantee,
pledge or other arrangement in which BT or any of its Affiliates would
receive, directly or indirectly, a financial benefit, other than, in
each case, only to the extent of its proportionate interest as a
stockholder or to the extent expressly permitted in this Agreement;
(E) The redemption of the Rights; or
(F) Any amendment of, or waiver under, any agreement between BT or
any of its Affiliates, on the one hand, and the Company or any of its
Affiliates, on the other hand, including, without limitation, this
Agreement, or any amendment of the Certificate of Incorporation or the
by-laws of the Company.
The foregoing restrictions shall not apply, however, to the extent that the
Company engages in the actions described in clauses (A) through (C)
pursuant to a transaction in which all stockholders are participating in
proportion to their interests as stockholders.
(b) The obligations of BT, if any, set forth in clauses (i) and (ii) of
Section 7.4(a) shall terminate in the event that there is a final non-appealable
court order, judgment or decree declaring the Rights Plan or any successor plan
thereto invalid and either (x) in connection therewith a third party not
affiliated with BT or any of its Affiliates had commenced a bona fide tender
offer or exchange offer, which was not induced directly or indirectly by BT or
any of its Affiliates, for at least 30% of the outstanding shares of capital
stock of the Company (or 35% if Section 310(b) of the Communications Act has
been repealed or otherwise would not in the reasonable judgment of BT affect in
any material respect the consummation of an Acquisition Proposal by BT) or (y) a
third party not affiliated with BT or any of its Affiliates shall have acquired
beneficial ownership of at least 20% of the outstanding shares of capital stock
of the Company, which acquisition was not induced directly or indirectly by BT
or any of its Affiliates, and shall have filed a Schedule 13D under the Exchange
Act with the SEC that sets forth a present intent that is other than passive in
all material respects, provided that an acquisition for investment purposes only
shall be deemed passive, provided further that, if the foregoing tender offer or
exchange offer referred to in clause (x) shall have been terminated without BT
having made a bona fide Acquisition Proposal or if the foregoing third party
referred to in clause (y) shall have reduced its beneficial ownership of the
outstanding shares of capital stock to below 20%, then the provisions of clauses
(i) and (ii) of Section 7.4(a) shall be reinstated.
(c) Notwithstanding anything to the contrary contained in Section 7.4(a),
(a) if the obligations of BT set forth in clauses (i) and (ii) of Section
7.4(a), if any, shall terminate pursuant to clause (x) of the first sentence of
Section 7.4(b) and the third party referred to in such clause (x) has commenced
a tender offer or exchange offer for all of the outstanding Common Shares, then
during the pendency of such tender offer BT
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and its Affiliates may only acquire additional shares of Common Stock pursuant
to a tender offer or exchange offer for all of the outstanding shares of Common
Stock, and (b) if the Rights Plan (or the successor plan thereto) has been
terminated or the Rights redeemed other than as contemplated in clause (x) of
the first sentence of Section 7.4(b), then upon the commencement of a bona fide
tender offer or exchange offer by a third party not affiliated with BT or any of
its Affiliates, which was not induced directly or indirectly by BT or any of its
Affiliates, for at least 30% (or 35% if Section 310(b) of the Communications Act
has been repealed or otherwise would not in the reasonable judgment of BT affect
in any material respect the consummation of an Acquisition Proposal by BT) of
the outstanding shares of capital stock of the Company, the obligations of BT
set forth in clauses (i) and (ii) of Section 7.4(a) shall terminate following
the earlier of (A) such time as the Board of Directors of the Company resolves
that a sale of the Company would be in the best interests of the stockholders of
the Company or (B) such time as the Independent Directors, pursuant to a
Determination of the Independent Directors, upon the advice of outside legal
counsel and independent financial advisors, reasonably conclude in good faith,
taking into account the conditions of such tender offer or exchange offer, that
such offer will result in Common Shares being purchased or exchanged, as the
case may be (without the extension of the scheduled expiration date and without
giving effect to Common Shares that might be tendered by BT or any of its
Affiliates), provided that the Independent Directors will undertake to consider
such matter promptly following the request of BT.
SECTION 8. COVENANTS OF BT AND THE COMPANY
8.1. Antitrust Filings. The Company and BT agree to make all necessary
filings in connection with the Transactions under the HSR Act, the Fair Trading
Act 1973, the RTPA, the Merger Control Regulation or the provisions of Council
Regulation 17/62 as promptly as practicable after the date hereof and to use
their best efforts to furnish or cause to be furnished, as promptly as
practicable, all information and documents requested under each of such laws and
shall otherwise cooperate with the applicable Governmental Authority in order to
obtain any required regulatory approvals in as expeditious a manner as possible.
8.2. Compliance with Antitrust or Competition Laws, Exon-Florio and the
Communications Act. Each of the Company and BT shall use its best efforts to
resolve such objections, if any, as the Antitrust Division, the FTC, the EC
Commission, the Office of Fair Trading, the Secretary of State for Trade and
Industry, the Monopolies and Mergers Commission, CFIUS or the FCC may assert
with respect to this Agreement and the transactions contemplated herein under
applicable antitrust or competition laws, Exon-Florio or the Communications Act,
respectively. In the event that a suit is instituted by any Person or
Governmental Authority challenging this Agreement and the transactions
contemplated herein as violative of applicable antitrust or competition laws or
the Communications Act, each of the Company and BT shall use its best efforts to
resist or resolve such suit. Notwithstanding the foregoing, (i) in connection
with any such objections of, or suit instituted by, the Antitrust Division, the
FTC, the EC Commission, the Office of Fair Trading, the Secretary of State for
Trade and Industry or the Monopolies and Mergers Commission, or the FCC, neither
BT nor the Company shall be required to provide any undertakings or comply with
any condition that, in their respective reasonable opinion, would materially
diminish, taken as a whole, BT's or the Company's, respectively, rights or
protections (with respect to its investment, in the case of BT) under this
Agreement, the Certificate of Amendment and the By-Law Amendments or materially
and adversely affect their business taken as a whole, provided that the
protections provided to BT under Section 9.12(c) shall be deemed not to be
material to BT for purposes hereof and Section 11.3.
8.3. Public Announcements. BT and the Company will agree upon the timing
and content of the initial press release to be issued relating to the execution
of the definitive agreements with respect to the Transactions, and will not make
any public announcement thereof prior to reaching such agreement unless required
to do so by applicable Requirement of Law or the rules of the NASDAQ National
Market System. To the extent reasonably requested by either party, each party
will thereafter consult with and provide reasonable cooperation to the other in
connection with the issuance of further press releases or other public documents
describing the Transactions.
8.4. Further Assurances. Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with all
of the terms of this Agreement and the transactions contemplated hereby,
including, without
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limitation, making application as soon as practicable hereafter for all consents
and approvals required in connection with the Transactions and diligently
pursuing the receipt of such consents and approvals in good faith thereafter.
8.5. Cooperation. The Company and BT each agree to cooperate with the
other in the preparation and filing of all forms, notifications, reports and
information, if any, required or reasonably deemed advisable pursuant to any
Requirement of Law or the rules of the NASDAQ National Market System in
connection with the transactions contemplated herein and, subject to the
provisions of Section 8.2, to use their respective good faith efforts jointly to
agree on a method to overcome any objections by any Governmental Authority to
any such transactions. If the condition set forth in Section 12.7 cannot be
satisfied, the Company and BT each agree to consult in good faith with respect
to alternative agreements that would provide each of the parties with the rights
provided to such party herein and in the Certificate of Amendment and the By-Law
Amendments.
8.6. Exon-Florio. The Company and BT agree to file voluntary notification
under Exon-Florio and to use their best efforts to furnish or cause to be
furnished, as promptly as practicable, all information and documents necessary
for such voluntary notification and all further information and documents
requested pursuant to Exon-Florio.
8.7. Agreements With Respect to AAP, Clear and Belize. (a) Following the
date hereof, the Company and BT will negotiate in good faith with respect to,
and will use commercially reasonable efforts to enter into, agreements, on terms
mutually acceptable, pursuant to which BT (or an Affiliate thereof) will acquire
the equity interest of the Company (or an Affiliate thereof) in AAP
Telecommunications Pty Ltd, a corporation organized under the laws of Australia,
and the equity interest of the Company (or an Affiliate thereof) in Clear
Communications Limited, a corporation organized under the laws of New Zealand,
provided that the execution of such agreements shall not be a condition to the
Closing.
(b) Following the date hereof, the Company and BT will negotiate in good
faith with respect to, and will use commercially reasonably efforts to enter
into, an agreement, on terms mutually acceptable, pursuant to which the Company
(or an Affiliate thereof) will acquire the equity interest of BT (or an
Affiliate thereof) in Belize Telecommunications Limited, a corporation organized
under the laws of Belize, provided that the execution of such agreements shall
not be a condition to the Closing.
SECTION 9. COVENANTS OF THE COMPANY
9.1. Pre-Closing Covenants.
(a) Access to Information. From the date of this Agreement until the
Closing, the Company will, and will cause its Subsidiaries and its and their
directors, officers, employees and agents to, afford to BT and its advisors,
officers, employees and agents reasonable access at all reasonable times to its
officers, employees, agents, properties, books, records and contracts and will
furnish to BT and its advisors all financial, operating and other data and
information as BT or its advisors may reasonably request in connection with the
transactions contemplated herein, unless and to the extent that, in connection
with a federal government contract, an agency of the federal government or a
contractor requires the Company or any Subsidiary to restrict access to any
properties or information reasonably related to such contract on the basis of
applicable laws and regulations with respect to national security matters and
unless and to the extent that other Requirements of Law require the Company to
restrict access to any properties or information. BT will cause any information
received in connection with the Transactions to be held in confidence in
accordance with and subject to the terms of the Confidentiality Agreement
previously entered into between BT and the Company.
(b) Conduct of the Business. During the period from the date of this
Agreement to the Closing Date, the Company will, and will cause its Subsidiaries
to, conduct their respective businesses in the ordinary and normal course
thereof, except as otherwise contemplated or permitted by this Agreement, the
Newco Agreement, the BT North America Agreement or the other agreements
contemplated hereby and thereby, provided that any transaction that would not
require the consent or affirmative vote of the holders of Class A Common Stock,
voting separately as a class, following the Closing shall be deemed to be in the
ordinary course for purposes of this Agreement, provided, however, that,
notwithstanding the foregoing, the Company
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shall consult with BT in good faith prior to undertaking any action that could
reasonably be viewed as outside the ordinary course.
(c) No Shopping. From the date of this Agreement until the Closing Date,
the Company agrees that neither the Company nor any of its Subsidiaries nor any
of the respective officers and directors of the Company or any of its
Subsidiaries shall, and the Company shall direct and use its best efforts to
cause its employees, agents and representatives (including, without limitation,
any investment banker, attorney or accountant retained by the Company or any of
its Subsidiaries) not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making of any Acquisition Proposal or, except
to the extent legally required for the discharge by the Board of Directors of
the Company of its fiduciary duties, engage in any negotiations concerning or
provide any confidential information or data to, or have any discussions with,
any Person relating to an Acquisition Proposal, or otherwise facilitate any
effort or attempt to make or implement an Acquisition Proposal. The Company will
notify BT immediately if any such inquiries or proposals are received by, any
such information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, the Company, or if the Board of
Directors of the Company has undertaken to engage in any negotiations concerning
or provide any confidential information or data to, or have any discussions
with, any Person relating to an Acquisition Proposal.
(d) Stockholders' Meeting. (i) Subject to Section 9.1(d)(ii), as promptly
as reasonably practicable after the date hereof, the Company shall prepare and
file with the SEC pursuant to the Exchange Act and, as promptly as practicable
after the receipt of comments from the SEC staff with respect thereto and to any
required or appropriate amendments thereto, shall mail to the stockholders
entitled to vote thereon a proxy statement (as amended or supplemented, the
"Proxy Statement") in connection with the Stockholders' Meeting to consider
proposals (the "Proposals") concerning (x) the approval of this Agreement and
the transactions contemplated herein, including, without limitation, the
issuance and sale of the Shares, (y) the adoption of the Certificate of
Amendment (provided that, at the election of the Company, the Board of Directors
also may approve and submit to the stockholders of the Company a separate
amendment to the Certificate of Incorporation, to be effective immediately
following the Stockholders' Meeting and until the filing of the Certificate of
Amendment, containing a provision for redemption of the Common Stock, similar in
concept and objective to the Redemption Provision, to be applicable during such
interim period) and the approval of the adoption by the Board of Directors of
the Company of the By-Law Amendments and (z) the approval of the adoption by the
Board of Directors of the Company of the Rights Plan. The Proxy Statement shall
contain the recommendation of the Board of Directors of the Company that the
stockholders approve the Proposals, unless otherwise legally required for the
discharge by the Board of Directors of its fiduciary duties. The Company shall
notify BT promptly of the receipt by it of any comments from the SEC or its
staff and of any request by the SEC for amendments or supplements to the Proxy
Statement or for additional information and will supply BT with copies of all
correspondence between the Company and its representatives, on the one hand, and
the SEC or the members of its staff or any other governmental officials, on the
other hand, with respect to the Proxy Statement.
(ii) The Company will take, in accordance with applicable law, the
Certificate of Incorporation and its by-laws, all action necessary to convene as
soon as reasonably practicable a meeting of its stockholders entitled to vote
thereon to consider and vote upon the Proposals (the "Stockholders' Meeting").
(iii) The Proxy Statement, as of the date thereof and as of the date of the
Stockholders' Meeting, will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they will
be made, not misleading, provided, however, that the foregoing shall not apply
to any investment bank's fairness opinion included therein or to the extent that
any such untrue statement of a material fact or omission to state a material
fact was made by the Company in reliance upon and in conformity with written
information concerning BT furnished to the Company by BT specifically for use in
the Proxy Statement. The Proxy Statement shall not be filed, and no amendment or
supplement to the Proxy Statement will be made, by the Company without
consultation with BT and its counsel.
(iv) The Company shall promptly advise BT if the Board of Directors of the
Company determines to withdraw or modify in a manner adverse to BT its
recommendation to approve the Proposals.
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(e) Charter and By-Law Amendments. On or before the Closing Date,
following the approval of the Proposals by the stockholders of the Company at
the Stockholders' Meeting, the Company will cause the Certificate of Amendment,
substantially in the form of Exhibit A attached hereto, to be filed with the
Secretary of State of the State of Delaware, and the Board of Directors of the
Company will cause the amendments to the by-laws of the Company, substantially
in the form of Exhibit B attached hereto (the "By-Law Amendments"), and the
Rights Plan, substantially in the form of Exhibit C hereto, to be adopted;
provided, however, that nothing contained in this Agreement shall require such
Certificate of Amendment to be filed on behalf of or by the Company or such
amendments to the Bylaws or such Rights Plan to be adopted by the Board of
Directors of the Company prior to the time that all conditions set forth in
Sections 11 and 12 (other than those related to such filing or such adoptions)
have been satisfied or waived. The Company covenants and agrees that, on or
before the Closing Date, it shall not cause any amendment to be made to the
Certificate of Incorporation other than the amendments set forth in the
Certificate of the Amendment and the additional amendment described in clause
(y) of the first sentence of Section 9.1(d)(i) and the Board of Directors of the
Company shall not cause any amendments to be made to the by-laws of the Company
other than the By-Law Amendments, in either case without the prior consent of
BT.
(f) Observer. From the date of this Agreement until the Closing, the
Company agrees that BT shall be entitled to designate an observer to attend
meetings of the Board of Directors of the Company; provided, however, that such
observer shall be excluded from such meetings at all times during which the
Board of Directors is discussing or considering any of the Transactions or any
matter related thereto, any transaction competing with or in the alternative to
the Transactions, and any other matter for which the attendance of such observer
would not be in the best interests of the stockholders as determined by the
Chairman of the Board. The Company shall provide such observer with the same
notice of meetings of the Board of Directors of the Company as that provided to
directors.
(g) Issuances of Derivative Securities. The Company covenants and agrees
that from the date hereof until the Closing Date it will not issue any options,
warrants, rights or other securities convertible into or exercisable for shares
of Common Stock (other than (w) pursuant to the terms of the Preferred Stock,
(x) grants or issuances pursuant to Employee Stock Plans, (y) the reissuance of
Voting Securities purchased by the Company subsequent to the date hereof or (z)
pursuant to this Agreement) in excess of 10% of the aggregate number of shares
of Common Stock as of the date hereof, calculated after giving effect to any
such issuance.
9.2. Repurchases. If any shares of Common Stock are issued by the Company
between the date hereof and the Closing (other than shares of Common Stock
described in Section 2.1(b) issued pursuant to the exercise of options or other
rights to acquire Equity granted, issued or otherwise existing prior to the date
hereof pursuant to Employee Stock Plans or the reissuance of shares of Common
Stock purchased by the Company subsequent to the Closing Date), the Company
will, to the extent legally permissible, use its best efforts to repurchase a
number of shares of Common Stock equal to the number of such shares issued
between the date hereof and the Closing (to the extent that such issuances
exceed the number of shares of Common Stock otherwise repurchased during such
period) as soon as reasonably practicable following the Closing; provided, that
such repurchases shall be made only to the extent that the Company reasonably
believes that they will not have a material effect on the market price of the
Common Stock.
9.3. Access to Information. After the Closing and for so long as (i) the
Outstanding Interest is at least 10% and (ii) neither (x) any of the Newco
Triggering Events has occurred nor (y) the shares of Class A Common Stock shall
have automatically converted into shares of Common Stock pursuant to section
4(b)(9)(ii) of the Certificate of Incorporation (as amended by the Certificate
of Amendment) by reason of the occurrence of an event described in section
4(b)(11)(vi)(E) of the Certificate of Incorporation (as amended by the
Certificate of Amendment), the Company will permit representatives of BT at
their expense to visit and inspect all properties, books and records of the
Company and its subsidiaries and to discuss the affairs, finances and accounts
of the Company with the principal officers of the Company, its attorneys and
auditors, all at such reasonable times and as often as may reasonably be
requested in order to enable BT to reasonably monitor its investment in the
Company, and, to the extent applicable, to provide such other access and
information as may be reasonably required to enable BT to account for its
investment in the Company on
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the equity method and otherwise to comply with applicable requirements of U.S.
and U.K. securities laws, generally accepted accounting principles and
requirements of governmental authorities, subject to reasonable and appropriate
confidentiality agreements pursuant to which any such information received or
otherwise obtained shall be held in confidence and subject to the terms of any
confidentiality agreements with third parties to which the Company is subject,
unless and to the extent that, in connection with a federal government contract,
an agency of the federal government or a contractor requires the Company to
restrict access to any properties or information reasonably related to such
contract on the basis of applicable laws and regulations with respect to
national security matters and unless and to the extent that other Requirements
of Law require the Company to restrict access to any properties or information.
9.4. No Shopping. (a) From the Closing until the seventh anniversary of
the Closing Date so long as any shares of Class A Common Stock remain
outstanding, the Company agrees that neither the Company nor any of its
Subsidiaries nor any of the respective officers and directors of the Company or
any of its Subsidiaries shall, and the Company shall direct and use its best
efforts to cause its employees, agents and representatives (including, without
limitation, any investment banker, attorney or accountant retained by the
Company or any of its Subsidiaries) not to, initiate, solicit or encourage,
directly or indirectly, any inquiries or the making of any Acquisition Proposal
or, except to the extent legally required for the discharge by the Board of
Directors of the Company of its fiduciary duties, engage in any negotiations
concerning or provide any confidential information or data to, or have any
discussions with, any Person relating to an Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Acquisition Proposal.
The Company will notify BT immediately if any such inquiries or proposals are
received by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, the Company, or if the
Board of Directors of the Company shall have determined that in order to
discharge the Board of Directors' fiduciary duties the Company is engaging in
any negotiations concerning or providing any confidential information or data
to, or having any discussions with, any Person relating to an Acquisition
Proposal.
(b) From and after the expiration of the period described in Section 9.4(a)
until the tenth anniversary of the Closing Date so long as any shares of Class A
Common Stock remain outstanding, the Company will provide BT with at least 60
days prior written notice if at any time during such period the Board of
Directors of the Company decides to initiate, solicit or encourage, directly or
indirectly, any inquiries or the making of any Acquisition Proposal or to engage
in any negotiations concerning or provide any confidential information or data
to, or have any discussions with, any Person relating to an Acquisition
Proposal, provided that if the Board of Directors of the Company shall have
determined to engage in any such actions in response to an unsolicited
Acquisition Proposal by a third party in order to discharge the Board of
Directors' fiduciary duty, then the Company shall be relieved from the 60-day
notice period and such notice shall be provided to BT as soon as reasonably
practicable following such determination.
(c) If the Company delivers a Sale Notice to BT in accordance with the
provisions of Section 9.5(a), then the provisions of this Section 9.4 shall be
void and of no further force and effect and all further obligations of the
Company and its officers, directors, employees, agents and representatives under
this Section 9.4 shall terminate without further liability.
9.5. Business Combinations. (a) Auction Period. From and including the
fourth anniversary of the Closing Date until the tenth anniversary of the
Closing Date so long as any shares of Class A Common Stock remain outstanding,
if the Board of Directors of the Company decides to sell the Company (including
any such decision by the Board of Directors to sell the Company that is made
prior to the fourth anniversary of the Closing Date if such sale is reasonably
expected to be effected subsequent to such fourth anniversary), whether pursuant
to a third party tender offer or exchange offer or a Business Combination, then
the Board of Directors shall give BT written notice of such decision (the "Sale
Notice") and shall follow the auction procedures specified in Section 9.5(c) if
the Board of Directors of BT, within ten Business Days thereafter (30 days if
Section 310(b) of the Communications Act has not been repealed, unless an
unsolicited tender offer or exchange offer has been commenced), provides the
Board of Directors of the Company written notice of a good faith intention to
submit a bona fide Acquisition Proposal for all the outstanding Voting
Securities, provided that the Company shall be under no obligation hereunder to
sell the Company and may terminate
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such auction at any time. If, following the conclusion of such auction
procedures, the Board of Directors of the Company abandons its effort to sell
the Company, then at such time the provisions of Section 9.4 shall be
reinstated.
(b) From and including the fourth anniversary of the Closing Date until the
tenth anniversary of the Closing Date so long as any shares of Class A Common
Stock remain outstanding, the Board of Directors of the Company shall not,
without the consent of BT, redeem the Rights or approve any Business
Combination, except such consent shall not be required in connection with an
Acquisition Proposal for all of the outstanding shares of Common Stock (and all
shares of Common Stock issuable upon the conversion of the outstanding shares of
Class A Common Stock) in which all shareholders are permitted to participate on
an equal basis, provided that the Company has not breached in any material
respect its obligations under Section 9.5(c).
(c) Auction Procedures. Except as otherwise provided in Section 9.5(a),
unless otherwise consented to by BT any sale of the Company described in Section
9.5(a) shall be pursuant to an auction upon commercially reasonable terms as
established by a Determination of the Independent Directors, provided that at
BT's request the Independent Directors or the investment bankers designated by
the Independent Directors shall discuss with investment bankers designated by BT
the procedures to be followed in such auction. The time between the commencement
of the auction and the execution of a definitive agreement for such sale of the
Company shall be at least six months, provided that if Section 310(b) of the
Communications Act has been repealed or otherwise would not in the reasonable
judgment of BT affect in any material respect the consummation of an Acquisition
Proposal by BT, such minimum time period shall be reduced to 21 Business Days.
The time between BT's receipt of the Sale Notice and the execution of such
definitive agreement shall be at least seven months, provided that if Section
310(b) of the Communications Act has been repealed or otherwise would not the
reasonable judgment of BT affect in any material respect the consummation of an
Acquisition Proposal by BT, such minimum time period shall be reduced to 30
Business Days. If Section 310(b) of the Communications Act remains in effect,
then in connection with any such auction, the Company shall use its best efforts
to assist BT in obtaining approval from the FCC to consummate an Acquisition
Proposal. Notwithstanding the foregoing, the Company shall have no obligation
hereunder to be subject to the foregoing auction procedures (x) if the Company
delivers to BT a notice setting forth the terms and conditions of a definitive
agreement or a bona fide letter of intent providing for a Business Combination
that the Company is prepared to execute with a third party and (A) BT fails
within 15 Business Days thereafter to deliver to the Company a resolution of the
Board of Directors of BT setting forth its good faith intention, subject to the
restrictions set forth in Section 310(b) of the Communications Act, to submit a
bona fide Acquisition Proposal containing a per share financial consideration to
be received by the shareholders of the Company that, upon the reasonable advice
of BT's financial advisor, exceeds the per share consideration offered by such
third party and (B) following such failure to deliver such resolution, there is
a Determination of the Independent Directors that continuing the auction would
not be in the best interests of the shareholders of the Company, provided that
the provisions of this Section 9.5 shall be reinstated in the event that the
Company fails to execute such agreement or fails to consummate such Business
Combination, or (y) following such time as the Independent Directors are advised
in writing by FCC counsel selected by the Independent Directors (which shall not
be FCC counsel that advised the Company in connection with effecting the
transactions contemplated herein) that such counsel believes that BT's request
to obtain approval from the FCC to consummate an Acquisition Proposal will not
be granted in light of the then current regulatory, competitive and political
environment, and believes such failure to obtain such FCC approval would not be
overturned by a court of competent jurisdiction, and, on the basis of such
written advice, there is a Determination of the Independent Directors that no
good faith purpose could reasonably be served by providing BT with a continued
opportunity to seek such approval to purchase the Company.
(d) Third Party Tender Offers. From the Closing Date until the fourth
anniversary of the Closing Date, so long as any shares of Class A Common Stock
remain outstanding, the Board of Directors of the Company shall not, without the
consent of BT, except to the extent legally required for the discharge by the
Board of Directors of the Company of its fiduciary duties, recommend acceptance
of any third party tender offer. From and including the fourth anniversary of
the Closing Date until the tenth anniversary of the Closing Date so long as any
shares of Class A Common Stock remain outstanding, the Board of Directors of the
Company shall not, without the consent of BT, except to the extent legally
required for the discharge by the Board of
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Directors of the Company of its fiduciary duties, recommend acceptance of any
third party tender offer, except in connection with an Acquisition Proposal for
all of the outstanding shares of Common Stock (and all shares of Common Stock
issuable upon the conversion of the outstanding shares of Class A Common Stock)
in which all shareholders are permitted to participate on an equal basis,
provided that the Company has not breached in any material respect its
obligations under Section 9.5(c).
(e) Tag-Along Rights. The Board of Directors of the Company will not
approve any transaction that otherwise requires the approval of the Board of
Directors in which any shareholder may sell its shares of capital stock of the
Company unless BT and its Affiliates are provided the same right to sell in such
transaction, subject to the receipt of all necessary consents and approvals, all
of their shares of capital stock of the Company for the same price and upon the
same terms and conditions applicable to such holder or holders of capital stock
generally.
(f) Waiver. BT acknowledges that the procedures and provisions set forth
in this Section 9.5 have been bargained for by the parties and provide BT with
valuable rights. In consideration thereof, BT hereby waives on behalf of itself
and each of its Affiliates, and agrees that neither it nor any Affiliate shall
hereafter exercise, any dissenters', appraisal or comparable rights that may be
available to it at law or in equity in connection with any sale of the Company
conducted in accordance with the provisions of this Section 9.5 for so long as
such provisions are effective as stated herein.
9.6. Core Business of the Company. So long as shares of Class A Common
Stock remain outstanding, in the event that (i) the Company acquires any
businesses or assets or investments in a Non-Core Business in the course of a
bona fide transaction the principal purpose of which is the acquisition of a
Core Business and (ii) such acquisition or investment was not subject to the
consent or affirmative vote of the holders of Class A Common Stock, voting as a
separate class, as provided in the Certificate of Incorporation (as amended by
the Certificate of Amendment), unless BT otherwise consents, the Company shall
dispose of the portion of any such Non-Core Business to the extent that the
portion of the cost of such acquisition or investment allocable to such Non-Core
Business exceeds 5% of the Market Capitalization of the Company at the time of
such acquisition or investment as promptly as practicable consistent with good
commercial practices in light of industry customs.
9.7. Board of Directors. From the Closing Date and thereafter so long as
(i) the Outstanding Interest is at least 10%, (ii) neither (x) any of the Newco
Triggering Events shall have occurred nor (y) the shares of Class A Common Stock
shall have automatically converted into shares of Common Stock pursuant to
section 4(b)(9)(ii) of the Certificate of Incorporation (as amended by the
Certificate of Amendment) by reason of the occurrence of an event described in
section 4(b)(11)(vi)(E) of the Certificate of Incorporation (as amended by the
Certificate of Amendment) and (iii) BT has not materially breached, or ceased to
be subject to (other than as provided under the terms of this Agreement), its
obligations under Section 7.4(a)(i) or 10.3:
(a) The Board of Directors shall not take any action that would cause
the number of directors of the Company (including the Class A Directors, if
any) to be other than 15, unless BT consents thereto.
(b) In connection with each election of directors of the Company, the
Board of Directors of the Company will nominate in accordance with the
Company's procedures for the nomination of directors as provided in its
by-laws, and to the extent permissible in accordance with applicable legal
requirements, individuals as follows:
(i) Independent Directors. A majority of the directors of the
Company will be individuals who satisfy the criteria set forth below
(the "Independent Directors") and who shall for each election held after
the Closing Date be nominated by a nominating committee of the Board of
Directors of the Company (the "Nominating Committee") established to
determine whether prospective nominees meet the criteria set forth
below. The Nominating Committee shall be comprised of the Chief
Executive Officer of the Company (who shall act as chairman of such
committee) and at least four other directors, each of whom shall be an
Independent Director. Independent Directors are directors who, and
future qualified nominees shall each be, a person who is a U.S. citizen
and:
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(v) is free from any relationship that, in the opinion of the
Nominating Committee, would interfere with the exercise of
independent judgment as a member of the Board of Directors of the
Company,
(w) is not an Affiliate of the Company or BT or an officer of
the Company or any of its Subsidiaries or an officer or director of
BT or any of its Subsidiaries,
(x) is not a former officer of the Company, BT or any of their
respective Subsidiaries who is receiving a pension or deferred
compensation payments from any such entity,
(y) does not, in addition to such person's role as a director of
the Company, also act on a regular basis as an individual or
representative of an organization serving as a professional advisor,
legal counsel or consultant to management of the Company or BT or any
of their respective Subsidiaries if, in the opinion of the Nominating
Committee, such relationship is material to the Company, BT, the
organization represented or such person and
(z) does not represent, and is not a member of the immediate
family of a person who does not satisfy the requirements of clauses
(v), (w), (x) or (y) above.
A person who has been or is a partner, officer or director of an
organization that has customary commercial, industrial, banking or
underwriting relationships with the Company, BT or any of their
respective Subsidiaries that are carried on in the ordinary course of
business on an arms'-length basis and who otherwise satisfies the
requirements of clauses (v) through (z) above may qualify as an
Independent Director unless, in the opinion of the Nominating Committee,
such person is not independent of the management of the Company or BT or
any of their respective Subsidiaries or the relationship would interfere
with the exercise of independent judgment as a member of the Board of
Directors of the Company. A person who otherwise satisfies the
requirements of clauses (v) through (z) above and who, in addition to
fulfilling the customary director's role, also provides additional
services directly for the Board of Directors of the Company and is
separately compensated therefor, would nonetheless qualify as an
Independent Director.
The Nominating Committee shall provide BT with the opportunity to
interview the proposed nominee and the right to advise the Nominating
Committee as to whether BT believes that any person proposed as an
Independent Director lacks one or more of the qualifications referred to
in the foregoing list, and the Nominating Committee shall in good faith
consider such advice. To effectuate the foregoing, the Nominating
Committee shall advise BT of the proposed nomination of each Independent
Director at least 20 Business Days prior to the nomination thereof,
together with information in reasonable detail as to the identity and
background of such person.
Notwithstanding anything to the contrary contained in this Section
9.7(b)(i), each director of the Company as of the date hereof who is not
an executive officer of the Company shall be deemed to be an Independent
Director for purposes of this Agreement.
(ii) Other Directors. There shall be no restrictions on the
remaining nominees (other than the BT Nominees) for election as director
other than that such nominees be U.S. citizens and other than as may be
provided by the by-laws of the Company and applicable law.
(c) If no shares of Class A Common Stock are outstanding, BT shall
have the right to designate that number of qualified nominees (the "BT
Nominees") in connection with each election of directors of the Company
that is equal to the product (rounded to the nearest whole number if such
product is not a whole number), of (x) the Outstanding Voting Interest
times (y) the number of directors to be elected at such election, provided
that, at any time that the Outstanding Voting Interest is from and
including 15% to and including 20%, then in calculating such number of
nominees the multiplier set forth in clause (x) shall be 20% in lieu of the
Outstanding Voting Interest, provided further that BT shall have no right
to designate any nominee such that, if such nominee were elected, designees
of BT serving on the Board of Directors of the Company would constitute
more than that number of directors that is equal to the product (rounded to
the nearest whole number if such product is not a whole number), of (x) the
Outstanding Voting Interest (or 20% as set forth in the preceding proviso)
times (y) the number of directors then constituting the whole Board of
Directors, and provided further that while Section 310(b)
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of the Communications Act remains in effect, under no circumstances shall
BT or any of its Affiliates have the right to designate nominees such that
designees of BT would constitute more than the maximum percentage of the
total directors of the Company permitted under such Section 310(b) and
under no circumstances shall the number of designees of BT serving on the
Board of Directors of the Company be more than the maximum percentage of
the total directors of the Company permitted under such Section 310(b). If
the outstanding shares of Class A Common Stock shall have converted into
shares of Common Stock pursuant to section 4(b)(9)(ii) of the Certificate
of Incorporation (as amended by the Certificate of Amendment) by reason of
the occurrence of an event described in section 4(b)(11)(vi)(B) of the
Certificate of Incorporation (as amended by the Certificate of Amendment),
then immediately following such conversion BT shall have the right to
designate that number of qualified BT Nominees to fill that number of the
vacancies on the Board of Directors of the Company thereby created that is
equal to the product (rounded to the nearest whole number if such product
is not a whole number), of (x) the Outstanding Voting Interest (or 20% as
set forth above) times (y) 15 or such other total number of directors to
which BT shall have consented pursuant to Section 9.7(a). In case of any
vacancy occurring among the BT Nominees serving on the Board of Directors
(unless such vacancy results from action taken in accordance with the last
sentence of this Section 9.7(c)), BT shall have the right to designate a
qualified BT Nominee for appointment as a successor to hold office for the
expired term of the BT Nominee whose place shall be vacant. If (i) the
Outstanding Interest is no longer at least 10% or (ii) either (x) any of
the Newco Triggering Events shall have occurred or (y) the shares of Class
A Common Stock shall have automatically converted into shares of Common
Stock pursuant to section 4(b)(9)(ii) of the Certificate of Incorporation
(as amended by the Certificate of Amendment) by reason of the occurrence of
an event described in section 4(b)(11)(vi)(E) of the Certificate of
Incorporation (as amended by the Certificate of Amendment), then, subject
to the provisions of Section 9.11, BT shall cause its designees on the
Board of Directors of the Company to resign.
(d) Each committee of the Board of Directors of the Company (other
than the Nominating Committee) shall, subject to any requirements under the
Exchange Act or applicable to securities, or the issuance of securities,
traded on the NASDAQ National Market System or Requirements of Law, include
(x) if shares of Class A Common Stock remain outstanding, a number of Class
A Directors (rounded to the nearest whole number, but in no event less than
one such Class A Director) equivalent to the proportion of Class A
Directors then serving on the whole Board of Directors or (y) at such time
that no shares of Class A Common Stock remain outstanding but BT has the
right to designate at least one director under Section 9.7(c), a number of
BT Nominees (rounded to the nearest whole number, but in no event less than
one such BT Nominee) equivalent to the proportion of BT Nominees then
serving on the whole Board of Directors. Subject to the foregoing, the
board of directors shall have the power at any time to fill vacancies in,
to change the membership of or to discharge any committee.
(e) The Board of Directors of the Company shall follow the following
procedures:
(i) Meetings. The Board of Directors shall hold at least six
regularly scheduled meetings per year at such times as may from time to
time be fixed by resolution of the Board of Directors, and no notice
(other than the resolution) need be given as to a regularly scheduled
meeting. Special meetings of the Board of Directors may be held at any
time upon the call of the Chairman of the Board or at least two
directors, by oral, telephonic, telegraphic or facsimile notice duly
given or sent at least one hour, or by written notice sent by express
mail at least one day, before the meeting to each director, provided
that all such notices to directors located outside the United States
shall be given or sent orally or by telephone, telegraph or facsimile
transmission. Reasonable efforts shall be made to ensure that each
director actually receives timely notice of any such special meeting. An
annual meeting of the Board of Directors shall be held without notice
immediately following the annual meeting of stockholders of the Company.
(ii) Agenda. A reasonably detailed agenda shall be supplied to
each director reasonably in advance of each meeting of the Board of
Directors, together with other appropriate documentation with respect to
agenda items calling for Board action, to inform adequately directors
regarding matters to come before the Board. Any director wishing to
place a matter on the agenda for any
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meeting of the Board of Directors may do so by communicating with the
Chairman of the Board sufficiently in advance of the meeting of the
Board of Directors so as to permit timely dissemination to all directors
of information with respect to the agenda items.
(iii) Powers of the Board. The Board of Directors shall reserve to
itself the power to approve transactions that are of a type customarily
subject to board approval as a matter of good corporate practice for
public companies in the United States, and shall not delegate to any
committee of the Board or to any officers of the Company the authority
to conduct business in any manner that would circumvent, or deprive BT
or any of its Affiliates of the protection of, this Agreement. In no
event will the Board establish an executive committee, or any committee
performing functions comparable to those customarily performed by
executive committees of boards of directors of public companies in the
United States, without the prior consent of BT. All committees of the
Board will report to and be accountable to the Board. The Board of
Directors shall establish, in cooperation with the Chief Executive
Officer of the Company, a schedule for Board of Directors' review or
action, as appropriate, with respect to matters which shall typically
come before the Board of Directors, including, but not limited to:
(1) Annual business plans (including capital expenditures
and operating budgets);
(2) Major collaborative arrangements with third parties not
in the ordinary and normal course of business as theretofore
conducted; and
(3) Appointments of officers.
(iv) Security Clearance. To the extent that, in connection with a
federal government contract, an agency of the federal government or a
contractor requires the Company to restrict access to any properties or
information reasonably related to such contract on the basis of
applicable laws and regulations with respect to national security
matters and to the extent that other Requirements of Law require the
Company to restrict access to any properties or information and, in
accordance with such restrictions, access to certain properties or
information may not be given to any director without appropriate
security clearance, such director will not be given access to such
properties or information and may not participate in Board deliberations
in which such information or restricted information with respect to such
properties is disclosed.
(v) Confidentiality Agreements. In the event that either (A) BT or
any of its Affiliates has exercised its right to require the Company or
any of its Affiliates to sell to BT or any of its Affiliates the
Company's direct or indirect interest in Newco pursuant to Clause 30 of
the Newco Agreement as a result of a material breach by the Company or
any of its Affiliates pursuant to Clause 29.1(a) of the Newco Agreement
or (B) the Company or any of its Affiliates has exercised its right to
require BT or any of its Affiliates to sell to the Company or any of its
Affiliates BT's direct or indirect interest in Newco pursuant to the
terms of the Newco Agreement, then (x) BT shall cause the Class A
Directors or the BT Nominees, as the case may be, to comply with such
conditions as may reasonably be imposed with respect to their service on
the Board of Directors by a Determination of the Independent Directors,
taking into account the competitive and prospective competitive
relationship between the Company and BT and such other factors as are
then deemed relevant and (y) BT agrees that it will not exercise its
rights as a holder of Class A Common Stock in respect of any consent or
affirmative vote, voting separately as a class, with respect to any
matters under the Certificate of Incorporation (as amended by the
Certificate of Amendment) or its consent rights under this Agreement, as
the case may be, for the principal purpose of adversely affecting the
Company as a competitor.
9.8. Maintenance of BT's Share Ownership. Except as provided otherwise
below, from the Closing Date and thereafter so long as the Outstanding Interest
is at least 10% and the Foreign Ownership Limitation remains in effect:
(a) Issuances of Capital Stock. After the Closing Date the Company
shall, to the extent practicable, use its best efforts not to issue any
shares of capital stock to Non-U.S. Persons or Entities if, after giving
effect to such issuance, the total number of shares of capital stock of the
Company Owned of
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Record or Voted by Non-U.S. Persons or Entities, including BT and its
Affiliates, would exceed 5% less than the Foreign Ownership Limitation,
provided, however, that such restriction on the issuance of capital stock
shall not apply to (i) issuances of Employee Shares, (ii) issuances of
shares of capital stock upon the conversion or exercise of any other
options, warrants, rights or other securities convertible into or
exchangeable for shares of capital stock that are outstanding as of the
Closing Date, (iii) transfers of ownership by operation of law, (iv)
issuances to BT and its Affiliates or (v) issuances of capital stock to
Non-U.S. Persons or Entities in connection with a public offering or
private placement of Equity pursuant to which the Company reasonably
believes, after consultation with BT, that the aggregate percentage of the
capital stock of the Company Owned of Record or Voted by Non-U.S. Persons
or Entities will be lower immediately subsequent to such public offering or
private placement, as the case may be, than such aggregate percentage was
prior to such public offering or private placement.
(b) Reasonable Steps to Maintain Ownership.
(i) Actions by Company. The Company will not, without BT's consent,
take any action which would proximately result in BT and its Affiliates not
being permitted, under existing law or regulation, to maintain their
ownership of Voting Equity at the then current Outstanding Interest and,
except as otherwise provided in Section 9.8(c), will take such steps as are
reasonably necessary to maintain the ownership of Voting Equity by BT and
its Affiliates at the then current Outstanding Interest in the event such
level of ownership is threatened under existing law or regulation
(including, without limitation, using reasonable efforts to oppose any
regulatory initiative, state or federal, to obtain a reduction in the level
of ownership by BT and its Affiliates) to the extent, in each case, that
the detriment to the Company of not taking any such action, or the cost to
or the burdens imposed on the Company as a result of taking any such steps,
are not determined to be unreasonable in a Determination of the Independent
Directors. Without limiting the foregoing provisions of this paragraph (i),
the Company shall not in any event be required to affix to its stock
certificates legends limiting transfers thereof to Non-U.S. Persons or
Entities.
(ii) Other Limitations. In the event that at any time the maximum
aggregate amount of capital stock that may be held by Non-U.S. Persons or
Entities under applicable state or local laws or regulations is less than
the Foreign Ownership Limitation (and less than the amount of capital stock
in the Company then held by BT and its Affiliates), the Company will not
redeem any Common Shares held by BT or its Affiliates pursuant to the
Redemption Provision and the Company and BT will in good faith promptly
attempt to agree upon the means by which the Company can comply with such
laws and regulations, taking into account the relative benefits and
detriments thereof to the Company and to BT, provided that, notwithstanding
the foregoing, the Company may, after consultation in good faith with BT to
consider alternatives to such redemption, redeem Common Shares held by BT
or its Affiliates if the failure to redeem such shares would have a
material adverse effect on the Company and its Subsidiaries taken as a
whole as established by a Determination of the Independent Directors.
(c) Redemptions.
(i) General. The Company will not redeem or repurchase outstanding
shares of its capital stock held by Persons other than BT and its
Affiliates if as a result thereof, to the knowledge of the Company, shares
held by BT and its Affiliates would also be required to be redeemed or
repurchased, unless (1) required to do so by applicable Requirement of Law,
(2) such redemption or repurchase affects all stockholder proportionately
or (3) BT consents thereto. Prior to any such redemption, the Company shall
consult in good faith with BT to consider alternatives to such redemption.
(ii) Redemption of Non-BT Securities First. If at any time after the
date hereof the Company should invoke its right to redeem capital stock
under the Redemption Provision, to the fullest extent legally permissible
in the good faith judgment of the Company, the Company shall first
designate for redemption securities other than Common Shares held by BT and
its Affiliates before designating for redemption any Common Shares held by
BT and its Affiliates.
(iii) Redemption of Capital Stock Before Shares. Any capital stock
acquired by BT or any of its Affiliates other than the Shares and the
Conversion Shares shall, to the extent practicable and legally permissible,
be redeemed prior to the redemption of any Shares or Conversion Shares.
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(iv) Purchase Price. If the Company redeems any shares of capital
stock held by BT or any of its Affiliates pursuant to the Redemption
Provision:
(A) within two years after the Closing, the redemption price of any
Shares or Conversion Shares redeemed shall be equal to the greater of
(1) the "current market value" as determined in accordance with the
Redemption Provision and (2) an amount equal to the purchase price
therefor, together with interest thereon (calculated on the basis of a
365 or 366 day year and actual days elapsed) at the Interest Rate as of
the date of such redemption compounded annually from the date of
purchase of the Shares or the Conversion Shares, as the case may be,
until the date of redemption;
(B) more than two years but less than ten years after the Closing,
the redemption price of any Shares or Conversion Shares redeemed shall
be equal to the greater of (1) the "current market value" as determined
in accordance with the Redemption Provision and (2) an amount equal to
the purchase price therefor, plus an amount equal to interest thereon
accrued through the date two years after the Closing calculated in
accordance with clause (2) of subparagraph (A) above;
(C) less than ten years after the Closing, the redemption price of
any Maintenance Shares redeemed shall be equal to the greater of (1) the
"current market value" as determined in accordance with the Redemption
Provision and (2) the purchase price paid by BT for such Maintenance
Shares;
(D) less than ten years after the Closing, the redemption price of
any capital stock (other than Shares, Conversion Shares or Maintenance
Shares) redeemed shall be equal to the "current market value" as
determined in accordance with the Redemption Provision; and
(E) ten years or more after the Closing, the redemption price of
all shares of capital stock redeemed shall be equal to the "current
market value" as determined in accordance with the Redemption Provision.
For purposes of this Section 9.8(b)(iv), the purchase price of any Shares,
Conversion Shares or Maintenance Shares, shall be deemed adjusted from time
to time by subtracting therefrom the Fair Market Value (as established by a
Determination of the Independent Directors) of any dividend or distribution
received in respect of such Shares, Conversion Shares or Maintenance Shares
prior to the redemption thereof. As used in this Section 9.8(b)(iv),
"current market value" shall mean the "Current Market Value" as defined in
the Redemption Provision.
(v) Payment in Cash. The redemption price referred to herein shall,
to the extent legally permissible, be paid to BT or to its Affiliate, as
the case may be, in cash.
(vi) Repurchase of Redeemed Shares. If the Company redeems any shares
of capital stock held by BT or any of its Affiliates pursuant to the
Redemption Provision, and within two years thereafter any change in
circumstance would permit BT or such Affiliate, as the case may be, to
regain its ownership of such shares, immediately upon such change in
circumstance BT or such Affiliate, as the case may be, shall have the right
to repurchase from the Company, and the Company shall have the right to
require BT or such Affiliate, as the case may be, to repurchase from the
Company, any shares so redeemed, at a purchase price per share equal to the
redemption price paid, together with interest thereon at the Interest Rate
as of the date of redemption compounded annually from the date of
redemption to the date of repurchase, provided that upon such change in
circumstances BT or such Affiliate, as the case may be, shall be obligated
to repurchase such shares from the Company at the earliest practicable
opportunity prior to acquiring any shares of the Company from any third
party. If the Company has redeemed any Shares or Conversion Shares from BT
or any of its Affiliates, and BT or any of its Affiliates then repurchases
such number of shares from the Company pursuant to this paragraph (vi),
such repurchased shares shall be deemed to be "Shares" or "Conversion
Shares", respectively for purposes of this Agreement.
Upon any such purchase of shares of capital stock by BT or any of its
Affiliates pursuant to this Section 9.8(b)(vi), (x) the purchase price
shall be adjusted by subtracting therefrom the Fair Market Value (as
established by a Determination of the Independent Directors) of any
dividend or distribution received in respect of such shares after the
above-mentioned redemption and prior to the purchase by BT
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or any of its Affiliates hereunder and (y) the purchase price and number of
shares of capital stock to be purchased shall be adjusted to reflect any
stock split, stock dividend, or other combination or reclassification of
the Company's capital stock during such time.
If the Company shall have redeemed any shares of capital stock held by
BT or any of its Affiliates pursuant to the Redemption Provision, then from
time to time during the next two years thereafter, at BT's request, the
Company shall at the Company's expense conduct a sampling in order to
determine the percentage of outstanding capital stock of the Company that
is Owned of Record or Voted by Non-U.S. Persons or Entities, calculated in
a manner to determine compliance with Section 310(b) of the Communications
Act, and shall provide other reasonable cooperation to BT in enabling BT to
determine the percentage of outstanding capital stock of the Company that
is Owned of Record or Voted by Non-U.S. Persons or Entities, provided that
the Company shall not be obligated to perform more than one such sampling
in any calendar year.
9.9. Termination. If at any time the Outstanding Interest or Outstanding
Voting Interest is less than the percentage specified in any provision in this
Agreement as a condition to the applicability of any covenants contained
therein, the Company's obligations and the rights of BT and its Affiliates with
respect to all covenants set forth in such provision of this Agreement shall
thereupon irrevocably terminate and shall not be reinstated, provided, however,
that if BT or its Affiliate shall have within two years of any redemption of
shares of capital stock held by BT or any of its Affiliates pursuant to the
Redemption Provision repurchased from the Company any shares so redeemed
pursuant to Section 9.8(b)(vi) such that the Outstanding Interest or Outstanding
Voting Interest, as the case may be, is equal to or greater than the percentage
specified in any provision in this Agreement so terminated as a condition to the
applicability of any covenants contained herein, then the Company's obligations
and the rights of BT and its Affiliates with respect to the covenants set forth
in such provision of this Agreement that had previously been terminated pursuant
to this Section 9.9 shall thereupon, subject to the provisions of this
Agreement, the Certificate of Amendment and the By-Law Amendments, be
reinstated.
9.10. Approval of Certain Matters. (a) In the event that no shares of
Class A Common Stock are outstanding as a result of the occurrence of any of the
Newco Triggering Events or in the event of the Loss of BT Rights pursuant to
Section 9.12(a), then so long as neither (i) the Outstanding Interest is less
than 10%, (ii) BT and its Affiliates shall have transferred (other than to
wholly owned direct or indirect Subsidiaries of BT) in the aggregate Voting
Securities representing more than 25% of the largest amount in voting, power of
Voting Securities at any time beneficially owned by BT and any of its Affiliates
(adjusted for stock splits, stock dividends and other combinations or
reclassifications of the Voting Securities) and the Outstanding Interest is less
than 15% nor (iii) an event described in section 4(b)(11)(vi)(E) of the
Certificate of Incorporation (as amended by the Certificate of Amendment) shall
have occurred, the Company agrees not to take, and the Company shall not
directly or indirectly engage in, any of the following actions without the
consent of BT:
(i) The issuance of any series or class of capital stock having either
(x) more than one vote per share (other than pursuant to the Rights Plan
(or any successor thereto)) or (y) a class vote on any matter, except to
the extent required by Delaware corporate law or to the extent that the
holders of any series of preferred stock have the right, voting separately
as a class, to elect a number of directors of the Company upon the
occurrence of a default in the payment of dividends or redemption price;
(ii) (A) The adoption of any shareholder rights plan, or any other
plan or arrangement that could reasonably be expected to disadvantage any
shareholder on the basis of the size of its shareholding, such that BT or
any of its Affiliates would be adversely affected in relation to their
position under the Rights Plan as in effect on the Closing Date (without
regard to the provisions of the Certificate of Incorporation or this
Agreement), provided that the adoption of a shareholder rights plan that is
substantially similar to the Rights Plan as in effect on the Closing Date
shall be deemed not to affect BT and its Affiliates adversely in relation
to their position under the Rights Plan as in effect on the Closing Date;
(B) The amendment, modification or termination of the Rights Plan (but
excluding the redemption or exchange of the Rights in accordance with the
Rights Plan or any successor thereto, the Certificate of Incorporation and
this Agreement), if such action would adversely affect the rights of BT and
its Affiliates in relation to their position under the Rights Plan as in
effect on the Closing Date (without
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regard to the provisions of the Certificate of Incorporation or this
Agreement), provided that the amendment of the Rights Plan or any successor
thereto to extend the expiration date or amend the exercise price thereof
shall be deemed not to affect BT and its Affiliates adversely in relation
to their position under the Rights Plan as in effect on the Closing Date;
or
(iii) The amendment of the Certificate of Incorporation so as to
affect adversely the rights of BT and its Affiliates under this Agreement;
provided, however, that nothing in this Section 9.10(a) shall require any
consent of BT in order for the Company to enforce its rights under this
Agreement, the Newco Agreement or any related agreement, for any
transaction effected in accordance with the Certificate of Incorporation,
for any other transaction between or in respect of the Company or any of
its Affiliates, on the one hand, and BT or any of its Affiliates, on the
other hand, or in connection with any action pursuant to a Requirement of
Law.
(b) So long as neither (i) the Outstanding Interest is less than 10% nor
(ii) BT and its Affiliates shall have transferred (other than to wholly owned
direct or indirect Subsidiaries of BT) in the aggregate Voting Securities
representing more than 25% of the largest amount in voting power of Voting
Securities at any time beneficially owned by BT and any of its Affiliates
(adjusted for stock splits, stock dividends and other combinations or
reclassifications of the Voting Securities) and the Outstanding Interest is less
than 15%, the Company agrees not to amend or to cause the amendment of the
by-laws of the Company so as to affect adversely the rights of BT and its
Affiliates under this Agreement.
9.11. Continuance of Certain Rights. Notwithstanding anything to the
contrary contained herein, in the event that no shares of Class A Common Stock
are outstanding as a result of the automatic conversion of the Class A Common
Stock pursuant to section 4(b)(9)(ii) of the Certificate of Incorporation (as
amended by the Certificate of Amendment) by reason of the occurrence of an event
described in section 4(b)(11)(vi)(C) of the Certificate of Incorporation (as
amended by the Certificate of Amendment) (other than a conversion pursuant to
Clause 26.2(a) of the Newco Agreement, arising from a breach by BT or any of its
Affiliates of its obligations to the Company), then, so long as the Outstanding
Voting Interest is at least 15%, the following provisions shall apply:
(a) Subject to the discharge by the Board of Directors of the Company
of its fiduciary duties and Requirements of Law, BT shall be entitled to
designate qualified BT Nominees in accordance with the provisions of the
first sentence of Section 9.7(c) unless a majority of the Board of
Directors (excluding for such purpose any remaining Class A Directors and
all designees of BT and including a majority of the Independent Directors)
shall determine in their sole discretion that the service by designees of
BT on the Board or Directors of the Company would not be in the best
interests of the Company taking into account, among other factors,
conditions that could reasonably be imposed upon the BT Nominees and their
willingness to accept such conditions, the competitive and prospective
competitive relationship between the Company and BT, the circumstances of
the applicable Newco Triggering Event, the opportunity to insure the
confidentiality of competitive or similar matters that may come before the
directors and such other factors as the Board of Directors and the
Independent Directors, as the case may be, shall deem relevant, provided,
however, whenever a determination is made by the Board of Directors,
whether in connection with the nomination of directors or otherwise, to the
effect that the service of any designees of BT on the Board of Directors
would not be in the best interests of the Company taking into account the
foregoing factors, then BT shall not thereafter be entitled to designate
directors hereunder and BT shall cause any BT Nominees then serving on the
Board of Directors to resign.
(b) If BT Nominees are serving on the Board, (i) the BT Nominees shall
remain subject to Sections 9.7(e)(iv) and 9.7(e)(v) and (ii) the BT
Nominees shall be excluded from that portion of any meeting to discuss
their continued service on the Board pursuant to the determination
contemplated by Section 9.11(a).
(c) Subject to applicable Requirements of Law, the extent of the right
of representatives of BT to visit and inspect any properties, books and
records of the Company and its Subsidiaries and to discuss the affairs,
finances and accounts of the Company with the principal officers of the
Company, its attorneys and auditors shall be established in a Determination
of the Independent Directors by balancing the
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detriment to the Company of any such access (taking into account, among
other factors, the competitive and prospective competitive relationship
between BT and the Company, the circumstances of the applicable Newco
Triggering Event, the opportunity to insure the confidentiality of matters
that may thereby become known to BT and its representatives and such other
factors as the Independent Directors deem relevant) and the benefits to or
the burdens imposed on BT as a result of being permitted or denied any such
access (including without limitation, any resultant loss of BT's ability to
account for its investment in the Company on the equity method), and the
reasonable requirements to enable BT to account for its investment in the
Company on the equity method and otherwise to comply with applicable
requirements of U.S. and U.K. securities laws, and generally accepted
accounting principles, provided that representatives of BT shall be
afforded a reasonable opportunity to discuss the foregoing factors (and any
other factors that BT may consider relevant to such determination) with the
Independent Directors.
(d) If the Board of Directors of the Company decides to sell the
Company, then the Board of Directors shall provide BT with, in the
reasonable judgment of the Independent Directors, a reasonable opportunity
to submit an Acquisition Proposal in accordance with commercial practice
and in the event that the Board of Directors decides to sell the Company
pursuant to an auction, such auction shall be conducted on commercially
reasonable terms as established in a Determination of the Independent
Directors and BT shall be entitled to participate in such auction on the
same terms and conditions as any other prospective bidder.
(e) The Company agrees not to take, and the Company shall not directly
or indirectly engage in any of the following actions without the consent of
BT: (x) any single or related series of sales, transfers or other
dispositions or encumbrances of assets having a Fair Market Value in excess
of 15% of the aggregate Fair Market Value (established in a Determination
of the Independent Directors) of all of the assets of the Company and its
Subsidiaries taken as a whole at the time that the Company executes a
definitive agreement to effect such disposition or encumbrance, provided
that a sale of all or substantially all of the assets of the Company shall
not be deemed a disposition or encumbrance for purposes of this clause (x);
or (y) the declaration of any extraordinary cash dividends or other
distribution to holders of any class or classes, and/or any series thereof,
of capital stock of the Company in excess of 5% of the Market
Capitalization of the Company at the time of such dividend or other
distribution; provided, however, that nothing in clause (x) or clause (y)
shall require any consent of BT in order for the Company to enforce its
rights under this Agreement, the Newco Agreement or any related agreement,
for any transaction effected in accordance with the Certificate of
Incorporation, for any other transaction between or in respect of the
Company or any of its Affiliates, on the one hand, and BT or any of its
Affiliates, on the other hand, or in connection with any action pursuant to
a Requirement of Law.
9.12. Release of Rights and Obligations. (a) Except as otherwise provided
in Section 9.12(b), subsequent to the Closing, in the event that BT or any of
its Affiliates engages directly or indirectly in the Core Business of the
Company in the Americas or transfers or provides sales and marketing support,
technology or customer traffic in connection with any Person engaged in the Core
Business of the Company in the Americas or holds or acquires an interest in any
Person who is engaged in the Core Business of the Company in the Americas as a
partner, shareholder, principal or in any other capacity of ownership or control
(such activities, whether or not engaged in the Americas, are collectively
referred to as being "Engaged in the Core Business of the Company"), then, as
provided in the Certificate of Incorporation (as amended by the Certificate of
Amendment), any outstanding shares of Class A Common Stock shall be subject to
conversion into shares of Common Stock in accordance with section 4(b)(9)(ii) of
the Certificate of Incorporation (as amended by the Certificate of Amendment) by
reason of the occurrence of an event described in section 4(b)(11)(vi)(E)(ii) of
the Certificate of Incorporation (as amended by the Certificate of Amendment),
Sections 9.3 through 9.7 of this Agreement (except for the last sentence of
Section 9.7(c)) shall become void and of no further force and effect (such
consequences are collectively referred to herein as the "Loss of BT Rights") and
all further obligations of the Company and BT or any of their respective
Affiliates or their respective officers or directors with respect to any
obligation thereunder shall terminate without further liability, in each case
pursuant to a determination in accordance with the arbitration procedures set
forth in Section 9.12(e) or 9.12(f).
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(b) Notwithstanding anything contained in Section 9.12(a), BT shall not be
subject to the Loss of BT Rights under Section 9.12(a) from:
(i) acquiring or owning, directly or indirectly, for investment
purposes, securities of any Person not principally Engaged in the Core
Business of the Company (or if such Person is principally Engaged in the
Core Business of the Company, less than 10% of its Core Business revenues
are derived within the Americas) if such Person is a publicly traded
company and BT and its Affiliates own less than 5% of the voting securities
of such Person, provided that such investment does not exceed 0.5% of BT's
total consolidated assets;
(ii) correspondent relationships in the ordinary course of business
and the activities listed on Schedule 9.12;
(iii) any activity undertaken by BT or Affiliates pursuant to
Requirements of Law if the failure to comply with such Requirement of Law
would contravene in any material respect the license granted to BT on 22nd
June 1984 under the Telecommunications Act 1984, as from time to time
amended, or would otherwise have a material adverse effect on the business
or results of operations of BT;
(iv) a transaction whereby, directly or indirectly, control of (by
merger, tender offer or otherwise), or all or substantially all of the
assets of, any Person Engaged in the Core Business of the Company in the
Americas are transferred to BT or any of its Affiliates, provided that (x)
less than 20% of such Person's consolidated revenues are derived from sales
in the Americas contributed by operations within the Core Business of the
Company and (y) BT, at the request of the Company, shall sell or cause the
sale of the subsidiary, division or other entity conducting such operations
in accordance with the procedures (the "First Offer Procedures") set forth
in Section 9.12(h), provided further that such subsidiary, division or
other entity shall not be required to be sold until such time as it
generates annual revenues of $25 million or more per year;
(v) any inadvertent condition or act (each an "Inadvertent Condition")
that would otherwise result in a Loss of BT Rights, including, without
limitation, any such condition or act that results solely from the actions
of any Person other than BT or its Affiliates or any activity undertaken
without the knowledge of any executive officer of BT, provided that, if BT
shall become aware of such Inadvertent Condition, it shall promptly give
written notice of such Inadvertent Condition to the Company and BT and the
Company shall negotiate in good faith to reach an agreement in writing with
respect to a cure for such Inadvertent Condition, provided further that,
unless otherwise agreed by BT and the Company in such written agreement,
within one year following the delivery of such notice, BT shall dispose of
the securities, assets or business that gave rise to such Inadvertent
Condition, provided that BT, at the request of the Company, shall sell or
cause the sale of such securities, assets or business in accordance with
the First Offer Procedures;
(vi) ownership of Newco and the activities contemplated by the Newco
Agreement and the "Related Agreements" (as defined in the Newco Agreement);
or
(vii) any activity undertaken with confirmation in writing by the
Company that such activity will not result in a Loss of BT Rights;
(c) Except as otherwise provided in Section 9.12(d), subsequent to the
Closing, in the event that the Company or any of its Affiliates engages directly
or indirectly in the Core Business of BT outside the Americas or transfers or
provides sales and marketing support, technology or customer traffic in
connection with any Person engaged in the Core Business of BT outside the
Americas or holds or acquires an interest in any Person who is engaged in the
Core Business of BT outside the Americas as a partner, shareholder, principal or
in any other capacity of ownership or control (such activities, whether or not
engaged in outside the Americas, are collectively referred to as being "Engaged
in the Core Business of BT"), then Sections 5.1, 5.3, 7.1, 7.2, 7.3, 10.2 and
10.3 of this Agreement shall become void and of no further force and effect
(such consequences are collectively referred to herein as the "Loss of Company
Rights") and all further obligations of the Company and BT or any of their
respective Affiliates or their respective officers or directors with respect to
any obligation thereunder shall terminate without further liability, provided
that any determination as to whether
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the Company has undertaken the foregoing activities shall be determined in
accordance with the arbitration procedures set forth in Section 9.12(e) and
9.12(f).
(d) Notwithstanding anything contained in Section 9.12(c), the Company
shall not be subject to the Loss of Company Rights under Section 9.12(c) from:
(i) acquiring or owning, directly or indirectly, for investment
purposes, securities of any Person not principally Engaged in the Core
Business of BT (or if it is principally Engaged in the Core Business of BT,
less than 10% of its Core Business revenues are derived outside the
Americas) if such Person is a publicly traded company and the Company and
its Affiliates own less than 5% of the voting securities of such Person,
provided that such investment does not exceed 0.5% of the Company's total
consolidated assets;
(ii) correspondent relationships in the ordinary course of business
and the activities listed on Schedule 9.12;
(iii) any activity undertaken by the Company or its Affiliates
pursuant to Requirements of Law if the failure to comply with such law
would have a material adverse effect on the business or results of
operations of the Company;
(iv) a transaction whereby, directly or indirectly, control of (by
merger, tender offer or otherwise), or all or substantially all of the
assets of, any Person Engaged in the Core Business of BT outside the
Americas are transferred to the Company or any of its Affiliates, provided
that (x) less than 20% of such Person's consolidated revenues are derived
from sales outside the Americas contributed by operations within the Core
Business of BT and (y) the Company, at the request of BT, shall sell or
cause the sale of the subsidiary, division or other entity conducting such
operations in accordance with the First Offer Procedures set forth in
Section 9.12(h), provided further that such subsidiary, division or other
entity shall not be required to be sold until such time as it generates
annual revenues of $25 million or more per year;
(v) any Inadvertent Condition that would otherwise result in a Loss of
Company Rights, including, without limitation, any such condition or act
that results solely from the actions of any Person other than the Company
or its Affiliates or any activity undertaken without the knowledge of any
executive officer of the Company, provided that, if the Company shall
become aware of such Inadvertent Condition, it shall promptly give written
notice of such Inadvertent Condition to BT and the Company and BT shall
negotiate in good faith to reach an agreement in writing with respect to a
cure for such Inadvertent Condition, provided further that, unless
otherwise agreed by the Company and BT in such written agreement, within
one year following the delivery of such notice, the Company shall dispose
of the securities, assets or business that gave rise to such Inadvertent
Condition, provided that the Company, at the request of BT, shall sell or
cause the sale of such securities, assets or business in accordance with
the First Offer Procedures;
(vi) ownership of Newco and the activities contemplated by the Newco
Agreement and the "Related Agreements" (as defined in the Newco Agreement);
or
(vii) any activity undertaken with confirmation in writing by BT that
such activity will not result in a Loss of Company Rights.
(e) In the event that either of the parties hereto (the "Investing Party")
is considering any activity that it believes the other party ("Subject Party)
may view as resulting in the loss of rights as specified in Section 9.12(a) or
9.12(c) as may be applicable (the "Loss of Rights"), then the Investing Party
may provide notice (the "Investing Notice") of such proposed activity to the
Subject Party and seek the Subject Party's consent to engaging in such activity.
If following good faith consultation the Subject Party fails to grant such
consent, then the Investing Party may within 30 days after delivery of the
Investing Notice initiate binding arbitration as to whether such activities
would result in the Loss of Rights as hereinafter provided pursuant to the
arbitration procedures set forth in Section 9.12(g) (the "Arbitration"). The
parties shall seek to conclude the Arbitration as promptly as practicable but in
no event shall the Arbitration be conducted more than 90 days subsequent to the
initiation of Arbitration. If the result of the Arbitration is that the
Investing Party would incur a Loss of Rights if it engaged in the activity being
considered, then the Investing Party shall be
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subject to a Loss of Rights, without the opportunity for cure, if it then goes
forward with such activities. Any determination by the Arbitration shall take
into account any proposed divestment by the Investing Party to an unaffiliated
third party, provided that (i) such divestment occurs as promptly as
commercially reasonable (but no more than one year following the activity or
investment that would otherwise lead to a Loss of Rights) and (ii) is conducted
in accordance with the First Offer Procedures.
(f) In the event that either party (the "Aggrieved Party") believes that
the other party (the "Active Party") has engaged in activities that would
subject such Active Party to a Loss of Rights, then the Aggrieved Party shall
notify the Active Party and the parties shall seek to resolve the matter to
their mutual satisfaction. If the parties cannot resolve the matter within 60
days, then either party can initiate Arbitration within 60 days thereafter as
provided in Section 9.12(g). The parties shall seek to conclude the Arbitration
as promptly as practicable but in no event shall such Arbitration be conducted
more than 90 days subsequent to the initiation of Arbitration. If the result of
the Arbitration is that the Active Party should be subject to a Loss of Rights,
then the Active Party shall be entitled to a one year cure period (if the
arbitrators believe that the activity is capable of cure) which cure shall be
effected by divestment pursuant to the First Offer Procedures, provided that the
Active Party shall not be entitled to a cure period, or shall be entitled to a
reduced cure period, at the discretion of the arbitrators, if the arbitrators
conclude that the Aggrieved Party's business, results of operations or prospects
were materially and adversely affected by the conduct of the Active Party or
that the Active Party engaged in activities that gave rise to the Arbitration in
willful disregard of the consequences.
(g) Arbitration under Section 9.12(e) or 9.12(f) shall proceed as herein
set forth:
(i) The Investing Party shall give the Subject Party a written notice
which shall also contain, in addition to the demand for arbitration, a
clear statement of the issue to be resolved by the Arbitration, the name
and address of the arbitrator selected by the Investing Party and the
address to which all further papers regarding the Arbitration are to be
mailed or delivered.
(ii) The Subject Party shall deliver a written response to the
arbitration notice within 30 days following its actual receipt of such
notice. Such response shall contain a clear statement of its position
concerning the issue in dispute, the name and address of the arbitrator
selected by the Subject Party and the address to which all further papers
regarding the Arbitration are to be mailed or delivered. If the Subject
Party fails to designate its arbitrator within the time allowed, the
Investing Party may apply to the United States District Court for the
Southern District of New York (the "New York Court") for designation of the
second arbitrator. The application shall provide no less than five days'
notice to the Subject Party, before presentation to the New York Court. The
Subject Party may appoint the second arbitrator at any time prior to the
day the Court appoints the second arbitrator.
(iii) Within five Business Days following the selection of the second
arbitrator, the two arbitrators shall select a third arbitrator. In the
event they fail to do so within that time period, either party may apply to
the New York Court for appointment of a third arbitrator. The application
shall provide no less than five days' notice to the other party before
presentation to the New York Court. The third arbitrator must be an
attorney reasonably experienced in commercial affairs who is a member of
the New York Bar, must be impartial and must otherwise satisfy the
requirements of CPLR 7506(a) and 9 U.S.C. sec. 10. The method of selection
of arbitrators, or the arbitrators as selected, may be changed at any time
only upon written agreement of the parties.
(iv) In the selection of the party-appointed arbitrators under clauses
(i) and (ii) above, a party may select any person, including a person with
"partiality" under the meaning of CPLR 7511 or "evident partiality" under
the meaning of 9 U.S.C. sec. 10, but no party may select an arbitrator who
is or ever has been an officer, director or employee of such party or of
any Affiliate of such party; the "partiality" or "evident partiality" of an
arbitrator selected in compliance with this clause (iv) shall not be a
basis for vacating the award.
(v) If any arbitrator fails or is otherwise unable to act, a successor
arbitrator shall be selected in the same manner as the arbitrator who fails
or is otherwise unable to act was selected, except that no more than five
days shall be allowed to select a successor arbitrator under this
provision.
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(vi) The Arbitration hearing shall be conducted in New York or such
other place as the arbitrators shall decide. The hearing shall commence
within a period agreed to by the parties in writing or, in the absence of
such agreement, within ten days after the selection of the third
arbitrator, within a period determined by a majority of the arbitrators and
of which the parties are notified at least ten days prior to the first date
of hearing. Written interrogatories shall not be permitted. Depositions
shall be permitted by majority decision of the arbitration panel upon a
showing that the deposition may be helpful to the conduct of the
Arbitration. The parties may request that documents be produced, but the
only documents which must be produced are those which a majority of the
arbitration panel determines may be helpful to the conduct of the
Arbitration. The parties shall, seven days before the commencement of the
Arbitration hearing, exchange all exhibits they intend to use in the
Arbitration and notify the other party of the identity of all witnesses
whose testimony is to be presented at the arbitration. Testimony at the
hearing may be presented by telephone or affidavit, as well as by personal
appearance. The Arbitration proceeding shall be private, and all parties
and their representatives and all arbitrators shall maintain the
confidentiality of the claims, counterclaims, testimony, evidence and all
other aspects of the proceeding, except insofar as such disclosure is
required by law. The arbitrators may only resolve the question submitted to
Arbitration and shall include as part of their consideration a full review
of this Agreement and any related agreement. The decision of the majority
of the arbitrators shall be the decision of the panel. Although the
Arbitration shall not be under the auspices of the American Arbitration
Association, the Arbitration shall be conducted in accordance with the
January 1, 1991 Commercial Arbitration Rules of the American Arbitration
Association (the "Arbitration Rules"), except the procedures, requirements
and restrictions set out in this Section 9.12(g) shall govern over the
Arbitration Rules; otherwise applicable provisions of the Arbitration Rules
calling for notification by or to the American Arbitration Association
shall be satisfied by notification by or to the panel, as the case may be.
(vii) In any Arbitration pursuant to this Section 9.12(g) each party
shall pay the fees and costs of the arbitrator whom he selected. The
arbitration panel may award to the more prevailing party its other fees,
costs and expenses of the Arbitration, including reasonable attorney fees.
During the pendency of the arbitration, the fees of the third arbitrator
shall be split equally by the parties. At the conclusion of the
Arbitration, any party may apply to the New York Court for an order
confirming the Arbitration panel's decision.
(viii) Any proceeding in a court of law in connection with this
Section 9.12(g) (other than to compel Arbitration, to select an arbitrator
under clauses (ii) and (iii) above, to stay litigation pending Arbitration,
to confirm an arbitration award or to enforce an arbitration judgment)
shall be immediately stayed upon receipt of a notice or demand for
Arbitration. In any action or proceeding to compel Arbitration, to stay
litigation or confirm an arbitration award, the more prevailing party shall
be entitled to recover its fees, costs and expenses incurred therein,
including reasonable attorney fees, and including the fees, costs and
expenses, including reasonable attorney fees, incurred in any appellate
proceeding.
(h) Prior to any sale of a Subsidiary, business or assets (the "Sale
Assets") by either BT or the Company pursuant to Section 9.12(b)(iv) or
9.12(b)(v) or Section 9.12(d)(iv) or 9.12(d)(v), respectively, the party
proposing to divest itself of the Sale Assets shall provide the other party with
the opportunity to acquire the Sale Assets pursuant to a notice in writing (the
"Opportunity Notice") setting forth such terms and conditions upon which the
divesting party in good faith proposes to sell or cause the sale of the Sale
Assets to the other party. If within 90 days of receipt of the Opportunity
Notice the party that is offered the Sale Assets elects not to acquire the Sale
Assets or if the parties cannot reach agreement with respect to the terms and
conditions of such offered sale, then the divesting party shall be free to sell
or cause the sale of the Sale Assets in its discretion, provided that any
subsequent sale of the Sale Assets to a third party shall not be upon terms and
conditions that are in the aggregate less favorable to the divesting party than
the terms and conditions upon which the Sale Assets were offered to the other
party to this Agreement and the purchase price paid by a third party shall in no
event be less than the purchase price offered to the other party to this
Agreement.
(i) Subsequent to the Closing Date, in the event of a Newco Triggering
Event or if the Class A Common Stock is otherwise no longer outstanding or if
the Company has been subject to a Loss of Rights pursuant to
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Arbitration, then BT may undertake the activities specified in Section 9.12(a)
without suffering any Loss of BT Rights.
(j) Subsequent to the Closing Date, in the event of a Newco Triggering
Event or if the Class A Common Stock is otherwise no longer outstanding or BT
has been subject to Loss of Rights pursuant to Arbitration, then the Company may
undertake the activities specified in Section 9.12(c) without suffering any Loss
of Company Rights.
9.13. FCC Licenses. The Company shall not directly acquire any license
from the FCC that is subject to the provisions of Section 310(b) of the
Communications Act, and shall hold or otherwise control such licenses only
through one or more of its Subsidiaries.
9.14. Notice of Breach. The Company shall provide BT with ten days' prior
written notice of any alleged breach by BT or any of its Affiliates of its
obligations under Sections 5.1, 5.3, 7.1, 7.2, 7.3, 7.4, 10.2 or 10.3,
specifying in reasonable detail the nature of the Company's objections, and
provide BT an opportunity to cure such objections within such ten-day period
prior to seeking a judicial determination (other than in an ex parte proceeding)
that BT or any of its Affiliates has materially breached its obligations under
the aforesaid Sections (other than BT's failure to have given timely any
required notice thereunder unless the Company has been materially adversely
affected by such failure), provided that such breach is reasonably capable of
being cured. If, after having followed such procedures, the Company has applied
for such a judicial determination, BT shall reasonably cooperate with the
Company in seeking an expedited judicial resolution of the question of whether
BT has committed a breach described in the preceding sentence. The Company shall
make no public announcement that would cause the outstanding shares of Class A
Common Stock to convert automatically into shares of Common Stock pursuant to
section 4(b)(9)(ii) of the Certificate of Incorporation (as amended by the
Certificate of Amendment) by reason of the occurrence of an event described in
section 4(b)(11)(vi)(E)(i) of the Certificate of Incorporation (as amended by
the Certificate of Amendment) unless the Company has complied with the foregoing
procedures.
SECTION 10. COVENANTS OF BT
10.1. Pre-Closing Covenants.
(a) No Shopping; Other Acquisitions. From the date of this Agreement
until the Closing, BT agrees that (i) neither BT nor any of its Subsidiaries nor
any of the respective officers and directors of BT or any of its Subsidiaries
shall, and BT shall direct and use its best efforts to cause its employees,
agents and representatives (including, without limitation, any investment
banker, attorney or accountant retained by BT or any of its Subsidiaries) not
to, initiate, solicit or encourage, directly or indirectly, any inquiries or the
making of any proposal or offer (including, without limitation, any proposal or
offer to stockholders) or to engage in any discussions or negotiations with any
third party relating to an Acquisition Proposal or a tender offer or exchange
offer with respect to the Company, or otherwise facilitate any effort or attempt
to make or implement an Acquisition Proposal or a tender offer or exchange offer
with respect to the Company and (ii) BT will not enter into any transaction or
arrangement that, directly or indirectly, would after the Closing Date
reasonably be expected to result in a Loss of BT Rights under Section 9.12(a).
BT will immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to clause (i) of the preceding sentence. BT will notify the Company immediately
if any inquiries or proposals are received by, any information is requested
from, or any negotiations or discussions are sought to be initiated or continued
with, BT or any of its Affiliates regarding any Acquisition Proposals or any
tender offer or exchange offer with respect to the Company.
(b) Proxy Information. BT represents, warrants, covenants and agrees that
(i) it will provide to the Company for inclusion in the Proxy Statement all
information concerning BT and its Affiliates requested by the Company and
necessary for the preparation of such Proxy Statement and (ii) such information
will not contain any material misstatement of fact or omit to state any material
fact necessary to make the statements, in light of the circumstances under which
they are made, not misleading.
10.2. Notice of Acquisition Proposals. So long as the restrictions on the
acquisition by BT and its Affiliates of additional shares of capital stock set
forth in Section 7.1 have not been terminated, BT agrees that it will notify the
Company immediately if any inquiries or proposals are received by, any
information is
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requested from, or any negotiations or discussions are sought to be initiated or
continued with, BT or any of its Affiliates regarding any Acquisition Proposals,
any tender offer or exchange offer with respect to the Company or any purchase
of any of the shares of capital stock of the Company beneficially owned by BT
and its Affiliates (whether by way of a tender offer or exchange offer or
otherwise).
10.3. Voting of Shares. From the Closing Date and thereafter so long as
(i) the Outstanding Interest is at least 10% and (ii) no event has occurred that
has caused (x) the restrictions on the acquisition by BT and its Affiliates of
additional Voting Securities set forth in Section 7.1 to be terminated earlier
than the tenth anniversary of the Closing Date (without such restrictions having
been reinstated) or (y) the obligations of BT set forth in clauses (i) and (ii)
of Section 7.4(a) to be terminated (without such obligations having been
reinstated):
(a) If no shares of Class A Common Stock are outstanding and BT is
entitled to designate nominees for director pursuant to Section 9.7(c) or
9.11, as long as there has not been a judicial determination (other than in
an ex parte proceeding) that the Company has materially breached its
obligations under Section 9.7(c) or 9.11, if any, BT and its Affiliates
shall cast all of the votes they are entitled to cast in such election
(whether at an annual or special meeting of stockholders or by written
consent in lieu of a meeting or otherwise and whether they are so entitled
to cast such votes as a result of ownership or other control of capital
stock or by proxy or otherwise) for the election of the BT Nominees to the
Board of Directors of the Company, provided that if cumulative voting has
been eliminated, BT and its Affiliates shall cast all of the votes they are
entitled to cast in any such election for the election of the nominees to
the Board of Directors nominated by the Board of Directors of the Company.
BT shall provide the Company with ten days' prior written notice of any
alleged violation by the Company of its obligations under Section 9.7(c) or
Section 9.11, specifying in reasonable detail the nature of BT's
objections, and provide the Company an opportunity to cure such objections
within such ten-day period prior to seeking the judicial determination
described in the preceding sentence, provided that such violation is
reasonably capable of being cured. If, after having followed such
procedures, BT has applied for such a judicial determination, the Company
shall reasonably cooperate with BT in seeking an expedited judicial
resolution of the question of whether the Company has committed a violation
described in the first sentence of this Section 10.3(a).
(b) BT and its Affiliates shall vote their Voting Securities (other
than in connection with (i) the election of directors, (ii) any proposal to
redeem the Rights prior to the earlier of the fourth anniversary of the
Closing Date or the date that shares of the Class A Common Stock are no
longer outstanding, which proposal is submitted to the stockholders
pursuant to section 4(d)(7) of the Certificate of Incorporation (as amended
by the Certificate of Amendment) or (iii) with respect only to the shares
of Class A Common Stock held by BT and its Affiliates, any matter in
connection with which the holders of shares of Class A Common Stock are
entitled to vote separately as a class under section 4(b)(7) or 4(b)(8) of
the Certificate of Incorporation (as amended by the Certificate of
Amendment) or under the DGCL), at the option of the Company either (A) in
the same proportion as the Voting Securities owned by other stockholders
are voted with respect to any matter other than a proposed Business
Combination proposed by BT or (B) in BT's discretion. Subject to the
preceding sentence, if no instructions are provided by the Company with
respect to any matter upon which stockholders are voting, BT and its
Affiliates shall vote their Voting Securities in the same proportion as the
Voting Securities owned by other shareholders are voted.
(c) Notwithstanding anything to the contrary contained in Section
10.3(b), if there is a judicial determination (other than in an ex parte
proceeding) that BT or any of its Affiliates has materially breached the
provisions of Sections 7.1 through 7.3, then BT and its Affiliates shall
vote their Voting Securities in the same proportion as the Voting
Securities owned by other stockholders are voted in connection with the
consideration by the stockholders of any redemption of the Rights pursuant
to section 4(d)(7) of the Certificate of Incorporation (as amended by the
Certificate of Amendment) or the approval of any Business Combination
proposed by BT.
(d) Neither BT nor any of its Affiliates shall solicit any proxies or
consents in connection with any matter to be voted upon, or sought to be
voted upon, by the shareholders of the Company, become a
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participant, or encourage any Person to become a participant, in any such
solicitation or publicly take a position with respect to any issue that is
the subject of such solicitation, become part of a voting group or deposit
shares in a voting trust.
(e) If cumulative voting for the election of directors of the Company
has not been eliminated from the Certificate of Incorporation and BT is not
entitled to designate a nominee for director pursuant to Section 9.7(c) or
9.11, then BT and its Affiliates shall cast all of the votes they are
entitled to cast in any election of directors (other than with respect to
shares of Class A Common Stock), whether at an annual or special meeting of
stockholders or by written consent in lieu of a meeting or otherwise and
whether they are entitled to cast such votes as a result of ownership or
other control of capital stock or by proxy or otherwise, equally among the
nominees proposed by the Board of Directors of the Company, provided that
if cumulative voting has been eliminated from the Certificate of
Incorporation, BT and its Affiliates shall cast all of the votes they are
entitled to cast in any such election for the election of the nominees
nominated by the Board of Directors of the Company to the Board of
Directors.
During the period that the provisions of this Section 10.3 are in effect,
BT covenants and agrees that it will (i) cause all Voting Securities
beneficially owned by BT or its Affiliates to be present, in person or
represented by proxy, at all stockholder meetings of the Company so that all
such Voting Securities may be counted for determining the presence of a quorum
at such meetings and (ii) except in connection with any matter as to which,
under the DGCL or the Certificate of Incorporation, the holders of Class A
Common Stock are entitled to vote separately as a class (except as provided in
clause (c) above), cause such Voting Securities to be voted in accordance with
this Section 10.3 with respect to any matter upon which stockholders are voting
at such meetings.
10.4. Notice of Changes to Outstanding Interest. BT agrees that it will
notify the Company immediately if BT or any of its Affiliates takes any action
that causes or will cause the Outstanding Interest or Outstanding Voting
Interest to be, or otherwise has actual knowledge that the Outstanding Interest
or Outstanding Voting Interest is, less than the percentage specified in any
provision of the Certificate of Incorporation, the by-laws of the Company or
this Agreement as a condition to the applicability of any rights, obligations,
covenants or agreements contained therein or herein, provided that BT shall have
no liability under this Section 10.4 to the extent that such failure to notify
the Company as provided herein is inadvertent.
SECTION 11. CONDITIONS TO BT'S OBLIGATIONS
BT's obligation to purchase and pay for the Shares is subject to the
satisfaction, on or before the Closing Date, of each of the following
conditions:
11.1. Representations and Warranties. The representations and warranties
of the Company set forth in Section 3 hereof shall be true and correct in all
material respects when made and shall be true and correct in all material
respects at and as of the Closing Date, as if made on and as of such date.
11.2. Agreements and Conditions. The Company shall have performed and
complied in all material respects with all agreements, covenants and conditions
contained herein that are required to be performed or complied with by it on or
before the Closing Date.
11.3. Governmental Approvals. An FCC Order shall have been obtained,
which has not been revoked or stayed as of the Closing Date, the waiting period
under the HSR Act shall have expired or been terminated and review and
investigation under Exon-Florio shall have been terminated and the President
shall have taken no action authorized under Exon-Florio, provided that such
governmental approvals shall not be deemed to have been obtained for purposes
hereof if such governmental approvals contain a condition or restriction that,
in the reasonable opinion of BT, would materially diminish, taken as a whole,
BT's rights or protections with respect to its investment in the Company under
this Agreement, the Certificate of Amendment or the By-Law Amendments.
11.4. Purchase of Shares Not Enjoined. The purchase of the Shares by BT
shall not have been enjoined (temporarily or permanently) as of the Closing
Date.
11.5. Stockholder Approval. The stockholders of the Company shall have
approved the Proposals at the Stockholders' Meeting.
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11.6. Other Agreements. Each of the Newco Agreement, the BT North America
Agreement and the Registration Rights Agreement shall have been executed by the
Company and delivered to BT, all actions required to have been taken thereunder
on or prior to the Closing hereunder shall have been accomplished and all other
conditions thereto (other than the Closing under this Agreement) shall have been
satisfied or waived.
11.7. Non-U.S. Ownership Certificate. The Company shall have delivered to
BT a certificate, signed by a duly authorized officer, calculating the
percentage of the Company's outstanding capital stock that is Owned of Record or
Voted by Non-U.S. Persons or Entities in a manner that the Company reasonably
believes, upon advice of counsel, is appropriate for determining compliance with
Section 310(b)(4) of the Communications Act (the "Non-U.S. Ownership
Certificate").
11.8. Rights Plan. The Rights Plan shall have been adopted by the
Company, its effectiveness contingent upon the closing of the Transactions.
11.9. Section 203. The Board of Directors of the Company shall have taken
appropriate action so that, if the Closing occurs, the provisions of Section 203
of the DGCL restricting "business combinations" with "interested stockholders"
(each as defined in such Section 203) will not apply to BT or any Person who as
of the date hereof is an Affiliate of BT.
11.10. NASDAQ Notification. The Company shall have provided notification
of the proposed issuance of the Shares to the NASDAQ pursuant to Schedule D to
the By-Laws of the NASD.
11.11. Number of Shares to be Delivered. (a) The total number of Fixed
Shares and Optional Shares (whether or not BT elects to purchase the Optional
Shares), after giving effect to any reduction pursuant to Section 2.1(b) or
2.1(c), shall represent at least 19% of the total number of outstanding Common
Shares (excluding Section 9.2 Shares), calculated as of the seventh Business Day
prior to the Closing and after giving effect to the purchase of the Shares by BT
at the Closing.
(b) The aggregate percentage of the outstanding capital stock of the
Company represented by all shares of such capital stock to be Owned of Record or
Voted by BT and its Affiliates immediately following the Closing, together with
all other capital stock Owned of Record or Voted by Non-U.S. Persons or Entities
as set forth in the survey conducted in connection with the Non-U.S. Ownership
Certificate (or as otherwise known to BT), after giving effect to the purchase
of the Shares by BT at the Closing, shall not exceed the Closing Foreign
Ownership Limitation.
SECTION 12. CONDITIONS TO THE COMPANY'S OBLIGATIONS
The Company's obligation to sell the Shares to BT is subject to the
satisfaction, on or before the Closing Date, of each of the following
conditions:
12.1. Representations and Warranties. The representations and warranties
of BT contained in Section 4 hereof shall be true and correct in all material
respects when made and shall be true and correct in all material respects at and
as of the Closing Date, as if made on and as of such date.
12.2. Agreements and Conditions. BT shall have performed and complied in
all material respects with all agreements, covenants and conditions contained
herein that are required to be performed or complied with by it on or before the
Closing Date.
12.3. Governmental Approvals. An FCC Order shall have been obtained,
which has not been revoked or stayed as of the Closing Date, the waiting period
under the HSR Act shall have expired or been terminated and review and
investigation under Exon-Florio shall have been terminated and the President
shall have taken no action authorized under Exon-Florio, provided that such
governmental approvals shall not be deemed to have been obtained for purposes
hereof if such governmental approvals contain a condition or restriction that
would materially and adversely affect the business of the Company and its
Subsidiaries, taken as a whole, or, in the reasonable opinion of the Company,
would materially diminish, taken as a whole, the Company's rights or protections
under this Agreement, provided that the provisions of Section 9.12(a) shall be
deemed material to the Company for purposes hereof and Section 8.2.
12.4. Sale of Shares Not Enjoined. The sale of the Shares by the Company
shall not have been enjoined (temporarily or permanently) as of the Closing
Date.
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12.5. Stockholder Approval. The stockholders of the Company shall have
approved the Proposals at the Stockholders' Meeting.
12.6. Other Agreements. Each of the Newco Agreement, the BT North America
Agreement and the Registration Rights Agreement shall have been executed by BT
and delivered to the Company, all actions required to have been taken thereunder
on or prior to the Closing hereunder shall have been accomplished and all other
conditions thereto (other than the Closing under this Agreement) shall have been
satisfied or waived.
12.7. NASD Approval. The Company shall have been advised by the NASD that
the Common Stock will continue to be designated as a "NASDAQ National Market
System security" (as defined for purposes of Schedule D to the By-Laws of the
NASD) after the issuance and sale of the Shares and the Conversion Shares and
the effectiveness of the provisions of this Agreement relating to BT and the
Company.
12.8. Foreign Ownership Limitation. The aggregate percentage of the
outstanding capital stock of the Company represented by all shares of such
capital stock to be Owned of Record or Voted by BT and its Affiliates
immediately following the Closing, together with all other capital stock Owned
of Record or Voted by Non-U.S. Persons or Entities as set forth in the survey
conducted in connection with the Non-U.S. Ownership Certificate (or as otherwise
known to the Company), after giving effect to the purchase of the Shares by BT
at the Closing, shall not exceed the Closing Foreign Ownership Limitation,
provided that the total number of Fixed Shares and Optional Shares (subject to
purchase at the option of BT), after giving effect to any reduction pursuant to
Section 2.1(b) or 2.1(c), shall represent at least 19% of the outstanding Common
Shares (excluding Section 9.2 Shares), calculated as of the seventh Business Day
prior to the Closing and after giving effect to the purchase of the Shares by BT
at the Closing.
SECTION 13. TERMINATION
13.1. Termination. This Agreement and the transactions contemplated
hereby may be terminated at any time prior to the Closing Date:
(a) Mutual Consent. By mutual consent of the Company and BT;
(b) Expiration Date. By the Company or BT by written notice to the
other party at any time after the first anniversary of the date of this
Agreement if any condition is not waived or satisfied within such one year
period until such time as all conditions are waived or satisfied; provided,
however, that if any condition shall not have been waived or satisfied
within such one year period due to the willful act or omission of one of
the parties, that party may not terminate this Agreement;
(c) Permanent Injunction. By the Company or BT if consummation of the
Transactions shall violate any final non-appealable order, decree or
judgment of any court or governmental body having competent jurisdiction;
(d) Lack of FCC Approval. By the Company or BT if an FCC Order shall
be permanently and unconditionally denied;
(e) Failure to Honor Agreements. By the Company or BT if the other
party shall have failed to perform or comply in any material respect with
any agreement or covenant contained herein that is required to be performed
or complied with by it on or before the Closing Date after having been
provided by the other party written notice of, and a reasonable opportunity
to cure, such failure;
(f) Other Offer. By BT if (i) the Board of Directors of the Company
recommends the acceptance of a tender offer or exchange offer by a third
party for outstanding shares of the Common Stock, (ii) prior to the
Stockholders' Meeting the Board of Directors of the Company fails to
recommend or withdraws its recommendation to the stockholders of the
Proposals, or (iii) the Company enters into an agreement in principle or a
definitive agreement with a Person other than BT with respect to an
Acquisition Proposal; or
(g) Lack of Stockholder Approval. By the Company or BT if the
stockholders of the Company shall have failed to approve the Proposals at
the Stockholders' Meeting.
13.2. Effect of Termination. If this Agreement is terminated pursuant to
this Section 13, this Agreement shall forthwith become wholly void and of no
further force and effect and all further obligations of
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the Company and BT or their respective officers or directors with respect to any
obligation under this Agreement shall terminate without further liability except
(i) for the provisions set forth in Section 5 other than in Section 5.1(b)
(except that the date "June 2, 1995" shall be substituted for the words "the
fourth anniversary of the Closing Date" in the first sentence of Section 5.1
and, if the Registration Rights Agreement shall not yet have been entered into,
the first two sentences of Section 5.5 shall be terminated), (ii) for the
provisions of Sections 7.1, 7.2, 7.3 and 10.2, which shall terminate on the
later of the first anniversary of the date of such termination (the "Termination
Date") or December 31, 1994 (except that the Termination Date shall be deemed
substituted in place of the term "Closing Date" wherever the same appears in
such provisions of Section 7), (iii) for the obligations of the Company and BT
under Section 14.2 and (iv) that such termination shall not constitute a waiver
or bar by any party of any rights or remedies at law or in equity it may have by
reason of a breach of this Agreement by the other party.
SECTION 14. MISCELLANEOUS
14.1. Notices. All notices, demands, requests, certificates or other
communications under this Agreement shall be in writing and shall be
telegraphed, mailed by certified or registered mail with charges prepaid, hand
delivered or sent by facsimile transmission, by tested or otherwise
authenticated telex or cable or by commercial courier guaranteeing next Business
Day delivery:
(i) if to the Company:
MCI Communications Corporation
1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Attention: Mr. John Whiteside
Vice President
with a copy to:
MCI Communications Corporation
1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Attention: John R. Worthington, Esq.
Senior Vice President and General Counsel
and a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Richard I. Beattie, Esq.
(ii) if to BT:
British Telecommunications plc
BT Centre
81 Newgate Street
London EC1A 7AJ
England
Attention: Mr. Colin R. Green
Solicitor and Chief Legal Adviser
with a copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Attention: Albert F. Lilley, Esq.
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<PAGE> 143
Any notice delivered after business hours or on a Saturday, Sunday or legal
holiday at the place designated in such delivery shall be deemed for purposes of
computing any time period hereunder to have been delivered on the next Business
Day.
14.2. Expenses. Each party shall bear its own expenses, including the
fees and expenses of any attorneys, accountants, investment bankers, brokers,
finders or other intermediaries or other Persons engaged by it, incurred in
connection with this Agreement or the other agreements contemplated hereby and
the Transactions.
14.3. Restrictive Trade Practices Act. No provision of this Agreement or
any other agreements or documents relating to the Transactions, which is subject
to registration under the RTPA shall come into effect until the day following
particulars of this Agreement (and such other agreement or document) have been
furnished to the Director General of Fair Trading pursuant to Section 24 of the
RTPA (or such date following such furnishing of particulars as may be provided
for such in relation to any such restriction).
14.4. Survival. All representations and warranties made by the Company or
BT herein or in any certificate or other instrument delivered by it or on its
behalf under this Agreement shall not survive the Closing.
14.5. Benefits; Assignment. The provisions of this Agreement shall be
binding upon, and inure to the benefit of, the parties and their respective
successors and permitted assigns; however, except as expressly provided in this
Agreement, neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned (i) by the Company under any
circumstances (other than as provided in Section 5) or (ii) by BT, except (1) to
a wholly owned direct or indirect subsidiary of BT, provided that BT (A) shall
remain liable for the performance by any such subsidiary of its obligations
under this Agreement, (B) shall act as agent for any and all such subsidiaries
in connection with the receipt or giving of any and all notices under this
Agreement and (C) shall not cause or permit any such subsidiary to be other than
a wholly owned direct or indirect subsidiary of BT and (2) BT may assign its
rights under the Registration Rights Agreement as permitted in clause (v) of the
first sentence of Section 5.1(b). Nothing in this Agreement, express or implied,
is intended to confer upon any Person other than the parties hereto and their
respective successors and permitted assigns any rights, remedies or obligations
under or by reason of this Agreement.
14.6. Entire Agreement; Amendment and Waiver. (a) This Agreement (which
includes the Schedules and Exhibits hereto), the Newco Agreement and the
"Related Agreements" (as defined in the Newco Agreement) constitute the entire
agreement between the parties hereto with respect to the subject matter hereof
and supercede all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
(b) This Agreement may not be amended, changed, supplemented, waived or
otherwise modified except by an instrument in writing signed by the party
against which enforcement is sought. Any waiver by any party hereto of a breach
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
14.7. Headings. The headings in this Agreement are for convenience only
and shall not affect the construction hereof.
14.8. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
14.9. Remedies. (a) Each of the Company and BT acknowledges that the
other party would not have an adequate remedy at law for money damages in the
event that any of the covenants or agreements of the other party in this
Agreement were not performed in accordance with its terms, and it is therefore
agreed that each of BT and the Company, in addition to and without limiting any
other remedy or right it may have, will have the right to an injunction or other
equitable relief in any court of competent jurisdiction, subject to Section
14.10, enjoining any such breach and enforcing specifically the terms and
provisions hereof, and each of BT and the Company hereby waive any and all
defenses they may have on the ground of lack of jurisdiction or competence of
the court to grant such an injunction or other equitable relief. Notwithstanding
anything to the contrary contained herein, any action that the Board of
Directors of the Company is required to take or is prohibited from taking
pursuant to an order of a court shall not give rise to a breach of this
Agreement, provided that (i) the Company is not prior to such order in breach of
this Agreement with respect to such
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action and (ii) the Company has used reasonable efforts in good faith
(including, without limitation, the taking of any appropriate appeals) to resist
the imposition of such order.
(b) All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise or beginning of the exercise of any
thereof by any party shall not preclude the simultaneous or later exercise of
any other such right, power or remedy by such party.
14.10. SUBMISSION TO JURISDICTION; WAIVERS. EACH OF BT AND THE COMPANY
IRREVOCABLY AGREES THAT ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF
BROUGHT BY THE OTHER PARTY HERETO OR ITS SUCCESSORS OR ASSIGNS, MAY BE BROUGHT
AND DETERMINED IN THE SUPREME COURT OF THE STATE OF NEW YORK IN NEW YORK COUNTY
OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK,
AND EACH OF BT AND THE COMPANY HEREBY IRREVOCABLY SUBMITS WITH REGARD TO ANY
SUCH ACTION OR PROCEEDING FOR ITSELF AND IN RESPECT TO ITS PROPERTY, GENERALLY
AND UNCONDITIONALLY, TO THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS.
EACH OF BT AND THE COMPANY HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT,
BY WAY OF MOTION, AS A DEFENSE, COUNTERCLAIM OR OTHERWISE, IN ANY ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE DEFENSE OF SOVEREIGN IMMUNITY,
ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF THE
ABOVE-NAMED COURTS FOR ANY REASON OTHER THAN THE FAILURE TO SERVE PROCESS IN
ACCORDANCE WITH THIS SECTION 14.10, THAT IT OR ITS PROPERTY IS EXEMPT OR IMMUNE
FROM JURISDICTION OF ANY SUCH COURT OR FROM ANY LEGAL PROCESS COMMENCED IN SUCH
COURTS (WHETHER THROUGH SERVICE OF NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION OF JUDGMENT, EXECUTION OF JUDGMENT OR OTHERWISE),
AND TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THAT THE SUIT, ACTION OR
PROCEEDING IN ANY SUCH COURT IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE
OF SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS AGREEMENT, OR THE
SUBJECT MATTER HEREOF OR THEREOF, MAY NOT BE ENFORCED IN OR BY SUCH COURTS AND
FURTHER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
THE BENEFIT OF ANY DEFENSE THAT WOULD HINDER, FETTER OR DELAY THE LEVY,
EXECUTION OR COLLECTION OF ANY AMOUNT TO WHICH THE PARTY IS ENTITLED PURSUANT TO
THE FINAL JUDGMENT OF ANY COURT HAVING JURISDICTION. BT HEREBY IRREVOCABLY
DESIGNATES CT CORPORATION SYSTEM (IN SUCH CAPACITY, THE "PROCESS AGENT"), WITH
AN OFFICE ON THE DATE HEREOF AT 1633 BROADWAY, NEW YORK, NEW YORK 10019, AS THE
DESIGNEE, APPOINTEE AND AGENT OF BT TO RECEIVE, FOR AND ON BEHALF OF BT SERVICE
OF PROCESS IN SUCH JURISDICTION IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT
TO THIS AGREEMENT AND SUCH SERVICE SHALL BE DEEMED COMPLETE UPON DELIVERY
THEREOF TO THE PROCESS AGENT, PROVIDED THAT IN THE CASE OF ANY SUCH SERVICE UPON
THE PROCESS AGENT, THE PARTY EFFECTING SUCH SERVICE SHALL ALSO DELIVER A COPY
THEREOF TO BT IN THE MANNER PROVIDED IN SECTION 14.1. BT SHALL TAKE ALL SUCH
ACTION AS MAY BE NECESSARY TO CONTINUE SAID APPOINTMENT IN FULL FORCE AND EFFECT
OR TO APPOINT ANOTHER AGENT SO THAT BT WILL AT ALL TIMES HAVE AN AGENT FOR
SERVICE OF PROCESS FOR THE ABOVE PURPOSES IN NEW YORK, NEW YORK. EACH OF BT AND
THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF
THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED AIRMAIL, POSTAGE PREPAID, TO SUCH PARTY AT ITS
ADDRESS SET FORTH IN THIS AGREEMENT, SUCH SERVICE OF PROCESS TO BE EFFECTIVE
UPON ACKNOWLEDGEMENT OF RECEIPT OF SUCH REGISTERED MAIL. NOTHING HEREIN SHALL
AFFECT THE RIGHT OF EITHER PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE OTHER
PARTY IN ANY OTHER JURISDICTION IN WHICH THE OTHER PARTY MAY BE SUBJECT TO SUIT.
BT EXPRESSLY ACKNOWLEDGES THAT THE FOREGOING WAIVER IS INTENDED TO BE
IRREVOCABLE UNDER THE LAWS OF THE STATE OF NEW YORK AND OF THE UNITED STATES OF
AMERICA, PROVIDED THAT BT'S CONSENT TO JURISDICTION AND SERVICE CONTAINED IN
THIS SECTION 14.10 IS SOLELY FOR THE PURPOSE REFERRED TO IN THIS SECTION 14.10
AND SHALL NOT BE DEEMED TO BE A GENERAL SUBMISSION TO SAID COURTS OR IN THE
STATE OF NEW YORK OTHER THAN FOR SUCH PURPOSE.
IN THE EVENT OF THE TRANSFER OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS AND
BUSINESS OF THE PROCESS AGENT TO ANY OTHER CORPORATION BY CONSOLIDATION, MERGER,
SALE OF ASSETS OR OTHERWISE, SUCH OTHER CORPORATION SHALL BE SUBSTITUTED
HEREUNDER FOR THE PROCESS AGENT WITH THE SAME EFFECT AS IF NAMED HEREIN IN PLACE
OF CT CORPORATION SYSTEM.
14.11. Severability. In the event that any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
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14.12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
MCI COMMUNICATIONS CORPORATION
By:
Name:
Title:
BRITISH TELECOMMUNICATIONS plc
By:
Name:
Title:
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<PAGE> 146
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
MCI COMMUNICATIONS CORPORATION
PURSUANT TO SECTION 242 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
------------------------------------
MCI Communications Corporation, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware
(hereinafter, the "Corporation"), DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation held
on , 1993 resolutions were duly adopted setting forth proposed
amendments to the Restated Certificate of Incorporation of the Corporation,
declaring said amendments to be advisable, and directing that said amendments be
considered at a special meeting of the stockholders of the Corporation. The
resolution setting forth the proposed amendments is as follows:
"RESOLVED, that the board of directors hereby declares it advisable
that the Restated Certificate of Incorporation of this corporation be
amended as follows:
(i) That section 4 of the Restated Certificate of Incorporation be
amended by deleting the introductory paragraph of section 4 in its entirety
and substituting in lieu thereof the following:
'Authorized Capital Stock. The total number of shares of stock that this
corporation shall have authority to issue is Two Billion Three Hundred
Fifty Million (2,350,000,000) shares of par value of ten cents ($.10)
each, divided into three classes: Fifty Million (50,000,000) shares
designated as Preferred Stock (hereinafter, the "Preferred Stock");
Three Hundred Million (300,000,000) shares designated as Class A Common
Stock (hereinafter, the "Class A Common Stock"); and Two Billion
(2,000,000,000) shares designated as Common Stock (hereinafter, the
"Common Stock").'
(ii) That section 4 of the Restated Certificate of Incorporation be
further amended by relettering paragraph (b) and paragraph (c),
respectively, of section 4 to become paragraph (c) and paragraph (d) of
section 4, respectively; and any and all references throughout the Restated
Certificate of Incorporation to the paragraphs of section 4 formerly
lettered as paragraphs (b) and (c) shall be amended accordingly to refer to
paragraphs (c) and (d) respectively.
(iii) That section 4 of the Restated Certificate of Incorporation be
further amended by adding the following as a new paragraph (b) of section
4:
'(b) The Class A Common Stock.
(1) After the requirements with respect to preferential dividends
on the Preferred Stock (fixed in accordance with the provisions of
paragraph (a) of this section 4) shall have been met and after this
corporation shall have complied with all the requirements, if any, with
respect to the setting aside of sums as sinking funds or redemption or
purchase accounts in respect of the Preferred Stock (fixed in accordance
with the provisions of paragraph (a) of this section 4), and subject
further to any other conditions that may be fixed in accordance with the
provisions of paragraph (a) of this section 4, including, without
limitation, the right of any of the holders of any series of Preferred
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Stock to participate therein, the holders of shares of Class A Common
Stock shall be entitled to receive, when, as and if declared by the
board of directors out of funds legally available for the purpose,
dividends, payable on the same date fixed for the payment of the
corresponding dividend on the Common Stock (other than a dividend
payable in shares of Common Stock), in an amount per share (rounded to
the nearest cent if payable in cash) equal to the aggregate per share
amount of any cash dividend and the aggregate per share amount (payable
in kind) of any non-cash dividend (other than a dividend payable in
shares of Common Stock) paid on the Common Stock.
(2) In the event this corporation shall at any time declare and pay
any dividend on the Common Stock payable in shares of Common Stock or
effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment
of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case this corporation
shall, as the case may be, declare and pay an equivalent dividend per
share on the Class A Common Stock payable in shares of Class A Common
Stock or effect an equivalent subdivision or combination or
consolidation of the outstanding shares of Class A Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Class A Common Stock) into a greater or lesser number of shares of Class
A Common Stock.
(3) This corporation shall declare a dividend on the Class A Common
Stock as provided in subparagraph (1) and subparagraph (2) of this
paragraph (b) at the same time that it declares any dividend on the
Common Stock and shall effect a subdivision or combination or
consolidation of the outstanding shares of Class A Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Class A Common Stock) into a greater or lesser number of shares of Class
A Common Stock as provided in subparagraph (2) of this paragraph (b) at
the same time that it effects any subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock.
(4) Except as set forth in subparagraphs (1) through (3) of this
paragraph (b), holders of shares of the Class A Common Stock shall not
be entitled to receive, and this corporation shall not declare or pay,
any dividend or distribution (whether in cash, property or securities)
on the Class A Common Stock.
(5) After distribution in full of the preferential amount, if any,
to be distributed to the holders of the Preferred Stock (fixed in
accordance with the provisions of paragraph (a) of this section 4) in
the event of any voluntary or involuntary liquidation, dissolution or
winding-up of this corporation, the holders of the Class A Common Stock
shall, subject to the right, if any, of the holders of any series of
Preferred Stock to participate therein (fixed in accordance with the
provisions of paragraph (a) of this section 4), be entitled together
with the holders of the Common Stock to receive all the remaining assets
of this corporation, tangible and intangible, of whatever kind available
for distribution to stockholders, ratably in proportion to the number of
shares held by each such holder.
(6) Except as may otherwise be required by law, this Certificate of
Incorporation or the provisions of the resolutions adopted by the board
of directors pursuant to paragraph (a) of this section 4, each holder of
the Class A Common Stock shall have one vote in respect of each share of
the Class A Common Stock held by such holder on each matter in respect
of which the holders of the Common Stock are entitled to vote, and the
holders of the Class A Common Stock shall vote together with the holders
of the Common Stock as a single class; provided, however, that the
holders of the Class A Common Stock shall not be entitled to vote in the
election of directors except as provided in subparagraph (7) of this
paragraph (b).
(7) (i) The holders of the Class A Common Stock shall have the
exclusive right, voting separately as a class, to elect that number of
directors of this corporation (hereinafter, the "Class A Directors")
equal to the product (rounded to the nearest whole number if such
product is not a whole number) of (x) the Outstanding Voting Interest
(as hereinafter defined in subdivision (xv) of
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subparagraph (11) of this paragraph (b)) times (y) the total number of
directors constituting the whole board of directors, at each meeting of
the stockholders held for the purpose of electing directors; provided
that, at any time that the Outstanding Voting Interest is from and
including 15% to and including 20%, then in calculating such number of
directors the multiplier set forth in the preceding clause (x) shall be
20% in lieu of the Outstanding Voting Interest; and provided further
that while Section 310(b) of the Communications Act of 1934, as amended
(or any successor provision of law), remains in effect, under no
circumstances shall the holders of Class A Common Stock have the right
to elect directors such that the number of Class A Directors would
constitute more than the maximum percentage of the total directors of
this corporation permitted under such Section 310(b) and under no
circumstances shall the number of Class A Directors serving on the board
of directors be more than the maximum percentage permitted under such
Section 310(b). The directors of this corporation other than the Class A
Directors shall be elected by the holders of the class or classes or
series of stock entitled to vote therefor, but excluding the Class A
Common Stock.
(ii) At any meeting held for the purpose of electing directors, the
presence in person or by proxy of the holders of at least a majority of
the then outstanding shares of Class A Common Stock shall be required
and be sufficient to constitute a quorum of such class for the election
of Class A Directors by such class. At any such meeting or adjournment
thereof (x) the absence of a quorum of the holders of Class A Common
Stock shall not prevent the election of directors other than the Class A
Directors and the absence of a quorum or quorums of the holders of
capital stock entitled to elect such other directors shall not prevent
the election of the Class A Directors and (y) in the absence of a quorum
of the holders of shares of Class A Common Stock, a majority of such
holders present in person or by proxy shall have the power to adjourn
the meeting for the election of Class A Directors, from time to time,
without notice (except as required by law) other than an announcement at
the meeting, until a quorum shall be present.
(iii) Except as provided in this subdivision (iii), each Class A
Director shall serve until the next annual meeting of the stockholders
and until such director's successor has been elected and qualified,
subject to such director's earlier death, resignation, removal or
retirement. Upon the conversion of all outstanding shares of Class A
Common Stock pursuant to subdivision (ii) of subparagraph (9) of this
paragraph (b), the term of office of all Class A Directors then in
office shall thereupon terminate, the vacancy or vacancies resulting
from such termination shall be filled by the remaining directors then in
office, acting by majority vote of such remaining directors, and the
director or directors so elected to fill such vacancy or vacancies shall
not be treated hereunder or under the by-laws of this corporation as
Class A Directors. If at any time the number of directors that the
holders of the Class A Common Stock have the right to elect pursuant to
subdivision (i) of this subparagraph (7) shall decrease other than as
set forth in the preceding sentence (whether upon the conversion of
shares of Class A Common Stock pursuant to subdivision (i) of
subparagraph (9) of this paragraph (b), upon the decrease in the number
of directors constituting the whole board of directors or otherwise),
then the term of office of a number of Class A Directors then in office
equal to such decrease shall terminate effective at the close of
business on the fifteenth day following the event that resulted in such
decrease (the "Termination Date"); provided, however, that if, prior to
the Termination Date, the holders ofthe Class A Common Stock shall not
have removed or caused to resign, in either case effective as of the
Termination Date, a number of Class A Directors equal to such decrease,
then the terms of office of all Class A Directors then in office shall
terminate on the Termination Date. The vacancy or vacancies resulting
from the termination provided for in the preceding sentence shall be
filled as follows: (A) the vacancy or vacancies equal to the number of
directors that the holders of the Class A Common Stock then have the
right to elect pursuant to subdivision (i) of this subparagraph (7)
(after giving effect to the decrease referred to in the preceding
sentence) shall be filled as provided in subdivision (iv) of this
subparagraph (7), and the director or directors so elected to fill such
vacancy or vacancies shall be treated hereunder and under the by-laws of
this corporation as Class A Directors; and (B) the remaining vacancy or
vacancies shall be filled by the remaining directors then in office,
acting by majority vote of such remaining
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directors, and the director or directors so elected to fill such vacancy
or vacancies shall not be treated hereunder or under the by-laws as
Class A Directors.
(iv) Subject to subdivision (iii) of this subparagraph (7), in case
of any vacancy occurring among the Class A Directors, the remaining
Class A Director or Directors may appoint a successor to hold office for
the unexpired term of the Class A Director whose place shall be vacant.
If at any time the offices of all Class A Directors shall be vacant,
then, subject to subdivision (iii) of this subparagraph (7), the holders
of Class A Common Stock then outstanding, voting separately as a class,
may, either by written consent or at a special meeting of such holders
called in accordance with the by-laws of this corporation, elect
successors to hold office for the unexpired terms of the directors whose
places shall be vacant.
(8) So long as any shares of Class A Common Stock are outstanding,
this corporation shall not, without the written consent or affirmative
vote of the holders of a majority of the shares of Class A Common Stock
at the time outstanding, voting separately as a class, either in writing
or by resolution adopted at an annual or special meeting called for the
purpose, take, and this corporation shall not directly or indirectly
engage in, any of the following actions (other than actions involving
transactions solely between or among this corporation and one or more
wholly owned Subsidiaries (as hereinafter defined in subdivision (xix)
of subparagraph (11) of this paragraph (b)) of this corporation):
(i) The amendment of this Certificate of Incorporation so as to
affect adversely the rights of holders of shares of Class A Common
Stock;
(ii) Any Business Combination (as hereinafter defined in
subdivision (iv) of subparagraph (11) of this paragraph (b)) to be
effected prior to the fourth anniversary of the Closing Date (as
hereinafter defined in subdivision (v) of subparagraph (11) of this
paragraph (b));
(iii) The issuance of any series or class of capital stock
having either (A) more than one vote per share (other than pursuant
to the Rights Plan (as hereinafter defined in subdivision (xviii) of
subparagraph (11) of this paragraph (b))) or (B) a class vote on any
matter, except to the extent such class vote is required by Delaware
corporate law or to the extent that the holders of any series of
preferred stock may have the right, voting separately as a class, to
elect a number of directors of this corporation upon the occurrence
of a default in payment of dividends or redemption price;
(iv) (A) The adoption of any shareholder rights plan, or any
other plan or arrangement that could reasonably be expected to
disadvantage any shareholder on the basis of the size of its
shareholding, such that any holder of Class A Common Stock or any of
its Affiliates (as hereinafter defined in subdivision (i) of
subparagraph (11) of this paragraph (b)) would be adversely affected
in relation to their position under the Rights Plan as in effect on
the Closing Date; provided that the adoption of a shareholder rights
plan that is substantially similar to the Rights Plan as in effect on
the Closing Date (without regard to the provisions of this
Certificate of Incorporation or the Investment Agreement (as
hereinafter defined in subdivision (x) of subparagraph (11) of this
paragraph (b)) relating thereto) shall be deemed not to affect such
holders and their Affiliates adversely in relation to their position
under the Rights Plan as in effect on the Closing Date;
(B) The amendment, modification or termination of the Rights
Plan (but excluding any redemption or exchange of the Rights (as
hereinafter defined in subdivision (xvii) of subparagraph (11) of
this paragraph (b)) effected in accordance with the terms of the
Rights Plan and, to the extent applicable thereto, this Certificate
of Incorporation and the Investment Agreement), if such action would
adversely affect the rights of holders of shares of Class A Common
Stock and their Affiliates in relation to their position under the
Rights Plan as in effect on the Closing Date (without regard to the
provisions of this Certificate of Incorporation or the Investment
Agreement relating thereto); provided that the amendment of the
Rights
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Plan to extend the expiration date or amend the exercise price
thereof shall be deemed not to affect such holders and their
Affiliates adversely in relation to their position under the Rights
Plan as in effect on the Closing Date;
(v) The issuance of Voting Securities (as hereinafter defined in
subdivision (xxiii) of subparagraph (11) of this paragraph (b))
(excluding the issuance of Voting Securities pursuant to or upon (w)
the terms of the Series D Convertible Preferred Stock or the Class A
Common Stock, (x) the exercise or exchange of the Rights, (y) grants
or issuances of capital stock or any options or any other rights to
acquire shares of capital stock pursuant to Employee Stock Plans (as
hereinafter defined in subdivision (viii) of subparagraph (11) of
this paragraph (b)) and any Voting Securities issuable upon the
exercise of any such options or other rights or (z) the reissuance of
Voting Securities purchased by this corporation subsequent to
, 1993) representing voting power in excess of (A) 10% of
the aggregate voting power of the outstanding Voting Securities as of
the date of such issuance in any single or related series of
transactions or (B) 15% of the aggregate voting power of the average
number of Voting Securities outstanding over a rolling three-year
period; provided that, for purposes of this subdivision (v), (i) the
issuance of options, warrants or other securities exercisable for or
convertible into shares of capital stock shall be deemed to be the
issuance of the shares of capital stock for or into which such
securities are exercisable or convertible and capital stock shall be
deemed to be issued on the date that this corporation executes an
agreement to issue such capital stock unless, at the time of such
execution, this corporation shall have elected to consider such
capital stock to be issued on a subsequent date and (ii) such
percentages shall be calculated after giving effect to the issuance
or issuances in question;
(vi) The issuance of Voting Securities (other than issuances (A)
applicable on a pro rata basis to all holders of a class or series of
capital stock generally or (B) upon the exercise of the Rights) to
any person (other than a holder of Class A Common Stock or any of its
Affiliates) that beneficially owns, or as a result thereof would
beneficially own, more than 5% of the outstanding Voting Securities,
and transactions (other than transactions (x) applicable on an equal
basis to all holders of a class or series of capital stock generally,
(y) in accordance with the Rights Plan or (z) any Business
Combination effected subsequent to the fourth anniversary of the
Closing Date) with any person that beneficially owns more than 5% of
the outstanding shares of capital stock of this corporation;
(vii) Any single or related series of acquisitions of businesses
or assets or investments therein (including, without limitation, the
formation of a joint venture with persons other than holders of Class
A Common Stock), other than money market types of investments and
trade receivables, pursuant to which the Fair Market Value (as
hereinafter defined in subdivision (ix) of subparagraph (11) of this
paragraph (b)) of the aggregate purchase price paid by this
corporation will exceed 20% of the Market Capitalization (as
hereinafter defined in subdivision (xii) of subparagraph (11) of this
paragraph (b)) of this corporation at the time that this corporation
executes a definitive agreement to effect such acquisition;
(viii) Any single or related series of acquisitions of
businesses or assets or investments (including, without limitation,
the formation of a joint venture with persons other than holders of
Class A Common Stock) in a Non-Core Business (as hereinafter defined
in subdivision (xiii) of subparagraph (11) of this paragraph (b))
pursuant to which the Fair Market Value of the aggregate purchase
price paid by this corporation will exceed 5% of the Market
Capitalization of this corporation at the time that this corporation
executes a definitive agreement to effect such acquisition or
investment, except to the extent that any such Non-Core Business is
obtained in the course of a bona fide transaction the principal
purpose of which is the acquisition of a Core Business (as
hereinafter defined in subdivision (vii) of subparagraph (11) of this
paragraph (b));
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(ix) Any single or related series of sales, transfers or other
dispositions or encumbrances of assets having a Fair Market Value in
excess of 15% of the aggregate Fair Market Value (as determined by
the Independent Directors (as hereinafter defined in subdivision
(iii) of paragraph (b) of section 9 of this Certificate of
Incorporation) in accordance with the procedures for a determination
by the Independent Directors set forth in the Investment Agreement)
of the total assets of this corporation and its Subsidiaries taken as
a whole at the time that this corporation executes a definitive
agreement to effect such disposition or encumbrance; provided that a
sale of all or substantially all of the assets of this corporation
shall not be deemed a sale, transfer or other disposition or
encumbrance for purposes of this subdivision (ix);
(x) The incurrence of indebtedness for money borrowed,
including, without limitation, financing whether or not required to
be presented on the consolidated balance sheet of this corporation
and its subsidiaries in accordance with generally accepted accounting
principles, that would cause this corporation's ratio of consolidated
debt-to-total capitalization to exceed 65%; for purposes of this
subdivision (x), "total capitalization" means the sum of consolidated
stockholders' equity and consolidated long-term indebtedness
(including, without limitation, financing that is not required to be
presented on such consolidated balance sheet); and
(xi) The declaration of any extraordinary cash dividends or
other distribution to holders of any class or classes, and/or any
series thereof, of capital stock in excess of 5% of the Market
Capitalization of this corporation at the time of such dividend or
other distribution;
provided, however, that nothing in the foregoing shall require any
consent or affirmative vote of the holders of the Class A Common Stock
pursuant to this subparagraph (8) in order for this corporation to
satisfy its obligations or exercise its rights under the Investment
Agreement, the Joint Venture Agreement (as hereinafter defined in
subdivision (vii) of subparagraph (11) of this paragraph (b)) or any
"Related Agreement" (as defined in the Joint Venture Agreement), for any
transaction pursuant to the terms of the Series D Preferred Stock or the
Class A Common Stock, for any other transaction between or in respect of
this corporation or any of its Affiliates, on the one hand, and any
holder of Series D Preferred Stock or the Class A Common Stock or any of
their Affiliates, on the other hand, or in connection with any action
pursuant to a Requirement of Law (as hereinafter defined in subdivision
(xvi) of subparagraph (11) of this paragraph (b)).
(9) (i) If any issued and outstanding share of Class A Common Stock
is Transferred (as hereinafter defined in subdivision (xx) of
subparagraph (11) of this paragraph (b)) to any person other than a
wholly owned direct or indirect subsidiary of the transferring holder or
the corporate parent or ultimate corporate parent of the transferring
holder (provided that such transferring holder is a wholly owned direct
or indirect subsidiary of such corporate parent or ultimate corporate
parent), each share of Class A Common Stock so Transferred shall be
automatically converted, without any action on the part of this
corporation or any action on the part of the transferring holder, into
one fully paid and nonassessable share of the Common Stock.
(ii) Upon the occurrence of a Conversion Event (as hereinafter
defined in subdivision (vi) of subparagraph (11) of this paragraph (b)),
without any action on the part of this corporation or the holders of
shares of Class A Common Stock, each share of Class A Common Stock
issued and outstanding immediately prior to the Conversion Event shall
automatically be converted into one fully paid and nonassessable share
of the Common Stock. Upon the occurrence of a Conversion Event, prompt
written notice thereof and of the resulting conversion of the Class A
Common Stock shall be given by first class mail, postage prepaid, to
each person who immediately prior to the Conversion Event was a holder
of record of shares of Class A Common Stock at such person's address as
the same appears on the stock register of this corporation; provided,
however, that no failure to give such notice nor any defect therein
shall affect the effectiveness of the conversion of any shares of Class
A Common Stock. Each such notice shall include a statement setting forth
the
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place or places where certificates formerly representing shares of Class
A Common Stock are to be surrendered in accordance with subparagraph
(iv) of this subparagraph (9).
(iii) Conversion pursuant to this subparagraph (9) shall be deemed
to have been effected at the time of the Transfer or the Conversion
Event, as the case may be, that resulted in such conversion
(hereinafter, the "Conversion Time"). Immediately upon such conversion,
the rights of the holders of shares of Class A Common Stock so converted
as such shall cease and such holders shall be treated for all purposes
as having become the record owners of the shares of Common Stock
issuable upon such conversion; provided, however, that such persons
shall be entitled to receive when paid any dividends declared on the
Class A Common Stock as of a record date preceding the Conversion Time
and unpaid as of the Conversion Time. In the event the stock transfer
books of this corporation shall be closed at the Conversion Time, such
person or persons shall be deemed to have become such holder or holders
of record of the Common Stock at the opening of business on the next
succeeding day on which such stock transfer books are open.
(iv) As promptly as practicable after the Conversion Time, upon the
delivery to this corporation of the certificates formerly representing
shares of Class A Common Stock, this corporation shall deliver or cause
to be delivered, to or upon the written order of the record holder of
the surrendered certificates formerly representing shares of Class A
Common Stock, a certificate or certificates representing the number of
fully paid and nonassessable shares of Common Stock into which the
shares of Class A Common Stock formerly represented by such certificates
have been converted in accordance with the provisions of this
subparagraph (9).
(v) This corporation will pay any and all documentary, stamp or
similar issue or transfer taxes payable in respect of the issue or
delivery of shares of Common Stock on the conversion of shares of Class
A Common Stock pursuant to this subparagraph (9); provided, however,
that this corporation shall not be required to pay any tax which may be
payable in respect of any registration of transfer involved in the issue
or delivery of shares of Common Stock in a name other than that of the
registered holder of Class A Common Stock converted or to be converted,
and no such issue or delivery shall be made unless and until the person
requesting such issue has paid to this corporation the amount of any
such tax or has established, to the satisfaction of this corporation,
that such tax has been paid.
(vi) This corporation shall at all times reserve and keep
available, out of the aggregate of its authorized but unissued Common
Stock and its issued Common Stock held in its treasury, for the purpose
of effecting the conversion of the Class A Common Stock, the full number
of shares of Common Stock then deliverable upon the conversion of all
outstanding shares of the Class A Common Stock.
(10) Subject to the provisions of the Investment Agreement, holders
of Class A Common Stock shall be entitled to such Voting Equity purchase
rights as may be accorded to such holders pursuant to Section 6.1 of the
Investment Agreement, so long as such agreement remains in effect.
(11) For purposes of this paragraph (b) (and, with respect to
subdivision (v), subdivision (xvii) and subdivision (xxiii) of this
subparagraph (11), for purposes of paragraph (d) of this section 4, and,
with respect to subdivision (ix), subdivision (x) and subdivision (xix)
of this subparagraph (11), for purposes of section 9 of this Certificate
of Incorporation):
(i) "Affiliate" shall mean, as applied to a specified person,
any other person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, such specified person.
(ii) "Americas" shall have the meaning set forth in the
Investment Agreement.
(iii) "BT" shall mean British Telecommunications plc, a public
limited company incorporated under the laws of England and Wales, or
its successor.
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(iv) "Business Combination" shall mean a merger or consolidation
in which this corporation is a constituent corporation and pursuant
to which the Common Stock is exchanged for cash, securities or other
property or a sale of all or substantially all of the assets of this
corporation and its Subsidiaries taken as a whole; provided that
neither (A) a transaction in which the beneficial ownership of the
capital stock of this corporation or of the sole surviving
corporation of the transaction (or of the ultimate parent of this
corporation or of such sole surviving corporation) immediately after
the consummation of such transaction is substantially the same as the
beneficial ownership of the capital stock of this corporation
immediately prior to the consummation thereof nor (B) a merger in
which this corporation is the surviving corporation, in which all
shares of the Common Stock outstanding immediately prior to the
consummation of such merger remain outstanding immediately after the
consummation thereof and the only change in the capital stock of the
Company resulting from such merger is the issuance of shares of
capital stock pursuant thereto, and in connection with which no
consent or affirmative vote of the holders of the Class A Common
Stock would otherwise be required under subparagraph (8) of this
paragraph (b), shall be deemed a Business Combination.
(v) "Closing Date" shall mean the first date that shares of
Class A Common Stock are issued and sold under the Investment
Agreement.
(vi) "Conversion Event" shall mean any of the following
occurrences:
(A) The Outstanding Interest (as hereinafter defined in
subdivision (xiv) of this subparagraph (11)) becomes less than
10%, unless the Outstanding Interest becomes less than 10% solely
as a result of an acquisition of Voting Securities beneficially
owned by any holder of shares of Class A Common Stock or any of
its Affiliates by this corporation pursuant to section 9 of this
Certificate of Incorporation; provided, however, that a
"Conversion Event" shall be deemed to occur if, subsequent to the
aforesaid acquisition of Voting Securities by this corporation
pursuant to said section 9, the Outstanding Interest is reduced
as a result of any other action or transaction unless upon the
consummation of such action or transaction the Outstanding
Interest is not less than 10%.
(B) The holders of shares of Class A Common Stock have
Transferred (other than to wholly owned direct or indirect
subsidiaries of such holders) in the aggregate Voting Securities
representing more than 25% of the largest amount in voting power
of Voting Securities at any time beneficially owned by such
holders and any of their Affiliates (adjusted for stock splits,
stock dividends and other combinations or reclassifications of
the capital stock of this corporation) and the Outstanding
Interest is less than 15%, unless the holders of Class A Common
Stock have so Transferred more than, or the Outstanding Interest
has become less than, the applicable percentages as aforesaid
solely as a result of an acquisition of Voting Securities
beneficially owned by any holder of shares of Class A Common
Stock or any of its Affiliates by this corporation pursuant to
section 9 of this Certificate of Incorporation; provided,
however, that a "Conversion Event" shall be deemed to occur if,
subsequent to the aforesaid acquisition of Voting Securities by
this corporation pursuant to said section 9, either (i) any
holder of shares of Class A Common Stock Transfers (other than to
a wholly owned direct or indirect subsidiary of such holder and
other than to this corporation pursuant to section 9 of this
Certificate of Incorporation) any additional shares of capital
stock of this corporation or (ii) the Outstanding Interest is
reduced as a result of any other action or transaction, unless
upon the consummation of such action or transaction the
Outstanding Interest is not less than 15%.
(C) There shall have been a public announcement by this
corporation that (i) this corporation or any of its Affiliates
has exercised its right to require BT or any of its Affiliates to
purchase this corporation's direct or indirect interest in the
Joint Venture (as hereinafter defined in subdivision (xi) of this
subparagraph (11)) pursuant to the terms of the Joint Venture
Agreement (as hereinafter defined in subdivision (xi) of this
subpara-
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graph (11)), (ii) this corporation or any of its Affiliates has
transferred this corporation's direct or indirect interest in the
Joint Venture to a third party in accordance with the terms of
the Joint Venture Agreement or BT or any of its Affiliates has
exercised its right of first refusal and acquired this
corporation's direct or indirect interest in the Joint Venture
pursuant to the terms of the Joint Venture Agreement in
connection with the proposed transfer of this corporation's
direct or indirect interest in the Joint Venture, (iii) BT or any
of its Affiliates has transferred BT's direct or indirect
interest in the Joint Venture to a third party or this
corporation or any of its Affiliates has exercised its right of
first refusal and acquired BT's direct or indirect interest in
the Joint Venture pursuant to the terms of the Joint Venture
Agreement in connection with a proposed transfer of BT's direct
or indirect interest in the Joint Venture or (iv) BT or any of
its Affiliates has exercised its right to require this
corporation or any of its Affiliates to sell to BT this
corporation's direct or indirect interest in the Joint Venture
pursuant to the terms of the Joint Venture Agreement (other than
as a result of the event described in clause (i) of subpart (D)
of this subdivision (vi)).
(D) There shall have been a public announcement by this
corporation that (i) BT or any of its Affiliates has exercised
its right to require this corporation or any of its Affiliates to
sell to BT or any of its Affiliates this corporation's direct or
indirect interest in the Joint Venture as a result of a material
breach by this corporation pursuant to Section 29.1(a) of the
Joint Venture Agreement and (ii) this corporation has delivered a
notice to BT in which this corporation set forth its consent to
the conversion of shares of the Class A Common Stock.
(E) There shall have been a public announcement by this
corporation that either (i) there has been any judicial
determination (other than in an ex parte proceeding), following
the notice and other procedures set forth in Section 9.14 of the
Investment Agreement, that BT or any of its Affiliates has
breached Section 5.1, 5.3, 7.1, 7.2, 7.3, 7.4, 10.2 or 10.3 of
the Investment Agreement (other than BT's or such Affiliate's
failure to have given timely any required notice thereunder,
unless this corporation has been materially adversely affected by
such failure) and, if such judicial determination has not set
forth whether such breach was material with respect to the
Investment Agreement, that such breach has been determined to be
material with respect to such agreement by the Independent
Directors in accordance with the procedures for a determination
by the Independent Directors set forth in the Investment
Agreement or (ii) there has been a "Loss of BT Rights" (as
defined in Section 9.12(a) of the Investment Agreement) following
an arbitration pursuant to Section 9.12(e) or 9.12(f) of the
Investment Agreement.
(F) There shall have been a public announcement by this
corporation that (i) this corporation or any of its Affiliates
has exercised its right to require BT or any of its Affiliates to
sell to this corporation or any of its Affiliates BT's direct or
indirect interest in the Joint Venture pursuant to the terms of
the Joint Venture Agreement and (ii) this corporation has
delivered a notice to BT in which this corporation set forth its
consent to the conversion of shares of the Class A Common Stock.
(vii) "Core Business" shall mean the "Core Business" (as defined
in the Investment Agreement) of the Company in the Americas.
(viii) "Employee Stock Plans" shall have the meaning set forth
in the Investment Agreement.
(ix) "Fair Market Value" shall mean, as to any shares or other
property, the cash price at which a willing seller would sell and a
willing buyer would buy such shares or property in an arms'-length
negotiated transaction without time constraints, as determined by the
Independent Directors in accordance with the procedures for a
determination by the Independent Directors set forth in the
Investment Agreement.
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(x) "Investment Agreement" shall mean the Investment Agreement
dated as of , 1993 between BT and this corporation, as
such agreement may be amended, changed, supplemented or otherwise
modified.
(xi) "Joint Venture Agreement" shall mean the Joint Venture
Agreement dated , 1993 among BT, Moorgate (Twelve) Limited,
a company incorporated under the laws of England and Wales, this
corporation, MCI Ventures Corporation, a Delaware corporation, and BT
Forty-Eight Company, an unlimited company incorporated under the laws
of England and Wales (the "Joint Venture"), as such agreement may be
amended, changed, supplemented or otherwise modified.
(xii) "Market Capitalization" shall have the meaning set forth
in the Investment Agreement.
(xiii) "Non-Core Business" shall have the meaning set forth in
the Investment Agreement.
(xiv) "Outstanding Interest" shall mean the percentage of the
aggregate voting power of the outstanding Voting Securities
represented by the Voting Securities beneficially owned by any holder
of shares of Class A Common Stock or any of its Affiliates; provided
that, for purposes of calculating such percentage, Uncounted Shares
(as hereinafter defined in subdivision (xxi) of this subparagraph
(11)) shall be deemed not to be outstanding Voting Securities;
provided, however, that the foregoing proviso shall not apply to the
extent that, without the benefit of such proviso, the Outstanding
Interest would be less than 7 1/2%.
(xv) "Outstanding Voting Interest" shall mean the percentage of
the aggregate voting power of the outstanding Voting Securities
represented by the number of outstanding shares of Class A Common
Stock.
(xvi) "Requirement of Law" shall have the meaning set forth in
the Investment Agreement.
(xvii) "Rights" shall mean the rights issued pursuant to the
Rights Plan.
(xviii) "Rights Plan" shall mean the Rights Agreement dated
, 1993 between this corporation and
, as the same may be amended from time to
time, or any successor plan thereto, as the same may be amended from
time to time. For purposes of this subdivision (xviii), any rights
plan adopted by this corporation subsequent to the termination of
such Rights Agreement or the expiration, redemption or exchange of
the Rights shall be deemed a "successor plan thereto".
(xix) "Subsidiary" shall mean any corporation or other entity of
which at least a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by
this corporation.
(xx) "Transferred" shall mean the occurrence of any act pursuant
to which, directly or indirectly, including by operation of law, the
beneficial ownership of shares of Class A Common Stock shall have
been offered, sold, transferred, assigned, pledged, hypothecated or
otherwise disposed of.
(xxi) "Uncounted Shares" shall have the meaning set forth in the
Investment Agreement.
(xxii) "Voting Equity" shall mean any and all Voting Securities,
securities of this corporation convertible into Voting Securities,
and options, warrants or other rights to acquire Voting Securities.
(xxiii) "Voting Securities" shall mean the Common Stock, the
Class A Common Stock and any other securities of this corporation
having voting power under ordinary circumstances with respect to the
election of directors of this corporation.
I-A-10
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For purposes of this subparagraph (11), a person shall be deemed to
"beneficially own" any securities in accordance with the provisions of
Rule 13d-3 under the Securities Exchange Act of 1934, as amended, as in
effect on , 1993; provided that capital stock of this
corporation underlying any options, warrants, rights or other securities
convertible into or exercisable for such capital stock shall not be
deemed to be beneficially owned by any person if the applicable
conversion price or exercise price, as the case may be, of such option,
warrant, right or other security is more than the Current Market Value
(as hereinafter defined in subdivision (i) of paragraph (b) of section 9
of this Certificate of Incorporation) of the underlying capital stock.
(12) Shares of the Class A Common Stock may not be issued by this
corporation other than pursuant to, or in accordance with, the terms of
the Investment Agreement.'
(iv) That section 4 of the Restated Certificate of Incorporation be
further amended by deleting paragraph (c) (as relettered pursuant to clause
(ii) of this resolution) of section 4 in its entirety and substituting in
lieu thereof the following:
'(c) Common Stock.
(1) After the requirements with respect to preferential dividends
on the Preferred Stock (fixed in accordance with the provisions of
paragraph (a) of this section 4) shall have been met and after this
corporation shall have complied with all the requirements, if any, with
respect to the setting aside of sums as sinking funds or redemption or
purchase accounts in respect of the Preferred Stock (fixed in accordance
with the provisions of paragraph (a) of this section 4), and subject to
any other conditions that may be fixed in accordance with the provisions
of paragraph (a) of this section 4, including, without limitation, the
right of any of the holders of any series of Preferred Stock to
participate therein, and subject further to the right of the holders of
Class A Common Stock to participate therein to the extent provided in
subparagraphs (1) through (3) of paragraph (b) of this section 4, then,
but not otherwise, the holders of shares of Common Stock shall be
entitled to receive such dividends, if any, as may be declared from time
to time by the board of directors.
(2) In the event this corporation shall at any time effect a
subdivision or combination or consolidation of the outstanding shares of
Class A Common Stock into a greater or lesser number of shares of Class
A Common Stock (other than pursuant to subparagraph (2) of paragraph (b)
of this section 4), then in each such case this corporation shall effect
an equivalent subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a greater
or lesser number of shares of Common Stock.
(3) After distribution in full of the preferential amount, if any,
to be distributed to the holders of the Preferred Stock (fixed in
accordance with the provisions of paragraph (a) of this section 4) in
the event of any voluntary or involuntary liquidation, dissolution or
winding-up of this corporation, the holders of the Common Stock shall,
subject to the right, if any, of the holders of any series of Preferred
Stock to participate therein (fixed in accordance with the provisions of
paragraph (a) of this section 4), be entitled together with the holders
of the Class A Common Stock to receive all the remaining assets of this
corporation, tangible and intangible, of whatever kind available for
distribution to stockholders, ratably in proportion to the number of
shares held by each such holder.
(4) Except as may otherwise be required by law, this Certificate of
Incorporation or the provisions of the resolutions adopted by the board
of directors pursuant to paragraph (a) of this section 4, each holder of
the Common Stock shall have one vote in respect of each share of the
Common Stock held by such holder on each matter voted upon by the
stockholders. Holders of the Common Stock may not take any action that
is required or permitted to be taken by them at an annual or special
meeting of such stockholders without a meeting, without prior notice or
without a vote, and the right of the holders of the Common Stock to act
by written consent in lieu of a meeting is expressly denied.'
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(v) That section 4 of the Restated Certificate of Incorporation be
further amended by deleting subparagraph (4) of paragraph (d) (as
relettered pursuant to clause (ii) of this resolution) of section 4 in its
entirety and substituting in lieu thereof the following:
'(4) The authorized amount of shares of the Common Stock, of the
Class A Common Stock and of the Preferred Stock may, without a class or
series vote, be increased or decreased from time to time by the
affirmative vote of a majority of the votes entitled to be cast
thereon.'
(vi) That section 4 of the Restated Certificate of Incorporation be
further amended by adding the following as a new subparagraph (7) at the
end of paragraph (d) (as relettered pursuant to clause (ii) of this
resolution) of section 4:
'(7) Notwithstanding any other provision of this Certificate of
Incorporation, until the fourth anniversary of the Closing Date (as
defined in subdivision (v) of subparagraph (11) of paragraph (b) of this
section 4), so long as any shares of Class A Common Stock remain
outstanding, the board of directors of this corporation shall not,
without the affirmative vote of the holders of at least 75% in voting
power of the Voting Securities (as defined in subdivision (xxiii) of
subparagraph (11) of paragraph (b) of this section 4) at the time
outstanding, given in person or by proxy, at an annual or special
meeting called for the purpose, at which the holders of the Voting
Securities shall vote together as a single class, redeem the Rights (as
defined in subdivision (xvii) of subparagraph (11) of paragraph (b) of
section 4 of this Certificate of Incorporation).'
(vii) That section 6 of the Restated Certificate of Incorporation be
amended by adding the following as a new paragraph (c) immediately
following paragraph (b) of section 6:
'(c)(i) Any director of this corporation elected to a class of the
board of directors pursuant to paragraph (b) of Section 1 of Article III
of the by-laws of this corporation (as such provision hereafter may be
amended or relettered or renumbered) may be removed from office, but
only for cause and only by the affirmative vote of the holders of not
less than four-fifths of the votes entitled to be cast by the holders of
all outstanding shares (considered as one class for purposes of this
paragraph (c)) entitled to vote thereon. The stockholders entitled to
vote for the election of such removed director's successor may, at the
meeting at which such removal was effectuated, elect a successor to any
director so removed, which successor shall hold office until the next
election of the class of directors of which the director so removed was
a member. The remaining directors may, to the extent that the vacancy is
not filled by election by the stockholders, fill such vacancy for such
term.
(ii) Any Class A Director (as defined in subdivision (i) of
subparagraph (7) of paragraph (b) of section 4 of this Certificate of
Incorporation) may be removed from office (A) for cause by the
affirmative vote of the holders of not less than four-fifths of the
votes entitled to be cast by the holders of all outstanding shares
(considered as one class for purposes of this paragraph (c)) entitled to
vote thereon, and (B) without cause only by the affirmative vote of the
holders of not less than a majority of the outstanding Class A Common
Stock, voting separately as a class, provided that, if less than all the
Class A Directors are to be removed, no Class A Director may be removed
without cause if the votes cast against such director's removal would be
sufficient to elect such director if then cumulatively voted at an
election of all Class A Directors. Any vacancy resulting from any such
removal of a Class A Director shall be filled as provided in subdivision
(iv) of subparagraph (7) of paragraph (b) of section 4 of this
Certificate of Incorporation.
(iii) Any other director of this corporation may be removed from
office, with or without cause, and the vacancy resulting therefrom may
be filled, in accordance with applicable law and any other provision of
this Certificate of Incorporation (including any resolution of the board
of directors adopted in accordance with the provisions of paragraph (a)
of section 4 of this Certificate of Incorporation) or of the by-laws of
this corporation applicable thereto.
I-A-12
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(viii) That the Restated Certificate of Incorporation be amended by
deleting therefrom section 9 in its entirety and adding the following as a
new section 9:
9. Redemption of Stock.
(a) Notwithstanding any other provision of this Certificate of
Incorporation to the contrary (but subject to the terms of any series of
Preferred Stock fixed in accordance with the provisions of paragraph (a) of
section 4 of this Certificate of Incorporation), outstanding shares of
stock of this corporation held by Disqualified Holders (as hereinafter
defined in subdivision (ii) of paragraph (b) of this section 9) shall
always be subject to redemption by this corporation, by action of the board
of directors, to the extent necessary, in the judgment of the board of
directors, to prevent the loss or secure the renewal or reinstatement of
any license or franchise from any governmental agency held by this
corporation or any of its Subsidiaries (as defined in subdivision (xix) of
subparagraph (11) of paragraph (b) of section 4 of this Certificate of
Incorporation) to conduct any portion of the business of this corporation
or any of its Subsidiaries, which license or franchise is conditioned upon
some or all of the holders of the stock of this corporation possessing
prescribed qualifications. The terms and conditions of such redemption
shall be as follows, subject in any case to any additional or different
rights of a particular Disqualified Holder or of this corporation pursuant
to any contract or agreement between such Disqualified Holder and this
corporation:
(i) the redemption price of the shares to be redeemed pursuant to
this section shall be equal to the Current Market Value (as hereinafter
defined in subdivision (i) of paragraph (b) of this section 9) of such
shares; provided that such redemption price as to any Disqualified
Holder who purchased such shares after , 1993 and within
one year of the Redemption Date (as hereinafter defined in subdivision
(iv) of paragraph (b) of this section 9) shall not (unless otherwise
determined by the board of directors) exceed the purchase price paid by
such Disqualified Holder for such shares;
(ii) the redemption price of such shares may be paid in cash,
Redemption Securities (as hereinafter defined in subdivision (v) of
paragraph (b) of this section 9) or any combination thereof;
(iii) if less than all of the shares held by Disqualified Holders
are to be redeemed, the shares to be redeemed shall be selected in such
manner as shall be determined by the board of directors, which may
include selection first of the most recently purchased shares thereof,
selection by lot or selection in any other manner determined by the
board of directors to be equitable; provided that the board of directors
shall be entitled to redeem shares of Common Stock held by Disqualified
Holders prior to redeeming shares of Class A Common Stock held by
Disqualified Holders;
(iv) at least ten days' written notice of the Redemption Date shall
be given to the record holders of the shares selected to be redeemed
(unless waived in writing by any such holder), provided that the
Redemption Date may be the date on which written notice shall be given
to record holders if the cash or Redemption Securities necessary to
effect the redemption shall have been deposited in trust for the benefit
of such record holders and subject to immediate withdrawal by them upon
surrender of the stock certificates for their shares to be redeemed;
(v) on the Redemption Date, unless this corporation shall have
defaulted in paying or setting aside for payment the cash or Redemption
Securities payable upon such redemption, any and all rights of
Disqualified Holders in respect of shares so redeemed (including without
limitation any rights to vote or participate in dividends), shall cease
and terminate, and from and after such Redemption Date such Disqualified
Holders shall be entitled only to receive the cash or Redemption
Securities payable upon redemption of the shares so redeemed; and
(vi) such other terms and conditions as the board of directors
shall determine;
provided, however, that in the event that any shares of Class A Common
Stock are redeemed pursuant to this section 9, the redemption price and
the other terms and conditions of such redemption shall be as set forth
in the Investment Agreement (as defined in subdivision (x) of
subparagraph (11) of paragraph (b) of section 4 of this Certificate of
Incorporation), so long as such agreement remains in effect.
I-A-13
<PAGE> 159
(b) For purposes of this section 9 (and, with respect to subdivision
(i) and subdivision (iii) of this paragraph (b), for purposes of paragraph
(b) of section 4 of this Certificate of Incorporation):
(i) "Current Market Value" of a share of the stock of this
corporation of any class or series shall mean the average of the daily
closing prices on the NASDAQ National Market System (or such principal
exchange on which such class or series of stock may be listed) for such
a share for the 20 consecutive trading days commencing on the 22nd
trading day prior to the date on which notice of redemption shall be
given pursuant to subdivision (iv) of paragraph (a) of this section 9.
The closing price for each day shall be the closing price, if reported,
or, if the closing price is not reported, the average of the closing bid
and asked prices as reported by the electronic inter-dealer quotation
system operated by NASDAQ, Inc. or a similar source selected from time
to time by this corporation for the purpose. In the event such closing
prices are unavailable, the Current Market Value shall be the Fair
Market Value (as defined in subdivision (ix) of subparagraph (11) of
paragraph (b) of section 4 of this Certificate of Incorporation) of such
a share as determined by the Independent Directors (as hereinafter
defined in subdivision (iii) of this paragraph (b)) in accordance with
the procedures for a determination by the Independent Directors set
forth in the Investment Agreement. Notwithstanding anything to the
contrary contained herein, the Independent Directors shall establish the
Current Market Value of the Class A Common Stock to be equal to the
Current Market Value of the Common Stock and shall establish the Current
Market Value of any options, warrants, rights or other securities
convertible into or exercisable for Class A Common Stock to be equal to
the Current Market Value of options, warrants, rights or other
securities convertible into or exercisable for Common Stock upon the
same terms and otherwise containing the same terms as such options,
warrants, rights or other securities convertible into or exercisable for
Class A Common Stock.
(ii) "Disqualified Holder" shall mean any holder of shares of any
class or series of stock of this corporation whose continued holding of
such stock, either individually or taken together with the holding of
shares of stock of this corporation by any other holder or holders of
shares of stock of this corporation, may result, in the judgment of the
board of directors, in the loss of, or the failure to secure the renewal
or reinstatement of, any license or franchise from any governmental
agency held by this corporation or any of its Subsidiaries to conduct
any portion of the business of this corporation or any of its
Subsidiaries.
(iii) "Independent Directors" shall have the meaning set forth in
the Investment Agreement.
(iv) "Redemption Date" shall mean the date fixed by the board of
directors for the redemption of any shares of stock of this corporation
pursuant to this section 9.
(v) "Redemption Securities" shall mean any debt or equity
securities of this corporation, any of its Subsidiaries or any other
corporation, or any combination thereof, having such terms and
conditions as shall be approved by the board of directors and which,
together with any cash to be paid as part of the redemption price, in
the opinion of any nationally recognized investment banking firm
selected by the board of directors (which may be a firm which provides
other investment banking, brokerage or other services to this
corporation), has a value, at the time notice of redemption is given
pursuant to subdivision (iv) of paragraph (a) of this section 9, at
least equal to the price required to be paid pursuant to subdivision (i)
of paragraph (a) of this section 9 (assuming, in the case of Redemption
Securities to be publicly traded, such Redemption Securities were fully
distributed and subject only to normal trading activity).'
(ix) That the Restated Certificate of Incorporation be amended by
deleting therefrom section 10 in its entirety.
(x) That section 11 of the Restated Certificate of Incorporation be
amended by renumbering section 11 to become section 10, and any and all
references throughout the Restated Certificate of Incorporation to former
section 11 shall be amended accordingly to refer to section 10."
I-A-14
<PAGE> 160
SECOND: That thereafter, pursuant to resolution of the Board of Directors
of the Corporation, a meeting of the stockholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary number
of shares as required by statute and the Restated Certificate of Incorporation
were voted in favor of the amendments.
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the corporation has caused its corporate seal to be
affixed and this Certificate to be signed by its and attested to by
its this day of , 1993.
MCI COMMUNICATIONS CORPORATION
By:
--------------------------------------
Name:
Title:
[Corporate Seal]
Attest:
- --------------------------------------
Name:
Title:
I-A-15
<PAGE> 161
EXHIBIT B
PROPOSED AMENDMENTS TO
BY-LAWS OF
MCI COMMUNICATIONS CORPORATION
"RESOLVED, that the board of directors hereby deems it advisable that the
by-laws of this corporation be amended as follows:
(i) That Article II of the by-laws be amended by adding the following
to the end of Section 5 of Article II:
"Subject to the Certificate of Incorporation, special meetings of the
holders of any one or more classes, and/or one or more series thereof,
of capital stock of the corporation entitled to vote separately as a
class or classes with respect to any matter as required by law or as
provided by the Certificate of Incorporation shall be held at such place
within or without the State of Delaware as shall be determined by the
person or persons calling the meeting and as shall be designated in the
notice of the meeting. Subject to the Certificate of Incorporation,
special meetings of such holders may be called by a majority of the
directors elected by such class or classes, and/or series thereof, of
capital stock, a majority of the whole board of directors or by the
Chairman and shall be called by the Chairman, the President or the
Secretary at the request in writing of holders owning at least two-
thirds of the issued and outstanding shares of such class or classes,
and/or series thereof, of the capital stock of the corporation."
(ii) That Article III of the by-laws be amended by deleting the second
sentence of paragraph (a) of Section 1 of Article III and substituting in
lieu thereof the following:
"The number of directors of the corporation (exclusive of directors to
be elected by the holders of one or more classes, and/or one or more
series thereof, of capital stock (other than the Class A Common Stock)
of the corporation entitled to vote separately for directors as a class
or classes), including the directors to be elected by the holders of the
Class A Common Stock of the corporation (sometimes hereafter in these
by-laws, the "Class A Directors"), shall be not less than three nor more
than sixteen."
(iii) That Article III of the by-laws be further amended by deleting
the first sentence of paragraph (b) of Section 1 of Article III and
substituting in lieu thereof the following:
"The board of directors (excluding the Class A Directors) shall be
divided into three classes, each class to be as nearly equal in number
to the other classes as the then total number of directors constituting
the whole board (excluding the Class A Directors) permits, with the term
of office of one class expiring each year."
(iv) That Article III of the by-laws be further amended by deleting
paragraph (d) of Section 1 of Article III in its entirety and substituting
in lieu thereof the following:
"(d) Subject to the Certificate of Incorporation, no decrease in
the number of directors constituting the whole board shall shorten the
term of any incumbent director."
(v) That Article III of the by-laws be further amended by deleting the
words "Section 10 of this Article III" as such words appear in each of
paragraph (a) and paragraph (b) of Section 4 of Article III and
substituting in lieu thereof the words "the Certificate of Incorporation".
(vi) That Article III of the by-laws be further amended by deleting
the third sentence of Section 5 of Article III and substituting in lieu
thereof the following:
"Special meetings may be held at any time upon the call of the Chairman
or at least two directors, by oral, telephonic, telegraphic or facsimile
notice duly given or sent at least one hour, or by written notice sent
by express mail at least one day, before the meeting to each director;
provided that all such notices to directors located outside the United
States shall be given or sent orally or by telephone, telegraph or
facsimile transmission."
I-B-1
<PAGE> 162
(vii) That Article III of the by-laws be further amended by deleting
the first three sentences of Section 8 of Article III and substituting in
lieu thereof the following:
"The board of directors may, from among its own members, in its
discretion and by the affirmative vote of a majority of the whole board,
designate one or more committees, each of such committees to consist of
one or more members. The committees designated by the board shall have
such powers and authority as shall be specified in the resolution or
resolutions whereby such committees are designated."
(v) That Article III of the by-laws be further amended by deleting the
fifth sentence of Section 8 of Article III and substituting in lieu thereof
the following:
"No committee shall have the power or authority of the board of
directors in reference to amending the Certificate of Incorporation
(except that a committee may, to the extent authorized in the resolution
or resolutions providing for the issuance of shares of stock adopted by
the board pursuant to paragraph (a) of section 4 of the Certificate of
Incorporation, fix the designations and any of the preferences or rights
of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any
series of the same or any other class or classes of stock of the
corporation or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series),
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of
the corporation's property and assets, recommending to the stockholders
a dissolution of the corporation or a revocation of a dissolution, or
amending these by-laws; and, unless the resolution of the board or
directors expressly so provides, no committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock or
to adopt a certificate of ownership and merger."
(ix) That Article III of the by-laws be further amended by deleting
Section 10 of Article III in its entirety.
(x) That Article III of the by-laws be further amended by renumbering
Section 11 and Section 12, respectively, of Article III to become Section
10 and Section 11 of Article III, respectively.
(xi) That the by-laws be amended by adding the following new Article X
to the end thereof:
"ARTICLE X
INDEMNIFICATION
Section 1. Indemnification. To the fullest extent permitted by the
General Corporation Law of the State of Delaware, the corporation shall
indemnify any current or former director, officer, employee or agent of the
corporation against all expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with any threatened, pending or completed action, suit or
proceeding brought by or in the right of the corporation or otherwise, to which
such person was or is a party or threatened to be made a party by reason of his
current or former position with the corporation or by reason of the fact that
such person is or was serving, at the request of the corporation, as a director,
officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
Section 2. Advancement of Expenses. Expenses (including attorneys' fees)
incurred by a current or former director or officer of the corporation in
defending any threatened or pending action, suit or proceeding shall be paid by
the corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall be ultimately determined that such
person is not entitled to be indemnified by the corporation under the
Certificate of Incorporation, these by-laws, the General Corporation Law of the
State of Delaware or otherwise. Such expenses (including attorneys' fees)
incurred by other current or former employees or agents of the corporation may
be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate."
I-B-2
<PAGE> 163
EXHIBIT C
[SEE RIGHTS AGREEMENT
ATTACHED AS APPENDIX III
TO THE PROXY STATEMENT]
I-C-1
<PAGE> 164
EXHIBIT D
[INTENTIONALLY OMITTED]
I-D-1
<PAGE> 165
EXHIBIT E
[INTENTIONALLY OMITTED]
I-E-1
<PAGE> 166
EXHIBIT F
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of , 1993 between
BRITISH TELECOMMUNICATIONS plc, a public limited company incorporated under the
laws of England and Wales ("BT"), and MCI COMMUNICATIONS CORPORATION, a Delaware
corporation (the "Company").
WHEREAS, pursuant to the terms of an Investment Agreement dated
, 1993 (the "Investment Agreement"), the Company has determined to
issue and sell and BT has determined to purchase shares of the Company's capital
stock on the terms and conditions set forth in the Investment Agreement; and
WHEREAS, it is a condition to the obligations of each of BT and the Company
to consummate the transactions contemplated by the Investment Agreement that
this Registration Rights Agreement be executed and delivered by the Company and
BT.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the following meanings:
"Class A Common Stock" shall mean the Class A Common Stock, par value
$.10 per share, of the Company.
"Common Stock" shall mean the Common Stock, par value $.10 per share,
of the Company.
"Determination of the Independent Directors" shall have the meaning
assigned in the Investment Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of
the SEC thereunder, all as the same shall be in effect from time to time,
and a reference to a particular section thereof shall be deemed to include
a reference to the comparable section, if any, of any such similar federal
statute.
"Holder" shall mean BT or its permitted assignee under Section 7(c)
hereof.
"Investment Agreement" shall mean the Investment Agreement dated as of
, 1993 between BT and the Company, as such agreement may be
amended, changed, supplemented or otherwise modified.
"Person" shall mean any individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, nation or government, state or other political subdivision thereof
(or other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government) or other entity of
whatever nature.
"Registrable Securities" shall mean the Common Stock issued or
issuable upon the conversion of the Class A Common Stock or any other
Common Stock issued pursuant to the Investment Agreement or otherwise
acquired by the Holder at such time that either (x) shares of the Class A
Common Stock remain outstanding or (y) BT is entitled to designate a
nominee for director pursuant to Section 9.7(c) or 9.11 of the Investment
Agreement, or issuable upon exercise or conversion of any options, warrants
or other securities acquired pursuant to the Investment Agreement and
Common Stock which may be issued or distributed in respect thereof by way
of stock dividend or stock split or other distribution, recapitalization or
reclassification. As to any particular Registrable Securities, once issued
such securities shall cease to be Registrable Securities when (i) a
registration statement with respect to the sale of such securities shall
have become effective under the Securities Act and such securities shall
have been disposed of in accordance with such registration statement, (ii)
they shall have been distributed to the public pursuant to Rule 144 (or any
successor provision) under the Securities Act, (iii) they shall have been
otherwise transferred (except transfers pursuant to clause (i) of the first
sentence of Section 5.1(a) or clause (iv) of the first sentence of Section
5.1(b) of the Investment Agreement), new certificates for
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them not bearing a legend restricting further transfer shall have been
delivered by the Company and subsequent disposition of them shall not
require registration or qualification of them under the Securities Act or
any state securities or blue sky law then in force, or (iv) they shall have
ceased to be outstanding.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance with this Agreement, including, without
limitation, (i) all SEC and stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees, (ii) all fees and
expenses of complying with securities or blue sky laws (including fees and
disbursements of counsel for the underwriters in connection with blue sky
qualifications of the Registrable Securities), (iii) all printing,
messenger and delivery expenses, (iv) all fees and expenses incurred in
connection with the listing of the Registrable Securities on the NASDAQ
National Market System or on any securities exchange pursuant to clause
(viii) of Section 4, (v) the fees and disbursements of counsel for the
Company and of its independent public accountants, including the expenses
of any special audits and/or "cold comfort" letters required by or incident
to such performance and compliance and the reasonable fees of any special
experts retained in connection with the requested registration, but
excluding the expenses of counsel to the Holder or (vi) any fees and
disbursements of underwriters customarily paid by the issuers or sellers of
securities, including liability insurance if the Company so desires or if
the underwriters so require, and the reasonable fees and expenses of any
special experts retained in connection with the requested registration, but
excluding underwriting discounts and commissions and transfer taxes, if
any.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the SEC
thereunder, all as the same shall be in effect from time to time, and a
reference to a particular section thereof shall be deemed to include a
reference to the comparable section, if any, of any such similar federal
statute.
"SEC" shall mean the Securities and Exchange Commission or its
successor.
2. Incidental Registrations.
(a) Right to Include Registrable Securities. If the Company at any time
after the date hereof proposes to register its Common Stock under the Securities
Act (other than a registration on Form S-4 or S-8, or any successor or other
forms promulgated for similar purposes), whether or not for sale for its own
account, in a manner which would permit registration of Registrable Securities
for sale to the public under the Securities Act, it will, at each such time,
give prompt written notice to the Holder of its intention to do so and of the
Holder's rights under this Section 2. Upon the written request of the Holder
made within 15 days after the receipt of any such notice (which request shall
specify the Registrable Securities intended to be disposed of by such Holder),
the Company will use its best efforts to effect the registration under the
Securities Act of all Registrable Securities which the Company has been so
requested to register by the Holder, to the extent requisite to permit the
disposition of the Registrable Securities so to be registered; provided, that
(i) if, at any time after giving written notice of its intention to register any
securities and prior to the effective date of the registration statement filed
in connection with such registration, the Company shall determine for any reason
not to proceed with the proposed registration of the securities to be sold by
it, the Company may, at its election, give written notice of such determination
to the Holder and, thereupon, shall be relieved of its obligation to register
any Registrable Securities in connection with such registration (but not from
its obligation to pay the Registration Expenses in connection therewith), and
(ii) if such registration involves an underwritten offering, the Holder
requesting to be included in the Company's registration must sell its
Registrable Securities to the underwriters selected by the Company on the same
terms and conditions as apply to the Company or other selling holders, with such
differences, including any with respect to indemnification and liability
insurance, as may be customary or appropriate for such underwriters in combined
primary and secondary offerings. If a registration requested pursuant to this
Section 2(a) involves an underwritten public offering, the Holder requesting to
be included in such registration may elect, in writing prior to the effective
date of the registration statement filed in connection with such registration,
not to register such securities in connection with such registration.
(b) Expenses. The Company will pay all Registration Expenses in connection
with each registration of Registrable Securities requested pursuant to this
Section 2.
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(c) Priority in Incidental Registrations. If a registration pursuant to
this Section 2 involves an underwritten offering and the managing underwriter
advises the Company in writing that, in its opinion, the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering, so as to be likely to have an adverse effect on such
offering as contemplated by the Company (including the price at which the
Company or other holders of Securities propose to sell such securities), then
the Company will include in such registration (i) first, 100% of the securities
the Company or such other holders propose to sell and (ii) second, the number of
Registrable Securities requested to be included in such registration by the
Holder which, in the opinion of such managing underwriter, can be sold without
having the adverse effect referred to above, in preference to the inclusion in
such registration of securities subject to all rights to registration to which
other holders (other than any holder or holders on whose behalf such
registration may have been proposed) may be entitled in connection with such
offering.
3. Registration on Request.
(a) Request by the Holder. Upon the written request of the Holder
requesting that the Company effect the registration under the Securities Act of
all or part of such Holder's Registrable Securities (constituting in the
aggregate at least 20,000,000 shares (such number of shares to be adjusted to
reflect any stock split, stock dividend, or other combination or
reclassification of the Company's capital stock after the date hereof) or such
lesser number of Registrable Securities as the managing underwriter of the
offering may determine is the maximum number of shares that may be offered
without adversely affecting the trading market of the Common Stock) and
specifying the intended method of disposition thereof, and thereupon will, as
expeditiously as possible, use its best efforts to effect the registration under
the Securities Act of the Registrable Securities which the Company has been so
requested to register by the Holder, provided that the Company shall be
obligated to register such Registrable Securities pursuant to this Section 3(a)
on only three occasions and each demand registration shall be separated by at
least 18 months and provided that the Company (i) shall not be obligated to
cause any special audit to be undertaken in connection with any such
registration, (ii) shall be entitled to postpone for a reasonable period of
time, but not in excess of 60 days, the filing of any registration statement
otherwise required to be prepared pursuant to this Section 3 if the Company is,
at such time, conducting or about to conduct an underwritten public offering of
equity securities (or securities convertible into equity securities) and is
advised in writing by its managing underwriter that such offering would in its
opinion be adversely affected by the registration so requested and (iii) shall
be entitled to postpone such requested registration for up to 90 days if there
is a Determination of the Independent Directors, in view of the advisability of
deferring public disclosure of material corporate developments or other
information, that such registration and the disclosure required to be made
pursuant thereto would not be in the best interests of the Company at such time,
provided, however, that the Company may not postpone any requested registrations
for more than a total of 90 days in any nine-month period.
(b) Registration Statement Form. If any registration requested pursuant to
this Section 3 which is proposed by the Company to be effected by the filing of
a registration statement on Form S-3 (or any successor or similar short-form
registration statement) shall be in connection with an underwritten public
offering, and if the managing underwriter shall advise the Company in writing
that, in its opinion, the use of another form of registration statement is of
material importance to the success of such proposed offering, then such
registration shall be effected on such other form.
(c) Expenses. The Company will pay all Registration Expenses in connection
with the three demand registrations of Registrable Securities pursuant to this
Section 3.
(d) Effective Registration Statement. A registration requested pursuant to
this Section 3 will not be deemed to have been effected unless it has become
effective, provided that, if within 180 days after it has become effective the
offering of Registrable Securities pursuant to such registration is interfered
with by any stop order, injunction or other order or requirement of the SEC or
other governmental agency or court, such registration will be deemed not to have
been effected.
(e) Selection of Underwriters. If a requested registration pursuant to
this Section 3 involves an underwritten offering, the Company shall have the
right to select in good faith the investment banker or
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bankers and managers to administer the offering, provided, however, that such
investment banker or bankers and managers shall be reasonably satisfactory to
the Holder.
(f) Priority in Requested Registrations. If a requested registration
pursuant to this Section 3 involves an underwritten offering and the managing
underwriter advises the Company in writing that, in its opinion, the number of
securities requested to be included in such registration (including securities
of the Company which are not Registrable Securities) exceeds the number which
can be sold in such offering, the Company will include in such registration only
the Registrable Securities requested to be included in such registration. In the
event that the number of Registrable Securities requested to be included in such
registration is less than the number which, in the opinion of the managing
underwriter, can be sold, the Company may include in such registration the
securities that the Company or other holders of securities propose to sell up to
the number of securities that, in the opinion of the managing underwriter, can
be sold and would not be likely to have an adverse effect on the offering of the
Registrable Securities.
(g) Additional Rights. If the Company at any time grants to any other
holders of Common Stock any rights to request the Company to effect the
registration under the Securities Act of any such shares of Common Stock on
terms more favorable to such holders than the terms set forth in this Section 3,
the terms of this Section 3 shall be deemed amended or supplemented to the
extent necessary to provide the Holder such more favorable rights and benefits.
4. Registration Procedures. If and whenever the Company is required to use
its best efforts to effect or cause the registration of any Registrable
Securities under the Securities Act as provided in this Agreement, the Company
will, as expeditiously as possible:
(i) prepare and, in any event within 60 days after the later of (x)
the date of the Holder's request for registration or (y) the end of the
period within which a request for registration may be given to the Company,
file with the SEC a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective, provided, however, that the Company may discontinue any
registration of its securities which is being effected pursuant to Section
2 at any time prior to the effective date of the registration statement
relating thereto;
(ii) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for a
period not in excess of 120 days and to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such registration statement during such period in accordance with the
intended methods of disposition by the seller thereof set forth in such
registration statement, provided, that before filing a registration
statement or prospectus relating to the sale of Registrable Securities, or
any amendments or supplements thereto, the Company will furnish to counsel
to the Holder, copies of all documents proposed to be filed, which
documents will be subject to the review of such counsel, and the Company
will give reasonable consideration in good faith to any comments of such
counsel;
(iii) furnish to the seller of Registrable Securities such number of
copies of such registration statement and of each amendment and supplement
thereto (in each case including all exhibits), such number of copies of the
prospectus included in such registration statement (including each
preliminary prospectus and summary prospectus), in conformity with the
requirements of the Securities Act, and such other documents as such seller
may reasonably request in order to facilitate the disposition of the
Registrable Securities by such seller but only while the Company shall be
required under the provisions hereof to cause the registration statement to
remain current;
(iv) use its best efforts to register or qualify such Registrable
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as the seller shall
reasonably request, and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by
such seller, except that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation in
any jurisdiction where, but for the requirements of this clause (iv),
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it would not be obligated to be so qualified, to subject itself to taxation
in any such jurisdiction, or to consent to general service of process in
any such jurisdiction;
(v) use its best efforts to cause such Registrable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable
the seller to consummate the disposition of such Registrable Securities;
(vi) notify promptly the seller of any such Registrable Securities
covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act
within the appropriate period mentioned in clause (ii) of this Section 4,
of the Company's becoming aware that the prospectus included in such
registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, and at the request of any such
seller, prepare and furnish to such seller a reasonable number of copies of
an amended or supplemental prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances
then existing;
(vii) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable (but not more than eighteen
months) after the effective date of the registration statement, an earnings
statement which shall satisfy the provisions of Section 11(a) of the
Securities Act and the rules and regulations promulgated thereunder;
(viii) use its best efforts to list or admit for trading such
Registrable Securities on the National Association of Securities Dealers,
Inc. National Market System ("NASDAQ NMS") or any securities exchange on
which the Common Stock is then listed, if such Registrable Securities are
not already so listed and if such listing is then permitted under the rules
of the NASDAQ NMS or such exchange, and to provide a transfer agent and
registrar for such Registrable Securities covered by such registration
statement not later than the effective date of such registration statement;
(ix) enter into an underwriting agreement with a managing underwriter
or underwriters selected by the Company containing representations,
warranties, indemnities and agreements then customarily included by an
issuer in underwriting agreements with respect to secondary distributions;
provided, however, that such underwriter or underwriters shall agree to use
their best efforts to ensure that the offering results in a distribution of
the Registrable Securities sold in accordance with the terms of the
Investment Agreement;
(x) obtain a "cold comfort" letter or letters from the Company's
independent public accountants in customary form and covering matters of
the type customarily covered by "cold comfort" letters as the seller of
such Registrable Securities shall reasonably request (provided that
Registrable Securities constitute at least 25% of the securities covered by
such registration statement, unless such a "cold comfort" letter or letters
are provided to the Company or other selling holders in connection with
such registration);
(xi) make available for inspection by the seller of such Registrable
Securities covered by such registration statement, by any underwriter
participating in any disposition to be effected pursuant to such
registration statement and by any attorney, accountant or other agent
retained by any such seller or any such underwriter, all pertinent
financial and other records, pertinent corporate documents and properties
of the Company, and cause all of the Company's officers, directors and
employees to supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in connection with such
registration statement; and
(xii) obtain for delivery to the underwriter or agent an opinion or
opinions from counsel for the Company in customary form and in form and
scope reasonably satisfactory to such underwriter or agent and their
counsel.
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The Company may require the seller of Registrable Securities as to which
any registration is being effected to furnish the Company with such information
regarding such seller and pertinent to the disclosure requirements relating to
the registration and the distribution of such securities as the Company may from
time to time reasonably request in writing.
The Holder agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in clause (vi) of this Section 4,
such Holder will forthwith discontinue disposition of Registrable Securities
pursuant to the registration statement covering such Registrable Securities
until such Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by clause (vi) of this Section 4, and, if so directed by
the Company, the Holder will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in such Holder's possession,
of the prospectus covering such Registrable Securities current at the time of
receipt of such notice. In the event the Company shall give any such notice, the
period mentioned in clause (ii) of this Section 4 shall be extended by the
number of days during the period from and including the date of the giving of
such notice pursuant to clause (vi) of this Section 4 and including the date
when each seller of Registrable Securities covered by such registration
statement shall have received the copies of the supplemented or amended
prospectus contemplated by clause (vi) of this Section 4.
5. Indemnification and Contribution.
(a) Indemnification by the Company. In the event of any registration of
any securities of the Company under the Securities Act pursuant to Section 2 or
3, the Company will, and it hereby does, indemnify and hold harmless, to the
extent permitted by law, the seller of any Registrable Securities covered by
such registration statement, each affiliate of such seller and their respective
directors and officers or general and limited partners (and the directors,
officers, affiliates and controlling Persons thereof), each other Person who
participates as an underwriter in the offering or sale of such securities and
each other Person, if any, who controls such seller or any such underwriter
within the meaning of the Securities Act (collectively, the "Indemnified
Parties"), against any and all losses, claims, damages or liabilities, joint or
several, and expenses to which such seller, any such director or officer or
general or limited partner or affiliate or any such underwriter or controlling
Person may become subject under the Securities Act, common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof, whether or not such Indemnified Party is a party
thereto) arise out of or are based upon (a) any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary, final or summary prospectus contained therein, or any amendment or
supplement thereto, or (b) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, and the
Company will reimburse such Indemnified Party for any legal or any other
expenses reasonably incurred by it in connection with investigating or defending
any such loss, claim, liability, action or proceeding, provided that the Company
shall not be liable to any Indemnified Party in any such case to the extent that
any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement or amendment or supplement thereto or in any such
preliminary, final or summary prospectus in reliance upon and in conformity with
written information furnished to the Company through an instrument duly executed
by such seller specifically stating that it is for use in the preparation
thereof, and provided further that the Company will not be liable to any Person
who participates as an underwriter in the offering or sale of Registrable
Securities or any other Person, if any, who controls such underwriter within the
meaning of the Securities Act, under the indemnity agreement in this Section
5(a) with respect to any preliminary prospectus or the final prospectus or the
final prospectus as amended or supplemented, as the case may be, to the extent
that any such loss, claim, damage or liability of such underwriter or
controlling Person results from the fact that such underwriter sold Registrable
Securities to a person to whom there was not sent or given, at or prior to the
written confirmation of such sale, a copy of the final prospectus (including any
documents incorporated by reference therein) or of the final prospectus as then
amended or supplemented (including any documents incorporated by reference
therein), whichever is most recent, if the Company has previously furnished
copies thereof to such underwriter. Such indemnity shall
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remain in full force and effect regardless of any investigation made by or on
behalf of such seller or any Indemnified Party and shall survive the transfer of
such securities by such seller.
(b) Indemnification by the Seller. The Company may require, as a condition
to including any Registrable Securities in any registration statement filed in
accordance with Section 4 herein, that the Company shall have received an
undertaking reasonably satisfactory to it from the prospective seller of such
Registrable Securities or any underwriter to indemnify and hold harmless (in the
same manner and to the same extent as set forth in subdivision (a) of this
Section 5) the Company and all other prospective sellers with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary, final or summary prospectus contained
therein, or any amendment or supplement, if such statement or alleged statement
or omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company through an instrument duly executed
by such seller or underwriter specifically stating that it is for use in the
preparation of such registration statement, preliminary, final or summary
prospectus or amendment or supplement, or a document incorporated by reference
into any of the foregoing. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or any of
the prospective sellers, or any of their respective affiliates, directors,
officers or controlling Persons and shall survive the transfer of such
securities by such seller.
(c) Notices of Claims, Etc. Promptly after receipt by an Indemnified Party
hereunder of written notice of the commencement of any action or proceeding with
respect to which a claim for indemnification may be made pursuant to this
Section 5, such Indemnified Party will, if a claim in respect thereof is to be
made against an indemnifying party, give written notice to the latter of the
commencement of such action, provided that the failure of the Indemnified Party
to give notice as provided herein shall not relieve the indemnifying party of
its obligations under the preceding subdivisions of this Section 5, except to
the extent that the indemnifying party is materially prejudiced by such failure
to give notice. In case any such action is brought against an Indemnified Party,
the indemnifying party will be entitled to participate in and to assume control
of the defense of such action, including any settlement thereof, provided that
the indemnifying party will not agree to any settlement without the prior
consent of the Indemnified Party (which consent shall not be unreasonably
withheld) unless such settlement requires no more than a monetary payment for
which the indemnifying party agrees to indemnify the Indemnified Party and
includes a full, unconditional and complete release of the Indemnified Person,
provided, however, that the Indemnified Party shall be entitled to take control
of the defense of any claim as to which, in the reasonable judgment of the
Indemnifying Party's counsel, representation of both the indemnifying party and
the Indemnified Party would be inappropriate under the applicable standards of
professional conduct due to actual or potential differing interests between
them. After notice has been provided by the indemnifying party to such
Indemnified Party of its election to assume the defense of any claim pursuant to
this Section 5(c), the indemnifying party will not be liable to such Indemnified
Party for any legal or other expenses subsequently incurred by the latter in
connection with the defense of such claim. In the event that the Indemnifying
Party does not assume the defense of a claim pursuant to this Section 5(c), the
Indemnified Party will have the right to defend such claim by all appropriate
proceedings, and will have control of such defense and proceedings, provided
that no Indemnified Party shall agree to any settlement without the prior
consent of the indemnifying party (which consent shall not be unreasonably
withheld) unless the Indemnified Party irrevocably waives their right to
indemnity under this Agreement with respect to such settlement. Each Indemnified
Party shall, and shall cause their legal counsel to, provide reasonable
cooperation to the indemnifying party and its legal counsel in connection with
its assuming the defense of any claim, including the furnishing of the
indemnifying party with all papers served in such proceeding. In the event that
an indemnifying party assumes the defense of an action under this Section 5(c),
then such indemnifying party shall, subject to the provisions of this Section 5,
indemnify and hold harmless the Indemnified Party from any and all losses,
claims, damages or liabilities by reason of such settlement or judgment.
(d) Other Indemnification. Indemnification similar to that specified in
the preceding subdivisions of this Section 5 (with appropriate modifications)
shall be given by the Company and each seller of Registrable
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Securities with respect to any required registration or other qualification of
securities under any federal or state law or regulation or governmental
authority other than the Securities Act.
(e) Contribution. If the indemnity provided for in the foregoing
paragraphs of this Section 5 is unavailable or insufficient for any reason to
hold harmless an Indemnified Party in respect of any losses, claims, damages or
liabilities referred to therein, then the indemnifying party, in lieu of
indemnifying such Indemnified Party, agrees to contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party on the one hand and the Indemnified
Party on the other hand from the sale of securities under such registration
statement, (ii) the relative fault of the indemnifying party on the one hand and
the Indemnified Party on the other hand in connection with the statements,
actions or omissions which resulted in such losses, claims, damages or
liabilities and (iii) any other relevant equitable considerations. The relative
fault of the indemnifying party on the one hand and of the Indemnified Party on
the other hand (i) in the case of an untrue or alleged untrue statement of a
material fact or an omission or alleged omission to state a material fact, shall
be determined by reference to, among other things, whether such statement or
omission relates to information supplied by the indemnifying party or by the
Indemnified Party respectively and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission and (ii) in the case of any other action or omission, shall be
determined by reference to, among other things, whether such action or omission
was taken or omitted to be taken by the indemnifying party or the Indemnified
Party respectively and the parties' relative intent, knowledge, access to
information and opportunity to prevent such action or omission. The parties
agree that it would not be just and equitable if contribution pursuant to this
Section 5(e) were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding sentences. The amount paid or payable by the
Indemnified Party as a result of the losses, claims, damages or liabilities
referred to in such sentences shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating, preparing to defend or
defending any such action or claim.
(f) Non-Exclusivity. The obligations of the parties under this Section 5
shall be in addition to any liability which any party may otherwise have to any
other party.
6. Rule 144. For so long as the Company continues to be subject to the
requirements of Section 12 of the Exchange Act, the Company covenants that it
will file the reports required to be filed by it under the Securities Act and
the Exchange Act and the rules and regulations adopted by the SEC thereunder
(or, if the Company is not required to file such reports, it will, upon the
request of the Holder, make publicly available such information), and it will
take such further action as the Holder may reasonably request, all to the extent
required from time to time to enable the Holder to sell shares of Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (i) Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or (ii) any similar rule or regulation
hereafter adopted by the SEC. Upon the request of the Holder, the Company will
deliver to the Holder a written statement as to whether it has complied with
such requirements. Notwithstanding anything contained in this Section 6, the
Company may deregister under Section 12 of the Exchange Act if it then is
permitted to do so pursuant to the Exchange Act and the rules and regulations
thereunder.
7. Miscellaneous.
(a) Holdback Agreement. If any registration (whether or not Registrable
Securities are included therein) shall be in connection with an underwritten
public offering, the Holder agrees not to effect any public sale or
distribution, including any sale pursuant to Rule 144 under the Securities Act,
of any equity securities of the Company, or of any security convertible into or
exchangeable or exercisable for any equity security of the Company (in each
case, other than as part of such underwritten public offering), within 7 days
before or 180 days (or such lesser period as the managing underwriter may
permit) after the effective date of such registration, and the Company hereby
also so agrees and agrees to use reasonable efforts to cause each other holder
of any equity security, or of any security convertible into or exchangeable or
exercisable for any equity
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security, of the Company purchased from the Company (at any time other than in a
public offering) to so agree.
(b) Amendments and Waivers. This Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the Holder. The
Holders of any Registrable Securities at the time or thereafter outstanding
shall be bound by any consent authorized by this Section 7(b), whether or not
such Registrable Securities shall have been marked to indicate such consent.
(c) Successors, Assigns and Transferees. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
successors and permitted assigns, provided, however, that neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned (i)
by the Company under any circumstances or (ii) by BT, except (1) to a wholly
owned direct or indirect subsidiary of BT, provided that BT (A) shall remain
liable for the performance by any such subsidiary of its obligations under this
Agreement, (B) shall act as agent for any and all such subsidiaries in
connection with the receipt or giving of any and all notices under this
Agreement and (C) shall not cause or permit any such subsidiary to be other than
a wholly owned direct or indirect subsidiary of BT and (2) to a transferee of
the Registrable Securities as permitted in clause (iv) of the first sentence of
Section 5.1(b) of the Investment Agreement.
(d) Notices. All notices and other communications provided for hereunder
shall be in writing and shall be sent by first class mail, telex, telecopier or
hand delivery:
(1) If to the Company, to:
MCI Communications Corporation
1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Attention: John Whiteside
Vice President
with a copy to:
MCI Communications Corporation
1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Attention: John R. Worthington, Esq.
Senior Vice President and
General Counsel
With a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Richard I. Beattie, Esq.
(2) If to BT:
British Telecommunications plc
BT Centre
81 Newgate Street
London EC1A 7AJ
England
Attention: Mr. Colin R. Green
Solicitor and Chief Legal Adviser
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With a copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Attention: Albert F. Lilley, Esq.
(3) if to any other holder of Registrable Securities, to the address
of such other holder as shown in the stock record book of the
Company, or to such other address as any of the above shall have
designated in writing to all of the other above.
Any notice delivered after business hours or on a Saturday, Sunday or legal
holiday at the place designated in such delivery shall be deemed for purposes of
computing any time period hereunder to have been delivered on the next business
day.
(e) Headings. The headings in this Agreement are for convenience only and
shall not affect the construction hereof.
(f) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
(g) Remedies. (i) Each of the Company and BT acknowledges that the other
party would not have an adequate remedy at law for money damages in the event
that any of the covenants or agreements of the other party in this Agreement
were not performed in accordance with its terms, and it is therefore agreed that
each of BT and the Company, in addition to and without limiting any other remedy
or right it may have, will have the right to an injunction or other equitable
relief in any court of competent jurisdiction, subject to Section 7(h),
enjoining any such breach and enforcing specifically the terms and provisions
hereof, and each of BT and the Company hereby waive any and all defenses they
may have on the ground of lack of jurisdiction or competence of the court to
grant such an injunction or other equitable relief.
(ii) All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise or beginning of the exercise of any
thereof by any party shall not preclude the simultaneous or later exercise of
any other such right, power or remedy by such party.
(h) SUBMISSION TO JURISDICTION; WAIVERS. Each of BT and the Company
irrevocably agrees that any legal action or proceeding with respect to this
Agreement or for recognition and enforcement of any judgment in respect thereof
brought by the other party hereto or its successors or assigns, may be brought
and determined in the Supreme Court of the State of New York in New York County
or in the United States District Court for the Southern District of New York,
and each of BT and the Company hereby irrevocably submits with regard to any
such action or proceeding for itself and in respect to its property, generally
and unconditionally, to the nonexclusive jurisdiction of the aforesaid courts.
Each of BT and the Company hereby irrevocably waives, and agrees not to assert,
by way of motion, as a defense, counterclaim or otherwise, in any action or
proceeding with respect to this Agreement, the defense of sovereign immunity,
any claim that it is not personally subject to the jurisdiction of the
above-named courts for any reason other than the failure to serve process in
accordance with this Section 7(h), that it or its property is exempt or immune
from jurisdiction of any such court or from any legal process commenced in such
courts (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or otherwise),
and to the fullest extent permitted by applicable law, that the suit, action or
proceeding in any such court is brought in an inconvenient forum, that the venue
of such suit, action or proceeding is improper, or that this Agreement, or the
subject matter hereof or thereof, may not be enforced in or by such courts and
further irrevocably waives, to the fullest extent permitted by applicable law,
the benefit of any defense that would hinder, fetter or delay the levy,
execution or collection of any amount to which the party is entitled pursuant to
the final judgment of any court having jurisdiction. BT hereby irrevocably
designates CT Corporation System (in such capacity, the "Process Agent"), with
an office on the date hereof at 1633 Broadway, New York, New York 10019, as the
designee, appointee and agent of BT to receive, for and on behalf of BT service
of process in such jurisdiction in any legal action or proceeding with respect
to this Agreement and
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such service shall be deemed complete upon delivery thereof to the Process
Agent, provided that in the case of any such service upon the Process Agent, the
party effecting such service shall also deliver a copy thereof to BT in the
manner provided in Section 7(d). BT shall take all such action as may be
necessary to continue said appointment in full force and effect or to appoint
another agent so that BT will at all times have an agent for service of process
for the above purposes in New York, New York. Each of BT and the Company further
irrevocably consents to the service of process out of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered airmail, postage prepaid, to such party at its address set forth in
this Agreement, such service of process to be effective upon acknowledgement of
receipt of such registered mail. Nothing herein shall affect the right of either
party to serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against the other party in any other
jurisdiction in which the other party may be subject to suit. BT expressly
acknowledges that the foregoing waiver is intended to be irrevocable under the
laws of the State of New York and of the United States of America, provided that
BT's consent to jurisdiction and service contained in this Section 7(h) is
solely for the purpose referred to in this Section 7(h) and shall not be deemed
to be a general submission to said Courts or in the State of New York other than
for such purpose.
In the event of the transfer of all or substantially all of the assets and
business of the Process Agent to any other corporation by consolidation, merger,
sale of assets or otherwise, such other corporation shall be substituted
hereunder for the Process Agent with the same effect as if named herein in place
of CT Corporation System.
(i) Severability. In the event that any provision of this Agreement shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
(j) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
MCI COMMUNICATIONS CORPORATION
By:
Name:
Title:
BRITISH TELECOMMUNICATIONS plc
By:
Name:
Title:
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<PAGE> 177
APPENDIX II
COMPOSITE CERTIFICATE OF INCORPORATION
OF
MCI COMMUNICATIONS CORPORATION
MARKED TO SHOW CHANGES EFFECTED BY CERTIFICATE OF AMENDMENT
Additions to current Restated Certificate of Incorporation
effected by the Certificate of Amendment are shown by italics.
Deletions from current Restated Certificate of Incorporation
effected by the Certificate of Amendment are shown by strike
out.
1. CORPORATE NAME. The name of the corporation (hereinafter, "this
corporation") is MCI COMMUNICATIONS CORPORATION.
2. REGISTERED OFFICE AND AGENT. The address of the registered office of
this corporation in the State of Delaware is 229 South State Street, City of
Dover, County of Kent, and the name of the registered agent of this corporation
at that address is United States Corporation Company.
3. PURPOSES. The nature of the business of this corporation and the
objects or purposes to be transacted, promoted, conducted or carried on by it
are to engage generally in the business of developing, planning and aiding and
assisting in the operation of one or more common carrier communication systems
and to engage in any other lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
4. [ AUTHORIZED CAPITAL STOCK. The total number of shares of stock which
this corporation shall have authority to issue is Eight Hundred Twenty Million
(820,000,000) of par value of ten cents ($.10) each, divided into two classes.
Twenty Million (20,000,000) shares designated as Preferred Stock (hereinafter,
the "Preferred Stock"); and Eight Hundred Million (800,000,000) shares
designated as Common Stock (hereinafter, the "Common Stock"). ]
{ AUTHORIZED CAPITAL STOCK. The total number of shares of stock that this
corporation shall have authority to issue is Two Billion Three Hundred Fifty
Million (2,350,000,000) shares of par value of ten cents ($.10) each, divided
into three classes: Fifty Million (50,000,000) shares designated as Preferred
Stock (hereinafter, the "Preferred Stock"); Three Hundred Million (300,000,000)
shares designated as Class A Common Stock (hereinafter, the "Class A Common
Stock"); and Two Billion (2,000,000,000) shares designated as Common Stock
(hereinafter, the "Common Stock"). }
(a) THE PREFERRED STOCK. Shares of the Preferred Stock may be issued from
time to time in one or more series as may from time to time be determined by the
board of directors of this corporation. Each series shall be distinctly
designated. All shares of any one series of the Preferred Stock shall be alike
in every particular, except that there may be different dates from which
dividends (if any) thereon shall be cumulative, if made cumulative. The powers,
preferences and relative, participating, optional and other special rights of
each such series, and the qualifications, limitations or restrictions thereof,
if any, may differ from those of any and all other series at any time
outstanding. Subject to the provisions of subdivisions (i) and (ii) of paragraph
(b) of section 6 and of section 7 of this Certificate of Incorporation, the
board of directors of this corporation is hereby expressly granted authority to
fix by resolution or resolutions adopted prior to the issuance of any shares of
each particular series of the Preferred Stock, the designation, powers,
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations and restrictions thereof, if any, of such
series, including, but without limiting the generality of the foregoing, the
following:
(1) the distinctive designation of, and the number of shares of the
Preferred Stock which shall constitute, the series, which number may be
increased (except as otherwise fixed by the board of directors) or
decreased (but not below the number of shares thereof then outstanding)
from time to time by action of the board of directors;
(2) the rate and times at which, and the terms and conditions upon
which, dividends, if any, on shares of the series shall be paid, the extent
of preferences or relation, if any, of such dividends to the
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dividends payable on any other class or classes of stock of this
corporation, or on any series of the Preferred Stock or of any other class
of classes of stock of this corporation, and whether such dividends shall
be cumulative or non-cumulative;
(3) the right, if any, of the holders of shares of the series to
convert the same into, or exchange the same for, shares of any other class
or classes of stock of this corporation, or of any series of the Preferred
Stock or of any other class or classes of stock of this corporation, and
the terms and conditions of such conversion or exchange;
(4) whether shares of the series shall be subject to redemption, and
the redemption price or prices (including, without limitation, a redemption
price or prices payable in shares of the Common Stock) and the time or
times at which, and the terms and conditions upon which, shares of the
series may be redeemed;
(5) the rights, if any, of the holders of shares of the series upon
voluntary or involuntary liquidation, merger, consolidation, distribution
or sale of assets, dissolution or winding-up of this corporation;
(6) the terms of the sinking fund or redemption or purchase account,
if any, to be provided for shares of the series; and
(7) the voting powers, if any, of the holders of shares of the series
which may, without limiting the generality of the foregoing, but subject to
the provisions of subdivisions (i) and (ii) of paragraph (b) of section 6
and section 7 of this Certificate of Incorporation, include (i) the right
to more or less than one vote per share on any or all matters voted upon by
the stockholders and (ii) the right to vote, as a series by itself or
together with other series of the Preferred Stock or together with all
series of the Preferred Stock as a class, upon such matters, under such
circumstances and upon such conditions as the board of directors may fix,
including, without limitation, the right, voting as a series by itself or
together with other series of the Preferred Stock or together with all
series of the Preferred Stock as a class, to elect one or more directors of
this corporation in the event there shall have been a default in the
payment of dividends on any one or more series of the Preferred Stock or
under such other circumstances and upon such conditions as the board may
fix.
-Statements of the number, designation, powers, preferences and
relative, participating, optional or other special rights and
qualifications, limitations or restrictions of the Series C
Convertible Preferred Stock and the Series D Convertible
Preferred Stock are omitted.-
{ (b) THE CLASS A COMMON STOCK.
(1) After the requirements with respect to preferential dividends on
the Preferred Stock (fixed in accordance with the provisions of paragraph
(a) of this section 4) shall have been met and after this corporation shall
have complied with all the requirements, if any, with respect to the
setting aside of sums as sinking funds or redemption or purchase accounts
in respect of the Preferred Stock (fixed in accordance with the provisions
of paragraph (a) of this section 4), and subject further to any other
conditions that may be fixed in accordance with the provisions of paragraph
(a) of this section 4, including, without limitation, the right of any of
the holders of any series of Preferred Stock to participate therein, the
holders of shares of Class A Common Stock shall be entitled to receive,
when, as and if declared by the board of directors out of funds legally
available for the purpose, dividends, payable on the same date fixed for
the payment of the corresponding dividend on the Common Stock (other than a
dividend payable in shares of Common Stock), in an amount per share
(rounded to the nearest cent if payable in cash) equal to the aggregate per
share amount of any cash dividend and the aggregate per share amount
(payable in kind) of any non-cash dividend (other than a dividend payable
in shares of Common Stock) paid on the Common Stock.
(2) In the event this corporation shall at any time declare and pay
any dividend on the Common Stock payable in shares of Common Stock or
effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of
a dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such }
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{ case this corporation shall, as the case may be, declare and pay an
equivalent dividend per share on the Class A Common Stock payable in shares
of Class A Common Stock or effect an equivalent subdivision or combination
or consolidation of the outstanding shares of Class A Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Class A Common Stock) into a greater or lesser number of shares of Class A
Common Stock.
(3) This corporation shall declare a dividend on the Class A Common
Stock as provided in subparagraph (1) and subparagraph (2) of this
paragraph (b) at the same time that it declares any dividend on the Common
Stock and shall effect a subdivision or combination or consolidation of the
outstanding shares of Class A Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Class A Common Stock)
into a greater or lesser number of shares of Class A Common Stock as
provided in subparagraph (2) of this paragraph (b) at the same time that it
effects any subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of
a dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock.
(4) Except as set forth in subparagraphs (1) through (3) of this
paragraph (b), holders of shares of the Class A Common Stock shall not be
entitled to receive, and this corporation shall not declare or pay, any
dividend or distribution (whether in cash, property or securities) on the
Class A Common Stock.
(5) After distribution in full of the preferential amount, if any, to
be distributed to the holders of the Preferred Stock (fixed in accordance
with the provisions of paragraph (a) of this section 4) in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of this
corporation, the holders of the Class A Common Stock shall, subject to the
right, if any, of the holders of any series of Preferred Stock to
participate therein (fixed in accordance with the provisions of paragraph
(a) of this section 4), be entitled together with the holders of the Common
Stock to receive all the remaining assets of this corporation, tangible and
intangible, of whatever kind available for distribution to stockholders,
ratably in proportion to the number of shares held by each such holder.
(6) Except as may otherwise be required by law, this Certificate of
Incorporation or the provisions of the resolutions adopted by the board of
directors pursuant to paragraph (a) of this section 4, each holder of the
Class A Common Stock shall have one vote in respect of each share of the
Class A Common Stock held by such holder on each matter in respect of which
the holders of the Common Stock are entitled to vote, and the holders of
the Class A Common Stock shall vote together with the holders of the Common
Stock as a single class; provided, however, that the holders of the Class A
Common Stock shall not be entitled to vote in the election of directors
except as provided in subparagraph (7) of this paragraph (b).
(7) (i) The holders of the Class A Common Stock shall have the
exclusive right, voting separately as a class, to elect that number of
directors of this corporation (hereinafter, the "Class A Directors") equal
to the product (rounded to the nearest whole number if such product is not
a whole number) of (x) the Outstanding Voting Interest (as hereinafter
defined in subdivision (xv) of subparagraph (11) of this paragraph (b))
times (y) the total number of directors constituting the whole board of
directors, at each meeting of the stockholders held for the purpose of
electing directors; provided that, at any time that the Outstanding Voting
Interest is from and including 15% to and including 20%, then in
calculating such number of directors the multiplier set forth in the
preceding clause (x) shall be 20% in lieu of the Outstanding Voting
Interest; and provided further that while Section 310(b) of the
Communications Act of 1934, as amended (or any successor provision of law),
remains in effect, under no circumstances shall the holders of Class A
Common Stock have the right to elect directors such that the number of
Class A Directors would constitute more than the maximum percentage of the
total directors of this corporation permitted under such Section 310(b) and
under no circumstances shall the number of Class A Directors serving on the
board of directors be more than the maximum percentage permitted under such
Section 310(b). The directors of this corporation other than the Class A
Directors shall be elected by the holders of the class or classes or series
of stock entitled to vote therefor, but excluding the Class A Common
Stock. }
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{ (ii) At any meeting held for the purpose of electing directors, the
presence in person or by proxy of the holders of at least a majority of the
then outstanding shares of Class A Common Stock shall be required and be
sufficient to constitute a quorum of such class for the election of Class A
Directors by such class. At any such meeting or adjournment thereof (x) the
absence of a quorum of the holders of Class A Common Stock shall not
prevent the election of directors other than the Class A Directors and the
absence of a quorum or quorums of the holders of capital stock entitled to
elect such other directors shall not prevent the election of the Class A
Directors and (y) in the absence of a quorum of the holders of shares of
Class A Common Stock, a majority of such holders present in person or by
proxy shall have the power to adjourn the meeting for the election of Class
A Directors, from time to time, without notice (except as required by law)
other than an announcement at the meeting, until a quorum shall be present.
(iii) Except as provided in this subdivision (iii), each Class A
Director shall serve until the next annual meeting of the stockholders and
until such director's successor has been elected and qualified, subject to
such director's earlier death, resignation, removal or retirement. Upon the
conversion of all outstanding shares of Class A Common Stock pursuant to
subdivision (ii) of subparagraph (9) of this paragraph (b), the term of
office of all Class A Directors then in office shall thereupon terminate,
the vacancy or vacancies resulting from such termination shall be filled by
the remaining directors then in office, acting by majority vote of such
remaining directors, and the director or directors so elected to fill such
vacancy or vacancies shall not be treated hereunder or under the by-laws of
this corporation as Class A Directors. If at any time the number of
directors that the holders of the Class A Common Stock have the right to
elect pursuant to subdivision (i) of this subparagraph (7) shall decrease
other than as set forth in the preceding sentence (whether upon the
conversion of shares of Class A Common Stock pursuant to subdivision (i) of
subparagraph (9) of this paragraph (b), upon the decrease in the number of
directors constituting the whole board of directors or otherwise), then the
term of office of a number of Class A Directors then in office equal to
such decrease shall terminate effective at the close of business on the
fifteenth day following the event that resulted in such decrease (the
"Termination Date"); provided, however, that if, prior to the Termination
Date, the holders of the Class A Common Stock shall not have removed or
caused to resign, in either case effective as of the Termination Date, a
number of Class A Directors equal to such decrease, then the terms of
office of all Class A Directors then in office shall terminate on the
Termination Date. The vacancy or vacancies resulting from the termination
provided for in the preceding sentence shall be filled as follows: (A) the
vacancy or vacancies equal to the number of directors that the holders of
the Class A Common Stock then have the right to elect pursuant to
subdivision (i) of this subparagraph (7) (after giving effect to the
decrease referred to in the preceding sentence) shall be filled as provided
in subdivision (iv) of this subparagraph (7), and the director or directors
so elected to fill such vacancy or vacancies shall be treated hereunder and
under the by-laws of this corporation as Class A Directors; and (B) the
remaining vacancy or vacancies shall be filled by the remaining directors
then in office, acting by majority vote of such remaining directors, and
the director or directors so elected to fill such vacancy or vacancies
shall not be treated hereunder or under the by-laws as Class A Directors.
(iv) Subject to subdivision (iii) of this subparagraph (7), in case of
any vacancy occurring among the Class A Directors, the remaining Class A
Director or Directors may appoint a successor to hold office for the
unexpired term of the Class A Director whose place shall be vacant. If at
any time the offices of all Class A Directors shall be vacant, then,
subject to subdivision (iii) of this subparagraph (7), the holders of Class
A Common Stock then outstanding, voting separately as a class, may, either
by written consent or at a special meeting of such holders called in
accordance with the by-laws of this corporation, elect successors to hold
office for the unexpired terms of the directors whose places shall be
vacant.
(8) So long as any shares of Class A Common Stock are outstanding,
this corporation shall not, without the written consent or affirmative vote
of the holders of a majority of the shares of Class A Common Stock at the
time outstanding, voting separately as a class, either in writing or by
resolution adopted at an annual or special meeting called for the purpose,
take, and this corporation shall not directly or indirectly engage in, any
of the following actions (other than actions involving transactions }
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{ solely between or among this corporation and one or more wholly owned
Subsidiaries (as hereinafter defined in subdivision (xix) of subparagraph
(11) of this paragraph (b)) of this corporation):
(i) The amendment of this Certificate of Incorporation so as to
affect adversely the rights of holders of shares of Class A Common
Stock;
(ii) Any Business Combination (as hereinafter defined in
subdivision (iv) of subparagraph (11) of this paragraph (b)) to be
effected prior to the fourth anniversary of the Closing Date (as
hereinafter defined in subdivision (v) of subparagraph (11) of this
paragraph (b));
(iii) The issuance of any series or class of capital stock having
either (A) more than one vote per share (other than pursuant to the
Rights Plan (as hereinafter defined in subdivision (xviii) of
subparagraph (11) of this paragraph (b))) or (B) a class vote on any
matter, except to the extent such class vote is required by Delaware
corporate law or to the extent that the holders of any series of
preferred stock may have the right, voting separately as a class, to
elect a number of directors of this corporation upon the occurrence of a
default in payment of dividends or redemption price;
(iv) (A) The adoption of any shareholder rights plan, or any other
plan or arrangement that could reasonably be expected to disadvantage
any shareholder on the basis of the size of its shareholding, such that
any holder of Class A Common Stock or any of its Affiliates (as
hereinafter defined in subdivision (i) of subparagraph (11) of this
paragraph (b)) would be adversely affected in relation to their position
under the Rights Plan as in effect on the Closing Date; provided that
the adoption of a shareholder rights plan that is substantially similar
to the Rights Plan as in effect on the Closing Date (without regard to
the provisions of this Certificate of Incorporation or the Investment
Agreement (as hereinafter defined in subdivision (x) of subparagraph
(11) of this paragraph (b)) relating thereto) shall be deemed not to
affect such holders and their Affiliates adversely in relation to their
position under the Rights Plan as in effect on the Closing Date;
(B) The amendment, modification or termination of the Rights Plan
(but excluding any redemption or exchange of the Rights (as hereinafter
defined in subdivision (xvii) of subparagraph (11) of this paragraph
(b)) effected in accordance with the terms of the Rights Plan and, to
the extent applicable thereto, this Certificate of Incorporation and the
Investment Agreement), if such action would adversely affect the rights
of holders of shares of Class A Common Stock and their Affiliates in
relation to their position under the Rights Plan as in effect on the
Closing Date (without regard to the provisions of this Certificate of
Incorporation or the Investment Agreement relating thereto); provided
that the amendment of the Rights Plan to extend the expiration date or
amend the exercise price thereof shall be deemed not to affect such
holders and their Affiliates adversely in relation to their position
under the Rights Plan as in effect on the Closing Date;
(v) The issuance of Voting Securities (as hereinafter defined in
subdivision (xxiii) of subparagraph (11) of this paragraph (b))
(excluding the issuance of Voting Securities pursuant to or upon (w) the
terms of the Series D Convertible Preferred Stock or the Class A Common
Stock, (x) the exercise or exchange of the Rights, (y) grants or
issuances of capital stock or any options or any other rights to acquire
shares of capital stock pursuant to Employee Stock Plans (as hereinafter
defined in subdivision (viii) of subparagraph (11) of this paragraph
(b)) and any Voting Securities issuable upon the exercise of any such
options or other rights or (z) the reissuance of Voting Securities
purchased by this corporation subsequent to , 1993)
representing voting power in excess of (A) 10% of the aggregate voting
power of the outstanding Voting Securities as of the date of such
issuance in any single or related series of transactions or (B) 15% of
the aggregate voting power of the average number of Voting Securities
outstanding over a rolling three-year period; provided that, for
purposes of this subdivision (v), (i) the issuance of options, warrants
or other securities exercisable for or convertible into shares of
capital stock shall be deemed to be the issuance of the shares of
capital stock for or into which such securities are exercisable or
convertible and capital stock shall be deemed to be issued on the date
that this corporation executes an agreement to issue such capital stock
unless, at the time of such execution, this corporation shall have
elected to }
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{ consider such capital stock to be issued on a subsequent date and (ii)
such percentages shall be calculated after giving effect to the issuance
or issuances in question;
(vi) The issuance of Voting Securities (other than issuances (A)
applicable on a PRO RATA basis to all holders of a class or series of
capital stock generally or (B) upon the exercise of the Rights) to any
person (other than a holder of Class A Common Stock or any of its
Affiliates) that beneficially owns, or as a result thereof would
beneficially own, more than 5% of the outstanding Voting Securities, and
transactions (other than transactions (x) applicable on an equal basis
to all holders of a class or series of capital stock generally, (y) in
accordance with the Rights Plan or (z) any Business Combination effected
subsequent to the fourth anniversary of the Closing Date) with any
person that beneficially owns more than 5% of the outstanding shares of
capital stock of this corporation;
(vii) Any single or related series of acquisitions of businesses or
assets or investments therein (including, without limitation, the
formation of a joint venture with persons other than holders of Class A
Common Stock), other than money market types of investments and trade
receivables, pursuant to which the Fair Market Value (as hereinafter
defined in subdivision (ix) of subparagraph (11) of this paragraph (b))
of the aggregate purchase price paid by this corporation will exceed 20%
of the Market Capitalization (as hereinafter defined in subdivision
(xii) of subparagraph (11) of this paragraph (b)) of this corporation at
the time that this corporation executes a definitive agreement to effect
such acquisition;
(viii) Any single or related series of acquisitions of businesses
or assets or investments (including, without limitation, the formation
of a joint venture with persons other than holders of Class A Common
Stock) in a Non-Core Business (as hereinafter defined in subdivision
(xiii) of subparagraph (11) of this paragraph (b)) pursuant to which the
Fair Market Value of the aggregate purchase price paid by this
corporation will exceed 5% of the Market Capitalization of this
corporation at the time that this corporation executes a definitive
agreement to effect such acquisition or investment, except to the extent
that any such Non-Core Business is obtained in the course of a bona fide
transaction the principal purpose of which is the acquisition of a Core
Business (as hereinafter defined in subdivision (vii) of subparagraph
(11) of this paragraph (b));
(ix) Any single or related series of sales, transfers or other
dispositions or encumbrances of assets having a Fair Market Value in
excess of 15% of the aggregate Fair Market Value (as determined by the
Independent Directors (as hereinafter defined in subdivision (iii) of
paragraph (b) of section 9 of this Certificate of Incorporation) in
accordance with the procedures for a determination by the Independent
Directors set forth in the Investment Agreement) of the total assets of
this corporation and its Subsidiaries taken as a whole at the time that
this corporation executes a definitive agreement to effect such
disposition or encumbrance; provided that a sale of all or substantially
all of the assets of this corporation shall not be deemed a sale,
transfer or other disposition or encumbrance for purposes of this
subdivision (ix);
(x) The incurrence of indebtedness for money borrowed, including,
without limitation, financing whether or not required to be presented on
the consolidated balance sheet of this corporation and its subsidiaries
in accordance with generally accepted accounting principles, that would
cause this corporation's ratio of consolidated debt-to-total
capitalization to exceed 65%; for purposes of this subdivision (x),
"total capitalization" means the sum of consolidated stockholders'
equity and consolidated long-term indebtedness (including, without
limitation, financing that is not required to be presented on such
consolidated balance sheet); and
(xi) The declaration of any extraordinary cash dividends or other
distribution to holders of any class or classes, and/or any series
thereof, of capital stock in excess of 5% of the Market Capitalization
of this corporation at the time of such dividend or other distribution;
PROVIDED, HOWEVER, that nothing in the foregoing shall require any consent
or affirmative vote of the holders of the Class A Common Stock pursuant to
this subparagraph (8) in order for this corporation to }
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{ satisfy its obligations or exercise its rights under the Investment
Agreement, the Joint Venture Agreement (as hereinafter defined in
subdivision (vii) of subparagraph (11) of this paragraph (b)) or any
"Related Agreement" (as defined in the Joint Venture Agreement), for any
transaction pursuant to the terms of the Series D Preferred Stock or the
Class A Common Stock, for any other transaction between or in respect of
this corporation or any of its Affiliates, on the one hand, and any holder
of Series D Preferred Stock or the Class A Common Stock or any of their
Affiliates, on the other hand, or in connection with any action pursuant to
a Requirement of Law (as hereinafter defined in subdivision (xvi) of
subparagraph (11) of this paragraph (b)).
(9) (i) If any issued and outstanding share of Class A Common Stock is
Transferred (as hereinafter defined in subdivision (xx) of subparagraph
(11) of this paragraph (b)) to any person other than a wholly owned direct
or indirect subsidiary of the transferring holder or the corporate parent
or ultimate corporate parent of the transferring holder (provided that such
transferring holder is a wholly owned direct or indirect subsidiary of such
corporate parent or ultimate corporate parent), each share of Class A
Common Stock so Transferred shall be automatically converted, without any
action on the part of this corporation or any action on the part of the
transferring holder, into one fully paid and nonassessable share of the
Common Stock.
(ii) Upon the occurrence of a Conversion Event (as hereinafter defined
in subdivision (vi) of subparagraph (11) of this paragraph (b)), without
any action on the part of this corporation or the holders of shares of
Class A Common Stock, each share of Class A Common Stock issued and
outstanding immediately prior to the Conversion Event shall automatically
be converted into one fully paid and nonassessable share of the Common
Stock. Upon the occurrence of a Conversion Event, prompt written notice
thereof and of the resulting conversion of the Class A Common Stock shall
be given by first class mail, postage prepaid, to each person who
immediately prior to the Conversion Event was a holder of record of shares
of Class A Common Stock at such person's address as the same appears on the
stock register of this corporation; provided, however, that no failure to
give such notice nor any defect therein shall affect the effectiveness of
the conversion of any shares of Class A Common Stock. Each such notice
shall include a statement setting forth the place or places where
certificates formerly representing shares of Class A Common Stock are to be
surrendered in accordance with subparagraph (iv) of this subparagraph (9).
(iii) Conversion pursuant to this subparagraph (9) shall be deemed to
have been effected at the time of the Transfer or the Conversion Event, as
the case may be, that resulted in such conversion (hereinafter, the
"Conversion Time"). Immediately upon such conversion, the rights of the
holders of shares of Class A Common Stock so converted as such shall cease
and such holders shall be treated for all purposes as having become the
record owners of the shares of Common Stock issuable upon such conversion;
provided, however, that such persons shall be entitled to receive when paid
any dividends declared on the Class A Common Stock as of a record date
preceding the Conversion Time and unpaid as of the Conversion Time. In the
event the stock transfer books of this corporation shall be closed at the
Conversion Time, such person or persons shall be deemed to have become such
holder or holders of record of the Common Stock at the opening of business
on the next succeeding day on which such stock transfer books are open.
(iv) As promptly as practicable after the Conversion Time, upon the
delivery to this corporation of the certificates formerly representing
shares of Class A Common Stock, this corporation shall deliver or cause to
be delivered, to or upon the written order of the record holder of the
surrendered certificates formerly representing shares of Class A Common
Stock, a certificate or certificates representing the number of fully paid
and nonassessable shares of Common Stock into which the shares of Class A
Common Stock formerly represented by such certificates have been converted
in accordance with the provisions of this subparagraph (9).
(v) This corporation will pay any and all documentary, stamp or
similar issue or transfer taxes payable in respect of the issue or delivery
of shares of Common Stock on the conversion of shares of Class A Common
Stock pursuant to this subparagraph (9); provided, however, that this
corporation shall not }
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{ be required to pay any tax which may be payable in respect of any
registration of transfer involved in the issue or delivery of shares of
Common Stock in a name other than that of the registered holder of Class A
Common Stock converted or to be converted, and no such issue or delivery
shall be made unless and until the person requesting such issue has paid to
this corporation the amount of any such tax or has established, to the
satisfaction of this corporation, that such tax has been paid.
(vi) This corporation shall at all times reserve and keep available,
out of the aggregate of its authorized but unissued Common Stock and its
issued Common Stock held in its treasury, for the purpose of effecting the
conversion of the Class A Common Stock, the full number of shares of Common
Stock then deliverable upon the conversion of all outstanding shares of the
Class A Common Stock.
(10) Subject to the provisions of the Investment Agreement, holders of
Class A Common Stock shall be entitled to such Voting Equity purchase
rights as may be accorded to such holders pursuant to Section 6.1 of the
Investment Agreement, so long as such agreement remains in effect.
(11) For purposes of this paragraph (b) (and, with respect to
subdivision (v), subdivision (xvii) and subdivision (xxiii) of this
subparagraph (11), for purposes of paragraph (d) of this section 4, and,
with respect to subdivision (ix), subdivision (x) and subdivision (xix) of
this subparagraph (11), for purposes of section 9 of this Certificate of
Incorporation):
(i) "Affiliate" shall mean, as applied to a specified person, any
other person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, such specified person.
(ii) "Americas" shall have the meaning set forth in the Investment
Agreement.
(iii) "BT" shall mean British Telecommunications plc, a public
limited company incorporated under the laws of England and Wales, or its
successor.
(iv) "Business Combination" shall mean a merger or consolidation in
which this corporation is a constituent corporation and pursuant to
which the Common Stock is exchanged for cash, securities or other
property or a sale of all or substantially all of the assets of this
corporation and its Subsidiaries taken as a whole; provided that neither
(A) a transaction in which the beneficial ownership of the capital stock
of this corporation or of the sole surviving corporation of the
transaction (or of the ultimate parent of this corporation or of such
sole surviving corporation) immediately after the consummation of such
transaction is substantially the same as the beneficial ownership of the
capital stock of this corporation immediately prior to the consummation
thereof nor (B) a merger in which this corporation is the surviving
corporation, in which all shares of the Common Stock outstanding
immediately prior to the consummation of such merger remain outstanding
immediately after the consummation thereof and the only change in the
capital stock of the Company resulting from such merger is the issuance
of shares of capital stock pursuant thereto, and in connection with
which no consent or affirmative vote of the holders of the Class A
Common Stock would otherwise be required under subparagraph (8) of this
paragraph (b), shall be deemed a Business Combination.
(v) "Closing Date" shall mean the first date that shares of Class A
Common Stock are issued and sold under the Investment Agreement.
(vi) "Conversion Event" shall mean any of the following
occurrences:
(A) The Outstanding Interest (as hereinafter defined in
subdivision (xiv) of this subparagraph (11)) becomes less than 10%,
unless the Outstanding Interest becomes less than 10% solely as a
result of an acquisition of Voting Securities beneficially owned by
any holder of shares of Class A Common Stock or any of its Affiliates
by this corporation pursuant to section 9 of this Certificate of
Incorporation; provided, however, that a "Conversion Event" shall be
deemed to occur if, subsequent to the aforesaid acquisition of Voting
Securities by this corporation pursuant to said section 9, the
Outstanding Interest is reduced as a result of any }
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<PAGE> 185
{ other action or transaction unless upon the consummation of such
action or transaction the Outstanding Interest is not less than 10%.
(B) The holders of shares of Class A Common Stock have
Transferred (other than to wholly owned direct or indirect
subsidiaries of such holders) in the aggregate Voting Securities
representing more than 25% of the largest amount in voting power of
Voting Securities at any time beneficially owned by such holders and
any of their Affiliates (adjusted for stock splits, stock dividends
and other combinations or reclassifications of the capital stock of
this corporation) and the Outstanding Interest is less than 15%,
unless the holders of Class A Common Stock have so Transferred more
than, or the Outstanding Interest has become less than, the
applicable percentages as aforesaid solely as a result of an
acquisition of Voting Securities beneficially owned by any holder of
shares of Class A Common Stock or any of its Affiliates by this
corporation pursuant to section 9 of this Certificate of
Incorporation; provided, however, that a "Conversion Event" shall be
deemed to occur if, subsequent to the aforesaid acquisition of Voting
Securities by this corporation pursuant to said section 9, either (i)
any holder of shares of Class A Common Stock Transfers (other than to
a wholly owned direct or indirect subsidiary of such holder and other
than to this corporation pursuant to section 9 of this Certificate of
Incorporation) any additional shares of capital stock of this
corporation or (ii) the Outstanding Interest is reduced as a result
of any other action or transaction, unless upon the consummation of
such action or transaction the Outstanding Interest is not less than
15%.
(C) There shall have been a public announcement by this
corporation that (i) this corporation or any of it Affiliates has
exercised its right to require BT or any of its Affiliates to
purchase this corporation's direct or indirect interest in the Joint
Venture (as hereinafter defined in subdivision (xi) of this
subparagraph (11)) pursuant to the terms of the Joint Venture
Agreement (as hereinafter defined in subdivision (xi) of this
subparagraph (11)), (ii) this corporation or any of its Affiliates
has transferred this corporation's direct or indirect interest in the
Joint Venture to a third party in accordance with the terms of the
Joint Venture Agreement or BT or any of its Affiliates has exercised
its right of first refusal and acquired this corporation's direct or
indirect interest in the Joint Venture pursuant to the terms of the
Joint Venture Agreement in connection with the proposed transfer of
this corporation's direct or indirect interest in the Joint Venture,
(iii) BT or any of its Affiliates has transferred BT's direct or
indirect interest in the Joint Venture to a third party or this
corporation or any of its Affiliates has exercised its right of first
refusal and acquired BT's direct or indirect interest in the Joint
Venture pursuant to the terms of the Joint Venture Agreement in
connection with a proposed transfer of BT's direct or indirect
interest in the Joint Venture or (iv) BT or any of its Affiliates has
exercised its right to require this corporation or any of its
Affiliates to sell to BT this corporation's direct or indirect
interest in the Joint Venture pursuant to the terms of the Joint
Venture Agreement (other than as a result of the event described in
clause (i) of subpart (D) of this subdivision (vi)).
(D) There shall have been a public announcement by this
corporation that (i) BT or any of its Affiliates has exercised its
right to require this corporation or any of its Affiliates to sell to
BT or any of its Affiliates this corporation's direct or indirect
interest in the Joint Venture as a result of a material breach by
this corporation pursuant to Section 29.1(a) of the Joint Venture
Agreement and (ii) this corporation has delivered a notice to BT in
which this corporation set forth its consent to the conversion of
shares of the Class A Common Stock.
(E) There shall have been a public announcement by this
corporation that either (i) there has been any judicial determination
(other than in an ex parte proceeding), following the notice and
other procedures set forth in Section 9.14 of the Investment
Agreement, that BT or any of its Affiliates has breached Section 5.1,
5.3, 7.1, 7.2, 7.3, 7.4, 10.2 or 10.3 of the Investment Agreement
(other than BT's or such Affiliate's failure to have given timely any
required notice thereunder, unless this corporation has been
materially adversely affected by such failure) and, }
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<PAGE> 186
{ if such judicial determination has not set forth whether such breach
was material with respect to the Investment Agreement, that such
breach has been determined to be material with respect to such
agreement by the Independent Directors in accordance with the
procedures for a determination by the Independent Directors set forth
in the Investment Agreement or (ii) there has been a "Loss of BT
Rights" (as defined in Section 9.12(a) of the Investment Agreement)
following an arbitration pursuant to Section 9.12(e) or 9.12(f) of
the Investment Agreement.
(F) There shall have been a public announcement by this
corporation that (i) this corporation or any of its Affiliates has
exercised its right to require BT or any of its Affiliates to sell to
this corporation or any of its Affiliates BT's direct or indirect
interest in the Joint Venture pursuant to the terms of the Joint
Venture Agreement and (ii) this corporation has delivered a notice to
BT in which this corporation set forth its consent to the conversion
of shares of the Class A Common Stock.
(vii) "Core Business" shall mean the "Core Business" (as defined in
the Investment Agreement) of the Company in the Americas.
(viii) "Employee Stock Plans" shall have the meaning set forth in
the Investment Agreement.
(ix) "Fair Market Value" shall mean, as to any shares or other
property, the cash price at which a willing seller would sell and a
willing buyer would buy such shares or property in an arms'-length
negotiated transaction without time constraints, as determined by the
Independent Directors in accordance with the procedures for a
determination by the Independent Directors set forth in the Investment
Agreement.
(x) "Investment Agreement" shall mean the Investment Agreement
dated as of , 1993 between BT and this corporation, as
such agreement may be amended, changed, supplemented or otherwise
modified.
(xi) "Joint Venture Agreement" shall mean the Joint Venture
Agreement dated , 1993 among BT, Moorgate (Twelve)
Limited, a company incorporated under the laws of England and Wales,
this corporation, MCI Ventures Corporation, a Delaware corporation, and
BT Forty-Eight Company, an unlimited company incorporated under the laws
of England and Wales (the "Joint Venture"), as such agreement may be
amended, changed, supplemented or otherwise modified.
(xii) "Market Capitalization" shall have the meaning set forth in
the Investment Agreement.
(xiii) "Non-Core Business" shall have the meaning set forth in the
Investment Agreement.
(xiv) "Outstanding Interest" shall mean the percentage of the
aggregate voting power of the outstanding Voting Securities represented
by the Voting Securities beneficially owned by any holder of shares of
Class A Common Stock or any of its Affiliates; provided that, for
purposes of calculating such percentage, Uncounted Shares (as
hereinafter defined in subdivision (xxi) of this subparagraph (11))
shall be deemed not to be outstanding Voting Securities; provided,
however, that the foregoing proviso shall not apply to the extent that,
without the benefit of such proviso, the Outstanding Interest would be
less than 7 1/2%.
(xv) "Outstanding Voting Interest" shall mean the percentage of the
aggregate voting power of the outstanding Voting Securities represented
by the number of outstanding shares of Class A Common Stock.
(xvi) "Requirement of Law" shall have the meaning set forth in the
Investment Agreement.
(xvii) "Rights" shall mean the rights issued pursuant to the Rights
Plan.
(xviii) "Rights Plan" shall mean the Rights Agreement dated
, 1993 between this corporation and ,
as the same may be amended from time to time, or any successor plan
thereto, as the same may be amended from time to time. For purposes of
this }
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<PAGE> 187
{ subdivision (xviii), any rights plan adopted by this corporation
subsequent to the termination of such Rights Agreement or the
expiration, redemption or exchange of the Rights shall be deemed a
"successor plan thereto".
(xix) "Subsidiary" shall mean any corporation or other entity of
which at least a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by this
corporation.
(xx) "Transferred" shall mean the occurrence of any act pursuant to
which, directly or indirectly, including by operation of law, the
beneficial ownership of shares of Class A Common Stock shall have been
offered, sold, transferred, assigned, pledged, hypothecated or otherwise
disposed of.
(xxi) "Uncounted Shares" shall have the meaning set forth in the
Investment Agreement.
(xxii) "Voting Equity" shall mean any and all Voting Securities,
securities of this corporation convertible into Voting Securities, and
options, warrants or other rights to acquire Voting Securities.
(xxiii) "Voting Securities" shall mean the Common Stock, the Class
A Common Stock and any other securities of this corporation having
voting power under ordinary circumstances with respect to the election
of directors of this corporation.
For purposes of this subparagraph (11), a person shall be deemed to
"beneficially own" any securities in accordance with the provisions of Rule
13d-3 under the Securities Exchange Act of 1934, as amended, as in effect
on , 1993; provided that capital stock of this corporation
underlying any options, warrants, rights or other securities convertible
into or exercisable for such capital stock shall not be deemed to be
beneficially owned by any person if the applicable conversion price or
exercise price, as the case may be, of such option, warrant, right or other
security is more than the Current Market Value (as hereinafter defined in
subdivision (i) of paragraph (b) of section 9 of this Certificate of
Incorporation) of the underlying capital stock.
(12) Shares of the Class A Common Stock may not by issued by this
corporation other than pursuant to, or in accordance with, the terms of the
Investment Agreement.}
[ (b) THE COMMON STOCK.
(1) After the requirements with respect to preferential dividends on the
Preferred Stock (fixed in accordance with the provisions of paragraph (a) of
this section 4) shall have been met and after this corporation shall have
complied with all the requirements, if any, with respect to the setting aside of
sums as sinking funds or redemption or purchase accounts in respect of the
Preferred stock (fixed in accordance with the provisions of paragraph (a) of
this section 4) and subject further to any other conditions which may be fixed
in accordance with the provisions of paragraph (a) of this section 4, including,
without limitation, the right of any of the holders of any series of the
Preferred Stock to participate therein, then but not otherwise, the holders of
the Common Stock shall be entitled to receive such dividends, if any, as may be
declared from time to time by the board of directors.
(2) After distribution in full of the preferential amount, if any, to be
distributed to the holders of the Preferred Stock (fixed in accordance with the
provisions of paragraph (a) of this section 4) in the event of voluntary or
involuntary liquidation, distribution or sale of assets, dissolution or
winding-up, of this corporation, the holders of the Common Stock shall, subject
to the right, if any, of the holders of any series of the Preferred Stock to
participate therein (fixed in accordance with the provisions of paragraph (b) of
this section 4), be entitled to receive all the remaining assets of this
corporation, tangible and intangible, of whatever kind available for
distribution to stockholders, ratably in proportion to the number of shares of
the Common Stock held by each.
(3) Except as may otherwise be required by law, the Certificate of
Incorporation or the provisions of the resolution or resolutions adopted by the
board of directors pursuant to paragraph (a) of this section 4, each ]
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[ holder of the Common Stock shall have one vote in respect of each share of the
Common Stock held by him on each matter voted upon by the stockholders. ]
{ (c) COMMON STOCK.
(1) After the requirements with respect to preferential dividends on the
Preferred Stock (fixed in accordance with the provisions of paragraph (a) of
this section 4) shall have been met and after this corporation shall have
complied with all the requirements, if any, with respect to the setting aside of
sums as sinking funds or redemption or purchase accounts in respect of the
Preferred Stock (fixed in accordance with the provisions of paragraph (a) of
this section 4), and subject to any other conditions that may be fixed in
accordance with the provisions of paragraph (a) of this section 4, including,
without limitation, the right of any of the holders of any series of Preferred
Stock to participate therein, and subject further to the right of the holders of
Class A Common Stock to participate therein to the extent provided in
subparagraphs (1) through (3) of paragraph (c) of this section 4, then, but not
otherwise, the holders of shares of Common Stock shall be entitled to receive
such dividends, if any, as may be declared from time to time by the board of
directors.
(2) In the event this corporation shall at any time effect a subdivision or
combination or consolidation of the outstanding shares of Class A Common Stock
into a greater or lesser number of shares of Class A Common Stock (other than
pursuant to subparagraph (2) of paragraph (c) of this section 4), then in each
such case this corporation shall effect an equivalent subdivision or combination
or consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock.
(3) After distribution in full of the preferential amount, if any, to be
distributed to the holders of the Preferred Stock (fixed in accordance with the
provisions of paragraph (a) of this section 4) in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of this corporation, the
holders of the Common Stock shall, subject to the right, if any, of the holders
of any series of Preferred Stock to participate therein (fixed in accordance
with the provisions of paragraph (a) of this section 4), be entitled together
with the holders of the Class A Common Stock to receive all the remaining assets
of this corporation, tangible and intangible, of whatever kind available for
distribution to stockholders, ratably in proportion to the number of shares held
by each such holder.
(4) Except as may otherwise be required by law, this Certificate of
Incorporation or the provisions of the resolutions adopted by the board of
directors pursuant to paragraph (a) of this section 4, each holder of the Common
Stock shall have one vote in respect of each share of the Common Stock held by
such holder on each matter voted upon by the stockholders. Holders of the Common
Stock may not take any action that is required or permitted to be taken by them
at an annual or special meeting of such stockholders without a meeting, without
prior notice or without a vote, and the right of the holders of the Common Stock
to act by written consent in lieu of a meeting is expressly denied. }
[ (c) ] { (d) } OTHER PROVISIONS.
(1) The relative powers, preferences and rights of each series of the
Preferred Stock in relation to the powers, preferences and rights of the
Preferred Stock or each other series of the Preferred Stock shall, in each case,
be as fixed from time to time by the board of directors in the resolution or
resolutions adopted pursuant to authority granted in paragraph (a) of this
section 4, and the consent, by class or series vote or otherwise, of the holders
of such of the series of the Preferred Stock as are from time to time
outstanding shall not be required for the issuance by the board of directors of
any other series of the Preferred Stock whether the powers, preferences and
rights of such other series shall be fixed by the board of directors as senior
to, or on a parity with, the powers, preferences and rights of such outstanding
series of the Preferred Stock or any of them; provided however, that the board
of directors may provide in such resolution or resolutions adopted with respect
to any series of the Preferred Stock that the consent of the holders of shares
carrying a majority (or such greater proportion as shall be therein fixed) of
the votes cast by the holders of the outstanding shares of such series voting
thereon shall be required for the issuance of any or all other series of the
Preferred Stock.
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(2) Subject to the provisions of subparagraph (1) of this paragraph [(c)]
{(d)}, shares of any series of the Preferred Stock may be issued from time to
time as the board of directors shall determine and on such terms and for such
consideration as shall be fixed by the board of directors.
(3) Shares of the Common Stock may be issued from time to time as the board
of directors shall determine and on such terms and for such consideration as
shall be fixed by the board of directors.
[ (4) The authorized amount of shares of the Common Stock, and of the
Preferred Stock may, without a class or series vote, be increased or decreased
from time to time by the affirmative vote of a majority of the votes entitled to
be cast thereon. ]
{ (4) The authorized amount of shares of the Common Stock, of the Class A
Common Stock and of the Preferred Stock may, without a class or series vote, be
increased or decreased from time to time by the affirmative vote of a majority
of the votes entitled to be cast thereon. }
(5) Notwithstanding any other provisions of this Certificate of
Incorporation, with regard to the election of directors of this corporation,
each holder of shares entitled to be voted with respect to the election of
directors shall be entitled to as many votes as shall equal the number of votes
which (except for this provision as to cumulative voting) such holder would be
entitled to cast for the election of directors with respect to his shares
multiplied by the number of directors to be elected by him, and he may cast all
of such votes for a single director or may distribute them among the number to
be voted for, or for any two or more of them as he may see fit.
(6) Notwithstanding anything to the contrary contained in the resolutions
authorizing the issuance of Preferred Stock and the designation, powers,
preferences and relative, participating optional and other special rights, and
the qualifications, limitations and restrictions, thereof, all shares of the
Preferred Stock which have been or hereafter shall be acquired by this
corporation, whether by purchase or redemption or by their having been converted
or exchanged for other shares of this corporation or otherwise, shall be retired
shares and shall not be reissued.
{ (7) Notwithstanding any other provision of this Certificate of
Incorporation, until the fourth anniversary of the Closing Date (as defined in
subdivision (v) of subparagraph (11) of paragraph (c) of this section 4), so
long as any shares of Class A Common Stock remain outstanding, the board of
directors of this corporation shall not, without the affirmative vote of the
holders of at least 75% in voting power of the Voting Securities (as defined in
subdivision (xxiii) of subparagraph (11) of paragraph (c) of this section 4) at
the time outstanding, given in person or by proxy, at an annual or special
meeting called for the purpose, at which the holders of the Voting Securities
shall vote together as a single class, redeem the Rights (as defined in
subdivision (xvii) of subparagraph (11) of paragraph (c) of section 4 of this
Certificate of Incorporation). }
5. COMPROMISES OR ARRANGEMENTS WITH CREDITORS. Whenever a compromise or
arrangement is proposed between this corporation and its creditors or any class
of them and/or between this corporation and its stockholders or any class of
them, any court of equitable jurisdiction within the State of Delaware may, on
the application in a summary way of this corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers appointed
for this corporation under the provisions of Section 291 of Title 8 of the
Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for this corporation under the provisions of
Section 279 to Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such a manner as the said
court directs. If a majority in number representing three-fourths (3/4ths) in
value of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of this corporation as
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders, of
this corporation, as the case may be, and also on this corporation.
6. ADDITIONAL PROVISIONS. For the management of the business and for the
conduct of the affairs of this corporation, and in further definition,
limitation and regulation of the powers of this corporation and of its
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directors and stockholders and classes thereof, the following additional
provisions are made a part of this Certificate of Incorporation:
(a) The number of directors which shall constitute the whole board of
directors of this corporation shall be fixed by, or in the manner provided
in, the by-laws of this corporation. As used in this Certificate of
Incorporation, the phrases "whole board" and "total number of directors"
shall be deemed to have the same meaning, to wit: the total number of
directors which this corporation would have if there were no vacancies. The
election of directors need not be by ballot.
(b) In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the board of directors of this
corporation is expressly authorized and empowered:
(i) acting by the affirmative vote of a majority of the whole
board, to make, alter, amend or repeal the by-laws of this corporation;
provided, however, that the stockholders, acting by the affirmative vote
of the holders of not less than four-fifths (4/5ths) of the outstanding
shares of this corporation entitled to vote thereon [considered for
purposes of this subdivision (i) as one class], may make, alter, amend
or repeal the by-laws of this corporation;
(ii) acting by the affirmative vote of a majority of the whole
board, to call special meetings of the stockholders for any purpose or
purposes; provided, however, that, except as otherwise provided by law,
special meetings of the stockholders for any purpose or purposes may
also be called by the Chairman of the Board of Directors of this
corporation or upon the written request of the holders of not less than
two-thirds (2/3rds) of the outstanding shares of this corporation
entitled to vote in the election of directors [considered for purposes
of this subdivision (ii) as one class];
(iii) subject to the provisions of the laws of the State of
Delaware and the by-laws then in effect, to determine, from time to
time, whether and to what extent and at what times and places and under
what conditions and regulations the accounts and books of this
corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right, except as
conferred by the laws of the State of Delaware, to inspect any account
or book or document of this corporation unless and until authorized so
to do by resolution of the board of directors; and
(iv) without the assent or vote of the stockholders of this
corporation, to authorize and issue obligations of this corporation,
secured or unsecured, to include therein such provisions as to
redeemability, convertibility or otherwise, as the board of directors,
in its sole discretion, may determine, and to authorize the mortgaging
or pledging, as security therefor, of any property of this corporation,
real or personal, including after-acquired property.
{ (c)(i) Any director of this corporation elected to a class of the
board of directors pursuant to paragraph (b) of Section 1 of Article III of
the by-laws of this corporation (as such provision hereafter may be amended
or relettered or renumbered) may be removed from office, but only for cause
and only by the affirmative vote of the holders of not less than
four-fifths of the votes entitled to be cast by the holders of all
outstanding shares (considered as one class for purposes of this paragraph
(c)) entitled to vote thereon. The stockholders entitled to vote for the
election of such removed director's successor may, at the meeting at which
such removal was effectuated, elect a successor to any director so removed,
which successor shall hold office until the next election of the class of
directors of which the director so removed was a member. The remaining
directors may, to the extent that the vacancy is not filled by election by
the stockholders, fill such vacancy for such term.
(ii) Any Class A Director (as defined in subdivision (i) of
subparagraph (7) of paragraph (c) of section 4 of this Certificate of
Incorporation) may be removed from office (A) for cause by the affirmative
vote of the holders of not less than four-fifths of the votes entitled to
be cast by the holders of all outstanding shares (considered as one class
for purposes of this paragraph (c)) entitled to vote thereon, and (B)
without cause only by the affirmative vote of the holders of not less than
a majority of the outstanding Class A Common Stock, voting separately as a
class, provided that, if less than all the Class A Directors are to be
removed, no Class A Director may be removed without cause if the votes cast
against such director's removal would be sufficient to elect such director
if then cumulatively voted at an election }
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<PAGE> 191
{ of all Class A Directors. Any vacancy resulting from any such removal of a
Class A Director shall be filled as provided in subdivision (iv) of
subparagraph (7) of paragraph (c) of section 4 of this Certificate of
Incorporation.
(iii) Any other director of this corporation may be removed from
office, with or without cause, and the vacancy resulting therefrom may be
filled, in accordance with applicable law and any other provision of this
Certificate of Incorporation (including any resolution of the board of
directors adopted in accordance with the provisions of paragraph (a) of
section 4 of this Certificate of Incorporation) or of the by-laws of this
corporation applicable thereto. }
In addition to the powers and authorities hereinbefore or by statute expressly
conferred upon it, the board of directors may exercise all such powers and do
such acts and things as may be exercised or done by this corporation, subject,
nevertheless, to the provisions of the laws of the State of Delaware and the
Certificate of Incorporation and the by-laws of this corporation.
7. CERTAIN REQUIRED STOCKHOLDER VOTE. Notwithstanding any other provisions
of this Certificate of Incorporation or the bylaws of this corporation, and in
addition to any other vote that may be required by law, this Certificate of
Incorporation or the by-laws of this corporation, the affirmative vote of the
holders of not less than four-fifths (4/5ths) of the outstanding shares of this
corporation entitled to vote thereon (considered for purposes of this section 7
as one class) shall be required for any or all of the following actions:
(i) amendment, alteration, change or repeal of any of the provisions
of the following:
(A) subparagraph (5) of paragraph [ (c) ] { (d) } of section 4 of
this Certificate of Incorporation (which relates to cumulative voting);
(B) subdivisions (i) and (ii) of paragraph (b) of section 6 of this
Certificate of Incorporation (which relate, respectively, to making,
altering, amending or repealing the by-laws of this corporation and to
calling special meetings of the stockholders); and
(C) this section 7; and
(ii) the addition of any further provision or provisions to this
Certificate of Incorporation which in any way relate to the provisions, or
any of them, contained in subdivisions (i) and (ii) of subparagraph (b) of
section 6 of this Certificate of Incorporation.
8. LIMITS ON LIABILITY OF DIRECTORS; INDEMNIFICATION OF OFFICERS, DIRECTORS
AND EMPLOYEES.
(a) No director of this corporation shall be personally liable to this
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; provided that this provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to this corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of Delaware,
or (iv) for any transaction from which the director derived an improper personal
benefit. If the General Corporation Law of the State of Delaware is amended
after approval by the stockholders of this paragraph (a) to authorize corporate
action further limiting or eliminating the person liability of directors, then
this liability of a director of this corporation shall be limited or eliminated
to the fullest extent permitted by the General Corporation Law of the State of
Delaware, as so amended. No amendment or repeal of this paragraph (a) shall
apply to or have any effect on the liability or alleged liability of any
director of this corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment or repeal.
(b) This corporation shall, to the fullest extent permitted by Delaware
law, as in effect from time to time, indemnify all persons who are or where
directors, officers and employees of this corporation or any wholly owned
subsidiary, and all such directors, officers and employees who, at the request
of this corporation, are or were at any time serving any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise in
any capacity. This corporation may also indemnify all other persons to the
fullest extent permitted by Delaware law.
II-15
<PAGE> 192
[ 9. BUSINESS COMBINATIONS.
(a)(1) In addition to any affirmative vote required by law or under any
other provision of this Certificate of Incorporation, and except as otherwise
expressly provided in this section 9:
(A) any merger or consolidation of this corporation or any Subsidiary
(as hereinafter defined in paragraph (c)(8) of this section 9) with or into
(i) any Substantial Stockholder (as hereinafter defined in paragraph (c)(2)
of this section 9) or (ii) any other corporation (whether or not itself a
Substantial Stockholder) which, after such merger or consolidation, would
be an Affiliate (as hereinafter defined in paragraph (c)(7) of this section
9) of a Substantial Stockholder, or
(B) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of related transactions) to or
with any Substantial Stockholder of any substantial part (as hereinafter
defined in paragraph (c)(9) of this section 9) of the assets of this
corporation or of any Subsidiary, or
(C) the issuance or transfer by this corporation or by any subsidiary
(in one transaction or a series of related transactions) of any equity
securities (as hereinafter defined in paragraph (c)(11) of this section 9)
of this corporation or any Subsidiary to any Substantial Stockholder in
exchange for cash, securities or other property (or a combination thereof)
having an aggregate fair market value of $25,000,000 or more, or
(D) the adoption of any plan or proposal for the liquidation or
dissolution of this corporation if, as of the record date for the
determination of stockholders entitled to notice thereof and to vote
thereon, any person shall be a Substantial Stockholder, or
(E) any reclassification of securities (including any reverse stock
split) or recapitalization of this corporation, or any reorganization,
merger or consolidation of this corporation with any of its Subsidiaries or
any similar transaction (whether or not with or into or otherwise involving
a Substantial Stockholder) which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding securities of any
class of equity securities of this corporation or any Subsidiary which is
directly or indirectly beneficially owned (as hereinafter defined in
paragraph (c)(3) of this section 9) by any Substantial Stockholder, shall
(except as otherwise expressly provided in this Certificate of
Incorporation) require the affirmative vote of the holders of then
outstanding Voting Shares (as hereinafter defined in paragraph (c)(10) of
this section 9) entitled to cast at least 80% of the votes entitled to be
cast by the holders of all of the then outstanding Voting Shares; provided
that such affirmative vote must include the affirmative vote of the holders
of Voting Shares entitled to cast a majority of the votes entitled to be
cast by the holders of all then outstanding Voting Shares not beneficially
owned by any Substantial Stockholder. Each such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that
some lesser percentage may be specified, by law or in any agreement with
any national securities exchange or otherwise.
(2) The term "business combination" as used in this section 9 shall mean
any transaction which is described in any one or more of clauses (A) through (E)
of paragraph (a)(1) of this section 9.
(b) The provisions of this section 9 shall not be applicable to any
business combination, the terms of which shall be approved, prior to the date
the Substantial Stockholder which is a party thereto or whose proportionate
share of the outstanding securities of any class of equity securities of this
corporation or any Subsidiary is increased by reason thereof, or, in the case of
a business combination described in clause (D) of paragraph (a)(1) of this
section 9, prior to the date any Substantial Stockholder affected by such
business combination, became a Substantial Stockholder, by two-thirds (2/3rds)
of the whole board (as hereinafter defined in paragraph (c)(6) of this section
9), but only if a majority of the members of the board of directors acting upon
such matter shall be continuing directors (as hereinafter defined in paragraph
(c)(5) of this section 9).
(c) For the purpose of this section 9:
(1) A "Person" shall mean any individual, firm, corporation or other
entity. ]
II-16
<PAGE> 193
[ (2) "Substantial Stockholder" shall mean any person (other than this
corporation or any Subsidiary) who or which, as of the record date for the
determination of stockholders entitled to notice of and to vote on any
business combination, or immediately prior to the consummation of any such
business combination (other than a business combination referred to in
paragraph (a)(1)(D) of this section 9):
(A) is the beneficial owner (as hereinafter defined in subparagraph
(3) of this paragraph (c)), directly or indirectly, of more than 15% of
the Voting Shares (determined solely on the basis of the total number of
Voting Shares so beneficially owned [and without giving effect to the
number or percentage of votes entitled to be cast in respect of such
shares] in relation to the total number of Voting Shares issued and
outstanding), or
(B) is an Affiliate of this corporation and at any time within
three years prior thereto was the beneficial owner, directly or
indirectly, of more than 15% of the then outstanding Voting Shares
(determined as aforesaid), or
(C) is the assignee of or has otherwise succeeded to any shares of
capital stock of this corporation which were at any time within three
years prior thereto beneficially owned by any Substantial Stockholder,
and such assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933.
(3) "Beneficial Ownership" shall be determined pursuant to Rule 13d-3 of
the General Rules and Regulations under the Securities Exchange act of 1934 (or
any successor rule or statutory provision) or, if said Rule 13d-3 shall be
rescinded and there shall be no successor rule or statutory provision thereto,
pursuant to Rule 13d-3 as in effect on January 1, 1981; provided, however, that
a person shall, in any event, also be deemed to be the "beneficial owner" of any
Voting Shares:
(A) which such person or any of its Affiliates or Associates (as
hereinafter defined in subparagraph (7) of this paragraph (c)) beneficially
own, directly or indirectly, or
(B) which such person or any of its Affiliates or Associates has (i)
the right to acquire (whether such right is exercisable immediately or only
after the passage of time), pursuant to any agreement, arrangement or
understanding (but shall not be deemed to be the beneficial owner of any
Voting Shares solely by reason of an agreement, arrangement or
understanding with this corporation to effect a business combination) or
upon the exercise of conversion rights, exchange rights, warrants, or
options, or otherwise, or (ii) sole or shares voting or investment power
with respect thereto pursuant to any agreement, arrangement, understanding
relationship or otherwise (but shall not be deemed to be the beneficial
owner of any Voting Shares solely by reason of a revocable proxy granted
for a particular meeting of stockholders, pursuant to a public solicitation
of proxies for such meeting, with respect to shares of which neither such
person nor any such Affiliate or Associate is otherwise deemed the
beneficial owner), or
(C) which are beneficially owned, directly or indirectly, by any other
person with which such first mentioned person or any of its Affiliates or
Associates acts as a partnership, limited partnership, syndicate or other
group pursuant to any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of capital
stock of this corporation;
and provided further, however, that (i) no director or officer of this
corporation, nor any Associate or Affiliate or any such director or officer,
shall, solely by reason of any or all of such directors and officers acting in
their capacities as such, be deemed, for any purposes hereof, to beneficially
own any Voting Shares beneficially owned by any other such director or officer
(or any Associate or Affiliate thereof), and (ii) no employee stock ownership or
similar plan of this corporation or any Subsidiary nor any trustee with respect
thereto, nor any Associate or Affiliate of any such trustee, shall, solely by
reason of such capacity of such trustee, be deemed, for any purposes hereof, to
beneficially own any Voting Shares held under any such plan.
(4) For purposes of computing the percentage beneficial ownership of Voting
Shares of a person in order to determine whether such person is a Substantial
Stockholder, the outstanding Voting Shares shall include ]
II-17
<PAGE> 194
[ shares deemed owned by such person through application of subparagraph (3) of
this paragraph (c) but shall not include any other Voting Shares which may be
issuable by this corporation pursuant to any agreement, or upon the exercise of
conversion rights, warrants or options, or otherwise. For all other purposes,
the outstanding Voting Shares shall include only Voting Shares then outstanding
and shall not include any Voting Shares which may be issuable by this
corporation pursuant to any agreement, or upon the exercise of conversion
rights, warrants or options, or otherwise.
(5) "Continuing director" shall mean a person who was a member of the board
of directors of this corporation as of July 1, 1981 or thereafter elected by the
stockholders or appointed by the board of directors of this corporation prior to
the date as of which the Substantial Stockholder (or Substantial Stockholders)
in question became a Substantial Stockholder (or Substantial Stockholders), or a
person designated (before his initial election or appointment as a director) as
a continuing director by a majority of the whole board, but only if a majority
of the whole board shall then consist of continuing directors, or, if a majority
of the whole board shall not then consist of continuing directors, by a majority
of the then continuing directors.
(6) "Whole board" shall mean the total number of directors which this
corporation would have if there were no vacancies.
(7) An "Affiliate" of a specified person is a person that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, the person specified. The Term "Associate" used to
indicate a relationship with any person shall mean (i) any corporation or
organizations other than this corporation or a Subsidiary) of which such person
is an officer or partner or is, directly or indirectly, the beneficial owner of
10% or more of any class of equity securities, (ii) any trust or other estate in
which such person has a substantial beneficial interest or as to which such
person serves as trustee or in a similar fiduciary capacity, and (iii) any
relative or spouse of such person, or any relative of such spouse, who has the
same home as such person, or is an officer or director of any corporation
controlling or controlled by such person.
(8) "Subsidiary" shall mean any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by this corporation;
provided, however, that for the purposes of the definition of Substantial
Stockholder set forth in subparagraph (2) of this paragraph (c), the term
"Subsidiary" shall mean only a corporation of which a majority of each class of
equity security is owned, directly or indirectly, by this corporation.
(9) "Substantial part" shall mean assets having a book value (determined in
accordance with generally accepted accounting principles) in excess of 10% of
the book value (determined in accordance with generally accepted accounting
principles) of the total consolidated assets of this corporation, at the end of
its most recent fiscal year ending prior to the time the determination is made.
(10) "Voting Shares" shall mean any shares of capital stock of this
corporation entitled to vote generally in the election of directors.
(11) "Equity security" shall have the meaning given to such term under Rule
3a11-1 of the General Rules and Regulations under the Securities Exchange Act of
1934, as in effect on January 1, 1981.
(d) A majority of the whole board shall have the power to determine, but
only if a majority of the whole board shall then consist of continuing
directors, or, if a majority of the whole board shall not then consist of
continuing directors, a majority of the then continuing directors shall have the
power to determine, for the purposes of this section 9, on the basis of
information known to them, (i) the number of Voting Shares beneficially owned by
any person, (ii) whether a person is an Affiliate or Associate of another, (iii)
whether a person has an agreement, arrangement or understanding with another as
to any matter referred to in subparagraph (3)(C) of paragraph (c) of this
section 9, (iv) whether the assets subject to any business combination
constitute a substantial part of the assets of the corporation in question,
and/or (v) any other factual matter relating to the applicability or effect of
this section 9.
(e) A majority of the whole board shall have the right to demand, but only
if a majority of the whole board shall then consist of continuing directors, or,
if a majority of the whole board shall not then consist of ]
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<PAGE> 195
[ continuing directors, a majority of the then continuing directors shall have
the right to demand, that any person who it is reasonably believed is a
Substantial Stockholder (or holds of record Voting Shares beneficially owned by
any Substantial Stockholder) supply this corporation with complete information
as to (i) the record owner(s) of all shares beneficially owned by such person
who it is reasonably believed is a Substantial Stockholder, (ii) the number of,
and class or series of, shares beneficially owned by such person who it is
reasonably believed is a Substantial Stockholder and held of record by each
such record owner and the number(s) of the stock certificate(s) evidencing such
shares, and (iii) any other factual matter relating to the applicability or
effect of this section 9, as may be reasonably requested of such person, and
such person shall furnish such information within 10 days after receipt of such
demand.
(f) Any determinations made by the board of directors, or by the continuing
directors, as the case may be, pursuant to this section 9 in good faith and on
the basis of such information and assistance as was then reasonably available
for such purpose shall be conclusive and binding upon this corporation and its
stockholders, including any Substantial Stockholders.
(g) Any amendment, alteration, change or repeal of this section 9 shall, in
addition to any other vote or approval required by law or by this Certificate of
Incorporation, require the affirmative vote of holders of then outstanding
Voting Shares entitled to cast at least 80% of the votes entitled to be cast by
the holders of all of the then outstanding Voting Shares (and such affirmative
vote must include the affirmative vote of the holders of Voting Shares entitled
to cast a majority of the votes entitled to be cast by the holders of all Voting
Shares not beneficially owned by any Substantial Stockholder); provided,
however, that this paragraph (g) shall not apply to, and such 80% vote (and such
further majority vote) shall not be required for, any amendment, alternation,
change or repeal declared advisable by the board of directors by the affirmative
vote of two thirds of the whole board and submitted to the stockholders for
their consideration, but only if a majority of the members of the board of
directors voting upon such matter shall be continuing directors.
(h) Nothing contained in this section 9 shall be construed to relieve any
Substantial Stockholder from any fiduciary obligation imposed by law.
(i) In the event any paragraph (or portion thereof) of this section 9 shall
be found to be invalid, prohibited or unenforceable for any reason, the
remaining provisions (or portions thereof) of this section 9 shall be deemed to
remain in full force and effect, and shall be construed as if such invalid,
prohibited or unenforceable provision had been stricken herefrom or otherwise
rendered inapplicable, it being the intent of this corporation and its
stockholders that each such remaining provision (or portion thereof) of this
section 9 remain, to the fullest extent permitted by law, applicable and
enforceable as to all stockholders, including Substantial Stockholders,
notwithstanding any such finding. ]
{ 9. REDEMPTION OF STOCK.
(a) Notwithstanding any other provision of this Certificate of
Incorporation to the contrary (but subject to the terms of any series of
Preferred Stock fixed in accordance with the provisions of paragraph (a) of
section 4 of this Certificate of Incorporation), outstanding shares of stock of
this corporation held by Disqualified Holders (as hereinafter defined in
subdivision (ii) of paragraph (b) of this section 9) shall always be subject to
redemption by this corporation, by action of the board of directors, to the
extent necessary, in the judgment of the board of directors, to prevent the loss
or secure the renewal or reinstatement of any license or franchise from any
governmental agency held by this corporation or any of its Subsidiaries (as
defined in subdivision (xix) of subparagraph (11) of paragraph (c) of section 4
of this Certificate of Incorporation) to conduct any portion of the business of
this corporation or any of its Subsidiaries, which license or franchise is
conditioned upon some or all of the holders of the stock of this corporation
possessing prescribed qualifications. The terms and conditions of such
redemption shall be as follows, subject in any case to any additional or
different rights of a particular Disqualified Holder or of this corporation
pursuant to any contract or agreement between such Disqualified Holder and this
corporation:
(i) the redemption price of the shares to be redeemed pursuant to this
section shall be equal to the Current Market Value (as hereinafter defined
in subdivision (i) of paragraph (b) of this section 9) of such shares;
provided that such redemption price as to any Disqualified Holder who
purchased such }
II-19
<PAGE> 196
{ shares after , 1993 and within one year of the Redemption Date
(as hereinafter defined in subdivision (iv) of paragraph (b) of this
section 9) shall not (unless otherwise determined by the board of
directors) exceed the purchase price paid by such Disqualified Holder for
such shares;
(ii) the redemption price of such shares may be paid in cash,
Redemption Securities (as hereinafter defined in subdivision (v) of
paragraph (b) of this section 9) or any combination thereof;
(iii) if less than all of the shares held by Disqualified Holders are
to be redeemed, the shares to be redeemed shall be selected in such manner
as shall be determined by the board of directors, which may include
selection first of the most recently purchased shares thereof, selection by
lot or selection in any other manner determined by the board of directors
to be equitable; provided that the board of directors shall be entitled to
redeem shares of Common Stock held by Disqualified Holders prior to
redeeming shares of Class A Common Stock held by Disqualified Holders;
(iv) at least ten days' written notice of the Redemption Date shall be
given to the record holders of the shares selected to be redeemed (unless
waived in writing by any such holder), provided that the Redemption Date
may be the date on which written notice shall be given to record holders if
the cash or Redemption Securities necessary to effect the redemption shall
have been deposited in trust for the benefit of such record holders and
subject to immediate withdrawal by them upon surrender of the stock
certificates for their shares to be redeemed;
(v) on the Redemption Date, unless this corporation shall have
defaulted in paying or setting aside for payment the cash or Redemption
Securities payable upon such redemption, any and all rights of Disqualified
Holders in respect of shares so redeemed (including without limitation any
rights to vote or participate in dividends), shall cease and terminate, and
from and after such Redemption Date such Disqualified Holders shall be
entitled only to receive the cash or Redemption Securities payable upon
redemption of the shares so redeemed; and
(vi) such other terms and conditions as the board of directors shall
determine;
provided, however, that in the event that any shares of Class A Common Stock are
redeemed pursuant to this section 9, the redemption price and the other terms
and conditions of such redemption shall be as set forth in the Investment
Agreement (as defined in subdivision (x) of subparagraph (11) of paragraph (c)
of section 4 of this Certificate of Incorporation), so long as such agreement
remains in effect.
(b) For purposes of this section 9 (and, with respect to subdivision (i)
and subdivision (iii) of this paragraph (b), for purposes of paragraph (c) of
section 4 of this Certificate of Incorporation):
(i) "Current Market Value" of a share of the stock of this corporation
of any class or series shall mean the average of the daily closing prices
on the NASDAQ National Market System (or such principal exchange on which
such class or series of stock may be listed) for such a share for the 20
consecutive trading days commencing on the 22nd trading day prior to the
date on which notice of redemption shall be given pursuant to subdivision
(iv) of paragraph (a) of this section 9. The closing price for each day
shall be the closing price, if reported, or, if the closing price is not
reported, the average of the closing bid and asked prices as reported by
the electronic inter-dealer quotation system operated by NASDAQ, Inc. or a
similar source selected from time to time by this corporation for the
purpose. In the event such closing prices are unavailable, the Current
Market Value shall be the Fair Market Value (as defined in subdivision (ix)
of subparagraph (11) of paragraph (c) of section 4 of this Certificate of
Incorporation) of such a share as determined by the Independent Directors
(as hereinafter defined in subdivision (iii) of this paragraph (b)) in
accordance with the procedures for a determination by the Independent
Directors set forth in the Investment Agreement. Notwithstanding anything
to the contrary contained herein, the Independent Directors shall establish
the Current Market Value of the Class A Common Stock to be equal to the
Current Market Value of the Common Stock and shall establish the Current
Market Value of any options, warrants, rights or other securities
convertible into or exercisable for Class A Common Stock to be equal to the
Current Market Value of options, warrants, rights or other securities
convertible into or exercisable for Common Stock upon the same terms and
otherwise containing the same terms as such options, warrants, rights or
other securities convertible into or exercisable for Class A Common
Stock. }
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<PAGE> 197
{ (ii) "Disqualified Holder" shall mean any holder of shares of any
class or series of stock of this corporation whose continued holding of
such stock, either individually or taken together with the holding of
shares of stock of this corporation by any other holder or holders of
shares of stock of this corporation, may result, in the judgment of the
board of directors, in the loss of, or the failure to secure the renewal or
reinstatement of, any license or franchise from any governmental agency
held by this corporation or any of its Subsidiaries to conduct any portion
of the business of this corporation or any of its Subsidiaries.
(iii) "Independent Directors" shall have the meaning set forth in the
Investment Agreement.
(iv) "Redemption Date" shall mean the date fixed by the board of
directors for the redemption of any shares of stock of this corporation
pursuant to this section 9.
(v) "Redemption Securities" shall mean any debt or equity securities
of this corporation, any of its Subsidiaries or any other corporation, or
any combination thereof, having such terms and conditions as shall be
approved by the board of directors and which, together with any cash to be
paid as part of the redemption price, in the opinion of any nationally
recognized investment banking firm selected by the board of directors
(which may be a firm which provides other investment banking, brokerage or
other services to this corporation), has a value, at the time notice of
redemption is given pursuant to subdivision (iv) of paragraph (a) of this
section 9, at least equal to the price required to be paid pursuant to
subdivision (i) of paragraph (a) of this section 9 (assuming, in the case
of Redemption Securities to be publicly traded, such Redemption Securities
were fully distributed and subject only to normal trading activity).' }
[ 10. SUBSTANTIAL STOCKHOLDERS.
(a) It is the declared intent and policy of this corporation and its
stockholders that control of this corporation is an asset that belongs to all
stockholders of this corporation and that all such stockholders are entitled (i)
to participate, through an election to sell or otherwise dispose of their
shares, in any proposed acquisition of control of this corporation by another
person, and (ii) to be offered a price for their shares which is fair and
equitable under the circumstances and which includes an appropriate premium for
the acquisition of such control. It is the declared collective conclusion of
this corporation and its stockholders that such policy will not adequately be
furthered if any person after acquiring such control may, in its discretion,
determine whether or not to acquire the remaining equity interests in this
corporation. Even if this Certificate of Incorporation were to require such
person to pay to the holders of such remaining equity interests a price deemed
fair and equitable under the circumstances in the event such person determines
to acquire such remaining equity interest, such person would not otherwise be
required to effect any such acquisition. Therefore, to carry out the
aforementioned intent and policy, this corporation and its stockholders hereby
approve and adopt this section 10.
(b) From and after the date any person first becomes a Substantial
Stockholder (as hereinafter defined in paragraph (g)(2) of this section 10)
until such time as such person shall cease to be a Substantial Stockholder,
holders of issued and outstanding Voting Shares (as hereinafter defined in
paragraph (g)(10) of this section 10) of any class or series beneficially owned
(as hereinafter defined in paragraph (g)(3) of this section 10) but such
Substantial Stockholder, as of any record date for the determination of
stockholders entitled to vote on or consent to any matter, in excess of 10% of
the then issued and outstanding shares of such class or series shall, subject to
the provisions of the last two sentences of this paragraph (b), be entitled to
cast one hundredth (1/100) of one vote per share for each such share in excess
of 10% of the then issued and outstanding shares of such class or series.
Notwithstanding the foregoing, in the event such Substantial Stockholder, or an
Affiliate (as hereinafter defined in paragraph (g)(7) of this section 10)
thereof, or any other person deemed to be the beneficial owner of Voting Shares
also beneficially owned by such Substantial Stockholder, shall consummate a
Tender Offer (as hereinafter defined in paragraph (g)(9) of this section 10)
conforming with the provisions of paragraphs (d) and (e) of this section 10,
holders of all Voting Shares beneficially owned by such Substantial Stockholder
shall thereupon be entitled to cast one vote per share (or such greater or
lesser number of votes per share as shall be provided for in, or fixed by the
board of directors in any resolution or resolutions adopted pursuant to
authority granted in, section 4 of this Certificate of Incorporation) on each
matter voted upon or consented to by the stockholders of this corporation. The
number of votes which may be cast by any record owner by virtue of the
provisions of this section 10 in respect of ]
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[ Voting Shares of any class or series beneficially owned by a Substantial
Stockholder shall be a number equal to the total number of votes which a single
record owner of all Voting Shares of such class or series beneficially owned by
such Substantial Stockholder would be entitled to cast, multiplied by a
fraction, the numerator of which is the number of shares of such class or series
beneficially owned by such Substantial Stockholder and owned of record by such
record owner and the denominator of which is the total number of shares of such
class or series beneficially owned by such Substantial Stockholder. The
provisions of this paragraph (b) shall not apply to any action (or the voting on
such action) that may be taken by the stockholders pursuant to the provisions of
subdivisions (i) of (ii) of paragraph (b) of section 6 of this Certificate of
Incorporation and shall not apply to any vote of stockholders expressly required
by the provisions of section 7 of this Certificate of Incorporation.
(c) Until such time as a Substantial Stockholder (or an Affiliate thereof
or any other person deemed to be the beneficial owner of Voting Shares also
beneficially owned by such Substantial Stockholder) shall consummate a Tender
Offer conforming with the provisions of paragraphs (d) and (e) of this section
10, in no event [but subject to the provisions of the last sentence of this
paragraph (c)] shall such Substantial Stockholder and the record owner(s) of all
Voting Shares of any class or series beneficially owned by such Substantial
Stockholder collectively be entitled or permitted to cast, by virtue of their
beneficial or record ownership of Voting Shares of any class or series
beneficially owned by such Substantial Stockholder, in excess of 15% of the
total number of votes which the holder of all then outstanding Voting Shares of
such class or series would (after giving effect to the provisions of paragraph
(b) of this section 10) be entitled to cast. If the provisions of the preceding
sentence shall have the effect of reducing the total number of votes which any
Substantial Stockholder and the record owner(s) of Voting Shares of any class or
series beneficially owned by such Substantial Stockholder shall be entitled to
cast, such reduction shall be effected, and the number of votes which such
record owner(s) shall be entitled to cast [by reason of this paragraph (c)]
shall be determined, in accordance with the provisions of the penultimate
sentence of paragraph (b) of this section 10. The provisions of this paragraph
(c) shall not apply to any action (or the voting on such action) that may be
taken by the stockholders pursuant to the provisions of subdivisions (i) or (ii)
of paragraphs (b) of section 6 of this Certificate of Incorporation and shall
not apply to any vote of stockholders expressly required by the provisions of
section 7 of this Certificate of Incorporation.
(d) The Tender Offer referred to in the second sentence of paragraph (b) of
this section 10, and in the first sentence of paragraph (c) of this section 10,
shall mean a Tender Offer to acquire at not less than the applicable Offer Price
(as hereinafter defined in paragraph (e) of this section 10) any and all shares
of Common Stock (as hereinafter defined in paragraph (g) (11) of this section
10) then outstanding and not beneficially owned by the Substantial Stockholder
to which such Tender Offer relates. In no event shall any Tender Offer referred
to in this paragraph (d) remain open for less than twenty business days (as
defined in the General Rules and Regulations under the Securities Exchange Act
of 1934, as in effect on January 1, 1981) or provide that shares duly tendered
pursuant thereto will not be purchased within 40 business days after the
commencement of such Tender Offer, and in the event that at the time such Tender
Offer is commenced the terms and conduct thereof shall not be directly regulated
by Sections 14(d) or 13(e) of the Securities Exchange Act of 1934 and the Rules
and Regulations thereunder, or any successor federal laws and regulations, then
such Tender Offer shall conform in all respects with the provisions of the
Securities Exchange Act of 1934 and the General Rules and Regulations
thereunder, as in effect on January 1, 1981. The consideration to be received by
holders of Common Stock in any such Tender Offer shall be in the form of cash
(which may be payable by check) exclusively, and such Tender Offer shall be
deemed consummated only when payment in full shall be made for all duly tendered
shares. A Tender Offer shall not be deemed to have conformed or complied with
the provisions of this paragraph (d) unless (i) such Substantial Stockholder or
Affiliate requests the board of directors to notify it if the board or a
majority of the continuing directors, as the case may be, exercises its
discretion to utilize an "Established Price" as contemplated by subparagraph (2)
of paragraph (e) of this section 10 and (ii) such Tender Offer is commenced
within 30 days after the first public announcement thereof setting forth the
Offer Price thereof (such public announcement being hereinafter referred to as
the "Announcement" of such Tender Offer). ]
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[ (e)(1) The "Offer Price" for any Tender Offer referred to in paragraph (d)
of this section 10 shall be an amount per share of Common Stock which shall not
be less than the greater of:
(A) the Market Price (as hereinafter defined in paragraph (f) of this
section 10) of the Common Stock immediately prior to the Announcement of
such Tender Offer multiplied by a fraction the numerator of which is the
highest per share price (including brokerage commissions, transfer taxes
and soliciting dealers' fees) which such Substantial Stockholder (or any of
its Affiliates or any other person deemed to be the beneficial owner of
Voting Shares also beneficially owned by such Substantial Stockholder) paid
or agreed to pay for any shares of Common Stock acquired by it within two
years prior to the Announcement of such Tender Offer, and the denominator
of which is the Market Price of the Common Stock immediately prior to the
initial acquisition by such Substantial Stockholder (or any of its
Affiliates or any other person deemed to be the beneficial owner of Voting
Shares also beneficially owned by such Substantial Stockholder) of any
Common Stock during such two-year period; or
(B) the highest price per share of Common Stock (including brokerage
commissions, transfer taxes and soliciting dealers' fees) paid or agreed to
be paid by such Substantial Stockholder (or any of its Affiliates or any
other person deemed to be the beneficial owner of Voting Shares also
beneficially owned by such Substantial Stockholder) in acquiring any shares
of Common Stock; or
(C) the highest sale or bid price for the Common Stock reported during
the 12 months prior to the Announcement of such Tender Offer; or
(D) the earnings per share of Common Stock for the four full
consecutive fiscal quarters immediately preceding the one in which the
Announcement of such Tender Offer shall be made as to which financial
results have been published by this corporation, multiplied by the then
highest price/earnings multiple (if any) of such Substantial Stockholder or
any of its Affiliates as customarily computed and reported in the financial
community;
provided, however, that a majority of the whole board (as hereinafter defined in
paragraph (g)(6) of this section 10), in its discretion, may determine, but only
if a majority of the whole board shall then consist of continuing directors (as
hereinafter defined in paragraph (g)(5) of this section 10), or, if a majority
of the whole board shall not then consist of continuing directors, a majority of
the then continuing directors, in their discretion, may determine, that, in lieu
of an amount per share of Common Stock not less than the greater of the amounts
determined in accordance with clauses (A), (B), (C) or (D) of this subparagraph
(1), such Offer Price shall be an amount per share of Common Stock which shall
not be less than a price per share of Common Stock (the "Established Price")
established and determined in writing by an independent, nationally recognized
investment banking firm selected by a majority of the whole board, but only if a
majority of the whole board shall then consist of continuing directors, or, if a
majority of the whole board does not then consist of continuing directors, by a
majority of the then continuing directors, as then a fair and appropriate price
(considering this corporation, on a consolidated basis, as a going concern or on
the basis of its value in liquidation, whichever circumstance would result in
the highest such price) for the sale of this corporation in a privately
negotiated, arm's-length transaction with a person other than a Substantial
Stockholder or an Affiliate of such Substantial Stockholder, in light of then
prevailing economic conditions, the business and assets of and future prospects
for this corporation, the synergistic benefits expected to be derived by the
acquiring person(s) from an acquisition of or combination with this corporation,
recent examples of similar transactions and other factors then generally
considered and relied upon by the investment banking community in making
determinations or recommendations as to price in arm's-length acquisition
transactions.
(2) This corporation shall furnish to any Substantial Stockholder
requesting in writing (such request to be addressed to this corporation's
Chairman of the board at the principal executive offices of this corporation),
within 90 days after receipt of such request, a certificate of an officer of
this corporation either specifying the Established Price, or stating that the
board of directors or a majority of the continuing directors, as the case may
be, has determined not to utilize an Established Price, pursuant to subparagraph
(1) of this paragraph (e). Each such request by a Substantial Stockholder shall
specify the prices paid or agreed to be paid for shares of Common Stock referred
to in clauses (A) and (B) of subparagraph (1) of this paragraph (e). In the
event there shall be no Announcement of a Tender Offer complying with the
provisions of paragraphs (d) and ]
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<PAGE> 200
[ (e) of this section 10 with 45 days after receipt of any such certificate by
the Substantial Stockholder making such request, such Substantial Stockholder
shall no longer be entitled to rely thereon or act on the basis thereof. In
such event, such Substantial Stockholder shall be entitled to make a further
request as to the determination to utilize an Established Price, and the board
of directors, or the continuing directors, as the case may be, shall be
authorized and empowered, in response to any such subsequent request [such
subsequent request and response to conform with and to be subject to the
foregoing provisions of this subparagraph (2)] to determine whether to utilize
an Established Price [as contemplated by subparagraph (1) of this paragraph
(e)] established and determined (as hereinabove provided) on the basis of then
prevailing circumstances.
(3) Historical prices per share applied in accordance with clauses (A),
(B), (C) and (D) of subparagraph (1) of this paragraph (e) shall be
appropriately adjusted to reflect stock splits, combinations and
recapitalizations of the shares of capital stock of this corporation subsequent
to the date on or as of which such prices are to be determined.
(f) For purposes of paragraph (e) of this section 10, the "Market Price" of
a share of Common Stock on any particular date shall mean the average closing
bid price, as published by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") (or, if such price is not so published by
NASDAQ, the average of the closing high and low bid prices as furnished by any
New York Stock Exchange member firm selected from time to time by this
corporation for such purpose), or, if the Common Stock is then listed or
admitted to trading on a national securities exchange, the last sale price
regular way therefor as reported in the consolidated transaction reporting
system for securities listed or traded on such exchange, or, in case no such
reported sale takes place, the reported closing bid price regular way on the
principal national securities exchange on which the Common Stock is then listed
or admitted to trading, in any such case for each of the 45 trading days in
which shares of Common Stock shall have been traded immediately preceding the
date which first precedes the Announcement of the Tender Offer in question;
provided, however, that if no such closing prices are available, "Market Price"
shall be determined by a majority of the whole board, but only if a majority of
the whole board shall then consist of continuing directors, or, if a majority of
the whole board shall not then consist of continuing directors, by a majority of
the then continuing directors, on such basis as they shall deem reasonable.
(g) For the purposes of this section 10:
(1) A "person shall mean any individual, firm, corporation or other
entity.
(2) (i) "Substantial Stockholder" shall mean any person, other than
this corporation or any Subsidiary [as hereinafter defined in subparagraph
(8) of this paragraph (g)], who or which is the beneficial owner, directly
or indirectly, of more than 10% of the outstanding Voting Shares
[determined solely on the basis of the total number of Voting Shares so
beneficially owned (and without giving effect to the number or percentage
of votes entitled to be cast in respect of such shares) in relation to the
total number of Voting Shares issued and outstanding]; provided, however,
that a person shall not be deemed to be a Substantial Stockholder for any
purposes hereof, if such person (or an Affiliate thereof or any other
person deemed to be the beneficial owner of Voting Shares also beneficially
owned by such person) shall, prior to the time such person becomes the
beneficial owner, directly or indirectly, of more than 10% of the
outstanding Voting Shares, commence and thereafter shall consummate a
Tender Offer for any and all shares of Common Stock, the terms of which
shall be approved and recommended to stockholders, as in the best interests
of this corporation and its stockholders, by two-thirds (2/3rds) of the
members of the whole board (but only if at least a majority of the members
of the board of directors acting upon such matter shall be continuing
directors).
(ii)(A) Notwithstanding anything in paragraph (g)(2)(i) of this
section 10, for purposes of this section 10 the term "Substantial
Stockholder" shall not include any person who is the beneficial owner,
directly or indirectly, of more than 10% of the outstanding Voting Shares
[determined solely on the basis of the total number of Voting Shares so
beneficially owned (and without giving effect to the number or percentage
of votes entitled to be cast in respect of such shares) in relation to the
total number of Voting Shares issued and outstanding] at the close of
business on March 10, 1986 (the record date for ]
II-24
<PAGE> 201
[ determining stockholders entitled to vote at the 1986 Annual Meeting of
Stockholders of this corpora tion), but only if (1) all Voting Shares so
beneficially owned by such person at such date have been acquired from this
corporation by such person or an Affiliate pursuant to the Agreement and
Plan of Reorganization dated as of October 18, 1985 by and among
International Business Machines Corporation, Information Satellite
Corporation, BCI Satellite, Inc. and this corporation (the "Issuance
Agreement"), and (2) neither such person nor any Affiliate thereof shall,
on such date or thereafter, be the beneficial owner, directly or
indirectly, of a number of Voting Shares (determined as aforesaid) or a
percentage of the total outstanding Voting Shares which is greater than the
number or percentage of such Voting Shares permitted to be owned by such
person or any such Affiliate (the "Permitted Amount") pursuant to the
Issuance Agreement.
(B) In the event that any person referred to in paragraph
(g)(2)(ii)(A) or any Affiliate of such person shall at any time
beneficially own, directly or indirectly, a number of Voting Shares or a
percentage of total outstanding Voting Shares which is in excess of the
Permitted Amount, such person shall for all purposes of this section 10 be
deemed a Substantial Stockholder, except that (1) for purposes of paragraph
(b) of this section 10, such Substantial Stockholder (or the record owner
of shares beneficially owned by it) shall be entitled to exercise all
voting rights of issued and outstanding Voting Shares held by it or an
Affiliate, but only up to the Permitted Amount of Voting Shares and shall,
subject to the provisions of the last two sentences of paragraph (b) of
this section 10, be entitled to cast one hundredth (1/100) of one vote per
share for each such issued and outstanding Voting Share in excess of the
Permitted Amount, and (2) the provisions of paragraph (c) of this section
10 shall be inapplicable to such Substantial Stockholder.
(3) "Beneficial ownership" shall be determined pursuant to Rule 13d-3
of the General Rules and Regulations under the Securities Exchange Act of
1934 (or any successor rule or statutory provision), or, if said Rule 13d-3
shall be rescinded and there shall be no successor rule or statutory
provision thereto, pursuant to said Rule 13d-3 as in effect on January 1,
1981; provided, however, that a person shall, in any event, also be deemed
the "beneficial owner" of any Voting Shares:
(A) which such person or any of its Affiliates beneficially owns,
directly or indirectly, or
(B) which such person or any of its Affiliates has (i) the right to
acquire (whether such right is exercisable immediately or only after the
passage of time), pursuant to any agreement, arrangement or
understanding (but shall not be deemed to be the beneficial owner of any
Voting Shares solely by reason of an agreement, arrangement or
understanding with this corporation to effect a business combination, as
defined in section 9 of this Certificate of Incorporation) or upon the
exercise of conversion rights, exchange rights, warrants, or options, or
otherwise, or (ii) sole or shared voting or investment power with
respect thereto pursuant to any agreement, arrangement, understanding,
relationship or otherwise (but shall not be deemed to be the beneficial
owner of any Voting Shares solely by reason of a revocable proxy granted
for a particular meeting of stockholders, pursuant to a public
solicitation of proxies for such meeting, with respect to shares of
which neither such person nor any such Affiliate is otherwise deemed the
beneficial owner), or
(C) which are beneficially owned, directly or indirectly, by any
other person with which such first mentioned person or any of its
Affiliates acts as a partnership, limited partnership, syndicate or
other group pursuant to any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of any shares of
capital stock of this corporation;
and provided further, however, that (i) no director or officer of this
corporation (nor any Affiliate of any such director or officer) shall, solely by
reason of any or all of such directors or officers acting in their capacities as
such, be deemed, for any purposes hereof, to beneficially own any Voting Shares
beneficially owned by any other such director or officer (or any Affiliate
thereof), and (ii) no employee stock ownership or similar plan of this
corporation or any Subsidiary nor any trustee with respect thereto (nor any
Affiliate of such trustee) shall, solely by reason of such capacity of such
trustee, be deemed, for any purposes thereof, to beneficially own any Voting
Shares held under any such plan. ]
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<PAGE> 202
[ (4) For purposes of computing the percentage beneficial ownership of
Voting Shares of a person in order to determine whether such person is a
Substantial Stockholder, the outstanding Voting Shares shall include shares
deemed owned by such person through application of subparagraph (3) of this
paragraph (g) but shall not include any other Voting Shares which may be
issuable by this corporation pursuant to any agreement, or upon exercise of
conversion rights, warrants or options, or otherwise. For all other
purposes, the outstanding Voting Shares shall include only Voting Shares
then outstanding and shall not include any Voting Shares which may be
issuable by this corporation pursuant to any agreement, or upon the
exercise of conversion rights, warrants or options, or otherwise.
(5) "Continuing director" shall mean a person who was a member of the
board of directors as of July 1, 1981 or thereafter elected by the
stockholders or appointed by the board of directors of this corporation
prior to the date as of which the Substantial Stockholder in question
became a Substantial Stockholder, or a person designated (before his
initial election or appointment as a director) as a continuing director by
a majority of the whole board, but only if a majority of the whole board
shall then consist of continuing directors, or, if a majority of the whole
board shall not then consist of continuing directors, by a majority of the
then continuing directors.
(6) "Whole board" shall mean the total number of directors which this
corporation would have if there were no vacancies.
(7) "Affiliate" shall have the meaning given that term in paragraph
(c)(7) of section 9 of this Certificate of Incorporation.
(8) 'Subsidiary" shall mean any corporation of which a majority of
each class of equity security (as defined in Rule 3all-1 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as in
effect on January 1, 1981) is owned, directly or indirectly, by this
corporation.
(9) "Tender Offer" shall mean an offer to acquire equity securities
pursuant to a request or invitation for tenders.
(10) "Voting Shares" shall mean any shares of capital stock of this
corporation entitled to vote generally in the election of directors.
(11) "Common Stock" shall mean this corporation's Common Stock
authorized as of July 1, 1981 and shall also include any capital stock of
any class or series of this corporation thereafter authorized which shall
be neither limited nor entitled to a fixed sum or percentage in respect of
dividends and in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding-up of this corporation. In
the event there shall at any time be more than one class or series of
capital stock issued and outstanding which constitutes Common Stock, all
references in this section 10 to Common Stock, or to any Tender Offer,
Offer Price, Established Price or Market Price, shall be deemed to refer to
and apply to each such class or series of Common Stock individually and the
provisions of this section 10 shall be deemed to apply separately to each
such class or series of Common Stock.
(h) A majority of the whole board shall have the power to determine, but
only if a majority of the whole board shall then consist of continuing
directors, or, if a majority of the whole board shall not then consist of
continuing directors, a majority of the then continuing directors shall have the
power to determine, for the purposes of this section 10, on the basis of
information known to them, (i) the number of Voting Shares beneficially owned by
any person, (ii) whether a person is an Affiliate of another, (iii) whether a
person has an agreement, arrangement or understanding with another as to the
matters referred to in subparagraph (3) of paragraph (g) of this section 10,
(iv) whether the purchase price offered pursuant to any Tender Offer referred to
in paragraph (d) of this section 10 conforms to the requirements as to minimum
Offer Price set forth in paragraph (e) of this section 10, and/or (v) any other
factual matter relating to the applicability or effect of this section 10.
(i) A majority of the whole board shall have the right to demand, but only
if a majority of the whole board shall then consist of continuing directors, or,
if a majority of the whole board shall not then consist of continuing directors,
a majority of the then continuing directors shall have the right to demand, that
any ]
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<PAGE> 203
[ person who it is reasonably believed is a Substantial Stockholder (or holds of
record Voting Shares beneficially owned by any Substantial Stockholder) supply
this corporation with complete information as to (i) the record owner(s) of all
shares beneficially owned by such person who it is reasonably believed is a
Substantial Stockholder, (ii) the number of, and class or series of, shares
beneficially owned by such person who it is reasonably believed is a Substantial
Stockholder and held of record by each such record owner and the number(s) of
the stock certificate(s) evidencing such shares, and (iii) any other factual
matter relating to the applicability or effect of this section 10, as may
reasonably be requested of such person, and such person shall furnish such
information within 10 days after the receipt of such demand.
(j) Except as otherwise provided by law or expressly provided in this
paragraph (j), the presence, in person or by proxy, of the holders of record of
shares of capital stock of this corporation entitling the holders thereof to
cast a majority of the votes (after giving effect, if required to the provisions
of this section 10) entitled to be cast by the holders of shares of capital
stock of this corporation entitled to vote shall constitute a quorum at all
meetings of the stockholders, and every reference in this Certificate of
Incorporation to a majority or other proportion of capital stock (or the holders
thereof) for purposes of determining any quorum requirement or any requirement
for stockholder consent or approval shall be deemed to refer to such majority or
other proportion of the votes (or the holders thereof) then entitled to be cast
in respect of such capital stock. The provisions of this paragraph (j) shall not
apply to any action (or the voting on such action or any quorum with respect
thereto) that may be taken by the stockholders pursuant to the provisions of
subdivisions (i) and (ii) of paragraph (b) of section 6 of this Certificate of
Incorporation and shall not apply to any vote (or any quorum with respect
thereto) expressly required by the provisions of Section 7 of the Certificate of
Incorporation.
(k) Any determinations made by the board of the directors or by the
continuing directors, as the case may be, pursuant to this section 10 in good
faith and on the basis of such information and assistance as was then reasonably
available for such purpose shall be conclusive and binding upon this corporation
and its stockholders, including any Substantial Stockholder.
(1) Anything to the contrary contained in this section 10 notwithstanding,
and without limiting the powers, duties and obligations of the board of
directors, the board of directors is entitled and authorized, consistent with
its duties as such and its obligations to this corporation and its stockholders,
to consider the terms of any proposed Tender Offer or acquisition proposed by
any person, and to determine if and whether to recommend acceptance or rejection
thereof, notwithstanding compliance thereof with the provisions of paragraphs
(d) and (e) of this section 10, and in connection herewith, to take or authorize
any and all appropriate proper action deemed in the judgment of the board of
directors in the best interests of this corporation and the stockholders in the
event the board of directors shall determine to recommend rejection thereof.
(m) Any amendment, alteration, change or repeal of this section 10 shall,
in addition to any other vote or approval required by law or by this Certificate
of Incorporation, require the affirmative vote of the holders of then
outstanding Voting Shares entitling the holders thereof to cast at least 80% of
the votes entitled to be cast by the holders of all the then outstanding Voting
Shares (and such affirmative vote must include the affirmative vote of the
holders of Voting Shares entitled to cast a majority of the votes entitled to be
cast by the holders of all Voting Shares not beneficially owned by any
Substantial Stockholder); provided, however, that this paragraph (m) shall not
apply, and such 80% vote (and such further majority vote) shall not be required
for, any amendment, alteration, change or repeal declared advisable by the board
of directors by the affirmative vote of two-thirds (2/3rds) of the whole board
and submitted to the stockholders for their consideration, but only if a
majority of the members of the board of directors acting upon such matter shall
be continuing directors.
(n) Nothing contained in this section 10 shall be construed to relieve any
Substantial Stockholder from any fiduciary obligation imposed by law.
(o) In the event any paragraph (or portion thereof) of this section 10,
including, without limitation, paragraph (c) of this section 10, shall be found
to be invalid, prohibited or unenforceable for any reason, the remaining
provisions (or portions thereof) of this section 10 shall be deemed to remain in
full force and effect, ]
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<PAGE> 204
[ and shall be construed as if such invalid, prohibited or unenforceable
provision had been stricken herefrom or otherwise rendered inapplicable, it
being the intent of this corporation and its stockholders that each such
remaining provision (or portion thereof) of this section 10 remain, to the
fullest extent permitted by law, applicable and enforceable as to all
stockholders, including Substantial Stockholders, notwithstanding any such
finding.
(p) To the extent permitted by applicable law, the restrictions in
paragraphs (b) and (c) of this section 10 on votes which may be cast by a
Substantial Stockholder referred to in paragraph (g)(2)(ii) may, in respect of
any vote or votes of stockholders, be waived by this corporation if such waiver
is declared advisable and approved by the board of directors in each such
instance by the affirmative vote of two-thirds (2/3rds) of the whole board, but
only if a majority of the members of the board of directors acting upon such
matter shall be continuing directors.]
[ 11. ] { 10. } AMENDMENT. Subject to the provisions of section 7 of this
Certificate of Incorporation and to other applicable provisions of this
Certificate of Incorporation expressly providing otherwise, any of the
provisions of this Certificate of Incorporation may from time to time be
amended, altered or repealed, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted in the manner
and at the time prescribed by said laws, and all rights at any time conferred
upon the stockholders of this corporation by this Certificate of Incorporation
are granted subject to the provisions of this section [ 11 ] { 10 }.
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<PAGE> 205
APPENDIX III
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MCI COMMUNICATIONS CORPORATION
AND
,
AS RIGHTS AGENT
RIGHTS AGREEMENT
DATED AS OF , 1993
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<PAGE> 206
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C> <C>
Section 1. Certain Definitions....................................................... III-1
Section 2. Appointment of Rights Agent............................................... III-3
Section 3. Issue of Right Certificates............................................... III-3
Section 4. Form of Right Certificates................................................ III-5
Section 5. Countersignature and Registration......................................... III-5
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates................... III-5
Section 7. Exercise of Rights, Purchase Price; Expiration Date of Rights............. III-6
Section 8. Cancellation and Destruction of Right Certificates........................ III-6
Section 9. Availability of Preferred Shares.......................................... III-7
Section 10. Preferred Shares Record Date.............................................. III-7
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights........ III-8
Section 12. Certificate of Adjusted Purchase Price or Number of Shares................ III-13
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earnings Power..... III-13
Section 14. Fractional Rights and Fractional Shares................................... III-16
Section 15. Rights of Action.......................................................... III-16
Section 16. Agreement of Right Holders................................................ III-17
Section 17. Right Certificate Holder Not Deemed a Stockholder......................... III-17
Section 18. Concerning the Rights Agent............................................... III-17
Section 19. Merger or Consolidation or Change of Name of Rights Agent................. III-18
Section 20. Duties of Rights Agent.................................................... III-18
Section 21. Change of Rights Agent.................................................... III-19
Section 22. Issuance of New Right Certificates........................................ III-20
Section 23. Redemption................................................................ III-20
Section 24. Exchange.................................................................. III-20
Section 25. Notice of Certain Events.................................................. III-21
Section 26. Notices................................................................... III-22
Section 27. Supplements and Amendments................................................ III-22
Section 28. Successors................................................................ III-22
Section 29. Benefits of this Agreement................................................ III-23
Section 30. Severability.............................................................. III-23
Section 31. Governing Law............................................................. III-23
Section 32. Counterparts.............................................................. III-23
Section 33. Descriptive Headings...................................................... III-23
</TABLE>
<PAGE> 207
RIGHTS AGREEMENT
Agreement, dated as of , 1993, between MCI Communications
Corporation, a Delaware corporation (the "Company"), and , a [national
banking association] (the "Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each Common Share
(as hereinafter defined) of the Company outstanding as of the close of business
(as defined below) on , 1993 (the "Record Date"), each Right
representing the right to purchase one one-hundredth (subject to adjustment) of
a Preferred Share (as hereinafter defined), upon the terms and subject to the
conditions herein set forth, and has further authorized and directed the
issuance of one Right (subject to adjustment as provided herein) with respect to
each Common Share that shall become outstanding between the Record Date and the
earliest of the Distribution Date, the Redemption Date and the Final Expiration
Date (as such terms are hereinafter defined).
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meaning indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, shall be the Beneficial Owner (as such
term is hereinafter defined) of 10% or more of the Common Shares then
outstanding, but shall not include an Exempt Person (as such term is
hereinafter defined); provided, however, that if the Board of Directors of
the Company determines in good faith that a Person who would otherwise be
an "Acquiring Person," has become such inadvertently, and such Person
divests as promptly as practicable a sufficient number of Common Shares so
that such Person would no longer be an Acquiring Person, then such Person
shall not be deemed to be an "Acquiring Person" for any purposes of this
Agreement. Notwithstanding the foregoing, BT shall not be deemed an
Acquiring Person unless it becomes the Beneficial Owner of more than 20% of
the Common Shares then outstanding. Notwithstanding the foregoing, (i) no
Person (including BT) shall become an "Acquiring Person" as the result of
an acquisition of Common Shares by the Company which, by reducing the
number of shares outstanding, increases the proportionate number of shares
beneficially owned by such Person to 10% or more (more than 20% in the case
of BT) of the Common Shares then outstanding; provided, however, that if a
Person shall become the Beneficial Owner of 10% or more of the Common
Shares then outstanding (more than 20% in the case of BT) by reason of such
share acquisitions by the Company and thereafter become the Beneficial
Owner of any additional Common Shares, then such Person shall be deemed to
be an "Acquiring Person" unless upon the consummation of the acquisition of
such additional Common Shares such Person does not own 10% or more (20% or
more in the case of BT) of the Common Shares then outstanding or (ii) BT
shall not become an "Acquiring Person" because it becomes the Beneficial
Owner of any Common Shares as a result of the acquisition of Common Shares
from the Company pursuant to Section 2 of the Investment Agreement or upon
the exercise of its equity purchase rights set forth in Section 6 of the
Investment Agreement or upon the issuance of Common Shares upon conversion
or exercise of securities issued pursuant to such equity purchase rights;
provided, however, that if BT shall become the Beneficial Owner of more
than 20% of the Common Shares by reason of such acquisition of such Common
Shares from the Company or the exercise of such equity purchase rights and
shall thereafter become the Beneficial Owner of any additional Common
Shares, then BT shall be deemed to be an "Acquiring Person" unless upon
consummation of the acquisition of such additional Common Shares BT does
not own more than 20% of the Common Shares then outstanding.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
as in effect on the date of this Agreement; provided that, when used to
indicate a relationship with BT, "Associate" shall mean a corporation or
organization of which BT is, directly or indirectly, the beneficial owner
of 20% or more of any class of voting securities, provided, however, that,
with respect to a corporation or organization that would otherwise be an
Associate of BT as
III-1
<PAGE> 208
of the date hereof, such percentage shall be 23% or more and such
percentage shall be applied with reference to all outstanding voting
securities, provided further that the applicable percentage shall be 10% or
more and such percentage shall be applied with reference to any class of
voting securities if such corporation or organization holds Voting
Securities (as defined in the Investment Agreement) in order to circumvent
the purposes of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of, shall be
deemed to have "Beneficial Ownership" of and shall be deemed to
"beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities), or upon the
exercise of conversion rights, exchange rights, rights, warrants or
options, or otherwise; provided, however, that a Person shall not be
deemed the Beneficial Owner of, or to beneficially own, (x) securities
tendered pursuant to a tender or exchange offer made by or on behalf of
such Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase, (y) securities which such
Person has a right to acquire on the exercise of Rights at any time
prior to the time a Person becomes an Acquiring Person or (z) securities
issuable upon exercise of Rights from and after the time a Person
becomes an Acquiring Person if such Rights were acquired by such Person
or any of such Person's Affiliates or Associates prior to the
Distribution Date or pursuant to Section 3(a) or Section 22 hereof
("original Rights") or pursuant to Section 11(i) or Section 11(n) with
respect to an adjustment to original Rights; or (B) the right to vote
pursuant to any agreement, arrangement or understanding; provided,
however, that a Person shall not be deemed the Beneficial Owner of, or
to beneficially own, any security if the agreement, arrangement or
understanding to vote such security (1) arises solely from a revocable
proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations promulgated under the Exchange Act and
(2) is not also then reportable on Schedule 13D under the Exchange Act
(or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates
or Associates has any agreement, arrangement or understanding (other
than customary agreements with and between underwriters and selling
group members with respect to a bona fide public offering of securities)
for the purpose of acquiring, holding, voting (except to the extent
contemplated by the proviso to Section 1(c)(ii)(B)) or disposing of any
securities of the Company.
The phrase "then outstanding", when used with reference to a Person's Beneficial
Ownership of securities of the Company, shall mean the number of such securities
then issued and outstanding together with the number of such securities not then
actually issued and outstanding which such Person would be deemed to own
beneficially hereunder.
(d) "BT" shall mean British Telecommunications plc, a public limited
company organized and existing under the laws of England and Wales, and its
wholly-owned subsidiaries.
(e) "Business Day" shall mean any day other than a Saturday, a Sunday,
or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
(f) "close of business" on any given date shall mean 5:00 P.M., New
York City time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., New York City time, on the next
succeeding Business Day.
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<PAGE> 209
(g) "Common Shares" when used with reference to the Company shall mean
shares of common stock and shares of the Class A Common Stock, presently
par value $.10 per share, of the Company. "Common Shares" when used with
reference to any Person other than the Company shall mean the capital stock
(or, in the case of an unincorporated entity, the equivalent equity
interest) with the greatest voting power of such other Person or, if such
other Person is a subsidiary of another Person, the Person or Persons which
ultimately control such first-mentioned Person.
(h) "Common Stock" shall mean the common stock, presently par value
$.10 per share, of the Company.
(i) "Distribution Date" shall have the meaning set forth in Section 3
hereof.
(j) "Exempt Person" shall mean the Company, any Subsidiary (as such
term is hereinafter defined) of the Company, any employee benefit plan of
the Company or of any Subsidiary of the Company, or any entity or trustee
holding Common Shares for or pursuant to the terms of any such plan or for
the purpose of funding any such plan or funding other employee benefits for
employees of the Company or of any Subsidiary of the Company.
(k) "Final Expiration Date" shall have the meaning set forth in
Section 7 hereof.
(l) "Investment Agreement" shall mean the Investment Agreement, dated
as of August , 1993, between BT and the Company, as the same may be
amended, supplemented or otherwise modified from time to time.
(m) "NASDAQ NMS" shall mean the National Association of Securities
Dealers, Inc. National Market System.
(n) "Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such
entity.
(o) "Preferred Shares" shall mean shares of Series E Junior
Participating Preferred Stock, par value $.10 per share, of the Company
having the rights and preferences set forth in the Form of Certificate of
Designations attached to this Agreement as Exhibit A.
(p) "Redemption Date" shall have the meaning set forth in Section 7
hereof.
(q) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(r) "Shares Acquisition Date" shall mean the first date of public
announcement by the Company or an Acquiring Person that an Acquiring Person
has become such or such earlier date as a majority of the Board of
Directors shall become aware of the existence of an Acquiring Person.
(s) "Subsidiary" of any Person shall mean any corporation or other
entity of which securities or other ownership interests having ordinary
voting power sufficient to elect a majority of the board of directors or
other persons performing similar functions are beneficially owned, directly
or indirectly, by such Person, and any corporation or other entity that is
otherwise controlled by such Person.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date also
be the holders of the Common Shares) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-Rights Agents as it may deem necessary or
desirable.
Section 3. Issue of Right Certificates. (a) Until the earlier of (i) the
tenth day after the Shares Acquisition Date or (ii) the tenth business day (or
such later date as may be determined by action of the Board of Directors prior
to such time as any Person becomes an Acquiring Person) after the date of the
commencement by any Person (other than an Exempt Person) of, or of the first
public announcement of the intention of such Person (other than an Exempt
Person) to commence, a tender or exchange offer the consummation of which would
result in any Person becoming the Beneficial Owner of Common Shares aggregating
10% or more (more than 20% if such Person is BT) of the Common Shares then
outstanding
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<PAGE> 210
(including any such date which is after the date of this Agreement and prior to
the issuance of the Rights; the earlier of such dates being herein referred to
as the "Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of Section 3(b) hereof) by the certificates for Common Shares
registered in the names of the holders thereof and not by separate Right
Certificates, and (y) the Rights will be transferable only in connection with
the transfer of Common Shares. As soon as practicable after the Distribution
Date, the Company will prepare and execute, the Rights Agent will countersign,
and the Company will send or cause to be sent (and the Rights Agent will, if
requested, send) by first-class, insured, postage-prepaid mail, to each record
holder of Common Shares as of the close of business on the Distribution Date
(other than any Acquiring Person or any Associate or Affiliate of an Acquiring
Person), at the address of such holder shown on the records of the Company, a
Right Certificate, in substantially the form of Exhibit B hereto (a "Right
Certificate"), evidencing one Right for each Common Share so held. As of the
Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the Company
will send a copy of a Summary of Rights to Purchase Preferred Shares, in
substantially the form of Exhibit C hereto (the "Summary of Rights"), by
first-class, postage-prepaid mail, to each record holder of Common Shares as of
the close of business on the Record Date (other than any Acquiring Person or any
Associate or Affiliate of any Acquiring Person), at the address of such holder
shown on the records of the Company. With respect to certificates for Common
Shares outstanding as of the Record Date, until the Distribution Date, the
Rights will be evidenced by such certificates registered in the names of the
holders thereof together with the Summary of Rights. Until the Distribution Date
(or the earlier of the Redemption Date or the Final Expiration Date), the
surrender for transfer of any certificate for Common Shares outstanding on the
Record Date, with or without a copy of the Summary of Rights, shall also
constitute the transfer of the Rights associated with the Common Shares
represented thereby.
(c) Certificates issued for Common Shares (including, without limitation,
upon transfer of outstanding Common Shares, disposition of Common Shares out of
treasury stock or issuance or reissuance of Common Shares out of authorized but
unissued shares) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date shall have
impressed on, printed on, written on or otherwise affixed to them the following
legend:
This certificate also evidences and entitles the holder
hereof to certain rights as set forth in a Rights
Agreement between MCI Communications Corporation and
, dated as of , 1993 (the "Rights
Agreement") as the same by be amended from time to time,
the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal
executive offices of MCI Communications Corporation. Under
certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this
certificate. MCI Communications Corporation will mail to
the holder of this certificate a copy of the Rights
Agreement without charge after receipt of a written
request therefor. Under certain circumstances, as set
forth in the Rights Agreement, Rights owned by or
transferred to any Person who becomes an Acquiring Person
(as defined in the Rights Agreement) and certain
transferees thereof will become null and void and will no
longer be transferable.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate, except as otherwise provided
herein, shall also constitute the transfer of the Rights associated with the
Common Shares represented thereby. In the event that the Company purchases or
otherwise acquires any Common Shares after the Record Date but prior to the
Distribution Date, any Rights associated with such Common Shares shall be deemed
cancelled and retired so that the Company shall not be entitled to exercise any
Rights associated with the Common Shares which are no longer outstanding.
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<PAGE> 211
Section 4. Form of Right Certificates. The Right Certificates (and the
forms of election to purchase Preferred Shares and of assignment to be printed
on the reverse thereof) shall be substantially in the form set forth in Exhibit
B hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of the NASDAQ
NMS or of any stock exchange on which the Rights may from time to time be
listed, or to conform to usage. Subject to the provisions of Sections 11 and 22
hereof, the Right Certificates shall entitle the holders thereof to purchase
such number of one one-hundredths of a Preferred Share as shall be set forth
therein at the price per one one-hundredth of a Preferred Share set forth
therein (the "Purchase Price"), but the number of such one onehundredths of a
Preferred Share and the Purchase Price shall be subject to adjustment as
provided herein.
Section 5. Countersignature and Registration. (a) The Right Certificates
shall be executed on behalf of the Company by the Chairman of the Board of
Directors, the President, any of the Vice Presidents, the Treasurer or the
Controller of the Company, either manually or by facsimile signature, shall have
affixed thereto the Company's seal or a facsimile thereof, and shall be attested
by the Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be manually countersigned by
the Rights Agent and shall not be valid for any purpose unless countersigned. In
case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the Person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the Company
by any Person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Rights Agreement any
such Person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at an office or agency designated for such purpose, books for
registration and transfer of the Right Certificates issued hereunder. Such books
shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the Right
Certificates and the date of each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. (a)
Subject to the provisions of Sections 11(a)(ii) and 14 hereof, at any time after
the close of business on the Distribution Date, and at or prior to the close of
business on the earlier of the Redemption Date or the Final Expiration Date, any
Right Certificate or Right Certificates (other than Right Certificates
representing Rights that have become void pursuant to Section 11(a)(ii) hereof
or that have been exchanged pursuant to Section 24 hereof) may be transferred,
split up, combined or exchanged for another Right Certificate or Right
Certificates, entitling the registered holder to purchase a like number of one
one-hundredths of a Preferred Share as the Right Certificate or Right
Certificates surrendered then entitled such holder to purchase. Any registered
holder desiring to transfer, split up, combine or exchange any Right Certificate
or Right Certificates shall make such request in writing delivered to the Rights
Agent, and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the office or agency of the
Rights Agent designated for such purpose. Thereupon the Rights Agent shall
countersign and deliver to the Person entitled thereto a Right Certificate or
Right Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Right Certificates.
(b) Subject to the provisions of Section 11(a)(ii) hereof, upon receipt by
the Company and the Rights Agent of evidence reasonably satisfactory to them of
the loss, theft, destruction or mutilation of a Right Certificate, and, in case
of loss, theft or destruction, of indemnity or security reasonably satisfactory
to them, and, at the Company's request, reimbursement to the Company and the
Rights Agent of all reasonable expenses incidental thereto, and upon surrender
to the Rights Agent and cancellation of the Right Certificate
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<PAGE> 212
if mutilated, the Company will make and deliver a new Right Certificate of like
tenor to the Rights Agent for delivery to the registered holder in lieu of the
Right Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights, Purchase Price; Expiration Date of
Rights. (a) Except as otherwise provided herein, the Rights shall become
exercisable on the Distribution Date, and thereafter the registered holder of
any Right Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein) in whole or in part, upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side thereof
duly executed, to the Rights Agent at the office or agency of the Rights Agent
designated for such purpose, together with payment of the Purchase Price for
each one one-hundredth of a Preferred Share as to which the Rights are
exercised, at any time which is both after the Distribution Date and prior to
the earliest of (i) the close of business on , 2003 (the "Final
Expiration Date"), (ii) the time at which the Rights are redeemed as provided in
Section 23 hereof (the "Redemption Date") or (iii) the time at which such Rights
are exchanged as provided in Section 24 hereof.
(b) The Purchase Price shall be initially $[ ] for each one
one-hundredth of a Preferred Share purchasable pursuant to the exercise of a
Right. The Purchase Price and the number of one one-hundredths of a Preferred
Share or other securities or property to be acquired upon exercise of a Right
shall be subject to adjustment from time to time as provided in Sections 11 and
13 hereof and shall be payable in lawful money of the United States of America
in accordance with paragraph (c) of this Section 7.
(c) Except as otherwise provided herein, upon receipt of a Right
Certificate representing exercisable Rights, with the form of election to
purchase duly executed, accompanied by payment of the aggregate Purchase Price
for the Preferred Shares to be purchased and an amount equal to any applicable
transfer tax required to be paid by the holder of such Right Certificate in
accordance with Section 9 hereof, in cash or by certified check, cashier's check
or money order payable to the order of the Company, the Rights Agent shall
thereupon promptly (i) (A) requisition from any transfer agent of the Preferred
Shares certificates for the number of Preferred Shares to be purchased and the
Company hereby irrevocably authorizes its transfer agent to comply with all such
requests, or (B) requisition from the depositary agent depositary receipts
representing interests in such number of one one-hundredths of a Preferred Share
as are to be purchased (in which case certificates for the Preferred Shares
represented by such receipts shall be deposited by the transfer agent with the
depositary agent) and the Company hereby directs the depositary agent to comply
with such request, (ii) when appropriate, requisition from the Company the
amount of cash to be paid in lieu of issuance of fractional shares in accordance
with Section 14 hereof, (iii) promptly after receipt of such certificates or
depositary receipts, cause the same to be delivered to or upon the order of the
registered holder of such Right Certificate, registered in such name or names as
may be designated by such holder and (iv) when appropriate, after receipt,
promptly deliver such cash to or upon the order of the registered holder of such
Right Certificate.
(d) Except as otherwise provided herein, in case the registered holder of
any Right Certificate shall exercise less than all the Rights evidenced thereby,
a new Right Certificate evidencing Rights equivalent to the Rights remaining
unexercised shall be issued by the Rights Agent to the registered holder of such
Right Certificate or to his duly authorized assigns, subject to the provisions
of Section 14 hereof.
(e) Notwithstanding anything in this Rights Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered for
such exercise and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Rights Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right
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<PAGE> 213
Certificate purchased or acquired by the Company otherwise than upon the
exercise thereof. The Rights Agent shall deliver all cancelled Right
Certificates to the Company, or shall, at the written request of the Company,
destroy such cancelled Right Certificates, and in such case shall deliver a
certificate of destruction thereof to the Company.
Section 9. Availability of Preferred Shares. (a) The Company covenants
and agrees that it will cause to be reserved and kept available out of its
authorized and unissued Preferred Shares or any Preferred Shares held in its
treasury, the number of Preferred Shares that will be sufficient to permit the
exercise in full of all outstanding Rights.
(b) So long as the Preferred Shares (and, following the time that a Person
becomes an Acquiring Person, shares of Common Stock and other securities)
issuable upon the exercise of Rights may be listed or admitted to trading on the
NASDAQ NMS or listed on any national securities exchange, the Company shall use
its best efforts to cause, from and after such time as the Rights become
exercisable, all shares reserved for such issuance to be listed or admitted to
trading on the NASDAQ NMS or listed on such exchange upon official notice of
issuance upon such exercise.
(c) From and after such time as the Rights become exercisable, the Company
shall use its best efforts to, if then necessary to permit the issuance of
Preferred Shares (and following the time that a Person first becomes an
Acquiring Person, shares of Common Stock and other securities) upon the exercise
of Rights, register and qualify such Preferred Shares (and following the time
that a Person first becomes an Acquiring Person, shares of Common Stock and
other securities) under the Securities Act and any applicable state securities
or "Blue Sky" laws (to the extent exemptions therefrom are not available), cause
such registration statement and qualifications to become effective as soon as
possible after such filing and keep such registration and qualifications
effective until the earlier of the date as of which the Rights are no longer
exercisable for such securities and the Final Expiration Date. The Company may
temporarily suspend, for a period of time not to exceed 90 days, the
exercisabilty of the Rights in order to prepare and file a registration
statement under the Securities Act and permit it to become effective. Upon any
such suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction unless the requisite qualification
in such jurisdiction shall have been obtained and until a registration statement
under the Securities Act (if required) shall have been declared effective.
(d) The Company covenants and agrees that it will take all such action as
may be necessary to ensure that all Preferred Shares (and, following the time
that a Person becomes an Acquiring Person, shares of Common Stock and other
securities) delivered upon exercise of Rights shall, at the time of delivery of
the certificates therefor (subject to payment of the Purchase Price), be duly
and validly authorized and issued and fully paid and nonassessable shares.
(e) The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Preferred Shares (or shares of Common Stock or other securities) upon the
exercise of Rights. The Company shall not, however, be required to pay any
transfer tax which may be payable in respect of any transfer or delivery of
Right Certificates to a Person other than, or the issuance or delivery of
certificates or depositary receipts for the Preferred Shares in a name other
than that of, the registered holder of the Right Certificate evidencing Rights
surrendered for exercise or to issue or deliver any certificates or depositary
receipts for Preferred Shares upon the exercise of any Rights until any such tax
shall have been paid (any such tax being payable by that holder of such Right
Certificate at the time of surrender) or until it has been established to the
Company's reasonable satisfaction that no such tax is due.
Section 10. Preferred Shares Record Date. Each Person in whose name any
certificate for Preferred Shares is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the Preferred
Shares represented thereby on, and such certificate shall be dated, the date
upon which the Right Certificate evidencing such Rights was duly surrendered and
payment of the Purchase Price (and any applicable transfer taxes) was made;
provided, however, that if the date of such surrender and payment is
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a date upon which the Preferred Shares transfer books of the Company are closed,
such Person shall be deemed to have become the record holder of such shares on,
and such certificate shall be dated, the next succeeding Business Day on which
the Preferred Shares transfer books of the Company are open. Prior to the
exercise of the Rights evidenced thereby, the holder of a Right Certificate
shall not be entitled to any rights of a holder of Preferred Shares for which
the Rights shall be exercisable, including, without limitation, the right to
vote, to receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number of
Rights. The Purchase Price, the number of Preferred Shares or other securities
or property purchasable upon exercise of each Right and the number of Rights
outstanding are subject to adjustment from time to time as provided in this
Section 11.
(a) (i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C)
combine the outstanding Preferred Shares into a smaller number of Preferred
Shares or (D) issue any shares of its capital stock in a reclassification
of the Preferred Shares (including any such reclassification in connection
with a consolidation or merger in which the Company is the continuing or
surviving corporation), except as otherwise provided in this Section 11(a),
the Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock
issuable on such date, shall be proportionately adjusted so that the holder
of any Right exercised after such time shall be entitled to receive the
aggregate number and kind of shares of capital stock which, if such Right
had been exercised immediately prior to such date and at a time when the
Preferred Shares transfer books of the Company were open, the holder would
have owned upon such exercise and been entitled to receive by virtue of
such dividend, subdivision, combination or reclassification; provided,
however, that in no event shall the consideration to be paid upon the
exercise of one Right be less than the aggregate par value of the shares of
capital stock of the Company issuable upon exercise of one Right.
(ii) Subject to Section 24 of this Agreement and except as otherwise
provided in this Section 11(a)(ii), in the event any Person becomes an
Acquiring Person, each holder of a Right, shall thereafter have the right
to receive, upon exercise thereof at a price equal to the then current
Purchase Price multiplied by the number of one one-hundredths of a
Preferred Share for which a Right is then exercisable, in accordance with
the terms of this Agreement and in lieu of Preferred Shares, such number of
shares of Common Stock (or at the option of the Company, such number of one
one-hundredths of Preferred Shares) as shall equal the result obtained by
(x) multiplying the then current Purchase Price by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable
and dividing that product by (y) 50% of the then current per share market
price of the Company's Common Stock (determined pursuant to Section 11(d)
hereof) on the date of the occurrence of such event. Notwithstanding
anything in this Rights Agreement to the contrary, however, from and after
the time (the "invalidation time") when any Person first becomes an
Acquiring Person, any Rights that are beneficially owned by (x) any
Acquiring Person (or any Affiliate or Associate of any Acquiring Person),
(y) a transferee of any Acquiring Person (or any such Affiliate or
Associate) who becomes a transferee after the invalidation time or (z) a
transferee of any Acquiring Person (or any such Affiliate or Associate) who
became a transferee prior to or concurrently with the invalidation time
pursuant to either (I) a transfer from the Acquiring Person to holders of
its equity securities or to any Person with whom it has any continuing
agreement, arrangement or understanding regarding the transferred Rights or
(II) a transfer which the Board of Directors has determined is part of a
plan, arrangement or understanding which has the purpose or effect of
avoiding the provisions of this paragraph, and subsequent transferees of
such Persons, shall be void without any further action and any holder of
such Rights shall thereafter have no rights whatsoever with respect to such
Rights under any provision of this Rights Agreement. The Company shall use
all reasonable efforts to ensure that the provisions of this Section
11(a)(ii) are complied with, but shall have no liability to any holder of
Right Certificates or other Person as a result of its failure to make any
determinations with respect to an Acquiring Person or its Affiliates,
Associates or
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transferees hereunder. From and after the invalidation time, no Right
Certificate shall be issued pursuant to Section 3 or Section 6 hereof that
represents Rights that are or have become void pursuant to the provisions
of this paragraph, and any Right Certificate delivered to the Rights Agent
that represents Rights that are or have become void pursuant to the
provisions of this paragraph shall be cancelled. From and after the
occurrence of an event specified in Section 13(a) hereof, any Rights that
theretofore have not been exercised pursuant to this Section 11(a)(ii)
shall thereafter be exercisable only in accordance with Section 13 and not
pursuant to this Section 11(a)(ii).
(iii) The Company may at its option substitute for a share of Common
Stock issuable upon the exercise of Rights in accordance with the foregoing
subparagraph (ii) such number or fractions of Preferred Shares having an
aggregate current market value equal to the current per share market price
of a share of Common Stock. In the event that there shall not be sufficient
shares of Common Stock issued but not outstanding or authorized but
unissued to permit the exercise in full of the Rights in accordance with
the foregoing subparagraph (ii), the Board of Directors shall, to the
extent permitted by applicable law and any material agreements then in
effect to which the Company is a party (A) determine the excess of (1) the
value of the shares of Common Stock issuable upon the exercise of a Right
in accordance with the foregoing subparagraph (ii) (the "Current Value")
over (2) the then current Purchase Price multiplied by the number of one
one-hundredths of Preferred Shares for which a Right was exercisable
immediately prior to the time that the Acquiring Person became such (such
excess, the "Spread"), and (B) with respect to each Right (other than
Rights which have become void pursuant to Section 11(a)(ii)), make adequate
provision to substitute for the shares of Common Stock issuable in
accordance with subparagraph (ii) upon exercise of the Right and payment of
the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase
Price, (3) Preferred Shares or other equity securities of the Company
(including, without limitation, shares or fractions of shares of preferred
stock which, by virtue of having dividend, voting and liquidation rights
substantially comparable to those of the shares of Common Stock, are deemed
in good faith by the Board of Directors to have substantially the same
value as the shares of Common Stock (such Preferred Shares and shares or
fractions of shares of preferred stock are hereinafter referred to as
"Common Share equivalents"), (4) debt securities of the Company, (5) other
assets, or (6) any combination of the foregoing, having a value which, when
added to the value of the shares of Common Stock actually issued upon
exercise of such Right, shall have an aggregate value equal to the Current
Value (less the amount of any reduction in the Purchase Price), where such
aggregate value has been determined by the Board of Directors upon the
advice of a nationally recognized investment banking firm selected in good
faith by the Board of Directors; provided, however, if the Company shall
not make adequate provision to deliver value pursuant to clause (B) above
within thirty (30) days following the date that the Acquiring Person became
such (the "Section 11(a)(ii) Trigger Date"), then the Company shall be
obligated to deliver, to the extent permitted by applicable law and any
material agreements then in effect to which the Company is a party, upon
the surrender for exercise of a Right and without requiring payment of the
Purchase Price, shares of Common Stock (to the extent available), and then,
if necessary, such number or fractions of Preferred Shares (to the extent
available) and then, if necessary, cash, which shares and/or cash have an
aggregate value equal to the Spread. If, upon the date any Person becomes
an Acquiring Person, the Board of Directors shall determine in good faith
that it is likely that sufficient additional shares of Common Stock could
be authorized for issuance upon exercise in full of the Rights, then, if
the Board of Directors so elects, the thirty (30) day period set forth
above may be extended to the extent necessary, but not more than ninety
(90) days after the Section 11(a)(ii) Trigger Date, in order that the
Company may seek stockholder approval for the authorization of such
additional shares (such thirty (30) day period, as it may be extended, is
herein called the "Substitution Period"). To the extent that the Company
determines that some action need be taken pursuant to the second and/or
third sentence of this Section 11(a)(iii), the Company (x) shall provide,
subject to Section 11(a)(ii) hereof and the last sentence of this Section
11(a)(iii) hereof, that such action shall apply uniformly to all
outstanding Rights and (y) may suspend the exercisability of the Rights
until the expiration of the Substitution Period in order to seek any
authorization of additional shares and/or to decide the appropriate form of
distribution to be made pursuant to such second sentence and to determine
the value thereof. In the event of any such suspension, the Company shall
issue a public
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announcement stating that the exercisability of the Rights has been
temporarily suspended, as well as a public announcement at such time as the
suspension is no longer in effect. For purposes of this Section 11(a)(iii),
the value of the shares of Common Stock shall be the current per share
market price (as determined pursuant to Section 11(d)(i)) on the Section
11(a)(ii) Trigger Date and the per share or fractional value of any "Common
Share equivalent" shall be deemed to equal the current per share market
price of the Common Shares. The Board of Directors of the Company may, but
shall not be required to, establish procedures to allocate the right to
receive shares of Common Stock upon the exercise of the Rights among
holders of Rights pursuant to this Section 11(a)(iii).
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Shares entitling
them (for a period expiring within 45 calendar days after such record date)
to subscribe for or purchase Preferred Shares (or shares having the same
rights, privileges and preferences as the Preferred Shares ("equivalent
preferred shares")) or securities convertible into Preferred Shares or
equivalent preferred shares at a price per Preferred Share or equivalent
preferred share (or having a conversion price per share, if a security
convertible into Preferred Shares or equivalent preferred shares) less than
the then current per share market price of the Preferred Shares (determined
pursuant to Section 11(d) hereof) on such record date, the Purchase Price
to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the number of Preferred Shares
and equivalent preferred shares outstanding on such record date plus the
number of Preferred Shares and equivalent preferred shares which the
aggregate offering price of the total number of Preferred Shares and/or
equivalent preferred shares so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would
purchase at such current market price, and the denominator of which shall
be the number of Preferred Shares and equivalent preferred shares
outstanding on such record date plus the number of additional Preferred
Shares and/or equivalent preferred shares to be offered for subscription or
purchase (or into which the convertible securities so to be offered are
initially convertible); provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable
upon exercise of one Right. In case such subscription price may be paid in
a consideration part or all of which shall be in a form other than cash,
the value of such consideration shall be as determined in good faith by the
Board of Directors of the Company, whose determination shall be described
in a statement filed with the Rights Agent. Preferred Shares and equivalent
preferred shares owned by or held for the account of the Company shall not
be deemed outstanding for the purpose of any such computation. Such
adjustment shall be made successively whenever such a record date is fixed;
and in the event that such rights, options or warrants are not so issued,
the Purchase Price shall be adjusted to be the Purchase Price which would
then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend or a
dividend payable in Preferred Shares) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price
to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the then current per share market
price of the Preferred Shares (determined pursuant to Section 11(d) hereof)
on such record date, less the fair market value (as determined in good
faith by the Board of Directors of the Company whose determination shall be
described in a statement filed with the Rights Agent) of the portion of the
assets or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to one Preferred Share, and the
denominator of which shall be such current per share market price
(determined pursuant to Section 11(d) hereof) of a Preferred Share;
provided, however, that in no event shall the consideration to be paid upon
the exercise of one Right be less than the aggregate par value of the
shares of capital stock of the Company to be issued upon exercise of one
Right. Such adjustments shall be made successively whenever such a record
date is fixed; and in the event that such distribution is
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not so made, the Purchase Price shall again be adjusted to be the Purchase
Price which would then be in effect if such record date had not been fixed.
(d) (i) Except as otherwise provided herein, for the purpose of any
computation hereunder, the "current per share market price" of any security
(a "Security" for the purpose of this Section 11(d)(i)) on any date shall
be deemed to be the average of the daily closing prices per share of such
Security for the 30 consecutive Trading Days (as such term is hereinafter
defined) immediately prior to such date; provided, however, that in the
event that the current per share market price of the Security is determined
during a period following the announcement by the issuer of such Security
of (A) a dividend or distribution on such Security payable in shares of
such Security or securities convertible into such shares, or (B) any
subdivision, combination or reclassification of such Security, and prior to
the expiration of 30 Trading Days after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the current
per share market price shall be appropriately adjusted to reflect the
current market price per share equivalent of such Security. The closing
price for each day shall be the last sale price, regular way, or, in case
no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported by the principal
consolidated transaction reporting system with respect to securities listed
or admitted to trading on the NASDAQ NMS or, if the Security is not listed
or admitted to trading on the NASDAQ NMS, as reported in the principal
consolidated transaction reporting system with respect to securities listed
on the principal national securities exchange on which the Security is
listed or admitted to trading or, if the Security is not listed or admitted
to trading on any national securities exchange, the last quoted price or,
if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such
other system then in use, or, if on any such date the Security is not
quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the
Security selected by the Board of Directors of the Company. The term
"Trading Day" shall mean a day on which the principal national securities
exchange on which the Security is listed or admitted to trading is open for
the transaction of business or, if the Security is not listed or admitted
to trading on any national securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the "current per
share market price" of the Preferred Shares shall be determined in
accordance with the method set forth in Section 11(d)(ii). If the Preferred
Shares are not publicly traded, the "current share market price" of the
Preferred Shares shall be conclusively deemed to be the current per share
market price of the shares of Common Stock as determined pursuant to
Section 11(d)(i) multiplied by one hundred (appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring
after the date hereof). If neither the Common Stock nor the Preferred
Shares are publicly held or so listed or traded, "current per share market
price" shall mean the fair value per share as determined in good faith by
the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
Purchase Price; provided, however, that any adjustments which by reason of
this Section 11(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under
this Section 11 shall be made to the nearest cent or to the nearest one
ten-thousandth of a Preferred Share or share of Common Stock or other share
or security as the case may be. Notwithstanding the first sentence of this
Section 11(e), any adjustment required by this Section 11 shall be made no
later than the earlier of (i) three years from the date of the transaction
which requires such adjustment or (ii) the date of the expiration of the
right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled
to receive any shares of capital stock of the Company other than Preferred
Shares, thereafter the number of such other shares so receivable upon
exercise of any Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Preferred Shares contained in Sections 11(a)(i), 11(b),
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11(c) and 11(i), and the provisions of Sections 7, 9, 10 and 13 with
respect to the Preferred Shares shall apply on like terms to any such other
shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths
of a Preferred Share purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of
the calculations made in Sections 11(b) and (c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number
of one one-hundredths of a Preferred Share (calculated to the nearest one
ten-thousandth of a Preferred Share) obtained by (i) multiplying (x) the
number of one one-hundredths of a share covered by a Right immediately
prior to such adjustment by (y) the Purchase Price in effect immediately
prior to such adjustment of the Purchase Price and (ii) dividing the
product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-hundredths of a Preferred Share
purchasable upon the exercise of a Right. Each of the Rights outstanding
after such adjustment of the number of Rights shall be exercisable for the
number of one one-hundredths of a Preferred Share for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number
of Rights (calculated to the nearest one ten-thousandth) obtained by
dividing the Purchase Price in effect immediately prior to adjustment of
the Purchase Price by the Purchase Price in effect immediately after
adjustment of the Purchase Price. The Company shall make a public
announcement of its election to adjust the number of Rights, indicating the
record date for the adjustment, and, if known at the time, the amount of
the adjustment to be made. This record date may be the date on which the
Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least 10 days later than the
date of the public announcement. If Right Certificates have been issued,
upon each adjustment of the number of Rights pursuant to this Section
11(i), the Company may, as promptly as practicable, cause to be distributed
to holders of record of Right Certificates on such record date Right
Certificates evidencing, subject to Section 14 hereof, the additional
Rights to which such holders shall be entitled as a result of such
adjustment, or, at the option of the Company, shall cause to be distributed
to such holders of record in substitution and replacement for the Right
Certificates held by such holders prior to the date of adjustment, and upon
surrender thereof, if required by the Company, new Right Certificates
evidencing all the Rights to which such holders shall be entitled after
such adjustment. Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein and shall be
registered in the names of the holders of record of Right Certificates on
the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-hundredths of a Preferred Share issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter
issued may continue to express the Purchase Price and the number of one
one-hundredths of a Preferred Share which were expressed in the initial
Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the Preferred
Shares or other shares of capital stock issuable upon exercise of the
Rights, the Company shall take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Company may validly
and legally issue fully paid and nonassessable Preferred Shares or other
such shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for
a specified event, the Company may elect to defer until the occurrence of
such event the issuing to the holder of any Right exercised after such
record date of the
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Preferred Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the Preferred Shares and
other capital stock or securities of the Company, if any, issuable upon
such exercise on the basis of the Purchase Price in effect prior to such
adjustment; provided, however, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and
to the extent that it in its sole discretion shall determine to be
advisable in order that any consolidation or subdivision of the Preferred
Shares, issuance wholly for cash of any Preferred Shares at less than the
current market price, issuance wholly for cash of Preferred Shares or
securities which by their terms are convertible into or exchangeable for
Preferred Shares, dividends on Preferred Shares payable in Preferred Shares
or issuance of rights, options or warrants referred to hereinabove in
Section 11(b), hereafter made by the Company to holders of its Preferred
Shares shall not be taxable to such stockholders.
(n) Anything in this Rights Agreement to the contrary notwithstanding,
in the event that at any time after the date of this Agreement and prior to
the Distribution Date, the Company shall (i) declare or pay any dividend on
the Common Shares payable in Common Shares or (ii) effect a subdivision,
combination or consolidation of the Common Shares (by reclassification or
otherwise than by payment of dividends in Common Shares) into a greater or
lesser number of Common Shares, then in any such case, the number of Rights
associated with each Common Share then outstanding, or issued or delivered
thereafter shall be proportionately adjusted so that the number of Rights
thereafter associated with each Common Share following any such event shall
equal the result obtained by multiplying the number of Rights associated
with each Common Share immediately prior to such event by a fraction the
numerator of which shall be the total number of Common Shares outstanding
immediately prior to the occurrence of the event and the denominator of
which shall be the total number of Common Shares outstanding immediately
following the occurrence of such event.
(o) The Company agrees that, after the earlier of the Distribution
Date or the Shares Acquisition Date, it will not, except as permitted by
Sections 23, 24 or 27 hereof, take (or permit any Subsidiary to take) any
action if at the time such action is taken it is reasonably foreseeable
that such action will diminish substantially or eliminate the benefits
intended to be afforded by the Rights.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 11 or 13 hereof,
the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common
Shares or the Preferred Shares a copy of such certificate and (c) mail a brief
summary thereof to each holder of a Right Certificate in accordance with Section
25 hereof. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein contained and shall not be deemed to
have knowledge of any such adjustment unless and until it shall have received
such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earnings Power. (a) In the event, directly or indirectly, at any time after any
Person has become an Acquiring Person, (i) the Company shall merge with and into
any other Person, (ii) any Person shall consolidate with the Company, or any
Person shall merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in connection with such
merger, all or part of the Common Shares shall be changed into or exchanged for
stock or other securities of any other Person (or of the Company) or cash or any
other property, or (iii) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person (other than the Company or one or more of its wholly-owned
Subsidiaries), then upon the first occurrence of such event, proper provision
shall be made so that: (A) each holder of record of a Right (other than Rights
which have become
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void pursuant to Section 11(a)(ii)) shall thereafter have the right to receive,
upon the exercise thereof at a price equal to the then current Purchase Price
multiplied by the number of one one-hundredths of a Preferred Share for which a
Right was exercisable immediately prior to the time that any Person first became
an Acquiring Person (as subsequently adjusted thereafter pursuant to Sections
11(a)(i), 11(b), 11(c) and 11(i)), in accordance with the terms of this
Agreement and in lieu of Preferred Shares, such number of validly issued, fully
paid and non-assessable and freely tradeable Common Shares of the Principal
Party (as defined herein) not subject to any liens, encumbrances, rights of
first refusal or other adverse claims, as shall be equal to the result obtained
by (1) multiplying the then current Purchase Price by the number of one one-
hundredths of a Preferred Share for which a Right was exercisable immediately
prior to the time that any Person first became an Acquiring Person (as
subsequently adjusted thereafter pursuant to Sections 11(a)(i), 11(b), 11(c) and
11(i)) and (2) dividing that product by 50% of the then current per share market
price of the Common Shares of such Principal Party (determined pursuant to
Section 11(d)(i) hereof) on the date of consummation of such consolidation,
merger, sale or transfer; provided that the Purchase Price and the number of
Common Shares of such Principal Party issuable upon exercise of each Right shall
be further adjusted as provided in Section 11(f) of this Rights Agreement to
reflect any events occurring in respect of such Principal Party after the date
of the such consolidation, merger, sale or transfer; (B) such Principal Party
shall thereafter be liable for, and shall assume, by virtue of such
consolidation, merger, sale or transfer, all the obligations and duties of the
Company pursuant to this Rights Agreement; (C) the term "Company" shall
thereafter be deemed to refer to such Principal Party; and (D) such issuer shall
take such steps (including, but not limited to, the reservation of a sufficient
number of its shares of Common Stock in accordance with Section 9 hereof) in
connection with such consummation of any such transaction as may be necessary to
assure that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to the shares of Common Stock thereafter
deliverable upon the exercise of the Rights; provided that, upon the subsequent
occurrence of any consolidation, merger, sale or transfer of assets or other
extraordinary transaction in respect of such Principal Party, each holder of a
Right shall thereupon be entitled to receive, upon exercise of a Right and
payment of the Purchase Price as provided in this Section 13(a), such cash,
shares, rights, warrants and other property which such holder would have been
entitled to receive had such holder, at the time of such transaction, owned the
Common Shares of the Principal Party purchasable upon the exercise of a Right
pursuant to this Section 13(a), and such Principal Party shall take such steps
(including, but not limited to, reservation of shares of stock) as may be
necessary to permit the subsequent exercise of the Rights in accordance with the
terms hereof for such cash, shares, rights, warrants and other property.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in (i) or (ii) of the
first sentence of Section 13(a) hereof: (A) the Person that is the issuer
of the securities into which Common Shares are converted in such merger or
consolidation, or, if there is more than one such issuer, the issuer the
Common Shares of which has the greatest aggregate market value of shares
outstanding or (B) if no securities are so issued, (x) the Person that is
the other party to the merger, if such Person survives said merger, or, if
there is more than one such Person, the Person the Common Shares of which
has the greatest aggregate market value of shares outstanding or (y) if the
Person that is the other party to the merger does not survive the merger,
the Person that does survive the merger (including the Company if it
survives) or (z) the Person resulting from the consolidation; and
(ii) in the case of any transaction described in (iii) of the first
sentence in Section 13(a) hereof, the Person that is the party receiving
the greatest portion of the assets or earning power transferred pursuant to
such transaction or transactions, or, if each Person that is a party to
such transaction or transactions receives the same portion of the assets or
earning power so transferred or if the Person receiving the greatest
portion of the assets or earning power cannot be determined, whichever of
such Persons as is the issuer of Common Shares having the greatest
aggregate market value of shares outstanding;
provided, however, that in any such case described in the foregoing clause
(b)(i) or (b)(ii), (1) if the Common Shares of such Person are not at such time
or have not been continuously over the preceding 12-month period registered
under Section 12 of the Exchange Act, and if such Person is a direct or indirect
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Subsidiary of another Person the Common Shares of which are and have been so
registered, the term "Principal Party" shall refer to such other Person, or (2)
if such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Shares of all of which are and have been so registered, the term
"Principal Party" shall refer to whichever of such Persons is the issuer of the
Common Shares having the greatest aggregate market value of shares outstanding,
or (3) if such Person is owned, directly or indirectly, by a joint venture
formed by two or more Persons that are not owned, directly or indirectly, by the
same Person, the rules set forth in clauses (1) and (2) above shall apply to
each of the owners having an interest in the venture as if the Person owned by
the joint venture was a Subsidiary of both or all of such joint venturers, and
the Principal Party in each such case shall bear the obligations set forth in
this Section 13 in the same ratio as its interest in such Person bears to the
total of such interests.
(c) The Company shall not consummate any consolidation, merger, sale or
transfer referred to in Section 13(a) hereof unless prior thereto the Company
and the Principal Party involved therein shall have executed and delivered to
the Rights Agent an agreement confirming that the requirements of Sections 13(a)
and (b) hereof shall promptly be performed in accordance with their terms and
that such consolidation, merger, sale or transfer of assets shall not result in
a default by the Principal Party under this Rights Agreement as the same shall
have been assumed by the Principal Party pursuant to Sections 13(a) and (b)
hereof and providing that, as soon as practicable after executing such agreement
pursuant to this Section 13, the Principal Party will:
(i) prepare and file a registration statement under the Securities
Act, if necessary, with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form, use its
best efforts to cause such registration statement to become effective as
soon as practicable after such filing and use its best efforts to cause
such registration statement to remain effective (with a prospectus at all
times meeting the requirements of the Securities Act) until the Expiration
Date, and similarly comply with applicable state securities laws;
(ii) use its best efforts, if the Common Shares of the Principal Party
shall be listed or admitted to trading on the NASDAQ NMS or on a national
securities exchange, to list or admit to trading (or continue the listing
of) the Rights and the securities purchasable upon exercise of the Rights
on NASDAQ NMS or such securities exchange and, if the Common Shares of the
Principal Party shall not be listed or admitted to trading on NASDAQ NMS or
a national securities exchange, to cause the Rights and the securities
purchasable upon exercise of the Rights to be reported by such other system
then in use;
(iii) deliver to holders of the Rights historical financial statements
for the Principal Party which comply in all respects with the requirements
for registration on Form 10 (or any successor form) under the Exchange Act;
and
(iv) obtain waivers of any rights of first refusal or preemptive
rights in respect of the Common Shares of the Principal Party subject to
purchase upon exercise of outstanding Rights.
(d) Furthermore, in case the Principal Party which is to be a party to a
transaction referred to in this Section 13 has provision in any of its
authorized securities or in its certificate of incorporation or by-laws or other
instrument governing its corporate affairs, which provision would have the
effect of (i) causing such Principal Party to issue (other than to holders of
Rights pursuant to this Section 13), in connection with, or as a consequence of,
the consummation of a transaction referred to in this Section 13, Common Shares
of such Principal Party at less than the then current market price per share
(determined pursuant to Section 11(d) hereof) or securities exercisable for, or
convertible into, Common Shares of such Principal Party at less than such then
current market price, or (ii) providing for any special payment, tax or similar
provisions in connection with the issuance of the Common Shares of such
Principal Party pursuant to the provisions of Section 13, then, in such event,
the Company hereby agrees with each holder of Rights that it shall not
consummate any such transaction unless prior thereto the Company and such
Principal Party shall have executed and delivered to the Rights Agent a
supplemental agreement providing that the provision in question of such
Principal Party shall have been cancelled, waived or amended, or that the
authorized securities shall
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be redeemed, so that the applicable provision will have no effect in connection
with, or as a consequence of, the consummation of the proposed transaction.
(e) The Company covenants and agrees that it shall not, at any time after a
Person first becomes an Acquiring Person, enter into any transaction of the type
contemplated by (i)-(iii) of Section 13(a) hereof if (x) at the time of or
immediately after such consolidation, merger, sale, transfer or other
transaction there are any rights, warrants or other instruments or securities
outstanding or agreements in effect which would substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights, (y)
prior to, simultaneously with or immediately after such consolidation, merger,
sale, transfer of other transaction, the stockholders of the Person who
constitutes, or would constitute, the "Principal Party" for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates or Associates or (z) the form or nature of
organization of the Principal Party would preclude or limit the exercisability
of the Rights.
Section 14. Fractional Rights and Fractional Shares. (a) The Company
shall not be required to issue fractions of Rights or to distribute Right
Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the NASDAQ NMS or, if the Rights are not listed
or admitted to trading on the NASDAQ NMS, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Rights are listed or
admitted to trading or, if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by NASDAQ or such other system then in use or, if on any such date
the Rights are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Rights selected by the Board of Directors of the Company. If on any such
date no such market maker is making a market in the Rights, the fair value of
the Rights on such date as determined in good faith by the Board of Directors of
the Company shall be used.
(b) The Company shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one one-hundredth
of a Preferred Share) upon exercise of the Rights or to distribute certificates
which evidence fractional Preferred Shares (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share). Interests in
fractions of Preferred Shares in integral multiples of one one-hundredth of a
Preferred Share may, at the election of the Company, be evidenced by depositary
receipts, pursuant to an appropriate agreement between the Company and a
depositary selected by it; provided, that such agreement shall provide that the
holders of such depositary receipts shall have all the rights, privileges and
preferences to which they are entitled as beneficial owners of the Preferred
Shares represented by such depositary receipts. In lieu of fractional Preferred
Shares that are not integral multiples of one one-hundredth of a Preferred
Share, the Company shall pay to the registered holders of Right Certificates at
the time such Rights are exercised as herein provided an amount in cash equal to
the same fraction of the current market value of one Preferred Share. For the
purposes of this Section 14(b), the current market value of a Preferred Share
shall be the closing price of a Preferred Share (as determined pursuant to
Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of
such exercise.
(c)The holder of a Right by the acceptance of the Right expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and
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any registered holder of any Right Certificate (or, prior to the Distribution
Date, of the Common Shares), without the consent of the Rights Agent or of the
holder of any other Right Certificate (or, prior to the Distribution Date, of
the Common Shares), on his own behalf and for his own benefit, may enforce, and
may institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, his right to exercise the Rights
evidenced by such Right Certificate in the manner provided in such Right
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of, the obligations of any Person subject to this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered
at the office or agency of the Rights Agent designated for such purpose,
duly endorsed or accompanied by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the Person in
whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations
of ownership or writing on the Right Certificates or the associated Common
Shares certificate made by anyone other than the Company or the Rights
Agent) for all purposes whatsoever, and neither the Company nor the Rights
Agent shall be affected by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder,
as such, of any Right Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of the Preferred Shares or any other
securities of the Company which may at any time be issuable on the exercise of
the Rights represented thereby, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in this Agreement), or to receive dividends or
subscription rights, or otherwise, until the Rights evidenced by such Right
Certificate shall have been exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent. (a) The Company agrees to pay to
the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability arising therefrom, directly or
indirectly.
(b) The Rights Agent shall be protected and shall incur no liability for,
or in respect of any action taken, suffered or omitted by it in connection with,
its administration of this Agreement in reliance upon any Right Certificate or
certificate for the Preferred Shares or Common Shares or for other securities of
the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
Person or Persons, or otherwise upon the advice of counsel as set forth in
Section 20 hereof.
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Section 19. Merger or Consolidation or Change of Name of Rights
Agent. (a) Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
stock transfer or corporate trust powers of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; provided, that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed and
at such time any of the Right Certificates shall have been countersigned but not
delivered the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right certificates either in its prior name or in its changed
name and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by any one of the Chairman
of the Board of Directors, the President, any Vice President, the
Treasurer, the Controller or the Secretary of the Company and delivered to
the Rights Agent; and such certificate shall be full authorization to the
Rights Agent for any action taken or suffered in good faith by it under the
provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own negligence, bad faith or wilful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be
deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right
Certificate; nor shall it be responsible for any change in the
exercisability of the Rights (including the Rights becoming void pursuant
to Section 11(a)(ii) hereof) or any adjustment in the terms of the Rights
(including the manner, method or amount thereof) provided for in Sections
3, 11, 13, 23 and 24, or the ascertaining of the existence of facts that
would require any such change or adjustment (except with respect to the
exercise of Rights evidenced by Right Certificates after receipt of
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a certificate furnished pursuant to Section 12, describing such change or
adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
Preferred Shares to be issued pursuant to this Agreement or any Right
Certificate or as to whether any Preferred Shares will, when issued, be
validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably
be required by the Rights Agent for the carrying out or performing by the
Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from
any person reasonably believed by the Rights Agent to be one of the
Chairman of the Board of Directors, the President, any Vice President, the
Secretary, the Controller or the Treasurer of the Company, and to apply to
such officers for advice or instructions in connection with its duties, and
it shall not be liable for any action taken or suffered by it in good faith
in accordance with instructions of any such officer or for any delay in
acting while waiting for those instructions. Any application by the Rights
Agent for written instructions from the Company may, at the option of the
Rights Agent, set forth in writing any action proposed to be taken or
omitted by the Rights Agent under this Rights Agreement and the date on
and/or after which such action shall be taken or such omission shall be
effective. The Rights Agent shall not be liable for any action taken by, or
omission of, the Rights Agent in accordance with a proposal included in any
such application on or after the date specified in such application (which
date shall not be less than five Business Days after the date any officer
of the Company actually receives such application, unless any such officer
shall have consented in writing to an earlier date) unless, prior to taking
any such action (or the effective date in the case of an omission), the
Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as though it
were not Rights Agent under this Agreement. Nothing herein shall preclude
the Rights Agent from acting in any other capacity for the Company or for
any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or
by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of
any such attorneys or agents or for any loss to the Company resulting from
any such act, default, neglect or misconduct, provided reasonable care was
exercised in the selection and continued employment thereof.
(j) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate contained in the
form of assignment or the form of election to purchase set forth on the
reverse thereof, as the case may be, has not been completed to certify the
holder is not an Acquiring Person (or an Affiliate or Associate thereof), a
Rights Agent shall not take any further action with respect to such
requested exercise of transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Shares or Preferred Shares by registered or certified mail, and to
the holders of the Right Certificates by first-class mail. The Company may
remove the Rights Agent or any successor Rights Agent upon 30 days' notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the case may
be, and to each transfer agent of the Common Shares or Preferred Shares by
registered or certified mail, and to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning
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or incapacitated Rights Agent or by the holder of a Right Certificate (who
shall, with such notice, submit his Right Certificate for inspection by the
Company), then the registered holder of any Right Certificate may apply to any
court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of the United
States or the [State of New York] (or of any other state of the United States so
long as such corporation is authorized to do business as a banking institution
in the State of New York), in good standing, having an office in the State of
New York, which is authorized under such laws to exercise corporate trust or
stock transfer powers and is subject to supervision or examination by federal or
state authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50 million. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Shares or Preferred Shares, and mail a
notice thereof in writing to the registered holders of the Right Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such forms
as may be approved by its Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Agreement.
Section 23. Redemption. (a) The Board of Directors of the Company may, at
any time prior to such time as any Person first becomes an Acquiring Person,
redeem all but not less than all the then outstanding Rights at a redemption
price of $.01 per Right, appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof (the
redemption price being hereinafter referred to as the "Redemption Price"). The
redemption of the Rights may be made effective at such time, on such basis and
with such conditions as the Board of Directors in its sole discretion may
establish.
(b) Immediately upon the action of the Board of Directors ordering the
redemption of the Rights pursuant to paragraph (a) of this Section 23 (or at
such later time as the Board of Directors may establish for the effectiveness of
such redemption), and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price. The Company shall
promptly give public notice of any such redemption; provided, however, that the
failure to give, or any defect in, any such notice shall not affect the validity
of such redemption. Within 10 days after such action of the Board of Directors
ordering the redemption of the Rights, the Company shall mail a notice of
redemption to all the holders of the then outstanding Rights at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Shares. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
redemption shall state the method by which the payment of the Redemption Price
will be made.
Section 24. Exchange. (a) The Board of Directors of the Company may, at
its option, at any time after any Person first becomes an Acquiring Person,
exchange all or part of the then outstanding and exercisable Rights (which shall
not include Rights that have become void pursuant to the provisions of Section
11(a)(ii) hereof) for shares of Common Stock at an exchange ratio of one share
of Common Stock per Right, (such exchange ratio being hereinafter referred to as
the "Exchange Ratio"). Notwithstanding the foregoing, the Board of Directors
shall not be empowered to effect such exchange at any time after any Person
(other than an Exempt Person), together with all Affiliates and Associates of
such Person, becomes the Beneficial Owner of Common Shares aggregating 50% or
more of the Common Shares then outstanding.
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(b) Immediately upon the action of the Board of Directors of the Company
ordering the exchange of any Rights pursuant to paragraph (a) of this Section 24
and without any further action and without any notice, the right to exercise
such Rights shall terminate and the only right thereafter of a holder of such
Rights shall be to receive that number of shares of Common Stock equal to the
number of such Rights held by such holder multiplied by the Exchange Ratio. The
Company shall promptly give public notice of any such exchange; provided,
however, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company shall promptly mail a notice
of any such exchange to all of the holders of the Rights so exchanged at their
last addresses as they appear upon the registry books of the Rights Agent. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will
state the method by which the exchange of the shares of Common Stock for Rights
will be effected and, in the event of any partial exchange, the number of Rights
which will be exchanged. Any partial exchange shall be effected pro rata based
on the number of Rights (other than Rights which have become void pursuant to
the provisions of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient shares of Common Stock
issued but not outstanding or authorized but unissued to permit any exchange of
Rights as contemplated in accordance with this Section 24, the Company may, in
its discretion, take such action as may be necessary to authorize additional
shares of Common Stock for issuance upon exchange of the Rights. In the event
that the Company shall determine not to take such action or shall, after good
faith effort, be unable to take such action as may be necessary to authorize
such additional shares of Common Stock, the Company shall substitute, to the
extent of such insufficiency, for each share of Common Stock that would
otherwise be issuable upon exchange of a Right, a number of Preferred Shares or
fractions thereof (or equivalent preferred shares as such term is defined in
Section 11(b)), having an aggregate value equal to the current per share market
price of one share of Common Stock (determined pursuant to Section 11(d) hereof)
as of the date of issuance of such Preferred Shares or fractions thereof (or
equivalent preferred shares).
(d) The Company shall not, in connection with any exchange pursuant to this
Section 24, be required to issue fractions of shares of Common Stock or to
distribute certificates which evidence fractional shares of Common Stock. In
lieu of such fractional shares of Common Stock, the Company shall pay to the
registered holders of the Right Certificates with regard to which such
fractional shares of Common Stock would otherwise be issuable an amount in cash
equal to the same fraction of the current market value of a whole share of
Common Stock. For the purposes of this paragraph (d), the current market value
of a whole share of Common Stock shall be the closing price of a share of Common
Stock (as determined pursuant to the second sentence of Section 11(d)(i) hereof)
for the Trading Day immediately prior to the date of exchange pursuant to this
Section 24.
Section 25. Notice of Certain Events. (a) In case the Company shall at
any time after the earlier of the Distribution Date or the Shares Acquisition
Date propose (i) to pay any dividend payable in stock of any class to the
holders of its Preferred Shares or to make any other distribution to the holder
of its Preferred Shares (other than a regular quarterly cash dividend), (ii) to
offer to the holders of its Preferred Shares rights or warrants to subscribe for
or to purchase any additional Preferred Shares or shares of stock of any class
or any other securities, rights or options, (iii) to effect any reclassification
of its Preferred Shares (other than a reclassification involving only the
subdivision of outstanding Preferred Shares), (iv) to effect the liquidation,
dissolution or winding up of the Company, or (v) to declare or pay any dividend
on the Common Shares payable in Common Shares or to effect a subdivision,
combination or consolidation of the Common Shares (by reclassification or
otherwise than by payment of dividends in Common Shares), then, in each such
case, the Company shall give to each holder of a Right Certificate, in
accordance with Section 26 hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend, or distribution
of rights or warrants, or the date on which such liquidation, dissolution or
winding up is to take place and the date of participation therein by the holders
of the Common Shares and/or Preferred Shares, if any such date is to be fixed,
and such notice shall be so given in the case of any action covered by clause
(i) or (ii) above at least 10 days prior to the record date for determining
holders of the Preferred Shares for purposes of such action, and in the case of
any such other action, at least 10 days prior to the date of the taking of such
III-21
<PAGE> 228
proposed action or the date of participation therein by the holders of the
Common Shares and/or Preferred Shares, whichever shall be the earlier.
(b) In case any event described in Section 11(a)(ii) or Section 13 shall
occur then the Company shall as soon as practicable thereafter give to each
holder of a Right Certificate (or if occurring prior to the Distribution Date,
the holders of Common Shares) in accordance with Section 26 hereof, a notice of
the occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii) and
Section 13 hereof.
Section 26. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
MCI Communications Corporation
1801 Pennsylvania Avenue, N.W.
Washington D.C. 20006
Attention: Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
[ ]
[ ]
[ ]
Attention: [ ]
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. Except as provided in the
penultimate sentence of this Section 27, for so long as the Rights are then
redeemable, the Company may in its sole and absolute discretion, and the Rights
Agent shall if the Company so directs, supplement or amend any provision of this
Rights Agreement in any respect without the approval of any holders of the
Rights. At any time when the Rights are no longer redeemable, except as provided
in the penultimate sentence of this Section 27, the Company may, and the Rights
Agent shall, if the Company so directs, supplement or amend this Rights
Agreement without the approval of any holders of Rights Certificates in order to
(i) cure any ambiguity, (ii) correct or supplement any provision contained
herein which may be defective or inconsistent with any other provisions herein,
(iii) shorten or lengthen any time period hereunder, or (iv) change or
supplement the provisions hereunder in any manner which the Company may deem
necessary or desirable; provided that no such supplement or amendment shall
adversely affect the interests of the holders of Rights as such (other than an
Acquiring Person or an Affiliate or Associate of an Acquiring Person), and no
such amendment may cause the rights again to become redeemable or cause the
Agreement again to become amendable other than in accordance with this sentence.
Notwithstanding anything contained in this Rights Agreement to the contrary, no
supplement or amendment shall be made which changes the Redemption Price. Upon
the delivery of a certificate from an appropriate officer of the Company which
states that the proposed supplement or amendment is in compliance with the terms
of this Section 27, the Rights Agent shall execute such supplement or amendment.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
III-22
<PAGE> 229
Section 29. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Shares) any legal or equitable right, remedy or claim under
this Agreement; but this Agreement shall be for the sole and exclusive benefit
of the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common Shares).
Section 30. Severability. If any term, provision, covenant or restriction
of this Agreement or applicable to this Agreement is held by a court of
competent jurisdiction or other authority to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.
Section 32. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
<TABLE>
<S> <C>
Attest: MCI COMMUNICATIONS CORPORATION
By By
Name: Name:
Title: Title:
[ ]
Attest:
By By
Name: Name:
Title: Title:
</TABLE>
III-23
<PAGE> 230
EXHIBIT A
FORM
OF
CERTIFICATE OF DESIGNATIONS
OF
SERIES E JUNIOR PARTICIPATING PREFERRED STOCK
OF
MCI COMMUNICATIONS CORPORATION
(PURSUANT TO SECTION 151 OF THE
DELAWARE GENERAL CORPORATION LAW)
------------------------------------
MCI Communications Corporation, a corporation organized and existing under
the General Corporation Law of the State of Delaware (hereinafter called the
"Company"), hereby certifies that the following resolution was adopted by the
Board of Directors of the Company as required by Section 151 of the General
Corporation Law at a meeting duly called and held on July , 1993:
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of the Company (hereinafter called the "Board of Directors" or the
"Board") in accordance with the provisions of the Restated Certificate of
Incorporation, as amended to date (hereinafter called the "Certificate of
Incorporation"), the Board of Directors hereby creates a series of Preferred
Stock, par value $.10 per share (the "Preferred Stock"), of the Company and
hereby states the designation and number of shares, and fixes the relative
rights, preferences, and limitations thereof as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series E Junior Participating Preferred Stock" (the "Series E
Preferred Stock") and the number of shares constituting the Series E Preferred
Stock shall be . Such number of shares may be increased or decreased
by resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series E Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Company convertible
into Series E Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series of
preferred stock of the Company (the "Preferred Stock") (or any similar stock)
ranking prior and superior to the Series E Preferred Stock with respect to
dividends, the holders of shares of Series E Preferred Stock, in preference to
the holders of Common Stock, par value $.10 per share of the Company (the
"Common Stock"), of Class A Common Stock, par value $.10 per share of the
Company ("Class A Common Stock") and of any other stock of the Company ranking
junior to the Series E Preferred Stock, shall be entitled to receive, when, as
and if declared by the Board of Directors out of funds legally available for the
purpose, [semi-annual] dividends payable in cash on the first day of [
and ] in each year (each such date being referred to herein as a
"Dividend Payment Date"), commencing on the first Dividend Payment Date after
the first issuance of a share or fraction of a share of Series E Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the greater
of (a) $[1] or (b) subject to the provision for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all cash dividends, and 100
times the aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions other than a dividend payable in shares of Common Stock,
declared on the Common Stock since the immediately preceding Dividend Payment
Date or, with respect to the first Dividend Payment Date, since the first
issuance of any share or fraction of a share of
III-A-1
<PAGE> 231
Series E Preferred Stock. In the event the Company shall at any time declare or
pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount to which holders of shares of Series E
Preferred Stock were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(B) The Company shall declare a dividend or distribution on the Series E
Preferred Stock as provided in paragraph (A) of this Section immediately after
it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Dividend Payment Date and the next subsequent Dividend
Payment Date, a dividend of $[1] per share on the Series E Preferred Stock shall
nevertheless be payable on such subsequent Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series E Preferred Stock from the Dividend Payment Date next preceding the
date of issue of such shares, unless the date of issue of such shares is prior
to the record date for the first Dividend Payment Date, in which case dividends
on such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Dividend Payment Date or is a date after the
record date for the determination of holders of shares of Series E Preferred
Stock entitled to receive a quarterly dividend and before such Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series E Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series E Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the date
fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series E Preferred
Stock shall have the following voting rights;
(A) Subject to the provision for adjustment hereinafter set forth and
except as otherwise provided in the Certificate of Incorporation or
required by law, each share of Series E Preferred Stock shall entitle the
holder thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Company. In the event the Company shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the number
of votes per share to which holders of shares of Series E Preferred Stock
were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in the Certificate of
Incorporation and except as otherwise required by law in any other
Certificate of Designations creating a series of Preferred Stock or any
similar stock, or by law, the holders of shares of Series E Preferred Stock
and the holders of shares of Common Stock and any other capital stock of
the Company having general voting rights shall vote together as one class
on all matters submitted to a vote of stockholders of the Company.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series E Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
III-A-2
<PAGE> 232
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series E Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series E Preferred Stock outstanding shall have
been paid in full, the Company shall not:
(i) declare or pay dividends, or make any other distributions, on any
shares of stock ranking junior (as to dividends) to the Series E Preferred
Stock;
(ii) declare or pay dividends, or make any other distributions, on any
shares of stock ranking on a parity (as to dividends) with the Series E
Preferred Stock, except dividends paid ratably on the Series E Preferred
Stock and all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the holders of all such
shares are then entitled;
(iii) except as, and to the extent permitted under Section 9 of the
Certificate of Incorporation, redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series E Preferred
Stock, provided that the Company may at any time redeem, purchase or
otherwise acquire shares of any such junior stock in exchange for shares of
any stock of the Company ranking junior (as to dividends and upon
dissolution, liquidation or winding up) to the Series E Preferred Stock;
(iv) except as, and to the extent permitted under Section 9 of the
Certificate of Incorporation, redeem or purchase or otherwise acquire for
consideration any shares of Series E Preferred Stock, or any shares of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series E Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares upon
such terms as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.
(B) The Company shall not permit any subsidiary of the Company to purchase
or otherwise acquire for consideration any shares of stock of the Company unless
the Company could, under paragraph (A) of this Section 4, purchase or otherwise
acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series E Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof.
Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Company, no distribution shall be made (A) to
the holders of the Common Stock, of the Class A Common Stock or of shares of any
other stock of the Company ranking junior upon liquidation, dissolution or
winding up to the Series E Preferred Stock unless, prior thereto, the holders of
shares of Series E Preferred Stock shall have received $[100] per share, plus an
amount equal to accrued and unpaid dividends and distributions thereon, whether
or not declared, to the date of such payment, provided that the holders of
shares of Series E Preferred Stock shall be entitled to receive an aggregate
amount per share, subject to the provision for adjustment hereinafter set forth,
equal to 100 times the aggregate amount to be distributed per share to holders
of shares of Common Stock, or (B) to the holders of shares of stock ranking on a
parity upon liquidation, dissolution or winding up with the Series E Preferred
Stock, except distributions made ratably on the Series E Preferred Stock and all
such parity stock in proportion to the total amounts to which the holders of all
such shares are entitled upon such liquidation, dissolution or winding up. In
the event the Company shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount to which holders of shares of Series E Preferred
Stock were entitled immediately prior to such event under the proviso in clause
(A) of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the
III-A-3
<PAGE> 233
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Company shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series E Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Company shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series E Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series E Preferred Stock shall
not be redeemable from any holder, except as, and to the extent permitted under
Section 9 of the Certificate of Incorporation.
Section 9. Rank. The Series E Preferred Stock shall rank, with respect to
the payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up of the Company, junior to all series of any other
class of Preferred Stock and senior to the Common Stock and the Class A Common
Stock.
Section 10. Amendment. If any proposed amendment to the Certificate of
Incorporation (including this Certificate of Designations) would alter, change
or repeal any of the preferences, powers or special rights given to the Series E
Preferred Stock so as to affect the Series E Preferred Stock adversely, then the
holders of the Series E Preferred Stock shall be entitled to vote separately as
a class upon such amendment, and the affirmative vote of two-thirds of the
outstanding shares of the Series E Preferred Stock, voting separately as a
class, shall be necessary for the adoption thereof, in addition to such other
vote as may be required by the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf
of the Company by its Chairman of the Board of Directors and attested by its
Secretary this th day of , 1993.
------------------------------------
Chairman of the Board of Directors
Attest:
- ------------------------------------
Secretary
III-A-4
<PAGE> 234
EXHIBIT B
FORM OF RIGHT CERTIFICATE
Certificate No. R --
Rights
NOT EXERCISABLE AFTER , 2003 OR EARLIER IF
REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO
REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS
SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT,
RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO BECOMES
AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT)
AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID
AND WILL NO LONGER BE TRANSFERABLE.
RIGHT CERTIFICATE
MCI COMMUNICATION CORPORATION
This certifies that or registered assigns, is the registered
owner of the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of , 1993 (the "Rights Agreement"), between MCI
Communications Corporation, a Delaware corporation (the "Company"), and
(the "Rights Agent"), to purchase from the Company at any time after
the Distribution Date (as such term is defined in the Rights Agreement) and
prior to 5:00 P.M., New York City time, on , 2003 at the office or
agency of the Rights Agent designated for such purpose, or of its successor as
Rights Agent, one one-hundredth of a fully paid non-assessable share of Series E
Junior Participating Preferred Stock, par value $.10 per share (the "Preferred
Shares"), of the Company, at a purchase price of $ per one
one-hundredth of a Preferred Share (the "Purchase Price"), upon presentation and
surrender of this Right Certificate with the Form of Election to Purchase duly
executed. The number of Rights evidenced by this Rights Certificate (and the
number of one one-hundredths of a Preferred Share which may be purchased upon
exercise hereof) set forth above, and the Purchase Price set forth above, are
the number and Purchase Price as of , 1993, based on the Preferred
Shares as constituted at such date. As provided in the Rights Agreement, the
Purchase Price and the number of one one-hundredths of a Preferred Share which
may be purchased upon the exercise of the Rights and the number of Rights
evidenced by this Right Certificate are subject to modification and adjustment
upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, as the same may be amended from time to
time, which terms, provisions and conditions are hereby incorporated herein by
reference and made a part hereof and to which Rights Agreement reference is
hereby made for a full description of the rights, limitations of rights,
obligations, duties and immunities hereunder of the Rights Agent, the Company
and the holders of the Right Certificates. Copies of the Rights Agreement are on
file at the principal executive offices of the Company and the above-mentioned
office or agency of the Rights Agent. The Company will mail to the holder of
this Right Certificate a copy of the Rights Agreement without charge after
receipt of a written request therefor.
This Right Certificate, with or without other Right Certificates, upon
surrender at the office or agency of the Rights Agent designated for such
purpose, may be exchanged for another Right Certificate or Right Certificates of
like tenor and date evidencing Rights entitling the holder to purchase a like
aggregate number of Preferred Shares as the Rights evidenced by the Right
Certificate or Right Certificates surrendered shall have entitled such holder to
purchase. If this Right Certificate shall be exercised in part, the holder shall
be entitled to receive upon surrender hereof another Right Certificate or Right
Certificates for the number of whole Rights not exercised.
III-B-1
<PAGE> 235
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate (i) may be redeemed by the Company at a redemption price of
$.01 per Right or (ii) may be exchanged in whole or in part for Preferred Shares
or shares of the Company's Common Stock, par value $.10 per share.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a Preferred Share, which may, at the election
of the Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement) or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
certificate shall have been exercised as provided in the Rights Agreement. This
Right Certificate shall not be valid or obligatory for any purpose until it
shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal. Dated as of .
<TABLE>
<S> <C>
ATTEST: MCI COMMUNICATIONS CORPORATION
By By
Countersigned:
,
as Rights Agent
By
Authorized Signature
</TABLE>
III-B-2
<PAGE> 236
FORM OF REVERSE SIDE OF RIGHT CERTIFICATE
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate)
FOR VALUE RECEIVED hereby sells, assigns and
transfer unto
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint
Attorney, to transfer the within Right Certificate on the books of the
within-named Company, with full power of substitution.
Dated:
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
- --------------------------------------------------------------------------------
(To be completed)
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by, and were not acquired by the
undersigned from, an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement).
Signature
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Rights Certificate)
To MCI COMMUNICATIONS CORPORATION:
This undersigned hereby irrevocably elects to exercise
Rights represented by this Right Certificate to
purchase the Preferred Shares issuable upon the exercise of such Rights and
requests that certificates for such Preferred Shares be issued in the name of:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
III-B-3
<PAGE> 237
FORM OF REVERSE SIDE OF RIGHT CERTIFICATE -- continued
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivery to:
Please insert social security
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
Dated:
Signature
(Signature must conform to holder specified on Right Certificate)
Signature Guaranteed:
Signature must be guaranteed by a member of firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
- --------------------------------------------------------------------------------
(To be completed)
The undersigned certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by, and were not acquired by the
undersigned from, an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement)
Signature
- --------------------------------------------------------------------------------
NOTICE
The signature in the Form of Assignment or Form of Election to Purchase, as
the case may be, must conform to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
In the event the certification set forth above in the Form of Assignment or
the Form of Election to Purchase, as the case may be, is not completed, the
Company and the Rights Agent will deem the beneficial owner of the Rights
evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement) and such Assignment or
Election to Purchase will not be honored.
III-B-4
<PAGE> 238
EXHIBIT C
UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS
AGREEMENT, RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON
WHO BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS
AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME
NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On , 1993, the Board of Directors of MCI Communications
Corporation (the "Company") declared a dividend of one preferred share purchase
right (a "Right") for each outstanding share of common stock, par value $.10 per
share and Class A common stock, par value $.10, of the Company (the "Common
Shares"). The dividend is payable on , 1993 (the "Record Date") to the
stockholders of record on that date. Each Right entitles the registered holder
to purchase from the Company one one-hundredth of a share of Series E Junior
Participating Preferred Stock, par value $.10 per share (the "Preferred Shares")
of the Company at a price of $ per one one-hundredth of a Preferred Share
(the "Purchase Price"), subject to adjustment. The description and terms of the
Rights are set forth in a Rights Agreement dated as of , 1993 (the
"Rights Agreement") between the Company and , as Rights Agent (the
"Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") have acquired beneficial ownership of 10% or more of the outstanding
Common Shares (more than 20% of the outstanding Common Shares in the case of
share acquisitions by British Telecommunications plc ("BT")) or (ii) 10 business
days (or such later date as may be determined by action of the Board of
Directors prior to such time as any person or group of affiliated persons
becomes an Acquiring Person) following the commencement of, or announcement of
an intention to make, a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of 10% or more of
the outstanding Common Shares (more than 20% of the outstanding Common Shares in
the case of a tender offer or exchange offer commenced or announced by BT) (the
earlier of such dates being called the "Distribution Date"), the Rights will be
evidenced, with respect to any of the Common Share certificates outstanding as
of the Record Date, by such Common Share certificate together with a copy of
this summary of Rights.
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with and
only with the Common Shares. Until the Distribution Date (or earlier redemption
or expiration of the Rights), new Common Share certificates issued after the
Record Date upon transfer or new issuances of Common Shares will contain a
notation incorporating the Rights Agreement by reference. Until the Distribution
Date (or earlier redemption or expiration of the Rights), the surrender for
transfer of any certificates for Common Shares outstanding as of the Record
Date, even without such notation or a copy of this Summary of Rights, will also
constitute the transfer of the Rights associated with the Common Shares
represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Common Shares as of
the close of business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on , 2003 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case as described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of
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a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion price,
less than the then-current market price of the Preferred Shares or (iii) upon
the distribution to holders of the Preferred Shares of evidences of indebtedness
or assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights are also subject to adjustment in the
event of a stock split of the Common Shares or a stock dividend on the Common
Shares payable in Common Shares or subdivisions, consolidations or combinations
of the Common Shares occurring, in any such case, prior to the Distribution
Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable, except as otherwise provided under Section 9 of the Certificate of
Incorporation. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $[1] per share but will be entitled to an
aggregate dividend of 100 times the dividend declared per Common Share. In the
event of liquidation, the holders of the Preferred Shares will be entitled to a
minimum preferential liquidation payment of $[100] per share but will be
entitled to an aggregate payment of 100 times the payment made per Common Share.
Each Preferred Share will have 100 votes, voting together with the Common
Shares. Finally, in the event of any merger, consolidation or other transaction
in which Common Shares are exchanged, each Preferred Share will be entitled to
receive 100 times the amount received per Common Share. These rights are
protected by customary antidilution provisions.
Because of the nature of the Preferred Shares' dividend, liquidation and
voting rights, the value of the one one-hundredth interest in a Preferred Share
purchasable upon exercise of each Right should approximate the value of one
Common Share.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision shall be made so that each holder
of a Right, other than Rights beneficially owned by the Acquiring Person (which
will thereafter be void), will thereafter have the right to receive upon
exercise of the Right at the then current exercise price of the Right, that
number of Common Shares having a market value of two times the exercise price of
the Right.
In the event that, after a person or group has become an Acquiring Person,
the Company is acquired in a merger or other business combination transaction or
50% or more of its consolidated assets or earning power are sold, proper
provision will be made so that each holder of a Right (other than Rights
beneficially owned by an Acquiring Person which will have become void) will
thereafter have the right to receive, upon the exercise thereof of the Right at
the then current exercise price of the Right, that number of shares of common
stock of the person with whom the Company has engaged in the foregoing
transaction which number of shares at the time of such transaction will have a
market value of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
Common Shares, the Board of Directors of the Company may exchange the Rights
(other than Rights owned by such person or group which will have become void),
in whole or in part, at an exchange ratio of one Common Share, or one
one-hundredth of a Preferred Share (or of a share of a class or series of the
Company's preferred stock having equivalent rights, preferences and privileges),
per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of one one-hundredth of a Preferred
Share, which may, at the election of the Company, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Shares on the last trading day prior to the date
of exercise.
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<PAGE> 240
At any time prior to the time an Acquiring Person becomes such, the Board
of Directors of the Company may redeem the Rights in whole, but not in part, at
a price of $.01 per Right (the "Redemption Price"). The redemption of the Rights
may be made effective at such time, on such basis and with such conditions as
the Board of Directors in its sole discretion may establish. Immediately upon
any redemption of the Rights, the right to exercise the Rights will terminate
and the only right of the holders of Rights will be to receive the Redemption
Price.
For so long as Rights are then redeemable, the Company may, except with
respect to the redemption price, amend the Rights in any manner. After the
Rights are no longer redeemable the Company may amend the Rights in any manner
that does not adversely affect the interests of holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-K dated
, 1993. A copy of the Rights Agreement is available free of charge
from the Company. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
as the same may be amended from time to time, which is hereby incorporated
herein by reference.
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<PAGE> 241
APPENDIX IV
[To be filed with definitive
Proxy Materials]
<PAGE> 242
P R O X Y
[LOGO]
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MCI
COMMUNICATIONS CORPORATION FOR A SPECIAL MEETING
TO BE HELD JANUARY 31, 1994
Bert C. Roberts, Jr., John R. Worthington and Clifford L. Alexander, Jr. or any
of them with full power of substitution, are hereby authorized to represent and
to vote, as designated below, all of the undersigned's shares of Common Stock
at the special meeting of stockholders of MCI COMMUNICATIONS CORPORATION to be
held on January 31, 1994, at [location] and at any adjournment thereof, upon
the proposals set forth on the reverse side and described in the Proxy
Statement, and in their discretion with respect to such other matters as may
properly be brought before the special meeting or any adjournment thereof.
You are encouraged to specify your choices by marking the appropriate boxes,
SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in
accordance with the board of directors' recommendations. The above named
proxies cannot vote your shares unless you sign and return this proxy.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2
AND 3 AND IN THE DISCRETION OF THE PROXIES WITH RESPECT TO SUCH OTHER MATTERS
AS MAY PROPERLY BE BROUGHT BEFORE THE SPECIAL MEETING AND AT ANY ADJOURNMENT
THEREOF.
(Continued on reverse side.)
SEE REVERSE
SIDE
[ X ] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
The Board of Directors recommends a vote FOR proposals 1, 2 and 3.
1. Approval of the Investment Agreement and the performance by the
Company of all transactions and acts of the Company contemplated
under the Investment Agreement.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. Adoption of the Charter Amendment containing certain amendments to
the Company's Restated Certificate of Incorporation.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of the adoption by the board of directors of a stockholders
rights plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
* Please note that the approval of each Investment Proposal is
contingent on the approval of all Investment Proposals. Unless all
Investment Proposals are approved by the stockholders at the special
meeting, none will be effected by the Company.
The signer revokes all proxies heretofore given by the signer to vote at said
special meeting or any adjournment thereof. The signer hereby acknowledges
receipt of the notice of the special meeting and proxy statement.
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
_____________________________________________________
Signature(s)
_____________________________________________________
Dated: ______________________________________________
PLEASE MARK INSIDE BLUE BOXES SO THAT DATA
PROCESSING EQUIPMENT WILL RECORD YOUR VOTES
<PAGE> 243
APPENDIX TO ELECTRONIC FORMAT DOCUMENT
In Appendix II to the Proxy Statement, language indicated as being
shown by italics in the typeset document is enclosed in braces "{" and "}" in
the electronic format document. Language indicated as being shown by strike
out in the typeset document is enclosed in brackets "[" and "]" in the
electronic format document.
