<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
Filed by the Registrants [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_]CONFIDENTIAL, FOR USE OF THE
[_]Preliminary Proxy Statement COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Joint filing by:
Comverse Technology, Inc. and Boston Technology, Inc.
-----------------------------------------------------
(Name of Each Registrant as Specified in Its Charter)
Comverse Technology, Inc. and Boston Technology, Inc.
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[_]No fee required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: Boston
Technology, Inc. common stock, par value $0.001 per share ("BTI Common
Stock")
(2) Aggregate number of securities to which transaction applies: 27,378,299
shares of BTI Common Stock
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): The per unit
price of each share of BTI Common Stock is $30.04 (the average of the
high and low prices per share of BTI Common Stock on September 19,
1997). The filing fee of $164,489 has been calculated in accordance
with Rule 0-11 under the Exchange Act and is equal to 1/50 of 1% of the
product of 27,378,299 (the number of shares of BTI Common Stock known
to be outstanding on September 22, 1997) and $30.04.
(4) Proposed maximum aggregate value of transaction: $822,444,102
(5) Total fee paid: $164,489 (Fee paid by wire transfer on September 26,
1997. Comverse's account number for fees is 0000803014.)
[X]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
<PAGE>
[COMVERSE LETTERHEAD]
December 1, 1997
Dear Comverse Technology, Inc. Shareholder,
You are cordially invited to attend our 1997 Annual Meeting at 10:00 a.m.
(local time) on Tuesday, January 13, 1998 at the Huntington Hilton, 598
Broadhollow Road (at Route 110), Melville, New York. At our annual meeting, you
will be asked to vote on proposals to adopt the merger agreement between
Comverse and Boston Technology, Inc. ("BTI"), the 1997 Stock Incentive
Compensation Plan, the 1997 Employee Stock Purchase Plan and certain other
matters.
We believe that the combined company following the merger will be a leading
supplier of enhanced services platforms to telecommunications network operators
throughout the world. We further believe that the combination of our companies
and our complementary businesses will enable the combined company to provide
our customers with increased engineering resources and a wider range of
enhanced products and services and will enable us to capitalize on new growth
opportunities domestically and internationally. For a discussion of potential
risks associated with the merger, see pages 13-17.
In the merger, each outstanding share of BTI common stock will be converted
into 0.65 of a share of Comverse common stock. Each of your shares of Comverse
common stock will remain outstanding and will represent one share of the larger
combined company.
COMVERSE'S BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS FAIR TO YOU
AND IN YOUR BEST INTERESTS, HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
THE MERGER AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ADOPTION OF THE MERGER
AGREEMENT.
YOUR VOTE IS IMPORTANT. Approval of the merger requires an affirmative vote
of holders of two-thirds of the outstanding shares of Comverse common stock.
Thus, please complete, date and sign the accompanying proxy and return it in
the enclosed postage-paid envelope. If you have any questions about the meeting
or the merger, please call D.F. King & Co., Inc., our proxy solicitation agent,
toll free at (800) 290-6432 or collect at (212) 269-5550.
Thank you and I look forward to seeing you at the annual meeting.
Sincerely,
LOGO
Kobi Alexander
Chairman, President and Chief Executive
Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY
STATE SECURITIES REGULATORS HAVE APPROVED THE MERGER
DESCRIBED IN THIS JOINT PROXY STATEMENT/PROSPECTUS OR THE
COMVERSE COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE
MERGER, NOR HAVE THEY DETERMINED IF THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. FURTHERMORE,
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT DETERMINED
THE FAIRNESS OR MERITS OF THE MERGER. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Joint Proxy Statement/Prospectus is dated December 1, 1997 and is first
being mailed to shareholders on or about December 1, 1997.
<PAGE>
COMVERSE TECHNOLOGY, INC.
170 CROSSWAYS PARK DRIVE
WOODBURY, NEW YORK 11797
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
TUESDAY, JANUARY 13, 1998
December 1, 1997
To the Shareholders of
Comverse Technology, Inc.:
The 1997 Annual Meeting of Shareholders of Comverse Technology, Inc., a New
York corporation ("Comverse"), will be held at 10:00 a.m. (local time), on
Tuesday, January 13, 1998 at the Huntington Hilton, 598 Broadhollow Road (at
Route 110), Melville, New York (the "Comverse Annual Meeting"), for the
following purposes:
1. To consider and vote upon a proposal to elect seven directors to serve
until the next annual meeting of shareholders of Comverse and their
successors are elected and qualify.
2. To consider and vote upon a proposal to adopt the Agreement and Plan
of Merger (the "Merger Agreement") dated as of August 20, 1997, between
Comverse and Boston Technology, Inc., a Delaware corporation ("BTI"), a
copy of which is attached as Annex I to the Joint Proxy
Statement/Prospectus that accompanies this notice (the "Joint Proxy
Statement/Prospectus"). The Merger Agreement provides for the merger of BTI
with and into Comverse (the "Merger"). If the Merger Agreement is adopted
and the Merger is consummated, each issued and outstanding share of BTI
common stock, par value $0.001 per share, other than shares owned by
Comverse, BTI or their respective subsidiaries, will be converted into the
right to receive 0.65 of a fully paid and nonassessable share of Comverse
common stock, par value $0.10 per share ("Comverse Common Stock").
3. To consider and vote upon a proposal to ratify the appointment of
Deloitte & Touche LLP as Comverse's independent auditors for the fiscal
year ending December 31, 1997.
4. To consider and vote upon a proposal to approve the 1997 Stock
Incentive Compensation Plan under which up to 2.5 million shares of
Comverse Common Stock may be issued as equity-based compensation to
employees and directors.
5. To consider and vote upon a proposal to approve the 1997 Employee
Stock Purchase Plan under which up to 250,000 shares of Comverse Common
Stock may be issued.
6. To consider and transact such other business as may properly come
before the Comverse Annual Meeting or any adjournments or postponements
thereof.
Holders of record of Comverse Common Stock at the close of business on
November 25, 1997 will be entitled to vote at the Comverse Annual Meeting or
any adjournments or postponements thereof.
THE BOARD OF DIRECTORS OF COMVERSE HAS DETERMINED THAT THE MERGER IS FAIR TO
AND IN THE BEST INTERESTS OF THE SHAREHOLDERS OF COMVERSE, HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT
COMVERSE SHAREHOLDERS VOTE FOR ADOPTION OF THE MERGER AGREEMENT AT THE
COMVERSE ANNUAL MEETING.
THE BOARD OF DIRECTORS OF COMVERSE HAS ALSO UNANIMOUSLY APPROVED EACH OF THE
OTHER PROPOSALS TO BE CONSIDERED AT THE COMVERSE ANNUAL MEETING AND
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR EACH SUCH PROPOSAL.
<PAGE>
Detailed information concerning the Merger Agreement and the Merger and the
other items to be voted on at the Comverse Annual Meeting is contained in the
attached Joint Proxy Statement/Prospectus. Please read it carefully.
WHETHER OR NOT YOU EXPECT TO ATTEND THE COMVERSE ANNUAL MEETING IN PERSON,
PLEASE COMPLETE, SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. A SHAREHOLDER WHO EXECUTES A PROXY MAY REVOKE IT AT ANY TIME BEFORE
IT IS EXERCISED BY GIVING WRITTEN NOTICE OF REVOCATION TO THE GENERAL COUNSEL
AND SECRETARY OF COMVERSE, BY SUBSEQUENTLY FILING ANOTHER PROXY OR BY
ATTENDING THE COMVERSE ANNUAL MEETING AND VOTING IN PERSON.
By Order of the Board of Directors,
LOGO
William F. Sorin
Corporate Secretary
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.
HOLDERS OF COMVERSE COMMON STOCK SHOULD
NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
<PAGE>
[BOSTON TECHNOLOGY LETTERHEAD]
December 1, 1997
Dear Boston Technology, Inc. Stockholder:
As most of you are aware, Boston Technology, Inc. ("BTI") has entered into
an agreement to combine with Comverse Technology, Inc. ("Comverse"). At a
Special Meeting of Stockholders to be held on Tuesday, January 13, 1998 at the
offices of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts
commencing at 9:00 a.m. (local time), you will be asked to consider and adopt
the merger agreement between BTI and Comverse.
We believe that the combined company following the merger will be a leading
supplier of enhanced services platforms to telecommunications network
operators throughout the world. We further believe that the combination of our
companies and our complementary businesses will enable the combined company to
provide our customers with increased engineering resources and a wider range
of enhanced products and services and will enable us to capitalize on new
growth opportunities domestically and internationally. For a discussion of
potential risks associated with the merger, see pages 13-17.
BTI'S BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS FAIR TO YOU AND
IN YOUR BEST INTERESTS, HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
MERGER AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ADOPTION OF THE MERGER
AGREEMENT.
All stockholders are cordially invited to attend the special meeting in
person. However, whether or not you plan to attend the special meeting, please
complete, sign and date the accompanying proxy card and return it promptly in
the enclosed postage-prepaid envelope. If you attend the special meeting, you
may vote in person if you wish, even though you have previously returned your
proxy. It is very important that your shares be represented and voted at the
special meeting. Your prompt cooperation will be greatly appreciated.
Sincerely,
Francis E. Girard
President and Chief Executive
Officer
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE MERGER DESCRIBED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS OR THE COMVERSE COMMON STOCK TO BE ISSUED IN
CONNECTION WITH THE MERGER, NOR HAVE THEY DETERMINED IF THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. FURTHERMORE, THE SECURITIES
AND EXCHANGE COMMISSION HAS NOT DETERMINED THE FAIRNESS OR MERITS OF THE
MERGER. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Joint Proxy Statement/Prospectus is dated December 1, 1997 and is first
being mailed to stockholders on or about December 1, 1997.
<PAGE>
BOSTON TECHNOLOGY, INC.
100 QUANNAPOWITT PARKWAY
WAKEFIELD, MASSACHUSETTS 01880
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON
TUESDAY, JANUARY 13, 1998
To the Stockholders of
Boston Technology, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "BTI
Special Meeting") of Boston Technology, Inc., a Delaware corporation ("BTI"),
will be held on Tuesday, January 13, 1998, at the offices of Hale and Dorr
LLP, 60 State Street, Boston, Massachusetts, commencing at 9:00 a.m. (local
time) for the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement and Plan
of Merger (the "Merger Agreement") dated as of August 20, 1997, between
Comverse Technology, Inc., a New York corporation ("Comverse"), and BTI,
pursuant to which, among other things, (a) BTI will be merged with and into
Comverse, which will be the surviving corporation (the "Merger"), and (b)
each outstanding share of BTI common stock, par value $0.001 per share
("BTI Common Stock"), will be converted into the right to receive 0.65 of a
fully paid and nonassessable share of Comverse common stock, par value
$0.10 per share; and
2. To consider and transact such other business as may properly come
before the BTI Special Meeting or any adjournments or postponements
thereof.
Stockholders of record of BTI Common Stock at the close of business on
November 25, 1997, are entitled to notice of and to vote at the BTI Special
Meeting and any adjournments or postponements thereof.
THE BOARD OF DIRECTORS OF BTI HAS DETERMINED THAT THE MERGER IS FAIR TO AND
IN THE BEST INTERESTS OF THE STOCKHOLDERS OF BTI, HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT BTI
STOCKHOLDERS VOTE FOR ADOPTION OF THE MERGER AGREEMENT AT THE BTI SPECIAL
MEETING.
Detailed information concerning the Merger Agreement, the Merger and the
items to be voted on at the BTI Special Meeting is contained in the attached
Joint Proxy Statement/Prospectus; please read it carefully.
All stockholders are cordially invited to attend the BTI Special Meeting in
person. However, to ensure your representation at the BTI Special Meeting, you
are urged to complete and sign the enclosed proxy card and return it as
promptly as possible in the enclosed postage-prepaid envelope.
By Order of the Board of Directors,
Carol B. Langer
Corporate Secretary
December 1, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE BTI SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE YOUR PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-
PREPAID ENVELOPE. DO NOT SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY
CARD.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER..................................... 1
SUMMARY.................................................................... 4
RISK FACTORS............................................................... 13
Fixed Merger Consideration Despite Potential Changes in Stock Prices...... 13
Unpredictability of Trading Price of Combined Company's Shares............ 13
Integration of Operations................................................. 13
Risks Inherent in the Telecommunications Industry......................... 14
Emphasis on Large System Installations.................................... 14
Operations in Israel; Reduced Government Subsidies........................ 15
Increased Costs of Operations............................................. 16
International Operations.................................................. 16
Risks of Government Business.............................................. 16
Patents and Proprietary Rights............................................ 17
Forward-Looking Statements May Prove Inaccurate........................... 17
THE STOCKHOLDERS' MEETINGS................................................. 18
Date, Times and Places.................................................... 18
Matters to be Considered at the Stockholders' Meetings.................... 18
Record Date; Stock Entitled to Vote; Quorum............................... 18
Votes Required............................................................ 19
Share Ownership of Management and Certain Stockholders.................... 19
Voting of Proxies......................................................... 19
Revocability of Proxies................................................... 20
Solicitation of Proxies................................................... 20
THE MERGER................................................................. 21
Background to the Merger.................................................. 21
Reasons for the Merger and Board Recommendations.......................... 22
Opinion of the Financial Advisor to the Comverse Board.................... 25
Opinion of the Financial Advisor to the BTI Board......................... 29
Accounting Treatment...................................................... 33
Form of the Merger........................................................ 33
Merger Consideration...................................................... 33
Conversion of Shares; Procedures for Exchange of Certificates; Fractional
Shares................................................................... 34
Effective Time............................................................ 35
Approval for Trading of Comverse Common Stock............................. 35
Federal Income Tax Considerations......................................... 35
Effect on Awards Outstanding Under BTI Stock Plans........................ 36
</TABLE>
<TABLE>
<S> <C>
Regulatory Matters and Third Party Approvals............................... 37
Certain Transactions; Conflicts of Interest................................ 37
Appraisal and Dissenters' Rights........................................... 39
Delisting and Deregistration of BTI Common Stock........................... 39
Resale of Comverse Stock................................................... 39
CERTAIN PROVISIONS OF THE MERGER AGREEMENT.................................. 40
General.................................................................... 40
Conditions to the Consummation of the Merger............................... 40
No Solicitation............................................................ 41
Right of Boards to Withdraw Recommendation................................. 42
Termination................................................................ 42
Termination Fees and Expenses.............................................. 43
Conduct of Business Pending the Merger..................................... 43
Amendment to BTI Rights Plan............................................... 45
Assumption of BTI Stock Plans.............................................. 45
Amendment and Waiver....................................................... 45
Expenses................................................................... 46
Representations and Warranties............................................. 46
THE COMPANIES............................................................... 47
Comverse................................................................... 47
BTI........................................................................ 47
COMPARATIVE PER SHARE MARKET PRICE INFORMATION.............................. 48
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION................ 49
DIRECTORS OF COMVERSE FOLLOWING THE MERGER.................................. 57
Directors.................................................................. 57
Committees of the Comverse Board........................................... 58
Stock Ownership of Directors and Executive Officers........................ 59
DESCRIPTION OF COMVERSE CAPITAL STOCK....................................... 60
Authorized Capital Stock................................................... 60
Comverse Common Stock...................................................... 60
Comverse Preferred Stock................................................... 60
COMPARISON OF RIGHTS OF COMVERSE AND BTI STOCKHOLDERS....................... 61
Authorized Capital Stock................................................... 61
Directors.................................................................. 61
Amendments to Certificate of Incorporation................................. 61
Amendments to By-laws...................................................... 61
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Cumulative Voting......................................................... 61
Removal of Directors...................................................... 62
Filling Vacancies on the Board of Directors............................... 62
Classification of Board of Directors...................................... 62
Dividends................................................................. 62
Holding Company Reorganization............................................ 62
Stockholders' Meetings and Notice Provisions.............................. 62
Quorum.................................................................... 63
Voting by Stockholders.................................................... 63
Stockholder Action Without a Meeting...................................... 64
Right to Examine Stockholder List......................................... 64
Indemnification and Limitation of Liability............................... 64
Business Combination Statutes............................................. 66
Appraisal and Dissenters' Rights.......................................... 66
Interested Director Transactions.......................................... 67
Rights Plan............................................................... 67
OTHER INFORMATION FOR COMVERSE ANNUAL MEETING.............................. 69
PROPOSAL--ELECTION OF DIRECTORS............................................ 69
Nominees for Election as Comverse Directors............................... 69
Committees and Meetings of the Comverse Board............................. 69
Director Compensation..................................................... 69
EXECUTIVE COMPENSATION..................................................... 71
Summary Compensation Table................................................ 71
Stock Option Grants and Exercises......................................... 71
Employment Agreements..................................................... 73
Remuneration and Stock Option Committee Report Concerning Executive
Compensation............................................................. 74
Compensation of the Chief Executive Officer............................... 75
Stock Performance Graph................................................... 76
</TABLE>
<TABLE>
<S> <C>
CERTAIN TRANSACTIONS........................................................ 76
BENEFICIAL OWNERSHIP OF COMVERSE COMMON STOCK............................... 77
PROPOSAL--RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS............... 78
PROPOSAL--APPROVAL OF THE 1997 STOCK INCENTIVE COMPENSATION PLAN............ 78
General.................................................................... 78
Summary of the Incentive Plan.............................................. 78
Certain Federal Income Tax Consequences.................................... 81
PROPOSAL--APPROVAL OF THE 1997 EMPLOYEE STOCK PURCHASE PLAN................. 83
General.................................................................... 83
Summary of the Stock Purchase Plan......................................... 83
Certain Federal Income Tax Consequences.................................... 84
LEGAL MATTERS............................................................... 85
EXPERTS..................................................................... 85
FUTURE STOCKHOLDER PROPOSALS................................................ 85
WHERE YOU CAN FIND MORE INFORMATION......................................... 86
LIST OF DEFINED TERMS....................................................... 88
</TABLE>
ANNEXES TO THE JOINT PROXY
STATEMENT/PROSPECTUS
<TABLE>
<C> <S>
Annex I Agreement and Plan of Merger
Annex II Opinion of Salomon Brothers Inc
Annex III Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
Annex IV The 1997 Stock Incentive Compensation Plan
Annex V The 1997 Employee Stock Purchase Plan
</TABLE>
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE? HOW WILL I BENEFIT?
A: We believe that the merger, by combining our highly complementary
businesses, customer bases and geographic focuses, will position our
combined company as a leading supplier of enhanced services platforms to
telecommunications services providers worldwide. In addition, we believe
that the merger will provide our combined company with substantially greater
resources necessary to compete effectively in the rapidly growing and
changing global telecommunications equipment business, to offer a
comprehensive range of products, services and technical solutions for our
customers and to cultivate a more diverse customer base with broader
geographic coverage. We also believe that the merger will allow us to
achieve economies of scale that are currently beyond the independent
capability of either Comverse or BTI and, particularly in the case of BTI,
access to a broader customer base, resulting in less revenue volatility and
reduced dependence on specific customers. To review the background and
reasons for the merger in greater detail, see pages 21 through 25. However,
there are certain risks associated with the proposed merger including, but
not limited to, the risk that the benefits sought under the proposed merger
will not be realized. To review the risk factors associated with the
proposed merger in greater detail, see pages 13-17.
Q: WHAT IS THE NAME OF THE COMBINED COMPANY?
A: The combined company will retain the name of "Comverse Technology, Inc."
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card how you want to vote, and sign and mail it
in the enclosed return envelope as soon as possible, so that your shares may
be represented at your stockholders' meeting. If you sign and send in your
proxy and do not indicate how you want to vote, your proxy will be counted
as a vote in favor of the merger. IF YOU DO NOT VOTE OR YOU ABSTAIN, IT WILL
HAVE THE EFFECT OF A VOTE AGAINST THE MERGER.
The Comverse annual meeting and the BTI special meeting will each take
place on Tuesday, January 13, 1998. You may attend your stockholders'
meeting and vote your shares in person, rather than signing and mailing
your proxy card. In addition, you may take back your proxy up to and
including the day of your stockholders' meeting by following the directions
on page 20 and either change your vote or attend your stockholders' meeting
and vote in person.
THE BOARDS OF DIRECTORS OF COMVERSE AND BTI UNANIMOUSLY RECOMMEND VOTING
FOR ADOPTION OF THE MERGER AGREEMENT.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how to
vote. You should instruct your broker to vote your shares, following the
directions provided by your broker. Without instructions, your shares will
not be voted.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send BTI stockholders written in-
structions for exchanging their share certificates. Comverse shareholders
will keep their certificates.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: If the merger is completed, BTI stockholders will have the right to receive
0.65 of a share of Comverse common stock in exchange for each share of BTI
common stock they own and each previously issued share of Comverse common
stock will remain outstanding and unchanged.
We will not issue fractional shares. Instead, BTI stockholders will receive
cash for any fractional share of Comverse common stock owed to them based
on the market value on a date close to the date the merger occurs.
Examples:
.If you currently own 100 shares of BTI common stock, then after the
merger you
1
<PAGE>
will receive 65 shares of Comverse common stock.
.If you currently own 2 shares of BTI common stock, then after the merger
you will receive 1 share of Comverse common stock and a check for the
market value of the 0.3 fractional share.
.If you currently own 100 shares of Comverse common stock, those shares
will remain outstanding.
Q: AS A COMVERSE SHAREHOLDER, HOW WILL THE MERGER AFFECT ME?
A: Following the merger, each Comverse share will remain outstanding and, based
on the current number of outstanding shares, the shareholders of Comverse
prior to the merger will own approximately 58% of the common stock of the
larger combined company.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. We hope
to complete the merger during January of 1998.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: The exchange of shares by BTI stockholders will be tax-free to BTI stock-
holders for federal income tax purposes. However, BTI stockholders will have
to pay taxes on cash received for fractional shares and may have to pay
taxes as a result of the payment by Comverse on their behalf of certain
transfer taxes. The merger will be tax-free to Comverse shareholders for
federal income tax purposes. To review the tax consequences to stockholders
in greater detail, see pages 35 through 36.
2
<PAGE>
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the merger you should contact:
COMVERSE SHAREHOLDERS
Comverse Technology, Inc.
170 Crossways Park Drive
Woodbury, New York 11797
Attention: Investor Relations
Phone Number: (516) 677-7200
BTI STOCKHOLDERS
Boston Technology, Inc.
100 Quannapowitt Parkway
Wakefield, Massachusetts 01880
Attention: Investor Relations
Phone Number: (781) 246-9000
If you would like additional copies of the Joint Proxy Statement/Prospectus,
or if you have questions about the merger, you should contact:
COMVERSE SHAREHOLDERS
D. F. King & Co., Inc.
77 Water Street
New York, New York 10005
Phone Number: (800) 290-6432 (toll free)
or
(212) 269-5550 (collect)
BTI STOCKHOLDERS
Morrow & Co., Inc.
908 Third Avenue
New York, New York 10022
Phone Number: (212) 754-8000
3
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND DOES NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
MERGER FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE DOCUMENTS TO
WHICH WE HAVE REFERRED YOU. SEE "WHERE YOU CAN FIND MORE INFORMATION" (PAGE
86). WE HAVE INCLUDED PAGE REFERENCES PARENTHETICALLY TO DIRECT YOU TO A MORE
COMPLETE DESCRIPTION OF THE TOPICS PRESENTED IN THIS SUMMARY.
THE COMPANIES (PAGE 47)
COMVERSE TECHNOLOGY, INC.
170 Crossways Park Drive
Woodbury, New York 11797
(516) 677-7200
Comverse designs, develops, manufactures, markets and supports computer and
telecommunications systems and software for multimedia communications and
information processing applications. Comverse's systems are used in a broad
range of applications by fixed and wireless telephone network operators,
government agencies, call centers, financial institutions and other public and
commercial organizations worldwide.
Comverse has developed three main product lines: the TRILOGUE family of
multimedia enhanced services platforms, which enable wireless and wireline
telecommunications network operators to offer a range of advanced revenue-
generating services to their customers; the AUDIODISK family of multiple
channel, multimedia digital monitoring systems, which support the monitoring,
recording, surveillance, and information gathering and analysis activities of
law enforcement and intelligence agencies; and the ULTRA Series of digital
recording systems, which support the voice/fax/data recording and analysis
activities of a variety of organizations including call centers, financial
institutions, emergency (e.g., "911") service providers, correctional
institutions, and public safety (e.g., air traffic control) operations.
Comverse's products incorporate advanced technologies in the areas of digital
signal processing, facsimile protocols, telephony interfaces, mass storage,
digital networking, multiprocessor computer architecture and real-time
software design.
BOSTON TECHNOLOGY, INC.
100 Quannapowitt Parkway
Wakefield, Massachusetts 01880
(617) 246-9000
BTI is a leading worldwide provider of communications and information
processing systems and applications that enable telecommunications carriers to
provide their residential, business, wireless and cable subscribers with
enhanced services, such as call answering, voice messaging, fax processing,
pager notification and other multimedia capabilities. Enhanced services allow
subscribers to improve their communications through the recording, storage,
access and distribution of messages and other information. BTI develops,
manufactures, markets and supports standard and customized enhanced systems
platforms and software applications. BTI's products are used in wireline,
cable wireline and wireless networks, operating with existing network
switching equipment to deliver services accessible through commonly available
telephones, fax machines, pagers and personal computers.
OUR REASONS FOR THE MERGER (PAGE 22)
We believe that the merger, by combining our highly complementary
businesses, customer bases and geographic focuses, will position our combined
company as a leading supplier of enhanced services platforms to
telecommunications services providers worldwide. In addition, we believe that
the merger will provide our combined company with substantially greater
resources necessary to compete effectively in the rapidly growing and changing
global telecommunications equipment business, to offer a comprehensive range
of products, services and technical solutions for our customers and to
cultivate a more diverse customer base with broader geographic coverage. We
also believe that the merger will allow us to achieve economies of scale that
are currently beyond the independent capability of either Comverse or BTI and,
particularly in the case of BTI, access to a broader customer base, resulting
in less revenue volatility and reduced dependence on specific customers. To
review the background and reasons for the merger in greater detail, see pages
21 through 25.
THE STOCKHOLDERS' MEETINGS (PAGE 18)
The Comverse annual meeting will be held at the Huntington Hilton, 598
Broadhollow Road (at Route
4
<PAGE>
110), Melville, New York, on Tuesday, January 13, 1998, commencing at 10:00
a.m. (local time) for the following purposes:
. to elect seven directors;
. to adopt the merger agreement;
. to ratify the appointment of Deloitte & Touche LLP as Comverse's independent
auditors;
. to approve the 1997 Stock Incentive Compensation Plan; and
. to approve the 1997 Employee Stock Purchase Plan.
The BTI special meeting will be held at the offices of Hale and Dorr LLP, 60
State Street, Boston, Massachusetts, on Tuesday, January 13, 1998, commencing
at 9:00 a.m. (local time). At the BTI special meeting, BTI stockholders will be
asked to adopt the merger agreement.
OUR RECOMMENDATIONS TO STOCKHOLDERS (PAGE 25)
To the Comverse Shareholders:
The Board of Directors of Comverse believes that the merger is fair to you
and in your best interests and unanimously recommends that you vote "for"
adoption of the merger agreement. The Comverse Board also unanimously
recommends that you vote "for" the other proposals to be considered at the
Comverse annual meeting.
To the BTI Stockholders:
The Board of Directors of BTI believes that the merger is fair to you and in
your best interests and unanimously recommends that you vote "for" adoption of
the merger agreement.
RECORD DATE; VOTING POWER (PAGE 18)
You are entitled to vote at your stockholders' meeting if you owned shares as
of the close of business on November 25, 1997, the Record Date.
On the Record Date, there were 25,211,007 shares of Comverse common stock
allowed to vote at the Comverse annual meeting. Comverse shareholders will have
one vote at the annual meeting for each share of Comverse common stock they
owned on the Record Date for each of the proposals described above.
On the Record Date, there were 27,829,040 shares of BTI common stock allowed
to vote at the BTI special meeting. BTI stockholders will have one vote at the
special meeting for each share of BTI common stock they owned on the Record
Date for the proposal to adopt the merger agreement.
VOTES REQUIRED (PAGE 19)
Holders of two-thirds of the shares of Comverse common stock outstanding on
the Record Date must vote to adopt the merger agreement. Holders of a majority
of the shares of Comverse common stock present and allowed to vote at the
Comverse annual meeting must vote to ratify the appointment of Deloitte &
Touche LLP and to approve the 1997 Stock Incentive Compensation Plan and the
1997 Employee Stock Purchase Plan. The seven nominees receiving the greatest
number of votes cast shall be elected directors at the Comverse annual meeting.
Holders of a majority of the shares of BTI common stock outstanding on the
Record Date must vote in favor of the adoption of the merger agreement.
SHARE OWNERSHIP OF MANAGEMENT (PAGE 19)
On the Record Date, directors and executive officers of Comverse and their
affiliates beneficially owned 1,195,500 shares of Comverse common stock, of
which 106,000 shares of Comverse common stock, or approximately 0.4% of the
shares of Comverse common stock outstanding on the Record Date, are eligible to
be voted.
On the Record Date, directors and executive officers of BTI and their
affiliates beneficially owned 3,380,439 shares of BTI common stock, of which
2,751,813 shares of BTI common stock, or approximately 9.9% of the shares of
BTI common stock outstanding on the Record Date, are eligible to be voted.
The directors and executive officers of each company have indicated that they
intend to vote the Comverse common stock or BTI common stock owned by them
"for" the proposals described above.
THE MERGER (PAGE 21)
The merger agreement is attached as ANNEX I to this document. We encourage
you to read the
5
<PAGE>
merger agreement. It is the legal document governing the merger.
WHAT STOCKHOLDERS WILL RECEIVE IN THE MERGER (PAGE 33)
If the Merger is approved, holders of BTI common stock will have the right
to receive 0.65 of a share of Comverse common stock for each share of BTI
common stock they own. Comverse will not issue fractional shares of Comverse
common stock. BTI stockholders will instead be paid cash for any fractional
shares of Comverse common stock.
After the merger, each share of Comverse common stock will remain
outstanding and unchanged.
HOLDERS OF BTI COMMON STOCK SHOULD NOT SEND IN THEIR STOCK CERTIFICATES
UNTIL INSTRUCTED TO DO SO AFTER THE MERGER IS COMPLETED.
FEDERAL INCOME TAX CONSIDERATIONS (PAGE 35)
We each must receive an opinion from our outside counsel that, as a general
matter, BTI stockholders will not be taxed as a result of the exchange of BTI
common stock in the merger, except to the extent they receive cash for
fractional shares.
Comverse shareholders will not be taxed as a result of the merger.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO
BTI STOCKHOLDERS WILL DEPEND ON THE FACTS OF EACH BTI STOCKHOLDER'S INDIVIDUAL
SITUATION. BTI STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS FOR A FULL
UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO THEM.
FAIRNESS OPINIONS OF FINANCIAL ADVISORS (PAGE 25)
In deciding to approve the merger, the Comverse Board considered the opinion
of its financial advisor as to the fairness of the Exchange Ratio to its
shareholders from a financial point of view, and the BTI Board considered the
opinion of its financial advisor as to the fairness of the Exchange Ratio to
its stockholders from a financial point of view. Comverse received an opinion
from its financial advisor, Salomon Brothers Inc, and BTI received an opinion
from its financial advisor, Merrill Lynch, Pierce, Fenner & Smith
Incorporated. These opinions are attached as Annexes II and III, respectively,
to this Joint Proxy Statement/ Prospectus. WE ENCOURAGE YOU TO READ THESE
OPINIONS CAREFULLY.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 37)
Our stockholders should note that several directors and executive officers
of Comverse and BTI have interests in the merger as employees and/or directors
that are different from, or in addition to, yours as a stockholder. If we
complete the merger, two directors of BTI will be designated as members of the
Comverse Board. In addition, Mr. Francis E. Girard, President and Chief
Executive Officer of BTI, will become President and Chief Executive Officer of
the Comverse Network Systems Division, the headquarters of which will be
relocated to Wakefield, Massachusetts, following the merger. Also, certain
indemnification arrangements for existing directors and officers of Comverse
and BTI will be continued. Please refer to pages 37 and 38 for more
information concerning these interests.
OWNERSHIP OF COMVERSE FOLLOWING THE MERGER (PAGE 33)
Based on the current number of outstanding shares of BTI common stock, we
anticipate that BTI stockholders, in the aggregate, will receive approximately
18,088,876 shares of Comverse common stock in the merger. Based on that
number, following the merger, existing Comverse shareholders will own
approximately 58%, and former BTI stockholders will own approximately 42%, of
the outstanding Comverse common stock.
DIRECTORS OF COMVERSE FOLLOWING THE MERGER (PAGE 57)
The following current directors of Comverse are standing for re-election at
the Comverse annual meeting:
. Kobi Alexander (Chairman of the Board, President and Chief Executive
Officer)
6
<PAGE>
. Carmel Vernia (Chief Operating Officer)
. William F. Sorin (General Counsel and Corporate Secretary)
. Zvi Alexander
. John H. Friedman
. Sam Oolie
. Shaula A. Yemini, Ph.D.
If the merger is completed, the Comverse Board will be increased to nine
directors and the following two individuals will become directors of Comverse
in addition to the seven directors listed above:
. Greg C. Carr (Chairman of the Board of BTI)
. Francis E. Girard (President and Chief Executive Officer of BTI)
LISTING OF COMVERSE COMMON STOCK (PAGE 35)
Comverse plans to continue listing the Comverse common stock (including
shares issued to BTI stockholders in connection with the merger) on the Nasdaq
National Market (the "Nasdaq"). The trading symbol for Comverse common stock is
"CMVT." If we complete the merger, BTI stockholders will be able to trade the
shares of Comverse common stock received in the merger. BTI stockholders will
no longer be able to trade BTI common stock because BTI common stock will no
longer be listed on the New York Stock Exchange, Inc. (the "NYSE") and will
represent only the right to receive the corresponding amount of Comverse common
stock.
Comverse shareholders will continue to be able to trade their shares of
Comverse common stock following the Merger.
CONDITIONS TO THE MERGER (PAGE 40)
We will complete the merger only if we satisfy or (in some cases) waive
several conditions, including the following:
. holders of two-thirds of Comverse common stock and holders of a majority
of BTI common stock adopt the merger agreement;
. the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, has expired (which occurred on October 12, 1997);
. no legal restraints or prohibitions exist which prevent the consummation
of the merger, limit the ownership or conduct of a material portion of the
businesses or assets of Comverse or BTI, or are reasonably likely to have
a material adverse effect on Comverse or BTI;
. there is no Material Adverse Change (as defined on page 41) since August
20, 1997 with respect to the other company;
. our counsel deliver opinions in respect of certain federal income tax
consequences of the merger; and
. our independent accountants deliver letters stating that the merger will
qualify for pooling of interests accounting treatment.
TERMINATION OF THE MERGER AGREEMENT (PAGE 42)
The Comverse Board and the BTI Board can jointly agree to terminate the
merger agreement at any time without completing the merger. Either company can
terminate the merger agreement if:
(1)the merger is not completed by February 28, 1998;
(2)the Comverse shareholders or the BTI stockholders do not adopt the merger
agreement;
(3)a governmental authority or legal action permanently prohibits the merger,
limits the ownership or conduct of a material portion of the businesses
or assets of either company, or is reasonably likely to have a material
adverse effect on either company;
(4)the other party breaches or materially fails to comply with any of the
representations or warranties it made or obligations it has under the
merger agreement, resulting in the inability to satisfy a condition to
the completion of the merger and such breach is incapable of being cured
or is not cured within 30 days of notice thereof; or
(5)the company's board of directors determines, prior to obtaining
stockholder approval and after consultation with outside
7
<PAGE>
counsel, that it is necessary to terminate the merger agreement in order
to comply with the board's fiduciary duties to its stockholders. A
company may only terminate the merger agreement pursuant to this
provision if that company has received a proposal to acquire a majority
of the company's outstanding voting power or a substantial portion of its
assets and its board determines that such proposed transaction is viable
from a financial and regulatory standpoint and more favorable to the
company's stockholders than the merger.
TERMINATION FEES AND EXPENSES (PAGE 43)
If either of us receives a takeover proposal and that party or the other
party then terminates the merger agreement as described in the first, second or
fifth reasons above, and, in the case of the first or second reasons, if the
party receiving the takeover proposal agrees to or effects a takeover
transaction within 12 months, that party must pay the other a termination fee
of $50 million and costs and expenses not to exceed $5 million.
REGULATORY APPROVALS (PAGE 37)
We are prohibited by United States antitrust laws from completing the merger
until after we have furnished certain information and materials to the
Antitrust Division of the Department of Justice and the Federal Trade
Commission and a required waiting period has ended. We have each filed the
required notification and report forms with the Federal Trade Commission and
the Antitrust Division. The waiting period expired on October 12, 1997.
APPRAISAL AND DISSENTERS' RIGHTS (PAGE 39)
Neither Comverse shareholders nor BTI stockholders will have the right to an
appraisal of the value of their shares in connection with the merger.
ACCOUNTING TREATMENT (PAGE 33)
It is a condition to the merger that it be accounted for as a pooling of
interests, which means that we will treat Comverse and BTI as if they had
always been combined for accounting and financial reporting purposes. We will
each obtain from our independent accountants letters stating that the merger
will qualify for pooling of interests accounting treatment.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGE 17)
We have each made forward-looking statements in this document (and in
documents that are incorporated by reference) that are subject to risks and
uncertainties. Forward-looking statements include the information concerning
possible or assumed future results of operations of Comverse and BTI. Also,
when we use words such as "believes," "expects," "anticipates" or similar
expressions, we are making forward-looking statements. Stockholders should note
that many factors, some of which are discussed elsewhere in this document,
including under the caption "Risk Factors," and in the documents which we
incorporate by reference, could affect the future financial results of Comverse
and BTI and could cause those results to differ materially from those expressed
in our forward-looking statements contained or incorporated by reference in
this document. These factors include the following:
. operating, legal and regulatory risks;
. economic, political and competitive forces affecting our businesses; and
. the risk that our analyses of these risks and forces could be incorrect
and/or that the strategies developed to address them could be
unsuccessful.
8
<PAGE>
COMPARATIVE MARKET PRICE INFORMATION
The principal trading market for the Comverse common stock is the Nasdaq. The
principal trading market for the BTI common stock is the NYSE. The following
table sets forth the closing sale prices for the Comverse common stock on the
Nasdaq and BTI common stock on the NYSE Composite Transaction Tape, as reported
by The Wall Street Journal, on August 20, 1997 and November 25, 1997, as well
as the equivalent pro forma prices of the BTI common stock on such dates, as
determined by multiplying the applicable closing sale price of the Comverse
common stock by the Exchange Ratio of 0.65. August 20, 1997 was the last full
trading day prior to the announcement of the signing of the merger agreement.
November 25, 1997 was the last practicable trading day for which information
was available prior to the date of this Joint Proxy Statement/Prospectus. The
trading symbol for the Comverse common stock is "CMVT" and the trading symbol
for the BTI common stock is "BSN." You should read the information presented
below in conjunction with "Comparative Per Share Market Price Information" on
page 48.
<TABLE>
<CAPTION>
BTI
COMVERSE BTI PRO FORMA
COMMON STOCK COMMON STOCK EQUIVALENT
DOLLARS PER SHARE DOLLARS PER SHARE DOLLARS PER SHARE
----------------- ----------------- -----------------
<S> <C> <C> <C>
August 20, 1997.... 48 1/2 31 5/8 31 17/32
November 25, 1997.. 32 5/16 20 15/16 21
</TABLE>
The average closing sale price per share of Comverse common stock during the
period of August 1, 1997 through August 20, 1997 was $49 1/8 and the average
closing sale price per share of BTI common stock during the period of August 1,
1997 through August 20, 1997 was $27 17/32.
The market prices of shares of Comverse common stock and BTI common stock
fluctuate. As a result, we urge you to obtain current market quotations.
On the Record Date, there were approximately 1,513 holders of record of
Comverse common stock and approximately 1,616 holders of record of BTI common
stock.
Historically, Comverse and BTI have not paid dividends on their common stock.
Comverse does not anticipate that it will pay any dividends on the Comverse
common stock following the merger.
9
<PAGE>
SELECTED HISTORICAL AND SELECTED PRO FORMA COMBINED FINANCIAL DATA
The following selected historical annual financial information of Comverse
and BTI has been derived from their respective audited historical financial
statements and should be read in conjunction with such consolidated financial
statements and notes thereto. The consolidated financial statements for
Comverse for the three fiscal years ended December 31, 1996 and for BTI for the
three fiscal years ended January 31, 1997 are incorporated by reference in this
Joint Proxy Statement/Prospectus. The selected historical financial information
for Comverse as of September 30, 1997, and for the nine-month periods ended
September 30, 1996 and 1997 has been derived from the unaudited consolidated
interim financial information of Comverse and, in the opinion of Comverse's
management, reflects all adjustments (consisting solely of normal recurring
adjustments) necessary for the fair presentation of this unaudited interim
financial information. The selected historical financial information for BTI as
of October 31, 1997, and for the nine-month periods ended October 31, 1996 and
1997 has been derived from the unaudited consolidated interim financial
information of BTI and, in the opinion of BTI's management, reflects all
adjustments (consisting solely of normal recurring adjustments) necessary for
the fair presentation of this unaudited interim financial information. The
results of operations for those interim periods are not necessarily indicative
of the results to be expected for the entire year. The selected pro forma
combined financial information is derived from the unaudited pro forma combined
condensed financial information, and should be read in conjunction with such
unaudited pro forma financial information and the notes thereto included in
this Joint Proxy Statement/Prospectus. For purposes of the pro forma operating
data, Comverse's consolidated financial statements for each of the three fiscal
years in the period ended December 31, 1996 and for the nine-month periods
ended September 30, 1996 and 1997 have been combined with BTI's consolidated
financial statements for each of the three fiscal years in the period ended
January 31, 1997 and the nine-month periods ended October 31, 1996 and 1997.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Merger had been consummated at the beginning of the
periods indicated, nor is it necessarily indicative of future operating results
or financial position. See "Unaudited Pro Forma Condensed Combined Financial
Information" on page 49.
COMVERSE SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------------------- ------------------------
1992(/1/) 1993(/1/) 1994(/1/) 1995 1996 1996 1997
--------- --------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
STATEMENT
OF OPERATIONS DATA:
Net sales.............. $50,956 $81,388 $108,150 $137,149 $197,181 $ 138,931 $ 202,681
Income before gain on
issuance of subsidiary
shares, tax provision
and extraordinary
items................. 6,859 14,486 13,881 19,107 30,811 21,346 35,220
Net income............. 5,860 13,465 12,098 17,050 27,988(/2/) 19,593(/2/) 31,695
Earnings per share--
fully diluted.......... 0.36 0.65 0.55 0.75 1.15 0.82 1.17
Shares used in
computing earnings per
share--fully diluted.. 16,449 20,756 21,868 22,709 26,572 26,486 27,188
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------- SEPTEMBER 30,
1992(/3/) 1993(/3/) 1994(/3/) 1995 1996 1997
--------- --------- --------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
BALANCE SHEET DATA:
Working capital........ $24,354 $138,149 $141,344 $155,064 $292,249 $321,538
Total assets........... 55,245 174,468 192,502 221,454 390,901 445,898
Long-term obligations.. 4,114 63,742 62,441 64,502 120,115 121,879
Stockholders' equity... 32,576 91,608 101,613 121,766 212,058 248,355
</TABLE>
- --------
(1) Includes results for Dale, Gesek, McWilliams & Sheridan ("DGM&S") for its
fiscal year ended September 30. The acquisition of DGM&S in August 1995 was
accounted for as a pooling of interests.
(2) Includes a $535,000 gain on issuance of subsidiary shares.
(3) Includes amounts for DGM&S as of its fiscal year ended September 30.
10
<PAGE>
BTI SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JANUARY 31, OCTOBER 31,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $49,451 $70,315 $89,056 $105,267 $192,458 $130,024 $198,342
Income (loss) before
income tax provision... 3,997 9,295 18,471 (14,785)(/1/) 20,961 13,526 30,447
Net income (loss)...... 3,070 6,697 12,944 (14,890)(/1/) 14,149 8,792 23,765(/2/)
Earnings per share--
fully diluted.......... 0.13 0.27 0.50 (0.60) 0.51 0.32 0.84
Shares used in
computing earnings per
share--
fully diluted......... 23,475 25,107 25,751 24,859 27,585 27,823 28,373
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
----------------------------------------
OCTOBER 31,
1993 1994 1995 1996 1997 1997
------- ------- ------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
BALANCE SHEET DATA:
Working capital.......... $22,326 $31,284 $44,316 $38,629 $ 40,411 $ 85,438
Total assets............. 41,270 65,274 80,289 84,661 128,173 188,679
Long-term obligations.... 934 1,717 1,169 417 1,193 15,507
Stockholders' equity..... 31,643 40,841 56,792 54,314 76,492 115,074
</TABLE>
SELECTED PRO FORMA COMBINED INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -----------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $197,206 $242,416 $389,639 $268,955 $400,187
Income before gain on
issuance of subsidiary
shares,
income tax provision
and extraordinary
items................. 32,352 4,322(/1/) 51,772 34,872 64,973
Net income............. 25,042 2,160(/1/) 42,137 28,385 54,766(/2/)
Earnings per share--
fully diluted.......... 0.65 0.06 1.00 0.68 1.20
Shares used in
computing earnings per
share--fully diluted... 38,606 38,867 44,502 44,571 45,630
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
<S> <C>
PRO FORMA COMBINED BALANCE SHEET DATA:
Working capital............................................. $396,976
Total assets................................................ 633,883
Long-term obligations....................................... 137,386
Stockholders' equity........................................ 352,735
</TABLE>
- --------
(1) Includes a $21.0 million charge relating to a customer contract, primarily
for warrants issued to the customer.
(2) Includes a one-time tax benefit of $4.0 million associated with the
exercise of warrants by a customer.
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<PAGE>
COMPARATIVE PER SHARE DATA OF COMVERSE AND BTI
The following tables set forth certain earnings, dividend and book value per
share data for Comverse and BTI on historical and pro forma bases. The pro
forma operating income data are derived from the Unaudited Pro Forma Combined
Statements of Income appearing on pages 51 through 55, which give effect to the
merger as a pooling of interests as if the merger had been consummated at the
beginning of the earliest period presented. Book value data for all pro forma
presentations are based upon the number of outstanding shares of Comverse
common stock, adjusted to include the shares of Comverse common stock to be
issued in the merger. The information set forth below should be read in
conjunction with the historical consolidated financial statements of Comverse
and BTI and the unaudited pro forma combined financial information, including
the notes thereto, incorporated by reference or appearing elsewhere in this
Joint Proxy Statement/Prospectus. See "Unaudited Pro Forma Condensed Combined
Financial Information" on pages 49 through 56 and "Where You Can Find More
Information" on page 86.
The pro forma data do not reflect any costs associated with the integration
and consolidation of the companies anticipated by Comverse management as a
result of the merger.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31,(/1/) SEPTEMBER 30,(/2/)
----------------------------------------- -------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMVERSE HISTORICAL
Earnings per share--
fully diluted......... $ 0.55 $ 0.75 $ 1.15 $ 0.82 $ 1.17
Cash dividends paid
per share............. -- -- -- -- --
BTI HISTORICAL
Earnings (loss) per
share--fully diluted.. 0.50 (0.60)(/3/) 0.51 0.32 0.84(/4/)
Cash dividends
declared per share.... -- -- -- -- --
COMVERSE UNAUDITED PRO FORMA
Earnings per share--
fully diluted......... 0.65 0.06 1.00 0.68 1.20
Cash dividends paid
per share............. -- -- -- -- --
BTI UNAUDITED PRO FORMA EQUIVALENT(/5/)
Earnings per share--
fully diluted......... 0.42 0.04 0.65 0.44 0.78
Cash dividends paid
per share............. -- -- -- -- --
</TABLE>
- --------
(1) Information for BTI is for its fiscal years ended January 31, 1995, 1996
and 1997, respectively.
(2) Information for BTI is for the nine months ended October 31, 1996 and 1997,
respectively.
(3) Includes a $21.0 million charge relating to a customer contract, primarily
for warrants issued to the customer.
(4) Includes a one-time tax benefit of $4.0 million associated with the
exercise of warrants by a customer.
(5) The BTI unaudited pro forma equivalent per share amounts are calculated by
multiplying the Comverse unaudited pro forma amounts by the Exchange Ratio
of 0.65.
<TABLE>
<CAPTION>
DECEMBER 31, 1996(/1/) SEPTEMBER 30, 1997(/2/)
---------------------- -----------------------
BOOK VALUE PER SHARE
<S> <C> <C>
Comverse Historical........... $8.57 $9.87
BTI Historical................ 3.00 4.20
Comverse Unaudited Pro Forma.. 6.98 8.21
BTI Unaudited Pro Forma
Equivalent(/3/).............. 4.54 5.34
</TABLE>
- --------
(1) Information for BTI is as of January 31, 1997.
(2) Information for BTI is as of October 31, 1997.
(3) The BTI unaudited pro forma equivalent per share amounts are calculated by
multiplying the Comverse unaudited pro forma amounts by the Exchange Ratio
of 0.65.
12
<PAGE>
RISK FACTORS
SHAREHOLDERS OF COMVERSE TECHNOLOGY, INC. ("COMVERSE") AND STOCKHOLDERS OF
BOSTON TECHNOLOGY, INC. ("BTI" AND, TOGETHER WITH COMVERSE, THE "COMPANIES")
SHOULD CONSIDER THE FOLLOWING MATTERS IN DETERMINING WHETHER TO VOTE FOR
ADOPTION OF THE AGREEMENT AND PLAN OF MERGER DATED AS OF AUGUST 20, 1997 (THE
"MERGER AGREEMENT"), BETWEEN COMVERSE AND BTI, A COPY OF WHICH IS ATTACHED
HERETO AS ANNEX I, PURSUANT TO WHICH BTI WILL BE MERGED WITH AND INTO COMVERSE
(THE "MERGER"). THESE MATTERS SHOULD BE CONSIDERED IN CONJUNCTION WITH THE
OTHER INFORMATION INCLUDED AND INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS (THIS "JOINT PROXY STATEMENT/PROSPECTUS").
Fixed Merger Consideration Despite Potential Changes in Stock Prices
Each share of common stock, par value $0.001 per share, of BTI (together
with the associated BTI Right issued pursuant to the BTI Rights Agreement (as
such terms are defined on page 67), "BTI Common Stock"), will be converted at
such time as a certificate of merger (the "Certificate of Merger") is duly
filed with the Secretary of State of the State of New York and the State of
Delaware, or at such time as Comverse and BTI agree and specify in the
Certificate of Merger (the "Effective Time"), into the right to receive 0.65
of a fully paid and nonassessable share (the "Exchange Ratio") of common
stock, par value $0.10 per share, of Comverse ("Comverse Common Stock") (the
"Merger Consideration"). The Exchange Ratio is a fixed number and will not be
adjusted in the event of any increases or decreases in the price of either
Comverse Common Stock or BTI Common Stock. The prices of Comverse Common Stock
and BTI Common Stock at the Effective Time may vary from their respective
prices at the date of this Joint Proxy Statement/Prospectus and at the date of
the Comverse 1997 Annual Meeting of Shareholders and the BTI Special Meeting
of Stockholders, each to be held on Tuesday, January 13, 1998 (the "Comverse
Annual Meeting" and the "BTI Special Meeting," respectively, and, together,
the "Stockholders' Meetings"). Such variations may be the result of changes in
the business, operations or prospects of Comverse or BTI, market assessments
of the likelihood that the Merger will be consummated, the timing thereof, the
prospects of the Merger and post-Merger operations, regulatory considerations
and general market and economic conditions. Because the Effective Time may
occur at a date later than the Stockholders' Meetings, there can be no
assurance that the prices of Comverse Common Stock and BTI Common Stock on the
date of the Stockholders' Meetings will be indicative of their respective
prices at the Effective Time. Shareholders of Comverse and stockholders of BTI
are urged to obtain current market quotations for Comverse Common Stock and
BTI Common Stock.
Unpredictability of Trading Price of Combined Company's Shares
The trading price of the combined company's shares may be affected by the
risk factors set forth herein as well as prevailing economic and financial
trends and conditions in the public securities markets. During recent periods,
share prices of companies in technology and government contracting businesses,
and particularly smaller and medium-sized publicly traded companies such as
the combined company will be, have exhibited a high degree of volatility.
Shortfalls in revenues or earnings from the levels anticipated by the public
markets could have an immediate and significant effect on the trading price of
the combined company's shares in any given period. Such shortfalls may result
from events that are beyond the combined company's immediate control, can be
unpredictable and, since a significant proportion of the combined company's
sales during each fiscal quarter may tend to occur in the latter stages of the
quarter, may not be discernible until the end of a financial reporting period,
which may contribute to the volatility of the trading value of the combined
company's shares regardless of its long-term prospects. The combined company's
revenues and earnings may be more volatile than that of Comverse historically
as a result of the concentration of BTI's business on a limited number of
large customers. The trading price of the combined company's shares may also
be affected by developments, including reported financial results and
fluctuations in trading prices of the shares of other publicly-held companies
in the computer and telecommunications industries generally, and in the voice
processing industry in particular, which may not have any direct relationship
with the combined company's business or prospects.
Integration of Operations
The Merger involves the integration of two companies that have previously
operated independently. No assurance can be given that the combined company
will be able to integrate the respective operations of
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Comverse and BTI without encountering difficulties or experiencing the loss of
key Comverse or BTI personnel or that the benefits expected from such
integration will be realized. The integration of two companies across
geographically dispersed operations can create the risk of disruption in
operations of the combined company, and neither Company's management has
substantial experience in managing such integration or the operations of an
entity the size of the combined company. Furthermore, there can be no
certainty that the Merger will not adversely affect the relationships with key
customers or key vendors of either Company. In addition, the Merger may cause
market uncertainties with respect to the combined company's future product
plans resulting in delays or reductions in customer procurements pending
completion of the Merger and potential duplication of distributors.
Risks Inherent in the Telecommunications Industry
The telecommunications industry is subject to rapid technological change.
The combined company's revenue stream will depend on its ability to enhance
Comverse's and BTI's existing products and to introduce new products on a
timely and cost-effective basis. This includes any customer-requested custom
software enhancements required in the normal course of product delivery and
customer demands for the technological convergence of the Companies'
respective products. Comverse's and BTI's products involve sophisticated
hardware and software technology that performs critical functions to highly
demanding standards. There can be no assurance the combined company's current
or future products will not develop operational problems, which could have a
material adverse effect on the combined company. In addition, if the combined
company were to delay the introduction of new products, or to delay the
delivery of specific custom software enhancements, the combined company's
operating results could be adversely affected.
Comverse and BTI sell a majority of their products to companies in the
telecommunications industry. This industry is undergoing significant change as
a result of deregulation and privatization worldwide, reducing restrictions on
competition in the industry. Unforeseen changes in the regulatory environment
may have an impact on the combined company's revenues and/or costs in any
given part of the world. The worldwide enhanced services systems industry is
already highly competitive and Comverse and BTI expect competition to
intensify. Comverse and BTI believe that existing competitors will continue to
present substantial competition, and that other companies, many with
considerably greater financial, marketing and sales resources than the
combined company, may enter the enhanced services systems markets. A recent
business combination involving a competitor of the Companies may intensify the
competitive environment in the telecommunications industry, and there can be
no assurance that similar business combinations or industry consolidation will
not occur in the future.
The voice processing and message management industry has experienced a
continuing evolution of product offerings and alternatives for delivery of
services. These trends have affected and may be expected to have a significant
continuing influence on conditions in the industry, although the impact on the
industry generally and on the combined company's position in the industry
cannot be predicted with assurance. Rapid and significant change in the
industry makes planning decisions more difficult and increases the risk
inherent in the planning process.
Emphasis on Large System Installations
Comverse and BTI, on a combined basis, have historically derived a
significant portion of sales and operating profit from contracts for large
system installations with customers in both the commercial and government
sectors. While the growth of the Companies' businesses has reduced their
dependence on any specific customers, each Company continues to emphasize
large capacity systems in its product development and marketing strategies.
Contracts for large installations typically involve a lengthy and complex
bidding and selection process, and the ability of the combined company to
obtain particular contracts is inherently difficult to predict. In addition,
users of large-scale systems, such as telephone companies, typically require
systems that provide an exceptionally high level of reliability. Such systems
are typically more costly to design, build and support.
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Although the Companies believe that opportunities for large installations
will continue to grow in both the commercial and government sectors, and the
combined company intends to expand its research and development,
manufacturing, sales and marketing and product support capabilities in
anticipation of such growth, such growth may in fact not take place. In
addition, the timing and scope of these opportunities and the pricing and
margins associated with any eventual contract award are difficult to forecast,
and may vary substantially from transaction to transaction. The degree of
dependence by the combined company on large orders, and the investment
required to enable the combined company to perform such orders, without
assurance of continuing order flow from the same customers and predictability
of gross margins on any future orders, increase the risk associated with its
business.
Operations in Israel; Reduced Government Subsidies
A significant portion of Comverse's research and development and
manufacturing operations is located in Israel and may be affected by
regulatory, political, military and economic conditions in that country.
Comverse's historical operating results reflect substantial benefits from
programs sponsored by the Israeli government for the support of research and
development, as well as favorable tax rates available to "Approved
Enterprises" in Israel. The Israeli government has indicated its intention to
re-examine certain of its policies in these areas. It recently acted to
increase, from between 2% and 3% of associated product sales to between 3% and
5% of associated product revenues (including service and other related
revenues), the annual rate of royalties to be applied to repayment of benefits
under a conditional grant program administered by the Office of the Chief
Scientist of the Ministry of Industry and Trade, a program in which Comverse
has regularly participated and under which it continues to receive significant
benefits through reimbursement of qualified research and development
expenditures. Comverse's repayment of amounts received under the program will
be accelerated through these higher royalty rates until repayment is
completed. The Israeli authorities have also indicated that this funding
program will be further reduced in the future, particularly for larger
companies such as Comverse. The Israeli government has also shortened the
period of the tax moratorium applicable to "Approved Enterprises" from four
years to two years. Although this change has not affected the tax status of
most of Comverse's current projects, it will apply to any future "Approved
Enterprises" of the combined company.
If further changes in the law or government policies regarding those
programs were to result in their termination or adverse modification, or if
the combined company were to become unable to participate in or take advantage
of those programs, the cost to the combined company of its operations in
Israel would materially increase and there would be an adverse effect on the
results of the combined company's operations as a whole. To the extent the
combined company increases its activities outside Israel, which could result
from, among other things, future acquisitions (such as the Merger), such
increased activities will not be eligible for programs sponsored by Israel.
The combined company's research and development and manufacturing operations
attributable to BTI are expected to continue to be located in the United
States and thus will not be eligible for the benefits of those programs.
Accordingly, the effective cost to the combined company of its future research
and development activities in particular, and its operations in general, could
significantly increase relative to that of Comverse, historically.
In addition, because the development of several of Comverse's products was
financed under programs supported by the government of Israel, those products
may not be manufactured, nor may the technology embodied in the products be
transferred, outside of Israel without appropriate governmental approvals.
Under recent regulations, such approval, if granted, may be conditioned upon,
among other things, significantly higher royalty payments to the Israeli
government.
Although Comverse's operations have not been adversely affected by political
or military conditions in Israel, a disruption of Comverse's operations in
Israel due to political, military or other conditions could have a material
adverse effect on the combined company.
Finally, general inflation in Israel and increases in the cost of attracting
and retaining qualified scientific, engineering and technical personnel in
Israel, where the demand for such personnel is growing rapidly with the
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expansion of high technology industries, have increased Comverse's cost of
operations in Israel. These increases have not been offset by proportional
devaluations of the Israeli shekel relative to the U.S. dollar and, as a
result, have had a negative impact on Comverse's overall results of
operations. Continued increases in the combined company's shekel-denominated
costs without corresponding devaluation will have an adverse effect on the
combined company's operating results.
Increased Costs of Operations
Both Comverse and BTI have significantly increased expenditures in all areas
of operations during recent periods, including the areas of research and
development and marketing and sales, and the combined company may
significantly increase these expenditures during future periods.
The short-term and long-term competitiveness of the combined company's
product offerings and the combined company's ability to take advantage of
future growth opportunities in both the commercial and government sectors will
depend upon its ability to enhance the range of features and capabilities of
its existing product lines, develop new generations of its products and expand
its marketing, sales and product support capabilities in a number of world
markets. In many instances, the combined company will have to make large
expenditures for research and development and product marketing in
anticipation of future market requirements that are uncertain and may undergo
significant change prior to product introduction. The success of the combined
company will depend, to a considerable extent, on its ability to anticipate
successfully future market requirements and implement corresponding research
and development and marketing programs.
International Operations
Comverse and BTI, on a combined basis, derive a significant portion of their
sales from customers outside of the United States. International transactions
involve particular risks, including political decisions affecting tariffs and
trade conditions, rapid and unforeseen changes in economic conditions in
individual countries, turbulence in foreign currency and credit markets, and
increased costs resulting from lack of proximity to the customer. Certain
international customers may require longer payment terms resulting in greater
difficulty in accounts receivable collection. In addition, since the combined
company's products are designed to meet the regulatory standards of foreign
markets, any inability to obtain foreign regulatory approvals or to meet other
required standards on a timely basis could have a material adverse effect on
the combined company's operating results.
Volatility in international currency exchange rates may also have a
significant impact on the combined company's operating results. Since the
combined company will hedge the exchange rate risks associated with long-term
contracts denominated in foreign currencies only to a limited extent,
operating results can be affected by the impact of currency fluctuations as
well as the cost of such hedging.
Risks of Government Business
Comverse derives a significant portion of its sales from the supply of
systems under government contracts. Government contracts are, in general,
subject to special risks, such as delays in funding; termination of contracts
or subcontracts for the convenience of the government; termination, reduction
or modification of contracts or subcontracts in the event of changes in the
government's policies or as a result of budgetary constraints; obligations of
performance guarantees and restrictions on the draw-down of funds subject to
achievement of performance milestones; requirements to obtain and maintain
security clearances for operating subsidiaries and key personnel; and
increased or unexpected costs resulting in losses or reduced profits under
fixed price contracts. The special risks associated with government contracts
could have an adverse effect on the combined company.
The market for telecommunications monitoring systems is also in a period of
significant transition. Budgetary constraints, uncertainties resulting from
the introduction of new technologies in the telecommunications industry and
shifts in the pattern of government expenditures resulting from geopolitical
events have increased uncertainties in this sector, resulting in certain
instances in the attenuation of government
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procurement programs beyond their originally expected performance periods and
an increased incidence of delay, cancellation or reduction of planned
projects. Competitive conditions in this sector have also been affected by the
increasing use by certain potential government customers of their own internal
development resources rather than outside vendors to provide certain technical
solutions, and by the efforts of government contractors, particularly
developers and integrators of technology products, to redirect their marketing
strategies and product plans in reaction to cutbacks in their traditional
areas of focus, resulting in an increase in the number of competitors and the
range of products offered in response to particular requests for proposals.
The lack of predictability in the timing and scope of government procurements
has similarly made planning decisions more difficult and has increased the
associated risks.
Patents and Proprietary Rights
Although Comverse and BTI use what they believe to be customary and
appropriate measures to protect their technology, these measures may not be
successful, and competitors of the combined company may be able to develop
similar technology independently. Comverse currently holds three U.S. patents,
two of which apply to the integration of voice and image (facsimile)
technologies utilized by Comverse in certain of its products; and BTI
currently holds 13 United States patents, two Australian patents, two New
Zealand patents, two Canadian patents and one European Patent Convention
patent. The Companies have filed other patent applications; however, no
assurance can be given that patents will be issued on the basis of such
applications or that, if patents are issued, the claims allowed will be
sufficiently broad to protect the combined company's technology. In addition,
no assurance can be given that any patents issued to the combined company will
not be challenged, invalidated or circumvented or that the rights granted
under the patents will provide significant benefits to the combined company.
The Companies and their customers from time to time receive communications
from third parties, including some of the Companies' competitors, alleging
infringement by Comverse or BTI, as the case may be, of such parties' patent
rights, and BTI is currently involved in litigation regarding such a claim.
Although such communications are common in the computer and telecommunications
industries and the Companies have in the past been able to obtain any
necessary licenses on commercially reasonable terms, there can be no assurance
that the combined company would prevail in any litigation to enjoin the
combined company from selling certain of its products on the basis of such
alleged infringement, or that the combined company would be able to license
any valid patents on reasonable terms.
Forward-Looking Statements May Prove Inaccurate
Comverse and BTI have made forward-looking statements in this document
(including documents that are incorporated by reference herein) that are
subject to risks and uncertainties. Forward-looking statements include the
information concerning possible or assumed future results of operations of
Comverse, BTI or the combined company set forth under "The Merger--Reasons for
the Merger and Board Recommendations," "The Merger--Opinions of Financial
Advisors" and "The Companies" and those preceded by, followed by or that
include the words "believes," "expects," "anticipates" or similar expressions.
Such forward-looking statements are based on the beliefs of Comverse, the
Board of Directors of Comverse (the "Comverse Board"), BTI and the Board of
Directors of BTI (the "BTI Board" and, together with the Comverse Board, the
"Boards") in which they attempt to analyze the Companies' competitive
positions in their respective industries and the factors affecting their
respective businesses. Holders of Comverse Common Stock and BTI Common Stock
should understand that each of the foregoing risk factors, in addition to
those discussed elsewhere in this document and in the documents which are
incorporated by reference herein, could affect the future results of the
combined company, Comverse or BTI, and could cause those results to differ
materially from those expressed in the forward-looking statements contained or
incorporated by reference herein. In addition, there can be no assurance that
(i) Comverse, BTI and their respective Boards have correctly identified and
assessed all of the factors affecting the Companies' businesses; (ii) the
publicly available and other information with respect to these factors on
which Comverse, BTI and their Boards have based their analyses is complete or
correct; (iii) Comverse's, BTI's and their respective Boards' analyses are
correct; or (iv) the combined company's strategy, which is based in part on
these analyses, will be successful.
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THE STOCKHOLDERS' MEETINGS
Date, Times and Places
Comverse. The Comverse Annual Meeting will be held at the Huntington Hilton,
598 Broadhollow Road (Route 110), Melville, New York, on Tuesday, January 13,
1998, commencing at 10:00 a.m. (local time).
BTI. The BTI Special Meeting will be held at the offices of Hale and Dorr
LLP, 60 State Street, Boston, Massachusetts, on Tuesday, January 13, 1998,
commencing at 9:00 a.m. (local time).
Matters to be Considered at the Stockholders' Meetings
Comverse. At the Comverse Annual Meeting, holders of Comverse Common Stock
are being asked to (i) elect seven members to the Comverse Board to hold
office until the next annual meeting of shareholders and their successors are
elected and qualify, (ii) adopt the Merger Agreement (including the issuance
of Comverse Common Stock pursuant to the Merger as described herein), (iii)
ratify the appointment of Deloitte & Touche LLP as Comverse's independent
auditors for the fiscal year ending December 31, 1997, (iv) approve the 1997
Stock Incentive Compensation Plan (the "Incentive Plan") and (v) approve the
1997 Employee Stock Purchase Plan (the "Stock Purchase Plan" and, together
with the Incentive Plan, the "Stock Plans"). THE COMVERSE BOARD HAS DETERMINED
THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF THE SHAREHOLDERS OF
COMVERSE, HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER AND
UNANIMOUSLY RECOMMENDS THAT COMVERSE SHAREHOLDERS VOTE "FOR" ADOPTION OF THE
MERGER AGREEMENT. IN ADDITION, THE COMVERSE BOARD UNANIMOUSLY RECOMMENDS A
VOTE "FOR" THE ELECTION OF EACH OF THE COMVERSE BOARD NOMINEES DESCRIBED
HEREIN, A VOTE "FOR" RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP
AS COMVERSE'S INDEPENDENT AUDITORS AND A VOTE "FOR" APPROVAL OF EACH OF THE
STOCK PLANS. See "The Merger," "Certain Provisions of the Merger Agreement"
and "Other Information for Comverse Annual Meeting."
BTI. At the BTI Special Meeting, holders of BTI Common Stock are being asked
to adopt the Merger Agreement. THE BTI BOARD HAS DETERMINED THAT THE MERGER IS
FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF BTI, HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT
BTI STOCKHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT. See "The Merger"
and "Certain Provisions of the Merger Agreement."
Record Date; Stock Entitled to Vote; Quorum
Comverse. Only holders of record of Comverse Common Stock at the close of
business on November 25, 1997 (the "Record Date") are entitled to receive
notice of and to vote at the Comverse Annual Meeting. On the Record Date,
25,211,007 shares of Comverse Common Stock were issued and outstanding and
held by approximately 1,513 holders of record. A majority of the shares of
Comverse Common Stock issued and outstanding and entitled to vote on the
Record Date must be represented in person or by proxy at the Comverse Annual
Meeting in order for a quorum to be present for purposes of transacting
business at the Comverse Annual Meeting, including voting on the adoption of
the Merger Agreement. In the event that a quorum is not present at the
Comverse Annual Meeting, it is expected that such meeting will be adjourned or
postponed to solicit additional proxies. Holders of record of Comverse Common
Stock on the Record Date are each entitled to one vote per share on each
matter to be voted on at the Comverse Annual Meeting.
BTI. Only holders of record of BTI Common Stock at the close of business on
the Record Date are entitled to receive notice of and to vote at the BTI
Special Meeting. On the Record Date, 27,829,040 shares of BTI Common Stock
were issued and outstanding and held by approximately 1,616 holders of record.
One-third of the shares of BTI Common Stock issued and outstanding and
entitled to vote on the Record Date must be represented in person or by proxy
at the BTI Special Meeting in order for a quorum to be present for purposes of
voting on the adoption of the Merger Agreement. In the event that a quorum is
not present at the BTI Special Meeting, it is expected that such meeting will
be adjourned or postponed to solicit additional proxies. Holders of record of
BTI Common Stock on the Record Date are each entitled to one vote per share on
each matter to be voted on at the BTI Special Meeting.
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Votes Required
Comverse. The adoption of the Merger Agreement requires the affirmative vote
of the holders of record of two-thirds of the shares of Comverse Common Stock
outstanding on the Record Date. The election of directors requires a plurality
of the votes cast, and each of the ratification of the appointment of Deloitte
& Touche LLP as Comverse's independent auditors for the fiscal year ending
December 31, 1997 and the approval of each of the Stock Plans requires the
affirmative vote of a majority of the votes cast in respect of shares of
Comverse Common Stock present, in person or by proxy, and entitled to vote at
the Comverse Annual Meeting. AN ABSTENTION FROM VOTING OR BROKER NON-VOTE (AS
DEFINED BELOW) WITH RESPECT TO THE PROPOSAL TO ADOPT THE MERGER AGREEMENT WILL
HAVE THE SAME EFFECT AS A VOTE AGAINST SUCH PROPOSAL, BUT WILL HAVE NO EFFECT
ON ANY OTHER PROPOSAL. WITH REGARD TO THE ELECTION OF DIRECTORS AT THE
COMVERSE ANNUAL MEETING, VOTES MAY BE CAST IN FAVOR OF OR WITHHELD WITH
RESPECT TO ANY OR ALL NOMINEES; VOTES THAT ARE WITHHELD WILL BE EXCLUDED
ENTIRELY FROM THE VOTE AND WILL HAVE NO EFFECT.
BTI. The adoption of the Merger Agreement requires the affirmative vote of
the holders of record of a majority of the shares of BTI Common Stock
outstanding on the Record Date. AN ABSTENTION FROM VOTING OR A BROKER NON-VOTE
WILL HAVE THE SAME EFFECT AS A VOTE AGAINST ADOPTION OF THE MERGER AGREEMENT.
Share Ownership of Management and Certain Stockholders
Comverse. At the close of business on the Record Date, directors and
executive officers of Comverse and their affiliates beneficially owned
1,195,500 shares of Comverse Common Stock, of which 106,000 shares of Comverse
Common Stock, or approximately 0.4% of the shares of Comverse Common Stock
outstanding on such date, are eligible to be voted at the Comverse Annual
Meeting. Each such director and executive officer has indicated his or her
present intention to vote, or cause to be voted, the Comverse Common Stock
owned, and entitled to be voted, by him or her for adoption of the Merger
Agreement and the other proposals to be considered at the Comverse Annual
Meeting.
BTI. At the close of business on the Record Date, directors and executive
officers of BTI and their affiliates beneficially owned 3,380,439 shares of
BTI Common Stock, of which 2,751,813 shares of BTI Common Stock, or
approximately 9.9% of the shares of BTI Common Stock outstanding on such date,
are eligible to be voted at the BTI Special Meeting. Each such director and
executive officer has indicated his or her present intention to vote, or cause
to be voted, the BTI Common Stock owned, and entitled to be voted, by him or
her for adoption of the Merger Agreement.
Voting of Proxies
Shares represented by all properly executed proxies received in time for the
Stockholders' Meetings will be voted at such Stockholders' Meetings in the
manner specified by the holders thereof. Properly executed proxies that do not
contain voting instructions will be voted in favor of adoption of the Merger
Agreement and, in connection with the Comverse Annual Meeting, in favor of (i)
the election of each nominee to the Comverse Board, (ii) the ratification of
the appointment of Deloitte & Touche LLP as Comverse's independent auditors
for the fiscal year ending December 31, 1997 and (iii) the approval of each of
the Stock Plans.
Abstentions may be specified on all proposals except, in connection with the
Comverse Annual Meeting, the election of directors. Shares of BTI Common Stock
or Comverse Common Stock represented at the applicable Stockholders' Meeting
but not voting, including shares of BTI Common Stock or Comverse Common Stock,
as the case may be, for which proxies have been received, but with respect to
which holders of shares have abstained on any matter, will be treated as
present at the applicable Stockholders' Meeting for purposes of determining
the presence or absence of a quorum for the transaction of all business.
For voting purposes at the Stockholders' Meetings, only shares affirmatively
voted in favor of a proposal (including properly executed proxies not
containing voting instructions) will be counted as favorable votes for
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such proposal. The failure to submit a proxy (or to vote in person) or the
abstention from voting will have the same effect as a vote against adoption of
the Merger Agreement, but will have no effect on any of the other proposals.
With regard to the election of Directors at the Comverse Annual Meeting, votes
may be cast in favor of or withheld with respect to any or all nominees; votes
that are withheld will be excluded entirely from the vote and will have no
effect. In addition, under the applicable rules of the NYSE and the Nasdaq,
brokers who hold shares in street name for customers who are the beneficial
owners of such shares are prohibited from giving a proxy to vote such
customers' shares with respect to the proposals to be considered at the
Comverse Annual Meeting and the BTI Special Meeting in the absence of specific
instructions from such customers ("broker non-votes"). Broker non-votes will
have the same effect as votes against adopting the Merger Agreement but will
have no effect on any other matter.
The persons named as proxies by a Comverse shareholder or BTI stockholder
may propose and vote for one or more adjournments of the applicable
Stockholders' Meeting, including, without limitation, adjournments to permit
further solicitations of proxies in favor of any proposal; provided, however,
that no proxy that is voted against the proposal to adopt the Merger Agreement
will be voted in favor of any such adjournment or postponement.
Revocability of Proxies
The grant of a proxy on the enclosed Comverse or BTI proxy card does not
preclude a stockholder from voting in person. A stockholder may revoke a proxy
at any time prior to its exercise by filing with the Secretary of BTI (in the
case of a BTI stockholder) or the Corporate Secretary of Comverse (in the case
of a Comverse shareholder) a duly executed revocation of proxy, by submitting
a duly executed proxy bearing a later date or by appearing at the applicable
Stockholders' Meeting and voting in person at such Stockholders' Meeting.
Attendance at the relevant Stockholders' Meeting will not, in and of itself,
constitute revocation of a proxy.
Solicitation of Proxies
Each of Comverse and BTI will bear the cost of the solicitation of proxies
from its own stockholders, except that Comverse and BTI will share equally the
cost of printing this Joint Proxy Statement/Prospectus and the applicable fees
associated with the filing of this Joint Proxy Statement/Prospectus with the
Securities and Exchange Commission (the "Commission"). In addition to
solicitation by mail, the directors, officers and employees of each of
Comverse and BTI and its subsidiaries may solicit proxies from stockholders of
such company by telephone or telegram or in person. Arrangements will also be
made with brokerage houses and other custodians, nominees and fiduciaries for
the forwarding of solicitation material to the beneficial owners of stock held
of record by such persons, and Comverse and BTI will reimburse such
custodians, nominees and fiduciaries for their reasonable out-of-pocket
expenses in connection therewith.
D. F. King & Co., Inc. ("D. F. King") will assist in the solicitation of
proxies by Comverse, and Morrow & Co., Inc. ("Morrow") will assist in the
solicitation of proxies by BTI. Comverse will pay D. F. King a fee of $15,000,
plus reimbursement of certain out-of-pocket expenses, and has agreed to
indemnify D. F. King against losses arising out of D. F. King's proxy
soliciting services on behalf of Comverse. BTI will pay Morrow a fee of
$5,500, plus reimbursement of certain out-of-pocket expenses, and has agreed
to indemnify Morrow against losses arising out of Morrow's proxy soliciting
services on behalf of BTI.
Neither the Comverse Board nor the BTI Board is aware of any matter other
than those set forth in this Joint Proxy Statement/Prospectus which will be
brought before the Comverse Annual Meeting or the BTI Special Meeting,
respectively. If, however, other matters are presented at either Stockholders'
Meeting, proxies will be voted in accordance with the discretion of the
holders of such proxies.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
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THE MERGER
THE DISCUSSION IN THIS JOINT PROXY STATEMENT/PROSPECTUS OF THE MERGER AND
THE PRINCIPAL TERMS OF THE MERGER AGREEMENT IS SUBJECT TO, AND QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO, THE MERGER AGREEMENT, A COPY OF WHICH IS
ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX I AND IS
INCORPORATED HEREIN BY REFERENCE.
Background to the Merger
On April 7, 1997, Mr. Francis E. Girard, President and Chief Executive
Officer of BTI, called Mr. Kobi Alexander, Chairman, President and Chief
Executive Officer of Comverse, to discuss a possible strategic transaction
involving Comverse and BTI. On April 8, 1997, Mr. Alexander and Mr. William F.
Sorin, General Counsel and Corporate Secretary of Comverse, met with Mr. Greg
C. Carr, Chairman of the BTI Board, and Mr. Girard to discuss the potential
benefits and risks, and certain other issues in connection with a potential
business combination between Comverse and BTI. During the period from mid
April until late May 1997, Comverse and BTI periodically conducted internal
management discussions regarding a possible strategic transaction involving
Comverse and BTI. On May 27, 1997, Messrs. Alexander and Carr met for dinner
and agreed to continue their discussions. During the period from June 3, 1997
until June 17, 1997, representatives of Comverse, including Messrs. Alexander,
Sorin, Carmel Vernia, Chief Operating Officer of Comverse, Itsik Danzinger,
President of the Comverse Network Systems Division ("Network Systems"), Sachi
Gerlitz, Executive Vice President of Network Systems, and representatives of
BTI, including Messrs. Carr, Girard, George J. Matz, Vice President of World
Sales of BTI, Robert J. Slezak, Executive Vice President of Technology and
Marketing of BTI, John M. Weaver, Senior Vice President of Operations and
Customer Support of BTI, A.K. Wnorowski, Senior Vice President of Strategic
Alliances and General Counsel of BTI, Ms. Carol B. Langer, Senior Vice
President of Finance, Chief Financial Officer, Treasurer and Corporate
Secretary of BTI and Ms. Valerie H. Gilman, Vice President of Human Resources
of BTI, and Comverse's and BTI's respective financial advisors met together
and conducted various analyses of their respective businesses and merger
alternatives. On June 17, 1997, Messrs. Carr and Alexander agreed to terminate
discussions regarding a potential merger, having been unable to reach
agreement over price and other material terms of such a transaction.
In mid-July 1997, Messrs. Alexander and Girard had a brief conversation
about recommencing their discussions of a possible business combination
between Comverse and BTI, in light of the complementary nature of their
businesses and strategic objectives. During dinner on July 29, 1997 and in a
telephone conversation on July 31, 1997, Messrs. Alexander and Carr discussed
certain preliminary issues concerning a potential merger and certain
significant terms of a potential merger, including, among others, the 0.65
exchange ratio, the participation of BTI representatives on the Comverse Board
following completion of a merger and the senior management role of Mr. Girard.
They agreed to instruct their senior management teams and their legal and
financial advisors to continue their work analyzing the proposed combination
and conducting due diligence reviews and to exchange drafts of a merger
agreement and related documents and schedules. On August 1, 1997,
representatives of Comverse and BTI began their due diligence with an exchange
of information.
On August 2, 1997, the BTI Board held a telephone conference to discuss the
potential merger, at which time the BTI Board authorized the BTI management to
move forward with negotiations.
During the first two weeks of August 1997, the Comverse management team
(including, in addition to the above mentioned Comverse representatives, Brian
D. Wiltshire, President of Network Systems--U.S. Headquarters, David
Kreinberg, Vice President of Finance and Treasurer of Comverse, and Paul D.
Baker, Vice President of Corporate and Marketing Communications of Comverse)
and the BTI management team (including, in addition to the above mentioned BTI
representatives, David Beauregard, Assistant Vice President and Corporate
Controller of BTI), together with their respective legal and financial
advisors who served as advisors to the management teams and their respective
boards, held numerous meetings and teleconferences to discuss and review the
Comverse and BTI businesses, their respective due diligence investigations,
the terms and conditions of the merger agreement and various other legal,
financial and regulatory issues, including, among other things, the tax and
accounting treatment of the proposed transaction.
On August 7, 1997, the Comverse Board met to consider generally the
discussions between Comverse and BTI. Management and its legal and financial
advisors reviewed the status of these discussions and their ongoing due
diligence investigations. Outside counsel also discussed the Comverse Board's
fiduciary duties and other relevant aspects of applicable law.
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On August 11, 1997, the BTI Board met to consider generally the discussions
between BTI and Comverse. Management and its legal and financial advisors
reviewed the status of these discussions and their ongoing due diligence
investigations. Outside counsel also discussed the BTI Board's fiduciary
duties and other relevant aspects of applicable law.
During the period from August 15 through August 20, 1997, the Comverse and
BTI management teams, together with their legal and financial advisors,
continued to discuss various issues relating to the proposed merger and the
terms of the related merger agreement.
On August 16, 1997, the BTI Board met again to review the terms and
conditions of the proposed merger. At that meeting, members of management and
BTI's legal advisors made detailed presentations concerning the proposed
merger and BTI's financial advisors discussed their preliminary analysis,
including certain comparative financial models and the fairness of the
Exchange Ratio, from a financial point of view, to the BTI stockholders.
Outside counsel also reviewed certain legal matters, including a detailed
review of the terms of the proposed merger agreement. Similar meetings were
held (via conference calls) on August 18 and 19, 1997, at which the BTI Board
was advised of the status of the Merger discussions.
During the afternoon of August 19, 1997, the Comverse Board met again to
review the terms and conditions of the proposed merger. At that meeting,
members of management and its legal advisors made detailed presentations
concerning the proposed merger. Outside counsel also reviewed certain legal
matters, including a detailed review of the terms of the proposed merger
agreement. The financial advisors made presentations regarding the fairness of
the Exchange Ratio to Comverse shareholders from a financial point of view.
During the afternoon on August 20, 1997, the Comverse Board met again to
continue their discussion. Following a summary of the developments over the
last day, the Comverse Board received the oral opinion (subsequently confirmed
in writing as of such date) of Salomon Brothers Inc ("Salomon Brothers") that,
as of such date, the Exchange Ratio was fair from a financial point of view to
holders of shares of Comverse Common Stock. See "--Opinions of Financial
Advisors--Opinion of the Financial Advisor to the Comverse Board." Following
further discussion, the Comverse Board then determined that the Merger was
fair to and in the best interests of the shareholders of Comverse, unanimously
approved the Merger Agreement and the Merger and unanimously resolved to
recommend that the shareholders of Comverse vote for adoption of the Merger
Agreement.
On August 20, 1997, the BTI Board met at a special meeting. Senior
management members and Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") made presentations to the BTI Board concerning the proposed
merger and the terms and conditions of the Merger Agreement. Following such
presentations, the BTI Board received the oral opinion (subsequently confirmed
in writing) of Merrill Lynch that, as of such date, the Exchange Ratio was
fair, from a financial point of view, to the holders of BTI Common Stock
(other than Comverse and its affiliates). See "--Opinions of Financial
Advisors." After hearing such reports and after receiving Merrill Lynch's oral
opinion, the BTI Board determined that the Merger was fair to and in the best
interests of the stockholders of BTI, unanimously approved the Merger
Agreement and the Merger and unanimously resolved to recommend that the
stockholders of BTI vote for adoption of the Merger Agreement.
The Merger Agreement was signed by both parties on the night of August 20,
1997. On the morning of August 21, 1997, prior to the commencement of trading
on the NYSE and the Nasdaq, the Companies issued a joint press release
announcing the execution of the Merger Agreement.
Reasons for the Merger and Board Recommendations
Reasons for the Merger
Background. The market for network-based enhanced services platforms
("ESPs") has grown rapidly over the past several years. This market includes
international network operators, United States Regional Bell Operating
Companies ("RBOCs"), wireless and PCS operators, independent telephone company
and wireless operators, cable companies, long distance carriers, competitive
access providers and Post Telegraph and Telephone organizations around the
world. A number of factors have contributed to this growth, including the
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heightened emphasis among wireless and wireline telecommunications network
operators on offering new services to increase revenue and for competitive
differentiation, the increasing public awareness and acceptance of multi-media
messaging services resulting from the growing installed base of systems in the
business community, the expanding availability from major telephone companies
of call answering services, and the growing use of wireless telephone
services, which typically offer a network-based call answering service.
As the demand for enhanced services has increased, a number of companies
have introduced products to meet rapidly evolving industry requirements,
including BTI and Comverse. Both Companies have enjoyed significant success in
increasing their market share and establishing a significant customer base,
but have historically done so by addressing the needs and requirements of
different customers and geographic markets.
Historically, Comverse's primary focus has been on supplying large-capacity,
high availability ESPs to service provider organizations, including fixed and
wireless telephone network operators and other telecommunications service
providers worldwide, building upon the services provided by its TRILOGUE
system, such as call answering and voice and fax messaging. Driven by the
demand for enhanced services and the capability of its platform, an increasing
percentage of Comverse's overall revenues has been derived from the TRILOGUE
system. Historically, Comverse has established a leading market position in
Europe and other important areas, and has experienced particularly strong
sales to digital wireless operators.
With its CO ACCESS and Access NP Network Services Platform, BTI has
concentrated on addressing the requirements of network-based
telecommunications service providers, particularly in the wireline market.
These providers generally require a large-capacity platform that is scaleable
and reliable while meeting stringent engineering requirements. Consequently,
BTI has established a significant market position with large RBOCs, including
Bell Atlantic Corporation, BellSouth Corporation and SBC Corporation, as well
as AT&T Corp. and other large subscriber services providers. In addition to
its strength in the United States market, BTI has also established a
significant presence in Asia, particularly in Japan, including Nippon
Telegraph and Telephone Corporation, and in Latin America, particularly in
Mexico and Brazil.
Joint Reasons for the Merger. The BTI Board and Comverse Board believe that
the Merger, by combining the complementary businesses, customer bases and
geographic focuses of the Companies, will position the combined company as a
leading supplier of enhanced services platforms to telecommunications services
providers worldwide. The Boards believe that the Merger will provide the
combined company with substantially greater resources necessary to compete
effectively in the rapidly growing and changing global telecommunications
equipment business, to offer a comprehensive range of products, services and
technical solutions for its customers and to cultivate a more diverse customer
base with broader geographic coverage. The Boards also believe that the Merger
will also provide the combined company with the ability to achieve economies
of scale that are currently beyond the independent capability of either
Company and, particularly in the case of BTI, access to a broader customer
base, resulting in less revenue volatility and reduced dependence on specific
customers.
The Boards have identified various potential joint benefits of the Merger
which they believe will contribute to the success of the combined company,
including the following:
. Enhanced capability to compete worldwide. The Merger will provide the
combined company with substantially greater resources necessary to compete
effectively in the rapidly growing and changing global telecommunications
equipment business. This rapid worldwide growth and changes in the
regulatory and competitive environment involving factors such as increased
privatization of service providers, consolidation of vendors, emerging
technologies and alternatives for delivery of services, require equipment
vendors to have the resources necessary to respond rapidly to changing
market conditions, to develop and market new products in response to
changing market needs and to provide global service and support to
customers. The Merger will facilitate the combined company's ability to
compete effectively throughout the world.
. Ability to provide full range of products and technical solutions for
customers. The Boards believe that the Merger will enable the combined
company to offer a broader range of products, product features and
technical solutions for customers, enhancing the competitive strength of
the combined company and increasing its ability to satisfy the
requirements of existing and new customers in a cost-effective manner.
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. More diverse customer base. There are differences in the customer bases
of the two Companies and the allocation of their respective sales and
marketing resources, with BTI's primary focus comprising major wireline
service companies in the United States, as well as in Japan and parts of
Latin America, and Comverse's primary focus and customer base located in
Europe, Asia and the Far East, including a significantly greater
proportion of wireless service providers. The Boards believe that the
Merger will combine the highly complementary customer bases of the two
Companies, resulting in more diverse and stronger revenue sources and an
enhanced ability to market new products to the existing customer bases of
the respective Companies.
. Broader geographic coverage. The combined company will have significantly
greater geographic coverage than either Comverse or BTI individually, with
sales, marketing and support infrastructure in major markets around the
world, leaving it well positioned to respond to customers' requirements
and to stimulate new market opportunities worldwide.
. Deeper management. The combined company will benefit from the combination
of the management resources of Comverse and BTI and access to the
experience, knowledge and established customer relationships of management
personnel at both Companies.
. Economies of scale. The Boards believe that the Merger should enable the
combined company to achieve long-term economies of scale, particularly in
the future growth of its worldwide operations, that would not have been
available to either Company separately.
. Research and development efficiencies. The Boards believe that the Merger
will position the combined company to leverage its research and
development activities and resources, thus permitting it to market and
sell products of both Companies without disproportionate costs.
. Enhanced services. The Boards believe that the Merger has the potential
to improve the combined company's competitive position in the enhanced
services sector, which they believe will be characterized by increasing
consolidation and by large companies seeking to meet customer needs
through an increasingly comprehensive set of product offerings.
The BTI Board further believes that the combined company will be less
subject to material quarterly fluctuations and the uncertainties associated
with the dependence upon a limited number of customers, because the customer
base of the combined company will be more diverse than that of BTI standing
alone.
Other Factors Considered. The Boards also considered negative factors
relating to the Merger, including (i) the risk that the benefits sought in the
Merger would not be fully achieved, (ii) the risk that the Merger would not be
consummated and the effect of the public announcement of the Merger on each
Company's sales and operating results, (iii) the impact of the proposed Merger
on certain key customer relationships and (iv) all of the other factors listed
above under "Risk Factors." Each Board concluded that these factors were
outweighed by the potential benefits to be gained by the Merger.
In the course of its deliberations during Board meetings referred to under
"--Background to the Merger," each Board reviewed with its respective
management a number of additional factors relevant to the Merger, including
the strategic overview and prospects for its respective Company. Each Board
also considered, among other factors, (i) information concerning BTI's and
Comverse's respective operations, technology, management and competitive
position; (ii) the financial condition, results of operations and prospects of
the respective businesses of BTI and Comverse before, and after, giving effect
to the Merger and (iii) current financial market conditions and historical
market prices, volatility and trading information with respect to BTI Common
Stock and Comverse Common Stock. In addition, each Board reviewed the Exchange
Ratio and the other principal terms of the Merger Agreement and related
agreements. Each Board considered the financial analyses prepared by their
respective financial advisors. See "--Opinions of Financial Advisors." The BTI
Board also took into account that, following the Merger, its Chairman of the
Board and President and Chief Executive Officer, Messrs. Carr and Girard,
would be appointed to the Comverse Board, Mr. Carr would be appointed to the
Remuneration and Stock Option Committee of the Comverse Board (the
"Remuneration Committee"), and Mr. Girard would be President and Chief
Executive Officer of Network Systems.
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In view of the wide variety of factors, both positive and negative,
considered by each Board, neither Board found it practical to, nor did it in
fact, quantify or otherwise assign relative weights to the specific factors
considered.
Board Recommendations. EACH OF THE COMVERSE BOARD AND THE BTI BOARD HAS
DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF ITS
RESPECTIVE STOCKHOLDERS, HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
MERGER AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF ITS COMPANY VOTE
"FOR" ADOPTION OF THE MERGER AGREEMENT.
Opinion of the Financial Advisor to the Comverse Board
Background. Comverse retained Salomon Brothers to act as its financial
advisor in connection with the Merger. On August 19, 1997, Salomon Brothers
presented its financial analyses to the Comverse Board regarding the fairness
of the Exchange Ratio to the Comverse shareholders. On August 20, 1997,
Salomon Brothers gave its oral opinion, which opinion was subsequently
confirmed in writing as of such date and is described below, to the effect
that, based upon and subject to certain assumptions, factors and limitations
set forth in such written opinion, as of such date, the Exchange Ratio was
fair, from a financial point of view, to the holders of Comverse Common Stock.
THE FULL TEXT OF SALOMON BROTHERS' WRITTEN OPINION DATED AUGUST 20, 1997,
WHICH SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED AND MATTERS
CONSIDERED BY SALOMON BROTHERS, IS ATTACHED AS APPENDIX II TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. SALOMON
BROTHERS' OPINION DELIVERED TO THE COMVERSE BOARD WAS DIRECTED ONLY TO THE
FAIRNESS OF THE EXCHANGE RATIO, FROM A FINANCIAL POINT OF VIEW, TO THE HOLDERS
OF COMVERSE COMMON STOCK, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
COMVERSE SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE COMVERSE
ANNUAL MEETING. THE SUMMARY OF THE SALOMON BROTHERS OPINION SET FORTH IN THIS
JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF SUCH OPINION. COMVERSE SHAREHOLDERS ARE URGED TO READ THE
ENTIRE OPINION CAREFULLY.
In connection with rendering its opinion, Salomon Brothers reviewed and
analyzed, among other things: (i) the Merger Agreement; (ii) certain publicly
available information concerning BTI; (iii) certain other internal
information, primarily financial in nature, concerning the business,
operations and prospects of BTI furnished to Salomon Brothers by BTI for
purposes Salomon Brothers' analysis; (iv) certain publicly available
information concerning the trading of, and the trading market for, BTI Common
Stock; (v) certain publicly available information concerning Comverse; (vi)
certain other internal information, primarily financial in nature, concerning
the business, operations and prospects of Comverse furnished to Salomon
Brothers by Comverse for purposes of Salomon Brothers' analysis; (vii) certain
publicly available information concerning the trading of, and the trading
market for, Comverse Common Stock; (viii) certain publicly available
information with respect to certain other companies that Salomon Brothers
believed to be comparable to BTI or Comverse and the trading markets for
certain of such other companies' securities; and (ix) certain publicly
available information concerning the nature and terms of certain other
transactions that Salomon Brothers considered relevant to its inquiry. Salomon
Brothers also conducted discussions with certain officers and employees of BTI
and Comverse and with the independent accountants of BTI and Comverse to
discuss the foregoing as well as other matters that Salomon Brothers believed
relevant to its inquiry.
In its review and analysis and in arriving at its opinion, Salomon Brothers
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to it by BTI and Comverse or publicly available
and has neither attempted independently to verify nor assumed responsibility
for verifying any of such information. Salomon Brothers also assumed and
relied upon the fact that the financial statements of BTI and Comverse
complied with applicable accounting requirements and the published rules and
regulations of the Commission, were prepared in accordance with United States
generally accepted accounting principles and fairly presented the consolidated
financial position of BTI and Comverse and their respective consolidated
subsidiaries as of the date of the opinion. Salomon Brothers did not conduct
any physical inspection of any of the properties or facilities of BTI or
Comverse, nor did it make or obtain or assume any responsibility for making
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or obtaining any independent evaluations or appraisals of any of such
properties or facilities. With respect to the prospects of BTI and Comverse,
Salomon Brothers assumed that they were consistent with the best currently
available estimates and judgments of the management of BTI and Comverse,
respectively, and Salomon Brothers expressed no view with respect to such
prospects.
In conducting its analysis and in arriving at its opinion, Salomon Brothers
considered such financial and other factors as it deemed appropriate under the
circumstances including, among others, the following: (i) the historical and
current financial position and results of operations of BTI and Comverse; (ii)
the business prospects of BTI and Comverse; (iii) the historical and current
market for BTI Common Stock, for Comverse Common Stock and for the equity
securities of certain other companies that Salomon Brothers believed to be
comparable to BTI or Comverse; and (iv) the nature and terms of certain other
transactions that Salomon Brothers believed to be relevant. Salomon Brothers
also took into account its assessment of general economic, market and
financial conditions and its knowledge of BTI's and Comverse's industry as
well as its experience in connection with similar transactions and securities
valuation generally.
Salomon Brothers' opinion was necessarily based upon conditions as they
existed and could be evaluated on the date of its opinion and it assumed no
responsibility to update or revise its opinion based upon circumstances or
events occurring after the date of its opinion. Salomon Brothers' opinion was
limited to the fairness, from a financial point of view, of the Exchange Ratio
and did not address Comverse's underlying business decision to effect the
Merger or constitute a recommendation to any holder of Comverse Common Stock
as to how such holder should vote with respect to the Merger.
Set forth below is a brief summary of the material financial analyses which
Salomon Brothers provided to the Comverse Board at its August 19, 1997 meeting
in connection with its opinion and does not purport to be a complete
description of analyses performed by Salomon Brothers. As described above,
Salomon Brothers' opinion and presentation to the Comverse Board was one of
many factors taken into consideration by the Comverse Board in making its
decision to approve the Merger Agreement. The following quantitative
information, to the extent it is based on market data, is based on market data
as it existed at August 18, 1997, and is not necessarily indicative of current
market conditions.
Summary of Analyses
Public Comparables Trading Analysis. Salomon Brothers compared selected
financial data of BTI with certain financial data from publicly traded
communications equipment companies considered by Salomon Brothers to be
comparable in some respect to BTI. The comparison group was divided into two
subgroups of companies--the primary group of the more comparable companies
(consisting of BTI, Comverse, Brite Voice Systems, Inc., Centigram
Communications Corp., Glenayre Technologies, Inc. and Octel Communications
Corp. (the "Primary Comparable Companies")) and a secondary group of somewhat
(but less) comparable companies (consisting of ADC Telecommunications, Inc.,
DSC Communications Corp., ERICSSON LM Tel. Co. Ad., Lucent Technologies Inc.,
Northern Telecom Ltd. and Tellabs, Inc. (the "Secondary Comparable Companies"
and, together with the Primary Comparable Companies, the "Comparable
Companies")).
Salomon Brothers compared the firm value (defined as equity value (share
price times all fully diluted shares at the stock price less any option
proceeds) plus straight debt, minority interest, straight preferred stock, all
out-of-the-money convertible instruments, less investments in unconsolidated
affiliates and excess cash) as multiples of latest twelve months ("LTM")
revenues, LTM earnings before interest, taxes, depreciation and amortization
("EBITDA") and LTM earnings before interest and taxes ("EBIT") for each of the
Comparable Companies. Salomon Brothers' analysis indicated multiples of LTM
revenues which ranged from a high of 4.7x to a low of 0.4x with a median of
2.6x and mean of 2.4x for the Primary Comparable Companies and a high of 10.2x
to a low of 1.9x with a median of 2.5x and a mean of 4.0x for the Secondary
Comparable Companies. The ratios of firm value to LTM EBITDA indicated
multiples which ranged from a high of 25.3x to a low of 6.2x with a median of
12.1x and mean of 13.5x for the Primary Comparable Companies and from a high
of 31.1x to a low of 14.4x with a median of 19.5x and mean of 20.3x for the
Secondary Comparable Companies. The ratios of
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firm value to LTM EBIT indicated multiples which ranged from a high of 31.9x
to a low of 9.1x with a median of 22.4x and a mean of 20.0x for the Primary
Comparable Companies and a high of 36.2x to a low of 21.7x with a median of
28.9x and a mean of 28.8x for the Secondary Comparable Companies.
Salomon Brothers also considered for each Comparable Company the ratios of
current stock prices to LTM earnings per share ("EPS") and projected EPS for
the current (1997) and next (1998) fiscal years (based on First Call
Corporation ("First Call") Composite estimates as of August 18, 1997). The
ratios of current stock prices to LTM EPS ranged from a high of 36.5x to a low
of 13.8x with a median of 31.6x and mean of 26.7x for the Primary Comparable
Companies and a high of 59.6x to a low of 36.9x with a median of 40.1x and
mean of 44.2x for the Secondary Comparable Companies. The ratios of current
stock prices to projected 1997 EPS ranged from a high of 51.6x to a low of
19.4x with a median of 28.9x and mean of 31.7x for the Primary Comparable
Companies and a high of 45.6x to a low of 31.5x with a median of 33.2x and
mean of 34.9x for the Secondary Comparable Companies. The ratios of current
stock prices to projected 1998 EPS ranged from a high of 24.2x to a low of
16.0x with a median of 19.6x and mean of 19.9x for the Primary Comparable
Companies and a high of 35.4x to a low of 20.1x with a median of 26.4x and
mean of 26.7x for the Secondary Comparable Companies. The estimated five-year
EPS growth ranged from a high of 30.0% to a low of 20.0% with a median of
23.5% and a mean of 23.7% for the Primary Comparable Companies and a high of
30.0% to a low of 17.0% with a median of 20.0% and a mean of 22.0% for the
Secondary Comparable Companies.
Based on the foregoing, Salomon Brothers established (i) various firm value
multiple ranges to LTM sales, EBITDA and EBIT and (ii) equity value multiple
ranges to LTM net income, estimated 1997 net income and estimated 1998 net
income as follows: a multiple range of 2.5x to 3.5x LTM sales, a multiple
range of 14.0x to 18.0x LTM EBITDA, a multiple range of 22.0x to 25.0x LTM
EBIT, a multiple range of 32.0x to 37.0x LTM net income, a multiple range of
28.0x to 31.0x estimated 1997 net income and a multiple range of 20.0x to
25.0x estimated 1998 net income. These multiple ranges implied per share
values of BTI Common Stock (based on fully diluted shares outstanding under
the Treasury Stock method) of $20.93 to $28.99, $21.75 to $27.74, $25.51 to
$28.89, $23.21 to $26.84, $25.76 to $28.52 and $26.00 to $32.50, respectively.
Based on the foregoing, Salomon Brothers determined an implied per share
trading valuation range for BTI of $25 to $30 per share of BTI Common Stock.
Salomon Brothers noted that the price of BTI Common Stock ($28.88 at August
18, 1997) was within this range and that the implied acquisition price (the
Exchange Ratio multiplied by the price of Comverse Common Stock at August 18,
1997) was $29.90, which was at the top of the foregoing price range. Salomon
Brothers also applied a range of 15% to 30% premium to the $27.50 midpoint of
the above trading valuation range, and calculated a range of approximately $32
to $36 per share. Salomon noted that the implied acquisition price of $29.90
was below this range of BTI Common Stock.
Precedent Transactions Analysis. Salomon Brothers reviewed the following
eleven selected merger and acquisition transactions (the "Precedent
Transactions") in the communications equipment industry since 1993: (i) 3Com
Corp. acquisition of U.S. Robotics Corp.; (ii) Cisco Systems, Inc. acquisition
of StrataCom, Inc.; (iii) Ascend Communications, Inc. acquisition of Cascade
Communications Corp.; (iv) Lucent Technologies, Inc. acquisition of Octel
Communications Corp.; (v) KLA Instruments Corp. acquisition of Tencor
Instruments; (vi) Wellfleet Communications, Inc. acquisition of Synoptics
Communications, Inc.; (vii) FORE Systems, Inc. acquisition of Alantec Corp.;
(viii) National Semiconductor Corp. acquisition of Cyrix Corp.; (ix) ECI
Telecom LTD acquisition of Telematics Systems LTD; (x) U.S. Robotics Corp.
acquisition of Megahertz Corp.; and (xi) Octel Communications Corp.
acquisition of VMX, Inc. Except for the Lucent Technologies, Inc. acquisition
of Octel Communications Corp., each of the other Precedent Transactions was a
stock-for-stock merger and a pooling of interests transaction (as is the
Merger). Salomon Brothers compared the firm value of the acquired company as
multiples of LTM revenues, LTM EBITDA and LTM EBIT. Salomon Brothers' analysis
of the Precedent Transactions indicated multiples of LTM revenues ranging from
a high of 14.6x to a low of 1.5x with a median of 2.8x and mean of 5.0x. The
ratios of firm value to LTM EBITDA for each of the Precedent Transactions
indicated multiples ranging from a high of 62.3x to a low of 7.9x with a
median of 14.9x and mean of 23.3x. The ratios of firm value to LTM EBIT for
each of the Precedent Transactions indicated multiples which ranged from a
high of 68.3x to a low of 10.0x with a median of 19.6x and a mean of 27.3x.
Salomon Brothers also considered the premiums offered relative to the
acquired company's stock price one day and thirty days, respectively, prior to
the announcement of the Precedent Transactions and the ratio of
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purchase price to the acquired company's LTM earnings and its projected next
year earnings (based on Institutional Broker Estimate Systems' ("IBES")
estimates at the time of the Precedent Transactions) for the Precedent
Transactions. The premium offered in these Precedent Transactions ranged from
a high of 33.1% to a low of 5.4% with a median of 23.2% and a mean of 22.0%
based on the stock price one day prior to announcement and a high of 59.2% to
a low of negative 9.7% with a median of 37.0% and a mean of 32.8% based on the
stock price 30 days prior to announcement. An analysis of the purchase price
to LTM earnings yielded multiples ranging from a high of 71.4x to a low of
19.1x and had a median of 29.1x and a mean of 37.3x. An analysis of the
multiples of purchase price to estimated next year earnings yielded multiples
ranging from a high of 55.5x to a low of 16.x with a median of 28.6x and a
mean of 30.2x. The estimated five-year EPS growth for the Precedent
Transactions ranged from a high of 50.0% to a low of 20.0% with a median of
25.0% and a mean of 29.8%.
Based on the foregoing, Salomon Brothers established (i) various firm value
multiple ranges to LTM sales, EBITDA and EBIT and (ii) equity value multiple
ranges to LTM net income, estimated 1997 net income and estimated 1998 net
income as follows: a multiple range of 3.0x to 4.0x LTM sales, 15.0x to 22.0x
LTM EBITDA, 18.0x to 25.0x LTM EBIT, 35.0x to 40.0x LTM net income and 28.0x
to 33.0x 1997 estimated net income and 25.0% to 30.0% and 35.0% to 45.0% for
one-day and thirty-day premiums, respectively. These multiples ranges implied
per share values of BTI Common Stock (based on fully diluted shares
outstanding under the Treasury Stock method) of $24.96 to $33.03, $23.25 to
$33.74, $21.01 to $28.89, $25.39 to $29.01, $25.76 to $30.36, $36.09 to $37.54
and $39.83 to $42.78, respectively.
Based on the foregoing, Salomon Brothers determined an implied per share
precedent transaction valuation range of $26 to $33 per share of BTI Common
Stock. Salomon Brothers noted that the price of BTI Common Stock ($28.88 at
August 18, 1997) was within this range and that the implied acquisition price
(the Exchange Ratio multiplied by Comverse Common Stock price at August 18,
1997) was $29.90, which was also within this range.
Contribution Analysis. Salomon Brothers calculated the percentage
contribution by Comverse to the pro forma combined company with respect to
various financial statistics. This analysis showed that Comverse would
contribute 59% of equity value, 50% of LTM sales, 49% of LTM EBITDA, 51% of
LTM EBIT, 62% of LTM net income, 61% of 1997 estimated net income, 57% of 1998
estimated net income, 69% of book equity and 70% of total assets of the pro
forma combined company. By comparison, based on the Exchange Ratio, Comverse
shareholders would hold approximately 60% of the pro forma equity (using the
Treasury Stock method and assuming conversion of convertible debt).
Historical Exchange Ratio Analysis. Salomon Brothers also reviewed the
daily closing price and volume of BTI Common Stock and Comverse Common Stock
during the period from August 19, 1996 through August 18, 1997 and the implied
historical exchange ratios determined by dividing the price per share of BTI
Common Stock by the price per share of Comverse Common Stock (the "Historical
Exchange Ratio") over such period. Salomon Brothers calculated that during
this period the Historical Exchange Ratio ranged from a high of 0.7976 to a
low of 0.3233 with an average of 0.5500 and a ratio on August 18, 1997 of
0.6277 and had a three-month and six-month average of 0.5920 and 0.5600,
respectively. Such ratios were compared to the Exchange Ratio in the Merger,
which is 0.65.
Earnings Accretion/Dilution Analysis. Salomon Brothers calculated the
implied accretion/dilution based on stand-alone earnings per share projections
(based on IBES estimates as of August 18, 1997) and the pro forma impact of
the Merger on such projections for 1997 pro forma and projected 1998. Based on
such estimates, Salomon Brothers calculated 5.6% earnings dilution in 1997 and
1.3% earnings accretion in 1998 for Comverse shareholders as a result of the
Merger. For BTI projected fiscal years 1998 and 1999, Salomon Brothers
calculated earnings accretion of 6.0% and earnings dilution of 3.7%,
respectively. These results exclude any potential impact from Merger
synergies. Salomon Brothers also did a sensitivity analysis assuming various
other potential projected 1998 stand-alone earnings for each of BTI and
Comverse.
General
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore,
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such an opinion is not readily susceptible to summary description.
Furthermore, in arriving at its fairness opinion, Salomon Brothers did not
attribute any particular weight to any analysis or factor considered by it,
but rather made qualitative judgments as to the significance and relevance of
each analysis and factor. Accordingly, Salomon Brothers believes that its
analyses must be considered as a whole and that considering any portions of
such analyses and of the factors considered, without considering all analyses
and factors, could create a misleading or incomplete view of the process
underlying the opinion. Salomon Brothers did not quantify the effect of each
factor upon its valuation. In its analyses, Salomon Brothers made numerous
assumptions with respect to industry performance, general business and
economic conditions and other matters, some of which are beyond the control of
BTI and Comverse. Any estimates contained in Salomon Brothers' analyses are
not necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. No company or transaction used in the above analyses as a comparison
is directly comparable to BTI or Comverse or the contemplated Merger. The
analyses performed were prepared solely as part of Salomon Brothers' analysis
of the fairness, from a financial point of view, of the Exchange Ratio to the
holders of Comverse Common Stock in connection with the delivery of Salomon
Brothers' opinion. The Exchange Ratio was determined on the basis of
negotiations between BTI and Comverse. Because such analyses are inherently
subject to uncertainty, none of Comverse, the Comverse Board or management,
Salomon Brothers or any other person assumes responsibility if future events
do not conform to judgments reflected in the opinion of Salomon Brothers.
Engagement of Salomon Brothers
Salomon Brothers was retained by Comverse based on its experience and
expertise as financial advisor in connection with mergers and acquisitions.
Salomon Brothers is an internationally recognized investment banking firm that
provides financial services in connection with a wide range of business
transactions. As part of its business, Salomon Brothers regularly engages in
the valuation of companies and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and for
other purposes.
Comverse agreed to pay Salomon Brothers a fee of $500,000 upon the rendering
of its fairness opinion relating to the Exchange Ratio and the execution of
the Merger Agreement. Comverse also agreed to pay Salomon Brothers an
additional fee of $1,000,000, such fee being payable upon consummation of the
Merger. The fees paid or payable to Salomon Brothers are not contingent upon
the contents of the fairness opinion delivered. Comverse also agreed to
reimburse Salomon Brothers for its reasonable out-of-pocket expenses and to
indemnify Salomon Brothers and certain related persons against certain
liabilities, including liabilities under the federal securities laws.
Opinion of the Financial Advisor to the BTI Board
Background; Qualification of Opinion. BTI retained Merrill Lynch to render
financial advisory services with respect to BTI's proposed business
combination with Comverse.
At the meeting of BTI's Board on August 20, 1997, Merrill Lynch rendered its
oral opinion, such opinion subsequently confirmed in writing on such date (the
"Merrill Lynch Opinion"), to the effect that, as of August 20, 1997, and based
upon the assumptions made, matters considered and limits of review, as set
forth in such opinion, the Exchange Ratio was fair from a financial point of
view to the holders of BTI Common Stock. All of Merrill Lynch's analyses were
based on closing common stock prices of both BTI and Comverse as of August 13,
1997.
A copy of the Merrill Lynch Opinion dated August 20, 1997, which sets forth
the assumptions made, matters considered and certain limitation on the scope
of review undertaken by Merrill Lynch, is attached as Annex III to this Joint
Proxy Statement/Prospectus and is incorporated herein by reference. The
description of the Merrill Lynch Opinion set forth herein is qualified in its
entirety by reference to the full text of the Merrill Lynch Opinion.
Stockholders of BTI are urged to, and should, read the Merrill Lynch Opinion
carefully and in its entirety. The Merrill Lynch Opinion is addressed to the
BTI Board and addresses only the fairness from a financial point of view of
the Exchange Ratio as of the date of the opinion. The Exchange Ratio was
determined on the basis of negotiations between BTI and Comverse. The Merrill
Lynch Opinion does not constitute a recommendation to any BTI stockholder as
to how such stockholder should vote at the BTI Special Meeting.
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In arriving at its opinion, set forth in the Merrill Lynch Opinion, Merrill
Lynch, among other things: (i) reviewed BTI's Annual Reports, Forms 10-K and
related financial information for the three fiscal years ended January 31,
1995, 1996 and 1997, BTI's Form 10-Q and the related unaudited financial
information for the quarterly period ended April 30, 1997 and BTI's draft Form
10-Q and the related unaudited financial information for the quarterly period
ended July 31, 1997; (ii) reviewed Comverse's Annual Reports, Forms 10-K and
related financial information for the three fiscal years ended December 31,
1994, 1995 and 1996 and Comverse's Forms 10-Q and the related unaudited
financial information for the quarterly periods ended March 31, 1997 and June
30, 1997; (iii) reviewed certain information relating to the business,
earnings, cash flow, assets, liabilities and prospects of BTI and Comverse
furnished to Merrill Lynch by BTI and Comverse, respectively; (iv) conducted
due diligence discussions with members of senior management of BTI and
Comverse and discussed with members of senior management of BTI and Comverse
their views regarding their respective businesses before and after giving
effect to the Merger; (v) reviewed the market prices and valuation multiples
for BTI Common Stock and Comverse Common Stock and compared them with those of
certain publicly traded companies which Merrill Lynch deemed to be relevant;
(vi) compared the results of operations of BTI and Comverse with those of
certain companies which Merrill Lynch deemed to be relevant; (vii) compared
the proposed financial terms of the Merger with the financial terms of certain
other mergers and acquisitions which Merrill Lynch deemed to be relevant;
(viii) participated in certain discussions and negotiations among
representatives of BTI and Comverse and their financial and legal advisors;
(ix) reviewed the potential pro forma impact of the Merger; (x) reviewed the
Merger Agreement; and (xi) reviewed such other financial studies and analyses
and performed and took into account such other matters as Merrill Lynch deemed
necessary, including its assessment of general economic, market and monetary
conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch relied on the accuracy
and completeness of all information supplied or otherwise made available to
it, discussed with or reviewed by or for it, or publicly available, and did
not assume responsibility for independent verification of such information.
Merrill Lynch did not assume responsibility for undertaking an independent
evaluation or appraisal of the assets or liabilities of BTI or Comverse and no
such evaluation or appraisal was provided to it. Merrill Lynch relied upon the
assessment by the managements of BTI and Comverse of their ability to retain
key employees of both BTI and Comverse. Merrill Lynch also relied upon,
without independent verification, the assessment by the managements of both
BTI and Comverse of the strategic and other benefits expected to result from
the Merger. Merrill Lynch also relied upon, without independent verification,
the assessment by BTI's management of both BTI's and Comverse's technologies
and products, the timing and risks associated with the integration of BTI and
Comverse, and the validity of, and risks associated with BTI's and Comverse's
existing and future products and technologies. With respect to any estimates
furnished to or discussed with Merrill Lynch by BTI or Comverse, Merrill Lynch
assumed that such information had been reasonably prepared and reflected the
best then-available estimates and judgments of BTI's or Comverse's management.
In addition, Merrill Lynch assumed that the Merger would qualify for pooling
of interests accounting treatment in accordance with generally accepted
accounting principles and as a tax-free reorganization within the meaning of
Section 368(a) of the Code. Merrill Lynch assumed that the Merger would be
consummated on the terms set forth in the Merger Agreement without waiver or
amendment of any of the terms or conditions thereof. The Merrill Lynch Opinion
was necessarily based upon market, economic, financial and other conditions as
they existed and could be evaluated as of the date of such opinion. In
rendering such opinion, Merrill Lynch observed that it was not expressing any
opinion as to the price at which BTI Common Stock would actually trade at any
time.
The matters considered by Merrill Lynch in arriving at its opinion are based
on numerous macroeconomic, operating and financial assumptions with respect to
industry performance, general business and economic conditions, many of which
are beyond the control of BTI and Comverse, and involve the application of
complex methodologies and educated judgment. Any estimates incorporated in the
analyses performed by Merrill Lynch are not necessarily indicative of actual
past or future results or values, which may be significantly more or less
favorable than such estimates. Estimated values do not purport to be
appraisals and do not necessarily reflect the prices at which businesses or
companies may be sold in the future. The Merrill Lynch Opinion does not
present a discussion of the relative merits of the Merger as compared with any
other business plan or opportunity that might be presented to BTI, or the
effect of any other arrangement in which BTI might engage.
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At the meetings of the BTI Board held on August 16 and August 20, 1997,
Merrill Lynch presented certain financial analyses accompanied by written
materials in connection with the delivery of its oral opinion. The following
is a summary of the material financial and comparative analyses performed by
Merrill Lynch in arriving at the Merrill Lynch Opinion, which was delivered on
August 20, 1997.
Summary of Analyses
Exchange Ratio Analysis. Merrill Lynch reviewed the historical trading
prices for BTI Common Stock and Comverse Common Stock, separately, and in
comparison to each other. Merrill Lynch also reviewed the ratios of the daily
closing prices of Comverse to BTI over various periods, starting as far back
as August 4, 1994 and ending August 13, 1997 and computed the premium
represented by the Exchange Ratio of 0.65 over the average of these ratios
over various periods of time ending August 13, 1997. The average of the ratios
of the daily closing prices of Comverse to BTI for the various periods ending
on August 13, 1997 were 0.588 for the previous two years; 0.548 for the
previous one year; 0.545 for the previous 30 days; and 0.549 for the previous
one week. The Exchange Ratio of 0.65 represented a premium of 10.6%, 18.7%,
19.2% and 18.5%, respectively, over the aforementioned average ratios of
Comverse to BTI stock prices.
Analysis of Selected Comparable Publicly Traded Companies. Using publicly
available information and estimates of future financial results published by
First Call, Merrill Lynch compared certain financial and operating information
and ratios for both BTI and Comverse with the corresponding financial and
operating information for a group of five publicly traded companies engaged
primarily in businesses which Merrill Lynch deemed to be relevant for the
purpose of its analysis, including Brite Voice Systems Inc., Centigram
Communications Corp., Glenayre Technologies Inc., Nice Systems Ltd. and Octel
Communications Corp. (the "Merrill Comparable Companies").
Merrill Lynch's calculations resulted in the following relevant ranges for
the Merrill Comparable Companies: total enterprise value (defined as market
value of common equity plus book value of total debt and preferred stock less
cash) as a multiple of LTM revenue of 2.5x to 4.5x for BTI and 3.0x to 5.0x
for Comverse (with BTI at 3.2x and Comverse at 5.1x); and total market value
as a multiple of projected calendar 1998 net income (based on earnings per
share estimated from First Call) of 17.7x to 23.8x for BTI and 22.1x to 26.8x
for Comverse (with BTI at 20.8x and Comverse at 25.9x). Applying the ranges of
multiples derived from the Merrill Comparable Companies' information analyzed
by Merrill Lynch, Merrill Lynch calculated implied per share equity values of
BTI ranging from $23.00 to $31.00, and Comverse ranging from $42.00 to $51.00.
None of the companies utilized in the above analysis for comparative
purposes is, of course, identical to BTI or Comverse. Accordingly, a complete
analysis of the results of the foregoing calculations cannot be limited to a
quantitative review of such results and involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the Merrill Comparable Companies and other factors that could affect the
public trading value of the Merrill Comparable Companies.
Discounted Cash Flow Analysis. Merrill Lynch also performed discounted cash
flow analyses (i.e., an analysis of the present value for the projected
unlevered free cash flows and terminal value for the periods and at the
discount rates indicated) of both BTI and Comverse for the years 1997 through
2002, inclusive, using discount rates reflecting a weighted average cost of
capital ranging from 13.0% to 17.0% and terminal value multiples of fiscal
year ended January 31, 2003 and December 31, 2002 for BTI and Comverse,
respectively, of unlevered earnings (before interest and after taxes) ranging
from 17.0x to 21.0x.
Applying the results of such discounted cash flow analysis, and assuming no
synergies arising out of the Merger, Merrill Lynch calculated the implied per
share equity values of BTI ranging from $31.00 to $42.00 and of Comverse
ranging from $59.00 to $79.00.
Implied Exchange Ratio Analysis. Merrill Lynch derived implied exchange
ratios by dividing the low, midpoint and high per share equity values of BTI
by the low, midpoint and high per share equity values of Comverse,
respectively. Based on this analysis, Merrill Lynch calculated implied
exchange ratios of (i) 0.63, 0.41 and 0.52 for the comparison of the 52-week
stock price trading ranges, (ii) 0.61, 0.55 and 0.58 for the
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comparison of values determined by the Analysis of Selected Comparable
Publicly Traded Companies and (iii) 0.53, 0.53 and 0.53 for the comparison of
values determined by the Discounted Cash Flow Analysis.
Comparable Acquisition Analysis. Merrill Lynch reviewed the financial terms
of the proposed acquisition of Octel Communications Corp. by Lucent
Technologies Inc. ("Lucent/Octel"). Merrill Lynch then analyzed enterprise
value and equity value multiples implied by the price paid in the Lucent/Octel
transaction and compared it to the implied multiples paid in the Merger.
Merrill Lynch calculated the enterprise value as a multiple to LTM revenue,
LTM EBITDA and LTM EBIT and the equity value as multiple of LTM net income and
calendar year 1998 estimated earnings (based on earnings per share estimates
from First Call). The analysis resulted in the following multiples: enterprise
value as a multiple to LTM revenue, LTM EBITDA, LTM EBIT of 2.5x, 12.1x and
20.7x for Lucent/Octel and 3.9x, 21.8x and 28.4x for the Merger, respectively,
and equity value as a multiple of LTM net income and calendar year 1998
estimated earnings of 31.6x and 22.1x for Lucent/Octel and 37.7x and 25.2x for
the Merger, respectively.
The Lucent/Octel transaction reviewed in the comparable acquisition analysis
was not identical to the Merger. Accordingly, an analysis of the results of
the foregoing is not purely mathematical. Rather, it involves complex
considerations and judgements concerning differences in financial and
operating characteristics of the companies included in the comparable
acquisition transaction analysis and other factors that could affect the offer
enterprise and equity values.
Pro Forma Earnings Analysis. Merrill Lynch analyzed certain pro forma
earnings (based on First Call estimates) effects resulting from the Merger
without assumed pre-tax annual synergies beginning in the fiscal year ending
December 31, 1998. In its analyses, Merrill Lynch assumed that the Merger was
treated as a pooling of interest business combination for accounting purposes
and excluded any one-time restructuring charges that may result from the
Merger. The analysis Merrill Lynch performed was based on ranges of earnings
per share projections for both BTI and Comverse based on analyst consensus
estimates for both companies.
The analyses described in the preceding sentence indicated that, (i) based
on the Exchange Ratio, (ii) based on analysis before synergies and (iii) based
on a range of earnings around First Call estimates for both BTI and Comverse,
the Merger would impact earnings per share for Comverse stockholders ranging
from 7.7% accretion to 9.4% dilution for the calendar year ending 1998 and
7.5% accretion to 6.7% dilution for the calendar year ending 1999. Based on
the earnings per share estimates from First Call for both BTI and Comverse and
based on analysis before synergies, the Merger would result in earnings per
share accretion for Comverse stockholders of 1.6% and 0.8% for the calendar
years ending 1998 and 1999, respectively.
Contribution Analysis. Merrill Lynch calculated that, after giving effect
to the issuance of Comverse Common Stock in the Merger, BTI stockholders would
hold 42.0% of the market value of a combined entity following the Merger
(based on the fully diluted shares outstanding under the Treasury Method) and
that BTI would have contributed 41.9% to the net income of a combined entity.
Merrill Lynch also calculated that, after giving effect to the issuance of
Comverse Common Stock in the Merger, BTI stockholders would represent 43.9% of
the enterprise value of the combined entity following the Merger (based on the
fully diluted shares outstanding under the Treasury Method) and that BTI would
have contributed 50.4% and 49.3% to the revenue and EBIT of the combined
entity, respectively.
General
The summary set forth above does not purport to be a complete description of
the analyses performed by Merrill Lynch in arriving at its opinion. The
preparation of a fairness opinion is a complex process and not necessarily
susceptible to partial or summary description. In arriving at its opinion,
Merrill Lynch did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Merrill Lynch believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and of the factors considered by it, without considering all
factors and analyses, could create a misleading view of the processes
underlying its analyses set forth in its opinion.
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Engagement of Merrill Lynch
The BTI Board selected Merrill Lynch to render a fairness opinion because
Merrill Lynch is an internationally recognized investment banking firm with
substantial experience in transactions similar to the Merger. Merrill Lynch is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and for other purposes and has
substantial experience in transactions similar to the Merger.
Pursuant to a letter agreement, BTI has agreed to pay Merrill Lynch (i) a
$100,000 retainer fee on the date of the letter agreement and (ii) if the
Merger is consummated, a transaction fee of 0.4% of the aggregate purchase
price paid in the Merger upon consummation of the Merger. The amount referred
to in the preceding clause (i) would be credited against the payment under
clause (ii). The fees paid or payable to Merrill Lynch are not contingent upon
the contents of the opinion delivered. In addition, BTI has agreed to
reimburse Merrill Lynch for its reasonable out-of-pocket expenses (including
reasonable fees and expenses of its legal counsel) incurred in connection with
its engagement, and to indemnify Merrill Lynch and certain related persons
against certain liabilities arising out of or in conjunction with its
rendering of services under its engagement, including certain liabilities
under the federal securities laws.
In the ordinary course of its business, Merrill Lynch may actively trade the
securities of BTI and Comverse for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
Accounting Treatment
The Merger is expected to qualify as a "pooling of interests" for financial
reporting purposes. Under this method of accounting, the recorded assets and
liabilities of Comverse and BTI will be carried forward to the combined
corporation at their recorded amounts, subject to any adjustments required to
conform the accounting policies of the two Companies, and the reported income
of the separate Companies for prior periods will be combined and restated as
income of the combined corporation.
Form of the Merger
Subject to the terms and conditions of the Merger Agreement and in
accordance with the New York Business Corporation Law (the "NYBCL") and the
Delaware General Corporation Law (the "DGCL"), at the Effective Time, BTI will
be merged with and into Comverse. Comverse will be the surviving corporation
in the Merger and will continue its corporate existence under New York law
under the name "Comverse Technology, Inc." The certificate of incorporation of
Comverse (the "Comverse Certificate"), as in effect immediately prior to the
Effective Time, will be the certificate of incorporation of Comverse, as the
surviving corporation, and the by-laws of Comverse (the "Comverse By-Laws"),
as in effect immediately prior to the Effective Time, will be the by-laws of
Comverse, as the surviving corporation.
Merger Consideration
At the Effective Time, each outstanding share of BTI Common Stock, other
than shares owned by Comverse, BTI or their respective subsidiaries, will be
converted into the right to receive the Exchange Ratio of 0.65 of a fully paid
and nonassessable share of Comverse Common Stock (except that cash will be
paid in lieu of fractional shares as described under "Conversion of Shares;
Procedures for Exchange of Certificates; Fractional Shares" below). As of the
Effective Time, all such shares of BTI Common Stock will no longer be
outstanding and will automatically be canceled and will cease to exist and
each holder of a certificate representing any shares of BTI Common Stock will
cease to have any rights in respect thereof. See "--Conversion of Shares;
Procedures for Exchange of Certificates; Fractional Shares." The Exchange
Ratio was determined through arm's-length negotiations between Comverse and
BTI.
Based on the current number of outstanding shares of BTI Common Stock, BTI
stockholders, in the aggregate, will receive approximately 18,088,876 shares
of Comverse Common Stock in the Merger. Based on
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that number, following the Merger, existing Comverse shareholders will own
approximately 58%, and former BTI stockholders will own approximately 42%, of
the outstanding Comverse Common Stock.
Conversion of Shares; Procedures for Exchange of Certificates; Fractional
Shares
The conversion of BTI Common Stock into the right to receive Comverse Common
Stock will occur automatically at the Effective Time. As soon as practicable
after the Effective Time, American Stock Transfer & Trust Company, in its
capacity as Exchange Agent (the "Exchange Agent"), will send a transmittal
letter to each former BTI stockholder. The transmittal letter will contain
instructions with respect to obtaining shares of Comverse Common Stock in
exchange for shares of BTI Common Stock.
COMVERSE SHAREHOLDERS AND BTI STOCKHOLDERS SHOULD NOT RETURN STOCK
CERTIFICATES WITH THE ENCLOSED PROXY.
After the Effective Time, each certificate that previously represented
shares of BTI Common Stock will represent only the right to receive the
Comverse Common Stock into which such shares were converted in the Merger and
the right to receive cash in lieu of fractional shares of Comverse Common
Stock as described below. Holders of certificates previously representing BTI
Common Stock will not be paid dividends or distributions on the Comverse
Common Stock into which such shares have been converted with a record date
after the Effective Time, and will not be paid cash in lieu of fractional
shares of Comverse Common Stock, until such certificates are surrendered to
the Exchange Agent for exchange. When such certificates are surrendered, any
unpaid dividends and any cash in lieu of fractional shares of Comverse Common
Stock payable as described below will be paid without interest.
In the event of a transfer of ownership of BTI Common Stock which is not
registered in the records of BTI's transfer agent, a certificate representing
the proper number of shares of Comverse Common Stock may be issued to a person
other than the person in whose name the certificate so surrendered is
registered if such certificate is properly endorsed or is otherwise in proper
form for transfer and the person requesting such issuance will pay any
transfer or other taxes required by reason of the issuance of shares of
Comverse Common Stock to a person other than the registered holder of such
certificate or establish to the satisfaction of Comverse that such tax has
been paid or is not applicable.
All shares of Comverse Common Stock issued upon conversion of shares of BTI
Common Stock (including any cash paid in lieu of any fractional shares of
Comverse Common Stock) will be deemed to have been issued in full satisfaction
of all rights pertaining to such shares of BTI Common Stock, subject, however,
to Comverse's obligation to pay any dividends or make any other distributions
with a record date prior to the Effective Time that may have been declared or
made by BTI on such shares of BTI Common Stock in accordance with the Merger
Agreement on or prior to the Effective Time and which remain unpaid at the
Effective Time.
No fractional shares of Comverse Common Stock will be issued to any BTI
stockholder upon surrender of certificates previously representing BTI Common
Stock. As promptly as practicable after the Effective Time, the Exchange Agent
will determine the excess of (i) the number of whole shares of Comverse Common
Stock delivered to the Exchange Agent by Comverse over (ii) the aggregate
number of whole shares of Comverse Common Stock to be distributed to former
holders of BTI Common Stock (such excess being the "Excess Shares"). The
Exchange Agent will sell the Excess Shares on the Nasdaq in accordance with
the terms of the Merger Agreement and will hold the proceeds in trust for the
former holders of BTI Common Stock (the "Common Shares Trust"). The Exchange
Agent will make available to each former holder of BTI Common Stock the
amount, if any, determined by multiplying the amount comprising the Common
Shares Trust by a fraction the numerator of which is the fractional share
interest to which such holder would otherwise be entitled and the denominator
of which is the aggregate amount of fractional share interests to which all
former holders of BTI Common Stock are entitled. Alternatively, Comverse may
elect, for each fractional share that would otherwise be issued, to make
available to such former stockholders an amount in cash equal to the product
obtained by multiplying the fractional share interest to which such holder
would otherwise be entitled by the
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closing price for a share of Comverse Common Stock on the Nasdaq (as reported
in The Wall Street Journal) on the date on which the Merger is completed (the
"Closing Date").
Effective Time
The Effective Time will be the time of the filing of the Certificate of
Merger with the Secretary of State of the State of New York and the State of
Delaware or such later time as is agreed upon by BTI and Comverse and
specified in the Certificate of Merger.
Approval for Trading of Comverse Common Stock
It is a condition to the consummation of the Merger that the Comverse Common
Stock issued pursuant to the Merger be approved for trading on the Nasdaq,
subject to official notice of issuance. Such approval has been granted by the
Nasdaq, subject to official notice of issuance.
Federal Income Tax Considerations
The following discussion summarizes all the material United States federal
income tax consequences of the Merger assuming that it is consummated as
contemplated by this Joint Proxy Statement/Prospectus. This discussion is
based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations, judicial decisions and administrative rulings as of the date
hereof, all of which are subject to change, including changes with retroactive
effect. The discussion below does not address any state, local or foreign tax
consequences of the Merger. The tax treatment of a stockholder may vary
depending upon the stockholder's particular situation, and certain
stockholders (including individuals who hold options or warrants in respect of
BTI Common Stock, insurance companies, tax-exempt organizations, financial
institutions or broker-dealers, and persons who are neither citizens nor
residents of the United States or that are foreign corporations, foreign
partnerships or foreign estates or trusts as to the United States) may be
subject to special rules not discussed below. Neither Comverse nor BTI has
requested or will request an advance ruling from the Internal Revenue Service
(the "Service") as to the tax consequences of the Merger.
EACH BTI STOCKHOLDER IS URGED TO CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS
TO THE PARTICULAR TAX CONSEQUENCES TO HIM, HER OR IT OF THE MERGER, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS, AND OF
CHANGES IN APPLICABLE TAX LAWS.
Federal Income Tax Consequences of the Merger. Consummation of the Merger is
conditioned upon the receipt of opinions of Hale and Dorr LLP, counsel to BTI,
and Cravath, Swaine & Moore, counsel to Comverse, as to the qualification of
the Merger as a tax-free reorganization under Section 368(a) of the Code.
These opinions state that:
(i) The Merger will qualify as a reorganization under Section 368(a) of
the Code and each of Comverse and BTI will be a party to that
reorganization within the meaning of Section 368(b) of the Code.
(ii) Except for any cash received in lieu of fractional shares and to the
extent that any payment by Comverse of transfer taxes is treated as taxable
consideration received by the BTI stockholders, a stockholder will not
recognize any income, gain or loss as a result of the receipt of Comverse
Common Stock.
(iii) A BTI stockholder's tax basis for the shares of Comverse Common
Stock, including any fractional share interest for which cash is received,
will equal such stockholder's tax basis in shares of BTI Common Stock held
immediately before the Merger.
(iv) A BTI stockholder's holding period for the Comverse Common Stock,
including any fractional share interest for which cash is received, will
include the period during which the shares of BTI Common
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Stock were held; provided that the shares of BTI Common Stock were held as
capital assets at the Effective Time.
(v) Cash received by a BTI stockholder in lieu of a fractional share
interest of Comverse Common Stock will be treated as having been received
in exchange for the fractional share interest of Comverse Common Stock that
the stockholder would otherwise have been entitled to receive. This receipt
of cash will result in gain or loss measured by the difference between the
tax basis allocable to the fractional share interest and the amount of cash
received. The gain or loss will be capital gain or loss to the stockholder;
provided that the BTI Common Stock was a capital asset in the stockholder's
hands at the Effective Time.
Copies of the opinions issued by Hale and Dorr LLP and Cravath, Swaine &
Moore have been filed as exhibits to the Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") of which
this Joint Proxy Statement/Prospectus is a part.
An opinion of counsel is not binding on the Service or the courts. Further,
the opinions of Hale and Dorr LLP and Cravath, Swaine & Moore referred to
above are based on, among other things, current law and certain
representations as to factual matters made by, among others, BTI and Comverse
which, if incorrect in certain material respects, would jeopardize the
conclusions reached by counsel in their opinions. Neither BTI nor Comverse is
currently aware of any facts or circumstances that would cause any
representations made by it to Hale and Dorr LLP and Cravath, Swaine & Moore to
be untrue or incorrect in any material respect.
Comverse and BTI do not believe that any significant transfer taxes will be
payable as a consequence of the Merger. Comverse's payment of any transfer
taxes that, to the knowledge of Comverse and BTI, may be payable as a
consequence of the Merger should not be treated as taxable consideration
("boot") received by BTI stockholders in the Merger. If the payment of any
such taxes were treated as boot, the BTI stockholders would recognize income
or gain in an amount not in excess of the amount of the boot.
Comverse shareholders will not be taxed as a result of the Merger.
Backup Withholding. Under the backup withholding rules, a holder of Comverse
Common Stock may be subject to backup withholding at the rate of 31% with
respect to cash received in exchange for the fractional share interest unless
the stockholder (i) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact or (ii) provides a
taxpayer identification number and certifies that the taxpayer identification
number is correct and the taxpayer is not subject to backup withholding for
specified reasons, and otherwise complies with applicable requirements of the
backup withholding rules. Any amount withheld under the rules will be credited
against the stockholder's federal income tax liability.
Effect on Awards Outstanding Under BTI Stock Plans
BTI has outstanding (i) options (each a "BTI Stock Option"), granted under
the BTI 1989 Incentive Stock Option Plan, the BTI 1992 Directors' Stock Option
Plan, the BTI 1994 Stock Incentive Plan, the BTI 1995 Director Stock Option
Plan, the BTI 1996 Stock Incentive Plan and the Nonstatutory Stock Option
Agreement dated as of December 1991, between BTI and Herman B. Leonard (such
plans or agreements, as amended to the date of the Merger Agreement,
collectively, the "BTI Stock Plans"), and (ii) warrants, issued pursuant to
the Memorandum of Agreement dated November 22, 1995, between BTI and AT&T
Corp. (the "Warrants"), to purchase shares of BTI Common Stock. Each BTI Stock
Option and Warrant, whether vested or unvested, which is outstanding
immediately prior to the Effective Time will, at the Effective Time, be
amended and converted into an option to acquire, on the same terms and
conditions as were applicable under such BTI Stock Option or such Warrant, the
same number of shares of Comverse Common Stock as the holder of such BTI Stock
Option or such Warrant would have been entitled to receive pursuant to the
Merger had such holder exercised such BTI Stock Option or such Warrant in full
immediately prior to the Effective Time (rounding down to the nearest whole
share), at a price per share of Comverse Common Stock equal to (A) the
aggregate exercise price for the shares of BTI Common Stock otherwise
purchasable pursuant to such BTI Stock Option or such Warrant divided
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by (B) the aggregate number of shares of Comverse Common Stock deemed
purchasable pursuant to such BTI Stock Option (each, as so adjusted, an
"Adjusted Option") or such Warrant; provided that such exercise price shall be
rounded up to the nearest whole cent; and, provided further, that the
adjustments provided for with respect to any BTI Stock Options which are
"incentive stock options" as defined in Section 422 of the Code will be and
are intended to be effected in a manner which is consistent with Section
424(a) of the Code. See "Certain Provisions of the Merger Agreement--
Assumption of BTI Stock Plans."
Regulatory Matters and Third Party Approvals
Pursuant to the requirements of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), Comverse and BTI have each filed a
Notification and Report Form for review under the HSR Act with the Federal
Trade Commission and the Antitrust Division of the United States Department of
Justice. The HSR Act waiting period expired on October 12, 1997.
Comverse and BTI are parties to certain credit facilities, guarantees,
licensing agreements, and other similar agreements. Consummation of the Merger
may require the consent of, or waivers from, the other parties to certain of
such agreements and may constitute a default resulting in termination,
cancellation or acceleration thereunder if such consents or waivers are not
obtained. Pursuant to the Merger Agreement, Comverse and BTI have agreed to
use best efforts to take all actions, to do, and to assist and cooperate with
the other party in doing all things, necessary, proper or advisable to obtain
all consents, approvals or waivers from third parties necessary for the
consummation of the Merger. It is not a condition to either party's obligation
to consummate the Merger, however, that such third-party consents, approvals
or waivers have been obtained.
Consummation of the Merger is conditioned upon, among other things, (i) the
expiration of the waiting period under the HSR Act and (ii) the absence of any
judgment, order, decree, statute, law, ordinance, rule or regulation enacted,
entered, promulgated, enforced or issued by any court or other governmental
authority of competent jurisdiction or other legal restraint or prohibition
which prohibits or restricts the consummation of the Merger or the ownership
or operation of a material portion of the businesses or assets of Comverse or
BTI. Comverse and BTI believe that all material filings and approvals have
been made or obtained, or will be made or obtained, as the case may be.
Certain Transactions; Conflicts of Interest
In considering the respective recommendations of the Comverse Board and the
BTI Board with respect to the Merger, shareholders of Comverse and
stockholders of BTI should be aware that certain members of the Boards of
Directors and management of Comverse and BTI have interests in the Merger that
are different from, or in addition to, the interests of shareholders of
Comverse or stockholders of BTI. Such interests relate to or arise from, among
other things, (i) the Merger Agreement providing for the Comverse Board to be
increased to nine directors at the Effective Time, with two directors of BTI,
Messrs. Carr and Girard, to become directors of Comverse, (ii) a consulting
agreement between Comverse and Mr. Carr, (iii) an employment agreement
amendment between Comverse and Mr. Girard and (iv) the indemnification of
existing directors and officers of Comverse and BTI. All such additional
interests are described below, to the extent material, and except as described
below such persons have, to the knowledge of Comverse and BTI, no material
interest in the Merger apart from those of stockholders generally. The
Comverse Board and the BTI Board were each aware of, and considered the
interests of, their respective directors and officers in approving the Merger
Agreement and the Merger.
Comverse Board. Seven current directors of Comverse are standing for re-
election at the Comverse Annual Meeting. Pursuant to the Merger Agreement, if
the Merger is consummated, the Comverse Board, as of the Effective Time, will
be increased to nine directors and Mr. Carr and Mr. Girard will be appointed
to the Comverse Board and Mr. Carr will be appointed to the Remuneration
Committee. Under an agreement entered into by Comverse, Mr. Alexander and Mr.
Carr on August 20, 1997, for a period of five years following the Effective
Time, (i) Comverse has agreed to use its best efforts to have Mr. Carr
reelected as a director by the
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Comverse shareholders and (ii) Mr. Alexander, in his personal capacity and not
as a director, has agreed to recommend to the Comverse Board that Mr. Carr (a)
be nominated for reelection as a director, (b) be recommended to the Comverse
shareholders for reelection as a director and (c) serve on the Remuneration
Committee. There can be no assurance that the Comverse Board will nominate Mr.
Carr for reelection or to serve on the Remuneration Committee, or, if so
nominated, that Mr. Carr will be so reelected. See "Directors of Comverse
Following the Merger."
Consulting Agreement. Comverse and Mr. Carr have entered into a Consulting
Agreement dated August 20, 1997 (the "Consulting Agreement") for the five-year
period commencing at the Effective Time. Pursuant to the Consulting Agreement,
Mr. Carr will be paid an annual consulting fee starting at $100,000 and
declining to $50,000 for providing consulting, advisory and related services
to Comverse in connection with strategic planning, customer relations and the
integration of BTI and Comverse. Mr. Carr also will be reimbursed for
reasonable expenses incurred in performing his obligations under the
Consulting Agreement.
Employment Agreement. Comverse and Mr. Girard have entered into an Amendment
to an Employment Agreement dated August 20, 1997 (the "Employment Amendment"),
pursuant to which, at the Effective Time, (i) Comverse has agreed to assume
the obligations of BTI under a Restated Employment Agreement dated June 3,
1996, between BTI and Mr. Girard (the "BTI Employment Agreement"), (ii) Mr.
Girard has agreed to be employed by Comverse as President and Chief Executive
Officer of Network Systems and (iii) Comverse and Mr. Girard have agreed to
amend the BTI Employment Agreement as described below. Among the obligations
which Comverse has agreed to assume is the obligation to pay Mr. Girard a
payment equal to one year of his base salary (plus accrued bonuses) in the
event that Mr. Girard is terminated without cause.
The Employment Amendment provides that Comverse will hire Mr. Girard for the
three-year period commencing at the Effective Time as the President and Chief
Executive Officer of Network Systems on the same terms as under the BTI
Employment Agreement. Comverse will pay Mr. Girard an annual base salary of
$385,000, subject to review by the Remuneration Committee, a bonus which is to
be based on goals for Mr. Girard and Network Systems, such bonus not to exceed
Mr. Girard's annual base salary, and an expense stipend and generally
available Comverse fringe benefits.
BTI Severance Plan. Pursuant to the Employee Severance Benefit Plan adopted
by BTI on May 9, 1991 (the "BTI Severance Plan"), each full-time BTI employee
who has been employed by BTI for at least 90 days as of the Effective Time
will be entitled to certain benefits as a result of the Merger (which
constitutes a "change in control" under the BTI Severance Plan) if such
employee's employment is terminated within 12 months of the Effective Time by
(i) Comverse other than for "cause" or "disability" or (ii) the employee for
"good reason" (as such terms are defined in the BTI Severance Plan). The
benefits under the BTI Severance Plan generally include (i) a one-time payment
of 50% of such employee's annual salary if he or she was employed by BTI for
less than one year or 100% if he or she was employed by BTI for one year or
more, (ii) one year of life, disability, accident and health insurance and
(iii) the right to immediately exercise all outstanding BTI Stock Options
granted to such employee, notwithstanding any vesting schedule normally
applicable to such BTI Stock Options. Such benefits are subject to reduction
to the extent they would not be deductible in whole or in part by Comverse as
a result of Section 280G of the Code. Pursuant to the Merger Agreement,
Comverse will expressly assume BTI's obligations under the BTI Severance Plan
at the Effective Time.
Indemnification and Insurance. The Merger Agreement provides that all rights
of indemnification and exculpation from liabilities existing in favor of the
current and former directors or officers of BTI and its subsidiaries as
provided in their respective certificates of incorporation and by-laws (or
comparable organizational documents) will survive the Merger and continue in
full force and effect in accordance with their terms. Comverse also has agreed
to assume the obligations under certain indemnification agreements entered
into between BTI and certain officers and directors of BTI. Such
indemnification agreements, entered into substantially concurrently with the
date of the Merger Agreement, provide, in substance, indemnification for
actions taken prior to the Effective Time arising out of the Merger Agreement
or the transactions contemplated thereby. In addition, directors and officers
of BTI who become directors and officers of Comverse will be entitled
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to the same indemnification rights and liability insurance as are afforded to
other directors and officers of Comverse. The Merger Agreement provides that
for five years after the Effective Time, Comverse will maintain directors' and
officers' liability insurance covering acts or omissions occurring prior to
the Effective Time with respect to those persons who were, as of the date of
the Merger Agreement, covered by BTI's directors' and officers' liability
insurance policy, on terms with respect to such coverage and amount no less
favorable than those in effect on the date of the Merger Agreement. In
addition, the Comverse By-Laws provide that Comverse will indemnify and
advance the expenses of each person in the corporation to the full extent
permitted by the NYBCL.
Appraisal and Dissenters' Rights
Because outstanding shares of Comverse Common Stock will not be exchanged by
Comverse shareholders in the Merger, holders of Comverse Common Stock are not
entitled to appraisal or dissenters' rights with respect to the Merger or any
of the other actions to be taken at the Comverse Annual Meeting.
Under the DGCL, holders of BTI Common Stock are not entitled to appraisal or
dissenters' rights with respect to the Merger because the BTI Common Stock is
listed on a national securities exchange and the consideration which such
holders will be entitled to receive under the Merger Agreement will consist
solely of Comverse Common Stock, which is quoted on the Nasdaq, and cash in
lieu of fractional shares.
Delisting and Deregistration of BTI Common Stock
If the Merger is consummated, the shares of BTI Common Stock will be
delisted from the NYSE and will be deregistered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
Resale of Comverse Stock
The Comverse Common Stock issued pursuant to the Merger will not be subject
to any restrictions on transfer arising under the Securities Act of 1933, as
amended (the "Securities Act"), except for shares issued to any BTI
stockholder who may be deemed to be an "affiliate" of BTI for purposes of Rule
145 under the Securities Act or for purposes of qualifying the Merger for
pooling of interests accounting treatment. It is expected that each such
affiliate will agree not to transfer any Comverse Common Stock received in the
Merger except (i) pursuant to an effective registration statement under the
Securities Act, (ii) in conformity with the volume and other limitations of
Rule 145 or (iii) in a transaction which, in the opinion of counsel to
Comverse or as described in a "no-action" or interpretive letter from the
Staff of the Commission specifically issued with respect to a transaction to
be engaged in by a particular affiliate of BTI, is not required to be
registered under the Securities Act. In addition, it is expected that each
such affiliate will agree not to make any such disposition within the 30 days
prior to the Effective Time nor until after such time as financial results
covering at least 30 days of post-Merger combined operations of Comverse and
BTI have been published. Comverse has agreed to publish such financial results
as promptly as possible following such 30-day period. The Merger Agreement
requires BTI to use best efforts to cause its affiliates to enter into such
agreements, and Comverse has agreed to use best efforts to cause its
affiliates (for purposes of qualifying the Merger for pooling of interests
accounting treatment) to comply with the transfer restrictions referred to in
the preceding sentence. This Joint Proxy Statement/Prospectus does not cover
resales of Comverse Common Stock received by any person upon consummation of
the Merger, and no person is authorized to make any use of this Joint Proxy
Statement/Prospectus in connection with any such resale.
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CERTAIN PROVISIONS OF THE MERGER AGREEMENT
General
The BTI Board and the Comverse Board have each approved the Merger Agreement
which provides for the Merger to occur at the Effective Time, with Comverse
continuing as the surviving corporation. This section of the Joint Proxy
Statement/Prospectus describes certain aspects of the proposed Merger,
including certain provisions of the Merger Agreement. THE DESCRIPTION OF THE
MERGER AGREEMENT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT
PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED HERETO AS ANNEX I AND WHICH IS
INCORPORATED HEREIN BY REFERENCE. ALL STOCKHOLDERS OF BTI AND SHAREHOLDERS OF
COMVERSE ARE URGED TO READ CAREFULLY THE MERGER AGREEMENT IN ITS ENTIRETY.
Conditions to the Consummation of the Merger
Each party's obligation to effect the Merger is subject to the satisfaction
or waiver on or prior to the Closing Date of various conditions which include,
in addition to other customary closing conditions, the following:
(i) the BTI stockholders and the Comverse shareholders having each
adopted the Merger Agreement;
(ii) the waiting period with respect to the Merger under the HSR Act
having expired or been terminated (which occurred on October 12, 1997);
(iii) no judgment, order, decree, statute, law, ordinance, rule or
regulation enacted, entered, promulgated, enforced or issued by any court
or other governmental entity of competent jurisdiction or other legal
restraint or prohibition (collectively, "Restraints") being in effect (a)
preventing the consummation of the Merger, (b) prohibiting or limiting the
ownership or operation by BTI or Comverse and their respective subsidiaries
of any material portion of the businesses or assets of BTI or Comverse and
their respective subsidiaries taken as a whole, or compelling BTI or
Comverse and their respective subsidiaries to dispose of or hold separate
any material portion of the businesses or assets of BTI or Comverse and
their respective subsidiaries taken as a whole, as a result of the Merger
or any of the other transactions contemplated by the Merger Agreement or
(c) which otherwise is reasonably likely to have a Material Adverse Effect
(as defined below) on BTI or Comverse; provided that each of the parties is
required to use its best efforts to prevent the entry of any such
Restraints and to appeal as promptly as possible any such Restraints that
may be entered;
(iv) the Registration Statement, of which this Joint Proxy
Statement/Prospectus is a part, having become effective under the
Securities Act and not being the subject of any stop order or proceedings
seeking a stop order;
(v) the shares of Comverse Common Stock issuable to BTI's stockholders
pursuant to the Merger Agreement having been approved for trading on the
Nasdaq, subject to official notice of issuance; and
(vi) BTI and Comverse each having received letters dated as of the
Closing Date from each of Coopers & Lybrand L.L.P. and Deloitte & Touche
LLP (the independent accountants of BTI and Comverse, respectively) to the
effect that they know of no reason why the Merger will not qualify for
pooling of interests accounting treatment.
In addition, each party's obligation to effect the Merger is subject to the
satisfaction or waiver of the following additional conditions:
(i) the representations and warranties of the other party to the Merger
Agreement set forth in the Merger Agreement that are qualified as to
materiality being true and correct, and those not so qualified being true
and correct in all material respects, in each case, as of the date of the
Merger Agreement and as of the Closing Date as though made on and as of the
Closing Date (except to the extent such representations and warranties
expressly related to an earlier date, in which case as of such date);
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(ii) the other party to the Merger Agreement having performed in all
material respects all obligations required to be performed by it under the
Merger Agreement at or prior to the Closing Date;
(iii) such party having received from its counsel on the Closing Date, an
opinion dated as of such date and stating that the Merger will be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code and that BTI and Comverse will each be a party
to that reorganization within the meaning of Section 368(b) of the Code.
See "The Merger--Federal Income Tax Considerations--Federal Income Tax
Consequences of the Merger;" and
(iv) at any time after the date of the Merger Agreement any Material
Adverse Change relating to the other party not having occurred.
A "Material Adverse Change" or "Material Adverse Effect" means, when used in
connection with BTI or Comverse, any change, effect, event, occurrence or
state of facts that is, or would reasonably be expected to be, materially
adverse to the business, financial condition or results of operations of BTI
or Comverse and its respective subsidiaries taken as a whole, as the case may
be, other than any change, effect, event or occurrence relating to (i) the
economy or securities markets in general, (ii) any outbreak or escalation of
hostilities in the Middle East, (iii) the Merger Agreement or the transactions
contemplated thereby or the announcement thereof (including any impact on
employees, vendors or customers resulting therefrom) or (iv) the
telecommunications systems and equipment industry in general, and not
specifically relating to BTI or Comverse or their respective subsidiaries, and
the terms "material" and "materially" have correlative meanings.
No Solicitation
The Merger Agreement provides that BTI and Comverse will not, nor will they
permit any of their respective subsidiaries to, nor will they authorize or
permit any of their respective officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by them or any of their respective subsidiaries to,
directly or indirectly through another person, (i) solicit, initiate or
encourage (including by way of furnishing information), or take any other
action designed to facilitate, any inquiries or the making of any proposal
which constitutes any Takeover Proposal (as defined below) or (ii) participate
in any discussions or negotiations regarding any Takeover Proposal; provided,
however, that if, at any time prior to the date of the BTI Special Meeting or
the Comverse Annual Meeting, the BTI Board or the Comverse Board, as the case
may be, determines in good faith, after consultation with outside counsel,
that it is necessary to do so in order to comply with its fiduciary duties to
its stockholders under applicable law, BTI or Comverse, as the case may be,
may, in response to a Superior Proposal (as defined below) which was not
solicited by it or which did not otherwise result from a breach of the
provisions of the Merger Agreement described in this section, and subject to
providing prior written notice of its decision to do so to the other party,
(a) furnish information with respect to it and its subsidiaries to any person
making a Superior Proposal pursuant to a customary confidentiality agreement
and (b) participate in discussions or negotiations regarding such Superior
Proposal. A "Takeover Proposal" is any inquiry, proposal or offer from any
person relating to any direct or indirect acquisition or purchase of a
business that constitutes 15% or more of the net revenues, net income or the
assets of a party and its subsidiaries, taken as a whole, or 15% or more of
any class of equity securities of such party or any of its subsidiaries, any
tender offer or exchange offer that if consummated would result in any person
beneficially owning 15% or more of any class of equity securities of such
party or any of its subsidiaries, or any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving such party or any of its subsidiaries, other than the transactions
contemplated by the Merger Agreement. A "Superior Proposal" is any proposal
made by a third party (i) to acquire, directly or indirectly, including
pursuant to a tender offer, exchange offer, merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar
transaction, for consideration consisting of cash and/or securities, more than
50% of the combined voting power of the shares of the party then outstanding
or all or substantially all of the assets of the party, (ii) that is otherwise
on terms that the board of directors of the party subject to the proposal
determines in its good faith judgment (based on the advice of a financial
advisor of nationally recognized reputation) to be more favorable to its
stockholders than the Merger, (iii) for which financing, to the extent
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required, is then committed or which, in the good faith judgment of the board
of directors of the party subject to the proposal, is reasonably capable of
being obtained by such party and (iv) for which, in the good faith judgment of
the board of directors of the party subject to the proposal, no regulatory
approvals are required, including antitrust approvals, that could not
reasonably be expected to be obtained.
Right of Boards to Withdraw Recommendation
Except as expressly permitted by the Merger Agreement, neither the BTI Board
nor the Comverse Board, nor any committee thereof, will (i) withdraw or
modify, or propose publicly to withdraw or modify, in a manner adverse to the
other party, the approval or recommendation by such board of directors or such
committee of the Merger or the Merger Agreement, (ii) approve or recommend, or
propose publicly to approve or recommend, any Takeover Proposal or (iii) cause
such party to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement (each an "Acquisition
Agreement") related to any Takeover Proposal. Notwithstanding the foregoing,
in the event that prior to the date of the BTI Special Meeting or the Comverse
Annual Meeting, the BTI Board or the Comverse Board, as the case may be,
determines in good faith, after consultation with outside counsel, that it is
necessary to do so in order to comply with its fiduciary duties under
applicable law, the board of directors of such party may terminate the Merger
Agreement, but only at a time that is after the later of (a) the third
business day following the other party's receipt of written notice advising
such other party that the board of directors of the party subject to the
proposal is prepared to accept a Superior Proposal, specifying the material
terms and conditions of such Superior Proposal and identifying the person
making such Superior Proposal, or (b) in the event of any amendment to the
price or material term of such Superior Proposal, one business day following
the other party's receipt of written notice containing the material terms of
such amendment, including any change in price (it being understood between the
parties that each further amendment to the price or any material terms of the
Superior Proposal will require an additional one business day period prior to
which a party can take such action). In such event, the terminating party must
pay a fee in the amount of $50 million (the "Termination Fee") plus an amount
equal to the lesser of (1) all documented out-of-pocket expenses and fees
(including fees and expenses payable to all legal, accounting, financial,
public relations and other professional advisors) arising out of, in
connection with, or related to the Merger Agreement and (2) $5 million (the
"Out-of-Pocket Expenses") to the non-terminating party upon such termination.
See "--Termination" and "--Termination Fee and Expenses."
Termination
The Merger Agreement may be terminated at any time prior to the Effective
Time (by written notice by the terminating party to the non-terminating
party), whether before or after adoption thereof by the stockholders of BTI or
the shareholders of Comverse:
(i) by mutual written consent of BTI and Comverse;
(ii) by either party thereto, if the Merger has not been consummated by
February 28, 1998; provided, however, that such right to terminate the
Merger Agreement will not be available to either party whose failure to
perform any of its obligations under the Merger Agreement has resulted in
the failure of the Merger to be consummated by that date;
(iii) by either party thereto, if the BTI stockholders or the Comverse
shareholders have not adopted the Merger Agreement at their respective
Stockholders' Meeting;
(iv) by either party thereto, if any Restraints are in effect and have
become final and nonappealable (a) preventing the consummation of the
Merger, (b) prohibiting or limiting the ownership or operation by BTI or
Comverse and their respective subsidiaries of any material portion of the
businesses or assets of BTI or Comverse and their respective subsidiaries
taken as a whole, or compelling BTI or Comverse and their respective
subsidiaries to dispose of or hold separate any material portion of the
businesses or assets of BTI or Comverse and their respective subsidiaries
taken as a whole, as a result of the Merger or any of the other
transactions contemplated by the Merger Agreement or (c) which otherwise is
reasonably likely to have a
42
<PAGE>
Material Adverse Effect on BTI or Comverse; provided that the party seeking
to exercise this right to terminate the Merger Agreement has used best
efforts to prevent the entry of and to remove such Restraint;
(v) by either BTI, on the one hand, or Comverse, on the other hand, if
the other party has breached or failed to perform in any material respect
any of its representations, warranties, covenants or other agreements
contained in the Merger Agreement, which breach or failure to perform would
give rise to the failure of a condition to the Merger and is incapable of
being cured or is not cured within 30 days of notice of such breach or
failure; or
(vi) by either BTI, on the one hand, or Comverse, on the other hand, if
prior to the date of its Stockholders' Meeting, its board of directors
determines in good faith, after consultation with outside counsel, that it
is necessary to do so in order to comply with its fiduciary duties under
applicable law and if such terminating party has complied with certain
notice requirements and the provisions relating to the payment of the
Termination Fee and Out-of-Pocket Expenses.
Termination Fees and Expenses
The Merger Agreement provides that if a Takeover Proposal has been made
directly to a party's stockholders generally or shall have otherwise become
publicly known or any person shall have publicly announced an intention
(whether or not conditional) to make a Takeover Proposal and thereafter the
Merger Agreement is terminated pursuant to the provisions described in clause
(ii) or (iii) under "--Termination" above, then, if within 12 months of the
termination the party that was the subject of the Takeover Proposal, or any of
its subsidiaries, enters into an Acquisition Agreement, or consummates a
Takeover Proposal (as defined below solely for this purpose), the party that
was the subject of the Takeover Proposal must then pay the other party the
Termination Fee and the Out-of-Pocket Expenses. If the Merger Agreement is
terminated pursuant to the provisions described in clause (vi) under "--
Termination" above, then the terminating party must pay the non-terminating
party the Termination Fee and Out-of-Pocket Expenses upon such termination. A
"Takeover Proposal" for the sole purpose of the provision of the Merger
Agreement described in this paragraph means the same as that described under
"--No Solicitation," except that the references to 15% are deemed to be
references to 35% and, with respect to each party, will only be deemed to
refer to a transaction involving such party, or with respect to assets
(including the shares of any subsidiary), such party and its subsidiaries,
taken as a whole, and not any of its subsidiaries alone.
The Merger Agreement further provides that if one party should fail to pay
any Termination Fee or Out-of-Pocket Expenses due, such party must pay the
costs and expenses in connection with any action taken to collect payment,
together with interest on the amount of the Termination Fee and Out-of-Pocket
Expenses.
Conduct of Business Pending the Merger
Pursuant to the Merger Agreement, BTI and Comverse have each agreed to carry
on their respective businesses in the ordinary course consistent with past
practice and in compliance in all material respects with applicable laws and
regulations and, to the extent consistent therewith, to use reasonable efforts
to preserve intact their current business organizations, to keep available the
services of their current officers and other key employees and preserve their
relationships with those persons having business dealings with them and their
goodwill and ongoing businesses. In addition, BTI and Comverse have each
agreed that, among other things and subject to certain exceptions, neither it
nor any of its subsidiaries may, without the prior consent of the other party,
such consent not to be unreasonably withheld or delayed:
(i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for
shares of its capital stock, or purchase, redeem or otherwise acquire any
shares of its capital stock or its subsidiaries' capital stock or any other
securities or any rights, warrants or options to acquire any shares or
other securities other than dividends and distributions (including
liquidation distributions) by a direct or indirect wholly owned subsidiary
to its
43
<PAGE>
parent, or by a subsidiary that is partially owned by BTI or Comverse, as
the case may be, or any of their respective subsidiaries, provided that BTI
or Comverse, as the case may be, or any such subsidiary receives or is to
receive its proportional share thereof;
(ii) issue, deliver, sell, pledge or otherwise encumber or subject to any
lien any shares of capital stock, any other voting securities or any
securities convertible into or any rights, warrants or options to acquire
any such shares, other than pursuant to (a) existing employee stock options
in accordance with their present terms, (b) with respect to BTI, upon the
exercise of the Warrants in accordance with their present terms, (c) with
respect to Comverse, upon the conversion of the Convertible Debentures (as
defined on page 60) in accordance with their present terms or (d) in
accordance with the BTI Rights Agreement or any Comverse rights agreement
that might be adopted, as applicable;
(iii) except as contemplated by the Merger Agreement, amend its
certificate of incorporation, by-laws or other comparable organizational
documents;
(iv) solely with respect to BTI, acquire or agree to acquire by merging
or consolidating with, or by purchasing a substantial portion of the assets
of, or by any other manner, any business or any corporation, limited
liability company, partnership, joint venture, association or other
business organization or division thereof, except for purchases of
inventory, supplies and other similar items in the ordinary course of
business consistent with past practice;
(v) solely with respect to BTI, sell, lease, license, mortgage or
otherwise encumber, subject to any lien or otherwise dispose of any
properties or assets (including securitization), other than in the ordinary
course of business consistent with past practice;
(vi) solely with respect to Comverse, (a) sell, lease, license, mortgage
or otherwise encumber or subject to any lien or otherwise dispose of any of
its properties or assets (including securitization), other than in the
ordinary course of business consistent with past practice, or (b) acquire
or agree to acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business
or any corporation, limited liability company, partnership, joint venture,
association or other business organization or division thereof, except for
purchases of inventory, supplies and other similar items in the ordinary
course of business consistent with past practice, in either case only to
the extent such transaction referred to in clause (a) or (b) above would
(1) be within the business operations of Network Systems or (2) (x) be in
excess of $70 million per transaction (or series of related transactions)
or $100 million in the aggregate or (y) materially delay the consummation
of the Merger;
(vii) (a) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of BTI or Comverse,
as the case may be, or any of its subsidiaries, guarantee any debt
securities of another person, enter into any "keep well" or other agreement
to maintain any financial statement condition of another person or enter
into any arrangement having the economic effect of any of the foregoing,
except with respect to Comverse for short-term borrowings incurred in the
ordinary course of business consistent with past practice and not in excess
of $25 million at any one time outstanding and with respect to BTI, for
borrowings incurred in the ordinary course of business consistent with past
practice and not in excess of $25 million at any one time outstanding, or
(b) make any loans, advances or capital contributions to, or investments
in, any other person, other than to the other party or any direct or
indirect subsidiary of the other party or to BTI's or Comverse's, as the
case may be, or any of its subsidiaries' officers and employees for travel,
business or relocation expenses in the ordinary course of business;
(viii) pay, discharge, settle or satisfy any material claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement or satisfaction,
in the ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities reflected or reserved against
in, or contemplated by, the most recent consolidated financial statements
(or the notes thereto) of such party included in such party's documents
that have been
44
<PAGE>
previously filed with the Commission, incurred since the date of such
financial statements in the ordinary course of business consistent with
past practice or which do not individually or in the aggregate have a
material adverse effect on such party;
(ix) solely with respect to BTI, make or agree to make any capital
expenditure or capital expenditures in excess of $7 million in the
aggregate in any 90-day period after the date of the Merger Agreement;
(x) except in the ordinary course of business or except as would not
individually or in the aggregate have a material adverse effect on such
party, modify, amend or terminate any material contract or agreement to
which such party or any of its subsidiaries is a party or waive, release or
assign any material rights or claims thereunder; or
(xi) authorize, or commit or agree to take, any of the foregoing actions.
Amendment to BTI Rights Plan
BTI has amended the BTI Rights Agreement to provide that neither the
approval, execution or delivery of the Merger Agreement nor the consummation
of the transactions contemplated by the Merger Agreement will cause the BTI
Rights issued thereunder to become exercisable. The form of the amendment is
attached as Exhibit A to the Merger Agreement. See "Comparison of Rights of
Comverse and BTI Stockholders--Rights Plan."
Assumption of BTI Stock Plans
Each BTI Stock Option and Warrant, whether vested or unvested, which is
outstanding immediately prior to the Effective Time will, at the Effective
Time, be amended and converted into an option to acquire, on the same terms
and conditions as were applicable under such BTI Stock Option or such Warrant,
the same number of shares of Comverse Common Stock as the holder of such BTI
Stock Option or such Warrant would have been entitled to receive pursuant to
the Merger had such holder exercised such BTI Stock Option or such Warrant in
full immediately prior to the Effective Time (rounding down to the nearest
whole share), at a price per share of Comverse Common Stock equal to (A) the
aggregate exercise price for the shares of BTI Common Stock otherwise
purchasable pursuant to such BTI Stock Option or such Warrant divided by (B)
the aggregate number of shares of Comverse Common Stock deemed purchasable
pursuant to such BTI Stock Option or such Warrant; provided that such exercise
price shall be rounded up to the nearest whole cent; and, provided further,
that the adjustments provided for with respect to any BTI Stock Options which
are "incentive stock options" as defined in Section 422 of the Code will be
and are intended to be effected in a manner which is consistent with Section
424(a) of the Code. Pursuant to the Merger Agreement, Comverse has agreed that
at the Effective Time it will assume the BTI Stock Plans and the Warrants,
with the result that all obligations of BTI under the BTI Stock Plans and the
Warrants will be the obligations of Comverse following the Effective Time.
Comverse also has agreed to take all corporate action necessary to reserve for
issuance a sufficient number of shares of Comverse Common Stock for delivery
under the Adjusted Options and the Warrants.
Amendment and Waiver
The Merger Agreement may be amended by the parties at any time before or
after the BTI stockholders or the Comverse shareholders, as applicable, have
adopted the Merger Agreement; provided, however, that after such adoption by
the BTI stockholders or the Comverse shareholders, as the case may be, no
amendment may be made that by law requires further approval by the
stockholders of BTI or the shareholders of Comverse, as the case may be,
without the further approval of such stockholders.
At any time prior to the Effective Time, a party may (i) extend the time for
performance of any of the obligations or other acts of the other party, (ii)
waive any inaccuracies in the representations and warranties of the other
party, or (iii) subject to the proviso of the previous paragraph, waive
compliance by the other party with any of the agreements or conditions
contained in the Merger Agreement.
45
<PAGE>
Expenses
Whether or not the Merger is consummated, all fees and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
will be paid by the party incurring such fees or expenses, except as otherwise
provided in the Merger Agreement and except that BTI and Comverse will share
equally the expenses incurred in connection with filing, printing and mailing
this Joint Proxy Statement/Prospectus and the Registration Statement of which
it is a part and with the filings of the Notification and Report Form under
the HSR Act (including filing fees). Comverse will file any return with
respect to, and will pay, any state or local taxes (including any penalties or
interest with respect thereto), if any, which are attributable to the transfer
of the beneficial ownership of BTI's real property as a result of the Merger.
Representations and Warranties
The Merger Agreement contains customary mutual representations and
warranties relating to, among other things, (i) corporate organization and
similar corporate matters; (ii) subsidiaries; (iii) the capital structures of
each of BTI and Comverse; (iv) authorization, execution, delivery, performance
and enforceability of, and required consents, approvals, orders and
authorizations of governmental authorities relating to, the Merger Agreement
and related matters; (v) documents filed by each of BTI and Comverse with the
Commission, the accuracy of information contained therein and the absence of
undisclosed liabilities of each of BTI and Comverse; (vi) the accuracy of
information supplied by each of BTI and Comverse in connection with this Joint
Proxy Statement/Prospectus and the Registration Statement of which it is a
part; (vii) absence of material changes or events with respect to each of BTI
and Comverse; (viii) compliance with applicable laws; (ix) absence of changes
in benefit plans; (x) matters relating to the Employee Retirement Income
Security Act of 1974, as amended; (xi) filing of tax returns and payment of
taxes; (xii) required stockholder votes; (xiii) the satisfaction of certain
state takeover statutes' requirements; (xiv) the absence of actions that would
prevent using the pooling of interests method to account for the Merger; (xv)
engagement and payment of fees of brokers, investment bankers, finders and
financial advisors; (xvi) receipt of fairness opinions; (xvii) ownership by
BTI of Comverse Common Stock and by Comverse of BTI Common Stock; (xviii)
litigation matters; (xix) environmental matters; (xx) the inapplicability of
the BTI Rights Agreement to the Merger Agreement; (xxi) material contracts;
(xxii) intellectual property matters; and (xxiii) customers.
46
<PAGE>
THE COMPANIES
Comverse
Comverse, a New York corporation, designs, develops, manufactures, markets
and supports computer and telecommunications systems and software for
multimedia communications and information processing applications. Comverse's
systems are used in a broad range of applications by wireline and wireless
telephone network operators, government agencies, call centers, financial
institutions and other public and commercial organizations worldwide.
Comverse has developed three main product lines: the TRILOGUE family of
multimedia enhanced service platforms; the AUDIODISK family of multiple
channel, multiple media digital monitoring systems; and the ULTRA Series of
digital recording systems. The TRILOGUE systems enable many simultaneous users
to access a broad range of enhanced services, such as call answering, voice
and fax messaging and information services, personal number and other
"personal assistant" services. Comverse markets TRILOGUE throughout the world,
and is a market-share leader in providing large capacity messaging systems to
international telephone network operators. Comverse's AUDIODISK systems enable
many simultaneous users to monitor, record and process voice, image
(facsimile) and data communications from multiple channels in a variety of
analog and digital formats. AUDIODISK systems also provide for the archiving
of large volumes of recorded information. The systems have been sold to law
enforcement, military, and intelligence agencies. The ULTRA product line is a
family of digital recording systems, designed to address the growing need for
recording and playback operations in a variety of public and private markets.
The ULTRA Series is comprised of six products, each designed to meet the
specific needs of targeted market segments (inbound and outbound call centers,
"911" emergency service providers, correctional facilities, public health and
safety organizations and financial institutions). Comverse's products
incorporate advanced technologies in the areas of digital signal processing,
facsimile protocols, telephony interfaces, mass storage, digital networking,
multiprocessor computer architecture and real-time software design.
Comverse's principal executive offices are located, and after the Merger
will remain located, at 170 Crossways Park Drive, Woodbury, New York 11797;
Comverse's telephone number is (516) 677-7200.
BTI
BTI, a Delaware corporation, is a leading worldwide provider of
communications and information processing systems and applications that enable
telecommunications carriers to provide their residential, business, wireless
and cable subscribers with enhanced services, such as call answering, voice
messaging, fax processing, pager notification and other multimedia
capabilities. Enhanced services allow subscribers to improve their
communications through the recording, storage, access and distribution of
messages and other information. BTI develops, manufactures, markets and
supports standard and customized solutions comprising enhanced systems
platforms and software applications. BTI's products are used in wireline,
cable wireline and wireless networks, operating with existing network
switching equipment to deliver services accessible through commonly available
telephones, fax machines, pagers and personal computers. BTI's customers
include approximately half of the world's twenty largest telephone companies.
BTI enhanced services platforms are its Access NP, first shipped in October
1995, and its CO ACCESS Network Services Platform, first shipped in November
1988. BTI's platforms employ a distributed system architecture and modular
design in order to achieve the high capacity, scalability and reliability
needed by telecommunications carriers to deploy enhanced services on a mass
scale. BTI's AccessMax Application Software Environment, an object-oriented
software environment designed to facilitate development of applications for
its Access NP and CO ACCESS platforms, allows telecommunications carrier and
third-party developer customers to create and adapt service offerings to meet
changing market needs and introduce new services.
BTI's principal executive offices are located at 100 Quannapowitt Parkway,
Wakefield, Massachusetts 01880; BTI's telephone number is (781) 246-9000.
47
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
On the Record Date, there were approximately 1,513 holders of record of
Comverse Common Stock and approximately 1,616 holders of record of BTI Common
Stock.
The principal trading market for Comverse Common Stock is the Nasdaq. The
principal trading market for BTI Common Stock is the NYSE. Prior to January
13, 1997, BTI Common Stock was traded on the Nasdaq. The following tables set
forth, for the periods indicated, the high and low closing sale prices of
Comverse Common Stock on the Nasdaq and BTI Common Stock on the NYSE Composite
Transaction Tape or the Nasdaq, as the case may be, as reported by The Wall
Street Journal. The trading symbol for Comverse Common Stock is "CMVT," and
the trading symbol for BTI Common Stock is "BSN." The trading symbol for BTI
Common Stock while trading on the Nasdaq was "BSTN."
<TABLE>
<CAPTION>
COMVERSE
COMMON STOCK
DOLLARS PER SHARE
-----------------
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL YEAR END
December 31, 1995:
First Quarter....................................... 14 5/8 11
Second Quarter...................................... 18 1/4 13 1/4
Third Quarter....................................... 23 3/8 17 9/64
Fourth Quarter...................................... 25 11/16 19 15/16
December 31, 1996:
First Quarter....................................... 25 1/8 16 5/8
Second Quarter...................................... 31 3/16 23 3/8
Third Quarter....................................... 41 3/8 23 3/4
Fourth Quarter...................................... 38 1/8 32 9/16
December 31, 1997:
First Quarter....................................... 46 3/8 36 7/8
Second Quarter...................................... 52 36 1/2
Third Quarter....................................... 54 3/8 45
Fourth Quarter (through November 25)................ 54 3/16 32 5/16
<CAPTION>
BTI COMMON STOCK
DOLLARS PER SHARE
-----------------
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL YEAR END
January 31, 1996:
First Quarter....................................... 16 3/4 12 1/8
Second Quarter...................................... 20 5/8 13 1/2
Third Quarter....................................... 19 1/8 12 1/4
Fourth Quarter...................................... 15 5/8 11
January 31, 1997:
First Quarter....................................... 17 3/8 12
Second Quarter...................................... 18 7/8 13 1/2
Third Quarter....................................... 17 1/8 12 3/4
Fourth Quarter...................................... 30 7/8 16 7/8
January 31, 1998:
First Quarter....................................... 33 1/2 17 3/8
Second Quarter...................................... 31 20 3/8
Third Quarter....................................... 35 1/2 24 1/2
Fourth Quarter (through November 25)................ 26 7/8 20 15/16
</TABLE>
On August 20, 1997, the last trading day prior to the announcement of the
signing of the Merger Agreement, the closing sale price per share of Comverse
Common Stock on the Nasdaq was $48 1/2 and the closing sale price per share of
BTI Common Stock on the NYSE Composite Transaction Tape was $31 5/8. On
November 25, 1997, the last practicable trading day for which information was
available prior to the date of this Joint Proxy Statement/Prospectus, the
closing sale price per share of Comverse Common Stock on the Nasdaq was $32
5/16 and the closing sale price per share of BTI Common Stock on the NYSE
Composite Transaction Tape was $20 15/16. Historically, Comverse and BTI have
not paid dividends on their common stock. Comverse does not anticipate that it
will pay any dividends on Comverse Common Stock following the Merger.
48
<PAGE>
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined balance sheet as of
September 30, 1997 combines the unaudited historical balance sheets of
Comverse as of September 30, 1997 and BTI as of October 31, 1997, giving
effect to the Merger as though it had been consummated as of September 30,
1997. The following unaudited pro forma condensed combined statements of
income for each of the three years in the period ended December 31, 1996
combine the historical consolidated statements of income of Comverse for each
of the three years in the period ended December 31, 1996 and BTI for each of
the three years in the period ended January 31, 1997, giving effect to the
Merger as though it had been consummated at the beginning of each period
presented. The following unaudited pro forma condensed combined statements of
income for each of the nine-month periods ended September 30, 1997 and 1996
combine the unaudited historical consolidated statements of income of Comverse
for each of the nine-month periods ended September 30, 1997 and 1996 and BTI
for each of the nine-month periods ended October 31, 1997 and 1996, giving
effect to the Merger as though it had been consummated at the beginning of
each period presented. The Merger is intended to be accounted for as a pooling
of interests. This information should be read in conjunction with the (i)
audited consolidated financial statements and other financial information
included in Comverse's audited consolidated financial statements which are
included in Comverse's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, including the notes thereto, (ii) Comverse's unaudited
consolidated interim financial information which is included in Comverse's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1997,
including the notes thereto, (iii) the audited consolidated financial
statements and other financial information contained in BTI's Annual Report on
Form 10-K for the fiscal year ended January 31, 1997, including the notes
thereto, and (iv) BTI's unaudited consolidated interim financial information
which is included in BTI's Quarterly Report on Form 10-Q for the fiscal
quarter ended October 31, 1997, including the notes thereto, and in each case
incorporated by reference herein. This unaudited pro forma condensed combined
financial information is not necessarily indicative of the operating results
and financial position that might have been achieved had the Merger occurred
as of the beginning of the earliest period presented, nor are they necessarily
indicative of operating results and financial position which may occur in the
future.
The pro forma data do not reflect any costs associated with the integration
and consolidation of the Companies anticipated by Comverse management as a
result of the Merger.
49
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMVERSE BTI
SEPTEMBER 30, OCTOBER 31, PRO FORMA
1997 1997 ADJUSTMENTS COMBINED(/1/)
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $149,074 $ 15,934 $165,008
Bank time deposits and
short-term
investments........... 113,600 -- 113,600
Accounts receivable,
net................... 79,233 89,386 168,619
Inventories........... 35,030 26,893 61,923
Prepaid expenses and
other current assets.. 20,265 11,323 31,588
-------- -------- --------
Total current
assets.............. 397,202 143,536 540,738
Long-term receivables,
net..................... 860 -- 860
Property and equipment,
net..................... 22,716 36,999 (694)(/2/) 59,021
Investments............. 6,473 -- 6,473
Software development
costs, net.............. 12,028 -- 12,028
Deferred costs and other
assets, net............. 6,619 8,144 14,763
-------- -------- -------- --------
$445,898 $188,679 $ (694) $633,883
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses...... $ 48,586 $ 38,716 $ 10,000 (/3/) $ 97,302
Bank loans............ 16,916 2,644 19,560
Advance payments from
customers............. 9,247 16,738 25,985
Other current
liabilities........... 915 -- 915
-------- -------- -------- --------
Total current
liabilities......... 75,664 58,098 10,000 143,762
Convertible subordinated
debentures.............. 115,000 -- 115,000
Long-term debt and other
liabilities............. 6,879 15,507 22,386
-------- -------- -------- --------
Total liabilities... 197,543 73,605 10,000 281,148
Stockholders' equity:
Common stock.......... 2,515 27 1,755 (/4/) 4,297
Additional paid-in
capital............... 139,806 74,909 (1,755)(/4/) 212,960
Cumulative translation
adjustment............ (43) 488 445
Unrealized gain on
available for sale
securities, net of
tax.................. 3,026 -- 3,026
Retained earnings..... (694)(/2/)
103,051 39,650 (10,000)(/3/) 132,007
-------- -------- -------- --------
Total stockholders'
equity.............. 248,355 115,074 (10,694) 352,735
-------- -------- -------- --------
$445,898 $188,679 $ (694) $633,883
======== ======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
50
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMVERSE BTI
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1996 JANUARY 31, 1997 PRO FORMA
HISTORICAL HISTORICAL COMBINED(/1/)
------------------- ------------------- -------------
<S> <C> <C> <C>
Revenues:
Sales.................. $197,181 $192,458 $389,639
Interest and other
income................. 10,130 881 11,011
-------- -------- --------
Total revenues....... 207,311 193,339 400,650
Costs and expenses:
Research and
development............ 36,613 42,136 78,749
Less reimbursement..... (9,172) (3,349) (12,521)
-------- -------- --------
Net research and
development............ 27,441 38,787 66,228
Cost of sales.......... 84,319 85,205 169,524
Selling, general and
administrative......... 53,347 40,257 93,604
Royalties and license
fees................... 4,365 6,078 10,443
Minority interest and
equity in loss of
affiliate.............. (35) 479 444
Interest expense and
other.................. 7,063 1,572 8,635
-------- -------- --------
Total costs and
expenses............. 176,500 172,378 348,878
-------- -------- --------
Income before gain on
issuance of subsidiary
shares and income tax
provision............... 30,811 20,961 51,772
Gain on issuance of
subsidiary shares........ 535 -- 535
-------- -------- --------
Income before income tax
provision................ 31,346 20,961 52,307
Income tax provision..... 3,358 6,812 10,170
-------- -------- --------
Net income............... $ 27,988 $ 14,149 $ 42,137
======== ======== ========
Earnings per share:
Primary................ $ 1.16 $ 0.51 $ 1.01
======== ======== ========
Fully diluted.......... $ 1.15 $ 0.51 $ 1.00
======== ======== ========
Weighted average number
of common and common
equivalent shares
outstanding:
Primary................ 26,447 27,585 44,377
======== ======== ========
Fully diluted.......... 26,572 27,585 44,502
======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
51
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMVERSE BTI
TWELVE MONTHS TWELVE MONTHS
ENDED ENDED
DECEMBER 31, 1995 JANUARY 31, 1996 PRO FORMA
HISTORICAL HISTORICAL COMBINED(/1/)
----------------- ---------------- -------------
<S> <C> <C> <C>
Revenues:
Sales...................... $137,149 $105,267 $242,416
Interest and other income.. 8,747 1,169 9,916
-------- -------- --------
Total revenues........... 145,896 106,436 252,332
Costs and expenses:
Research and development... 27,161 26,935 54,096
Less reimbursement......... (7,735) (5,051) (12,786)
-------- -------- --------
Net research and develop-
ment...................... 19,426 21,884 41,310
Cost of sales.............. 59,297 45,683 104,980
Selling, general and admin-
istrative................. 41,388 31,565 72,953
Royalties and license fees. 2,419 902 3,321
Minority interest and eq-
uity in loss of affiliate. (147) -- (147)
Warrants and other expenses
associated with AT&T con-
tract acquisition......... -- 21,000 21,000
Interest expense and other. 4,406 187 4,593
-------- -------- --------
Total costs and expenses. 126,789 121,221 248,010
-------- -------- --------
Income before income tax
provision.................... 19,107 (14,785) 4,322
Income tax provision......... 2,057 105 2,162
-------- -------- --------
Net income................... $ 17,050 $(14,890) $ 2,160
======== ======== ========
Earnings per share:
Primary.................... $ 0.75 $ (0.60) $ 0.06
======== ======== ========
Fully diluted.............. $ 0.75 $ (0.60) $ 0.06
======== ======== ========
Weighted average number of
common and common equivalent
shares outstanding:
Primary.................... 22,602 24,859 38,760
======== ======== ========
Fully diluted.............. 22,709 24,859 38,867
======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
52
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMVERSE BTI
TWELVE MONTHS TWELVE MONTHS
ENDED ENDED
DECEMBER 31, 1994 JANUARY 31, 1995 PRO FORMA
HISTORICAL HISTORICAL COMBINED(/1/)
----------------- ---------------- ---------
<S> <C> <C> <C>
Revenues:
Sales...................... $ 108,150 $ 89,056 $ 197,206
Interest and other income.. 6,162 1,098 7,260
--------- -------- ---------
Total revenues........... 114,312 90,154 204,466
Costs and expenses:
Research and development... 18,117 21,871 39,988
Less reimbursement......... (5,477) (8,162) (13,639)
--------- -------- ---------
Net research and
development............... 12,640 13,709 26,349
Cost of sales.............. 47,715 31,345 79,060
Selling, general and
administrative............ 33,681 26,217 59,898
Royalties and license fees. 2,186 199 2,385
Minority interest and
equity in loss of
affiliate................. 262 -- 262
Interest expense and other. 3,947 213 4,160
--------- -------- ---------
Total costs and expenses. 100,431 71,683 172,114
--------- -------- ---------
Income before gain on
issuance of subsidiary
shares and income tax
provision................... 13,881 18,471 32,352
Income tax provision......... 1,783 5,527 7,310
--------- -------- ---------
Net income................... $ 12,098 $ 12,944 $ 25,042
========= ======== =========
Earnings per share:
Primary.................... $ 0.55 $ 0.50 $ 0.65
========= ======== =========
Fully diluted.............. $ 0.55 $ 0.50 $ 0.65
========= ======== =========
Weighted average number of
common and common equivalent
shares outstanding:
Primary.................... 21,868 25,751 38,606
========= ======== =========
Fully diluted.............. 21,868 25,751 38,606
========= ======== =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
53
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMVERSE BTI NINE MONTHS
NINE MONTHS ENDED ENDED
SEPTEMBER 30, 1997 OCTOBER 31, 1997 PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED(/1/)
------------------ ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Revenues:
Sales................. $202,681 $198,342 $(836)(/2/) $400,187
Interest and other
income............... 11,973 686 12,659
-------- -------- ----- --------
Total revenues...... 214,654 199,028 (836) 412,846
Costs and expenses:
Research and
development.......... 39,121 50,133 89,254
Less reimbursement.... (11,344) (4,863) (16,207)
-------- -------- --------
Net research and
development.......... 27,777 45,270 73,047
Cost of sales......... 85,953 74,973 (142)(/2/) 160,784
Selling, general and
administrative....... 53,756 41,255 95,011
Royalties and license
fees................. 4,981 5,413 10,394
Minority interest and
equity in loss of
affiliate............ (30) (122) (152)
Interest expense and
other................ 6,997 1,792 8,789
-------- -------- ----- --------
Total costs and
expenses........... 179,434 168,581 (142) 347,873
-------- -------- ----- --------
Income before income tax
provision.............. 35,220 30,447 (694) 64,973
Income tax provision.... 3,525 6,682 10,207
-------- -------- ----- --------
Net income.............. $ 31,695 $ 23,765 $(694) $ 54,766
======== ======== ===== ========
Earnings per share:
Primary............... $ 1.17 $ 0.84 $ 1.20
======== ======== ========
Fully diluted......... $ 1.17 $ 0.84 $ 1.20
======== ======== ========
Weighted average number
of common and common
equivalent shares
outstanding:
Primary............... 27,081 28,373 45,523
======== ======== ========
Fully diluted......... 27,188 28,373 45,630
======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
54
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMVERSE BTI
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 OCTOBER 31, 1996 PRO FORMA
HISTORICAL HISTORICAL COMBINED(/1/)
------------------ ----------------- -------------
<S> <C> <C> <C>
Revenues:
Sales..................... $138,931 $130,024 $268,955
Interest and other income. 6,080 470 6,550
-------- -------- --------
Total revenues.......... 145,011 130,494 275,505
Costs and expenses:
Research and development.. 25,911 28,549 54,460
Less reimbursement........ (6,339) (3,204) (9,543)
-------- -------- --------
Net research and
development.............. 19,572 25,345 44,917
Cost of sales............. 59,476 58,411 117,887
Selling, general and
administrative........... 37,612 27,133 64,745
Royalties and license
fees..................... 2,948 4,478 7,426
Minority interest and
equity in loss of
affiliate................ (232) 597 365
Interest expense and
other.................... 4,289 1,004 5,293
-------- -------- --------
Total costs and
expenses............... 123,665 116,968 240,633
-------- -------- --------
Income before gain on
issuance of subsidiary
shares and income tax
provision.................. 21,346 13,526 34,872
Gain on issuance of
subsidiary shares.......... 535 -- 535
-------- -------- --------
Income before income tax
provision.................. 21,881 13,526 35,407
Income tax provision........ 2,288 4,734 7,022
-------- -------- --------
Net income.................. $ 19,593 $ 8,792 $ 28,385
======== ======== ========
Earnings per share:
Primary................... $ 0.84 $ 0.32 $ 0.69
======== ======== ========
Fully diluted............. $ 0.82 $ 0.32 $ 0.68
======== ======== ========
Weighted average number of
common and common
equivalent shares
outstanding:
Primary................... 23,243 27,823 41,328
======== ======== ========
Fully diluted............. 26,486 27,823 44,571
======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
55
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(1) The unaudited pro forma condensed combined balance sheet combines the
unaudited historical consolidated balance sheet of Comverse at September 30,
1997 with the unaudited historical consolidated balance sheet of BTI at
October 31, 1997. The unaudited pro forma condensed combined statements of
income combine the unaudited historical consolidated statements of income of
Comverse for the nine months ended September 30, 1997 and 1996 and for the
years ended December 31, 1996, 1995 and 1994 with the unaudited historical
consolidated statements of income of BTI for the nine months ended October 31,
1997 and 1996 and for the fiscal years ended January 31, 1997, 1996 and 1995.
Certain amounts reflected in the historical financial statement presentations
of both Companies have been reclassified to conform to the unaudited pro forma
condensed combined presentation.
The unaudited pro forma condensed combined financial information excludes
costs associated with the integration and consolidation of the Companies, the
total amount of which is not expected to exceed $70 million.
Comverse and BTI are in the process of reviewing their respective accounting
policies and do not expect there to be any significant adjustments necessary
in order to conform such policies.
The pro forma combined primary and fully diluted earnings per share for the
respective periods represented is based on the combined weighted average
number of common shares and share equivalents of Comverse and BTI. The number
of common shares and share equivalents of BTI is based on an Exchange Ratio of
0.65 shares of Comverse Common Stock for each issued and outstanding share of
BTI Common Stock (including share equivalents).
(2) Adjustment to eliminate sales between Comverse and BTI.
(3) Adjustment to reflect the estimated direct costs for investment banking,
legal and miscellaneous transactions costs associated with the Merger.
(4) Adjustment to reflect the issuance of Comverse Common Stock for BTI
Common Stock.
56
<PAGE>
DIRECTORS OF COMVERSE FOLLOWING THE MERGER
Directors
The individuals listed under the heading "Continuing Comverse Directors" are
current directors of Comverse and are standing for re-election at the Comverse
Annual Meeting. Pursuant to the Merger Agreement, if the Merger is
consummated, as of the Effective Time, the Comverse Board will be increased to
nine directors and the individuals listed under "BTI Designees" will become
directors in addition to the seven continuing directors of Comverse. If the
Merger is not consummated, the seven directors elected at the Comverse Annual
Meeting will be the seven directors of Comverse.
Continuing Comverse Directors
KOBI ALEXANDER, age 45, will remain Chairman of the Board, President and
Chief Executive Officer and a director of Comverse following the Merger. Mr.
Alexander has served as Chairman of the Board of Comverse since September
1986, as President and Chief Executive Officer since April 1987 and as a
director of Comverse since its formation in October 1984. Mr. Alexander also
served as Co-Managing Director of Comverse's wholly owned Israeli Subsidiary,
Efrat Future Technology Ltd. ("Efrat") from its formation in 1982 until
October 1986, and currently serves as Chairman of the Board of Directors of
Efrat. From October 1984 to September 1986, Mr. Alexander served as Co-
Chairman and Co-Chief Executive Officer of Comverse. Prior to the formation of
Efrat, in 1980 and 1981, Mr. Alexander served as an independent financial and
business consultant to a number of multinational corporations. Between 1978
and 1980, Mr. Alexander worked in the Corporate Finance Department of Shearson
Loeb Rhoades (currently Smith Barney). Mr. Alexander received a B.A., magna
cum laude, in Economics from the Hebrew University of Jerusalem in 1977, and
an M.B.A. in Finance from New York University in 1980. He has served as the
Chairman of the High-Tech Research and Development Section of the Israeli
Association of Industrialists.
CARMEL VERNIA, age 45, will remain Chief Operating Officer and a director of
Comverse following the Merger. Mr. Vernia has been a director of Comverse
since August 20, 1997 and has been Chief Operating Officer since January 1994.
He also is a Managing Director of Efrat, where he has been employed since 1984
in various capacities, including Vice President, Manager of the Government
Systems Division and Manager of the Research and Development Division. Prior
to joining Efrat, he was employed by Elco Ltd, in Israel, where he headed the
development of advanced perimeter intrusion detection systems. Between 1980
and 1982, Mr. Vernia was employed by Intel Corporation in Santa Clara,
California, where he served as applications engineer for digital signal
processing, digital telephony and data communications products. He received a
B.Sc. in Electrical Engineering from the Technion, Israel Institute of
Technology, in 1974 and a M.Sc. in Electrical and Computer Engineering from
the University of California at Davis in 1980.
WILLIAM F. SORIN, age 49, will remain as Corporate Secretary and a director
of Comverse following the Merger. Mr. Sorin has served as a director and the
Corporate Secretary of Comverse since its formation in October 1984. He is an
attorney engaged in private practice and is general counsel to Comverse. Mr.
Sorin received a B.A. from Trinity College in 1970 and a J.D., cum laude, from
Harvard Law School in 1973.
ZVI ALEXANDER, age 75, will remain a director of Comverse following the
Merger. He has been a director of Comverse since August 1989. Mr. Alexander
has been actively engaged in the energy industry for more than 30 years. He
served as Chief Executive Officer of the Israeli National Oil Company and its
successor from 1966 through 1976, and subsequently engaged in activities in
the energy industry as a consultant and independent entrepreneur. Mr.
Alexander is currently Chairman of A&T Exploration Company Ltd. Zvi Alexander
is the father of Kobi Alexander and Shaula Yemini.
JOHN H. FRIEDMAN, age 44, will remain a director of Comverse following the
Merger. Mr. Friedman has been a director of Comverse since June 1994. He is
the Managing Director of Easton Capital Corporation, a private investment firm
founded by Mr. Friedman in 1991. From 1989 to 1991, Mr. Friedman was a
Managing Director of Security Pacific Capital Investors. Prior to joining that
firm, he was a Managing Director of
57
<PAGE>
E.M. Warburg, Pincus & Co., Inc., where he was employed form 1981 to 1989.
From 1978 to 1980, Mr. Friedman practiced law with the firm of Sullivan &
Cromwell in New York City. Mr. Friedman received a B.A., magna cum laude, from
Yale University and a J.D. from Yale Law School.
SAM OOLIE, age 61, will remain a director of Comverse following the Merger.
Mr. Oolie has been a director of Comverse since May 1986. He has been Chairman
and Chief Executive Officer of NoFire Technologies, Inc., a manufacturer of
high performance fire retardant products since August 1995. He has also been
Chairman of Oolie Enterprises, an investment company, since July 1985. He also
has served as a director of CFC Associates, a venture capital firm, since
January 1984. He was Chairman of The Nostalgia Network, a cable television
network, from April 1987 to January 1990 and was Vice Chairman and director of
American Mobile Communications, Inc., a cellular telephone company, from
February 1987 to July 1989. From February 1962 to July 1985, Mr. Oolie was
Chairman, Chief Executive Officer and a director of Food Concepts, Inc., a
provider of food services to institutions and hospitals. Mr. Oolie also serves
as a director of Avesis, Inc., NoFire Technologies, Inc., and Noise
Cancelation Technologies, Inc. Mr. Oolie received a B.S. from Massachusetts
Institute of Technology in 1958 and an M.B.A. from Harvard Business School in
1961.
SHAULA A. YEMINI, PH.D., age 49, will remain a director of Comverse
following the Merger. She has been a director of Comverse since August 20,
1997. Dr. Yemini is President and Chief Executive Officer of System Management
Arts Incorporated ("SMARTS"), a developer of automated network problem
diagnosis software. Prior to the formation of SMARTS in 1993, Dr. Yemini held
various research and managerial positions at International Business Machines
Corporation ("IBM") since June 1982, most recently serving as Senior Manager
at IBM's T. J. Watson Center, where she built and managed the Distributed
Systems Software Technology Department. Prior to that, she taught computer
sciences at the Courant Institute of New York University. Dr. Yemini received
a B.Sc. in Mathematics and Physics in 1972, and an M.Sc. in Applied
Mathematics cum laude in 1974, both from the Hebrew University in Jerusalem,
and a Ph.D. in Computer Science from the University of California at Los
Angeles in 1980. Dr. Yemini is the sister of Kobi Alexander and the daughter
of Zvi Alexander.
BTI Designees
GREG C. CARR, age 38, one of BTI's two co-founders, served as President and
Chief Executive Officer of BTI from April 1986 to August 1992. He has served
as a director of BTI since BTI's formation in April 1986 and as Chairman of
its Board since April 1992. Mr. Carr also is Chairman of Prodigy, Inc., a
global Internet service provider. He holds a B.S. degree in history from Utah
State University and a Masters Degree in Public Policy from Harvard
University.
FRANCIS E. GIRARD, age 59, a BTI director, was elected President and Chief
Executive Officer of BTI effective May 31, 1996, and appointed as a director
effective May 16, 1996. Previously, he served as Executive Vice President of
World Sales since October 1994. He joined BTI in January 1989 as Senior Vice
President of Sales and assumed the position of Senior Vice President and
General Manager of North American Markets in January 1994. Previously, he was
Vice President of Sales, Marketing and Support of NEC Information Systems,
Inc., a U.S. distributor of NEC computers and peripherals, from 1985 to 1989.
Mr. Girard has also served as Director of Marketing for the National
Independent Sales Organization and Reseller Marketing Programs at Wang
Laboratories, Inc., from 1983 to 1985, in addition to several other sales and
marketing management positions. Mr. Girard holds a B.A. degree in Business
from Merrimack College.
Committees of the Comverse Board
The Comverse Board has four standing committees. The Executive Committee
(consisting of Messrs. K. Alexander, Oolie and Sorin) is empowered to exercise
the full authority of the Comverse Board in circumstances when convening the
full Board is not practicable. The Audit Committee (consisting of Messrs. K.
Alexander, Friedman and Oolie) is responsible for reviewing audit procedures
and supervising the relationship between Comverse and its independent
auditors. The Remuneration Committee (consisting of Messrs. Friedman, Oolie
and Dr. Yemini) is responsible for approving compensation arrangements for
senior management of Comverse and administering its stock option plans. The
Corporate Planning and Structure Committee (consisting of Messrs. Friedman,
Oolie and Sorin) reviews and makes recommendations to the Board concerning
issues of corporate
58
<PAGE>
structure and planning, including the formation and capitalization of
subsidiaries of Comverse, the structure of acquisition transactions, the terms
of any stock options and other compensation arrangements in respect of its
subsidiaries, situations that might involve conflicts of interest relative to
Comverse and its subsidiaries and the terms of significant transactions
between Comverse and its subsidiaries. Each of the Committees of the Comverse
Board following the Merger is expected to have the same responsibilities, and
to be comprised of the same directors, as the Committees currently; however,
pursuant to the Merger Agreement, Mr. Carr will be added to the Remuneration
Committee. See "The Merger--Certain Transactions; Conflicts of Interest" and
"Other Information for Comverse Annual Meeting--Proposal No. 2--Election of
Directors--Committees and Meetings of Comverse Board."
Stock Ownership of Directors and Executive Officers
Other than Messrs. Kobi Alexander and Carr, no director or executive officer
of Comverse is expected to beneficially own more than 1.0% of the outstanding
shares of Comverse Common Stock after giving effect to the Merger. After
giving effect to the Merger, Mr. Alexander is expected to beneficially own
approximately 2.0%, and Mr. Carr is expected to beneficially own approximately
5.4% of the outstanding shares of Comverse Common Stock. After giving effect
to the Merger, based on the number of currently outstanding shares of Comverse
Common Stock and BTI Common Stock, the directors and executive officers of
Comverse as a group (10 individuals) are expected to beneficially own
approximately 8.4% of the outstanding shares of Comverse Common Stock.
59
<PAGE>
DESCRIPTION OF COMVERSE CAPITAL STOCK
THE FOLLOWING SUMMARY OF THE TERMS OF THE CAPITAL STOCK OF COMVERSE DOES NOT
PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
COMVERSE CERTIFICATE AND THE COMVERSE BY-LAWS. SEE "WHERE YOU CAN FIND MORE
INFORMATION."
Authorized Capital Stock
The total number of authorized shares of capital stock of Comverse is
102,500,000, consisting of 100,000,000 shares of Comverse Common Stock and
2,500,000 shares of preferred stock, par value $0.01 per share ("Comverse
Preferred Stock"). On the Record Date, approximately 31,693,448 shares of
Comverse Common Stock were either issued and outstanding or reserved for
issuance, including 2,513,661 shares of Comverse Common Stock which have been
reserved for issuance in connection with Comverse's outstanding 5 3/4%
Convertible Subordinate Debentures due 2006 ("Convertible Debentures"). Based
on the current number of outstanding shares of BTI Common Stock, Comverse
expects to issue approximately 18,088,876 shares of Comverse Common Stock to
holders of BTI Common Stock in the Merger.
Comverse currently has no plans, understandings, agreements or arrangements
concerning the issuance of additional shares of Comverse Common Stock, except
for the shares to be issued in connection with the Merger and shares reserved
or to be reserved for issuance by Comverse, including pursuant to Comverse
employee benefits plans and BTI's employee benefit plans which will be assumed
in the Merger, in each case as described herein, in the Merger Agreement or in
the documents incorporated by reference herein. If any plans, understandings,
arrangements or agreements are made concerning the issuance of any such
shares, holders of the then outstanding shares of Comverse's capital stock may
or may not be given the opportunity to vote thereon, depending upon the nature
of any such transaction, the law applicable thereto, the policy of the Nasdaq
and the judgment of the Comverse Board regarding the submission thereof to
Comverse's shareholders. The current rules of the Nasdaq, however, would
require shareholder approval if the number of shares of Comverse Common Stock
to be issued would equal or exceed 20% of the number of such shares of
Comverse Common Stock outstanding immediately prior to such issuance.
Comverse Common Stock
Dividend Rights; Rights Upon Liquidation. Subject to any preferential rights
of holders of Comverse Preferred Stock, holders of shares of Comverse Common
Stock will be entitled to receive dividends on such stock out of assets
legally available for distribution when, as and if authorized and declared by
the Comverse Board and to share ratably in the assets of Comverse legally
available for distribution to its stockholders in the event of its
liquidation, dissolution or winding-up. Historically, Comverse has not paid
dividends on its common stock. Comverse does not anticipate that it will pay
any dividends on Comverse Common Stock following the Merger.
Voting Rights. Holders of Comverse Common Stock are entitled to one vote per
share on all matters voted on generally by shareholders, including the
election of directors, and, except as otherwise required by law or except as
provided with respect to any series of Comverse Preferred Stock, the holders
of such shares will possess all voting power. Because the Comverse Certificate
does not provide for cumulative voting rights, the holders of a plurality of
the voting power of the then outstanding shares of capital stock entitled to
be voted in the election of directors represented at a meeting will be able to
elect all the directors standing for election at such meeting.
Miscellaneous. The shares of Comverse Common Stock, when issued to holders
of outstanding shares of BTI Common Stock in connection with the Merger, will
be duly authorized, validly issued, fully paid and non-assessable. Holders of
Comverse Common Stock have no preferences or preemptive, conversion, or
exchange rights. Shares of Comverse Common Stock are not liable for further
calls or assessments by Comverse and the holders of Comverse Common Stock will
not be liable for any liabilities of Comverse. American Stock Transfer & Trust
Company will act as transfer agent and registrar for the Comverse Common
Stock.
Comverse Preferred Stock
The Comverse Certificate provides that Comverse Preferred Stock may be
issued from time to time in one or more series, and the Comverse Board,
without further approval of shareholders, will be authorized to fix the
designations, rights, preferences and limitations applicable to each series of
Comverse Preferred Stock. The issuance of such stock could, among other
things, adversely affect the voting, dividend, and liquidation rights of the
holders of Comverse Common Stock. Currently, no Comverse Preferred Stock has
been issued and the Comverse Board has no current intention to issue any
Comverse Preferred Stock.
60
<PAGE>
COMPARISON OF RIGHTS OF COMVERSE AND BTI STOCKHOLDERS
THE RIGHTS OF COMVERSE SHAREHOLDERS ARE CURRENTLY GOVERNED BY THE NYBCL AND
THE COMVERSE CERTIFICATE AND COMVERSE BY-LAWS. THE RIGHTS OF BTI STOCKHOLDERS
ARE CURRENTLY GOVERNED BY THE DGCL AND THE CERTIFICATE OF INCORPORATION AND
BY-LAWS OF BTI (THE "BTI CERTIFICATE" AND "BTI BY-LAWS," RESPECTIVELY). IN
ACCORDANCE WITH THE MERGER AGREEMENT, AT THE EFFECTIVE TIME, THE RIGHTS OF BTI
STOCKHOLDERS WHO BECOME SHAREHOLDERS OF COMVERSE IN THE MERGER WILL BE
GOVERNED BY THE NYBCL, THE COMVERSE CERTIFICATE AND THE COMVERSE BY-LAWS. THE
RIGHTS OF A HOLDER OF COMVERSE COMMON STOCK ARE SIMILAR IN SOME RESPECTS AND
DIFFERENT IN OTHER RESPECTS FROM THE RIGHTS OF A HOLDER OF BTI COMMON STOCK.
CERTAIN OF THESE SIMILARITIES AND DIFFERENCES ARE SUMMARIZED BELOW. THIS
SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE NYBCL, THE DGCL, THE COMVERSE CERTIFICATE, THE COMVERSE BY-
LAWS, THE BTI CERTIFICATE AND THE BTI BY-LAWS. COPIES OF THE COMVERSE
CERTIFICATE, THE COMVERSE BY-LAWS, THE BTI CERTIFICATE AND THE BTI BY-LAWS ARE
INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS. SEE "WHERE
YOU CAN FIND MORE INFORMATION."
Authorized Capital Stock
The total number of authorized shares of capital stock of Comverse is
102,500,000, consisting of 100,000,000 shares of Comverse Common Stock and
2,500,000 shares of Comverse Preferred Stock. The total number of authorized
shares of capital stock of BTI is 60,000,000 shares of BTI Common Stock.
Directors
The Comverse By-Laws provide that the number of directors constituting the
Comverse Board shall not be less than three nor more than eleven, as fixed
from time to time by the Comverse Board, provided no decrease made in such
number shall shorten the term of any incumbent director. The Comverse Board
currently has seven directors and, at the Effective Time, will have nine
directors. See "Directors of Comverse Following the Merger."
The BTI By-Laws provide that the number of directors constituting the BTI
Board may be determined by vote of BTI stockholders or the BTI Board, but
shall not be less than one. The number of directors may be decreased by BTI
stockholders or by a majority of the directors then in office, but only to
eliminate vacancies existing by reason of the death, resignation, removal or
expiration of the term of one or more directors. The BTI Board currently has
seven directors.
Amendments to Certificate of Incorporation
Under the NYBCL and the DGCL, the affirmative vote of a majority of the
outstanding shares entitled to vote is required to amend a certificate of
incorporation. In addition, amendments which make changes relating to the
capital stock by increasing or decreasing the par value or the aggregate
number of authorized shares of a class, or otherwise adversely affecting the
rights of such class, must be approved by the majority vote of each class or
series of stock affected, even if such stock would not otherwise have such
voting rights.
Amendments to By-Laws
The Comverse By-Laws can be amended or repealed, or new By-Laws can be
adopted, by a majority vote of the shareholders or by a majority of the
Comverse Board; provided, that the Comverse Board may not repeal By-Laws
passed by the stockholders. The BTI By-Laws can be amended or repealed, or new
By-Laws can be adopted, by the BTI Board or by a 66 2/3% vote of the
stockholders.
Cumulative Voting
The Comverse Certificate and the BTI Certificate do not provide for
cumulative voting for directors.
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<PAGE>
Removal of Directors
The Comverse By-Laws provide that a director may be removed from office,
with or without cause, by vote of the shareholders, or, with cause, by the
Comverse Board. Furthermore, the NYBCL allows an action to procure a judgment
removing a director for cause to be brought by the attorney-general or by
holders of 10% of the outstanding shares, whether or not entitled to vote.
The DGCL and the BTI By-Laws provide that any director may be removed from
office, with or without cause, by holders of a majority of the outstanding
shares entitled to vote in an election of directors.
Filling Vacancies on the Board of Directors
The Comverse By-Laws provide that newly created directorships resulting from
an increase in the number of directors and other vacancies may be filled by a
majority vote of the directors in office, although less than a quorum, or by
election by the shareholders. The NYBCL provides that, unless a corporation's
certificate of incorporation or a specific provision in a by-law adopted by
the shareholders provides otherwise (the Comverse Certificate and Comverse By-
Laws do not), only shareholders may fill vacancies occurring by reason of
removal without cause.
The DGCL and the BTI By-Laws provide that vacancies may be filled by a
majority of the remaining directors, although less than a quorum, or by a sole
remaining director. The BTI By-Laws also provide that (i) newly created
directorships resulting from an increase in the number of directors may be
filled by a majority of the directors then in office or by election by the
stockholders and (ii) the stockholders shall fill vacancies occurring by
reason of removal at the meeting wherein a director is removed. If the
stockholders do not fill such vacancy at such meeting, the vacancy may be
filled by the directors.
Classification of Board of Directors
The NYBCL permits a classified board with as many as four classes but
prohibits fewer than three directors in any class. The DGCL permits a
classified board of directors with as many as three classes but does not
specify a minimum number of directors for each class. Neither Comverse nor BTI
has a classified Board.
Dividends
Under both the NYBCL and the DGCL, a corporation may generally pay dividends
out of surplus. In addition, the DGCL, unlike the NYBCL, permits a Delaware
corporation under certain circumstances to pay dividends, if there is no
surplus, out of its net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year.
Holding Company Reorganization
While no analogous provision exists under the NYBCL, Section 251 of the DGCL
permits a Delaware corporation to reorganize as a holding company without
stockholder approval.
Stockholders' Meetings and Notice Provisions
Under the NYBCL, shareholders may not call a special meeting unless there is
a failure to elect a sufficient number of directors to conduct the business of
the corporation or unless specifically authorized to do so by the
corporation's certificate of incorporation or by-laws. The Comverse By-Laws
provide that special meetings of shareholders may be called only by the
Comverse Board, the chairman of the board, the president or the holders of not
less than a majority of all the shares entitled to vote at the meeting.
Under the DGCL, special meetings of stockholders may be called by the board
of directors or by such person or persons as may be authorized by the
corporation's certificate of incorporation or by-laws. The BTI By-Laws provide
that special meetings may be called only by the BTI Board, the president or a
vice president.
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The Comverse By-Laws provide that written notice of every meeting of
shareholders, stating the purpose for which the meeting is called and the
date, time and place of the meeting, must be served not less than ten nor more
than 50 days before the meeting upon each shareholder entitled to vote at such
meeting or who, by reason of the taking of any action proposed at the meeting,
would be entitled to have his shares appraised.
The BTI By-Laws provide that written notice, stating the date, time and
place of the meeting and, in the case of a special meeting, the purpose of the
meeting, must be delivered not less than ten nor more than 60 days before the
meeting, by or at the direction of the president, secretary or the officer or
persons calling the meeting, to each stockholder of record.
Quorum
The Comverse By-Laws provide that the holders of a majority of the
outstanding shares entitled to vote at such meeting, whether present in person
or represented by proxy, constitute a quorum. However, the NYBCL provides that
in the case of a special meeting for the election of directors called by the
shareholders, the shareholders attending, in person or by proxy, and entitled
to vote in the election of directors, constitute a quorum solely for the
purpose of electing directors. The Comverse By-Laws provide that a majority of
the Comverse Board constitutes a quorum unless either the chairman of the
board or the president is absent and has not waived notice of the meeting.
The BTI By-Laws provide that the holders of 33 1/3% of the shares entitled
to vote at such meeting, whether present in person or represented by proxy,
constitute a quorum. The BTI By-Laws provide that a majority of the BTI Board
constitutes a quorum.
Voting by Stockholders
Under the NYBCL, corporate action generally must be authorized by a majority
of the votes cast at a meeting of shareholders by the holders of shares
entitled to vote thereon. The NYBCL provides that directors are elected by a
plurality of the votes cast at a meeting of shareholders by the holders of
shares entitled to vote in such election. Additionally, the NYBCL requires the
vote of two-thirds of all outstanding shares entitled to vote thereon for a
plan of merger or consolidation adopted by the board of directors of a New
York corporation, a guarantee given by a New York corporation not in
furtherance of its corporate purposes, a disposition of substantially all the
assets of a New York corporation if not made in the usual course of business,
or a dissolution of a New York corporation. Except for the election of
directors, which is by plurality, the Comverse By-Laws provide that action by
shareholders can be taken by the vote of the holders of a majority of the
shares represented, and entitled to vote, at a meeting of shareholders at
which a quorum is present.
Under the DGCL, corporate action generally must be authorized by a majority
of the shares represented, in person or by proxy, at any meeting in which a
quorum is present. Generally, the BTI Certificate and the BTI By-Laws provide
that, if a quorum is present, the vote of the majority of the shares
represented, and entitled to vote, at a meeting of stockholders will be the
act of the stockholders. However, the BTI Certificate requires (i) a majority
of all shares entitled to vote to amend Section 2 of Article VII of the BTI
Certificate (relating to director liability), (ii) a 66 2/3% vote of all
shares entitled to vote to amend the BTI By-Laws and (iii) a majority of all
shares entitled to vote to amend Article XI of the BTI Certificate (relating
to indemnification); and the BTI By-Laws require a majority of all outstanding
shares entitled to vote for the election of directors for stockholders to
remove directors.
Under the NYBCL, but not the DGCL, the issuance, by a corporation to its
directors, officers or employees of rights or options (other than substituted
rights or options issued in connection with a business combination) to
purchase from the corporation any of its shares, as an incentive to service or
continued service with the corporation, or the adoption of a plan providing
for such issuance, must be authorized by the vote of the holders of a majority
of all outstanding shares entitled to vote thereon.
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The NYBCL prohibits a New York corporation from making loans to its
directors without authorization by vote of the shareholders (excluding from
such vote the affected director's or directors' shares). The DGCL has no
comparable voting requirement but instead permits loans to, and guarantees on
behalf of, officers and employees of a Delaware corporation, including those
officers and employees who are also directors of the corporation, if, in the
judgment of the board, such loan or guarantee may reasonably be expected to
benefit the corporation.
Stockholder Action Without a Meeting
Under the NYBCL, any required or permitted action to be taken by
shareholders may be taken without a meeting with the written consent of all
outstanding shares entitled to vote thereon, unless the certificate of
incorporation provides for a lesser number. The Comverse Certificate does not
contain provisions with respect to shareholder action without a meeting.
Under the DGCL, unless otherwise provided by a corporation's certificate of
incorporation, any action which is to be taken by stockholders may be taken
without a meeting if such action is authorized by written consents signed by
stockholders having not less than the minimum number of votes necessary to
take such action at a meeting at which all shares were present and voting.
Subject to notice requirements and other provisions of the BTI By-Laws, the
BTI Certificate and BTI By-Laws provide that any action by the stockholders
may be taken by written consent in lieu of a meeting, without prior notice or
vote, of the holders of a majority of the shares entitled to vote with respect
to the subject matter thereof.
Right To Examine Stockholder List
Under the NYBCL, any person who shall have been a shareholder for at least
six months preceding his demand, or any person holding, or thereunto
authorized in writing by the holders of, at least five percent of any class of
the outstanding shares, upon at least five days' written demand, shall have
the right to examine, during usual business hours, the corporation's minutes
of proceedings of its shareholders and record of shareholders. The Comverse
By-Laws provide that a list of shareholders as of the record date shall be
produced at any meeting upon the request thereat or prior thereto of any
shareholder.
Under the DGCL (and similarly under the BTI By-Laws), stockholders, during
usual business hours, have a right, for a period of at least ten days prior to
any stockholder meeting and during such meeting, to examine a list of
stockholders, arranged in alphabetical order and showing the address and the
number of shares held by such stockholder, for any purpose germane to such
meeting. The DGCL further provides that any stockholder, following a written
request, has the right to inspect the corporation's books and records,
including the stockholder list, during usual business hours for a proper
purpose.
Indemnification and Limitation of Liability
Delaware and New York have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. The laws
of both states also permit, with certain exceptions, corporations to adopt a
provision in their certificate of incorporation eliminating the liability of a
director to the corporation or its stockholders for monetary damages for
breach of the director's fiduciary duty of care. There are, nonetheless,
certain differences between the laws of the two states respecting
indemnification and limitation of liability.
The Comverse By-Laws provide that Comverse will indemnify and advance the
expenses of each person in the corporation to the full extent permitted by the
NYBCL (described below). The Comverse By-Laws further provide that the
indemnification and advancement of expenses granted pursuant to Article IX of
the Comverse By-Laws are not exclusive of any other rights to which a director
or officer seeking indemnification or advancement of expenses may be entitled,
when authorized by (i) a resolution of shareholders, (ii) a resolution of
directors, or (iii) an agreement providing for such indemnification, provided
that no indemnification may be
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made to or on behalf of any director or officer if a judgment or other final
adjudication adverse to the director or officer establishes that his or her
acts were committed in bad faith or were the result of active and deliberate
dishonesty and were material to the cause of action so adjudicated, or that he
or she personally gained in fact a financial profit or other advantage to
which he or she was not legally entitled.
The Comverse Certificate provides that no director shall be personally
liable to Comverse or its shareholders for damages for any breach of duty as a
director, except for liability for (i) acts or omissions in bad faith or
involving intentional misconduct or a knowing violation of law, (ii)
personally gaining in fact a financial profit or other advantage to which such
director was not legally entitled, or (iii) violating Section 719 of the NYBCL
which imposes director liability for a variety of unlawful actions.
The NYBCL authorizes a New York corporation to indemnify any person who is,
or is threatened to be made, a party in any civil or criminal proceeding
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another entity, against judgments,
fines, amounts paid in settlement and reasonable expenses (including
attorney's fees) actually and necessarily incurred by such person as a result
of such action or proceeding or any appeal therein. With respect to actions by
or in the rights of the corporation, the NYBCL authorizes indemnification of
such person against reasonable expenses including attorneys' fees and amounts
paid in settlement. To be entitled to indemnification, a person must have
acted in good faith, for a purpose which he reasonably believed to be in, or
in the case of service for another organization, not opposed to, the best
interests of the corporation and, with respect to any criminal action or
proceeding, in addition, had no reasonable cause to believe his conduct was
unlawful. Court approval is required as a prerequisite to indemnification of
expenses in respect of any claim as to which a person has been adjudged liable
to the corporation.
The BTI Certificate provides, in substance, that BTI, to the fullest extent
of the DGCL (described below), will indemnify, and advance expenses to,
former, current and prospective directors and officers and to individuals who,
at the request of BTI, are serving or served as directors or officers of
another entity, in connection with any threatened or pending proceeding
arising out of such person's service to BTI or at BTI's request.
The BTI Certificate provides that no director shall be liable to BTI or its
stockholders for monetary damages for breach of his or her fiduciary duty as a
director, except for liability (i) for any breach of a director's duty of
loyalty to BTI or its shareholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) for acts in violation of Section 174 of the DGCL which imposes director
liability for a variety of unlawful acts or (iv) for any transaction from
which a director derives an improper personal benefit.
BTI recently has entered into agreements with its officers and directors
providing indemnification for actions taken prior to the Effective Time
arising out of the Merger Agreement or the transactions contemplated thereby.
See "The Merger--Certain Transactions; Conflicts of Interest."
The DGCL authorizes a Delaware corporation to indemnify any person who is,
or is threatened to be made, a party in any civil, criminal, administrative or
investigative, pending or completed action, suit or proceeding (other than an
action by or in the right of the corporation) by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another entity, against judgments, fines, amounts paid in settlement
and expenses (including attorneys' fees), actually and reasonably incurred by
such person in connection with any threatened, pending or completed action,
suit or proceeding. With respect to actions by or in the right of the
corporation, the DGCL authorizes indemnification of such person against
expenses (including attorneys' fees) actually and reasonably incurred by him
in connection with the defense or settlement of such action, suit or
proceeding. To be entitled to indemnification, a person must have acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation, and, with respect to any criminal
action or
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proceeding, had no reasonable cause to believe his conduct was unlawful with
respect to actions taken by or in the right of the corporation. With respect
to actions by or in the right of the corporation, court approval is required
as a prerequisite to indemnification of expenses in respect of any claim as to
which a person has been adjudged liable to the corporation.
Business Combination Statutes
Section 912 of the NYBCL prohibits any "business combination" (as therein
defined) between a domestic corporation and an "interested shareholder" for
five years after the date that the interested shareholder became an interested
shareholder unless prior to that date the board of directors of the domestic
corporation approved the business combination or the transaction that resulted
in the interested shareholder becoming an interested shareholder. After five
years, such a business combination is permitted only if (i) it is approved by
a majority of the shares not owned by, or by an affiliate of, the interested
shareholder or (ii) certain statutory fair price requirements are met. The
NYBCL generally defines an "interested shareholder" as any person who
beneficially owns, directly or indirectly, 20% or more of the outstanding
voting shares of the corporation. Under certain circumstances, a corporation
may elect not to be governed by this provision of the NYBCL; Comverse has made
no such election.
Section 203 of the DGCL prohibits any "business combination" (as therein
defined) between a Delaware corporation and an "interested stockholder" for
three years following the date that the interested stockholder became an
interested stockholder unless (i) prior to that time the board of directors
approved the business combination or the transaction that resulted in the
interested stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder held at least
85% of the outstanding voting stock of the corporation (not counting shares
owned by officers and directors and certain shares in employee stock plans) or
(iii) on or subsequent to such time the business combination is approved by
the board of directors and at least 66 2/3% of the outstanding shares of
voting stock not owned by the interested stockholder. The DGCL generally
defines an "interested stockholder" as any person who beneficially owns,
directly or indirectly, 15% or more of the outstanding voting stock of the
corporation. Under certain circumstances, a corporation may elect not to be
governed by this provision of the DGCL; BTI has made no such election.
Appraisal and Dissenters' Rights
The NYBCL provides dissenters' rights to holders entitled to vote thereon
for (i) certain mergers and consolidations, (ii) dispositions of assets
requiring shareholder approval and (iii) certain amendments to the certificate
of incorporation which adversely affect the rights of such shareholders. The
procedures for perfecting dissenters' rights are similar under the DGCL and
the NYBCL, except that the NYBCL provides a procedure for the corporation to
make a written offer prior to the commencement of litigation (the "Offer") to
each dissenting shareholder to pay cash for his shares at a specified, uniform
price which the corporation considers to be the fair value of the shares. If
the effective date of the corporate action dissented from has occurred, the
Offer must be accompanied by an advance payment of 80% of the Offer price to
each dissenting shareholder who has submitted his or her stock certificates.
If the effective date has not yet occurred, such advance payment shall be sent
forthwith upon its occurrence. If the corporation and a dissenting shareholder
agree upon a price to be paid for such dissenting shareholder's shares within
30 days after the making of the Offer, payment in full must be made by the
corporation within 60 days of the date on which the Offer was made or within
60 days of the effective date, whichever is later. If any dissenting
shareholder fails to agree with the corporation during the aforesaid 30-day
period, or if an Offer is not made within a specified period of time, only
then may a proceeding for judicial appraisal be commenced.
Under the DGCL, a stockholder of a corporation who does not vote in favor of
certain merger transactions and who demands appraisal of his shares in
connection therewith may, under varying circumstances, be entitled to
dissenters' rights pursuant to which such stockholder may receive cash in the
amount of the fair value of his shares (as determined by a Delaware court) in
lieu of the consideration he would otherwise receive in the
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transaction. Unless the corporation's certificate of incorporation provides
otherwise (the BTI Certificate does not), such appraisal rights are not
available in certain circumstances, including without limitation (a) the sale,
lease or exchange of all or substantially all of the assets of a corporation,
(b) the merger or consolidation by a corporation the shares of which are
either listed on a national securities exchange or the Nasdaq or are held of
record by more than 2,000 holders if such stockholders receive only shares of
the surviving corporation or shares of any other corporation which are either
listed on a national securities exchange or the Nasdaq or held of record by
more than 2,000 holders, plus cash in lieu of fractional shares or (c) to
stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the merger
because the merger agreement does not amend the existing certificate of
incorporation, each share of the surviving corporation outstanding prior to
the merger is an identical outstanding or treasury share after the merger, and
the number of shares to be issued in the merger does not exceed 20% of the
shares of the surviving corporation outstanding immediately prior to the
merger and if certain other conditions are met.
The concept of "fair value" in payment for shares upon exercise of appraisal
rights is different under the DGCL and the NYBCL. Under the DGCL, "fair value"
must be determined exclusive of any element of value arising from the
accomplishment or expectation of the relevant transaction. The NYBCL does not
exclude such element of value but mandates that the court should consider the
nature of the transaction, its effect on the corporation and its shareholders,
and the concepts and methods of valuation then customary in the relevant
financial and securities markets.
Holders of Comverse Common Stock or BTI Common Stock are not entitled to
appraisal and dissenters' rights in connection with the Merger or, in the case
of Comverse, any of the other actions to be taken at the Comverse Annual
Meeting. See "The Merger--Appraisal and Dissenters' Rights."
Interested Director Transactions
Under both the NYBCL and the DGCL, certain contracts or transactions in
which one or more of a corporation's directors has an interest are not void or
voidable solely by reason of such interest provided that one of the following
conditions is met: (i) such contract or transaction is approved by the
stockholders or by a majority of disinterested members of the board of
directors (under the NYBCL, if a quorum of the board is not present at such
time, a unanimous vote of the disinterested directors is required) or, in
certain circumstances, a committee thereof, if the material facts are
disclosed (under the NYBCL, in good faith) or known thereto, or (ii) the
contract or transaction was fair (and, under the NYBCL, reasonable) to the
corporation at the time it was approved.
Rights Plan
Comverse has not adopted a shareholders' rights plan.
Each share of BTI Common Stock has a BTI Right associated with it. On May 9,
1991, BTI entered into a rights agreement with The First National Bank of
Boston, as rights agent (the "BTI Rights Agreement"), declaring a dividend of
one right (a "BTI Right") for each share of BTI Common Stock held as of May
31, 1991 and for each share of BTI Common Stock issued thereafter prior to the
BTI Rights becoming exercisable. On April 26, 1996, BTI appointed State Street
Bank and Trust Company as successor rights agent to The First National Bank of
Boston. The following description of the BTI Rights Agreement does not purport
to be complete and is qualified in its entirety by reference to the terms and
conditions of the BTI Rights Agreement. See "Where You Can Find More
Information."
Pursuant to the BTI Rights Agreement, under certain circumstances, each BTI
Right may be exercised to purchase 0.4 shares of BTI Common Stock from BTI for
a purchase price of $12.40, subject to adjustment (the "Exercise Price"). The
BTI Rights are not exercisable until the earlier of (i) 10 days following a
public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 20% or more of the outstanding shares of BTI Common
Stock (the "Stock Acquisition Date") or (ii) 10 business days following the
commencement of a tender offer or
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exchange offer that would result in a person or group beneficially owning 30%
or more of such outstanding shares of BTI Common Stock. There are certain
exceptions to the definition of "Acquiring Person", including persons or
groups beneficially owning 20% or more of the outstanding shares of BTI Common
Stock on May 9, 1991.
Under certain circumstances, including if (i) BTI is the surviving
corporation in a merger with an Acquiring Person and the BTI Common Stock is
not changed or exchanged or (ii) a person becomes the beneficial owner of more
than 25% of the then outstanding shares of BTI Common Stock except pursuant to
an offer for all outstanding shares of BTI Common Stock which the independent
directors determine to be fair to, and otherwise in the best interest of, BTI
stockholders, each holder (other than an Acquiring Person) of a BTI Right
would have the right to receive, upon exercise, that number of shares of BTI
Common Stock (or, in certain circumstances, cash, property or other securities
of BTI) which equals the Exercise Price of the BTI Right divided by one-half
of the current market price of the BTI Common Stock at the date of the
occurrence of the event. Under certain circumstances, including a merger of
BTI in which BTI is not the surviving corporation unless the merger follows an
offer determined to be fair to, and otherwise in the best interest of, BTI
stockholders, each holder of a BTI Right would have the right to receive, upon
exercise, that number of shares of common stock of the acquiring company which
equals the exercisable price of the BTI Right divided by one-half of the
current market price of such common stock at the date of the occurrence of the
event.
At any time until ten days following the Stock Acquisition Date, BTI may
redeem the BTI Rights in whole, but not in part, at a price of $0.02 per BTI
Right (payable in cash or stock). Immediately upon the action of the BTI Board
ordering redemption of the BTI Rights, the BTI Rights will terminate and the
only right of the holders thereof will be to receive the $0.02 redemption
price. Until a BTI Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of BTI, including, without limitation, the right to
vote or to receive dividends.
Under the BTI Rights Agreement adopted May 9, 1991, the BTI Rights were to
expire on May 31, 2001 unless such rights were earlier redeemed as described
above. However, pursuant to the Merger Agreement and in accordance with the
applicable provisions of the BTI Rights Agreement, BTI has amended the BTI
Rights Agreement so as to provide, unless earlier redeemed, that the BTI
Rights will expire upon the earlier of (i) the Effective Time or (ii) May 31,
2001. Pursuant to the Merger Agreement and in accordance with the applicable
provisions of the BTI Rights Agreement, BTI also has amended the BTI Rights
Agreement so as to render the BTI Rights Agreement inapplicable to the Merger
Agreement, the Merger and the other transactions contemplated by the Merger
Agreement.
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OTHER INFORMATION FOR COMVERSE ANNUAL MEETING
PROPOSAL--ELECTION OF DIRECTORS
Nominees for Election as Comverse Directors
At the Comverse Annual Meeting, the shareholders of Comverse will elect
seven directors to hold office until the next annual meeting of shareholders
of Comverse and their successors are elected and qualify. If the Merger is
consummated, as of the Effective Time, the Comverse Board will be increased to
nine directors. See "Directors of Comverse Following the Merger--Directors."
If the Merger is not consummated, the seven directors of the Comverse Board
elected at the Comverse Annual Meeting will be the directors of Comverse.
Comverse has inquired of each nominee and has ascertained that each will serve
if elected. If any nominee shall become unavailable prior to the election, the
accompanying proxy card will be voted for the election in the nominee's stead
of such other person as the Comverse Board may recommend.
All nominees are current directors of Comverse. Set forth below is a list of
the nominees for election as director. For a brief description of the
background of each nominee for director, see "Directors of Comverse Following
the Merger--Directors--Continuing Comverse Directors."
. Kobi Alexander
. Carmel Vernia
. William F. Sorin
. Zvi Alexander
. John H. Friedman
. Sam Oolie
. Shaula A. Yemini, Ph.D.
Committees and Meetings of the Comverse Board
The Comverse Board has four standing committees. The Executive Committee is
empowered to exercise the full authority of the Comverse Board in
circumstances when convening the full Board is not practicable. The Audit
Committee is responsible for reviewing audit procedures and supervising the
relationship between Comverse and its independent auditors. The Remuneration
Committee is responsible for approving compensation arrangements for senior
management of Comverse and administering its stock option plans. The Corporate
Planning and Structure Committee reviews and makes recommendations to the
Board concerning issues of corporate structure and planning, including the
formation and capitalization of subsidiaries of Comverse, the structure of
acquisition transactions, the terms of any stock options and other
compensation arrangements in respect of its subsidiaries, situations that
might involve conflicts of interest relative to Comverse and its subsidiaries
and the terms of significant transactions between Comverse and its
subsidiaries.
During 1996, there were four meetings of the Comverse Board, two written
actions in lieu of meetings of the Remuneration Committee, two meetings of the
Audit Committee and one meeting of the Corporate Planning and Structure
Committee. Each member of the Comverse Board attended all the meetings of the
Board and of each Committee of which he or she was a member during the year.
Director Compensation
Each director who is not an employee of Comverse or otherwise compensated by
Comverse for services rendered in another capacity, and whose position on the
Comverse Board is not attributable to any contract between Comverse and such
director or any other entity with which such director is affiliated, receives
compensation in the amount of $2,250 for each meeting of the Comverse Board
and of certain committees of the Board attended by him during the year. Each
of such eligible directors is also entitled to receive an annual stock option
grant under Comverse's stock option plans entitling him or her to purchase
6,000 shares of Comverse Common Stock at a price per share equal to the fair
market value of the Comverse Common Stock as reported
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on the Nasdaq on the date two business days after the publication of the
audited year-end financial results of Comverse. Such options are subject to
forfeiture to the extent of 1,200 shares per meeting in the event that the
option holder, during the year of grant, fails to attend at least five
meetings of the Comverse Board and any of its committees of which the option
holder is a member. Each director who resides outside of the United States and
is not an officer or employee of Comverse is entitled to reimbursement of
expenses incurred for attendance at meetings of the Comverse Board, up to the
amount of $2,000 for each meeting attended.
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following table presents summary information regarding the compensation
paid or accrued by Comverse for services rendered during the years 1994, 1995
and 1996 by those of its executive officers whose salary and bonus
compensation during 1996 exceeded $100,000 (the "named executive officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
---------------------- COMPENSATION
NAME AND PRINCIPAL STOCK OPTION ALL OTHER
POSITION YEAR SALARY(/1/) BONUS(/2/) GRANTS(/3/) COMPENSATION(/4/)
- ------------------ ---- ----------- ---------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
Kobi Alexander 1996 $379,944 $864,829 100,000 $235,906
Chairman of the Board, 1995
President and 1994 342,950 526,845 -- 324,454
Chief Executive Officer 348,643 364,020 500,000 102,877
Carmel Vernia 1996 129,889 150,000 25,000 31,763
Chief Operating Officer 1995 130,394 100,000 -- 29,921
Managing Director, Efrat 1994 121,436 100,000 200,000 30,973
Igal Nissim 1996 115,342 23,070 5,000 19,699
Chief Financial Officer 1995 98,988 15,000 10,000 --
1994 101,480 17,500 10,000 --
</TABLE>
- --------
(1) Includes salary and payments in lieu of earned vacation.
(2) Includes bonuses accrued for services performed in the year indicated,
regardless of the year of payment.
(3) See also "--Stock Option Grants and Exercises--Options to Purchase
Subsidiary Shares."
(4) Consists of miscellaneous items not exceeding $25,000 in the aggregate for
any individual, premium payments and contributions under executive insurance
and training plans and, in the case of Mr. Alexander, $184,800, $281,000 and
$60,000 accrued in 1996, 1995 and 1994, respectively, for payments due on
termination of employment pursuant to the terms of his employment agreements
with Comverse.
Stock Option Grants and Exercises
Stock Option Grants in Last Fiscal Year. The following table sets forth
information concerning options granted during 1996 to the named executive
officers of Comverse under its employee stock option plans:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE ASSUMED ANNUAL
RATES OF STOCK PRICE
INDIVIDUAL APPRECIATION FOR
GRANTS OPTION TERMS(/1/)
----------------------------- ---------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SHARES GRANTED TO EXERCISE
SUBJECT EMPLOYEES PRICE
TO IN FISCAL PER EXPIRATION
NAME OPTIONS YEAR SHARE DATE 5% 10%
- ---- --------- ---------- -------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kobi Alexander.......... 100,000 9.2% $23.75 July 15, 2006 $1,493,625 $3,785,138
Carmel Vernia........... 25,000 2.3% $23.75 July 15, 2006 $ 373,406 $ 946,285
Igal Nissim............. 5,000 0.5% $23.75 July 15, 2006 $ 74,681 $ 189,257
</TABLE>
- --------
(1) Represents the gain that would be realized if the options were held for
their entire ten-year term and the value of the underlying shares increased
at compounded annual rates of 5% and 10% from the fair market value at the
date of option grants.
71
<PAGE>
The options have a term of ten years and become exercisable and vest in
annual increments over the period of four years from the year of grant. The
exercise price of the options is equal to the fair market value of the
underlying shares at the date of grant.
Stock Option Grants in Last Three Fiscal Years. The following table sets
forth certain information concerning options granted during the past three
fiscal years to the named executive officers of Comverse under its employee
stock option plans:
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SHARES GRANTED TO EXERCISE
SUBJECT EMPLOYEES PRICE
YEAR OF TO IN FISCAL PER
GRANT NAME OPTIONS YEAR SHARE EXPIRATION DATE
- ------- -------------- --------- ---------- -------- ------------------
<S> <C> <C> <C> <C> <C>
1996: Kobi Alexander 100,000 9.2% $23.75 July 15, 2006
Carmel Vernia 25,000 2.3 23.75 July 15, 2006
Igal Nissim 5,000 0.5 23.75 July 15, 2006
1995: Kobi Alexander -- -- -- --
Carmel Vernia -- -- -- --
Igal Nissim 10,000 1.5 13.50 May 25, 2005
1994: Kobi Alexander 500,000 42.5 10.00 September 22, 2004
Carmel Vernia 200,000 17.0 10.00 September 22, 2004
Igal Nissim 10,000 0.9 10.00 September 22, 2004
</TABLE>
Option Exercises and Year-End Value Table. The following table sets forth,
as to each named executive officer, the shares acquired on exercise of
options, value realized, number of unexercised options held at December 31,
1996, currently exercisable and subject to future vesting, and the value of
such options based on the closing price of the underlying shares on the Nasdaq
at that date, net of the associated exercise price.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS HELD IN-THE-MONEY OPTIONS
ACQUIRED AT DECEMBER 31, 1996 HELD AT DECEMBER 31, 1996
ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kobi Alexander.......... -- -- 769,250 350,000 $25,314,326 $8,359,375
Carmel Vernia........... 40,000 $859,400 218,750 31,250 6,020,710 504,297
Igal Nissim............. 2,000 45,620 12,500 22,500 322,344 513,594
</TABLE>
Options to Purchase Subsidiary Shares. Comverse has granted to certain key
executives options to acquire shares of certain subsidiaries, other than
Efrat, as a means of providing incentives directly tied to the performance of
those subsidiaries for which different executives have direct responsibility.
Such options have been granted to executive officers of Comverse as set forth
under "--Employment Agreements." Options have been granted to other key
employees which, upon exercise, would represent in the aggregate between
approximately 2.4% and approximately 23.5% of the outstanding shares of the
relevant subsidiaries. In general, these options have terms of up to ten
years, become exercisable and vest in equal ratable annual increments over
periods ranging from three to five years from the anniversary of the date of
initial grant, and have exercise prices equal to the higher of the book value
of the underlying shares at the date of grant or the fair market value of such
shares at that date determined on the basis of an arms'-length transaction
with a third party or, if no such transaction has occurred, on a reasonable
basis as determined by the Comverse Board. Upon the exercise, in whole or in
part, of any option, Comverse will receive an irrevocable proxy to vote the
underlying shares and a right of first refusal
72
<PAGE>
to purchase the shares upon any proposed sale, transfer or other disposition,
until such time as the shares shall have been sold in a bona fide open market
transaction.
These options (and any shares received by the holders upon exercise) provide
the option holders with a potentially larger equity interest in the respective
subsidiaries than in Comverse, which, under certain circumstances, could cause
the option holders' interests to conflict with those of the Comverse
shareholders generally.
Employment Agreements
Mr. Alexander serves as Chairman of the Board, President and Chief Executive
Officer of Comverse under an agreement extending through June 30, 2000 at a
current base annual salary of $308,300. Pursuant to the agreement, Mr.
Alexander received bonus compensation of $864,829 for services rendered during
1996 and is entitled to receive bonus compensation in 1997 and succeeding
years in an amount to be negotiated annually, but not less than 3% of
Comverse's consolidated after-tax net income in each year. Mr. Alexander also
receives various supplemental medical, insurance and other personal benefits
from Comverse under the terms of his employment, including the use of an
automobile leased by it.
Upon the termination of his employment with Comverse for any reason, Mr.
Alexander is entitled to receive a severance payment in an amount equal to
$84,700 times the number of years (plus any partial years) of his employment
by Comverse commencing with 1983, increased by 10% per annum starting in
December 1997, plus continued employment-related benefits for the period of 36
months following termination. In the event that Mr. Alexander's employment is
terminated by Comverse without cause, by Mr. Alexander as a result of a
material breach by Comverse of its obligations under the agreement or by his
resignation within the period of six months following a change in control of
Comverse, Mr. Alexander is entitled to an additional severance payment equal
to 299% of the average annual cash compensation (including salary and any
bonus payments) received by him from Comverse during the most recent three
fiscal years, plus an amount equal to the income tax liability to Mr.
Alexander resulting from such payment. The agreement also requires Comverse to
grant to Mr. Alexander an option to purchase 7.5% of the shares of each
subsidiary of Comverse, other than Efrat, for a price equal to the greater of
the fair market value or the book value of such shares at the date of option
grant.
Mr. Alexander serves as Chairman of the Board of Efrat at a current basic
salary (the "Basic Salary") of $3,500 per month. Efrat has also agreed to
reimburse Mr. Alexander for certain business-related expenses, to provide him
with the use of an automobile owned or leased by Efrat and to pay certain
amounts for his account into defined contribution insurance and training funds
in Israel. In addition, if Mr. Alexander conducts business activities abroad,
including in the United States, Efrat is required to bear his reasonable
lodging and living expenses, which shall in any event be not less than the per
diem allowance customarily provided to senior executive managers of Israeli
companies, and if the period of his stay abroad is in excess of eight weeks,
his Basic Salary during such period shall be increased to an amount which will
support a standard of living comparable to that provided in Israel by the
Basic Salary and other benefits afforded under the agreement. Efrat is also
required to pay any taxes incurred by Mr. Alexander in respect of benefits
provided to him under the agreement and certain professional fees incurred for
the benefit of Mr. Alexander. In the event that Efrat unilaterally terminates
or fundamentally breaches the agreement, it must pay, as liquidated damages,
an amount equal to the Basic Salary due for the remainder of the term of the
agreement plus an amount equal to the present value of all non-monetary
benefits under the agreement. The present value of the non-monetary benefits
under the agreement is not readily determinable but is estimated at
approximately 25% of such salary.
Mr. Vernia is employed as Managing Director of Efrat and Chief Operating
Officer of Comverse under an agreement providing for a base monthly salary at
a current rate of 44,296 Israeli shekels, subject to Israeli statutory cost of
living adjustment (resulting in a current annual salary equal to approximately
$152,000) and an annual bonus in an amount to be determined. The agreement,
which has no specific term or duration, may be terminated by either party only
with prior notice of at least one year. Mr. Vernia is entitled under the
agreement to receive various insurance and supplemental benefits and the use
of an automobile owned or leased by Efrat.
73
<PAGE>
Mr. Vernia has also been granted options to purchase between 2.5% and 3.5% of
the shares of certain subsidiaries of Comverse for a price equal to the
greater of the fair market value or the book value of such shares at the date
of option grant. Mr. Nissim receives a base monthly salary of 29,874 Israeli
shekels, subject to Israeli statutory cost of living adjustment (resulting in
a current annual salary equal to approximately $102,000) and incidental
benefits, including the use of an automobile owned or leased by Efrat. The
terms of Mr. Nissim's employment are subject to an oral agreement which has no
specified term or duration.
Remuneration and Stock Option Committee Report Concerning Executive
Compensation
The Comverse Board believes that an essential element of Comverse's
continued success will be its ability to provide compensation arrangements
that enable it to attract, motivate and retain executive officers who are
capable of developing and executing Comverse's short-term and long-term
business plans. The Remuneration Committee has the primary responsibility for
establishing compensation levels of the senior management and administering
Comverse's stock option plans.
The principal components of Comverse's executive compensation arrangements
are base salary, cash bonus awards and stock options. Compensation
arrangements for senior management personnel in certain instances include a
performance-based component as well as discretionary bonus awards. With the
exception of the employment agreements with Messrs. Alexander and Vernia
described in this Joint Proxy Statement/Prospectus, no agreement, plan or
arrangement is in effect between Comverse and any executive officer that is
not terminable by Comverse without liability on notice of 270 days or less.
Salary levels throughout the organization are reviewed annually, and are
adjusted periodically when Comverse believes that adjustment is required,
taking into account competitive factors in the industries and locations of
Comverse's activities. In establishing compensation levels throughout the
organization, Comverse relies to a significant extent on its direct experience
in the recruitment of personnel as well as reported compensation levels of
senior management of other publicly-held companies. Supplemental cash bonus
awards are made periodically to reflect superior performance by individual
employees, in accordance with recommendations by senior management, and in
certain instances in accordance with formulas based on the profitability of
Comverse or its individual business units.
Historically, employees of Comverse have benefited from Comverse's practice
of awarding stock options to personnel throughout the organization, and the
resulting value associated with the increase in the market price of Comverse's
shares in recent years. The Comverse Board believes that equity-based
incentive arrangements, such as employee stock options, are among the most
effective means available to Comverse of aligning the interests of employees
with the objectives of shareholders generally, and of building their long-term
commitment to the organization. Comverse emphasizes stock option awards as an
essential element of the remuneration package available to its executives and
employees. Stock options typically vest in increments over four years to
encourage long-term commitment to Comverse by the grantees.
Comverse has also adopted the practice of awarding to key executives options
entitling them to acquire shares of certain of Comverse's subsidiaries, as a
means of providing incentives directly tied to the performance of those
business units for which different executives have direct responsibility. See
"--Options to Purchase Subsidiary Shares." These options (and any shares
received by the holders upon exercise) provide the option holders with a
potentially larger equity interest in the respective subsidiaries than in
Comverse, which, under certain circumstances, could cause the option holders'
interests to conflict with those of Comverse's shareholders generally.
However, the Remuneration Committee believes that the potential for conflict
is outweighed by the benefits derived by Comverse from the use of these option
arrangements as an incentive to key personnel.
Comverse considers both available competitive data and subjective
performance evaluations in determining the number of options to grant to its
officers and key employees. During 1996, grants of options to purchase an
aggregate of 1,086,526 shares of Comverse Common Stock were made to all
employees, including options to purchase an aggregate of 130,000 shares
awarded to executive officers of Comverse. Options granted to executive
officers during 1996 vest in increments over periods of four years from the
date of grant.
74
<PAGE>
Compensation of the Chief Executive Officer
Mr. Kobi Alexander has served as President and Chief Executive Officer of
Comverse since 1987 under agreements providing for fixed annual salary, bonus
compensation and employment-related benefits. The terms of Mr. Alexander's
employment agreements, as currently in effect, are described above.
The terms of Mr. Alexander's employment, as set forth in his agreements with
Comverse, have been established by direct negotiation between Mr. Alexander
and the Remuneration Committee. In approving such terms, the Remuneration
Committee has taken into account the growth in Comverse's business, and
particularly the increase in its net income, throughout the period during
which Mr. Alexander has served as Chief Executive Officer, and compensation
levels of chief executive officers of other publicly-held companies.
In this regard, the Remuneration Committee has taken note of the significant
growth in Comverse's annual sales, net income, stockholders' equity and assets
over the past five years, under Mr. Alexander's leadership as Chief Executive
Officer, as shown in the following table (dollars in thousands except per
share amounts):
<TABLE>
<CAPTION>
COMPOUNDED
1992 1993 1994 1995 1996 RATE OF GROWTH
------- ------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Sales................... $50,956 $81,388 $108,150 $137,149 $197,181 40.3%
Net income.............. 5,860 13,465 12,098 17,050 27,988 47.8
Net income per share--
fully diluted.......... 0.36 0.65 0.55 0.75 1.15 33.7
Stockholders' equity.... 32,576 91,608 101,613 121,766 212,058 59.7
Total assets............ 55,245 174,468 192,502 221,454 390,901 63.1
</TABLE>
THE REMUNERATION AND STOCK OPTION
COMMITTEE
John H. Friedman, Chairman
Sam Oolie
75
<PAGE>
Stock Performance Graph
The following table compares the five-year cumulative return on a
hypothetical investment in Comverse, the S&P 500 Index and the S&P High Tech
Composite Index, assuming an investment of $100 on December 31, 1991 and the
reinvestment of any dividends.
[GRAPH]
TOTAL SHAREHOLDER RETURNS
<TABLE>
<CAPTION>
INDEXED RETURNS YEARS ENDING
-----------------------------------------------
COMPANY/INDEX DEC. 91 DEC. 92 DEC. 93 DEC. 94 DEC. 95 DEC. 96
------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Comverse.................... 100 305.87 249.11 211.30 355.87 672.81
S&P 500 Index............... 100 107.62 118.46 120.03 165.13 203.05
S&P High Tech Composite In-
dex........................ 100 104.13 128.09 149.29 215.04 305.07
</TABLE>
CERTAIN TRANSACTIONS
Comverse paid William F. Sorin, a director of Comverse, an aggregate of
approximately $254,000 for legal services rendered to Comverse during the year
ended December 31, 1996.
76
<PAGE>
BENEFICIAL OWNERSHIP OF COMVERSE COMMON STOCK
The following table sets forth certain information concerning the beneficial
ownership of shares of Comverse Common Stock on the part of the executive
officers, the directors standing for re-election at the Comverse Annual
Meeting and by each person known by Comverse to beneficially own more than
five percent of the issued and outstanding Comverse Common Stock on November
17, 1997.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SHARES TOTAL
RELATIONSHIP WITH THE BENEFICIALLY OUTSTANDING
NAME AGE CORPORATION OWNED SHARES(/1/)
---- --- --------------------- ------------ -----------
<S> <C> <C> <C> <C>
The Equitable Companies
Incorporated.......... -- Shareholder 2,675,307(2) 10.6%
1299 Avenue of the
Americas
New York, NY 10104
Pilgrim Baxter & Asso-
ciates, Ltd. ......... -- Shareholder 2,463,800(3) 9.8%
1255 Drummers Land
Wayne, PA 19087
Nicholas Applegate..... -- Shareholder 2,030,818(3) 8.1%
600 West Broadway
San Diego, CA 92101
American Century....... -- Shareholder 1,327,700(3) 5.3%
4500 Main Street
Kansas City, MO 64111
Kobi Alexander......... 45 Chairman of the 888,750(4) 3.4%
Board, President and
Chief Executive
Officer and Director
Carmel Vernia.......... 45 Chief Operating 206,250(5)(6) *
Officer and Director
Igal Nissim............ 42 Chief Financial 12,500(5)(7) *
Officer
Zvi Alexander.......... 75 Director 25,000(8) *
John H. Friedman....... 44 Director 13,000(5) *
Sam Oolie.............. 61 Director 10,000(5) *
William F. Sorin....... 49 General Counsel, 25,000(5)(9) *
Corporate Secretary
and Director
Shaula A. Yemini, PhD.. 49 Director 15,000(10) *
All directors and exec-
utive officers as a
group (8 persons)..... -- 1,195,500(11) 4.6%
</TABLE>
- --------
*Less than 1%.
(1) Based on 25,201,007 shares of Comverse Common Stock issued and
outstanding on November 17, 1997, excluding, except as otherwise noted,
shares of Comverse Common Stock issuable upon the exercise of outstanding
stock options.
(2) Based on a Schedule 13G filing by The Equitable Companies Incorporated
with the Commission reflecting data as of September 30, 1997.
(3) Based on corporate records received from the Nasdaq reflecting data as of
September 1997 with filing date of June 1997.
(4) Includes 794,250 shares issuable upon the exercise of stock options that
were exercisable at or within 60 days after November 17, 1997. Does not
include 375,000 shares issuable upon the exercise of stock options that
were not exercisable at or within 60 days after November 17, 1997.
(5) Consists solely of shares issuable upon the exercise of stock options
that were exercisable at or within 60 days after November 17, 1997.
(6) Does not include 95,000 shares issuable upon the exercise of stock
options that were not exercisable at or within 60 days after November 17,
1997.
(7) Does not include 17,500 shares issuable upon the exercise of stock
options that were not exercisable at or within 60 days after November 17,
1997.
(8) Includes 17,000 shares issuable upon the exercise of stock options that
were exercisable at or within 60 days after November 17, 1997.
(9) Does not include 30,000 shares issuable upon the exercise of stock
options that were not exercisable at or within 60 days after November 17,
1997.
(10) Includes 11,500 shares issuable upon the exercise of stock options that
were exercisable at or within 60 days after November 17, 1997.
(11) Includes 1,089,500 shares issuable upon the exercise of stock options
that were exercisable at or within 60 days after November 17, 1997. Does
not include 517,500 shares issuable upon the exercise of stock options
that were not exercisable at or within 60 days after November 17, 1997.
77
<PAGE>
PROPOSAL--RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Comverse Board has appointed Deloitte & Touche LLP as independent
auditors to examine the consolidated financial statements of Comverse for the
year ending December 31, 1997 and to perform other appropriate accounting
services.
A proposal will be presented at the Comverse Annual Meeting to ratify the
appointment of Deloitte & Touche LLP as Comverse's independent auditors. A
representative of Deloitte & Touche LLP is expected to be present at the
meeting and will be available to respond to appropriate questions and make
statements if the representative so desires. If the Comverse shareholders do
not ratify this appointment, the Comverse Board will reconsider its
appointment.
THE COMVERSE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS COMVERSE'S INDEPENDENT AUDITORS.
PROPOSAL--APPROVAL OF THE 1997 STOCK INCENTIVE COMPENSATION PLAN
General
The Comverse Board approved the Incentive Plan on November 21, 1997 and
recommended that the Incentive Plan be submitted to the shareholders for
approval at the Comverse Annual Meeting. The purposes of the Incentive Plan
are to attract, retain and motivate directors and key employees, to align key
employees' interests with shareholders' interests through equity-based
compensation and to permit the granting of awards that will constitute
performance-based compensation for certain executive officers under Section
162(m) of the Code.
A proposal will be presented at the Comverse Annual Meeting to approve the
Incentive Plan. Shareholder approval is required in order for the Incentive
Plan to meet the requirements of Section 162(m) of the Code, for ISOs (as
hereinafter defined) to meet the requirements of Code Section 422 and for
Comverse Common Stock issued under the Incentive Plan to be approved for
trading on the Nasdaq.
THE COMVERSE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
INCENTIVE PLAN.
Summary of the Incentive Plan
The following summary of the Incentive Plan is qualified in its entirety by
reference to the Incentive Plan, a copy of which is attached as Annex IV to
this Joint Proxy Statement/Prospectus. Capitalized terms not otherwise defined
in this summary have the meanings given to them in the text of the Incentive
Plan.
Administration. The Incentive Plan shall be administered by the Remuneration
Committee consisting of at least three directors who are intended to be "non-
employee directors" as defined in Exchange Act Rule 16b-3 and "outside
directors" within the meaning of Section 162(m) of the Code. The Remuneration
Committee has the authority to determine the Award (as defined below)
recipients, the timing of Awards and the type, size and terms of each Award.
It also has the authority to construe, interpret and implement the Incentive
Plan, including prescribing rules thereunder.
Shares Available Under the Incentive Plan. Under the Incentive Plan,
Comverse will issue an aggregate of not more than 2.5 million shares of
Comverse Common Stock. In addition, shares of Comverse Common Stock covered by
Awards that have expired, terminated or been canceled or forfeited, other than
by exercise or vesting may also be issued under the Incentive Plan. As of
November 25, 1997, the closing price of Comverse Common Stock as reported on
the Nasdaq was $32 5/16 per share.
Assuming that the Merger is consummated, shares reserved for issuance under
the Incentive Plan will be in addition to the shares reserved for issuance
pursuant to the BTI Stock Plans and the existing Comverse Stock Plans. See
"Certain Provisions of the Merger Agreement--Assumption of BTI Stock Plans."
Eligibility. Awards under the Incentive Plan may be made to any employee of
Comverse or its subsidiaries whom the Remuneration Committee selects (each, a
"Plan Participant"). For this reason, it is not possible to determine the
benefits or amounts that will be received by any particular employee or group
of employees in the future. However, the maximum number of shares of Comverse
Common Stock subject to an Award that may be
awarded to any eligible employee shall not exceed 1,000,000 during any
calendar year (the "Individual Limit").
Assuming that the Merger is consummated, following the Effective Time
employees of BTI will be eligible to receive Awards under the Incentive Plan.
78
<PAGE>
As of July 31, 1997, Comverse estimates that there were approximately 1,650
employees of Comverse eligible to receive Awards under the Incentive Plan. If
the Merger is consummated, Comverse estimates that following the Effective
Time there will be approximately 2,900 employees of Comverse eligible to
receive Awards.
In addition, in each fiscal year, each member of the Comverse Board who is
not an employee of Comverse or its subsidiaries, who does not receive
compensation from Comverse or its subsidiaries in any capacity other than as a
Comverse Board member and whose membership on the Comverse Board is not
attributable to any contract between Comverse and such Comverse Board member
or any other entity with which such Comverse Board member is affiliated
("Eligible Director") shall receive a Nonqualified Option (as described
herein) to purchase 6,000 shares of Comverse Common Stock at an exercise price
per share equal to the Fair Market Value of a share of Comverse Common Stock
as of the date two business days after the publication of the audited year-end
financial results of Comverse for the immediately preceding year. Eligible
Directors shall forfeit Options to purchase 1,200 shares of Comverse Common
Stock for each Comverse Board or committee meeting under five they attend
during the year of grant.
Awards Under the Incentive Plan. The Incentive Plan provides, in general,
for grants of incentive stock options described in Code Section 422 to acquire
Comverse Common Stock ("ISOs"), options to acquire Comverse Common Stock not
described in Code Section 422 (the "Nonqualified Options", and, together with
ISOs, "Options"), stock appreciation rights which may be connected to Options
("SARs"), restricted stock ("Restricted Stock") and deferred stock ("Deferred
Stock") (each of the foregoing, an "Award"). Awards may
be granted alone or in tandem, and are granted on such terms and conditions as
the Remuneration Committee determines, subject to certain limitations
contained in the Incentive Plan.
Options and SARs. Unless the applicable Award provides otherwise, no Option
may be transferred, pledged or otherwise conveyed by a Plan Participant. An
Option shall be exercisable during such period as the Remuneration Committee
determines. Options may contain restrictions on the transferability of and
impose forfeiture conditions on the Comverse Common Stock acquired by the Plan
Participant upon exercise.
To exercise an Option or SAR, the Plan Participant must notify Comverse on
such form and in such manner as the Remuneration Committee may prescribe.
Unless the applicable Award certificate otherwise provides or the Remuneration
Committee otherwise determines, any notice of exercise of an Option must be
accompanied by payment in full of the purchase price for the shares being
purchased. Payment of an Option's exercise price may be made in any
combination of the following: (i) cash or personal check; (ii) if and to the
extent authorized by the Remuneration Committee, in shares of Comverse Common
Stock owned by the Plan Participant; (iii) if and to the extent authorized by
the Remuneration Committee, in shares of Restricted Stock, in which case the
Comverse Common Stock to which the Option relates shall be subject to the same
restrictions originally imposed on the Restricted Stock exchanged therefore;
and (iv) any other method authorized by the Remuneration Committee.
Unless the applicable Award certificate provides otherwise, an SAR connected
to an Option shall be exercisable at any time that the related Option may be
exercised. Unrelated SARs shall become and remain exercisable under such terms
as the Remuneration Committee determines, respectively. Upon exercise of an
SAR, a Plan Participant will receive an amount equal to the excess of the Fair
Market Value of a share of Stock on the exercise date over the Option exercise
price (in the case of a Related SAR) or appreciation base (in the case of an
Unrelated SAR), multiplied by the number of shares of Comverse Common Stock in
respect of which the SAR is exercised. Payment to a Plan Participant upon
exercise of an SAR shall be made in cash, Restricted Stock or Deferred Stock
(Restricted Stock or Deferred Stock to be valued at Fair Market Value (as
defined below) as of the exercise date), as the Remuneration Committee
determines. The exercise of SARs connected to an Option results in the
reduction of the number of shares subject to the connected Options to the
extent of such exercise.
The exercise price of Incentive Stock Options must not be less than 100% of
the mean between the highest and lowest price of actual sales on the Nasdaq of
a share of Comverse Common Stock ("Fair Market Value") on the grant date;
provided that the exercise price of an ISO granted to an employee who owns,
directly or indirectly, stock possessing more than 10% of the total combined
voting power of all classes of stock of
79
<PAGE>
Comverse or a subsidiary ("Ten-Percent Shareholder") shall be no less than
110% of the Fair Market Value of a share of Comverse Common Stock on the date
of grant. The Remuneration Committee may provide for a lower exercise price of
Nonqualified Options or appreciation base of SARs. No Option or SAR shall
remain exercisable for more than 10 years after the grant date; provided that
an ISO granted to a Ten-Percent Shareholder shall remain exercisable for no
more than five years after the grant date.
Deferred Stock and Restricted Stock. Deferred Stock Awards are general
unsecured obligations of Comverse to deliver a specified number of shares of
Comverse Common Stock at the end of a specified deferral period. Restricted
Stock Awards are grants of shares of Comverse Common Stock that are subject to
forfeiture upon the happening of specified events.
The Remuneration Committee shall determine the number of shares of Comverse
Common Stock subject to a Deferred Stock Award, the number of shares of
Restricted Stock to be delivered to Plan Participants and the applicable
restrictions and the conditions under which the deferral period ends and the
applicable restrictions lapse.
The delivery of Deferred Stock and the vesting of Restricted Stock may be
conditioned upon the completion of a period of employment with Comverse, the
attainment of performance goals or such other conditions as the
Remuneration Committee determines. Unless an Award otherwise provides, a Plan
Participant may vote and receive dividends on Restricted Stock and will be
credited with dividend equivalents on Deferred Stock. Dividends credited to
Plan Participants on Deferred Stock Awards will be subject to the same
conditions as applicable to the Awards themselves.
Section 162(m) Awards. In the Remuneration Committee's discretion, any Award
may be designated a Section 162(m) Award. A Section 162(m) Award is an Award
under which all payments are intended to constitute qualified performance-
based compensation which, if received by an employee (a "Section 162(m)
Covered Employee") covered by Section 162(m) of the Code ("Section 162(m)")
(generally, Comverse's Chief Executive Officer and four other highest paid
executive officers), would be excluded from the Section 162(m) limit on
deductibility.
Section 162(m) Awards will be earned upon the attainment of one or more
objective performance goals established by the Remuneration Committee,
generally not later than 90 days after the start of the period of service to
which the goals relate, based upon one or more of the following business
criteria applicable to the Plan Participant, a business segment or Comverse as
a whole: earnings per share; Comverse Common Stock price per share; return on
average equity, assets or investments; pre-tax income; net revenue; net
income; book value per share; earnings available to Comverse stockholders;
market share; operating income; cash flow; and costs. Section 162(m) Awards
may also consist of Options and SARs granted with an exercise price or
appreciation base, as the case may be, not less than the Fair Market Value of
a share of Comverse Common Stock, on the grant date. The Remuneration
Committee will not grant a Section 162(m) Award prior to shareholder approval
of the Incentive Plan. The failure, however, of any Section 162(m) Award to
meet the requirements of Section 162(m) shall not invalidate such Award
provided such Award meets the otherwise applicable provisions of the Incentive
Plan.
When establishing the thresholds and targets that constitute the performance
goals and the amounts (which may be denominated in shares of Comverse Common
Stock or cash) payable to a Plan Participant on attainment of the goals, the
Remuneration Committee may specify that the Section 162(m) Award will be
earned if the applicable target is achieved for one goal, one of a number of
goals or more than one goal. The Remuneration Committee may also specify that
a Section 162(m) Award will be earned in full only upon the attainment of a
specified performance goal or goals, or will vary based upon different levels
of achievement of a goal or goals.
After the end of each measuring period, the Remuneration Committee shall
certify whether the applicable performance targets have been met for each
Section 162(m) Award (other than an Option or SAR) and determine the amount
available to vest, become exercisable or be delivered or paid under each such
award. In its discretion, the Remuneration Committee may reduce such amount
based on factors it determines appropriate, such as the pay practices of
competitors or individual, Comverse or business segment performance.
In any calendar year, the maximum number of shares of Comverse Common Stock
a Plan Participant may be awarded under an Award shall not exceed the
Individual Limit.
General. Whether an Award is denominated in whole or in part by reference to
shares of Stock, the Remuneration Committee may provide that it may be paid at
the election of the Remuneration Committee with
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the Plan Participant's consent in whole or in part in Comverse Common Stock,
Restricted Stock or Deferred Stock. With respect to any dividend or
distribution on shares of Stock corresponding to an Award other than an Option
or SAR, the Remuneration Committee may authorize current or deferred payments
(payable in cash or Stock or a combination thereof) or appropriate adjustments
to the outstanding Award to reflect such dividend or distribution, including
the reinvestment of dividends into additional shares of Comverse Common Stock
or Stock Units. The Remuneration Committee may cancel any Award and issue a
new Award in substitution therefor upon such terms as the Remuneration
Committee determines.
Change of Control. Upon the occurrence of any "change in control" of
Comverse (as defined in the Incentive Plan) that is not approved by the
Comverse Board, all outstanding Options and SARs shall vest and
become exercisable, all Deferred Stock shall be vested and deliverable and all
Restricted Stock shall vest and be nonforfeitable. In the event of any "change
in control" of Comverse that is approved by the Comverse Board, the
Remuneration Committee shall have the discretion to accelerate the vesting of
outstanding Awards, to cash out the value of outstanding Options or to require
the acquiror to assume outstanding Options.
No Stockholder Rights. Except as an Award otherwise provides, no Plan
Participant shall have any rights as a Comverse stockholder with respect to
any Stock subject to the Award until the issuance of a stock certificate
therefor to the Plan Participant. Nothing in the Incentive Plan or in any
Award shall confer upon any person the right to continue in the employment or
other service of Comverse.
Adjustments. The Remuneration Committee may make equitable adjustment to the
following for any change in the issued number of shares of Stock resulting
from the subdivision or combination thereof or other capital adjustments, or
the payment of a stock dividend, or other change in the Stock effected without
receipt of consideration by Comverse: (i) the number of shares of Stock
subject to Awards and/or that may be issued pursuant to Awards; (ii) the
maximum number of Options and unrelated SARs that may be granted to any one
person in any period; (iii) the maximum number of shares of Stock that may be
paid pursuant to a Section 162(m) Award; and (iv) the exercise price of
Options and the appreciation base price of SARs.
Amendment; Termination. The Comverse Board may from time to time in its
discretion amend or terminate the Incentive Plan; provided that no such
amendment or termination shall be made without stockholders' approval to the
extent such approval changes the class of eligible employees, modifies the
Individual Limit or the categories of Section 162(m) performance goals
described herein or is necessary to comply with any applicable tax or
regulatory requirement and provided that no amendment shall impair any rights
under any Award then outstanding without the Plan Participant's consent. The
Incentive Plan shall remain in full force and effect until the earlier of 10
years from the date of its adoption by the Comverse Board or the date it is
terminated by the Comverse Board.
Certain Federal Income Tax Consequences
Set forth below is a general summary of certain of the principal Federal
income tax consequences to Plan Participants and Comverse of certain Awards
under the Incentive Plan. The following discussion is general in nature and is
not intended to be a complete analysis of all potential tax consequences to
Plan Participants of Comverse of such Awards. This discussion is based on the
Code as currently in effect.
Options. The grant of a Nonqualified Option will not result in the
recognition of taxable income by the Plan Participant or a deduction to
Comverse. Ordinary income generally will be recognized by Plan Participants at
the time the Nonqualified Option is exercised. The amount of such income
generally will be equal to the excess of the fair market value of the shares
on the exercise date over the exercise price. Comverse will be entitled to a
deduction at the same time and in the same amount as the Plan Participant
recognizes ordinary income in connection with the exercise of a Nonqualified
Option (subject to the satisfaction of Section 162(m) in the case of Options
subject thereto). Gain or loss upon a subsequent sale of any Stock received
upon the exercise of a Nonqualified Option generally would be taxed as capital
gain or loss (long-term or short-term, depending upon the holding period of
the Stock sold).
ISOs are intended to be incentive stock options under the Code. Upon the
grant or exercise of an incentive stock option complying with the Code, the
Plan Participant does not realize income and Comverse is not entitled to any
deduction. However, the excess of the fair market value of the Stock as of the
exercise date over the exercise price will constitute an adjustment to the
Plan Participant's taxable income for purposes of the alternative minimum tax.
If the shares of Comverse Common Stock are not disposed of within the one-year
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period beginning on the Option exercise date, or within the two-year period
beginning on the Option grant date, any profit realized by the Plan
Participant upon such disposition will be taxed as capital gain and Comverse
will receive no deduction. If the shares of Comverse Common Stock are disposed
of within the one-year period from the date of Option exercise or within the
two-year period from the Option grant date, the excess of the fair market
value of the share on the exercise date or, if less, the fair market value on
the disposition date, over the exercise price will be taxable as ordinary
income of the Plan Participant at the disposition date, and Comverse will be
entitled to a corresponding deduction.
If, in any year after 1993, a Section 162(m) Covered Employee's taxable
compensation from Comverse (including compensation related to Options) exceeds
$1,000,000, such compensation in excess of $1,000,000 may not be tax-
deductible by Comverse under Section 162(m). 162(m) Covered Employees are
determined at the end of Comverse's taxable year. Excluded from the
calculation of taxable compensation for this purpose is compensation that is
"performance-based" within the meaning of Section 162(m). Compensation
realized upon the exercise of an Option granted under the Incentive Plan is
intended to qualify as "performance-based" under Section 162(m) so that such
compensation may be deductible without regard to the limits of Section 162(m).
If an Option is exercised through the use of Comverse Common Stock
previously owned by the employee, such exercise generally will not be
considered a taxable disposition of the previously owned shares and, thus, no
gain or loss will be recognized with respect to such shares upon such
exercise. However, if the previously owned shares were acquired by the
exercise of an ISO or other tax-qualified stock option and the holding period
requirement for those shares was not satisfied at the time they were used to
exercise an ISO, such use would constitute a disqualifying disposition of such
previously owned shares which may result in the recognition of ordinary income
(but, under proposed Treasury Regulations, not any additional capital gain) in
the amount described above. If an otherwise qualifying ISO first becomes
exercisable in any one year for shares having a value in excess of $100,000
(grant date value), the portion of the option in respect of such excess shares
will be treated as a Nonqualified Option.
Stock Appreciation Rights. No income will be recognized by a Plan
Participant who is awarded an SAR until cash, Restricted Stock or Deferred
Stock representing the amount of the appreciation are transferred to the Plan
Participant pursuant to exercise of the SAR. If the settlement vesting of
Stock transferred upon exercise is deferred following the date of exercise,
income recognition will generally be deferred until the date of vesting. The
amount of income will equal the amount of cash or fair market value of Stock
delivered to the Plan Participant and will be ordinary income. Comverse will
be entitled to a deduction at the same time and in the same amount.
Compensation realized upon the exercise of an SAR granted under the Incentive
Plan is intended to qualify as "performance based" under Section 162(m) so
that compensation may be deductible without regard to the limits of Section
162(m).
Restricted Stock and Deferred Stock. A Plan Participant who is awarded
Restricted Stock or Deferred Stock will not be taxed at the time of grant
unless, in the case of Restricted Stock, the Plan Participant makes a special
election with the Service pursuant to Code Section 83(b), as discussed below.
Upon lapse of the restrictions on transferability applicable to the Restricted
Stock or upon the expiration of the deferral period applicable to Deferred
Stock, the Plan Participant will recognize ordinary income on the then fair
market value of the Restricted Stock or Deferred Stock and a corresponding
deduction will be allowable to Comverse (subject to the satisfaction of an
exclusion from Section 162(m) limit in the case of Restricted Stock or
Deferred Stock held by Section 162(m) Covered Employees). In such case, the
Plan Participant's basis in the Stock will be equal to the ordinary income so
recognized. Upon subsequent disposition of such Stock, the Plan Participant
will realize long-term or short-term capital gain or loss.
Pursuant to Code Section 83(b), the Plan Participant may elect within 30
days of the grant of Restricted Stock to recognize ordinary income in an
amount equal to the fair market value of the Restricted Stock at the time of
grant (determined without regard to any restrictions which may lapse). In that
case, the Plan Participant will acquire a tax basis in such Stock equal to the
ordinary income recognized by the Plan Participant on the grant date. No tax
will be payable upon lapse or release of the restrictions or at the time the
Restricted Stock first becomes transferable, and any gain or loss upon
subsequent disposition will be a capital gain or loss. In the
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event of a forfeiture of Restricted Stock with respect to which a Plan
Participant previously made a Code Section 83(b) election, the Plan
Participant will not be entitled to a loss deduction.
Change in Control Payments. If any payments under the Incentive Plan are
contingent on a change in control within the meaning of Code Section 280G
(which could include, for example, the accelerated vesting of Options upon a
change in control), then Comverse may be denied an income tax deduction and
the Plan Participant may be subject to a 20 percent excise tax in addition to
income taxes which may otherwise be imposed on such payments.
PROPOSAL--APPROVAL OF THE 1997 EMPLOYEE STOCK PURCHASE PLAN
General
The Comverse Board approved the Stock Purchase Plan on November 21, 1997 and
recommended that the Stock Purchase Plan be submitted to shareholders for
approval at the Comverse Annual Meeting. The purpose of the Stock Purchase
Plan is to encourage stock ownership by eligible employees of Comverse and
certain designated subsidiaries, thereby increasing eligible employees'
personal interest in Comverse's continued success and progress. The Stock
Purchase Plan is intended to facilitate and encourage regular investment in
Comverse Common Stock and to motivate eligible employees to contribute to the
success of Comverse.
THE COMVERSE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE STOCK
PURCHASE PLAN.
Summary of the Stock Purchase Plan
The following is a summary of the principal features of the Stock Purchase
Plan, but such summary is qualified in its entirety by reference to the
complete text of the Stock Purchase Plan attached to this Joint Proxy
Statement/ Prospectus as Annex V.
The Stock Purchase Plan is an employee stock purchase plan which is intended
to comply with the provisions of Section 423 of the Code. The Stock Purchase
Plan allows eligible employees who elect to participate in the Stock Purchase
Plan ("Participants") to make purchases of Comverse Common Stock through
payroll deductions at a price of 85% of the fair market value of Comverse
Common Stock on the first day or last day of each Offering Period (as defined
below), whichever is lower. Participants are limited by the Code to a maximum
of $21,250 deducted from their compensation under the Stock Purchase Plan
during any calendar year.
Administration. The Stock Purchase Plan is administered by the Remuneration
Committee, which is authorized to decide questions of eligibility and to make
rules and regulations for the administration and interpretation of the Stock
Purchase Plan, subject to final authority of the Comverse Board. All
determinations of the Remuneration Committee with respect to the Stock
Purchase Plan are binding. The expenses of administering the Stock Purchase
Plan are borne by Comverse.
Shares Available Under the Stock Purchase Plan. Under the Stock Purchase
Plan, Comverse will issue an aggregate of not more than 250,000 shares of
Comverse Common Stock. The maximum number of shares issuable under the Stock
Purchase Plan will be subject to adjustment for any dividend, stock split or
other relevant change in Comverse's capitalization.
Eligibility. With certain exceptions, all full-time employees, including
officers and directors, who have been employed by Comverse or an eligible
subsidiary for at least three months, are eligible to participate in the Stock
Purchase Plan. Assuming the Merger is consummated, following the Effective
Time employees of BTI will be eligible to participate in the Stock Purchase
Plan. As of July 31, 1997, approximately 1,650 employees of Comverse were
eligible to participate. If the Merger is consummated, Comverse estimates that
following the Effective Time there will be approximately 2,900 employees of
Comverse eligible to participate. The purchase of shares under the Stock
Purchase Plan is voluntary, and Comverse cannot now determine the number of
shares to be purchased under the Stock Purchase Plan in the future by any
person or group.
Operation of the Stock Purchase Plan. Comverse Common Stock is purchased
under the Stock Purchase Plan through semi-annual offering periods ("Offering
Periods"). During each Offering Period, the maximum
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number of shares which may be purchased by a Participant (a "purchase option")
is determined on the first day of the Offering Period under a formula whereby
85% of the market value of a share of Comverse Common Stock on the first day
of the Offering Period is divided into an amount equal to 6% of that
Participant's annualized base pay (as defined in the Stock Purchase Plan). A
Participant may elect to have up to 10% of his or her base pay withheld from
his or her pay for this purpose. The price at which the Participant may
purchase shares is the lower of (i) 85% of the last sale price of the Comverse
Common Stock on the Nasdaq on the first day of the Offering Period or (ii) 85%
of such price on the last day of the Offering Period.
Amendment. The Comverse Board may at any time, and from time to time,
modify, terminate or amend the Stock Purchase Plan in any respect, except that
if at any time the approval of the shareholders of Comverse is required as to
such modification or amendment under (i) Section 423 of the Code, (ii) Rule
16b-3 of the Exchange Act or any successor provisions ("Rule 16b-3") or (iii)
under any applicable listing requirement of the Nasdaq, the Comverse Board may
not effect such modification or amendment without shareholder approval.
The termination, modification or amendment of the Stock Purchase Plan shall
not, without the consent of a Participant, affect his or her rights under a
purchase option previously selected by the Participant. With the consent of
the Participant affected, the Comverse Board may amend outstanding purchase
options in a manner not inconsistent with the terms of the Stock Purchase
Plan. The Comverse Board shall also have the right to amend or modify the
terms and provisions of the Stock Purchase Plan and of any purchase options
previously granted under the Stock Purchase Plan to the extent necessary to
ensure the continued qualification of the Stock Purchase Plan under Section
423 of the Code and Rule 16b-3. The Stock Purchase Plan also contains
provisions relating to the disposition of purchase options in the event of
certain mergers or other significant transactions involving Comverse.
Certain Federal Income Tax Consequences
The Stock Purchase Plan, and the rights of Participants to make purchases
thereunder, is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Code. No income (other than dividends) will be taxable to a
Participant until disposition of the shares purchased under the Stock Purchase
Plan. Upon the disposition of the shares of Comverse Common Stock, the
Participant will generally be subject to tax and the amount of the tax will
depend upon the holding period.
If the shares are disposed of more than two years from the first day of the
Offering Period, or if the Participant dies (at any time, regardless of the
holding period), the Participant will recognize ordinary income for the
taxable year of the disposition or death measured as the lesser of (a) the
excess of the fair market value of the shares at the time of such disposition
over the purchase price or (b) an amount equal to 15% of the fair market value
of the shares as of the beginning of the Offering Period. Comverse will not be
entitled to a corresponding deduction.
If the shares are disposed of within two years of the first day of the
Offering Period (a "Disqualifying Disposition"), the Participant will
recognize ordinary income for the taxable year of the disposition generally
measured as the excess of the fair market value of the shares on the date the
shares are purchased over the purchase price. Subject to the limitation
described in the next sentence, Comverse will be entitled to a tax deduction
equal to the amount of ordinary income recognized as described in this
paragraph. Under Section 162(m), Comverse's tax deduction for all compensation
paid to specified officers in any one year after 1993 is limited to $1,000,000
unless the compensation qualifies for an exemption from this limitation.
Amounts recognized as ordinary income on a Disqualifying Disposition will not
be exempt.
The Participant's tax basis in the shares will initially be his or her
purchase price for those particular shares, and that tax basis will be
increased at the time of disposition of the shares by the foregoing taxable
amount. In the case of a taxable disposition of the shares, the difference
between such adjusted tax basis and the amount realized will be capital gain
or loss, either long-term or short-term, depending upon how long the shares
have been held on the date of disposition.
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LEGAL MATTERS
Certain legal matters with respect to the validity of the securities offered
hereby and the Merger will be passed upon for Comverse by Cravath, Swaine &
Moore. Certain legal matters in connection with the Merger will be passed upon
for BTI by Hale and Dorr LLP.
EXPERTS
The consolidated financial statements of Comverse incorporated by reference
in this Joint Proxy Statement/Prospectus from Comverse's Annual Report on Form
10-K for the fiscal year ended December 31, 1996 have been audited by Deloitte
& Touche LLP, independent auditors, as set forth in their reports thereon,
which are incorporated by reference, in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of BTI incorporated by reference in
this Joint Proxy Statement/Prospectus from BTI's Annual Report on Form 10-K
for the fiscal year ended January 31, 1997 have been audited by Coopers &
Lybrand L.L.P., independent auditors, as stated in their report thereon, which
are incorporated herein by reference in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
FUTURE STOCKHOLDER PROPOSALS
Shareholder proposals intended to be presented at the 1998 Annual Meeting of
Shareholders of Comverse must be received by the Corporate Secretary of
Comverse not later than July 29, 1998 for inclusion in the proxy materials for
such meeting.
If the Merger is not consummated, BTI will hold a 1998 Annual Meeting of
Stockholders. If such meeting is held, stockholder proposals intended to be
presented at such meeting must be received at the offices of BTI not later
than January 15, 1998 for inclusion in BTI's proxy materials for such meeting.
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WHERE YOU CAN FIND MORE INFORMATION
Comverse and BTI file annual, quarterly and special reports, proxy
statements and other information with the Commission. You may read and copy
any reports, statements or other information we file at the Commission's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the Commission at 1-800-SEC-0330 for further information
on the public reference rooms. Our Commission filings are also available to
the public from commercial document retrieval services and at the web site
maintained by the Commission at "http://www.sec.gov."
Comverse filed a Registration Statement on Form S-4 to register with the
Commission the Comverse Common Stock to be issued to BTI stockholders in the
Merger. This Joint Proxy Statement/Prospectus is a part of that Registration
Statement and constitutes a prospectus of Comverse in addition to being a
proxy statement of Comverse and BTI for their respective Annual and Special
Meetings. As allowed by Commission rules, this Joint Proxy
Statement/Prospectus does not contain all the information you can find in the
Registration Statement or the exhibits to the Registration Statement.
The Commission allows us to "incorporate by reference" information into this
Joint Proxy Statement/Prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the Commission. The information incorporated by reference is deemed to be part
of this Joint Proxy Statement/Prospectus, except for any information
superseded by information in this Joint Proxy Statement/Prospectus. This Joint
Proxy Statement/Prospectus incorporates by reference the documents set forth
below that we have previously filed with the Commission. These documents
contain important information about our companies and their financial
performance.
<TABLE>
<CAPTION>
COMVERSE COMMISSION FILINGS (FILE NO. 0-
15502) PERIOD
---------------------------------------- -------------------------------------------
<S> <C>
Annual Report on Form 10-K Fiscal Year ended December 31, 1996
Amendment to the Annual Report on Form 10-K Dated April 28, 1997
Quarterly Reports on Form 10-Q Fiscal Quarters ended September 30, 1997,
June 30, 1997 and March 31, 1997
Current Report on Form 8-K Dated August 22, 1997
Registration Statement on Form 8-A Dated March 16, 1987
<CAPTION>
BTI COMMISSION FILINGS (FILE NO. 0-
17384) PERIOD
----------------------------------- -------------------------------------------
<S> <C>
Annual Report on Form 10-K Fiscal Year ended January 31, 1997
Amendment to the Annual Report on Form 10-K Dated June 12, 1997
Quarterly Reports on Form 10-Q Fiscal Quarters ended October 31, 1997,
July 31, 1997 and April 30, 1997
Amendment to the Quarterly Report on Form
10-Q for the quarter ended April 30, 1997 Dated July 22, 1997
Amendment to the Quarterly Report on Form
10-Q for the quarter ended July 31, 1997 Dated November 26, 1997
Proxy Statement on Schedule 14A Dated May 15, 1997
The Description of BTI's Rights Agreement Dated May 28, 1991
contained in BTI's Registration Statement
on Form 8-A
Registration Statement on Form 8-A Dated January 9, 1997
</TABLE>
We are also incorporating by reference additional documents that we file
with the Commission between the date of this Joint Proxy Statement/Prospectus
and the date of the Comverse Annual Meeting and the BTI Special Meetings.
Comverse has supplied all information contained or incorporated by reference
in this Joint Proxy Statement/ Prospectus relating to Comverse, and BTI has
supplied all such information relating to BTI.
If you are a stockholder, you may have previously received some of the
documents incorporated by reference. You may still obtain such documents
through us or the Commission. Documents incorporated by reference are
available from us without charge, excluding all exhibits unless we have
specifically incorporated
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by reference an exhibit in this Joint Proxy Statement/Prospectus. Stockholders
may obtain documents incorporated by reference in this Joint Proxy
Statement/Prospectus by requesting them in writing or by telephone from the
appropriate party at the following addresses:
Comverse Technology, Inc. Boston Technology, Inc.
170 Crossways Park Drive 100 Quannapowitt Parkway
Woodbury, New York 11797 Wakefield, Massachusetts 01880
Attention: Investor Relations Attention: Investor Relations
Phone Number: (516) 677-7200 Phone Number: (781) 246-9000
If you would like to request documents from us, please do so by January 5,
1998 to receive them before Comverse's and BTI's respective Annual and Special
Meetings.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE ON THE MERGER. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT
FROM WHAT IS CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THIS JOINT
PROXY STATEMENT/PROSPECTUS IS DATED DECEMBER 1, 1997. WE HAVE TRIED TO MAKE
THE JOINT PROXY STATEMENT/PROSPECTUS AS ACCURATE AS POSSIBLE, BUT WE CANNOT
ASSURE THAT THIS DOCUMENT REMAINS ACCURATE AFTER SUCH DATE. YOU SHOULD NOT
ASSUME THAT THE INFORMATION CONTAINED IN THE JOINT PROXY STATEMENT/PROSPECTUS
IS ACCURATE AS OF ANY DATE OTHER THAN SUCH DATE, AND NEITHER THE MAILING OF
THE JOINT PROXY STATEMENT/PROSPECTUS TO STOCKHOLDERS NOR THE ISSUANCE OF
COMVERSE COMMON STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION TO THE
CONTRARY.
By Order of the Board of Directors of By Order of the Board of Directors
Comverse Technology, Inc., of
Boston Technology, Inc.,
William F. Sorin
Corporate Secretary Carol B. Langer
Corporate Secretary
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LIST OF DEFINED TERMS
<TABLE>
<S> <C>
Acquiring Person............................................................ 67
Acquisition Agreement....................................................... 42
Adjusted Option............................................................. 37
Award....................................................................... 79
Basic Salary................................................................ 73
Boards...................................................................... 17
boot........................................................................ 36
broker non-votes............................................................ 20
BTI......................................................................... 13
BTI Board................................................................... 17
BTI By-Laws................................................................. 61
BTI Certificate............................................................. 61
BTI Common Stock............................................................ 13
BTI Employment Agreement.................................................... 38
BTI Right................................................................... 67
BTI Rights Agreement........................................................ 67
BTI Severance Plan.......................................................... 38
BTI Special Meeting......................................................... 13
BTI Stock Option............................................................ 36
BTI Stock Plans............................................................. 36
Certificate of Merger....................................................... 13
Closing Date................................................................ 35
Code........................................................................ 35
Commission.................................................................. 20
Common Shares Trust......................................................... 34
Companies................................................................... 13
Comparable Companies........................................................ 26
Comverse.................................................................... 13
Comverse Annual Meeting..................................................... 13
Comverse Board.............................................................. 17
Comverse By-Laws............................................................ 33
Comverse Certificate........................................................ 33
Comverse Common Stock....................................................... 13
Comverse Preferred Stock.................................................... 60
Consulting Agreement........................................................ 38
Convertible Debentures...................................................... 60
D. F. King.................................................................. 20
Deferred Stock.............................................................. 79
DGCL........................................................................ 33
Disqualifying Disposition................................................... 84
EBIT........................................................................ 26
EBITDA...................................................................... 26
Effective Time.............................................................. 13
Efrat....................................................................... 57
Eligible Director........................................................... 79
Employment Amendment........................................................ 38
EPS......................................................................... 27
ESPs........................................................................ 22
Excess Shares............................................................... 34
</TABLE>
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<TABLE>
<S> <C>
Exchange Act................................................................ 39
Exchange Agent.............................................................. 34
Exchange Ratio.............................................................. 13
Exercise Price.............................................................. 67
Fair Market Value........................................................... 79
First Call.................................................................. 27
Historical Exchange Ratio................................................... 28
HSR Act..................................................................... 37
IBES........................................................................ 28
IBM......................................................................... 58
Incentive Plan.............................................................. 18
Individual Limit............................................................ 78
ISOs........................................................................ 79
Joint Proxy Statement/Prospectus............................................ 13
LTM......................................................................... 26
Lucent/Octel................................................................ 32
Material Adverse Change..................................................... 41
Material Adverse Effect..................................................... 41
Merger...................................................................... 13
Merger Agreement............................................................ 13
Merger Consideration........................................................ 13
Merrill Comparable Companies................................................ 31
Merrill Lynch............................................................... 22
Merrill Lynch Opinion....................................................... 29
Morrow...................................................................... 20
named executive officers.................................................... 71
Nasdaq...................................................................... 7
Network Systems............................................................. 21
Nonqualified Options........................................................ 79
NYBCL....................................................................... 33
NYSE........................................................................ 7
Offer....................................................................... 66
Offering Periods............................................................ 83
Options..................................................................... 79
Out-of-Pocket Expenses...................................................... 42
Participant................................................................. 83
Plan Participant............................................................ 78
Precedent Transactions...................................................... 27
Primary Comparable Companies................................................ 26
purchase option............................................................. 84
RBOCs....................................................................... 22
Record Date................................................................. 18
Registration Statement...................................................... 36
Remuneration Committee...................................................... 24
Restraints.................................................................. 40
Restricted Stock............................................................ 79
Rule 16b-3.................................................................. 84
Salomon Brothers............................................................ 22
SARs........................................................................ 79
Secondary Comparable Companies.............................................. 26
Section 162(m).............................................................. 80
Section 162(m) Covered Employee............................................. 80
Securities Act.............................................................. 39
</TABLE>
89
<PAGE>
<TABLE>
<S> <C>
Service..................................................................... 35
SMARTS...................................................................... 58
Stock Acquisition Date...................................................... 67
Stock Plans................................................................. 18
Stock Purchase Plan......................................................... 18
Stockholders' Meetings...................................................... 13
Superior Proposal........................................................... 41
Takeover Proposal........................................................... 41
Ten-Percent Shareholder..................................................... 80
Termination Fee............................................................. 42
Warrants.................................................................... 36
</TABLE>
90
<PAGE>
ANNEXES TO THE JOINT PROXY STATEMENT/PROSPECTUS
<TABLE>
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Annex I Agreement and Plan of Merger
Annex II Opinion of Salomon Brothers Inc
Annex III Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
Annex IV The 1997 Stock Incentive Compensation Plan
Annex V The 1997 Employee Stock Purchase Plan
</TABLE>
<PAGE>
ANNEX I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BETWEEN
COMVERSE TECHNOLOGY, INC.
AND
BOSTON TECHNOLOGY, INC.
DATED AS OF AUGUST 20, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGER
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SECTION 1.01. The Merger................................................ I-1
SECTION 1.02. Closing................................................... I-1
SECTION 1.03. Effective Time............................................ I-1
SECTION 1.04. Effects of the Merger..................................... I-1
Certificate of Incorporation and By-laws of Surviving
SECTION 1.05. Corporation............................................... I-2
SECTION 1.06. Certain Corporate Governance Matters...................... I-2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.01. Effect on Capital Stock.................................. I-2
SECTION 2.02. Exchange of Certificates.................................. I-3
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of BT...................... I-5
SECTION 3.02. Representations and Warranties of CT...................... I-13
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.01. Conduct of Business....................................... I-20
SECTION 4.02. No Solicitation by BT..................................... I-23
SECTION 4.03. No Solicitation by CT..................................... I-24
ARTICLE V
ADDITIONAL AGREEMENTS
Preparation of the Form S-4 and the Joint Proxy Statement;
SECTION 5.01. Stockholders Meetings..................................... I-26
SECTION 5.02. Letters of BT's Accountants............................... I-27
SECTION 5.03. Letters of CT's Accountants............................... I-27
SECTION 5.04. Access to Information; Confidentiality.................... I-27
SECTION 5.05. Best Efforts.............................................. I-27
SECTION 5.06. Stock Options, etc........................................ I-28
SECTION 5.07. Indemnification, Exculpation and Insurance................ I-29
SECTION 5.08. Fees and Expenses......................................... I-30
SECTION 5.09. Public Announcements...................................... I-31
SECTION 5.10. Affiliates................................................ I-31
SECTION 5.11. Stock Exchange Listing.................................... I-31
SECTION 5.12. Stockholder Litigation................................... I-31
</TABLE>
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SECTION 5.13. Tax Treatment............................................. I-32
SECTION 5.14. Pooling of Interests...................................... I-32
SECTION 5.15. BT Rights Agreement....................................... I-32
SECTION 5.16. Standstill Agreements; Confidentiality Agreements......... I-32
ARTICLE VI
CONDITIONS PRECEDENT
Conditions to Each Party's Obligation to Effect the
SECTION 6.01. Merger.................................................... I-32
SECTION 6.02. Conditions to Obligations of CT........................... I-33
SECTION 6.03. Conditions to Obligations of BT........................... I-33
SECTION 6.04. Frustration of Closing Conditions......................... I-34
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination............................................... I-34
SECTION 7.02. Effect of Termination..................................... I-34
SECTION 7.03. Amendment................................................. I-35
SECTION 7.04. Extension; Waiver......................................... I-35
SECTION 7.05. Procedure for Termination, Amendment, Extension or Waiver. I-35
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Nonsurvival of Representations and Warranties............. I-35
SECTION 8.02. Notices................................................... I-35
SECTION 8.03. Definitions............................................... I-36
SECTION 8.04. Interpretation............................................ I-36
SECTION 8.05. Counterparts.............................................. I-37
SECTION 8.06. Entire Agreement; No Third-Party Beneficiaries............ I-37
SECTION 8.07. Governing Law............................................. I-37
SECTION 8.08. Assignment................................................ I-37
SECTION 8.09. Enforcement............................................... I-37
SECTION 8.10. WAIVER OF JURY TRIAL...................................... I-37
SECTION 8.11. Severability.............................................. I-37
</TABLE>
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<CAPTION>
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EXHIBIT A-- Form of BT Rights Agreement
EXHIBIT B-- Form of BT Indemnification Agreement
EXHIBIT C-- Form of Affiliate Letter
EXHIBIT D-- Form of CT Tax Opinion Representation Letter
EXHIBIT E-- Form of BT Tax Opinion Representation Letter
EXHIBIT F-- Form of BT Stockholder Representation Letter
</TABLE>
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER dated as of August 20, 1997, between COMVERSE
TECHNOLOGY, INC., a New York corporation ("CT"), and BOSTON TECHNOLOGY, INC.,
a Delaware corporation ("BT").
WHEREAS the respective Boards of Directors of CT and BT have approved the
merger of BT with and into CT (the "Merger"), upon the terms and subject to
the conditions set forth in this Agreement, whereby each issued and
outstanding share of common stock, $.001 par value, of BT (together with the
associated Rights (as defined in Section 3.01(c)), "BT Common Stock"), other
than shares owned directly or indirectly by CT or BT, will be converted into
the right to receive the Merger Consideration (as defined in Section 2.01(b));
WHEREAS the respective Boards of Directors of CT and BT have each determined
that the Merger and the other transactions contemplated hereby are consistent
with, and in furtherance of, their respective business strategies and goals;
WHEREAS CT and BT desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
WHEREAS, for Federal income tax purposes, it is intended that the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for financial accounting purposes, it is intended that the Merger
will be accounted for as a pooling of interests transaction.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the New York Business
Corporation Law ("NYBCL") and the Delaware General Corporation Law (the
"DGCL"), BT shall be merged with and into CT at the Effective Time (as defined
in Section 1.03). Following the Effective Time, CT shall be the surviving
corporation (the "Surviving Corporation") and shall succeed to and assume all
the rights and obligations of BT in accordance with the NYBCL and the DGCL.
SECTION 1.02. Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. on a date to be specified by the parties (the "Closing
Date"), which shall be no later than the second business day after
satisfaction or waiver of the conditions set forth in Article VI, unless
another time or date is agreed to by the parties hereto. The Closing will be
held at such location in the City of New York as is agreed to by the parties
hereto.
SECTION 1.03. Effective Time. Subject to the provisions of this Agreement,
as soon as practicable on or after the Closing Date, the parties shall file a
certificate of merger or other appropriate documents (in any such case, the
"Certificate of Merger") executed in accordance with the relevant provisions
of the NYBCL and the DGCL and shall make all other filings or recordings
required under the NYBCL and the DGCL. The Merger shall become effective at
such time as the Certificate of Merger is duly filed with the Secretary of
State of the State of New York and the State of Delaware, or at such
subsequent date or time as CT and BT shall agree and specify in the
Certificate of Merger (the time the Merger becomes effective being hereinafter
referred to as the "Effective Time").
SECTION 1.04. Effects of the Merger. The Merger shall have the effects set
forth in Section 907(i) of the NYBCL and Section 259 of the DGCL.
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<PAGE>
SECTION 1.05. Certificate of Incorporation and By-laws of Surviving
Corporation. (a) The certificate of incorporation of CT, as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law.
(b) The by-laws of CT, as in effect immediately prior to the Effective Time,
shall become the by-laws of the Surviving Corporation and such by-laws shall
be the by-laws of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
SECTION 1.06. Certain Corporate Governance Matters. (a) Subject to Section
1.06(b), the directors and officers of CT immediately prior to the Effective
Time shall be the directors and officers of the Surviving Corporation, until
the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
(b) As of the Effective Time, the Board of Directors of CT will be expanded
to consist of nine members, two of whom shall be the current Chairman of the
Board of BT (who shall also be appointed to the Remuneration and Stock Option
Committee of the CT Board of Directors) and the current President and Chief
Executive Officer of BT, in each case, provided that such person has retained
such position with BT for the period from the date hereof until the Effective
Time. As of the Effective Time, the current President and Chief Executive
Officer of BT shall be named the President and Chief Executive Officer of the
CT Network Systems Division, provided that such person has remained a full-
time employee of BT for the period from the date hereof until the Effective
Time. It is the intention of the parties that the headquarters for the CT
Network Systems Division shall be located in Wakefield, Massachusetts.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.01. Effect on Capital Stock. As of the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any shares
of BT Common Stock or shares of common stock, par value $.10 per share, of CT
("CT Common Stock"):
(a) Cancelation of Treasury Stock and CT-Owned Stock. Each share of BT
Common Stock that is owned by BT or by any subsidiary (as defined in
Section 8.03) of BT, if any, and each share of BT Common Stock that is
owned by CT or any subsidiary of CT, if any, shall automatically be
canceled and retired and shall cease to exist, and no consideration shall
be delivered in exchange therefor.
(b) Conversion of BT Common Stock. Subject to Section 2.02(e), each
issued and outstanding share of BT Common Stock (other than shares to be
canceled in accordance with Section 2.01(a)) shall be converted into the
right to receive 0.65 (the "Exchange Ratio") of a fully paid and
nonassessable share of CT Common Stock (the "Merger Consideration"). As of
the Effective Time, all such shares of BT Common Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate representing any such shares of
BT Common Stock shall cease to have any rights with respect thereto, except
the right to receive the Merger Consideration and any cash in lieu of
fractional shares of CT Common Stock to be issued or paid in consideration
therefor upon surrender of such certificate in accordance with Section
2.02, without interest. Notwithstanding the foregoing, if between the date
of this Agreement and the Effective Time the outstanding shares of CT
Common Stock shall have been changed into a different number of shares or a
different class, by reason of the occurrence or record date of any stock
dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares or if CT pays or declares an
extraordinary dividend with a record date prior to the Effective Date, the
Exchange Ratio shall be appropriately adjusted to reflect such stock
dividend, subdivision, reclassification, recapitalization, split,
combination or exchange or extraordinary dividend.
I-2
<PAGE>
SECTION 2.02. Exchange of Certificates. (a) Exchange Agent. As of the
Effective Time, CT shall enter into an agreement with American Stock Transfer
& Trust Company, or such other bank or trust company as may be designated by
CT and reasonably satisfactory to BT (the "Exchange Agent"), which shall
provide that CT shall deposit with the Exchange Agent as of the Effective
Time, for the benefit of the holders of shares of BT Common Stock, for
exchange in accordance with this Article II, through the Exchange Agent,
certificates representing the shares of CT Common Stock (such shares of CT
Common Stock, together with any dividends or distributions with respect
thereto with a record date after the Effective Time, any Excess Shares (as
defined in Section 2.02(e)) and any cash (including cash proceeds from the
sale of the Excess Shares) payable in lieu of any fractional shares of CT
Common Stock being hereinafter referred to as the "Exchange Fund") issuable
pursuant to Section 2.01 in exchange for outstanding shares of BT Common
Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time (but in any event within five business days), the Exchange
Agent shall mail to each holder of record of a certificate or certificates
which immediately prior to the Effective Time represented outstanding shares
of BT Common Stock (the "Certificates") whose shares were converted into the
right to receive the Merger Consideration pursuant to Section 2.01, (i) a
letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon delivery
of the Certificates to the Exchange Agent and shall be in such form and have
such other provisions as CT and BT may reasonably specify) and (ii)
instructions for use in surrendering the Certificates in exchange for the
Merger Consideration. Upon surrender of a Certificate for cancelation to the
Exchange Agent, together with such letter of transmittal, duly executed, and
such other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of CT Common Stock which
such holder has the right to receive pursuant to the provisions of this
Article II, certain dividends or other distributions in accordance with
Section 2.02(c) and cash in lieu of any fractional share of CT Common Stock in
accordance with Section 2.02(e), and the Certificate so surrendered shall
forthwith be canceled. In the event of a transfer of ownership of BT Common
Stock which is not registered in the transfer records of BT, a certificate
representing the proper number of shares of CT Common Stock may be issued to a
person (as defined in Section 8.03) other than the person in whose name the
Certificate so surrendered is registered if such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person requesting
such issuance shall pay any transfer or other taxes required by reason of the
issuance of shares of CT Common Stock to a person other than the registered
holder of such Certificate or establish to the satisfaction of CT that such
tax has been paid or is not applicable. Until surrendered as contemplated by
this Section 2.02, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender the
Merger Consideration which the holder thereof has the right to receive in
respect of such Certificate pursuant to the provisions of this Article II,
certain dividends or other distributions in accordance with Section 2.02(c)
and cash in lieu of any fractional share of CT Common Stock in accordance with
Section 2.02(e). No interest shall be paid or will accrue on any cash payable
to holders of Certificates pursuant to the provisions of this Article II.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to CT Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the shares of CT Common Stock represented thereby, and, in the
case of Certificates representing BT Common Stock, no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section
2.02(e), and all such dividends, other distributions and cash in lieu of
fractional shares of CT Common Stock shall be paid by CT to the Exchange Agent
and shall be included in the Exchange Fund, in each case until the surrender
of such Certificate in accordance with this Article II. Subject to the effect
of applicable escheat or similar laws, following surrender of any such
Certificate there shall be paid to the holder of the certificate representing
whole shares of CT Common Stock issued in exchange therefor, without interest,
(i) at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of CT Common Stock and the amount of any
cash payable in lieu of a fractional share of CT Common Stock to which such
holder is entitled pursuant to Section 2.02(e) and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record
date after the Effective Time but prior to such surrender and with a payment
date subsequent to such surrender payable with respect to such whole shares of
CT Common Stock.
I-3
<PAGE>
(d) No Further Ownership Rights in BT Common Stock. All shares of CT Common
Stock issued upon the surrender for exchange of Certificates in accordance
with the terms of this Article II (including any cash paid pursuant to this
Article II) shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the shares of BT Common Stock
theretofore represented by such Certificates, subject, however, to the
Surviving Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have
been declared or made by BT on such shares of BT Common Stock which remain
unpaid at the Effective Time, and there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the
shares of BT Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Corporation or the Exchange Agent for any reason, they shall be
canceled and exchanged as provided in this Article II, except as otherwise
provided by law.
(e) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of CT Common Stock shall be issued upon the surrender for
exchange of Certificates, no dividend or distribution of CT shall relate to
such fractional share interests and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a shareholder of CT.
(ii) As promptly as practicable following the Effective Time, the Exchange
Agent shall determine the excess of (A) the number of whole shares of CT
Common Stock delivered to the Exchange Agent by CT pursuant to Section 2.02(a)
over (B) the aggregate number of whole shares of CT Common Stock to be
distributed to former holders of BT Common Stock pursuant to Section 2.02(b)
(such excess being herein called the "Excess Shares"). Following the Effective
Time, the Exchange Agent shall, on behalf of former stockholders of BT, sell
the Excess Shares at then-prevailing prices on the Nasdaq National Market
System ("Nasdaq"), all in the manner provided in Section 2.02(e)(iii).
(iii) The sale of the Excess Shares by the Exchange Agent shall be executed
on Nasdaq and shall be executed in round lots to the extent practicable. The
Exchange Agent shall use reasonable efforts to complete the sale of the Excess
Shares as promptly following the Effective Time as, in the Exchange Agent's
sole judgment, is practicable consistent with obtaining the best execution of
such sales in light of prevailing market conditions. Until the net proceeds of
such sale or sales have been distributed to the holders of Certificates
formerly representing BT Common Stock, the Exchange Agent shall hold such
proceeds in trust for such holders (the "Common Shares Trust"). The Surviving
Corporation shall pay all commissions, transfer taxes and other out-of-pocket
transaction costs, including the expenses and compensation of the Exchange
Agent incurred in connection with such sale of the Excess Shares. The Exchange
Agent shall determine the portion of the Common Shares Trust to which each
former holder of BT Common Stock is entitled, if any, by multiplying the
amount of the aggregate net proceeds comprising the Common Shares Trust by a
fraction, the numerator of which is the amount of the fractional share
interest to which such former holder of BT Common Stock is entitled (after
taking into account all shares of BT Common Stock held at the Effective Time
by such holder) and the denominator of which is the aggregate amount of
fractional share interests to which all former holders of BT Common Stock are
entitled.
(iv) Notwithstanding the provisions of Section 2.02(e)(ii) and (iii), the
Surviving Corporation may elect at its option, exercised prior to the
Effective Time, in lieu of the issuance and sale of Excess Shares and the
making of the payments hereinabove contemplated, to pay each former holder of
BT Common Stock an amount in cash equal to the product obtained by multiplying
(A) the fractional share interest to which such former holder (after taking
into account all shares of BT Common Stock held at the Effective Time by such
holder) would otherwise be entitled by (B) the closing price for a share of CT
Common Stock as reported on Nasdaq (as reported in The Wall Street Journal,
or, if not reported thereby, any other authoritative source) on the Closing
Date, and, in such case, all references herein to the cash proceeds of the
sale of the Excess Shares and similar references shall be deemed to mean and
refer to the payments calculated as set forth in this Section 2.02(e)(iv).
I-4
<PAGE>
(v) As soon as reasonably practicable after the determination of the amount
of cash, if any, to be paid to holders of Certificates formerly representing
BT Common Stock with respect to any fractional share interests, the Exchange
Agent shall make available such amounts to such holders of Certificates
formerly representing BT Common Stock subject to and in accordance with the
terms of Section 2.02(c).
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time shall be delivered to CT, upon demand, and any holders of
the Certificates who have not theretofore complied with this Article II shall
thereafter look only to CT for payment of their claim for Merger
Consideration, any dividends or distributions with respect to CT Common Stock
and any cash in lieu of fractional shares of CT Common Stock.
(g) No Liability. None of CT, BT or the Exchange Agent shall be liable to
any person in respect of any shares of CT Common Stock, any dividends or
distributions with respect thereto, any cash in lieu of fractional shares of
CT Common Stock or any cash from the Exchange Fund, in each case delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law. If any Certificate shall not have been surrendered prior to two
years after the Effective Time (or immediately prior to such earlier date on
which any Merger Consideration, any dividends or distributions payable to the
holder of such Certificate or any cash payable to the holder of such
Certificate pursuant to this Article II, would otherwise escheat to or become
the property of any Governmental Entity (as defined in Section 3.01(d))), any
such Merger Consideration, dividends or distributions in respect of such
Certificate or cash shall, to the extent permitted by applicable law, become
the property of the Surviving Corporation, free and clear of all claims or
interest of any person previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by CT, on a daily basis. Any
interest and other income resulting from such investments shall be paid to CT.
(i) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
and customary amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such
Certificate, the Exchange Agent shall issue in exchange for such lost, stolen
or destroyed Certificate the Merger Consideration and, if applicable, any
unpaid dividends and distributions on shares of CT Common Stock deliverable in
respect thereof and any cash in lieu of fractional shares, in each case
pursuant to this Agreement.
(j) BT Stock Options, Warrants and BT Stock Purchase Plan. At the Effective
Time, all then outstanding BT Stock Options and the Warrants (each as defined
in Section 3.01(c)) will be assumed by CT in accordance with Section 5.06.
Following the expiration of the current offering under the BT Stock Purchase
Plan (as defined in Section 3.01(c)), BT shall cause no further offerings to
be made thereunder and no further payroll deductions to be accepted
thereunder, in each case in accordance with Section 5.06, and, as of the
Effective Time, the BT Stock Purchase Plan will be terminated.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of BT. Except as disclosed in
the BT Filed SEC Documents (as defined in Section 3.01(g)), and except as set
forth on the Disclosure Schedule delivered by BT to CT prior to the execution
of this Agreement (the "BT Disclosure Schedule") and making reference to the
particular subsection of this Agreement to which exception is being taken, BT
represents and warrants to CT as follows:
(a) Organization, Standing and Corporate Power. Each of BT and its
Significant Subsidiaries (as defined in Section 3.01(b)) is a corporation
or other legal entity duly organized, validly existing and in good
I-5
<PAGE>
standing (with respect to jurisdictions which recognize such concept) under
the laws of the jurisdiction in which it is organized and has the requisite
corporate or other power, as the case may be, and authority to carry on its
businesses as now being conducted. Each of BT and its Significant
Subsidiaries is duly qualified or licensed to do business and is in good
standing (with respect to jurisdictions which recognize such concept) in
each jurisdiction in which the nature of its businesses or the ownership,
leasing or operation of its properties makes such qualification or
licensing necessary, except for those jurisdictions where the failure to be
so qualified or licensed or to be in good standing individually or in the
aggregate would not have a material adverse effect (as defined in Section
8.03) on BT. BT has made available to CT prior to the execution of this
Agreement complete and correct copies of its certificate of incorporation
and by-laws, as amended to the date hereof.
(b) Subsidiaries. Section 3.01(b) of the BT Disclosure Schedule lists all
the subsidiaries of BT which as of the date of this Agreement are
"Significant Subsidiaries" (as defined in Rule 1-02 of Regulation S-X of
the Securities and Exchange Commission (the "SEC")). All the outstanding
shares of capital stock of, or other equity interests in, each such
Significant Subsidiary have been validly issued and are fully paid and
nonassessable and are owned directly or indirectly by BT, free and clear of
all pledges, claims, liens, charges, encumbrances and security interests of
any kind or nature whatsoever (collectively, "Liens") and free of any other
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests.
(c) Capital Structure. The authorized capital stock of BT consists of
60,000,000 shares of BT Common Stock. At the close of business on August
14, 1997, (i) 27,298,611 shares of BT Common Stock were issued and
outstanding, (ii) no shares of BT Common Stock were held by BT in its
treasury, (iii) 4,412,364 shares of BT Common Stock were reserved for
issuance pursuant to the BT 1989 Incentive Stock Option Plan, the BT 1992
Director Stock Option Plan, the BT 1994 Stock Incentive Plan, the BT 1995
Director Stock Option Plan, the BT 1996 Stock Incentive Plan and the
Nonstatutory Stock Option Agreement dated as of December 1991 between BT
and Herman B. Leonard (such plans or agreements, as amended to the date
hereof, collectively, the "BT Stock Plans", true and correct copies of
which have been provided to CT), (iv) 287,953 shares of BT Common Stock
were reserved for issuance pursuant to the BT 1995 Employee Stock Purchase
Plan (the "BT Stock Purchase Plan"), and (v) 3,927,040 shares of BT Common
Stock were reserved for issuance upon the exercise of BT's Common Stock
Purchase Warrants issued November 22, 1995 pursuant to the Memorandum of
Agreement dated November 22, 1995 between BT and AT&T Corp. (the
"Warrants"). Section 3.01(c) of the BT Disclosure Schedule sets forth a
complete and correct list, (I) as of August 14, 1997, of the number of
shares of BT Common Stock subject to employee stock options or other rights
to purchase or receive BT Common Stock granted under the BT Stock Plans
(collectively, "BT Stock Options"), listing, for the 20 persons holding the
largest number of BT Stock Options, the name of the recipient, the date of
grant, the number of options granted, the applicable vesting periods and
the exercise prices thereof and (II) as of July 31, 1997, of the aggregate
number of shares of BT Common Stock subject to outstanding BT Stock
Options. All outstanding shares of capital stock of BT are, and all shares
which may be issued will be, when issued on the terms and conditions
specified in the instruments pursuant to which they are issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Except (1) as set forth in this Section 3.01(c), (2) for
changes since August 14, 1997, resulting from the issuance of shares of BT
Common Stock pursuant to BT Stock Options or upon exercise of any of the
Warrants or (3) for the issuance of BT Rights (as defined below) or BT
Common Stock in respect of BT Rights pursuant to the BT Rights Agreement
(as defined below), (x) there are not issued, reserved for issuance or
outstanding (A) any shares of capital stock or other voting securities of
BT, (B) any securities of BT convertible into or exchangeable or
exercisable for shares of capital stock or other voting securities of BT,
(C) any warrants, calls, options or other rights to acquire from BT or any
subsidiary of BT, and no obligation of BT or any subsidiary of BT to issue,
any capital stock, other voting securities or securities convertible into
or exchangeable or exercisable for capital stock or other voting securities
of BT and (y) there are not any outstanding obligations of BT or any
subsidiary of BT to repurchase, redeem or otherwise acquire any such
securities or to issue, deliver or sell, or cause to be issued, delivered
or sold, any such securities. BT is not a party to any voting agreement
with respect to the
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voting of any such securities. As of the close of business on August 14,
1997, there are no outstanding (A) securities of BT or any subsidiary of BT
convertible into or exchangeable or exercisable for shares of capital stock
or other voting securities or ownership interests in any subsidiary of BT,
(B) warrants, calls, options or other rights to acquire from BT or any
subsidiary of BT, and no obligation of BT or any subsidiary of BT to issue,
any capital stock, other voting securities or other ownership interests in,
or any securities convertible into or exchangeable or exercisable for any
capital stock, other voting securities or ownership interests in, any
subsidiary of BT or (C) obligations of BT or any subsidiary of BT to
repurchase, redeem or otherwise acquire any such outstanding securities of
subsidiaries of BT or to issue, deliver or sell, or cause to be issued,
delivered or sold, any such securities. Other than the subsidiaries of BT
listed in Exhibit 21 to BT's Annual Report on Form 10-K for the fiscal year
ended January 31, 1997, or in Section 3.01(c) of the BT Disclosure
Schedule, BT does not own, directly or indirectly, any securities or other
beneficial ownership interests in any entity. There are no material
outstanding contractual obligations of BT or any subsidiary of BT to
provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any subsidiary of BT or any other person,
other than guarantees by BT of any indebtedness of any subsidiary of BT. BT
has made available to CT a complete and correct copy of the Rights
Agreement (the "BT Rights Agreement"), between BT and State Street Bank and
Trust Company, relating to rights ("BT Rights") to purchase BT Common
Stock.
(d) Authority; Noncontravention. BT has all requisite corporate power and
authority to enter into this Agreement and, subject to the BT Stockholder
Approval (as defined in Section 3.01(l)), to consummate the transactions
contemplated by this Agreement. The execution and delivery of this
Agreement by BT and the consummation by BT of the transactions contemplated
by this Agreement have been duly authorized by all necessary corporate
action on the part of BT, subject to the BT Stockholder Approval. This
Agreement has been duly executed and delivered by BT and, assuming the due
authorization, execution and delivery by each of the other parties thereto,
constitutes the legal, valid and binding obligation of BT, enforceable
against BT in accordance with its terms. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated by
this Agreement and compliance with the provisions of this Agreement will
not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancelation or acceleration of any obligation or loss of a
benefit under, or result in the creation of any Lien upon any of the
properties or assets of BT or any of its subsidiaries under, (i) the
certificate of incorporation or by-laws of BT or the comparable
organizational documents of any of its subsidiaries, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise, license or similar
authorization applicable to BT or any of its subsidiaries or their
respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to BT or any of its subsidiaries or their respective properties
or assets, other than, in the case of clauses (ii) and (iii), any such
conflicts, violations, defaults, rights, losses or Liens that individually
or in the aggregate would not (x) have a material adverse effect on BT or
(y) reasonably be expected to materially impair the ability of BT to
perform its obligations under this Agreement. No consent, approval, order
or authorization of, action by or in respect of, or registration,
declaration or filing with, any Federal, state, local or foreign
government, any court, administrative, regulatory or other governmental
agency, commission or authority or any nongovernmental self-regulatory
agency, commission or authority (a "Governmental Entity") is required by or
with respect to BT or any of its subsidiaries in connection with the
execution and delivery of this Agreement by BT or the consummation by BT of
the transactions contemplated by this Agreement, except for (1) the filing
of a premerger notification and report form by BT under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and
filings under similar laws of certain foreign jurisdictions as may be
required (the "Foreign Filings"); (2) the filing with the SEC of (A) a
proxy statement relating to the BT Stockholders Meeting (as defined in
Section 5.01(b)) (such proxy statement, together with the proxy statement
relating to the CT Shareholders Meeting (as defined in Section 5.01(c)), in
each case as amended or supplemented from time to time, the "Joint Proxy
Statement"), and (B) such reports under Section 13(a), 13(d), 15(d) or
16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as may
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be required in connection with this Agreement and the transactions
contemplated by this Agreement; (3) the filing of the Certificate of Merger
with the Secretary of State of the State of New York and the State of
Delaware and appropriate documents with the relevant authorities of other
states in which BT is qualified to do business and such filings with
Governmental Entities to satisfy the applicable requirements of state
securities or "blue sky" laws; and (4) such consents, approvals, orders or
authorizations the failure of which to be made or obtained individually or
in the aggregate would not have a material adverse effect on BT.
(e) SEC Documents; Undisclosed Liabilities. BT has filed all required
reports, schedules, forms, statements and other documents (including
exhibits and all other information incorporated therein) with the SEC since
February 1, 1996 (the "BT SEC Documents"). As of their respective dates,
the BT SEC Documents complied in all material respects with the
requirements of the Securities Act of 1933, as amended (the "Securities
Act"), or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such BT SEC
Documents, and none of the BT SEC Documents when filed contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Except to the extent that information contained in any BT SEC Document has
been revised or superseded by a later filed BT SEC Document, none of the BT
SEC Documents contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of BT included in
the BT SEC Documents comply as to form, as of their respective dates of
filing with the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with United States
generally accepted accounting principles (except, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto) and fairly present in all material respects the consolidated
financial position of BT and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to
normal recurring year-end audit adjustments). Except (i) as reflected in
such financial statements or in the notes thereto or (ii) for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby, neither BT nor any of its subsidiaries has any liabilities or
obligations of any nature which individually or in the aggregate would have
a material adverse effect on BT.
(f) Information Supplied. None of the information supplied or to be
supplied by BT specifically for inclusion or incorporation by reference in
(i) the registration statement on Form S-4 to be filed with the SEC by CT
in connection with the issuance of CT Common Stock in the Merger (the "Form
S-4") will, at the time the Form S-4 becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading or (ii) the Joint Proxy Statement will,
at the date it is first mailed to BT's stockholders or at the time of the
BT Stockholders Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The Joint Proxy Statement will
comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder, except that no
representation or warranty is made by BT with respect to statements made or
incorporated by reference therein based on information supplied by CT
specifically for inclusion or incorporation by reference in the Joint Proxy
Statement.
(g) Absence of Certain Changes or Events. Except (1) as disclosed in the
BT SEC Documents filed and publicly available prior to the date of this
Agreement (as amended to the date of this Agreement, the "BT Filed SEC
Documents") or (2) for liabilities incurred in connection with this
Agreement or the transactions contemplated hereby, since January 31, 1997,
BT and its subsidiaries have conducted their businesses only in the
ordinary course, and there has not been (i) any material adverse change in
BT, (ii) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or
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property) with respect to any of BT's capital stock, (iii) any split,
combination or reclassification of any of BT's capital stock or any
issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of BT's capital stock,
(iv) (A) any granting by BT or any of its subsidiaries to any current or
former director, executive officer or other key employee of BT or its
subsidiaries of any increase in compensation, bonus or other benefits,
except for normal increases in the ordinary course of business consistent
with past practice or as was required under any employment agreements in
effect as of the date of the most recent audited financial statements
included in the BT Filed SEC Documents, (B) any granting by BT or any of
its subsidiaries to any such current or former director, executive officer
or other key employee of any increase in severance or termination pay,
except as was required under any employment, severance or termination
agreements in effect as of the date of the most recent audited financial
statements included in the BT Filed SEC Documents, or (C) any entry by BT
or any of its subsidiaries into, or any amendment of, any employment,
deferred compensation, consulting, severance, termination or
indemnification agreement with any such current or former director,
executive officer or other key employee, (v) except insofar as may have
been required by a change in United States generally accepted accounting
principles, any change in accounting methods, principles or practices by BT
materially affecting its assets, liabilities or businesses, (vi) any tax
election that individually or in the aggregate would have a material
adverse effect on BT or any of its tax attributes or any settlement or
compromise of any material income tax liability, (vii) any waiver,
settlement, assignment, release or compromise of any material claims or
litigation or (viii) any revaluation in any material respect of any of BT's
or its subsidiaries' assets, including writing down of inventory or
writing-off of notes or accounts receivable other than in the ordinary
course of business.
(h) Compliance with Applicable Laws. BT and its subsidiaries hold all
permits, licenses, variances, exemptions, orders, registrations and
approvals of all Governmental Entities which are required for the operation
of the businesses of BT and its subsidiaries (the "BT Permits"), except
where the failure to have any such BT Permits individually or in the
aggregate would not have a material adverse effect on BT. BT and its
subsidiaries are in compliance with the terms of the BT Permits and all
applicable statutes, laws, ordinances, rules and regulations, except where
the failure so to comply individually or in the aggregate would not have a
material adverse effect on BT. As of the date of this Agreement, except as
disclosed in the BT Filed SEC Documents, no action, demand, requirement or
investigation by any Governmental Entity with respect to BT or any of its
subsidiaries or any of their respective properties is pending or, to the
knowledge (as defined in Section 8.03) of BT, threatened, other than, in
each case, those the outcome of which individually or in the aggregate
would not (i) have a material adverse effect on BT or (ii) reasonably be
expected to impair the ability of BT to perform its obligations under this
Agreement or prevent or materially delay the consummation of any of the
transactions contemplated by this Agreement. This paragraph does not relate
to environmental matters which are exclusively the subject of Section
3.01(s).
(i) Absence of Changes in Benefit Plans; Certain Modifications. Since the
date of the most recent audited financial statements included in the BT
Filed SEC Documents, there has not been any adoption of, amendment of or
agreement to amend in any material respect by BT or any of its subsidiaries
any collective bargaining agreement or any material bonus, pension, profit
sharing, deferred compensation, incentive compensation, stock ownership,
stock purchase, stock option, phantom stock, retirement, vacation,
severance, disability, death benefit, hospitalization, medical or other
plan, arrangement or understanding providing benefits to any current or
former director, officer or employee of BT or any subsidiary that, together
with BT, would be considered a single employer under Section 414(b), (c) or
(m) of the Code (collectively, the "BT Benefit Plans"), or any material
change in any actuarial or other assumption used to calculate funding
obligations with respect to any BT pension plans, or any change in the
manner in which contributions to any BT pension plans are made or the basis
on which such contributions are determined.
(j) ERISA Compliance. (i) With respect to the BT Benefit Plans, no event
has occurred and, to the knowledge of BT, there exists no condition or set
of circumstances (excluding benefits paid in the ordinary course), in
connection with which BT or any of its subsidiaries could be subject to any
liability that
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individually or in the aggregate would have a material adverse effect on BT
under the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), the Code or any other applicable law.
(ii) Each BT Benefit Plan has been administered in accordance with its
terms, except for any failures so to administer any BT Benefit Plan that
individually or in the aggregate would not have a material adverse effect
on BT. BT, its subsidiaries and all the BT Benefit Plans are in compliance
with the applicable provisions of ERISA, the Code and all other applicable
laws and the terms of all applicable collective bargaining agreements,
except for any failures to be in such compliance that individually or in
the aggregate would not have a material adverse effect on BT. Each BT
Benefit Plan that is intended to be qualified under Section 401(a) of the
Code has received a favorable determination letter from the IRS that it is
so qualified and each trust established in connection with any BT Benefit
Plan that is intended to be exempt from Federal income taxation under
Section 501(a) of the Code has received a determination letter from the IRS
that such trust is so exempt. To the knowledge of BT, no fact or event has
occurred since that date of any determination letter from the IRS which is
reasonably likely to affect adversely the qualified status of any such BT
Benefit Plan or the exempt status of any such trust.
(iii) Neither BT, any of its subsidiaries nor any entity required to be
treated with BT as a single employer under Section 414 of the Code has
incurred any liability under Title IV of ERISA (other than liability for
premiums to the Pension Benefit Guaranty Corporation arising in the
ordinary course). No BT Benefit Plan has incurred an "accumulated funding
deficiency" (within the meaning of Section 302 of ERISA or Section 412 of
the Code) whether or not waived. To the knowledge of BT, there are not any
facts or circumstances that would materially change the funded status of
any BT Benefit Plan that is a "defined benefit" plan (as defined in Section
3(35) of ERISA) since the date of the most recent actuarial report for such
plan. No BT Benefit Plan is a "multiemployer plan" within the meaning of
Section 3(37) of ERISA.
(iv) Neither BT nor any of its subsidiaries is a party to any collective
bargaining or other labor union contract applicable to persons employed by
BT or any of its subsidiaries and no collective bargaining agreement is
being negotiated by BT or any of its subsidiaries. As of the date of this
Agreement, there is no labor dispute, strike or work stoppage against BT or
any of its subsidiaries pending or, to the knowledge of BT, threatened
which may interfere with the respective business activities of BT or any of
its subsidiaries, except where such dispute, strike or work stoppage
individually or in the aggregate would not have a material adverse effect
on BT. As of the date of this Agreement, to the knowledge of BT, none of
BT, any of its subsidiaries or any of their respective representatives or
employees has committed any unfair labor practice in connection with the
operation of the respective businesses of BT or any of its subsidiaries,
and there is no charge or complaint against BT or any of its subsidiaries
by the National Labor Relations Board or any comparable governmental agency
pending or threatened in writing.
(v) Except as set forth in the BT Employee Severance Benefit Plan, no
employee of BT will be entitled to any additional benefits or any
acceleration of the time of payment or vesting of any benefits under any BT
Benefit Plan as a result of the transactions contemplated by this
Agreement. The deduction of any amount payable pursuant to any BT Benefit
Plan or employment contract in connection with the transactions
contemplated by this Agreement will not be subject to disallowance under
Section 280(G) of the Code.
(k) Taxes. (i) Each of BT and its subsidiaries has filed all material tax
returns and reports required to be filed by it and all such returns and
reports are complete and correct in all material respects, or requests for
extensions to file such returns or reports have been timely filed, granted
and have not expired, except to the extent that such failures to file, to
be complete or correct or to have extensions granted that remain in effect
individually or in the aggregate would not have a material adverse effect
on BT. BT and each of its subsidiaries has paid (or BT has paid on its
behalf) all taxes (as defined in Section 3.01(k)(iv)) shown as due on such
returns, and the most recent financial statements contained in the BT Filed
SEC Documents reflect an adequate reserve for all taxes payable by BT and
its subsidiaries for all taxable periods and portions thereof accrued
through the date of such financial statements.
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(ii) No deficiencies for any taxes have been proposed, asserted or
assessed against BT or any of its subsidiaries that are not adequately
reserved for in the most recent financial statements contained in the BT
Filed SEC Documents, except for deficiencies that individually or in the
aggregate would not have a material adverse effect on BT. The Federal
income tax returns of BT and each of its subsidiaries consolidated in such
returns have been examined by and settled with the U.S. Internal Revenue
Service for all fiscal years through January 31, 1993. The statute of
limitations on assessment or collection of any Federal income taxes due
from BT or any of its subsidiaries has expired for all fiscal years of BT
or any of its subsidiaries through January 31, 1993.
(iii) Neither BT nor any of its subsidiaries has taken any action or
knows of any fact, agreement, plan or other circumstance that is reasonably
likely to prevent the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code.
(iv) As used in this Agreement, "taxes" shall include all (x) Federal,
state, local or foreign income, property, sales, excise and other taxes or
similar governmental charges, including any interest, penalties or
additions with respect thereto, (y) liability for the payment of any
amounts of the type described in (x) as a result of being a member of an
affiliated, consolidated, combined or unitary group, and (z) liability for
the payment of any amounts as a result of being party to any tax sharing
agreement or as a result of any express or implied obligation to indemnify
any other person with respect to the payment of any amounts of the type
described in clause (x) or (y).
(l) Voting Requirements. The affirmative vote of the holders of a
majority of the voting power of all outstanding shares of BT Common Stock,
voting as a single class (with each share of BT Common Stock having one
vote per share), at the BT Stockholders Meeting to adopt this Agreement
(the "BT Stockholder Approval") is the only vote of the holders of any
class or series of BT's capital stock necessary to approve and adopt this
Agreement and the transactions contemplated hereby.
(m) State Takeover Statutes. The Board of Directors of BT has taken all
actions so that the restrictions contained in Section 203 of the DGCL
applicable to a "business combination" (as defined in such Section 203)
will not apply to the execution, delivery or performance of this Agreement
or consummation of the Merger or the other transactions contemplated by
this Agreement. To BT's knowledge, assuming the accuracy of Section
3.02(m), no other state takeover statute or similar statute or regulation
is applicable to the Merger or the other transactions contemplated by this
Agreement.
(n) Accounting Matters. Neither BT nor, to BT's knowledge, any of its
affiliates (as defined in Section 8.03) has taken or agreed to take any
action that would prevent the business combination to be effected by the
Merger to be accounted for as a pooling of interests.
(o) Brokers. No broker, investment banker, financial advisor or other
person, other than Merrill Lynch & Co. ("Merrill Lynch"), the fees and
expenses of which will be paid by BT, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of BT. BT has furnished to CT true and
complete copies of all agreements under which any such fees or expenses are
payable and all indemnification and other agreements related to the
engagement of the persons to whom such fees are payable.
(p) Opinion of Financial Advisor. BT has received the opinion of Merrill
Lynch, dated the date of this Agreement, to the effect that, as of such
date, the Exchange Ratio is fair from a financial point of view to holders
of shares of BT Common Stock (other than CT and its affiliates), a signed
copy of which opinion has been delivered to CT.
(q) Ownership of CT Common Stock. Except for shares owned by BT Benefit
Plans, as of the date hereof, neither BT nor, to its knowledge, any of its
affiliates, (i) beneficially owns (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, or (ii) is party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting
or disposing of, in each case, shares of capital stock of CT.
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(r) Litigation. Except as disclosed in the BT Filed SEC Documents, there
is no suit, claim, action, proceeding or investigation pending or
threatened in writing against BT or any subsidiary of BT before any
Governmental Entity which individually or in the aggregate would have a
material adverse effect on BT. Except as disclosed in the BT Filed SEC
Documents, neither BT nor any subsidiary of BT is subject to any
outstanding order, writ, injunction or decree which individually or in the
aggregate would have a material adverse effect on BT.
(s) Environmental Matters. Except as disclosed in the BT Filed SEC
Documents:
(i) each of BT and its subsidiaries (A) is in compliance with all
applicable Environmental Laws (as defined below), (B) holds all
Environmental Permits (as defined below) required for the operation of
the businesses of BT and its subsidiaries as currently conducted and
(C) is in compliance with such Environmental Permits, except in each
case as would not individually or in the aggregate have a material
adverse effect on BT;
(ii) neither BT nor any subsidiary of BT has received any written
request for information, or been notified that it is a potentially
responsible party, under CERCLA (as defined below) or any similar
state, local or foreign Environmental Law;
(iii) neither BT nor any subsidiary of BT has entered into or agreed
to any consent decree or order or is subject to any pending judgment,
decree or judicial order relating to compliance with Environmental
Laws, Environmental Permits or the investigation, sampling, monitoring,
treatment, remediation, removal or cleanup of Hazardous Materials (as
defined below), and, to the best knowledge of BT, no investigation,
litigation or other proceeding is pending or threatened in writing with
respect thereto;
(iv) to the best knowledge of BT, none of the real property owned,
leased or operated by BT or any subsidiary of BT is listed or formally
proposed for listing on the "National Priorities List" under CERCLA, as
updated through the date hereof, or any similar state or foreign list
of sites requiring investigation or cleanup; and
(v) no Hazardous Material has been released by BT or, to BT's
knowledge, by any other person at, or transported to or from, any real
property currently or, to the best knowledge of BT, formerly owned or
operated by BT or any subsidiary of BT, except as would not
individually or in the aggregate have a material adverse effect on BT.
For purposes of this Agreement:
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended as of the date hereof.
"Environmental Laws" means any Federal, state, local or foreign statute,
law, ordinance, regulation, rule or code, any enforceable judicial or
administrative interpretation thereof, including any judicial or
administrative order, decree or judgment, relating to pollution or
protection of the environment or natural resources, including those
relating to the use, handling, transportation, treatment, storage,
disposal, release or discharge of, or exposure to, Hazardous Materials, as
in effect as of the date hereof.
"Environmental Permits" means any permit, approval, identification
number, license and other authorization required under applicable
Environmental Law.
"Hazardous Materials" means (a) any petroleum, petroleum products, by-
products or breakdown products, radioactive materials, asbestos-containing
materials or polychlorinated biphenyls or (b) any chemical, material or
substance defined or regulated as toxic or hazardous or as a pollutant or
contaminant or waste under any applicable Environmental Law.
(t) BT Rights Agreement. The BT Rights Agreement has been amended (the
"BT Rights Plan Amendment") as set forth on Exhibit A hereto. The BT Rights
Agreement may not be further amended by BT during the term of this
Agreement without the prior consent of CT in its sole discretion.
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(u) Material Contracts. Except as disclosed in the BT Filed SEC
Documents, as of the date hereof, there are no contracts or agreements that
are of a nature required to be filed as an exhibit under the Exchange Act
and the rules and regulations promulgated thereunder. Neither BT nor any of
its subsidiaries is in violation of nor in default under (nor does there
exist any condition which upon the giving of notice or the passage of time
or both would cause such a violation of or default under) any such material
lease, permit, concession, franchise, license or any other material
contract, agreement, arrangement or understanding to which it is a party or
by which it is bound. BT is not aware of any facts or conditions with
respect to any material contracts or agreements that would reasonably be
expected to make BT or its subsidiaries liable for any material penalties
or liquidated damages pursuant to the terms of such material contracts or
agreements.
(v) Intellectual Property. BT and its subsidiaries own, or are validly
licensed or otherwise have the right to use, all patents, patent rights,
trademarks, trademark rights, trade secrets, trade names, trade name
rights, service marks, service mark rights, copyrights and other
proprietary intellectual property rights and computer programs which are
material to the conduct of the business of BT and its subsidiaries taken as
a whole (including any registrations or applications for registration of
any of the foregoing, collectively, the "BT Intellectual Property").
Consummation of the Merger will not give rise to any termination rights or
material damages or other penalties with respect to any BT Intellectual
Property. Neither BT nor any such subsidiary has received any notice of
infringement of or conflict with, and, to BT's knowledge, there are no
infringements of or conflicts with, the rights of others with respect to
the use of any BT Intellectual Property that individually or in the
aggregate, in either such case, would have a material adverse effect on BT.
To the knowledge of BT, no person is infringing the rights of BT or any
subsidiary with respect to any BT Intellectual Property that individually
or in the aggregate would have a material adverse effect on BT. Neither BT
nor any subsidiary has licensed, or otherwise granted, to any third party
any material rights in or to any BT Intellectual Property (other than
pursuant to customer agreements).
(w) Customers. To the knowledge of BT, there are no facts, circumstances
or conditions which exist that would reasonably be expected to result in
the loss of any significant customer (as defined below). Section 3.01(w) of
the BT Disclosure Schedule sets forth a true and complete list as of the
date hereof of all the significant customers who have been delivered
equipment by BT and its subsidiaries but which equipment has not yet been
installed and which will not be installed within 60 days after the date
hereof. For purposes of this Section 3.01(w), "significant customer" means
any customer that has entered into one or more contracts, agreements,
arrangements or understandings with BT or its subsidiaries, the aggregate
anticipated benefits of which to BT and its subsidiaries equals or exceeds
$10 million.
SECTION 3.02. Representations and Warranties of CT. Except as disclosed in
the CT Filed SEC Documents (as defined in Section 3.02(g)), and except as set
forth on the Disclosure Schedule delivered by CT to BT prior to the execution
of this Agreement (the "CT Disclosure Schedule") and making reference to the
particular subsection of this Agreement to which exception is being taken, CT
represents and warrants to BT as follows:
(a) Organization, Standing and Corporate Power. Each of CT and its
Significant Subsidiaries is a corporation or other legal entity duly
organized, validly existing and in good standing (with respect to
jurisdictions which recognize such concept) under the laws of the
jurisdiction in which it is organized and has the requisite corporate or
other power, as the case may be, and authority to carry on its businesses
as now being conducted. Each of CT and its Significant Subsidiaries is duly
qualified or licensed to do business and is in good standing (with respect
to jurisdictions which recognize such concept) in each jurisdiction in
which the nature of its businesses or the ownership, leasing or operation
of its properties makes such qualification or licensing necessary, except
for those jurisdictions where the failure to be so qualified or licensed or
to be in good standing individually or in the aggregate would not have a
material adverse effect on CT. CT has made available to BT prior to the
execution of this Agreement complete and correct copies of its certificate
of incorporation and by-laws as amended to the date hereof.
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(b) Subsidiaries. Exhibit 21 to CT's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 (the "CT Form 10-K") includes all the
subsidiaries of CT which as of the date of this Agreement are Significant
Subsidiaries. All the outstanding shares of capital stock of, or other
equity interests in, each such Significant Subsidiary have been validly
issued and are fully paid and nonassessable and are owned directly or
indirectly by CT, free and clear of all Liens and free of any other
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests.
(c) Capital Structure. The authorized capital stock of CT consists of
100,000,000 shares of CT Common Stock and 2,500,000 shares of preferred
stock, par value $.01 per share, of CT ("CT Preferred Stock"). At the close
of business on August 14, 1997, (i) 25,162,907 shares of CT Common Stock
were issued and outstanding, (ii) no shares of CT Common Stock were held by
CT in its treasury, (iii) 4,018,880 shares of CT Common Stock were reserved
for issuance pursuant to the CT 1984 Incentive Stock Option Plan, the CT
1987 Stock Option Plan, the CT 1994 Stock Option Plan, the CT 1995 Stock
Option Plan and the CT 1996 Stock Option Plan (such plans, collectively,
the "CT Stock Plans", true and correct copies of which have been provided
to BT), (iv) 2,513,661 shares of CT Common Stock were reserved for issuance
upon conversion of CT's outstanding 5 3/4% Convertible Subordinated
Debentures Due 2006 (the "Convertible Debentures") and (v) no shares of CT
Preferred Stock have been designated or issued. Section 3.02(c) of the CT
Disclosure Schedule sets forth a complete and correct list, as of August
14, 1997, of (I) the number of shares of CT Common Stock subject to
employee stock options or other rights to purchase or receive CT Common
Stock granted under the CT Stock Plans (collectively, "CT Stock Options"),
listing, for the 20 persons holding the largest number of CT Stock Options,
the name of the recipient, the date of grant, the number of options
granted, the applicable vesting periods and the exercise prices thereof and
(II) the aggregate number of shares of CT Common Stock subject to
outstanding CT Stock Options. All outstanding shares of capital stock of CT
are, and all shares which may be issued (including shares to be issued
pursuant to the Merger or the BT Stock Options following the Merger) will
be, when issued on the terms and conditions specified in the instruments
pursuant to which they are issued, duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights. Except (1) as
set forth in this Section 3.02(c), (2) for changes since August 14, 1997,
resulting from the issuance of shares of CT Common Stock pursuant to CT
Stock Options or upon conversion of any of the Convertible Debentures or
(3) for the issuance of CT capital stock in respect of any rights that may
be granted to the extent CT adopts a shareholder rights agreement (any such
agreement that may be adopted, the "CT Rights Agreement"), (x) there are
not issued, reserved for issuance or outstanding (A) any shares of capital
stock or other voting securities of CT, (B) any securities of CT
convertible into or exchangeable or exercisable for shares of capital stock
or other voting securities of CT, (C) any warrants, calls, options or other
rights to acquire from CT, or any subsidiary of CT, and no obligation of CT
or any subsidiary of CT, to issue, any capital stock, other voting
securities or securities convertible into or exchangeable or exercisable
for capital stock or other voting securities of CT and (y) there are not
any outstanding obligations of CT or any subsidiary of CT to repurchase,
redeem or otherwise acquire any such securities or to issue, deliver or
sell, or cause to be issued, delivered or sold, any such securities. CT is
not a party to any voting agreement with respect to the voting of any such
securities. As of the close of business on August 14, 1997, there are no
outstanding (A) securities of CT or any subsidiary of CT convertible into
or exchangeable or exercisable for shares of capital stock or other voting
securities or ownership interests in any subsidiary of CT, (B) warrants,
calls, options or other rights to acquire from CT or any subsidiary of CT,
and no obligation of CT or any subsidiary of CT to issue, any capital
stock, other voting securities or other ownership interests in, or any
securities convertible into or exchangeable or exercisable for any capital
stock, other voting securities or ownership interests in, any subsidiary of
CT or (C) obligations of CT or any subsidiary of CT to repurchase, redeem
or otherwise acquire any such outstanding securities of subsidiaries of CT
or to issue, deliver or sell, or cause to be issued, delivered or sold, any
such securities. Other than the subsidiaries of CT listed in Exhibit 21 to
the CT Form 10-K or in Section 3.02(c) of the CT Disclosure Schedule, CT
does not own, directly or indirectly, any securities or other beneficial
ownership interests in any entity. There are no material outstanding
contractual obligations of CT or any subsidiary of CT to provide funds to,
or make any investment (in the form of a loan, capital contribution or
otherwise) in, any subsidiary of CT or any other person, other than
guarantees by CT of any indebtedness of any subsidiary of CT.
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(d) Authority; Noncontravention. CT has all requisite corporate power and
authority to enter into this Agreement and, subject to the CT Shareholder
Approval (as defined in Section 3.02(l)), to consummate the transactions
contemplated by this Agreement. The execution and delivery of this
Agreement by CT and the consummation by CT of the transactions contemplated
by this Agreement have been duly authorized by all necessary corporate
action on the part of CT subject, in the case of this Agreement, to the CT
Shareholder Approval. This Agreement has been duly executed and delivered
by CT and, assuming the due authorization, execution and delivery by each
of the other parties thereto, constitutes the legal, valid and binding
obligation of CT, enforceable against CT in accordance with its terms. The
execution and delivery of this Agreement do not, and the consummation of
the transactions contemplated by this Agreement and compliance with the
provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancelation or acceleration
of any obligation or loss of a benefit under, or result in the creation of
any Lien upon any of the properties or assets of CT or any of its
subsidiaries under, (i) the certificate of incorporation or by-laws of CT
or the comparable organizational documents of any of its subsidiaries, (ii)
any loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise, license or
similar authorization applicable to CT or any of its subsidiaries or any of
their respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to CT or any of its subsidiaries or any of their respective
properties or assets, other than, in the case of clauses (ii) and (iii),
any such conflicts, violations, defaults, rights, losses or Liens that
individually or in the aggregate would not (x) have a material adverse
effect on CT or (y) reasonably be expected to materially impair the ability
of CT to perform its obligations under this Agreement. No consent,
approval, order or authorization of, action by or in respect of, or
registration, declaration or filing with, any Governmental Entity is
required by or with respect to CT or any of its subsidiaries in connection
with the execution and delivery of this Agreement by CT or the consummation
by CT of the transactions contemplated by this Agreement, except for (1)
the filing of a premerger notification and report form by CT under the HSR
Act and the Foreign Filings; (2) the filing with the SEC of (A) the Joint
Proxy Statement relating to the CT Shareholders Meeting, (B) the Form S-4
and (C) such reports under Section 13(a), 13(d), 15(d) or 16(a) of the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated by this Agreement; (3) the filing of the
Certificate of Merger with the Secretary of State of the State of New York
and the State of Delaware and appropriate documents with the relevant
authorities of other states in which CT is qualified to do business and
such filings with Governmental Entities to satisfy the applicable
requirements of state securities or "blue sky" laws; (4) such filings with
and approvals of Nasdaq to permit the shares of CT Common Stock that are to
be issued in the Merger to be approved for trading on Nasdaq; and (5) such
consents, approvals, orders or authorizations the failure of which to be
made or obtained individually or in the aggregate would not have a material
adverse effect on CT.
(e) SEC Documents; Undisclosed Liabilities. CT has filed all required
reports, schedules, forms, statements and other documents (including
exhibits and all other information incorporated therein) with the SEC since
January 1, 1996 (the "CT SEC Documents"). As of their respective dates, the
CT SEC Documents complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules
and regulations of the SEC promulgated thereunder applicable to such CT SEC
Documents, and none of the CT SEC Documents when filed contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Except to the extent that information contained in any CT SEC Document has
been revised or superseded by a later filed CT SEC Document, none of the CT
SEC Documents contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of CT included in
the CT SEC Documents comply as to form, as of their respective dates of
filing with the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with
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United States generally accepted accounting principles (except, in the case
of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present in all material respects the
consolidated financial position of CT and its consolidated subsidiaries as
of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal recurring year-end audit adjustments). Except (i) as
reflected in such financial statements or in the notes thereto or (ii) for
liabilities incurred in connection with this Agreement or the transactions
contemplated hereby, neither CT nor any of its subsidiaries has any
liabilities or obligations of any nature which individually or in the
aggregate would have a material adverse effect on CT.
(f) Information Supplied. None of the information supplied or to be
supplied by CT specifically for inclusion or incorporation by reference in
(i) the Form S-4 will, at the time the Form S-4 becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading or (ii) the Joint Proxy Statement
will, at the date it is first mailed to CT's shareholders or at the time of
the CT Shareholders Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Form S-4 and
the Joint Proxy Statement will comply as to form in all material respects
with the requirements of the Securities Act and the Exchange Act,
respectively, and the rules and regulations thereunder, except that no
representation or warranty is made by CT with respect to statements made or
incorporated by reference therein based on information supplied by BT
specifically for inclusion or incorporation by reference in the Form S-4 or
the Joint Proxy Statement.
(g) Absence of Certain Changes or Events. Except (1) as disclosed in the
CT SEC Documents filed and publicly available prior to the date of this
Agreement (as amended to the date of this Agreement, the "CT Filed SEC
Documents") or (2) for liabilities incurred in connection with this
Agreement or the transactions contemplated hereby, since December 31, 1996,
CT and its subsidiaries have conducted their businesses only in the
ordinary course, and there has not been (i) any material adverse change in
CT, (ii) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any of
CT's capital stock, (iii) any split, combination or reclassification of any
of CT's capital stock or any issuance or the authorization of any issuance
of any other securities in respect of, in lieu of or in substitution for
shares of CT's capital stock, (iv) (A) any granting by CT or any of its
subsidiaries to any current or former director, executive officer or other
key employee of CT or its subsidiaries of any increase in compensation,
bonus or other benefits, except for normal increases in the ordinary course
of business consistent with past practice or as was required under any
employment agreements in effect as of the date of the most recent audited
financial statements included in the CT Filed SEC Documents, (B) any
granting by CT or any of its subsidiaries to any such current or former
director, executive officer or other key employee of any increase in
severance or termination pay, except as was required under any employment,
severance or termination agreements in effect as of the date of the most
recent audited financial statements included in the CT Filed SEC Documents,
or (C) any entry by CT or any of its subsidiaries into, or any amendment
of, any employment, deferred compensation, consulting, severance,
termination or indemnification agreement with any such current or former
director, executive officer or other key employee, (v) except insofar as
may have been required by a change in United States generally accepted
accounting principles, any change in accounting methods, principles or
practices by CT materially affecting its assets, liabilities or businesses,
(vi) any tax election that individually or in the aggregate would have a
material adverse effect on CT or any of its tax attributes or any
settlement or compromise of any material income tax liability, (vii) any
waiver, settlement, assignment, release or compromise of any material
claims or litigation or (viii) any revaluation in any material respect of
any of CT's or its subsidiaries' assets, including writing down of
inventory or writing-off of notes or accounts receivable other than in the
ordinary course of business.
(h) Compliance with Applicable Laws. CT and its subsidiaries hold all
permits, licenses, variances, exemptions, orders, registrations and
approvals of all Governmental Entities which are required for the
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operation of the businesses of CT and its subsidiaries (the "CT Permits"),
except where the failure to have any such CT Permits individually or in the
aggregate would not have a material adverse effect on CT. CT and its
subsidiaries are in compliance with the terms of the CT Permits and all
applicable statutes, laws, ordinances, rules and regulations, except where
the failure so to comply individually or in the aggregate would not have a
material adverse effect on CT. As of the date of this Agreement, except as
disclosed in the CT Filed SEC Documents, no action, demand, requirement or
investigation by any Governmental Entity with respect to CT or any of its
subsidiaries or any of their respective properties is pending or, to the
knowledge of CT, threatened, other than, in each case, those the outcome of
which individually or in the aggregate would not (i) have a material
adverse effect on CT or (ii) reasonably be expected to impair the ability
of CT to perform its obligations under this Agreement or prevent or
materially delay the consummation of any of the transactions contemplated
by this Agreement. This paragraph does not relate to environmental matters
which are exclusively the subject of Section 3.02(s).
(i) Absence of Changes in Benefit Plans. Since the date of the most
recent audited financial statements included in the CT Filed SEC Documents,
there has not been any adoption of, amendment of or agreement to amend in
any material respect by CT or any of its subsidiaries any collective
bargaining agreement or any material bonus, pension, profit sharing,
deferred compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, retirement, vacation, severance,
disability, death benefit, hospitalization, medical or other plan,
arrangement or understanding providing benefits to any current or former
director, officer or employee of CT or any subsidiary that, together with
CT, would be considered a single employer under Section 414(b), (c) or (m)
of the Code (collectively, the "CT Benefit Plans"), or any material change
in any actuarial or other assumption used to calculate funding obligations
with respect to any CT pension plans, or any change in the manner in which
contributions to any CT pension plans are made or the basis on which such
contributions are determined.
(j) ERISA Compliance. (i) With respect to the CT Benefit Plans, no event
has occurred and, to the knowledge of CT, there exists no condition or set
of circumstances (excluding benefits paid in the ordinary course), in
connection with which CT or any of its subsidiaries could be subject to any
liability that individually or in the aggregate would have a material
adverse effect on CT under ERISA, the Code or any other applicable law.
(ii) Each CT Benefit Plan has been administered in accordance with its
terms, except for any failures so to administer any CT Benefit Plan that
individually or in the aggregate would not have a material adverse effect
on CT. CT, its subsidiaries and all the CT Benefit Plans are in compliance
with the applicable provisions of ERISA, the Code and all other applicable
laws and the terms of all applicable collective bargaining agreements,
except for any failures to be in such compliance that individually or in
the aggregate would not have a material adverse effect on CT. Each CT
Benefit Plan that is intended to be qualified under Section 401(a) of the
Code has received a favorable determination letter from the IRS that it is
so qualified and each trust established in connection with any CT Benefit
Plan that is intended to be exempt from Federal income taxation under
Section 501(a) of the Code has received a determination letter from the IRS
that such trust is so exempt. To the knowledge of CT, no fact or event has
occurred since that date of any determination letter from the IRS which is
reasonably likely to affect adversely the qualified status of any such CT
Benefit Plan or the exempt status of any such trust.
(iii) Neither CT, any of its subsidiaries nor any entity required to be
treated with CT as a single employer under Section 414 of the Code has
incurred any liability under Title IV of ERISA (other than liability for
premiums to the Pension Benefit Guaranty Corporation arising in the
ordinary course). No CT Benefit Plan has incurred an "accumulated funding
deficiency" (within the meaning of Section 302 of ERISA or Section 412 of
the Code) whether or not waived. To the knowledge of CT, there are not any
facts or circumstances that would materially change the funded status of
any CT Benefit Plan that is a "defined benefit" plan (as defined in Section
3(35) of ERISA) since the date of the most recent actuarial report for such
plan. No CT Benefit Plan is a "multiemployer plan" within the meaning of
Section 3(37) of ERISA.
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(iv) Neither CT nor any of its subsidiaries is a party to any collective
bargaining or other labor union contract applicable to persons employed by
CT or any of its subsidiaries and no collective bargaining agreement is
being negotiated by CT or any of its subsidiaries. As of the date of this
Agreement, there is no labor dispute, strike or work stoppage against CT or
any of its subsidiaries pending or, to the knowledge of CT, threatened
which may interfere with the respective business activities of CT or any of
its subsidiaries, except where such dispute, strike or work stoppage
individually or in the aggregate would not have a material adverse effect
on CT. As of the date of this Agreement, to the knowledge of CT, none of
CT, any of its subsidiaries or any of their respective representatives or
employees has committed any unfair labor practice in connection with the
operation of the respective businesses of CT or any of its subsidiaries,
and there is no charge or complaint against CT or any of its subsidiaries
by the National Labor Relations Board or any comparable governmental agency
pending or threatened in writing.
(v) No employee of CT will be entitled to any additional benefits or any
acceleration of the time of payment or vesting of any benefits under any CT
Benefit Plan as a result of the transactions contemplated by this
Agreement. The deduction of any amount payable pursuant to any CT Benefit
Plan will not be subject to disallowance under Section 280(G) of the Code.
(k) Taxes. (i) Each of CT and its subsidiaries has filed all material tax
returns and reports required to be filed by it and all such returns and
reports are complete and correct in all material respects, or requests for
extensions to file such returns or reports have been timely filed, granted
and have not expired, except to the extent that such failures to file, to
be complete or correct or to have extensions granted that remain in effect
individually or in the aggregate would not have a material adverse effect
on CT. CT and each of its subsidiaries has paid (or CT has paid on its
behalf) all taxes shown as due on such returns, and the most recent
financial statements contained in the CT Filed SEC Documents reflect an
adequate reserve for all taxes payable by CT and its subsidiaries for all
taxable periods and portions thereof accrued through the date of such
financial statements.
(ii) No deficiencies for any taxes have been proposed, asserted or
assessed against CT or any of its subsidiaries that are not adequately
reserved for in the most recent financial statements contained in the CT
Filed SEC Documents, except for deficiencies that individually or in the
aggregate would not have a material adverse effect on CT.
(iii) Neither CT nor any of its subsidiaries has taken any action or
knows of any fact, agreement, plan or other circumstance that is reasonably
likely to prevent the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code.
(l) Voting Requirements. The affirmative vote of the holders of two-
thirds of the voting power of all outstanding shares of CT Common Stock,
voting as a single class (with each share of CT Common Stock having one
vote per share), at the CT Shareholders Meeting to adopt this Agreement
(the "CT Shareholder Approval") is the only vote of the holders of any
class or series of CT's capital stock necessary to approve and adopt this
Agreement and the transactions contemplated hereby.
(m) State Takeover Statutes. The Board of Directors of CT has taken all
actions so that the restrictions contained in Section 912 of the NYBCL
applicable to a "business combination" (as defined in such Section 912)
will not apply to the execution, delivery or performance of this Agreement
or consummation of the Merger or the other transactions contemplated by
this Agreement. To CT's knowledge, assuming the accuracy of Section
3.01(m), no other state takeover statute or similar statute or regulation
is applicable to the Merger or the other transactions contemplated by this
Agreement.
(n) Accounting Matters. Neither CT nor, to CT's knowledge, any of its
affiliates has taken or agreed to take any action that would prevent the
business combination to be effected by the Merger to be accounted for as a
pooling of interests.
(o) Brokers. No broker, investment banker, financial advisor or other
person, other than Salomon Brothers Inc ("Salomon Brothers"), the fees and
expenses of which will be paid by CT, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in
connection with the transactions
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contemplated by this Agreement based upon arrangements made by or on behalf
of CT. CT has furnished to BT true and complete copies of all agreements
under which any such fees or expenses are payable and all indemnification
and other agreements related to the engagement of the persons to whom such
fees are payable.
(p) Opinion of Financial Advisor. CT has received the opinion of Salomon
Brothers, dated the date of this Agreement, to the effect that, as of such
date, the Exchange Ratio is fair, from a financial point of view, to CT, a
signed copy of which opinion has been delivered to BT.
(q) Ownership of BT Common Stock. Except for shares owned by CT Benefit
Plans, as of the date hereof, neither CT nor, to its knowledge, any of its
affiliates, (i) beneficially owns (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, or (ii) is party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting
or disposing of, in each case, shares of capital stock of BT.
(r) Litigation. Except as disclosed in the CT Filed SEC Documents, there
is no suit, claim, action, proceeding or investigation pending or
threatened in writing against CT or any subsidiary of CT before any
Governmental Entity which individually or in the aggregate would have a
material adverse effect on CT. Except as disclosed in the CT Filed SEC
Documents, neither CT nor any subsidiary of CT is subject to any
outstanding order, writ, injunction or decree which individually or in the
aggregate would have a material adverse effect on CT.
(s) Environmental Matters. Except as disclosed in the CT Filed SEC
Documents:
(i) each of CT and its subsidiaries (A) is in compliance with all
applicable Environmental Laws, (B) holds all Environmental Permits
required for the operation of the businesses of CT and its subsidiaries
as currently conducted and (C) is in compliance with such Environmental
Permits, except in each case as would not individually or in the
aggregate have a material adverse effect on CT;
(ii) neither CT nor any subsidiary of CT has received any written
request for information, or been notified that it is a potentially
responsible party, under CERCLA or any similar state, local or foreign
Environmental Law;
(iii) neither CT nor any subsidiary of CT has entered into or agreed
to any consent decree or order or is subject to any pending judgment,
decree or judicial order relating to compliance with Environmental
Laws, Environmental Permits or the investigation, sampling, monitoring,
treatment, remediation, removal or cleanup of Hazardous Materials, and,
to the best knowledge of CT, no investigation, litigation or other
proceeding is pending or threatened in writing with respect thereto;
(iv) to the best knowledge of CT, none of the real property owned,
leased or operated by CT or any subsidiary of CT is listed or formally
proposed for listing on the "National Priorities List" under CERCLA, as
updated through the date hereof, or any similar state or foreign list
of sites requiring investigation or cleanup; and
(v) no Hazardous Material has been released by CT or, to CT's
knowledge, by any other person at, or transported to or from, any real
property currently or, to the best knowledge of CT, formerly owned or
operated by CT or any subsidiary of CT, except as would not
individually or in the aggregate have a material adverse effect on CT.
(t) Material Contracts. Except as disclosed in the CT Filed SEC
Documents, as of the date hereof, there are no contracts or agreements that
are of a nature required to be filed as an exhibit under the Exchange Act
and the rules and regulations promulgated thereunder. Neither CT nor any of
its subsidiaries is in violation of nor in default under (nor does there
exist any condition which upon the giving of notice or the passage of time
or both would cause such a violation of or default under) any such material
lease, permit, concession, franchise, license or any other material
contract, agreement, arrangement or understanding to which it is a party or
by which it is bound. CT is not aware of any facts or conditions with
respect to any
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material contracts or agreements that would reasonably be expected to make
CT or its subsidiaries liable for any material penalties or liquidated
damages pursuant to the terms of such material contracts or agreements.
(u) Intellectual Property. CT and its subsidiaries own, or are validly
licensed or otherwise have the right to use, all patents, patent rights,
trademarks, trademark rights, trade secrets, trade names, trade name
rights, service marks, service mark rights, copyrights and other
proprietary intellectual property rights and computer programs which are
material to the conduct of the business of CT and its subsidiaries taken as
a whole (including any registrations or applications for registration of
any of the foregoing, collectively, the "CT Intellectual Property").
Consummation of the Merger will not give rise to any termination rights or
material damages or other penalties with respect to any CT Intellectual
Property. Neither CT nor any such subsidiary has received any notice of
infringement of or conflict with, and, to CT's knowledge, there are no
infringements of or conflicts with, the rights of others with respect to
the use of any CT Intellectual Property that individually or in the
aggregate, in either such case, would have a material adverse effect on CT.
To the knowledge of CT, no person is infringing the rights of CT or any
subsidiary with respect to any CT Intellectual Property that individually
or in the aggregate would have a material adverse effect on CT. Neither CT
nor any subsidiary has licensed, or otherwise granted, to any third party
any material rights in or to any CT Intellectual Property (other than
pursuant to customer agreements).
(v) Customers. To the knowledge of CT, there are no facts, circumstances
or conditions which exist that would reasonably be expected to result in
the loss of any significant customer (as defined below). Section 3.02(v) of
the CT Disclosure Schedule sets forth a true and complete list as of the
date hereof of all the significant customers who have been delivered
equipment by CT and its subsidiaries but which equipment has not yet been
installed and which will not be installed within 60 days after the date
hereof. For purposes of this Section 3.02(v), "significant customer" means
any customer that has entered into one or more contracts, agreements,
arrangements or understandings with CT or its subsidiaries, the aggregate
anticipated benefits of which to CT and its subsidiaries equals or exceeds
$10 million.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.01. Conduct of Business. (a) Conduct of Business by BT. Except as
set forth in Section 4.01(a) of the BT Disclosure Schedule, as otherwise
expressly contemplated by this Agreement or as consented to by CT, such
consent not to be unreasonably withheld or delayed, during the period from the
date of this Agreement to the Effective Time, BT shall, and shall cause its
subsidiaries to, carry on their respective businesses in the ordinary course
consistent with past practice and in compliance in all material respects with
all applicable material laws and regulations and, to the extent consistent
therewith, use all reasonable efforts to preserve intact their current
business organizations, use reasonable efforts to keep available the services
of their current officers and other key employees and use reasonable efforts
to preserve their relationships with those persons having business dealings
and their goodwill and ongoing businesses. Without limiting the generality of
the foregoing (but subject to the above exceptions), during the period from
the date of this Agreement to the Effective Time, BT shall not, and shall not
permit any of its subsidiaries to:
(i) other than dividends and distributions (including liquidating
distributions) by a direct or indirect wholly owned subsidiary of BT to its
parent, or by a subsidiary that is partially owned by BT or any of its
subsidiaries, provided that BT or any such subsidiary receives or is to
receive its proportionate share thereof, (x) declare, set aside or pay any
dividends on, or make any other distributions in respect of, any of its
capital stock, (y) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or (z)
purchase, redeem or otherwise acquire any shares of capital stock of BT or
any of its subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities;
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(ii) issue, deliver, sell, pledge or otherwise encumber or subject to any
Lien any shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to acquire,
any such shares, other voting securities or convertible securities (other
than the issuance of BT Common Stock (x) upon the exercise of BT Stock
Options outstanding as of the date hereof in accordance with their present
terms, (y) upon the exercise of the Warrants in accordance with their
present terms or (z) in accordance with the BT Rights Agreement);
(iii) except as contemplated hereby, amend its certificate of
incorporation, by-laws or other comparable organizational documents;
(iv) sell, lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of any of its properties or assets (including
securitization), other than in the ordinary course of business consistent
with past practice;
(v) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, limited liability company, partnership,
joint venture, association or other business organization or division
thereof, except for purchases of inventory, supplies and other similar
items in the ordinary course of business consistent with past practice;
(vi) (y) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of BT or any of its
subsidiaries, guarantee any debt securities of another person, enter into
any "keep well" or other agreement to maintain any financial statement
condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, except for borrowings incurred in
the ordinary course of business consistent with past practice and not in
excess of $25 million at any one time outstanding, or (z) make any loans,
advances or capital contributions to, or investments in, any other person,
other than to BT or any direct or indirect subsidiary of BT or to officers
and employees of BT or any of its subsidiaries for travel, business or
relocation expenses in the ordinary course of business;
(vii) make or agree to make any capital expenditure or capital
expenditures in excess of $7 million in the aggregate in any 90-day period
after the date hereof;
(viii) pay, discharge, settle or satisfy any material claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement or satisfaction,
in the ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities reflected or reserved against
in, or contemplated by, the most recent consolidated financial statements
(or the notes thereto) of BT included in the BT Filed SEC Documents,
incurred since the date of such financial statements in the ordinary course
of business consistent with past practice or which do not individually or
in the aggregate have a material adverse effect on BT;
(ix) except in the ordinary course of business or except as would not
individually or in the aggregate have a material adverse effect on BT,
modify, amend or terminate any material contract or agreement to which BT
or any subsidiary of BT is a party or waive, release or assign any material
rights or claims thereunder; or
(x) authorize, or commit or agree to take, any of the foregoing actions
(except for the execution of indemnification agreements contemplated by
Section 5.07(2)).
(b) Conduct of Business by CT. Except as set forth in Section 4.01(b) of the
CT Disclosure Schedule, as otherwise expressly contemplated by this Agreement
or as consented to by BT, such consent not to be unreasonably withheld or
delayed, during the period from the date of this Agreement to the Effective
Time, CT shall, and shall cause its subsidiaries to, carry on their respective
businesses in the ordinary course consistent with past practice and in
compliance in all material respects with all applicable material laws and
regulations and, to the extent consistent therewith, use all reasonable
efforts to preserve intact their current business organizations, use
reasonable efforts to keep available the services of their current officers
and other key
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employees and use reasonable efforts to preserve their relationships with
those persons having business dealings and their goodwill and ongoing
businesses. Without limiting the generality of the foregoing (but subject to
the above exceptions), during the period from the date of this Agreement to
the Effective Time, CT shall not, and shall not permit any of its subsidiaries
to:
(i) other than dividends and distributions (including liquidating
distributions) by a direct or indirect wholly owned subsidiary of CT to its
parent, or by a subsidiary that is partially owned by CT or any of its
subsidiaries, provided that CT or any such subsidiary receives or is to
receive its proportionate share thereof, (x) declare, set aside or pay any
dividends on, or make any other distributions in respect of, any of its
capital stock, (y) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or (z)
purchase, redeem or otherwise acquire any shares of capital stock of CT or
any of its subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber or subject to any
Lien any shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to acquire,
any such shares, other voting securities or convertible securities (other
than the issuance of CT Common Stock (x) upon the exercise of CT Stock
Options outstanding as of the date hereof in accordance with their present
terms, (y) upon the conversion of the Convertible Debentures in accordance
with their present terms or (z) in accordance with the CT Rights Agreement,
if any);
(iii) except as contemplated hereby, amend its certificate of
incorporation, by-laws or other comparable organizational documents;
(iv) (A) sell, lease, license, mortgage or otherwise encumber or subject
to any Lien or otherwise dispose of any of its properties or assets
(including securitization), other than in the ordinary course of business
consistent with past practice, or (B) acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial portion of
the assets of, or by any other manner, any business or any corporation,
limited liability company, partnership, joint venture, association or other
business organization or division thereof, except for purchases of
inventory, supplies and other similar items in the ordinary course of
business consistent with past practice, in either case only to the extent
such transaction referred to in clause (A) or (B) above would (x) be within
the business operations of the CT Network Systems Division or (y) (1) be in
excess of $70 million per transaction (or series of related transactions)
or $100 million in the aggregate or (2) materially delay the consummation
of the Merger;
(v) (y) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of CT or any of its
subsidiaries, guarantee any debt securities of another person, enter into
any "keep well" or other agreement to maintain any financial statement
condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, except for short-term borrowings
incurred in the ordinary course of business consistent with past practice
and not in excess of $25 million at any one time outstanding, or (z) make
any loans, advances or capital contributions to, or investments in, any
other person, other than to CT or any direct or indirect subsidiary of CT
or to officers and employees of CT or any of its subsidiaries for travel,
business or relocation expenses in the ordinary course of business;
(vi) pay, discharge, settle or satisfy any material claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement or satisfaction,
in the ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities reflected or reserved against
in, or contemplated by, the most recent consolidated financial statements
(or the notes thereto) of CT included in the CT Filed SEC Documents,
incurred since the date of such financial statements in the ordinary course
of business consistent with past practice or which do not individually or
in the aggregate have a material adverse effect on CT;
(vii) except in the ordinary course of business or except as would not
individually or in the aggregate have a material adverse effect on CT,
modify, amend or terminate any material contract or agreement to
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which CT or any subsidiary of CT is a party or waive, release or assign any
material rights or claims thereunder; or
(viii) authorize, or commit or agree to take, any of the foregoing
actions.
(c) Other Actions. Except as required by law, BT and CT shall not, and shall
not permit any of their respective subsidiaries to, voluntarily take any
action that would, or that could reasonably be expected to, result in (i) any
of the representations and warranties of such party set forth in this
Agreement that are qualified as to materiality becoming untrue at the
Effective Time, (ii) any of such representations and warranties that are not
so qualified becoming untrue in any material respect at the Effective Time or
(iii) any of the conditions to the Merger set forth in Article VI not being
satisfied.
(d) Advice of Changes. BT and CT shall promptly advise the other orally and
in writing to the extent it has knowledge of (i) any representation or
warranty made by it contained in this Agreement that is qualified as to
materiality becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect, (ii) the failure by it to comply in any
material respect with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement and (iii) any change or event having, or which, insofar as can
reasonably be foreseen, would have, individually or in the aggregate a
material adverse effect on such party or on the truth of their respective
representations and warranties or the ability of the conditions set forth in
Article VI to be satisfied; provided, however, that no such notification shall
affect the representations, warranties, covenants or agreements of the parties
(or remedies with respect thereto) or the conditions to the obligations of the
parties under this Agreement.
SECTION 4.02. No Solicitation by BT. (a) BT shall not, nor shall it permit
any of its subsidiaries to, nor shall it authorize or permit any of its
directors, officers or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it or any of its
subsidiaries to, directly or indirectly through another person, (i) solicit,
initiate or encourage (including by way of furnishing information), or take
any other action designed to facilitate, any inquiries or the making of any
proposal which constitutes any BT Takeover Proposal (as defined below) or (ii)
participate in any discussions or negotiations regarding any BT Takeover
Proposal; provided, however, that if, at any time prior to the date of the BT
Stockholders Meeting (the "BT Applicable Period"), the Board of Directors of
BT determines in good faith, after consultation with outside counsel, that it
is necessary to do so in order to comply with its fiduciary duties to BT's
stockholders under applicable law, BT may, in response to a BT Superior
Proposal (as defined in Section 4.02(b)) which was not solicited by it or
which did not otherwise result from a breach of this Section 4.02(a), and
subject to providing prior written notice of its decision to take such action
to CT (the "BT Notice") and compliance with Section 4.02(c), (x) furnish
information with respect to BT and its subsidiaries to any person making a BT
Superior Proposal pursuant to a customary confidentiality agreement (as
determined by BT after consultation with its outside counsel) and (y)
participate in discussions or negotiations regarding such BT Superior
Proposal. For purposes of this Agreement, "BT Takeover Proposal" means any
inquiry, proposal or offer from any person relating to any direct or indirect
acquisition or purchase of a business that constitutes 15% or more of the net
revenues, net income or the assets of BT and its subsidiaries, taken as a
whole, or 15% or more of any class of equity securities of BT or any of its
subsidiaries, any tender offer or exchange offer that if consummated would
result in any person beneficially owning 15% or more of any class of equity
securities of BT or any of its subsidiaries, or any merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving BT or any of its subsidiaries, other than the
transactions contemplated by this Agreement.
(b) Except as expressly permitted by this Section 4.02, neither the Board of
Directors of BT nor any committee thereof shall (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to CT, the
approval or recommendation by such Board of Directors or such committee of the
Merger or this Agreement, (ii) approve or recommend, or propose publicly to
approve or recommend, any BT Takeover Proposal, or (iii) cause BT to enter
into any letter of intent, agreement in principle, acquisition agreement or
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other similar agreement (each, a "BT Acquisition Agreement") related to any BT
Takeover Proposal. Notwithstanding the foregoing, in the event that during the
BT Applicable Period the Board of Directors of BT determines in good faith,
after consultation with outside counsel, that it is necessary to do so in
order to comply with its fiduciary duties to BT's stockholders under
applicable law, the Board of Directors of BT may (subject to this and the
following sentences) terminate this Agreement (and concurrently with or after
such termination, if it so chooses, cause BT to enter into any BT Acquisition
Agreement with respect to any BT Superior Proposal), but only at a time that
is during the BT Applicable Period and is after the later of (x) the third
business day following CT's receipt of written notice advising CT that the
Board of Directors of BT is prepared to accept a BT Superior Proposal,
specifying the material terms and conditions of such BT Superior Proposal and
identifying the person making such BT Superior Proposal and (y) in the event
of any amendment to the price or any material term of a BT Superior Proposal,
one business day following CT's receipt of written notice containing the
material terms of such amendment, including any change in price (it being
understood that each further amendment to the price or any material terms of
the BT Superior Proposal shall require an additional one business day period
prior to which BT can take such action). For purposes of this Agreement, a "BT
Superior Proposal" means any proposal made by a third party (i) to acquire,
directly or indirectly, including pursuant to a tender offer, exchange offer,
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction, for consideration consisting of cash
and/or securities, more than 50% of the combined voting power of the shares of
BT Common Stock then outstanding or all or substantially all the assets of BT,
(ii) that is otherwise on terms which the Board of Directors of BT determines
in its good faith judgment (based on the advice of a financial advisor of
nationally recognized reputation) to be more favorable to BT's stockholders
than the Merger, (iii) for which financing, to the extent required, is then
committed or which, in the good faith judgment of the Board of Directors of
BT, is reasonably capable of being obtained by such third party and (iv) for
which, in the good faith judgment of the Board of Directors of BT, no
regulatory approvals are required, including antitrust approvals, that could
not reasonably be expected to be obtained.
(c) In addition to the obligations of BT set forth in paragraphs (a) and (b)
of this Section 4.02, BT shall immediately advise CT orally and in writing of
any request for information or of any BT Takeover Proposal, the material terms
and conditions of such request or BT Takeover Proposal and the identity of the
person making such request or BT Takeover Proposal. BT will keep CT reasonably
informed of the status and details (including amendments or proposed
amendments) of any such request or BT Takeover Proposal.
(d) Nothing contained in this Section 4.02 shall prohibit BT from taking and
disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to BT's
stockholders if, in the good faith judgment of the Board of Directors of BT,
after consultation with outside counsel, failure so to disclose would be
inconsistent with its obligations under applicable law; provided, however,
that neither BT nor its Board of Directors nor any committee thereof shall
withdraw or modify, or propose publicly to withdraw or modify, its position
with respect to this Agreement or the Merger or approve or recommend, or
propose publicly to approve or recommend, a BT Takeover Proposal.
SECTION 4.03. No Solicitation by CT. (a) CT shall not, nor shall it permit
any of its subsidiaries to, nor shall it authorize or permit any of its
directors, officers or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it or any of its
subsidiaries to, directly or indirectly through another person, (i) solicit,
initiate or encourage (including by way of furnishing information), or take
any other action designed to facilitate, any inquiries or the making of any
proposal which constitutes any CT Takeover Proposal (as defined below) or (ii)
participate in any discussions or negotiations regarding any CT Takeover
Proposal; provided, however, that if, at any time prior to the date of the CT
Shareholders Meeting (the "CT Applicable Period"), the Board of Directors of
CT determines in good faith, after consultation with outside counsel, that it
is necessary to do so in order to comply with its fiduciary duties to CT's
shareholders under applicable law, CT may, in response to a CT Superior
Proposal (as defined in Section 4.03(b)) which was not solicited by it or
which did not otherwise result from a breach of this Section 4.03(a), and
subject to providing prior written notice of its decision to take such action
to BT (the "CT Notice") and compliance with Section 4.03(c), (x) furnish
information with respect to CT and its subsidiaries to any person making a CT
Superior
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Proposal pursuant to a customary confidentiality agreement (as determined by
CT after consultation with its outside counsel) and (y) participate in
discussions or negotiations regarding such CT Superior Proposal. For purposes
of this Agreement, "CT Takeover Proposal" means any inquiry, proposal or offer
from any person relating to any direct or indirect acquisition or purchase of
a business that constitutes 15% or more of the net revenues, net income or the
assets of CT and its subsidiaries, taken as a whole, or 15% or more of any
class of equity securities of CT or any of its subsidiaries, any tender offer
or exchange offer that if consummated would result in any person beneficially
owning 15% or more of any class of equity securities of CT or any of its
subsidiaries, or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving CT
or any of its subsidiaries, other than the transactions contemplated by this
Agreement.
(b) Except as expressly permitted by this Section 4.03, neither the Board of
Directors of CT nor any committee thereof shall (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to BT, the
approval or recommendation by such Board of Directors or such committee of the
Merger or this Agreement, (ii) approve or recommend, or propose publicly to
approve or recommend, any CT Takeover Proposal, or (iii) cause CT to enter
into any letter of intent, agreement in principle, acquisition agreement or
other similar agreement (each, a "CT Acquisition Agreement") related to any CT
Takeover Proposal. Notwithstanding the foregoing, in the event that during the
CT Applicable Period the Board of Directors of CT determines in good faith,
after consultation with outside counsel, that it is necessary to do so in
order to comply with its fiduciary duties to CT's shareholders under
applicable law, the Board of Directors of CT may (subject to this and the
following sentences) terminate this Agreement (and concurrently with or after
such termination, if it so chooses, cause CT to enter into any CT Acquisition
Agreement with respect to any CT Superior Proposal), but only at a time that
is during the CT Applicable Period and is after the later of (x) the third
business day following BT's receipt of written notice advising BT that the
Board of Directors of CT is prepared to accept a CT Superior Proposal,
specifying the material terms and conditions of such CT Superior Proposal and
identifying the person making such CT Superior Proposal and (y) in the event
of any amendment to the price or any material term of a CT Superior Proposal,
one business day following CT's receipt of written notice containing the
material terms of such amendment, including any change in price (it being
understood that each further amendment to the price or any material terms of
the CT Superior Proposal shall require an additional one business day period
prior to which CT can take such action). For purposes of this Agreement, a "CT
Superior Proposal" means any proposal made by a third party (i) to acquire,
directly or indirectly, including pursuant to a tender offer, exchange offer,
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction, for consideration consisting of cash
and/or securities, more than 50% of the combined voting power of the shares of
CT Common Stock then outstanding or all or substantially all the assets of CT,
(ii) that is otherwise on terms which the Board of Directors of CT determines
in its good faith judgment (based on the advice of a financial advisor of
nationally recognized reputation) to be more favorable to CT's shareholders
than the Merger, (iii) for which financing, to the extent required, is then
committed or which, in the good faith judgment of the Board of Directors of
CT, is reasonably capable of being obtained by such third party and (iv) for
which, in the good faith judgment of the Board of Directors of CT, no
regulatory approvals are required, including antitrust approvals, that could
not reasonably be expected to be obtained.
(c) In addition to the obligations of CT set forth in paragraphs (a) and (b)
of this Section 4.03, CT shall immediately advise BT orally and in writing of
any request for information or of any CT Takeover Proposal, the material terms
and conditions of such request or CT Takeover Proposal and the identity of the
person making such request or CT Takeover Proposal. CT will keep BT reasonably
informed of the status and details (including amendments or proposed
amendments) of any such request or CT Takeover Proposal.
(d) Nothing contained in this Section 4.03 shall prohibit CT from taking and
disclosing to its shareholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to CT's
shareholders if, in the good faith judgment of the Board of Directors of CT,
after consultation with outside counsel, failure so to disclose would be
inconsistent with its obligations under applicable law; provided, however,
that neither CT nor its Board of Directors nor any committee thereof shall
withdraw or modify, or propose publicly to withdraw or modify, its position
with respect to this Agreement or the Merger or approve or recommend, or
propose publicly to approve or recommend, a CT Takeover Proposal.
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ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Preparation of the Form S-4 and the Joint Proxy Statement;
Stockholders Meetings. (a) As soon as practicable following the date of this
Agreement, BT and CT shall prepare and file with the SEC the Joint Proxy
Statement and CT shall prepare and file with the SEC the Form S-4, in which
the Joint Proxy Statement will be included as a prospectus. Each of BT and CT
shall use best efforts to have the Form S-4 declared effective under the
Securities Act as promptly as practicable after such filing. BT will use all
best efforts to cause the Joint Proxy Statement to be mailed to BT's
stockholders, and CT will use all best efforts to cause the Joint Proxy
Statement to be mailed to CT's shareholders, in each case as promptly as
practicable after the Form S-4 is declared effective under the Securities Act.
CT shall also take any action (other than qualifying to do business in any
jurisdiction in which it is not now so qualified or to file a general consent
to service of process) required to be taken under any applicable state
securities laws in connection with the issuance of CT Common Stock in the
Merger and BT shall furnish all information concerning BT and the holders of
BT Common Stock as may be reasonably requested in connection with any such
action. No filing of, or amendment or supplement to, the Form S-4 or the Joint
Proxy Statement will be made by CT without providing BT the opportunity to
review and comment thereon. CT will advise BT, promptly after it receives
notice thereof, of the time when the Form S-4 has become effective or any
supplement or amendment has been filed, the issuance of any stop order, the
suspension of the qualification of the CT Common Stock issuable in connection
with the Merger for offering or sale in any jurisdiction, or any request by
the SEC for amendment of the Joint Proxy Statement or the Form S-4 or comments
thereon and responses thereto or requests by the SEC for additional
information. If at any time prior to the Effective Time any information
relating to BT or CT, or any of their respective affiliates, officers or
directors, should be discovered by BT or CT which should be set forth in an
amendment or supplement to the Form S-4 or the Joint Proxy Statement, so that
either of such documents would not include any misstatement of a material fact
or omit to state any material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, the
party which discovers such information shall promptly notify the other parties
hereto and an appropriate amendment or supplement describing such information
shall be promptly filed with the SEC and, to the extent required by law,
disseminated to the stockholders of BT and CT.
(b) BT shall, as soon as practicable following the date of this Agreement,
duly call, give notice of, convene and hold a meeting of its stockholders (the
"BT Stockholders Meeting") for the purpose of obtaining the BT Stockholder
Approval and shall, through its Board of Directors, recommend to its
stockholders the approval and adoption of this Agreement, the Merger and the
other transactions contemplated hereby. Without limiting the generality of the
foregoing but subject to its rights to terminate this Agreement pursuant to
Section 4.02(b), BT agrees that its obligations pursuant to the first sentence
of this Section 5.01(b) shall not be affected by the commencement, public
proposal, public disclosure or communication to BT of any BT Takeover
Proposal.
(c) CT shall, as soon as practicable following the date of this Agreement,
duly call, give notice of, convene and hold a meeting of its shareholders (the
"CT Shareholders Meeting") for the purpose of obtaining the CT Shareholder
Approval and shall, through its Board of Directors, recommend to its
shareholders the approval of the issuance of CT Common Stock pursuant to the
Merger. Without limiting the generality of the foregoing but subject to its
rights to terminate this Agreement pursuant to Section 4.03(b), CT agrees that
its obligations pursuant to the first sentence of this Section 5.01(c) shall
not be affected by the commencement, public proposal, public disclosure or
commencement to CT of any CT Takeover Proposal.
(d) CT and BT will use best efforts to hold the BT Stockholders Meeting and
the CT Shareholders Meeting on the same date and as soon as practicable after
the date hereof. Each of BT and CT has hired or will hire a proxy solicitation
firm to assist it in obtaining the BT Stockholder Approval and the CT
Shareholder Approval, respectively.
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SECTION 5.02. Letters of BT's Accountants. (a) BT shall use best efforts to
cause to be delivered to CT two letters from Coopers & Lybrand L.L.P., BT's
independent accountants, one dated a date within two business days before the
date on which the Form S-4 shall become effective and one dated a date within
two business days before the Closing Date, each addressed to CT, in form and
substance reasonably satisfactory to CT and customary in scope and substance
for comfort letters delivered by independent public accountants in connection
with registration statements similar to the Form S-4.
(b) BT shall use best efforts to cause to be delivered to CT a letter from
Coopers & Lybrand L.L.P., BT's independent accountants, addressed to CT and
BT, dated as of the Closing Date, stating that the Merger will qualify as a
pooling of interests transaction under Opinion 16 of the Accounting Principles
Board and applicable SEC rules and regulations.
SECTION 5.03. Letters of CT's Accountants. (a) CT shall use best efforts to
cause to be delivered to BT two letters from Deloitte & Touche LLP, CT's
independent accountants, one dated a date within two business days before the
date on which the Form S-4 shall become effective and one dated a date within
two business days before the Closing Date, each addressed to BT, in form and
substance reasonably satisfactory to BT and customary in scope and substance
for comfort letters delivered by independent public accountants in connection
with registration statements similar to the Form S-4.
(b) CT shall use best efforts to cause to be delivered to BT a letter from
Deloitte & Touche LLP, CT's independent accountants, addressed to BT and CT,
dated as of the Closing Date, stating that the Merger will qualify as a
pooling of interests transaction under Opinion 16 of the Accounting Principles
Board and applicable SEC rules and regulations.
SECTION 5.04. Access to Information; Confidentiality. Subject to the
Confidentiality Agreement dated June 3, 1997, between CT and BT (the
"Confidentiality Agreement"), each of BT and CT shall, and shall cause each of
its respective subsidiaries to, afford to the other party and to the officers,
employees, accountants, counsel, financial advisors and other representatives
of such other party, reasonable access during normal business hours during the
period prior to the Effective Time to all their respective properties, books,
contracts, commitments, personnel and records and, during such period, each of
BT and CT shall, and shall cause each of its respective subsidiaries to,
furnish promptly to the other party (a) a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of Federal or state securities laws and (b) all
other information concerning its businesses, properties and personnel as such
other party may reasonably request. No review pursuant to this Section 5.04
shall have an effect for the purpose of determining the accuracy of any
representation or warranty given by either party hereto to the other party
hereto. Each of BT and CT will hold, and will cause its respective officers,
employees, accountants, counsel, financial advisors and other representatives
and affiliates to hold, any nonpublic information in accordance with the terms
of the Confidentiality Agreement.
SECTION 5.05. Best Efforts. (a) Upon the terms and subject to the conditions
set forth in this Agreement, each of the parties agrees to use best efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement, including (i) the obtaining of all necessary actions or nonactions,
waivers, consents and approvals from Governmental Entities and the making of
all necessary registrations and filings and the taking of all steps as may be
necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity, (ii) the obtaining of all necessary
consents, approvals or waivers from third parties, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions
contemplated by this Agreement, including seeking to have any stay or
temporary restraining order entered by any court or other
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Governmental Entity vacated or reversed, (iv) the execution and delivery of
any additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement and
(v) the responding to any request for additional information or documentation
under 12 C.F.R. (S)803.20. Nothing set forth in this Section 5.05(a) shall
require BT or CT to agree to anything prohibiting or limiting the ownership or
operation by BT or CT and their respective subsidiaries of any material
portion of the businesses or assets of BT and CT and their respective
subsidiaries taken as a whole, or compelling BT or CT and their respective
subsidiaries to dispose of or hold separate any material portion of the
businesses or assets of BT or CT taken as a whole.
(b) In connection with and without limiting the foregoing, BT and CT shall
(i) take all action necessary to ensure that no state takeover statute or
similar statute or regulation is or becomes applicable to the Merger, this
Agreement or any of the other transactions contemplated by this Agreement and
(ii) if any state takeover statute or similar statute or regulation becomes
applicable to the Merger, this Agreement or any other transaction contemplated
by this Agreement, take all action necessary to ensure that the Merger and the
other transactions contemplated by this Agreement may be consummated as
promptly as practicable on the terms contemplated by this Agreement and
otherwise to minimize the effect of such statute or regulation on the Merger
and the other transactions contemplated by this Agreement.
SECTION 5.06. Stock Options, etc. (a) As soon as practicable following the
date of this Agreement, the Board of Directors of BT (or, if appropriate, any
committee administering the BT Stock Plans) shall adopt such resolutions or
take such other actions as may be required to effect the following:
(i) adjust the terms of all outstanding BT Stock Options granted under BT
Stock Plans and the Warrants, in each case whether vested or unvested, as
necessary to provide that, at the Effective Time, each BT Stock Option and
each Warrant outstanding immediately prior to the Effective Time shall be
amended and converted into an option to acquire, on the same terms and
conditions as were applicable under such BT Stock Option or such Warrant
the same number of shares of CT Common Stock as the holder of such BT Stock
Option or such Warrant would have been entitled to receive pursuant to the
Merger had such holder exercised such BT Stock Option or such Warrant in
full immediately prior to the Effective Time (rounding down to the nearest
whole share), at a price per share of CT Common Stock equal to (A) the
aggregate exercise price for the shares of BT Common Stock otherwise
purchasable pursuant to such BT Stock Option or such Warrant divided by (B)
the aggregate number of shares of CT Common Stock deemed purchasable
pursuant to such BT Stock Option (each, as so adjusted, an "Adjusted
Option") or such Warrant; provided that such exercise price shall be
rounded up to the nearest whole cent; and
(ii) make such other changes to the BT Stock Plans as BT and CT may agree
are appropriate to give effect to the Merger.
(b) The adjustments provided herein with respect to any BT Stock Options
which are "incentive stock options" as defined in Section 422 of the Code
shall be and are intended to be effected in a manner which is consistent with
Section 424(a) of the Code.
(c) At the Effective Time, by virtue of the Merger and without the need of
any further corporate action, CT shall assume the BT Stock Plans and the
Warrants, with the result that all obligations of BT under the BT Stock Plans
and the Warrants, including with respect to BT Stock Options outstanding at
the Effective Time under each BT Stock Plan, shall be obligations of CT
following the Effective Time. CT shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of CT Common Stock for
delivery under the Adjusted Options and the Warrants.
(d) No later than the Effective Time, CT shall prepare and file with the SEC
a registration statement on Form S-8 (or another appropriate form) registering
a number of shares of CT Common Stock equal to the number of shares subject to
the Adjusted Options. Such registration statement shall be kept effective (and
the current status of the prospectus or prospectuses required thereby shall be
maintained) at least for so long as any Adjusted Options may remain
outstanding.
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(e) As soon as practicable after the Effective Time, CT shall deliver to the
holders of BT Stock Options and Warrants and to participants in the BT Stock
Purchase Plan appropriate notices setting forth such holders' rights pursuant
to the respective BT Stock Plans, the Warrants and the BT Stock Purchase Plan
and the agreements, if any, evidencing the grants of such BT Stock Options or
Warrants, and that, in the case of such BT Stock Options and Warrants, such BT
Stock Options and Warrants and agreements shall be assumed by CT and shall
continue in effect on the same terms and conditions (subject to the
adjustments required by this Section 5.06 after giving effect to the Merger).
(f) A holder of an Adjusted Option may exercise such Adjusted Option in
whole or in part in accordance with its terms by delivering a properly
executed notice of exercise to CT, together with the consideration therefor
and the Federal withholding tax information, if any, required in accordance
with the related BT Stock Plan.
(g) At the Effective Time, by virtue of the Merger and without the need of
any further corporate action, the Surviving Corporation shall assume the BT
Severance Plan in accordance with Section 6 thereof, with the result that all
obligations of BT under the BT Severance Plan shall be obligations of the
Surviving Corporation following the Effective Time.
(h) The Board of Directors of BT (or, if appropriate, any committee
administering the BT Stock Purchase Plan) shall adopt such resolutions or take
such other actions as may be required to, following the expiration of the
current offering under the BT Stock Purchase Plan, cause no further offerings
to be made thereunder and no further payroll deductions to be accepted
thereunder. At the Effective Time, by virtue of the Merger and without the
need of any further corporate action but subject to Section 2.02(j), the BT
Stock Purchase Plan will be terminated. All employees of BT shall be eligible
to participate in any broad-based employee stock purchase plan of CT in effect
at any time within three years following the Merger, on the same terms as
employees of CT.
(i) CT shall administer each Adjusted Option and each BT Stock Plan in a
manner that (i) complies with Rule 16b-3 under the Exchange Act, with respect
to Adjusted Options held by any person who will be subject to the reporting
requirements under Section 16(a) of the Exchange Act with respect to the
Surviving Corporation after the Merger and (ii) ensures that Adjusted Options
that are intended to qualify as "incentive stock options" as defined in
Section 422 of the Code will continue to qualify as such following the Merger.
(j) After the Effective Time, former executive officers of BT who become
officers or employees of the Surviving Corporation shall be treated as senior
managerial personnel of CT in determining their eligibility to receive CT
Stock Options under the CT Stock Plans.
(k) After the Effective Time, former employees of BT and its subsidiaries
shall receive credit (solely for eligibility, vesting and similar purposes)
under all current and future CT Benefit Plans for all service with BT and its
subsidiaries prior to the Effective Time.
SECTION 5.07. Indemnification, Exculpation and Insurance. (a) CT agrees that
all rights to indemnification and exculpation from liabilities for acts or
omissions occurring at or prior to the Effective Time now existing in favor of
the current or former directors or officers of BT and its subsidiaries as
provided in their respective certificates of incorporation or by-laws (or
comparable organizational documents) shall survive the Merger and shall
continue in full force and effect in accordance with their terms. As soon as
practicable following the date hereof, BT shall enter into indemnification
agreements substantially in the form of Exhibit B hereto with each officer and
director of BT, and as of the Effective Time, CT shall assume the obligations
under each such indemnification agreement. In addition, from and after the
Effective Time, directors and officers of BT who become directors or officers
of CT will be entitled to the same indemnity and exculpation rights and
protections, and directors and officers liability insurance, as are afforded
to other directors and officers of CT.
(b) In the event that CT or any of its successors or assigns (i)
consolidates with or merges into any other person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, proper provision will be made so that
the successors and assigns of CT assume the obligations set forth in this
Section 5.07.
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(c) For five years after the Effective Time, CT shall maintain in effect
BT's current directors' and officers' liability insurance covering acts or
omissions occurring prior to the Effective Time with respect to those persons
who are currently covered by BT's directors' and officers' liability insurance
policy on terms with respect to such coverage and amount no less favorable
than those of such policy in effect on the date hereof; provided, that in
satisfying its obligation under this Section 5.07(c) CT shall not be obligated
to pay premiums in excess of 150% of the amount per annum BT paid in its last
full fiscal year (which 150% premium BT represents to be $617,500), but shall
in such case be obligated to provide such coverage as may be obtained for such
150% premium.
(d) The provisions of this Section 5.07 (i) are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her
heirs and his or her representatives, (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise and (iii) may not be amended or
repealed without the written consent of any affected indemnified party.
SECTION 5.08. Fees and Expenses. (a) Except as provided in this Section
5.08, all fees and expenses incurred in connection with the Merger, this
Agreement and the transactions contemplated by this Agreement shall be paid by
the party incurring such fees or expenses, whether or not the Merger is
consummated, except that each of CT and BT shall bear and pay one-half of the
costs and expenses (other than attorney's fees) incurred in connection with
(i) the filing, printing and mailing of the Form S-4 and the Joint Proxy
Statement (including SEC filing fees) and (ii) the filings of the premerger
notification and report forms under the HSR Act (including filing fees). CT
shall file any return with respect to, and shall pay, any state or local taxes
(including any penalties or interest with respect thereto), if any, which are
attributable to the transfer of the beneficial ownership of BT's real property
(collectively, the "Real Estate Transfer Taxes") as a result of the Merger.
Upon the reasonable request of CT, BT shall cooperate with CT in the filing of
such returns including, in the case of BT, supplying in a timely manner a
complete list of all real property interests held by BT and any information
with respect to such property that is reasonably necessary to complete such
returns. The fair market value of any real property of BT subject to the Real
Estate Transfer Taxes shall be as agreed to between CT and BT.
(b) In the event that (i) a BT Takeover Proposal has been made directly to
the stockholders of BT generally or shall have otherwise become publicly known
or any person shall have publicly announced an intention (whether or not
conditional) to make a BT Takeover Proposal and thereafter this Agreement is
terminated by either CT or BT pursuant to Section 7.01(b)(i) or Section
7.01(b)(ii) or (ii) this Agreement is terminated by BT pursuant to Section
7.01(f), then BT shall promptly, but in no event later than two days after the
date of such termination, pay CT a fee equal to the sum of $50 million (the
"Termination Fee") and the CT Out-of-Pocket Expenses, payable by wire transfer
of same day funds; provided, however, that no Termination Fee or CT Out-of-
Pocket Expenses shall be payable to CT pursuant to clause (i) of this
paragraph (b) unless and until within 12 months of such termination BT or any
of its subsidiaries enters into any BT Acquisition Agreement or consummates
any BT Takeover Proposal (for the purposes of the foregoing proviso the terms
"BT Acquisition Agreement" and "BT Takeover Proposal" shall have the meanings
assigned to such terms in Section 4.02 except that the references to 15% in
the definition of "BT Takeover Proposal" in Section 4.02(a) shall be deemed to
be references to 35% and "BT Takeover Proposal" shall only be deemed to refer
to a transaction involving BT, or with respect to assets (including the shares
of any subsidiary), BT and its subsidiaries, taken as a whole, and not any of
its subsidiaries alone), in which event the Termination Fee and CT Out-of-
Pocket Expenses shall be payable upon the first to occur of such events. "CT
Out-of-Pocket Expenses" means the lesser of (A) all documented out-of-pocket
expenses and fees incurred by CT (including fees and expenses payable to all
legal, accounting, financial, public relations and other professional
advisers) arising out of, in connection with or related to this Agreement and
the transactions contemplated hereby and (B) $5 million. BT acknowledges that
the agreements contained in this Section 5.08(b) are an integral part of the
transactions contemplated by this Agreement, and that, without these
agreements, CT would not enter into this Agreement; accordingly, if BT fails
promptly to pay the amount due pursuant to this Section 5.08(b), and, in order
to obtain such payment, CT commences a suit which results in a judgment
against BT for the fee set forth in this Section 5.08(b), BT shall pay to CT
its costs and expenses (including attorneys' fees and expenses) in connection
with such suit, together
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with interest on the amount of the fee at the prime rate of Citibank N.A. in
effect on the date such payment was required to be made.
(c) In the event that (i) a CT Takeover Proposal has been made directly to
the shareholders of CT generally or shall have otherwise become publicly known
or any person shall have publicly announced an intention (whether or not
conditional) to make a CT Takeover Proposal and thereafter this Agreement is
terminated by either CT or BT pursuant to Section 7.01(b)(i) or Section
7.01(b)(iii) or (ii) this Agreement is terminated by CT pursuant to Section
7.01(d), then CT shall promptly, but in no event later than two days after the
date of such termination, pay BT a fee equal to the sum of the Termination Fee
and the BT Out-of-Pocket Expenses, payable by wire transfer of same day funds;
provided, however, that no Termination Fee or BT Out-of-Pocket Expenses shall
be payable to BT pursuant to clause (i) of this paragraph (c) unless and until
within 12 months of such termination CT or any of its subsidiaries enters into
any CT Acquisition Agreement or consummates any CT Takeover Proposal (for the
purposes of the foregoing proviso the terms "CT Acquisition Agreement" and "CT
Takeover Proposal" shall have the meanings assigned to such terms in Section
4.03 except that the references to 15% in the definition of "CT Takeover
Proposal" in Section 4.03(a) shall be deemed to be references to 35% and "CT
Takeover Proposal" shall only be deemed to refer to a transaction involving
CT, or with respect to assets (including the shares of any subsidiary), CT and
its subsidiaries, taken as a whole, and not any of its subsidiaries alone), in
which event the Termination Fee and BT Out-of-Pocket Expenses shall be payable
upon the first to occur of such events. "BT Out-of-Pocket Expenses" means the
lesser of (A) all documented out-of-pocket expenses and fees incurred by BT
(including fees and expenses payable to all legal, accounting, financial,
public relations and other professional advisers) arising out of, in
connection with or related to this Agreement and the transactions contemplated
hereby and (B) $5 million. CT acknowledges that the agreements contained in
this Section 5.08(c) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, BT would not enter into
this Agreement; accordingly, if CT fails promptly to pay the amount due
pursuant to this Section 5.08(c), and, in order to obtain such payment, BT
commences a suit which results in a judgment against CT for the fee set forth
in this Section 5.08(c), CT shall pay to BT its costs and expenses (including
attorneys' fees and expenses) in connection with such suit, together with
interest on the amount of the fee at the prime rate of Citibank N.A. in effect
on the date such payment was required to be made.
SECTION 5.09. Public Announcements. CT, on the one hand, and BT, on the
other hand, will consult with each other before issuing, and provide each
other the opportunity to review, comment upon and concur with, any press
release or other public statements, and shall not issue any such press release
or make any such public statement prior to such consultation, except as either
party may determine is required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange or quotation system. The parties agree that the initial press release
to be issued with respect to the transactions contemplated by this Agreement
shall be in the form heretofore agreed to by the parties.
SECTION 5.10. Affiliates. As soon as practicable after the date hereof, BT
shall deliver to CT a letter identifying all persons who are, at the time this
Agreement is submitted for adoption by the stockholders of BT, "affiliates" of
BT for purposes of Rule 145 under the Securities Act or for purposes of
qualifying the Merger for pooling of interests accounting treatment under
Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations. BT shall use best efforts to cause each such person to deliver to
CT as of the Closing Date, a written agreement substantially in the form
attached as Exhibit C. CT shall use best efforts to cause all persons who are
"affiliates" of CT for purposes of qualifying the Merger for pooling of
interests accounting treatment under Opinion 16 of the Accounting Principles
Board and applicable SEC rules and regulations to comply with the fourth
paragraph of Exhibit C.
SECTION 5.11. Stock Exchange Listing. CT shall use best efforts to cause the
shares of CT Common Stock to be issued in the Merger to be approved for
trading on Nasdaq, subject to official notice of issuance, as promptly as
practicable after the date hereof, and in any event prior to the Closing Date.
SECTION 5.12. Stockholder Litigation. Each of BT and CT shall give the other
the reasonable opportunity to participate in the defense of any stockholder
litigation against BT or CT, as applicable, and its directors relating to the
transactions contemplated by this Agreement.
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SECTION 5.13. Tax Treatment. Each of CT and BT shall use best efforts to
cause the Merger to qualify as a reorganization under the provisions of
Section 368 of the Code and to obtain the opinions of counsel referred to in
Sections 6.02(c) and 6.03(c).
SECTION 5.14. Pooling of Interests. Each of BT and CT shall use best efforts
to cause the transactions contemplated by this Agreement, including the
Merger, to be accounted for as a pooling of interests under Opinion 16 of the
Accounting Principles Board and applicable SEC rules and regulations, and such
accounting treatment to be accepted by each of BT's and CT's independent
certified public accountants, and by the SEC, respectively, and each of BT and
CT agrees that it shall voluntarily take no action that would cause such
accounting treatment not to be obtained.
SECTION 5.15. BT Rights Agreement. The Board of Directors of BT shall take
all further action (in addition to that referred to in Section 3.01(t))
reasonably requested in writing by CT in order to render the BT Rights
inapplicable to the Merger and the other transactions contemplated by this
Agreement to the extent provided herein and in the BT Rights Plan Amendment.
Except as provided above with respect to the Merger and the other transactions
contemplated by this Agreement, during the term of this Agreement the Board of
Directors of BT shall not, without the consent of CT (a) amend the BT Rights
Agreement or (b) take any action with respect to, or make any determination
under, the BT Rights Agreement, including a redemption of the BT Rights or any
action to facilitate a BT Takeover Proposal.
SECTION 5.16. Standstill Agreements; Confidentiality Agreements. During the
period from the date of this Agreement through the Effective Time, neither BT
nor CT shall terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it or any of its respective
subsidiaries is a party other than confidentiality agreements entered into in
the ordinary course of business in connection with customer, licensing or
other technology transfer arrangements. During such period, BT or CT, as the
case may be, shall enforce, to the fullest extent permitted under applicable
law, the provisions of any such agreement, including by obtaining injunctions
to prevent any breaches of such agreements and to enforce specifically the
terms and provisions thereof in any court of the United States of America or
of any state having jurisdiction.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01. Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger is
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Stockholder Approvals. Each of the BT Stockholder Approval and the CT
Shareholder Approval shall have been obtained.
(b) HSR Act. The waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have
expired.
(c) No Injunctions or Restraints. No judgment, order, decree, statute,
law, ordinance, rule or regulation, entered, enacted, promulgated, enforced
or issued by any court or other Governmental Entity of competent
jurisdiction or other legal restraint or prohibition (collectively,
"Restraints") shall be in effect (i) preventing the consummation of the
Merger, (ii) prohibiting or limiting the ownership or operation by BT or CT
and their respective subsidiaries of any material portion of the businesses
or assets of BT or CT and their respective subsidiaries taken as a whole,
or compelling BT or CT and their respective subsidiaries to dispose of or
hold separate any material portion of the businesses or assets of BT or CT
and their respective subsidiaries taken as a whole, as a result of the
Merger or any of the other transactions contemplated by this Agreement or
(iii) which otherwise is reasonably likely to have a material adverse
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effect on BT or CT, as applicable; provided, however, that each of the
parties shall have used its best efforts to prevent the entry of any such
Restraints and to appeal as promptly as possible any such Restraints that
may be entered.
(d) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
(e) Nasdaq Listing. The shares of CT Common Stock issuable to BT's
stockholders pursuant to this Agreement shall have been approved for
trading on Nasdaq, subject to official notice of issuance.
(f) Pooling Letters. CT and BT shall have received letters from each of
Deloitte & Touche LLP and Coopers & Lybrand L.L.P., dated as of the Closing
Date, in each case addressed to CT and BT, stating in substance that they
know of no reason why the Merger will not qualify as a pooling of interests
transaction under Opinion 16 of the Accounting Principles Board and
applicable SEC rules and regulations.
SECTION 6.02. Conditions to Obligations of CT. The obligation of CT to
effect the Merger is further subject to satisfaction or waiver of the
following conditions:
(a) Representations and Warranties. The representations and warranties of
BT set forth in this Agreement that are qualified as to materiality shall
be true and correct, and the representations and warranties of BT set forth
in this Agreement that are not so qualified shall be true and correct in
all material respects, in each case as of the date of this Agreement and as
of the Closing Date as though made on and as of the Closing Date, except to
the extent such representations and warranties expressly relate to an
earlier date (in which case as of such date).
(b) Performance of Obligations of BT. BT shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date.
(c) Tax Opinions. CT shall have received from Cravath, Swaine & Moore,
counsel to CT, on the Closing Date, an opinion dated as of such date and
stating that the Merger will be treated for Federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code and that
CT and BT will each be a party to that reorganization within the meaning of
Section 368(b) of the Code. In rendering such opinion, counsel for CT shall
be entitled to rely upon representations of officers of CT and BT and
stockholders of BT substantially in the form of Exhibits D, E and F.
(d) No Material Adverse Change. At any time after the date of this
Agreement, there shall not have occurred any material adverse change
relating to BT.
SECTION 6.03. Conditions to Obligations of BT. The obligation of BT to
effect the Merger is further subject to satisfaction or waiver of the
following conditions:
(a) Representations and Warranties. The representations and warranties of
CT set forth in this Agreement that are qualified as to materiality shall
be true and correct, and the representations and warranties of CT set forth
in this Agreement that are not so qualified shall be true and correct in
all material respects, in each case as of the date of this Agreement and as
of the Closing Date as though made on and as of the Closing Date, except to
the extent such representations and warranties expressly relate to an
earlier date (in which case as of such date).
(b) Performance of Obligations of CT. CT shall have performed in all
material respects all obligations required to be performed by them under
this Agreement at or prior to the Closing Date.
(c) Tax Opinions. BT shall have received from Hale and Dorr LLP, counsel
to BT, on the Closing Date, an opinion dated as of such date and stating
that the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and that CT
and BT will each be a party to that reorganization within the meaning of
Section 368(b) of the Code. In rendering such opinion, counsel for BT shall
be entitled to rely upon representations of officers of CT and BT and
stockholders of BT substantially in the form of Exhibits D, E and F.
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(d) No Material Adverse Change. At any time after the date of this
Agreement, there shall not have occurred any material adverse change
relating to CT.
SECTION 6.04. Frustration of Closing Conditions. Neither CT nor BT may rely
on the failure of any condition set forth in Section 6.01, 6.02 or 6.03, as
the case may be, to be satisfied if such failure was caused by such party's
failure to use best efforts to consummate the Merger and the other
transactions contemplated by this Agreement, as required by and subject to
Section 5.05.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time (by written notice by the terminating party to the
other party), whether before or after the BT Stockholder Approval or the CT
Shareholder Approval have been obtained:
(a) by mutual written consent of CT and BT;
(b) by either CT or BT:
(i) if the Merger shall not have been consummated by February 28,
1998; provided, however, that the right to terminate this Agreement
pursuant to this Section 7.01(b)(i) shall not be available to any party
whose failure to perform any of its obligations under this Agreement
results in the failure of the Merger to be consummated by such time;
(ii) if the BT Stockholder Approval shall not have been obtained at a
BT Stockholders Meeting duly convened therefor or at any adjournment or
postponement thereof;
(iii) if the CT Shareholder Approval shall not have been obtained at
a CT Shareholders Meeting duly convened therefor or at any adjournment
or postponement thereof; or
(iv) if any Restraint having any of the effects set forth in Section
6.01(c) shall be in effect and shall have become final and
nonappealable; provided that the party seeking to terminate this
Agreement pursuant to this Section 7.01(b)(iv) shall have used best
efforts to prevent the entry of and to remove such Restraint;
(c) by CT, if BT shall have breached or failed to perform in any material
respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform
(A) would give rise to the failure of a condition set forth in Section
6.02(a) or (b), and (B) is incapable of being cured by BT or is not cured
within 30 days of notice of such breach or failure;
(d) by CT in accordance with Section 4.03(b); provided that, in order for
the termination of this Agreement pursuant to this paragraph (d) to be
deemed effective, CT shall have complied with all provisions contained in
Section 4.03, including the notice provisions therein, and with applicable
requirements, including the payment of the Termination Fee and BT Out-of-
Pocket Expenses, of Section 5.08;
(e) by BT, if CT shall have breached or failed to perform in any material
respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform
(A) would give rise to the failure of a condition set forth in Section
6.03(a) or (b), and (B) is incapable of being cured by CT or is not cured
within 30 days of notice of such breach or failure; or
(f) by BT in accordance with Section 4.02(b); provided that, in order for
the termination of this Agreement pursuant to this paragraph (f) to be
deemed effective, BT shall have complied with all provisions of Section
4.02, including the notice provisions therein, and with applicable
requirements, including the payment of the Termination Fee and CT Out-of-
Pocket Expenses, of Section 5.08.
SECTION 7.02. Effect of Termination. In the event of termination of this
Agreement by either BT or CT as provided in Section 7.01, this Agreement shall
forthwith become void and have no effect, without any liability or obligation
on the part of CT or BT, other than the provisions of Section 3.01(o), Section
3.02(o), the
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last sentence of Section 5.04, Section 5.08, this Section 7.02 and Article
VIII, which provisions will survive such termination, and except to the extent
that such termination results from the willful and material breach by a party
of any of its representations, warranties, covenants or agreements set forth
in this Agreement.
SECTION 7.03. Amendment. This Agreement may be amended by the parties at any
time before or after the BT Stockholder Approval or the CT Shareholder
Approval have been obtained; provided, however, that after any such approval
has been obtained, there shall not be made any amendment that by law requires
further approval by the stockholders of BT or CT without the further approval
of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
SECTION 7.04. Extension; Waiver. At any time prior to the Effective Time, a
party may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this
Agreement or in any document delivered pursuant to this Agreement or (c)
subject to the proviso of Section 7.03, waive compliance by the other party
with any of the agreements or conditions contained in this Agreement. Any
agreement on the part of a party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of such
rights.
SECTION 7.05. Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.01, an amendment of this
Agreement pursuant to Section 7.03 or an extension or waiver pursuant to
Section 7.04 shall, in order to be effective, require, in the case of CT or
BT, action by its Board of Directors or, with respect to any amendment to this
Agreement, the duly authorized committee of its Board of Directors to the
extent permitted by law.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time. This
Section 8.01 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time.
SECTION 8.02. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
(a)if to CT, to
Comverse Technology, Inc.
170 Crossways Park Drive
Woodbury, NY 11797
Telecopy No.: (516) 677-7323
Attention: Mr. Kobi Alexander
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Telecopy No.: (212) 474-3700
Attention: Allen Finkelson; and
I-35
<PAGE>
(b)if to BT, to
Boston Technology, Inc.
100 Quannapowitt Parkway
Wakefield, MA 01880
Telecopy No.: (617) 245-6757
Attention: Mr. Francis E. Girard
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Telecopy No.: (617) 526-5000
Attention: John A. Burgess
SECTION 8.03. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person, where "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of a person, whether through the
ownership of voting securities, by contract, as trustee or executor, or
otherwise;
(b) "material adverse change" or "material adverse effect" means, when
used in connection with BT or CT, any change, effect, event, occurrence or
state of facts that is, or would reasonably be expected to be, materially
adverse to the business, financial condition or results of operations of
such party and its subsidiaries taken as a whole other than any change,
effect, event or occurrence relating to (i) the economy or securities
markets in general, (ii) any outbreak or escalation of hostilities in the
Middle East, (iii) this Agreement or the transactions contemplated hereby
or the announcement thereof (including any impact on employees, vendors or
customers resulting therefrom) or (iv) the telecommunications systems and
equipment industry in general, and not specifically relating to BT or CT or
their respective subsidiaries, and the terms "material" and "materially"
have correlative meanings;
(c) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity;
(d) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests
of which is sufficient to elect at least a majority of its Board of
Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first person; and
(e) "knowledge" of any person which is not an individual means the
knowledge of such person's executive officers after reasonable inquiry.
SECTION 8.04. Interpretation. When a reference is made in this Agreement to
an Article, Section or Exhibit, such reference shall be to an Article or
Section of, or an Exhibit to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include", "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation". The words "hereof", "herein" and "hereunder" and words
of similar import when used in this Agreement shall refer to this Agreement as
a whole and not to any particular provision of this Agreement. All terms
defined in this Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto unless
otherwise defined therein. The definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such terms and to
the masculine as well
I-36
<PAGE>
as to the feminine and neuter genders of such term. Any agreement, instrument
or statute defined or referred to herein or in any agreement or instrument
that is referred to herein means such agreement, instrument or statute as from
time to time amended, modified or supplemented, including (in the case of
agreements or instruments) by waiver or consent and (in the case of statutes)
by succession of comparable successor statutes and references to all
attachments thereto and instruments incorporated therein. References to a
person are also to its permitted successors and assigns.
SECTION 8.05. Counterparts. This Agreement and any amendment or waiver
hereto may be executed in one or more counterparts, all of which shall be
considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties.
SECTION 8.06. Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) and the
Confidentiality Agreement (a) constitute the entire agreement, and supersede
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter of this Agreement and (b) except
for the provisions of Article II, Section 5.06 and Section 5.07, are not
intended to confer upon any person other than the parties any rights or
remedies.
SECTION 8.07. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflict
of laws thereof.
SECTION 8.08. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or
in part, by operation of law or otherwise by either of the parties hereto
without the prior written consent of the other party. Any assignment in
violation of the preceding sentence shall be void. Subject to the preceding
two sentences, this Agreement will be binding upon, inure to the benefit of,
and be enforceable by, the parties and their respective successors and
assigns.
SECTION 8.09. Enforcement. The parties agree that irreparable damage would
occur and that the parties would not have any adequate remedy at law in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal court located in the
State of Delaware or in Delaware state court, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself to the personal
jurisdiction of any Federal court located in the State of Delaware or any
Delaware state court in the event any dispute arises out of this Agreement or
any of the transactions contemplated by this Agreement, (b) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any such court and (c) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a Federal court sitting
in the State of Delaware or a Delaware state court.
SECTION 8.10. WAIVER OF JURY TRIAL. EACH OF BT AND CT HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 8.11. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced,
the parties hereto shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties as closely as possible to the
fullest extent
I-37
<PAGE>
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
IN WITNESS WHEREOF, CT and BT have caused this Agreement to be signed by
their respective officers thereunto duly authorized, all as of the date first
written above.
Comverse Technology, Inc.,
by /s/ Kobi Alexander
-------------------------------
Name:Kobi Alexander
Title:
President, Chief Executive
Officer
and Chairman of the Board of
Directors
Boston Technology, Inc.
by /s/ Francis E. Girard
-------------------------------
Name:Francis E. Girard
Title:
President and Chief
Executive Officer
I-38
<PAGE>
EXHIBIT A
TO THE MERGER AGREEMENT
AMENDMENT NO. 2 TO RIGHTS AGREEMENT
This AMENDMENT NO. 2 TO RIGHTS AGREEMENT (the "Amendment") is entered
into as of the 20th day of August, 1997 between Boston Technology,
Inc., a Delaware corporation (the "Company"), and State Street Bank &
Trust Company, a national banking association (the "Rights Agent").
Capitalized terms not otherwise defined herein shall have the meanings
given them in the Rights Agreement by and between the parties hereto.
RECITALS
WHEREAS, the Board of Directors has determined that it is in the best
interests of the Company to amend the Rights Agreement as set forth herein
prior to and in connection with the execution of that certain Agreement and
Plan of Merger dated as of August 20, 1997, as the same may be amended from
time to time (the "Merger Agreement"), between Comverse Technology, Inc., a
New York corporation ("Comverse"), and the Company (pursuant to which Merger
Agreement, among other things, the Company shall merge with and into Comverse
(the "Merger")).
WHEREAS, the Company has requested that the Rights Agreement be amended in
accordance with Section 26 of the Rights Agreement, as set forth herein, and
the Rights Agent is willing to amend the Rights Agreement as set forth herein.
AGREEMENT
NOW, THEREFORE, the parties, intending to be legally bound, hereby agree as
follows:
1. Section 7(a) of the Rights Agreement is hereby amended to read in its
entirety as follows:
"(a) Subject to Section 7(e) hereof, the registered holder of any Rights
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section
23(a) hereof) in whole or in part at any time after the Distribution Date
upon surrender of the Rights Certificate, with the form of election to
purchase and the certificate on the reverse side thereof duly executed, to
the Rights Agent at the office of the Rights Agent designated for such
purpose, together with payment of the aggregate Purchase Price with respect
to the total number of Units (or other securities, cash or other assets, as
the case may be) as to which such surrendered Rights are then exercisable,
at or prior to the earlier of (i) the Final Expiration Date, (ii) the time
at which the Rights are redeemed as provided in Section 23 hereof, or (iii)
immediately prior to the Effective Time, as defined in the Agreement and
Plan of Merger dated as of August 20, 1997, as the same may be amended from
time to time, between Comverse Technology, Inc., a New York corporation
("Comverse"), and the Company (the "Merger Agreement"), pursuant to which
Merger Agreement, among other things, the Company shall merge with and into
Comverse (the "Merger") (the earlier of (i), (ii) and (iii) being herein
referred to as the "Expiration Date")."
2. Section 34 of the Rights Agreement is hereby added as follows:
"Section 34. Comverse Transaction. Notwithstanding any provision of this
Rights Agreement to the contrary, no Distribution Date, Stock Acquisition
Date or Triggering Event shall be deemed to have occurred, neither Comverse
nor any Affiliate or Associate of Comverse shall be deemed to have become
an
A-1
<PAGE>
Acquiring Person and no holder of Rights shall be entitled to exercise such
Rights under or be entitled to any rights pursuant to Section 7(a), 11(a)
or 13(a) of this Rights Agreement by reason of (x) the approval, execution,
delivery or effectiveness of the Merger Agreement or (y) the consummation
of the transactions contemplated under the Merger Agreement in accordance
with the terms thereof, (including, without limitation, the consummation of
the Merger)."
3. Except as amended hereby, the Rights Agreement shall remain unchanged and
shall remain in full force and effect.
4. This Amendment may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by
their respective duly authorized representatives as of the date first above
written.
BOSTON TECHNOLOGY, INC.
by __________________________________
Name:
Title:
STATE STREET BANK & TRUST COMPANY
by __________________________________
Name:
Title:
A-2
<PAGE>
EXHIBIT B
TO THE MERGER AGREEMENT
FORM OF INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT (the "Agreement") entered into as of the
day of , 1997, by and between Boston Technology, Inc., a Delaware
corporation with a place of business at 100 Quannapowitt Parkway,
Wakefield, MA 01880 (the "Company"), and [insert name] (the
"Indemnitee"), a director or officer of the Company residing at [insert
address].
WHEREAS it is essential to the Company to retain and attract as directors
and officers the most capable persons available;
WHEREAS it is now and has always been the express policy of the Company to
indemnify its directors and officers to the maximum possible extent permitted
by law;
WHEREAS the Company has agreed to be acquired by Comverse Technology, Inc.,
a New York corporation pursuant to the terms of the Agreement and Plan of
Merger between the Company and CT dated as of August 20, 1997 (the "Merger
Agreement");
WHEREAS, under the Merger Agreement, all rights to indemnification and
exculpation from liabilities for acts or omissions occurring at or prior to
the Effective Time (all terms not defined herein shall have the same meaning
as in the Merger Agreement) now existing in favor of the current or former
directors or officers of the Company and its subsidiaries as provided in their
respective certificates of incorporation or by-laws (or comparable
organizational documents) shall survive the Merger and shall continue in full
force and effect in accordance with their terms and, as of the Effective Time,
CT shall assume the obligations of the Company under this Agreement;
WHEREAS the Indemnitee does not regard the protection available under the
Company's Certificate of Incorporation and insurance as necessarily adequate
in the present circumstances, and may not be willing to continue to serve as a
director or officer of the Company without adequate protection; and
WHEREAS the Company desires the Indemnitee to continue to serve as a
director or officer of the Company.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
1. Agreement to Serve. The Indemnitee agrees to continue to serve as a
director or officer of the Company for so long as he or she is duly elected or
appointed or until such time as he or she resigns or is removed in accordance
with the Company's by-laws.
2. Right to Indemnification. The Company shall indemnify, defend and hold
harmless the Indemnitee against all losses, claims, damages, costs, expenses,
liabilities or judgments or amounts that are paid in settlement of (with the
approval of the Company, which approval shall not be unreasonably withheld or
delayed) or in connection with any claim, action, suit, proceeding or
investigation based in whole or in part on or arising in whole or in part out
of the fact that the Indemnitee is or was a director, officer or employee of
the Company or any of its subsidiaries, whether pertaining to any matter
existing or occurring at or prior to the Effective Time and whether asserted
or claimed prior to, or at or after, the Effective Time (the "Indemnified
Liabilities") including, without limitation, all losses, claims, damages,
costs, expenses, liabilities or judgments based in whole or in part on, or,
arising in whole or in part out of, or pertaining to the Merger Agreement or
the transactions contemplated thereby, in each case to the maximum possible
extent a corporation is permitted under Delaware law to indemnify its
directors, officers and employees, as the case may be.
B-1
<PAGE>
3. Advance of Expenses. The Company will pay or reimburse the expenses of
the Indemnitee in advance of the final disposition of any such claim, action,
suit, proceeding or investigation to the maximum possible extent permitted by
law upon receipt of any undertaking contemplated by Section 145(e) of the
Delaware General Corporation Law.
4. Retention of Counsel. In the event any such claim, action, suit,
proceeding or investigation is brought against the Indemnitee (whether arising
before or after the Effective Time), (i) the Indemnitee may retain counsel
satisfactory to him or her and the Company, (ii) the Company shall pay all
reasonable fees and expenses of such counsel for the Indemnitee promptly as
statements therefor are received, and (iii) the Company will use all
reasonable efforts to assist in the vigorous defense of any such matter,
provided that the Company shall not be liable for any settlement of any claim
effected without its written consent, which consent shall not be unreasonably
withheld or delayed. The Indemnitee (and all other directors and officers of
the Company seeking indemnification with respect to the same matter) as a
group may retain only one law firm to represent them with respect to such
matter unless there is, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of the Indemnitee and
one or more other directors and officers of the Company.
5. Notice of Claim. In order to claim indemnification under this Agreement,
the Indemnitee shall, upon learning of any such claim, action, suit,
proceeding or investigation, promptly notify the Company (but the failure so
to notify the Company shall not relieve it from any liability which it may
have under this Agreement except to the extent such failure prejudices the
Company), and shall deliver to the Company the undertaking contemplated by
Section 145(e) of the Delaware General Corporation Law.
6. Remedies. The right to indemnification or advancement of expenses as
provided by this Agreement shall be enforceable by the Indemnitee in any court
of competent jurisdiction if the Company denies such request, in whole or in
part, or if no disposition thereof is made. Unless otherwise required by law,
the burden of proving that indemnification is not appropriate shall be on the
Company. The Indemnitee's expenses reasonably incurred in connection with
successfully establishing his or her right to indemnification, in whole or in
part, shall also be indemnified by the Company.
7. Indemnification Hereunder Not Exclusive. The indemnification and
advancement of expenses provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may be entitled under the
Certification of Incorporation or by-laws of the Company, the Delaware General
Corporation Law, any other law (common or statutory), or otherwise, both as to
action in his or her official capacity and as to action in another capacity
while holding office for the Company.
8. No Special Rights. Nothing herein shall confer upon Indemnitee any right
to continue to serve as an officer or director of the Company for any
particular period of time or at any particular rate of compensation.
9. Savings Clause. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify Indemnitee as to expenses, judgments,
fines, penalties and amounts paid in settlement to the maximum possible extent
permitted by any applicable portion of this Agreement that shall not have been
invalidated and to the maximum possible extent permitted by applicable law.
10. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
11. Successors and Assigns. This Agreement shall be binding upon the Company
and its successors and assigns and shall inure to the benefit of the estate,
heirs, executors, administrators and personal representatives of the
Indemnitee.
12. Headings. The headings of the paragraphs of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
B-2
<PAGE>
13. Modification and Waiver. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof nor shall
any such waiver constitute a continuing waiver.
14. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been given (i) when
delivered by hand or (ii) if mailed by certified or registered mail with
postage prepaid, on the third day after the date on which it is so mailed, to
the addresses set forth above or to such other address as may have been
furnished to the Indemnitee by the Company or to the Company by Indemnitee, as
the case may be.
15. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year set forth above.
BOSTON TECHNOLOGY, INC.,
by __________________________________
Name:
Title:
[INDEMNITEE],
by __________________________________
Name:
Title:
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<PAGE>
EXHIBIT C
TO THE MERGER AGREEMENT
FORM OF AFFILIATE LETTER
Dear Sirs:
The undersigned, a holder of shares of common stock, $.001 par value ("BT
Common Stock"), of Boston Technology, Inc., a Delaware corporation ("BT"), is
entitled to receive, in connection with the merger (the "Merger") of BT with
and into Comverse Technology, Inc., a New York corporation ("CT"), common
stock, par value $.10 per share ("CT Common Stock"), of CT. The undersigned
acknowledges that the undersigned may be deemed an "affiliate" of BT within
the meaning of Rule 145 ("Rule 145") promulgated under the Securities Act of
1933, as amended (the "Securities Act"), by the Securities and Exchange
Commission (the "SEC") and may be deemed an "affiliate" of BT for purposes of
qualifying the Merger for pooling of interests accounting treatment under
Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations, although nothing contained herein should be construed as an
admission of either such fact.
If in fact the undersigned were an affiliate under the Securities Act, the
undersigned's ability to sell, assign or transfer the CT Common Stock received
by the undersigned in exchange for any shares of BT Common Stock in connection
with the Merger may be restricted unless such transaction is registered under
the Securities Act or an exemption from such registration is available. The
undersigned understands that such exemptions are limited and the undersigned
has obtained or will obtain advice of counsel as to the nature and conditions
of such exemptions, including information with respect to the applicability to
the sale of such securities of Rules 144 and 145(d) promulgated under the
Securities Act. The undersigned understands that CT will not be required to
maintain the effectiveness of any registration statement under the Securities
Act for the purposes of resale of CT Common Stock by the undersigned.
The undersigned hereby represents to and covenants with CT that the
undersigned will not sell, assign or transfer any of the CT Common Stock
received by the undersigned in exchange for shares of BT Common Stock in
connection with the Merger except (i) pursuant to an effective registration
statement under the Securities Act, (ii) in conformity with the volume and
other limitations of Rule 145 or (iii) in a transaction which, in the opinion
of the general counsel of CT or other counsel reasonably satisfactory to CT or
as described in a "no-action" or interpretive letter from the Staff of the SEC
specifically issued with respect to a transaction to be engaged in by the
undersigned, is not required to be registered under the Securities Act;
provided, however, that in any such case, such sale, assignment or transfer
shall only be permitted if, in the opinion of counsel of CT, such transaction
would not have, directly or indirectly, any adverse consequences for CT with
respect to the treatment of the Merger for tax purposes.
The undersigned hereby further represents to and covenants with CT that the
undersigned has not, within the preceding 30 days, sold, transferred or
otherwise disposed of any shares of BT Common Stock held by the undersigned
and that the undersigned will not sell, transfer or otherwise dispose of any
CT Common Stock received by the undersigned in connection with the Merger
until after such time as results covering at least 30 days of post-Merger
combined operations of BT and CT have been published by CT, in the form of a
quarterly earnings report, an effective registration statement filed with the
SEC, a report to the SEC on Form 10-K, 10-Q or 8-K, or any other public filing
or announcement which includes such combined results of operations, except as
would not otherwise reasonably be expected to adversely affect the
qualification of the Merger as a pooling of interests transaction.
In the event of a sale or other disposition by the undersigned of CT Common
Stock pursuant to Rule 145, the undersigned will supply CT with evidence of
compliance with such Rule, in the form of a letter in the form of Annex I
hereto and the opinion of counsel or no-action letter referred to above. The
undersigned understands that CT may instruct its transfer agent to withhold
the transfer of any shares of CT Common Stock disposed of by the undersigned,
but that (provided such transfer is not prohibited by any other provision of
this letter agreement) upon receipt of such evidence of compliance, CT shall
cause the transfer agent to effectuate the transfer of the shares of CT Common
Stock sold as indicated in such letter.
C-1
<PAGE>
CT covenants that it will take all such actions as may be reasonably
available to it to permit the sale or other disposition of CT Common Stock by
the undersigned under Rule 145 in accordance with the terms thereof and shall
issue a press release covering the results of at least 30 days of post-Merger
combined operations as promptly as possible after the expiration of such
period.
The undersigned acknowledges and agrees that the legends set forth below
will be placed on certificates representing CT Common Stock received by the
undersigned in connection with the Merger or held by a transferee thereof,
which legends will be removed by delivery of substitute certificates upon
receipt of an opinion in form and substance reasonably satisfactory to CT from
independent counsel reasonably satisfactory to CT to the effect that such
legends are no longer required for purposes of the Securities Act.
There will be placed on the certificates for CT Common Stock issued to the
undersigned, or any substitutions therefor, a legend stating in substance:
"The shares represented by this certificate were issued pursuant to a
business combination which is being accounted for as a pooling of
interests, in a transaction to which Rule 145 promulgated under the
Securities Act of 1933 applies. The shares have not been acquired by the
holder with a view to, or for resale in connection with, any distribution
thereof within the meaning of the Securities Act of 1933. The shares may
not be sold, pledged or otherwise transferred (i) until such time as CT
shall have published financial results covering at least 30 days of
combined operations after the Effective Time and (ii) except in accordance
with an exemption from the registration requirements of the Securities Act
of 1933."
The undersigned acknowledges that (i) the undersigned has carefully read
this letter and understands the requirements hereof and the limitations
imposed upon the distribution, sale, transfer or other disposition of CT
Common Stock and (ii) the receipt by CT of this letter is an inducement to
CT's obligations to consummate the Merger.
Very truly yours,
Dated:
C-2
<PAGE>
ANNEX I
TO EXHIBIT C
[Name] [Date]
On , the undersigned sold the securities of Comverse Technology,
Inc. ("CT"), described below in the space provided for that purpose (the
"Securities"). The Securities were received by the undersigned in connection
with the merger of Boston Technology, Inc., a Delaware corporation, with and
into CT.
Based upon the most recent report or statement filed by CT with the
Securities and Exchange Commission, the Securities sold by the undersigned
were within the prescribed limitations set forth in paragraph (e) of Rule 144
promulgated under the Securities Act of 1933, as amended (the "Securities
Act").
The undersigned hereby represents that the Securities were sold in "brokers'
transactions" within the meaning of Section 4(4) of the Securities Act or in
transactions directly with a "market maker" as that term is defined in Section
3(a)(38) of the Securities Exchange Act of 1934, as amended. The undersigned
further represents that the undersigned has not solicited or arranged for the
solicitation of orders to buy the Securities, and that the undersigned has not
made any payment in connection with the offer or sale of the Securities to any
person other than to the broker who executed the order in respect of such
sale.
Very truly yours,
[Space to be provided for description of the Securities.]
C-3
<PAGE>
EXHIBIT D
TO THE MERGER AGREEMENT
FORM OF CT TAX OPINION
REPRESENTATION LETTER
, 1997
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
Ladies and Gentlemen:
On behalf of Comverse Technology, Inc. ("CT") and in connection with the
opinions to be delivered by your firms pursuant to Sections 6.02(c) and
6.03(c) of the Agreement and Plan of Merger (the "Merger Agreement") dated as
of August 20, 1997, between CT and Boston Technology, Inc. ("BT"),(/1/) the
undersigned hereby certifies that, to the extent the facts relate to CT to his
knowledge and after due diligence, and to the extent otherwise without
knowledge to the contrary, the following facts are now true and will continue
to be true as of the Effective Time:
1. The consideration received by each BT stockholder pursuant to the
Merger Agreement is the result of arm's-length negotiations between the
parties to the Merger Agreement.
2. CT has no plan or intention to reacquire any of the CT stock issued in
the Merger.
3. CT has no plan or intention to sell or otherwise dispose of any of the
assets of BT acquired by CT in the Merger, except for dispositions made in
the ordinary course of business; provided, however, that notwithstanding
the foregoing CT may transfer assets of BT acquired by CT in the Merger in
a manner that is consistent with Section 368(a)(2)(C) of the Code.
4. There is no intercorporate indebtedness existing between CT and BT
that was issued, acquired, or will be settled at a discount.
5. Neither CT nor any subsidiary of CT owns, or has owned during the past
five years, any shares of BT; provided that for purposes of this
representation shares held by any pension fund that is under independent
management are not treated as being owned by CT or any of its subsidiaries.
6. Following the Merger, CT will continue the historic business of BT or
use a significant portion of the historic business assets of BT in a
business.
7. CT is not an investment company as defined in section
368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code.
8. The payment of cash in lieu of fractional shares of CT stock is solely
for the purpose of avoiding the expense and inconvenience to CT of issuing
fractional shares and does not represent separately bargained for
consideration. The total cash consideration that will be paid in the Merger
to BT stockholders instead of issuing fractional shares of CT stock will
not exceed one percent of the total consideration that will be issued in
the Merger to BT stockholders in exchange for their shares of BT stock. The
fractional share interests of each BT stockholder will be aggregated, and
no BT stockholder will receive cash in an amount equal to or greater than
the value of one full share of CT stock.
- --------
(/1/) For purposes of this certificate, capitalized terms used and not
otherwise defined herein shall have the meaning ascribed thereto in the
Merger Agreement.
D-1
<PAGE>
9. Subject to Section 5.09 of the Merger Agreement, CT, BT and the
shareholders of BT will pay its expenses, if any, incurred in connection
with the Merger.
10. None of the compensation received by any stockholder-employees of BT
will be separate consideration for, or allocable to, any of their shares of
BT stock; none of the shares of CT stock received by any stockholder-
employees will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any stockholder-
employees will be for services actually rendered and will be commensurate
with amounts paid to third parties bargaining at arm's length for similar
services.
11. The facts relating to the Merger of BT with and into CT pursuant to
the Merger Agreement, as described in the Merger Agreement, the documents
described in Section 5.01 of the Merger Agreement and the joint proxy
statement/prospectus prepared by CT and BT, are, insofar as such facts
pertain to CT, true, correct and complete in all material respects.
12. CT will not take any position on any Federal, state or local income
or franchise tax return, or take any other tax reporting position, that is
inconsistent with the treatment of the Merger as a reorganization within
the meaning of Sections 368(a) of the Code, unless otherwise required by a
"determination" (as defined in Section 1313(a)(1) of the Code) or by
applicable state or local income or franchise tax law.
13. The Merger Agreement and the documents described in Sections 5.01 and
8.06 of the Merger Agreement represent the entire understanding of BT and
CT with respect to the Merger.
14. CT is not, and at the Effective Time will not be, under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A).
15. Except with respect to payments of cash to BT shareholders perfecting
dissenters' rights or in lieu of fractional shares of CT stock, one hundred
percent (100%) of the BT stock outstanding immediately prior to the Merger
will be exchanged solely for CT stock. Thus, except as set forth in the
preceding sentence, CT intends that no consideration be paid or received
(directly or indirectly, actually or constructively) for BT stock other
than CT stock.
16. The total fair market value of all consideration other than CT stock
received by BT shareholders in the Merger (including, without limitation,
cash paid to BT shareholders perfecting dissenters' rights or in lieu of
fractional shares of CT stock) will be less than fifty percent (50%) of the
aggregate fair market value of the BT stock outstanding immediately prior
to the Merger.
I have read the drafts of your opinion letters attached to this letter and
understand that Cravath, Swaine & Moore, as counsel for CT, and Hale and Dorr,
as counsel for BT, will rely on this certificate in rendering their respective
opinions concerning certain of the Federal income tax consequences of the
Merger and hereby commit to inform them if, for any reason, any of the
foregoing representations ceases to be true prior to the Effective Time. I
understand that your opinions will not address any tax consequences of the
Merger or any action taken in connection therewith except as expressly set
forth in such opinions.
COMVERSE TECHNOLOGY, INC.,
by
-----------------------------------
Name:
Title:
D-2
<PAGE>
EXHIBIT E
TO THE MERGER AGREEMENT
FORM OF BT TAX OPINION
REPRESENTATION LETTER
, 1997
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
Ladies and Gentlemen:
On behalf of Boston Technology, Inc. ("BT") and in connection with the
opinions to be delivered by your firms pursuant to Sections 6.02(c) and
6.03(c) of the Agreement and Plan of Merger (the "Merger Agreement") dated as
of August 20, 1997, between Comverse Technology, Inc. ("CT") and BT,/1/ For
purposes of this certificate, capitalized terms used and not otherwise defined
herein shall have the meaning ascribed thereto in the Merger Agreement. the
undersigned hereby certifies that, to the extent the facts relate to BT to his
knowledge and after due diligence, and to the extent otherwise without
knowledge to the contrary, the following facts are now true and will continue
to be true as of the Effective Time:
1. The consideration received by each BT stockholder pursuant to the
Merger Agreement is the result of arm's-length negotiations between the
parties to the Merger Agreement.
2. There is no plan or intention by the stockholders of BT who own 5
percent or more of BT stock, and to the best of the knowledge of the
management of BT, there is no plan or intention on the part of the
remaining stockholders of BT to sell, exchange, or otherwise dispose of,
reduce the risk of loss (by short sale or otherwise) of the holding of,
enter into any contract or other arrangement with respect to the sale,
exchange or other disposition of (each of the foregoing, a "disposition"),
any interest in the shares of CT Common Stock received in the Merger in
exchange for such BT stock that would reduce the ownership of CT Common
Stock by former holders of BT stock to a number of shares having a value,
as of immediately prior to the Merger, of less than 50% of the value of all
of the outstanding shares of BT stock as of the Closing Date. For purposes
of this representation, any "disposition" (as defined above) of CT Common
Stock will be treated as a reduction in ownership thereof. In addition, for
purposes of this representation, shares of BT stock exchanged for cash or
other property, surrendered by dissenters or exchanged for cash in lieu of
fractional shares of CT stock will be treated as outstanding BT stock on
the date of the Merger. Moreover, shares of BT stock and shares of CT stock
held by BT stockholders and otherwise sold, redeemed, or disposed of prior
or subsequent to the Merger will be considered in making this
representation. Except as set forth on Annex I to this letter, to the
knowledge of the management of BT there are no stockholders who own 5
percent or more of the BT stock on the date hereof. For purposes of this
representation we have assumed that each person listed on Annex I as a 5%
or greater stockholder of BT has a plan or intention to sell for cash all
the CT stock that it will receive in the Merger unless we have received
from such person a letter substantially in the form of Exhibit D to the
Merger Agreement with respect to such CT Stock.
- --------
/1/ For purposes of this certificate, capitalized terms used and not otherwise
defined herein shall have the meaning ascribed thereto in the Merger
Agreement.
E-1
<PAGE>
3. Following the Merger, CT will continue the historic business of BT or
use a significant portion of the historic business assets of BT in a
business.
4. Subject to Section 5.09 of the Merger Agreement, CT, BT and its
stockholders will pay their respective expenses, if any, incurred in
connection with the Merger.
5. There is no intercorporate indebtedness existing between CT and BT
that was issued, acquired, or will be settled at a discount.
6. BT is not an investment company as defined in section
368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code.
7. On the date of the Merger, the fair market value of the assets of BT
will exceed the sum of its liabilities, plus the amount of liabilities, if
any, to which the assets are subject.
8. BT is not under the jurisdiction of a court in a Title 11 or similar
case within the meaning of section 368(a)(3)(A) of the Internal Revenue
Code.
9. The payment of cash in lieu of fractional shares of CT stock is solely
for the purpose of avoiding the expense and inconvenience to CT of issuing
fractional shares and does not represent separately bargained for
consideration. The total cash consideration that will be paid in the Merger
to BT stockholders instead of issuing fractional shares of CT stock will
not exceed one percent of the total consideration that will be issued in
the Merger to BT stockholders in exchange for their shares of BT stock. The
fractional share interests of each BT stockholder will be aggregated, and
no BT stockholder will receive cash in an amount equal to or greater than
the value of one full share of CT stock.
10. None of the compensation received by any stockholder-employees of BT
will be separate consideration for, or allocable to, any of their shares of
BT stock; none of the shares of CT stock received by any stockholder-
employees will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any stockholder-
employees will be for services actually rendered and will be commensurate
with amounts paid to third parties bargaining at arm's length for similar
services.
11. The facts relating to the Merger of Sub with and into BT pursuant to
the Merger Agreement, as described in the Merger Agreement, the documents
described in Section 5.01 of the Merger Agreement and the joint proxy
statement/prospectus prepared by CT and BT, are, insofar as such facts
pertain to BT, true, correct and complete in all material respects.
12. BT will not take, and BT is not aware of any plan or intention of BT
stockholders to take, any position on any Federal, state or local income or
franchise tax return, or take any other tax reporting position, that is
inconsistent with the treatment of the Merger as a reorganization within
the meaning of Sections 368(a) of the Code, unless otherwise required by a
"determination" (as defined in Section 1313(a)(1) of the Code) or by
applicable state or local income or franchise tax law.
13. The Merger Agreement and the documents described in Sections 5.01 and
8.06 of the Merger Agreement represent the entire understanding of BT and
CT with respect to the Merger.
14. Other than in the ordinary course of business pursuant to its
obligations under the Merger Agreement, BT has made no transfer of any of
its assets (including any distribution of assets with respect to, or in
redemption of, stock) in contemplation of the Merger (or any other
corporate acquisition) or during the period ending at the Effective Time
and beginning with the commencement of negotiations (whether formal or
informal) with CT regarding the Merger (the "Pre-Merger Period").
15. CT has no plan or intention to reacquire any of its stock issued
pursuant to the Merger.
16. During the past five (5) years, and at present, none of the
outstanding shares of BT stock, including the right to acquire or vote any
such shares have, directly or indirectly, been owned by CT or CT's
affiliates.
E-2
<PAGE>
17. Other than shares of BT stock or options to acquire BT stock issued
as compensation to present or former service providers (including, without
limitation, employees and directors) of BT in the ordinary course of
business, if any, no issuances of BT stock or rights to acquire BT stock
have occurred or will occur during the Pre-Merger Period other than
pursuant to options, warrants, or agreements outstanding prior to the Pre-
Merger Period.
18. The total fair market value of all consideration other than CT stock
received by BT shareholders in the Merger (including, without limitation,
cash paid to BT shareholders perfecting dissenters' rights or in lieu of
fractional shares of CT stock) will be less than fifty percent (50%) of the
aggregate fair market value of the BT stock outstanding immediately prior
to the Merger.
I have read the drafts of your opinion letters attached to this letter and
understand that Cravath, Swaine & Moore, as counsel for CT, and Hale and Dorr,
as counsel for BT, will rely on this certificate in rendering their respective
opinions concerning certain of the Federal income tax consequences of the
Merger and hereby commit to inform them if, for any reason, any of the
foregoing representations ceases to be true prior to the Effective Time. I
understand that your opinions will not address any tax consequences of the
Merger or any action taken in connection therewith except as expressly set
forth in such opinions.
BOSTON TECHNOLOGY, INC.,
by __________________________________
Name:
Title:
E-3
<PAGE>
ANNEX I
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY OF
BENEFICIAL OWNER OWNED SHARES CLASS
---------------- ------------ -------
<S> <C> <C>
</TABLE>
E-4
<PAGE>
EXHIBIT F
TO THE MERGER AGREEMENT
FORM OF BT STOCKHOLDER REPRESENTATION LETTER
[LETTERHEAD OF [BT STOCKHOLDER]]
, 1997
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
Ladies and Gentlemen:
In connection with the opinion to be delivered by you pursuant to the
Agreement and Plan of Merger (the "Merger Agreement") dated as of August 20,
1997, between Comverse Technology, Inc., a New York corporation ("CT") and
Boston Technology, Inc., a Delaware corporation ("BT"), the undersigned
certifies (to the best of its knowledge and belief, where indicated), after
due inquiry and investigation, as follows (any capitalized term used but not
defined herein shall have the meaning given to such term in the Merger
Agreement):
1. The undersigned has no present plan or intention to sell, exchange or
otherwise dispose of, reduce the risk of loss (by short sale or otherwise)
of the holding of, enter into any contract or other arrangement with
respect to, the sale, exchange or other disposition of (each of the
foregoing, a "disposition"), any interest in the shares of CT Common Stock
received in the merger contemplated by the Merger Agreement (the "Merger").
For purposes of this representation, any "disposition" (as defined above)
of CT Common Stock will be treated as a reduction in ownership thereof.
2. The undersigned will not take any position on any Federal, state or
local income or franchise tax return, or take any other tax reporting
position, that is inconsistent with the treatment of the Merger as a
reorganization within the meaning of Sections 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), unless otherwise required by
a "determination" (as defined in Section 1313(a)(1) of the Code) or by
applicable state or local income or franchise tax law.
3. The undersigned shall immediately notify the Chief Financial Officer
of BT in writing via facsimile, of any change, on or prior to the Effective
Time, of the plans or intentions of the undersigned as set forth above.
[BT STOCKHOLDER],
By___________________________________
Name:
Title:
F-1
<PAGE>
ANNEX II
[LETTERHEAD OF SALOMON BROTHERS INC]
August 20, 1997
Board of Directors
Comverse Technology, Inc.
170 Crossway Park Drive
Woodbury, New York 11797
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the holders of common stock, $.10 par
value, of Comverse Technology, Inc. (the "Company") (the "Company Common
Stock") of the Exchange Ratio (as defined below) pursuant to the Agreement and
Plan of Merger, dated as of August 20, 1997 (the "Agreement"), between Boston
Technology, Inc. ("BT") and the Company. The Agreement provides for, among
other things, the merger (the "Merger") of BT with and into the Company,
pursuant to which each issued and outstanding share of the common stock, $.001
par value, of BT (together with the associated Rights (as defined in the
Agreement)) (the "BT Common Stock") will be converted, subject to certain
exceptions specified in the Agreement, into the right to receive 0.65 shares
(the "Exchange Ratio") of Company Common Stock.
We have assumed that the Merger will qualify as a tax-free reorganization
under the Internal Revenue Code of 1986, as amended, and be accounted for as a
pooling-of-interests in accordance with generally accepted accounting
principles.
As you are aware, Salomon Brothers Inc has acted as financial advisor to the
Company in connection with the Merger and will receive a fee for our services,
a portion of which is payable upon execution of the Agreement and the
remainder of which is contingent upon consummation of the Merger.
Additionally, the Company has agreed to indemnify us for certain liabilities
arising out of our engagement.
In connection with rendering our opinion, we have reviewed and analyzed,
among other things, the following: (i) the Agreement; (ii) certain publicly
available information concerning BT; (iii) certain other internal information,
primarily financial in nature, concerning the business, operations and
prospects of BT furnished to us by BT for purposes of our analysis; (iv)
certain publicly available information concerning the trading of, and the
trading market for, the BT Common Stock; (v) certain publicly available
information concerning the Company; (vi) certain other internal information,
primarily financial in nature, concerning the business, operations and
prospects of the Company furnished to us by the Company for purposes of our
analysis; (vii) certain publicly available information concerning the trading
of, and the trading market for, the Company Common Stock; (viii) certain
publicly available information with respect to certain other companies that we
believe to be comparable to BT or the Company and the trading markets for
certain of such other companies' securities; and (ix) certain publicly
available information concerning the nature and terms of certain other
transactions that we consider relevant to our inquiry. We have also considered
such other information, financial studies, analyses, investigations and
financial, economic and market criteria that we deemed relevant. We have also
met with certain officers and employees of BT and the Company and with the
independent accountants of BT to discuss the foregoing as well as other
matters we believe relevant to our inquiry.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and
other information provided to us by BT and the Company or publicly available
and have neither attempted independently to verify nor assumed responsibility
for verifying any of such information. We have also assumed and relied upon
the fact that the financial statements of BT and the Company comply with
applicable accounting requirements and the published rules and regulations of
the Securities and
II-1
<PAGE>
Exchange Commission, have been prepared in accordance with United States
generally accepted accounting principles and fairly present the consolidated
financial position of BT and the Company and their respective consolidated
subsidiaries as of the dates thereof. We have not conducted a physical
inspection of any of the properties or facilities of BT or the Company, nor
have we made or obtained or assumed any responsibility for making or obtaining
any independent evaluations or appraisals of any of such properties or
facilities. With respect to the prospects of BT and the Company, we have
assumed that they are consistent with the best currently available estimates
and judgments of the managements of BT and the Company, respectively, and we
express no view with respect to such prospects.
In conducting our analysis and arriving at our opinion as expressed herein,
we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following:
(i) the historical and current financial position and results of operations of
BT and the Company; (ii) the business prospects of BT and the Company; (iii)
the historical and current market for the BT Common Stock, for the Company
Common Stock and for the equity securities of certain other companies that we
believe to be comparable to BT or the Company; and (iv) the nature and terms
of certain other transactions that we believe to be relevant. We have also
taken into account our assessment of general economic, market and financial
conditions and our knowledge of BT's and the Company's industry as well as our
experience in connection with similar transactions and securities valuation
generally. Our opinion necessarily is based upon conditions as they exist and
can be evaluated on the date hereof and we assume no responsibility to update
or revise our opinion based upon circumstances or events occurring after the
date hereof. Our opinion is, in any event, limited to the fairness, from a
financial point of view, of the Exchange Ratio and does not address the
Company's underlying business decision to effect the Merger or constitute a
recommendation to any holder of Company Common Stock as to how such holder
should vote with respect to the Merger.
Based upon and subject to the foregoing, as investment bankers we are of the
opinion that, as of the date hereof, the Exchange Ratio is fair, from a
financial point of view, to the holders of the Company Common Stock.
Very truly yours,
/s/ Salomon Brothers Inc
_____________________________________
SALOMON BROTHERS INC
II-2
<PAGE>
ANNEX III
[LETTERHEAD OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED]
August 20, 1997
Board of Directors
Boston Technology, Inc.
100 Quannapowitt Parkway
Boston, MA 01880
Attention: Members of the Board of Directors
Gentlemen:
Boston Technology, Inc. ("BT") and Comverse Technology, Inc. ("CT") propose
to enter into an agreement and plan of merger (the "Agreement"), pursuant to
which BT will be merged with and into CT in a transaction (the "Merger") in
which each outstanding share of BT's common stock, par value of $0.001 per
share ("BT Common Stock"), will be converted into the right to receive 0.65
(the "Exchange Ratio") of a share of CT common stock, par value of $0.01 per
share ("CT Common Stock"). There are no caps or collars on the Exchange Ratio.
Capitalized terms used herein and not otherwise defined shall have the meaning
ascribed to them in the Agreement.
You have asked us whether, in our opinion, the Exchange Ratio pursuant to
the terms of the Agreement is fair from a financial point of view to the
holders of shares of BT Common Stock.
In arriving at the opinion set forth below, we have among other things:
(1) Reviewed certain publicly available business and financial information
relating to BT and CT that we have deemed to be relevant;
(2) Reviewed Certain information relating to the business, earnings, cash
flow, assets, liabilities and prospects of BT and CT furnished to us
by BT and CT, respectively;
(3) Conducted discussions with members of senior management of BT and CT
concerning the matters described in clauses 1 and 2 above, as well as
their respective businesses before and after giving effect to the
Merger;
(4) Reviewed the market prices and valuation multiples for BT Common Stock
an CT Common Stock and compared them with those of certain publicly
traded companies that we deemed to be relevant;
(5) Reviewed the results of operations of BT and CT and compared them with
those of certain publicly traded companies that we deemed to be
relevant;
(6) Compared the proposed financial terms of the Merger with the financial
terms of certain other transactions that we deemed to be relevant;
(7) Participated in certain discussions and negotiations among
representatives of BT and CT and their financial and legal advisors;
(8) Reviewed the potential pro forma impact of the Merger;
(9) Reviewed drafts, dated August 13, 15 and 19, 1997, of the Agreement;
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
III-1
<PAGE>
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have
not assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of BT or CT. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of BT or CT.
We have relied upon the assessment by the managements of CT and BT of their
ability to retain key employees of both BT and CT. We have also relied upon,
without independent verification, the assessment by the managements of BT and
CT of the strategic and other benefits expected to result from the merger. We
have also relied upon, without independent verification, the assessment by the
managements of both BT and CT of BT's and CT's technologies and products, the
timing and risks associated with the integration of BT and CT, and the
validity of, and risks associated with BT's and CT's existing future products
and technologies. With respect to any estimates furnished to or discussed with
us by BT or CT, we have assumed that they have been reasonably prepared and
reflect the best currently available estimates and judgement of BT's or CT's
management. In addition, we have assumed that the Merger will be accounted for
as a pooling-of-interests under generally accepted accounting principles and
that it will qualify as a tax-free organization for U.S. federal income tax
purposes. We have assumed that the Merger will be consummated on the terms set
forth in the Agreement without waiver or amendment of any of the terms or
conditions thereof.
Our opinion is necessarily based upon market, economic, financial and other
conditions as they exist and can be evaluated as of the date hereof. In
rendering this opinion, we are not expressing any opinion as to the price at
which the shares of BT Common Stock will actually trade at any time.
We are acting as financial advisor to BT in connection with the Merger and
will receive a fee from BT for our services. In addition, BT has agreed to
indemnify us for certain liabilities arising out of our engagement. In the
past, Merrill Lynch has provided financial advisory and financing services to
BT and may continue to do so and has received, and may receive, fees for the
rendering of such services. In addition, in the ordinary course of our
business, we may actively trade the securities of both BT and CT for our own
account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
Our opinion is rendered to, and it is understood that this letter is for the
information of, the board of directors of BT and, except for inclusion of this
letter in its entirety in a prospectus/proxy statement of BT or CT relating to
the issuance of CT Common Stock in the Merger, may not be used or quoted
without our prior written consent. Our opinion does not address the merits of
the underlying decision by BT to engage in the Merger and does not constitute
a recommendation to any shareholder as to how such shareholder should vote on
the proposed Merger.
We are not expressing any opinion herein as to the prices at which the CT
Common Stock will trade following the announcement or consummation of the
Merger.
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Exchange Ratio is fair from a financial point of view
to the holders of BT Common Stock.
Very truly yours,
/s/ Merrill Lynch, Pierce, Fenner &
Smith Incorporated
_____________________________________
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
III-2
<PAGE>
ANNEX IV
COMVERSE TECHNOLOGY, INC.
1997 STOCK INCENTIVE COMPENSATION PLAN
Date Adopted: November 21, 1997
<PAGE>
COMVERSE TECHNOLOGY, INC.
1997 STOCK INCENTIVE COMPENSATION PLAN
1. Purpose of the Plan
The purpose of the Plan is to assist the Company, its Subsidiaries and
Affiliates in attracting and retaining valued directors and employees by
offering them a greater stake in the Company's success and a closer identity
with it, and to encourage ownership of the Company's stock by such employees.
2. Definitions
2.1 "Affiliate" means any entity other than the Subsidiaries in which the
Company has a substantial direct or indirect equity interest, as determined by
the Board.
2.2 "Award" means an award of Deferred Stock, Restricted Stock, Options or
SARs under the Plan.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Change in Control" means (i) the Board (or, if approval of the Board is
not required as a matter of law, the shareholders of the Company) shall
approve (a) any consolidation or merger of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which shares of
Common Stock would be converted into cash, securities or other property, other
than a merger of the Company in which the holders of Common Stock immediately
prior to the merger have the same proportionate ownership of common stock of
the surviving corporation immediately after the merger, or (b) any sale,
lease, exchange or other transfer (on one transaction or a series of related
transactions) of all, or substantially all, the assets of the Company or (c)
the adoption of any plan or proposal for the liquidation or dissolution of the
Company; (ii) any person (as such term is defined in Section 13(d) of the 1934
Act), corporation or other entity other than the Company shall make a tender
offer or exchange offer to acquire any Common Stock (or securities convertible
into Common Stock) for cash, securities or any other consideration, provided
that (a) at least a portion of such securities sought pursuant to the offer in
question is acquired and (b) after consummation of such offer, the person,
corporation or other entity in question is the "beneficial owner" (as such
term is defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of
20% or more of the outstanding shares of Common Stock (calculated as provided
in paragraph (d) of such Rule 13d-3 in the case of rights to acquire Common
Stock); (iii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the entire Board ceased for any
reason to constitute a majority thereof unless the election, or the nomination
for election by the Company's stockholders, of each new director was approved
by a vote of at least two-thirds of the directors then still in office who
were directors at the beginning of the period; or (iv) the occurrence of any
other event the Committee determines shall constitute a "Change in Control"
hereunder.
2.5 "Code" means the Internal Revenue Code of 1986, as amended.
2.6 "Common Stock" means the common stock of the Company, par value $.10 per
share, or such other class or kind of shares or other securities resulting
from the application of Section 10.
2.7 "Company" means Comverse Technology, Inc, a New York corporation or any
successor corporation.
2.8 "Committee" means the committee designated by the Board to administer
the Plan under Section 4. The Committee shall have at least three members,
each of whom shall be a member of the Board, a Non-Employee Director and an
Outside Director.
2.9 "Deferred Stock" means an Award made under Section 6 of the Plan to
receive Common Stock at the end of a specified Deferral Period.
2.10 "Deferral Period" means the period during which the receipt of a
Deferred Stock Award under Section 6 of the Plan will be deferred.
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2.11 "Director" means each member of the Board who is not an Employee, who
does not receive compensation from the Company or any Subsidiary in any
capacity other than as a Director and whose membership on the Board is not
attributable to any contract between the Company and such Director or any
other entity with which such Director is affiliated.
2.12 "Employee" means an officer or other key employee of the Company, a
Subsidiary or an Affiliate including a director who is such an employee.
2.13 "Fair Market Value" means, on any given date, the mean between the
highest and lowest prices of actual sales of shares of Common Stock on the
principal national securities exchange on which the Common Stock is listed on
such date or, if Common Stock was not traded on such date, on the last
preceding day on which the Common Stock was traded.
2.14 "Holder" means an individual to whom an Award is made.
2.15 "Hostile Change in Control" means any Change in Control described in
Section 2.4(ii) that is not approved or recommended by the Board.
2.16 "Incentive Stock Option" means an Option intended to meet the
requirements of an incentive stock option as defined in Section 422 of the
Code and designated as an Incentive Stock Option.
2.17 "1934 Act" means the Securities Exchange Act of 1934, as amended.
2.18 "Non-Employee Director" means a person defined in Rule 16b-3(b)(3)
promulgated by the Securities and Exchange Commission under the 1934 Act, or
any successor definition adopted by the Securities and Exchange Commission.
2.19 "Non-Qualified Option" means an Option not intended to be an Incentive
Stock Option, and designated as a Non-Qualified Option.
2.20 "Option" means any stock option granted from time to time under Section
8 of the Plan.
2.21 "Outside Director" means a member of the Board who is an "outside
director" within the meaning of Section 162(m) of the Code and the regulations
promulgated thereunder.
2.22 "Plan" means the Comverse Technology, Inc. 1997 Stock Incentive
Compensation Plan herein set forth, as amended from time to time.
2.23 "Restricted Stock" means Common Stock awarded by the Committee under
Section 7 of the Plan.
2.24 "Restriction Period" means the period during which Restricted Stock
awarded under Section 7 of the Plan is subject to forfeiture.
2.25 "Retirement" means retirement from the active employment of the
Company, a Subsidiary or an Affiliate pursuant to the relevant provisions of
the applicable pension plan of such entity or as otherwise determined by the
Committee.
2.26 "SAR" means a stock appreciation right awarded by the Committee under
Section 9 of the Plan.
2.27 "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company (or any subsequent
parent of the Company) if each of the corporations other than
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the last corporation in the unbroken chain owns stock possession 50% or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
2.28 "Ten Percent Shareholder" means a person who on any given date owns,
either directly or indirectly (taking into account the attribution rules
contained in Section 424(d) of the Code), stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or a
Subsidiary.
3. Eligibility
3.1 Any Employee is eligible to receive an Award.
3.2 Each Director shall receive in each fiscal year of the Company Options
to purchase 6,000 shares of Common Stock having an exercise price per share
equal to the Fair Market Value as of the date two business days after the
publication of the audited year-end financial statements of the Company for
the immediately preceding fiscal year. Such Options shall be forfeited to the
extent of 1,200 shares per meeting in the event that such Director, during the
year of grant, fails to attend, in the aggregate, at least five meetings of
the Board and any committees of the Board of which such Director is a member;
provided, however, that during the continuation of any of the Company's
previously-adopted Stock Option Plans, options granted thereunder to Directors
shall be deemed to be granted under the Plan for the purposes of this Section
3.2.
4. Administration and Implementation of Plan
4.1 The Plan shall be administered by the Committee, which shall have full
power to interpret and administer the Plan and full authority to act in
selecting the Employees to whom Awards will be granted, in determining the
type and amount of Awards to be granted to each such Employee, the terms and
conditions of Awards granted under the Plan and the terms of agreements which
will be entered into with Holders.
4.2 The Committee's powers shall include, but not be limited to, the power
to determine whether, to what extent and under what circumstances an Option
may be exchanged for cash, Common Stock, Restricted Stock, Deferred Stock or
some combination thereof; to determine whether, to what extent and under what
circumstances an Award is made and operates in tandem with other Awards made
hereunder; to determine whether, to what extent and under what circumstances
Common Stock or cash payable with respect to an Award shall be deferred,
either automatically or at the election of the Holder (including the power to
add deemed earnings to any such deferral); and to grant Awards (other than
Incentive Stock Options) that are transferable by the Holder.
4.3 The Committee shall have the power to adopt regulations for carrying out
the Plan and to make changes in such regulations as it shall, from time to
time, deem advisable. Any interpretation by the Committee of the terms and
provisions of the Plan and the administration thereof, and all action taken by
the Committee, shall be final and binding on Holders.
4.4 The Committee may condition the grant of any Award or the lapse of any
Deferral or Restriction Period (or any combination thereof) upon the Holder's
achievement of a Performance Goal that is established by the Committee before
the grant of the Award. For this purpose, a "Performance Goal" shall mean a
goal that must be met by the end of a period specified by the Committee (but
that is substantially uncertain to be met before the grant of the Award) based
upon: (i) the price of Common Stock, (ii) the market share of the Company, its
Subsidiaries or Affiliates (or any business unit thereof), (iii) sales by the
Company, its Subsidiaries or Affiliates (or any business unit thereof), (iv)
earnings per share of Common Stock, (v) return on shareholder equity of the
Company, (vi) costs of the Company, its Subsidiaries or Affiliates (or any
business unit thereof) or (vii) any other performance goal that would satisfy
the applicable requirements of Section 162(m) of the Code. The Committee shall
have discretion to determine the specific targets with respect to each of
these categories of Performance Goals. Before granting an Award or permitting
the lapse of any Deferral or Restriction Period subject to this Section, the
Committee shall certify that an individual has satisfied the applicable
Performance Goal.
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5. Shares of Stock Subject to the Plan
5.1 Subject to adjustment as provided in Section 10, the total number of
shares of Common Stock available for Awards under the Plan shall be 2,500,000
shares.
5.2 The maximum number of shares of Common Stock subject to an Award that
may be awarded to any Employee shall not exceed 1,000,000 during any calendar
year (the "Individual Limit"). Subject to Section 5.3 and Section 10, any
shares of Common Stock subject to an Award that is canceled or repriced by the
Committee shall count against the Individual Limit. Notwithstanding the
foregoing, the Individual Limit may be adjusted to reflect the effect on
shares of Common Stock of any transaction or event described in Section 10.
5.3 Any shares issued by the Company through the assumption or substitution
of outstanding grants from an acquired company shall not (i) reduce the shares
available for Awards under the Plan, or (ii) be counted against the Individual
Limit. Any shares issued hereunder may consist, in whole or in part, of
authorized and unissued shares or treasury shares. If any shares subject to
any Award granted hereunder are forfeited or such Award otherwise terminates
without the issuance of such shares or the payment of other consideration in
lieu of such shares, the shares subject to such Award, to the extent of any
such forfeiture or termination, shall again be available for Awards under the
Plan.
6. Deferred Stock
An Award of Deferred Stock is an agreement by the Company to deliver to the
recipient a specified number of shares of Common Stock at the end of a
specified deferral period or periods. Such an Award shall be subject to the
following terms and conditions.
6.1 Deferred Stock Awards shall be evidenced by Deferred Stock agreements.
Such agreements shall conform to the requirements of the Plan and may contain
such other provisions as the Committee shall deem advisable.
6.2 Upon determination of the number of shares of Deferred Stock to be
awarded to a Holder, the Committee shall direct that the same be credited to
the Holder's account on the books of the Company but that issuance and
delivery of the same shall be deferred until the date or dates provided in
Section 6.5 hereof. Prior to issuance and delivery hereunder the Holder shall
have no rights as a stockholder with respect to any shares of Deferred Stock
credited to the Holder's account.
6.3 Amounts equal to any dividends declared during the Deferral Period with
respect to the number of shares covered by a Deferred Stock Award will be paid
to the Holder currently, or deferred and deemed to be reinvested in additional
Deferred Stock, or otherwise reinvested on such terms as are determined at the
time of the Award by the Committee, in its sole discretion, and specified in
the Deferred Stock agreement.
6.4 The Committee may condition the grant of an Award of Deferred Stock or
the expiration of the Deferral Period upon the Employee's achievement of one
or more Performance Goal(s) specified in the Deferred Stock agreement. If the
Employee fails to achieve the specified Performance Goal(s), either the
Committee shall not grant the Deferred Stock Award to the Employee or the
Holder shall forfeit the Award and no Common Stock shall be transferred to him
pursuant to the Deferred Stock Award. Unless otherwise determined by the
Committee at the time of an Award, dividends paid during the Deferral Period
on Deferred Stock subject to a Performance Goal shall be reinvested in
additional Deferred Stock and the lapse of the Deferral Period for such
Deferred Stock shall be subject to the Performance Goal(s) previously
established by the Committee.
6.5 The Deferred Stock agreement shall specify the duration of the Deferral
Period taking into account termination of employment on account of death,
disability, Retirement or other cause. The Deferral Period may consist of one
or more installments. At the end of the Deferral Period or any installment
thereof the shares of Deferred Stock applicable to such installment credited
to the account of a Holder shall be issued and delivered to the Holder (or,
where appropriate, the Holder's legal representative) in accordance with the
terms of the Deferred Stock agreement. The Committee may, in its sole
discretion, accelerate the delivery of all or any part of a Deferred Stock
Award or waive the deferral limitations for all or any part of a Deferred
Stock Award.
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7. Restricted Stock
An Award of Restricted Stock is a grant by the Company of a specified number
of shares of Common Stock to the Employee, which shares are subject to
forfeiture upon the happening of specified events. Such an Award shall be
subject to the following terms and conditions:
7.1 Restricted Stock shall be evidenced by Restricted Stock agreements. Such
agreements shall conform to the requirements of the Plan and may contain such
other provisions as the Committee shall deem advisable.
7.2 Upon determination of the number of shares of Restricted Stock to be
granted to the Holder, the Committee shall direct that a certificate or
certificates representing the number of shares of Common Stock be issued to
the Holder with the Holder designated as the registered owner. The
certificate(s) representing such shares shall be legended as to sale,
transfer, assignment, pledge or other encumbrances during the Restriction
Period and deposited by the Holder, together with a stock power endorsed in
blank, with the Company, to be held in escrow during the Restriction Period.
7.3 Unless otherwise determined by the Committee at the time of an Award,
during the Restriction Period the Holder shall have the right to receive
dividends from and to vote the shares of Restricted Stock.
7.4 The Committee may condition the grant of an Award of Restricted Stock or
the expiration of the Restriction Period upon the Employee's achievement of
one or more Performance Goal(s) specified in the Restricted Stock Agreement.
If the Employee fails to achieve the specified Performance Goal(s), either the
Committee shall not grant the Restricted Stock to the Employee or the Holder
shall forfeit the Award of Restricted Stock and the Common Stock shall be
forfeited to the Company.
7.5 The Restricted Stock agreement shall specify the duration of the
Restriction Period and the performance, employment or other conditions
(including termination of employment on account of death, disability,
Retirement or other cause) under which the Restricted Stock may be forfeited
to the Company. At the end of the Restriction Period the restrictions imposed
hereunder shall lapse with respect to the number of shares of Restricted Stock
as determined by the Committee, and the legend shall be removed and such
number of shares delivered to the Holder (or, where appropriate, the Holder's
legal representative). The Committee may, in its sole discretion, modify or
accelerate the vesting and delivery of shares of Restricted Stock.
8. Options
Options give an Employee or Director the right to purchase a specified
number of shares of Common Stock, Deferred Stock or Restricted Stock (as
selected by the Committee) from the Company for a specified time period at a
fixed price. Options granted to Employees may be either Incentive Stock
Options or Non-Qualified Stock Options. Option granted to Directors pursuant
to Section 3.2 shall be Non-Qualified Stock Options. The grant of Options
shall be subject to the following terms and conditions:
8.1 Options shall be evidenced by Option agreements. Such agreements shall
conform to the requirements of the Plan, and may contain such other provisions
as the Committee shall deem advisable.
8.2 Subject to Section 3.2, the price per share at which Common Stock may be
purchased upon exercise of an Option shall be determined by the Committee,
but, in the case of grants of Incentive Stock Options, shall be not less than
the Fair Market Value of a share of Common Stock on the date of grant. In the
case of any Incentive Stock Option granted to a Ten Percent Shareholder, the
option price per share shall not be less than 110% of the Fair Market Value of
a share of Common Stock on the date of grant. The option price per share for
Non-Qualified Options may be less than the Fair Market Value of a share of
Common Stock on the date of grant.
8.3 The Option agreements shall specify when an Option may be exercised and
the terms and conditions applicable thereto. The term of an Option shall in no
event be greater than ten years (five years in the case of an Incentive Stock
Option granted to a Ten Percent Shareholder).
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8.4 Each provision of the Plan and each Option agreement relating to an
Incentive Stock Option shall be construed so that each Incentive Stock Option
shall be an incentive stock option as defined in Section 422 of the Code, and
any provisions of the Option agreement thereof that cannot be so construed
shall be disregarded. Incentive Stock Options may not be granted to employees
of Affiliates.
8.5 No Incentive Stock Option shall be transferable otherwise than by will
or the laws of descent and distribution and, during the lifetime of the
Holder, shall be exercisable only by the Holder. Upon the death of a Holder,
the person to whom the rights have passed by will or by the laws of descent
and distribution may exercise an Incentive Stock Option only in accordance
with this Section 8.
8.6 Except as provided in an Option Agreement, the option price of the
shares of Common Stock upon the exercise of an Option shall be paid in full at
the time of the exercise in cash, in Shares of Common Stock valued at Fair
Market Value on the date of exercise or a combination of cash and such shares
of Common Stock. With the consent of the Committee, payment upon the exercise
of a Non-Qualified Option may be made in whole or in part by Restricted Stock
(based on the fair market value of the Restricted Stock on the date the Option
is exercised, as determined by the Committee). In such case the Common Stock
to which the Option relates shall be subject to the same forfeiture
restrictions originally imposed on the Restricted Stock exchanged therefor.
The Committee may provide in the applicable Option agreement for other methods
for exercising options including by delivery of a note by the Holder in the
amount of the exercise price.
8.7 With the Holder's consent, the Committee may amend any outstanding
Option to deliver shares of Deferred Stock or Restricted Stock instead of
Common Stock.
8.8 If a Holder's employment by the Company, a Subsidiary or Affiliate
terminates by reason of death, any Option granted to such Holder may
thereafter be exercised (to the extent such Option was exercisable at the time
of death or on such accelerated basis as the Committee may determine at or
after grant) by, where appropriate, the Holder's transferee or by the Holder's
legal representative, until the earlier of the date specified in the
applicable Option Agreement or one year after the Holder's death.
8.9 If a Holder's employment by the Company, a Subsidiary or Affiliate
terminates by reason of disability (as determined by the Committee) or
Retirement, any unexercised Option granted to the Holder shall become
immediately exercisable and may thereafter be exercised by the Holder (or,
where appropriate, the Holder's transferee or legal representative) until the
earlier of the date specified in the applicable Option Agreement or 90 days
after such termination of employment.
8.10 If a Holder's employment by the Company, Subsidiary or Affiliate
terminates for any reason other than death, disability or Retirement, all
unexercised Options awarded to the Holder shall terminate on the earlier of
the date specified in the applicable Option Agreement or 90 days after such
termination of employment.
8.11 The Committee or the Board may in their discretion extend the period
during which an Option held by an Employee may be exercised to such period,
not to exceed three years following the termination of an Employee's
employment or service with the Company or any of the Subsidiaries, as the
committee or the Board may determine to be appropriate in any particular
instance.
9. Stock Appreciation Rights
SARs are rights to receive a payment in cash, Common Stock, Restricted Stock
or Deferred Stock (as selected by the Committee) equal to the increase in the
Fair Market Value of a specified number of shares of Common Stock from the
date of grant of the SAR to the date of exercise. The grant of SARs shall be
subject to the following terms and conditions:
9.1 SARs shall be evidenced by SAR agreements. Such agreements shall conform
to the requirements of the Plan and may contain such other provisions as the
committee shall deem advisable. A SAR may be granted in tandem with all or a
portion of a related Option under the Plan ("Tandem SAR"), or may be granted
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separately ("Freestanding SAR"). A Tandem SAR may be granted either at the
time of the grant of the Option or at any time thereafter during the term of
the Option and shall be exercisable only to the extent that the related Option
is exercisable. In no event shall any SAR be exercisable within the first six
months of its grant.
9.2 The base price of a Tandem SAR shall be the option price under the
related Option. The base price of a Freestanding SAR shall be not less than
100% of the Fair Market Value of the Common Stock, as determined by the
Committee, on the date of grant of the Freestanding SAR.
9.3 A SAR shall entitle the recipient to receive a payment equal to the
excess of the Fair Market Value of the shares of Common Stock covered by the
SAR on the date of exercise over the base price of the SAR. Such payment may
be in cash, in shares of Common Stock, in shares of Deferred Stock, in shares
of Restricted Stock or any combination, as the Committee shall determine. Upon
exercise of a Tandem SAR as to some or all of the shares of Common Stock
covered by the grant, the related Option shall be canceled automatically to
the extent of the number of shares of Common Stock covered by such exercise,
and such shares shall no longer be available for purchase under the Option
pursuant to Section 8. Conversely, if the related Option is exercised as to
some or all of the shares of Common Stock covered by the Award, the related
Tandem SAR, if any, shall be canceled automatically to the extent of the
number of shares of Common Stock covered by the Option exercise.
9.4 SARs shall be subject to the same terms and conditions applicable to
Options as stated in Sections 8.3, 8.5, 8.7, 8.8, 8.9 and 8.10.
10. Adjustments Upon Changes in Capitalization
In the event of a reorganization, recapitalization, stock split, spin-off,
split-off, split-up, stock dividend, issuance of stock rights, combination of
shares, merger, consolidation or any other change in the corporate structure
of the Company affecting Common Stock, or any distribution to stockholders
other than a cash dividend, the Board shall make appropriate adjustment in the
number and kind of shares authorized by the Plan and any adjustments to
outstanding Awards as it determines appropriate. No fractional shares of
Common Stock shall be issued pursuant to such an adjustment. The Committee may
determine to pay the Fair Market Value of any fractional shares resulting from
adjustments pursuant to this Section in cash to the Holder.
11. Adjustments Upon a Change in Control
Except as otherwise provided in an applicable agreement, upon the occurrence
of a Change in Control (other than a Hostile Change of Control), the Committee
may elect to provide that all outstanding Options and Stock Appreciation
Rights shall immediately vest and become exercisable, each Deferral Period and
Restriction Period shall immediately lapse or all shares of Deferred Stock
subject to outstanding Awards shall be issued and delivered to the Holder. In
the event of a Hostile Change in Control, each of the foregoing actions shall
occur automatically upon the occurrence of such Hostile Change in Control. At
any time before a Change in Control, the Committee may, without the consent of
any Holder of an Option, (i) require the entity effecting the Change in
Control or a parent or subsidiary of such entity to assume each outstanding
Option or substitute an equivalent option therefor or (ii) terminate and
cancel all outstanding Options upon the Change in Control and pay the Holder
of each such Option cash equal to the product of (x) the difference between
the Fair Market Value of Common Stock on the date of the Change in Control and
the exercise price of such Option and (y) the number of shares of Common Stock
subject to such Option. For the purposes of this Section, an Option shall be
considered assumed if, following the merger, the option confers the right to
purchase, for each share of Common Stock subject to the Option immediately
prior to the merger, the consideration (whether stock, cash, or other
securities or property) received in the merger by holders of Common Stock for
each share held on the effective date of the transaction (and if holders were
offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger was not solely common stock of the
successor corporation or its parent, the Committee may, with the consent of
the successor corporation, provide for the consideration to be received upon
the exercise of the Option, for each share of Common Stock subject to the
Option, to be solely common stock of the successor corporation or its parent
equal in fair market value to the per share consideration received by holders
of Common Stock in the merger.
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12. Effective Date, Termination and Amendment
The Plan shall become effective on November 21, 1997, subject to shareholder
approval. The Plan shall remain in full force and effect until the earlier of
10 years from the date of its adoption by the Board, or the date it is
terminated by the Board. The Board shall have the power to amend, suspend or
terminate the Plan at any time, provided that no such amendment shall be made
without stockholder approval which shall:
12.1 Increase (except as provided in Section 10) the total number of shares
available for issuance pursuant to the Plan;
12.2 Change the class of individuals eligible to be Holders;
12.3 Modify the Individual Limit (except as provided Section 10) or the
categories of Performance Goals previously disclosed to shareholders;
12.4 Change the provisions of this Section 12; or
12.5 Make any other change for which shareholder approval is required under
Section 16(b) or any successor provision of the 1934 Act.
Termination of the Plan pursuant to this Section 12 shall not affect Awards
outstanding under the Plan at the time of termination.
13. Transferability
Except as provided below, Awards may not be pledged, assigned or transferred
for any reason during the Holder's lifetime, and any attempt to do so shall be
void and the relevant Award shall be forfeited. The Committee may grant Awards
(except Incentive Stock Options) that are transferable by the Holder during
his lifetime, but such Awards shall be transferable only to the extent
specifically provided in the agreement entered into with the Holder. The
transferee of the Holder shall, in all cases, be subject to the provisions of
the agreement between the Company and the Holder.
14. General Provisions
14.1 Nothing contained in the Plan, or any Award granted pursuant to the
Plan, shall confer upon any Employee any right with respect to continued
employment by the Company, a Subsidiary or Affiliate, nor interfere in any way
with the right of the Company, a Subsidiary or Affiliate to terminate the
employment of any Employee at any time.
14.2 For purposes of this Plan, transfer of employment between the Company
and its Subsidiaries and Affiliates shall not be deemed termination of
employment.
14.3 In connection with the transfer of shares of Common Stock as a result
of the exercise or vesting of an Award or upon any other event that would
subject the Holder to taxation, the Company shall have the right to require
the Holder to pay an amount in cash or to retain or sell without notice, or to
demand surrender of, shares of Common Stock in value sufficient to cover any
tax, including any Federal, state or local income tax, required by any
governmental entity to be withheld or otherwise deducted and paid with respect
to such transfer ("Withholding Tax"), and to make payment (or to reimburse
itself for payment made) to the appropriate taxing authority of an amount in
cash equal to the amount of such Withholding Tax, remitting any balance to the
employee. For purposes of this Section 14.3, the value of shares of Common
Stock so retained or surrendered shall be the Fair Market Value on the date
that the amount of the Withholding Tax is to be determined (the "Tax Date"),
and the value of shares of Common Stock so sold shall be the actual net sale
price per share (after deduction of commissions) received by the Company.
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Notwithstanding the foregoing, the Holder shall be entitled to satisfy the
obligation to pay any Withholding Tax, in whole or in part, by providing the
Company with funds sufficient to enable the Company to pay such Withholding
Tax or by requiring the Company to retain or to accept upon delivery thereof
shares of Common Stock (other than unvested Restricted Stock) sufficient in
value (determined in accordance with the last sentence of the preceding
paragraph) to cover the amount of such Withholding Tax. Each election by a
Holder to have shares retained or to deliver shares for this purpose shall be
subject to the following restrictions: (i) the election must be in writing and
made on or prior to the Tax Date; and (ii) the election shall be subject to
the disapproval of the Committee.
14.4 With respect to Holders subject to Section 16 of the Exchange Act,
transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the
extent any provision of the Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Committee.
14.5 Without amending the Plan, Awards may be granted to Employees who are
foreign nationals or employed outside the United States or both, on such terms
and conditions different from those specified in the Plan as may, in the
judgment of the Committee, be necessary or desirable to further the purpose of
the Plan.
14.6 To the extent that Federal laws (such as the 1934 Act, the Code or the
Employee Retirement Income Security Act of 1974) do not otherwise control, the
Plan and all determinations made and actions taken pursuant hereto shall be
governed by the law of New York and construed accordingly.
14.7 The Committee may amend any outstanding Awards to the extent it deems
appropriate. Such amendment may be made by the Committee without the consent
of the Holder, except in the case of amendments adverse to the Holder, in
which case the Holder's consent is required for any such amendment.
Notwithstanding the foregoing, the Committee may exercise its authority under
Section 11 without the consent of Holders.
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ANNEX V
COMVERSE TECHNOLOGY, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
1. Purposes.
The 1997 Employee Stock Purchase Plan of Comverse Technology, Inc. (the
"Plan") is intended to provide a method whereby employees of Comverse
Technology, Inc. and its subsidiary and predecessor corporations, if any
(hereinafter collectively referred to, unless the context otherwise requires,
the "Company"), will have an opportunity to acquire a proprietary interest in
the Company through the purchase of shares of Common Stock of the Company. It
is the intention of the Company to have the Plan qualify as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code"). The provisions of the Plan shall, accordingly, be
construed so as to extend and limit participation in a manner consistent with
the requirements of Section 423 of the Code.
2. Definitions.
(a) "Base Pay" means regular straight-time earnings (as the same may be
adjusted from time to time) but excluding payments for overtime, shift
differentials, incentive compensation, sales commissions, bonuses and other
special payments.
(b) "Common Stock" means the common stock of the Company, par value $.10 per
share, or such other class or kind of shares or other securities resulting
from the application of Section .
(c) "Employee" means any person who is customarily employed for 20 or more
hours per week and more than five months in a calendar year by the Company or
by a Subsidiary Corporation.
(d) "Offering Commencement Date" means the applicable date on which an
Offering under the Plan commences pursuant to Paragraph 4.
(e) "Offering Termination Date" means the applicable date on which an
Offering under the Plan terminates pursuant to Paragraph 4.
(f) "Subsidiary Corporation" means any present or future corporation which
(i) is a "subsidiary corporation" as that term is defined in Section 424(f) of
the Code and (ii) is designated as a participant in the Plan by the Board of
Directors or Committee described in Paragraph 13.
3. Eligibility.
(a) Any Employee who shall have completed three months of employment and
shall be employed by the Company on the applicable Offering Commencement Date
shall be eligible to participate in the Plan.
(b) Any provision of the Plan to the contrary notwithstanding, no Employee
shall be granted an option to participate in the Plan:
(i) if, immediately after the grant, such Employee would own stock,
and/or hold outstanding options to purchase stock, possessing 5% or more of
the total combined voting power or value of all classes of stock of the
Company or of any Subsidiary Corporation (for purposes of this Paragraph
the rules of Section 424(d) of the Code shall apply in determining stock
ownership of any employee); or
(ii) which permits his or her rights to purchase stock under all employee
stock purchase plans maintained by the Company and its subsidiaries to
accrue at a rate which exceeds $25,000 of the fair market value of the
stock (determined at the time such option is granted) for each calendar
year in which such option is outstanding at any time.
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4. Offering Dates.
The Plan will be implemented by semiannual offerings (referred to herein
collectively as "Offerings" and individually as an "Offering") of a maximum
aggregate of 250,000 shares (subject to adjustment as provided in Paragraph
12(a) and 17) of Common Stock, subject to Paragraph 12, 17 and 22 below, as
follows:
(i) Offering I shall commence on each March 1 and terminate on each
August 31.
(ii) Offering II shall commence on each September 1 and terminate on each
final day of February.
Participation in any one Offering under the Plan shall neither limit, nor
require, participation in any other Offering.
5. Participation.
All Employees will become participants in an Offering on the applicable
Offering Commencement Date. Payroll deductions, if any, for a participant
shall commence on the applicable Offering Commencement Date of the Offering
and shall end on the Offering Termination Date of such Offering, unless sooner
terminated pursuant to Paragraph 10.
6. Payroll Deductions.
(a) Participants may elect to have amounts withheld from their base pay by
completing an authorization for a payroll deduction ("Authorization") on the
form provided by the Company and filing it with the Company's Payroll
department. At the time a participant files his or her Authorization for a
payroll deduction, the participant shall elect to have deductions made from
his or her pay on each payday during the time he or she is a participant in an
Offering at the rate of 0, 1, 2, 3, 4, 5, 6, 7, 8, 9 or 10% of his or her
annualized base pay. If a participant has not filed an Authorization for a
previous Offering or for the applicable Offering at least seven (7) days prior
to the applicable Offering Commencement Date, he or she shall be deemed to
have filed an Authorization electing to withhold 0% of his or her annualized
base pay.
(b) All payroll deductions made for the participant shall be credited to his
or her account maintained by the Company under the Plan. A participant may not
make any separate cash payment into such account.
(c) Except as provided in Paragraph 8(b) or 10, a participant may only make
changes to the rate of deduction from his or her annualized base pay, on not
more than one occasion during an Offering, by completing a new Authorization
on the form provided by the Company and filing it with the Company's Director
of Treasury Operations as provided herein. Such new Authorization shall be
effective upon the commencement of the first pay period subsequent to its
filing. A participant may change his or her Authorization only once during any
Offering.
7. Granting of Option.
(a) For each of the Offerings, a participating Employee shall be deemed to
have been granted an option (the "Option"), on the applicable Offering
Commencement Date, to purchase a maximum number of shares of Common Stock
equal to an amount determined as follows: 85% of the market value of a share
of the Company's Common Stock on the applicable Offering Commencement Date
shall be divided into an amount equal to 6% of the Employee's annualized Base
Pay as of such Offering Commencement Date. For all purposes of the Plan, the
market value of the Company's Common Stock shall be determined as provided in
subparagraph (b) below.
An Employee's "annualized Base Pay" for any Offering shall be determined as
follows: (i) for any Employee who was employed by the Company for an entire
twelve-month period ending on the day prior to the Offering Commencement Date,
the Employee's total Base Pay for such twelve-month period; (ii) for any
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Employee not employed for the entire twelve-month period, the sum of the Base
Pay earned in each of the full calendar months prior to the Offering
Commencement Date during which the Employee was employed by the Company,
divided by the number of full calendar months for which the Employee was
employed, multiplied by twelve.
(b) The purchase price of a share of Common Stock purchased with payroll
deductions made during each Offering (the "Option Exercise Price") shall be
the lower of:
(i) 85% of the last sale price of the Common Stock on the Nasdaq Stock
Market (or on such other national securities exchange on which the Common
Stock is then traded) as reported in The Wall Street Journal, on the
applicable Offering Commencement Date (or on the next regular business date
on which shares of Common Stock shall be traded if no shares of Common
Stock shall have been traded on such Offering Commencement Date); or
(ii) 85% of the last sale price of Common Stock on the Nasdaq Stock
Market (or on such other national securities exchange on which the Common
Stock is then traded) as reported in The Wall Street Journal, on the
applicable Offering Termination Date (or on the next regular business date
on which shares of Common Stock shall be traded if no shares of Common
Stock shall have been traded on such Offering Termination Date).
8. Exercise of Options.
With respect to each Offering during the term of the Plan:
(a) Unless a participant gives written notice of withdrawal to the Company
as provided in Paragraphs 8(b) and 10, his or her Option will be deemed to
have been exercised automatically on the Offering Termination Date applicable
to such Offering, for the purchase of the number of full shares of Common
Stock which the accumulated payroll deductions (without interest) in his or
her account maintained by the Company under the Plan at that time will
purchase at the applicable Option Exercise Price (but not in excess of the
number of shares for which Options have been granted to the Employee pursuant
to Paragraph 7(a)), and any excess in his or her account at that time will be
returned to him or her, with interest as determined by the Committee prior to
each Offering Commencement Date, based on the assumption that such excess
comprises funds most recently deducted from the participant's pay; provided
that any excess returned on account of fractional shares will not be credited
with any interest.
(b) By written notice to the Director of Treasury Operations of the Company
at any time prior to the Offering Termination Date applicable to any such
Offering, a participant may elect to withdraw all, but not less than all, of
the accumulated payroll deductions in his or her account at such time, with
interest as determined by the Committee prior to each Offering Commencement
Date.
(c) Fractional shares will not be issued under the Plan and any accumulated
payroll deductions which would have been used to purchase fractional shares
shall be returned to an employee without interest promptly following the
termination of an Offering.
9. Delivery.
As promptly as practicable after the Offering Termination Date of each
Offering, the Company will deliver to each participant, as appropriate, the
certificate or certificates representing the shares of Common Stock purchased
upon the exercise of such participant's Option.
10. Withdrawal.
(a) As indicated in Paragraph 8(b), a participant may withdraw payroll
deductions credited to his or her account with the Company under any Offering
at any time prior to the applicable Offering Termination Date by giving
written notice of withdrawal to the Director of Treasury Operations. All of
the participant's payroll
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deductions credited to his or her account will be paid to the participant
promptly after receipt of such notice of withdrawal and no further payroll
deductions will be made from his or her pay during such Offering. The Company
may, at its option, treat any attempt by an employee to borrow on the security
of accumulated payroll deductions as an election, under Paragraph 8(b), to
withdraw such deductions.
(b) A participant's withdrawal from any Offering will not have any effect
upon his or her eligibility to participate in any succeeding Offering or in
any similar Plan which may hereafter be adopted by the Company.
(c) Upon termination of the participant's employment for any reason,
including retirement but excluding death or disability, while in the employ of
the Company, the payroll deductions credited to his or her account will be
returned to the participant, with interest as determined by the Committee
prior to each Offering Commencement Date, or, in the case of his or her death
subsequent to the termination of employment, to the person or persons entitled
thereto under Paragraph 14.
(d) Upon termination of the participant's employment because of disability
or death, the participant or his or her beneficiary (as defined in Paragraph
14) shall have the right to elect, by written notice given to the Company's
Director of Treasury Operations prior to the expiration of the period of 30
days commencing with the date of the disability or death of the participant,
either
(i) to withdraw all of the payroll deductions credited to the
participant's account under the Plan; or
(ii) to exercise the participant's Option on the Offering Termination
Date next following the date of the participant's disability or death for
the purchase of the number of full shares of Common Stock which the
accumulated payroll deductions in the participant's account at the date of
the participant's disability or death will purchase at the applicable
Option Exercise Price, and any excess in such account will be returned to
the participant or said beneficiary.
If no such written notice of election is received by the Director of
Treasury Operations, the participant or beneficiary shall automatically be
deemed to have elected to withdraw the payroll deductions credited to the
participant's account at the date of the participant's disability or death and
the same will be paid promptly to the participant or said beneficiary with
interest as determined by the Committee prior to each Offering Commencement
Date.
11. Interest.
No interest will be paid or allowed on any money paid into the Plan or
credited to the account of any participant employee except under withdrawal as
provided under Paragraphs 8(b) and 10 or upon the return of payroll deductions
as provided under Paragraphs 8(a) and 12(a). In the event of the return of
excess payroll deductions under Paragraphs 8(a) and 12(a), interest thereon,
if any, shall be computed assuming that such excess comprises funds most
recently deducted from the participant's pay.
12. Stock.
(a) The maximum number of shares of Common Stock which shall be made
available for sale under the Plan shall be 250,000 shares, subject to
adjustment upon changes in capitalization of the Company as provided in
Paragraph 17. If the total number of shares for which Options are exercised in
accordance with Paragraph 8 exceeds 250,000, the Company shall make a pro rata
allocation of the shares available for delivery and distribution in as nearly
a uniform manner as shall be practicable and as it shall determine to be
equitable, and the balance of payroll deductions credited to the account of
each participant under the Plan shall be returned to him or her as promptly as
possible, with interest on such balance at the rate determined by the
Committee prior to each Offering Commencement Date, based on the assumption
that such excess comprises funds most recently deducted from the participant's
pay.
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(b) The participant will have no interest in Common Stock covered by his or
her Option until such Option has been exercised.
(c) Common Stock to be delivered to a participant under the Plan will be
issued in the name of the participant, or, if the participant so directs, by
written notice to the Company prior to the Offering Termination Date
applicable thereto, in the names of the participant and one such other person
may be designated by the participant, as joint tenants with rights of
survivorship, to the extent permitted by applicable law.
13. Administration.
The Plan shall be administered by the committee appointed by the Board of
Directors of the Company to administer the Plan (the committee so designated
by the Board of Directors shall hereinafter be referred to as the
"Committee"). The officer of the Company charged with day-to-day
administration of the Plan shall, for matters involving the Plan, be an ex-
officio member of the Committee. The interpretation and construction of any
provision of the Plan and the adoption of rules and regulations for
administering the Plan shall be made by the Committee, subject, however, at
all times to the final approval of the Board of Directors of the Company. Such
rules may include, without limitation, restrictions on the frequency of
changes in withholding rates. Determinations made by the Committee and
approved by the Board of Directors of the Company with respect to any matter
or provision contained in the Plan shall be final, conclusive and binding upon
the Company and upon all participants, their heirs or legal representatives.
Any rule or regulation adopted by the Committee shall remain in full force and
effect unless and until altered, amended or repealed by the Committee or the
Board of Directors of the Company.
14. Designation of Beneficiary.
A participant may file a written designation of a beneficiary who is to
receive any shares of Common Stock and/or cash in the event of the death of
the participant prior to the delivery of such shares or cash to the
participant. Such designation of beneficiary may be changed by the participant
at any time by written notice to the Company's payroll department. Within 30
days after the participant's death, the beneficiary may, as provided in
Paragraph 10(d), elect to exercise the participant's Option when it becomes
exercisable on the Offering Termination Date of the then current Offering.
Upon the death of a participant and upon receipt by the Company of proof of
identity and existence at the participant's death, (of a beneficiary validly
designated by the participant under the Plan) and upon and notice of election
of the validly designated beneficiary to exercise the participant's Option,
the Company shall deliver such stock and/or cash to such beneficiary. In the
event of the death of a participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such stock and/or cash to the
executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company)
the Company, in its discretion, may deliver such stock and/or cash to the
spouse or to any one or more dependents of the participant as the Company may
determine. No beneficiary shall prior to the death of the participant by whom
he or she has been designated acquire any interest in the stock or cash
credited to the participant's account maintained by the Company under the
Plan.
15. Transferability.
Neither payroll deductions credited to a participant's account nor any
rights with regard to the exercise of an Option or to receive stock under the
Plan may be assigned, transferred, pledged or otherwise disposed of in any way
by the participant otherwise than by will or the laws of descent and
distribution. Any such attempted assignment, transfer, pledge or other
disposition shall be without effect, except that the Company may treat such
act as an election to withdraw funds in accordance with Paragraph 8(b).
16. Use of Funds.
All payroll deductions received or held by the Company under this Plan may
be used by the Company for any corporate purpose and the Company shall not be
obligated to segregate such payroll deductions.
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17. Effects of Changes of Common Stock.
In the event of any changes of outstanding shares of the Common Stock by
reason of stock dividends, subdivisions, combinations and exchanges of shares,
recapitalizations, mergers in which the Company is the surviving corporation,
consolidations, and the like, the aggregate number of and class of shares
available under the Plan and Option Exercise Price per share shall be
appropriately adjusted by the Board of Directors of the Company, whose
determination shall be conclusive. Any such adjustments may provide for the
elimination of any fractional shares which would otherwise become subject to
any Options.
18. Amendment or Termination.
(a) The Board of Directors of the Company may at any time, and from time to
time, modify, terminate or amend the Plan in any respect, except that if at
any time the approval of the stockholders of the Company is required as to
such modification or amendment under (i) Section 423 of the Code, or (ii)
under Rule 16b-3 of the Securities Exchange Act of 1934, as amended, or any
successor provisions ("Rule 16b-3"), or (iii) under any applicable listing
requirements, the Board of Directors may not effect such modification or
amendment without such approval.
(b) The termination or any modification or amendment of the Plan shall not,
without the consent of a participant, affect his or her rights under an Option
previously granted to him or her. With the consent of the participant
affected, the Board of Directors may amend outstanding Options in a manner not
inconsistent with the Plan. The Board of Directors shall have the right to
amend or modify the terms and provisions of the Plan and of any Options
previously granted under the Plan to the extent necessary to ensure the
continued qualification of the Plan under Section 423 of the Code and Rule
16b-3.
19. Notices.
All notices or other communications by a participant to the Company under or
in connection with the Plan shall be deemed to have been duly given when
received by the Company's Director of Treasury Operations.
20. Merger or Consolidation.
If the Company shall at any time merge into or consolidate with another
corporation and the Company is the surviving entity, the holder of each Option
then outstanding will thereafter be entitled to receive at the next Offering
Termination Date upon the automatic exercise of such Option under Paragraph
8(a) (unless previously withdrawn pursuant to Paragraph 10) for each share as
to which such Option shall be exercised the securities or property which a
holder of one share of the Common Stock was entitled to upon and at the time
of such merger or consolidation, and the Board of Directors of the Company
shall take such steps in connection with such merger or consolidation as the
Board of Directors shall deem necessary to assure that the provisions of
Paragraph 17 shall thereafter be applicable, as nearly as reasonably
practicable, to such securities or property. In the event of a merger or
consolidation in which the Company is not the surviving entity, or of a sale
of all or substantially all of the assets of the Company, the Plan shall
terminate, and all payroll deductions credited to participants' accounts shall
be returned to them, with interest as determined by the Committee prior to
each Offering Commencement Date; provided, however, that the Board of
Directors may, in the event of such merger, consolidation or sale, accelerate
the Offering Termination Date of the Offering then in effect and permit
participants to purchase shares under the Plan at such accelerated Offering
Termination Date.
21. Approval of Stockholders.
The Plan has been adopted by the Board of Directors of the Company, but all
grants of Options shall be conditional upon the ratification and approval of
the Plan by the stockholders of the Company within twelve months after the
adoption of the Plan by the Board of Directors.
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22. Registration and Qualification of the Plan Under Applicable Securities
Laws.
Notwithstanding anything to the contrary herein, no Option shall be granted
under the Plan until such time as the Company has qualified or registered the
shares which are subject to the Options under all applicable state and federal
securities laws to the extent required by such laws. In the event the shares
shall not have been so qualified and registered prior to the date an Offering
is scheduled to commence, the Offering Commencement Date shall be the date
upon which the registration of the shares and other qualification shall have
become effective.
Adopted by the Board of Directors on November 21, 1997
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