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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
SHARED TECHNOLOGIES FAIRCHILD INC.
- --------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- --------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.004 per share, of Shared Technologies
Fairchild Inc.
("STF Common Stock")
Series D Preferred Stock of Shared Technologies Fairchild Inc. ("STF")
Series I 6% Cumulative Convertible Preferred Stock of STF
Warrants of STF to purchase STF Common Stock
Employee and director stock options of STF to purchase STF Common Stock
(2) Aggregate number of securities to which transaction applies:
21,170,469 shares of STF Common Stock (assuming exercise or conversion
of the outstanding STF preferred stock, options and warrants).
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set for the amount on which the
filing fee is calculated and state how it was determined): $15.00 per
share in cash.
(4) Proposed maximum aggregate value of transaction: $317,557,035.
(5) Total fee paid: $63,511.40.
/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.
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SHARED TECHNOLOGIES FAIRCHILD INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD TUESDAY, FEBRUARY 10, 1998
To the Stockholders of
SHARED TECHNOLOGIES FAIRCHILD INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders (the
"Special Meeting") of Shared Technologies Fairchild Inc., a Delaware corporation
(the "Company"), will be held at 100 Great Meadow Road, Suite 104, Wethersfield,
Connecticut 06109, on Tuesday, February 10, 1998, at 9:00 a.m., Eastern time,
for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated as of November 20, 1997 (the "Merger
Agreement") among the Company, Intermedia Communications Inc. ("Intermedia")
and Moonlight Acquisition Corp. ("Moonlight"), a wholly-owned subsidiary of
Intermedia, pursuant to which Moonlight will be merged into the Company (the
"Merger") and each holder of the Company's issued and outstanding common
stock, par value $.004 per share (the "Shares"), Series D Preferred Stock,
par value $.01 per share (the "Series D Preferred Stock"), and Series I 6%
Cumulative Convertible Preferred Stock, par value $.01 per share (the
"Convertible Preferred Stock") (other than such capital stock of the Company
owned by the Company, Intermedia, Moonlight or their respective
subsidiaries), will receive in cash $15.00, $15.00 and $251.21 per share,
respectively.
2. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Only stockholders of record at the close of business on January 6, 1998,
will be entitled to notice of, and to vote at, the Special Meeting.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY HAS APPROVED THE MERGER AND THE
MERGER AGREEMENT, HAS DETERMINED THAT THE TERMS OF THE MERGER ARE FAIR TO AND IN
THE BEST INTERESTS OF THE COMPANY'S COMMON STOCKHOLDERS AND RECOMMENDS THAT
COMMON STOCKHOLDERS VOTE "FOR" THE MERGER PROPOSAL.
Under Delaware law, holders of the Company's Common Stock and Series D
Preferred Stock are entitled to appraisal rights in connection with the Merger.
By Order of the Board of Directors
Kenneth M. Dorros
Secretary
Dated: January 9, 1998
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SHARED TECHNOLOGIES FAIRCHILD INC.
100 GREAT MEADOW ROAD, SUITE 104
WETHERSFIELD, CONNECTICUT 06109
------------------------
PROXY STATEMENT
------------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, FEBRUARY 10, 1998
This proxy statement (the "Proxy Statement") is being furnished to the
stockholders of Shared Technologies Fairchild Inc., a Delaware corporation (the
"Company" or "STF"), in connection with the solicitation of proxies by the Board
of Directors of the Company (the "Board of Directors" or the "Board") for use at
a Special Meeting of Stockholders to be held at 9:00 a.m. on Tuesday, February
10, 1998 at 100 Great Meadow Road, Suite 104, Wethersfield, Connecticut 06109
and at any adjournments or postponements thereof (the "Special Meeting").
At the Special Meeting, the holders of common stock, par value $.004 per
share (the "Common Stock"), of the Company will consider and vote upon the
approval and adoption of the Agreement and Plan of Merger dated as of November
20, 1997 (the "Merger Agreement") among the Company, Intermedia Communications
Inc., a Delaware corporation ("Intermedia"), and Moonlight Acquisition Corp., a
Delaware corporation ("Moonlight") and a wholly owned subsidiary of Intermedia.
On the terms and subject to the conditions of the Merger Agreement, Moonlight
will be merged with and into the Company (the "Merger") and the Company will be
the surviving corporation (the "Surviving Corporation").
Upon the consummation of the Merger, (i) each outstanding share (the
"Shares") of the Common Stock of the Company will be converted into the right to
receive $15.00 in cash, (ii) each share of Series D Preferred Stock of the
Company, par value $.01 per share (the "Series D Preferred Stock"), will be
converted into the right to receive $15.00 in cash and (iii) each share of
Series I 6% Cumulative Convertible Preferred Stock, par value $.01 per share
(the "Convertible Preferred Stock"), of the Company will be converted into the
right to receive $251.21 per share (in each case other than shares owned by the
Company, Intermedia, Moonlight or their respective subsidiaries and other than
shares held by dissenting stockholders).
A copy of the Merger Agreement is attached hereto as Annex I. The summaries
of the portions of the Merger Agreement set forth in this Proxy Statement do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, the text of the Merger Agreement.
YOUR BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION, UNANIMOUSLY HAS
APPROVED THE MERGER AGREEMENT AND DETERMINED THAT THE MERGER IS FAIR TO, AND IN
THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY, AND RECOMMENDS THAT YOU
VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
In connection with the Merger, appraisal rights will be available to those
stockholders of the Company who meet and comply with the requirements of Section
262 of the Delaware General Corporation Law (the "DGCL"), a copy of which is
attached as Annex III hereto. For a discussion of the procedures to be followed
in asserting appraisal rights under Section 262 of the DGCL in connection with
the Merger, see "Rights of Dissenting Stockholders."
------------------------
This Proxy Statement is first being mailed to the Company's
stockholders on or about January 9, 1998.
------------------------
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TABLE OF CONTENTS
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SUMMARY.................................................................................................... ii
INTRODUCTION............................................................................................... 1
Purpose of the Special Meeting........................................................................... 1
Voting at the Special Meeting............................................................................ 1
Proxies.................................................................................................. 2
Proxy Solicitation....................................................................................... 2
Other Matters to Be Considered........................................................................... 2
THE MERGER................................................................................................. 3
Background of the Merger; Recommendation of the Company's Board Of Directors............................. 3
Opinion of Financial Advisor............................................................................. 7
Interests of Certain Persons............................................................................. 11
Certain Effects of the Consummation of the Merger........................................................ 12
The Merger Agreement..................................................................................... 13
Stock Purchase Agreement................................................................................. 18
Loan Agreement........................................................................................... 19
The Stock Option Agreement............................................................................... 19
Settlement Agreement..................................................................................... 20
Source and Amount of Funds............................................................................... 21
Intermedia's Purpose for the Merger...................................................................... 21
Accounting Treatment of the Merger....................................................................... 21
RIGHTS OF DISSENTING STOCKHOLDERS.......................................................................... 22
Appraisal Rights of Dissenting Stockholders and Series D Holders......................................... 22
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................................................... 25
REGULATORY APPROVALS....................................................................................... 25
SELECTED CONSOLIDATED FINANCIAL DATA....................................................................... 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 28
Overview and Recent Developments......................................................................... 28
Nine Months Ended September 30, 1997 compared to September 30, 1996...................................... 28
Year Ended December 31, 1996 compared to Year Ended December 31, 1995.................................... 29
Year Ended December 31, 1995 compared to Year Ended December 31, 1994.................................... 31
Liquidity and Capital Resources.......................................................................... 32
PRICE RANGE OF SHARES...................................................................................... 34
BUSINESS OF THE COMPANY.................................................................................... 34
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................. 35
CERTAIN INFORMATION CONCERNING INTERMEDIA AND MOONLIGHT.................................................... 36
OTHER MATTERS.............................................................................................. 36
ADDITIONAL INFORMATION..................................................................................... 37
STOCKHOLDER PROPOSALS...................................................................................... 38
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 38
ANNEX I--Agreement and Plan of Merger
ANNEX II--Opinion of Credit Suisse First Boston Corporation
ANNEX III--Text of Section 262 of the General Corporation Law of the State of Delaware
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SUMMARY
This summary has been prepared to assist stockholders of the Company in
their review of the proposal described in detail in this Proxy Statement, to
approve and adopt the Merger Agreement. As a result of the Merger, (i) the
Company will be the Surviving Corporation and will become a wholly-owned
subsidiary of Intermedia, and (ii) each share of the Company's issued and
outstanding Common Stock, Series D Preferred Stock and Convertible Preferred
Stock (other than such capital stock of the Company owned by the Company,
Intermedia, Moonlight or their respective subsidiaries and other than shares of
such capital stock held by dissenting stockholders), will be converted
automatically into the right to receive cash in the amount of $15.00, $15.00 and
$251.21, respectively, without interest thereon. Pursuant to the Merger
Agreement, as the first step in the acquisition of the Company by Intermedia,
Intermedia commenced a cash tender offer on November 26, 1997 for 4,000,000
Shares, at a price of $15.00 per share, net to the seller in cash (the "Offer").
The Offer was consummated on December 26, 1997. Based on information provided
from Continental Stock Transfer & Trust Company, the transfer agent for the
Offer, approximately 16,006,204 Shares, or 88.3% of the Shares, were tendered.
Since the Shares tendered exceeded the 4,000,000 Shares sought by Moonlight, a
proration factor of .2499031 was applied to all tendered Shares. As a result of
the rounding of fractional shares from the proration factor, Moonlight actually
purchased 4,000,064 Shares through the Offer.
This Proxy Statement and the accompanying notice of special meeting and form
of proxy are first being mailed on or about January 9, 1998 to stockholders
entitled to notice of and to vote at the Special Meeting of Stockholders of the
Company to be held on Tuesday, February 10, 1998 (the "Special Meeting").
This summary is not intended to be a complete explanation of the matters
relating to the Merger Agreement or the proposed Merger and is qualified in all
respects by reference to the detailed explanation contained in this Proxy
Statement and the Annexes hereto. Stockholders are urged to review carefully the
entire Proxy Statement, including the Annexes. Cross-references in this summary
are to captions in the Proxy Statement.
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PURPOSE OF SPECIAL MEETING........ To vote upon the Merger. See "INTRODUCTION--Purpose of
the Special Meeting."
DATE AND TIME OF SPECIAL
MEETING......................... Tuesday, February 10, 1998 at 9:00 a.m., Eastern time
PLACE OF MEETING.................. 100 Great Meadow Road, Suite 104, Wethersfield,
Connecticut
RECORD DATE....................... January 6, 1998
NUMBER OF OUTSTANDING SHARES OF
STOCK ENTITLED TO VOTE.......... 18,129,508 Shares
APPROXIMATE NUMBER OF OWNERS OF
RECORD OF SHARES OF STOCK....... 205
MERGER TERMS...................... In the Merger, the Company will be merged with and into
Moonlight, with the Company as the surviving
corporation, and the Company will become a wholly-owned
subsidiary of Intermedia, and each Share, share of
Series D Preferred Stock and share of Convertible
Preferred Stock (other than such capital stock of the
Company owned by the Company, Intermedia, Moonlight or
their respective subsidiaries and other than shares of
such capital stock held by dissenting stockholders) will
be converted automatically into the right to receive
cash in
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the amount of $15.00, $15.00 and $251.21, respectively,
without interest thereon (the "Merger Consideration").
See "THE MERGER."
REQUIRED VOTE..................... The affirmative vote of the holders of a majority of the
outstanding Shares is required for approval of the
Merger. See "INTRODUCTION-- Voting at the Special
Meeting." AT THE CLOSE OF BUSINESS ON THE RECORD DATE,
INTERMEDIA BENEFICIALLY OWNED 5,134,564 SHARES AND
250,000 SHARES OF CONVERTIBLE PREFERRED STOCK,
CONSTITUTING APPROXIMATELY 28.3% OF THE OUTSTANDING
SHARES (APPROXIMATELY 38.2% OF THE OUTSTANDING SHARES ON
A FULLY DULUTED BASIS ASSUMING CONVERSION OF THE
CONVERTIBLE PREFERRED STOCK). INTERMEDIA ENTERED INTO A
STOCK OPTION AGREEMENT WITH CERTAIN STOCKHOLDERS WHO
OWNED AN AGGREGATE OF APPROXIMATELY 24.6% OF THE
OUTSTANDING SHARES (APPROXIMATELY 33.2% OF THE
OUTSTANDING SHARES ON A FULLY DILUTED BASIS INCLUDING
THE CONVERTIBLE PREFERRED STOCK NOW OWNED BY
INTERMEDIA). AMONG OTHER THINGS, SUCH STOCKHOLDERS HAVE
AGREED TO VOTE ALL SHARES OWNED BY THEM IN FAVOR OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY AND HAVE GRANTED INTERMEDIA AN OPTION TO
PURCHASE ALL SHARES, SHARES OF SERIES D PREFERRED STOCK
AND OPTIONS TO PURCHASE SUCH SHARES OWNED BY THEM AT A
PRICE EQUAL TO $15.00 PER SHARE OF COMMON STOCK, $15.00
PER SHARE OF SERIES D PREFERRED STOCK AND $15.00 MINUS
THE EXERCISE PRICE OF EACH OPTION. APPROVAL OF THE
MERGER IS THEREFORE ENSURED.
RECOMMENDATION OF THE COMPANY'S
BOARD OF DIRECTORS.............. The Company's Board of Directors (the "Company Board")
unanimously has approved the Merger and the Merger
Agreement, has determined that the Merger is fair to and
in the best interests of the Company's common
stockholders (the "Stockholders") and recommends that
the Stockholders vote "FOR" the Merger Proposal. See
"THE MERGER-- Recommendation of the Company's Board of
Directors."
OPINION OF FINANCIAL ADVISOR...... Credit Suisse First Boston Corporation ("CSFB"), the
Company's financial advisor, has delivered to the
Company Board its written opinion dated November 26,
1997 that, as of such date and on the basis of and
subject to the matters set forth therein, the
consideration to be received by the holders of Shares
(other than Intermedia and The Fairchild Corporation and
its affiliates) in the Offer and the Merger was fair,
from a
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financial point of view, to such holders. See "THE
MERGER-- Opinion of Financial Advisor."
RIGHTS OF DISSENTING
STOCKHOLDERS.................... Stockholders and holders of the Company's Series D
Preferred Stock ("Series D Holders") of the Company are
entitled to appraisal rights under Delaware law in
connection with the Merger. A Stockholder who objects to
the Merger and follows specified procedures is entitled
to appraisal rights with respect to the Merger. See
"Rights of Dissenting Stockholders"
A STOCKHOLDER WHO RETURNS A SIGNED PROXY BUT FAILS TO
PROVIDE INSTRUCTIONS AS TO THE MANNER IN WHICH SUCH
SHARES ARE TO BE VOTED WILL BE DEEMED TO HAVE VOTED TO
APPROVE THE MERGER AGREEMENT AND THE MERGER AND
THEREFORE TO HAVE WAIVED HIS APPRAISAL RIGHTS. NEITHER A
VOTE AGAINST, NOR AN ABSTENTION, NOR A FAILURE TO VOTE
WITH REGARD TO THE MERGER AGREEMENT AND THE MERGER WILL
CONSTITUTE A TIMELY WRITTEN OBJECTION TO THE MERGER. See
"Rights Of Dissenting Stockholders" in the Proxy
Statement for a more complete discussion of stockholders
appraisal rights.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE MERGER PROPOSAL.
Stockholders are urged to read and consider carefully
the information contained in this Proxy Statement and to
consult with their personal financial and tax advisors.
This Proxy Statement and the accompanying form of proxy
are first being mailed to stockholders on or about
January 9, 1998.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.
THEREFORE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE
PROXY CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE.
NO PERSON IS AUTHORIZED BY THE COMPANY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED
IN THIS PROXY STATEMENT, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED. THE DELIVERY OF THIS PROXY
STATEMENT SHALL NOT IMPLY THAT THERE HAS BEEN NO CHANGE
IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF
THE COMPANY, MOONLIGHT OR INTERMEDIA SINCE THE DATE
HEREOF.
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INTRODUCTION
This Proxy Statement is being furnished to the Stockholders of the Company
in connection with the solicitation of proxies on behalf of the Company Board
for use at the Special Meeting.
This Proxy Statement and accompanying Notice of Special Meeting of
Stockholders and form of proxy are being mailed on or about January 9, 1998 to
stockholders entitled to notice of, or to vote at, the Special Meeting.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, the Stockholders are being asked to consider and
vote upon the approval and adoption of the Merger Agreement. Under the terms of
the Merger Agreement, at the Effective Time (as hereinafter defined), (i)
Moonlight will be merged with and into the Company, (ii) the Company will be the
corporation surviving the Merger (the "Surviving Corporation"), (iii) the
separate existence of Moonlight will cease, (iv) the Company will become a
wholly-owned subsidiary of Intermedia, and (v) each share of issued and
outstanding Common Stock, Series D Preferred Stock and Convertible Preferred
Stock (other than such capital stock of the Company owned by the Company,
Intermedia, Moonlight or their respective subsidiaries and other shares of such
capital stock held by dissenting stockholders) will be converted automatically
into the right to receive cash in the amount of $15.00, $15.00 and $251.21 per
share, respectively, without interest thereon.
VOTING AT THE SPECIAL MEETING
The Company Board has fixed the close of business on January 6, 1998 as the
record date (the "Record Date") for the determination of Stockholders entitled
to notice of, and to vote at, the Special Meeting. Accordingly, only holders of
record of Shares at the close of business on the Record Date will be entitled to
vote at the Special Meeting. At the close of business on the Record Date, there
were 18,129,508 Shares outstanding and entitled to vote, held by approximately
205 stockholders of record.
The affirmative vote of the holders of at least a majority of the
outstanding Shares is required by the Delaware General Corporation Law (the
"DGCL") and the certificate of incorporation of the Company (the "Charter") for
approval of the Merger. AT THE CLOSE OF BUSINESS ON THE RECORD DATE, INTERMEDIA
BENEFICIALLY OWNED 5,134,564 SHARES AND 250,000 SHARES OF CONVERTIBLE PREFERRED
STOCK, CONSTITUTING APPROXIMATELY 28.3% OF THE OUTSTANDING SHARES (APPROXIMATELY
38.2% OF THE OUTSTANDING SHARES ON A FULLY DULUTED BASIS ASSUMING CONVERSION OF
THE CONVERTIBLE PREFERRED STOCK). INTERMEDIA ENTERED INTO A STOCK OPTION
AGREEMENT WITH CERTAIN STOCKHOLDERS WHO OWNED AN AGGREGATE OF APPROXIMATELY
33.2% OF THE OUTSTANDING SHARES OF THE COMPANY'S COMMON STOCK (APPROXIMATELY
24.6% OF THE OUTSTANDING SHARES ON A FULLY DILUTED BASIS INCLUDING THE
CONVERTIBLE PREFERRED STOCK NOW OWNED BY INTERMEDIA). AMONG OTHER THINGS, SUCH
STOCKHOLDERS HAVE AGREED TO VOTE ALL SHARES BENEFICIALLY OWNED BY THEM IN FAVOR
OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND HAVE
GRANTED INTERMEDIA AN OPTION TO PURCHASE ALL SHARES OF COMMON STOCK, SHARES OF
SERIES D PREFERRED STOCK AND OPTIONS TO PURCHASE SUCH SHARES OWNED BY THEM AT A
PRICE EQUAL TO $15.00 PER SHARE OF COMMON STOCK, $15.00 PER SHARE OF SERIES D
PREFERRED STOCK AND $15.00 MINUS THE EXERCISE PRICE OF EACH OPTION. APPROVAL OF
THE MERGER IS THEREFORE ENSURED.
Any Shares not voted (whether by abstention, broker non-vote or otherwise)
will have the effect of votes "AGAINST" the Merger.
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PROXIES
Stockholders are requested to complete, date, sign and promptly return the
accompanying form of proxy in the enclosed envelope. Shares represented by
properly executed proxies received by the Company and not revoked as described
in the following paragraph will be voted at the Special Meeting in accordance
with the instructions contained herein. If instructions are not contained
therein, proxies will be voted FOR approval of the Merger Agreement.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted (a) by filing with the Secretary of the
Company written notice of such revocation bearing a later date than the proxy,
(b) by duly executing a subsequent proxy relating to the same Shares and
delivering it to the Secretary of the Company, or (c) by attending the Special
Meeting and voting in person. Attendance at the Special Meeting will not in and
of itself constitute revocation of a proxy. Any written notice revoking a proxy
should be sent to the attention of Kenneth M. Dorros, Secretary, Shared
Technologies Fairchild, Inc., 100 Great Meadow Road, Suite 104, Wethersfield,
Connecticut 06109.
PROXY SOLICITATION
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement, will be borne by the Company. No solicitation in
addition to this solicitation by use of the mails will be made in connection
with this solicitation. Brokers, nominees, fiduciaries and other custodians have
been requested to forward soliciting material to beneficial owners of Shares
held of record by them, and such custodians will be reimbursed for their
expenses in connection therewith.
All information in this Proxy Statement concerning Intermedia and Moonlight
has been supplied by Intermedia. All other information herein has been supplied
by the Company.
OTHER MATTERS TO BE CONSIDERED
It is not anticipated that any matter other than approval of the Merger will
be brought before the Special Meeting. The Bylaws of the Company provide that no
business may be transacted at a special meeting of stockholders unless it is
included in the notice of the meeting. However, if any other matter should
properly come before the meeting, proxies will be voted in the discretion of the
persons named in the enclosed proxy.
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THE MERGER
BACKGROUND OF THE MERGER; RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
THE COMPANY BOARD UNANIMOUSLY HAS APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND DETERMINED THAT THE MERGER IS FAIR TO, AND
IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT ALL HOLDERS OF SHARES VOTE IN FAVOR OF THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Since the third quarter of 1996, the Company has from time to time explored
the possibility of either a sale of the Company or a strategic merger with a
third party in the telecommunications industry.
In the third quarter of 1996, CSFB, acting as financial advisor for the
Company, arranged for a meeting between Mr. Anthony Autorino, a director and
executive officer of the Company, Mr. David C. Ruberg, the Chairman and Chief
Executive Officer of Intermedia, and Intermedia's financial advisors, Bear,
Stearns & Co. ("Bear Stearns"), to explore the possibility of a merger
transaction. Intermedia entered into a confidentiality agreement with the
Company on September 18, 1996 and visited the Company's facilities on a number
of occasions.
In discussions with the Company, Intermedia raised the possibility of a
stock merger at a ratio of approximately .4 shares of Intermedia common stock
for every share of Company Common Stock. Under the Intermedia proposal, the
conversion ratio would have resulted in an exchange of $12 of Intermedia stock
(then trading at $30 per share) for every share of Company Common Stock, with,
however, a right on the part of Intermedia to terminate the transaction if the
price of its stock fell below $25 per share or rose above $35 per share. This
proposal was not accepted by representatives of the Company.
On January 22, 1997, a meeting was held between Mr. Autorino and others on
behalf of the Company and Mr. Ruberg and others on behalf of Intermedia. At the
meeting, Intermedia revised their proposal such that one-half of the
consideration would be in common stock of Intermedia and one-half in a form of
preferred stock, with the Company; Series J Special Preferred Stock, par value
$.01 per share (the "Special Preferred Stock") held by RHI Holdings, Inc.
("RHI") to be acquired for $10 per share in cash. This proposal was not accepted
by representatives of the Company.
In March 1997, a discussion took place between Mr. Jeffrey J. Steiner,
Vice-Chairman of the Company Board and Chairman and Chief Executive Officer of
The Fairchild Corporation ("TFC"), a holder of approximately 40% of the Company
Common Stock, and Mr. Ruberg in which Mr. Steiner invited Intermedia to make a
further proposal. None was made at the meeting or at any time prior to July 14,
1997.
On January 8, 1997, Mr. Autorino met in Tulsa, Oklahoma with Keith E.
Bailey, Chairman and CEO of The Williams Companies, Inc., corporate parent of
WilTel Communications, LLC ("WilTel"). WilTel entered into a confidentiality
agreement with the Company and commenced examination of the Company's financial
information. Mr. Autorino indicated to Mr. Bailey that the Company was looking
for a price in excess of $10 per share. WilTel made no proposal.
On February 13, 1997, Mr. Autorino met again with Mr. Bailey in Houston,
Texas. Representatives of the financial advisor to WilTel were also in
attendance. No agreement was reached.
Providence Equity Partners ("Providence") entered into a confidentiality
agreement on June 13, 1997 in order to examine information relating to the
Company. Thereafter, in a conversation with Mr. Donald Miller, a director of the
Company and a Senior Vice President of TFC, a representative of Providence
offered to pay $9 in cash for the Company, which price was deemed to be
inadequate.
On June 5, 1997, Mr. Daniel Borislow, Chairman and Chief Executive Officer
of Tel-Save Holdings, Inc. ("Tel-Save"), and Mr. Edward B. Meyercord, III,
Executive Vice President of Tel-Save, met with Mr. Mel D. Borer, a director and
executive officer of the Company, and Mr. Steiner to discuss possible synergies
between the Company and Tel-Save. Mr. Borer visited the offices of Tel-Save in
New Hope,
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Pennsylvania on June 9 to discuss Tel-Save and its business. On June 10, in a
conversation with Mr. Steiner, Mr. Borislow indicated a willingness on the part
of Tel-Save to consider a merger of Tel-Save and the Company at a price of $11
per share in Tel-Save Common Stock. Mr. Steiner expressed his belief that the
Company might be willing to consider favorably a transaction with Tel-Save in
that price range. Mr. Borislow indicated that he would contact the Company when,
and if, Tel-Save was prepared to enter into further discussions.
On June 12, 1997, a meeting was held at TFC's offices, at which Mr. Steiner,
Mr. Autorino, various other executives and directors from the Company and
Salomon Brothers Inc ("Salomon Brothers"), financial advisor to both Tel-Save
and the Company, discussed the interest of Tel-Save in merging with the Company
and other strategic alternatives. Mr. Steiner and Mr. Autorino also spoke with
Mr. Borislow by telephone and discussed further the possibility of a merger at a
price of $11 per share in Tel-Save Common Stock. Mr. Borislow again indicated
that he would contact the Company when, and if, Tel-Save was prepared to enter
into further discussions.
On July 7, 1997, Tel-Save contacted the Company indicating that Tel-Save was
prepared to pursue the earlier discussions. A conference call was held on July
8, 1997 between Mr. Borislow and Mr. Meyercord of TelSave and representatives of
the Company, including certain executive officers of the Company, the Company's
attorneys and the Company's financial advisor, Salomon Brothers, and certain
officers of TFC, to discuss the possible terms of a merger, but no agreement was
reached. Tel-Save and the Company entered into a reciprocal confidentiality
agreement on July 11, 1997 in order to conduct due diligence investigations with
respect to each other. Discussions between representatives of Tel-Save and the
Company continued between July 10 and July 13 on due diligence issues, the terms
of a possible transaction and the language of a possible merger agreement. On
July 11, 1997, Mr. Vincent DiVincenzo, the Company's Chief Financial Officer,
and Mr. Paul R. Barry, Jr., the Company's Senior Vice President of Business
Development, met with Tel-Save employees and representatives from Salomon
Brothers, Deutsche Morgan Grenfell ("DMG"), the Company's financial advisor, BDO
Seidman, LLP, Tel-Save's accountants, and Arthur Andersen LLP, the Company's
accountants, at the offices of Tel-Save to pursue further due diligence
inquiries regarding Tel-Save and the Company.
On the morning of July 14, 1997, in response to trading activity in the
Company's common stock, the Company publicly announced that it was engaged in
discussions regarding a possible sale or merger of the Company. On the afternoon
of July 14, Mr. Autorino received a telephone call from Robert M. Manning,
Senior Vice President and Chief Financial Officer of Intermedia, expressing
renewed interest on the part of Intermedia in a transaction with the Company at
$12 per share payable in cash. Mr. Autorino invited representatives of
Intermedia to meet with him the next day in the Company's offices in
Wethersfield, Connecticut.
On July 15, 1997, Mr. Manning and others from Intermedia met with
representatives of the Company in the Company's Wethersfield offices. At that
time, the representatives of Intermedia indicated that it would only pay
one-half of the purchase price in cash with the remainder in stock of
Intermedia. They also stated that Intermedia would pay cash for the Special
Preferred Stock held by RHI. Mr. Steiner spoke by telephone with Mr. Ruberg, who
did not attend the meeting in Wethersfield, and inquired whether any proposal
that Intermedia intended to make would be subject to further due diligence or
other conditions. Mr. Ruberg said he did not know but would call back Mr.
Steiner and list all conditions. Mr. Ruberg returned Mr. Steiner's call, but was
unable to state what conditions or contingencies would be placed on any offer
Intermedia might make. He also noted that he would be unable to attend any
meetings.
Later on the evening of July 15, 1997, in the offices of Intermedia's
financial advisor, Bear Stearns, representatives of Intermedia and the Company
met again. At that meeting, Intermedia indicated that it would not pay any
portion of the acquisition price in cash and that the consideration for any
merger would be paid entirely in the stock of Intermedia, and that Intermedia
was not willing to enter into any definitive agreement with the Company until
the close of trading on July 18, 1997.
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On the morning of July 16, 1997, Mr. Borislow telephoned Mr. Autorino and
advised him that the Board of Directors of Tel-Save had voted to approve a
transaction with the Company and that he was flying to New York to conclude a
deal with the Company. Mr. Borislow indicated that, if no deal were signed with
the Company on that day, Tel-Save would terminate all further discussions.
Representatives of the Company and Tel-Save met in New York on July 16. The
Company informed Tel-Save that it had received an offer from Intermedia and
asked Tel-Save to improve its offer. Tel-Save reiterated its intention to
terminate further discussions if no merger agreement were signed that day. After
further discussion, including discussions with its financial advisor, Salomon
Brothers, Tel-Save indicated that it would pay a minimum price of $11.25 per
share of Tel-Save Common Stock for each share of the Company, with a formula
that would permit the price paid to the stockholders of the Company to rise by
30% of any amount above $20 at which the Tel-Save shares trade over fifteen
consecutive trading days ending on the trading day three trading days
immediately prior to the time of the merger, while still allowing the Company to
terminate the merger agreement if the price of Tel-Save Common Stock fell below
$10 per share for any period of twenty consecutive trading days. The Tel-Save
Common Stock closed at $21 per share on July 16. Representatives of the Company
also advised Tel-Save that it only would sign an agreement that contained a
satisfactory provision permitting the Company Board to terminate any merger
agreement if it deemed it necessary to do so in order to fulfill its fiduciary
obligations to the Company's stockholders. Tel-Save stated that it would agree
to such a provision in the merger agreement, subject to certain conditions.
In light of (i) the Company's concerns that Intermedia would be unwilling or
unable to conclude a transaction, particularly in light of its inability to
reach agreement on a transaction earlier in the year, its failure to pursue
actively a transaction thereafter and its unwillingness to enter into a
definitive agreement prior to the evening of July 18, and the reasons therefor,
(ii) the continued volatility of Intermedia's stock price, (iii) Intermedia's
highly leveraged capital structure, (iv) the fact that Intermedia's proposal was
subject to uncertain conditions, (v) Tel-Save's stated intention to terminate
its offer if a definitive agreement was not signed on July 16, 1997, (vi) the
Company's ability to terminate the merger agreement with Tel-Save if a superior
proposal were made and (vii) the unwillingness of RHI, the Company's largest
stockholder, to approve a transaction that did not provide for cash payment of
the Special Preferred Stock, the Company determined to concentrate its efforts
on a transaction with Tel-Save.
On July 16, 1997, a Special Meeting of the Board of Directors of the Company
was held at which recent developments were reviewed. A representative of Salomon
Brothers, in its capacity as a financial advisor to the Company, compared the
Tel-Save offer with features of the proposal from Intermedia. Thereafter,
representatives of DMG made a presentation to the Board relating to the fairness
of the Tel-Save offer and the expected synergies from the proposed merger. DMG
opined that, as of that date, the Tel-Save offer was fair to the holders of the
common stock of the Company from a financial point of view. At a meeting of the
Company Board held on July 16, 1997, the Company Board approved the proposed
merger of Tel-Save and the Company. On July 16, 1997, Tel-Save and a wholly
owned subsidiary of Tel-Save entered into a merger agreement with the Company.
The Company and Tel-Save subsequently called for special meetings of their
respective shareholders to be held on December 1, 1997 to approve the merger of
the Company into the Tel-Save subsidiary.
On Friday, November 14, 1997, Mr. Ruberg of Intermedia telephoned Mr.
DiVincenzo indicating a desire to speak to Mr. Autorino. On November 15, Mr.
Autorino called Mr. Ruberg who advised him of Intermedia's interest in acquiring
the Company. Mr. Autorino told Mr. Ruberg that, pursuant to the terms of the
Tel-Save merger agreement, he was not able to discuss such interest except in
the context of a written offer.
On Monday, November 17, 1997, Mr. Ruberg transmitted to Mr. Autorino a
written offer to acquire the Company by means of a merger in which holders of
common stock of the Company would receive $15.00 per share in cash, subject to
certain terms and conditions. By its terms, the offer was to expire on November
25 at 8 a.m. (EST).
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On the same day, Intermedia and Moonlight filed a lawsuit in Delaware
Chancery Court against the Company, its directors, Tel-Save and TSHCo. Inc. (a
wholly owned subsidiary of Tel-Save) ("TSHCo") seeking, among other relief, to
enjoin steps to consummate a merger with Tel-Save, captioned INTERMEDIA
COMMUNICATIONS, INC., ET AL. V. SHARED TECHNOLOGIES FAIRCHILD, INC., ET AL.,
C.A. 10638.
Late in the day on November 17, 1997, the Company Board met with respect to
the Intermedia offer. Consistent with the terms of the Tel-Save merger
agreement, the Board voted to authorize discussions with representatives of
Intermedia concerning its offer and the furnishing of information to them as
appropriate. The Board directed CSFB, as its financial advisor, to explore the
conditions to the Intermedia offer. CSFB telephoned Mr. Ruberg and arranged to
meet the next day.
On November 18, 1997, CSFB and the Company's counsel met with Mr. Ruberg and
Intermedia's financial advisor and counsel. Following such meeting, the Company
Board met to hear a report from CSFB and the Company's counsel outlining the
principal terms of the Intermedia offer. At the meeting, Mr. Steiner read a
letter addressed to the Company Board from Mr. Borislow of Tel-Save in which
Tel-Save offered to lock in the exchange ratio in the Tel-Save merger agreement
at a fixed level of .575 Tel-Save shares for each Company share. At the then
current price of Tel-Save shares, the revised exchange ratio would result in the
Company shareholders receiving $13.23 in Tel-Save stock for each share of the
Company. Mr. Borislow also requested the Company Board to agree to amend the
merger agreement to eliminate the Company's Board's ability to terminate the
merger agreement. He further stated that Tel-Save was giving the Company Board
until the conclusion of its meeting to accept this offer.
Mr. Steiner spoke with both Mr. Ruberg and Mr. Borislow, after the
conclusion of the November 18 Company Board meeting, and arranged to meet with
them the next day. In addition, on the evening of November 18, Mr. Steiner and
Mr. Miller met with Mr. Ruberg and discussed various aspects of the Intermedia
proposal with him. On November 19, 1997, Mr. Steiner and Mr. Autorino met
separately and jointly with Messrs. Ruberg and Manning of Intermedia and Mr.
Borislow and other representatives of Tel-Save to explore various alternatives.
In the course of these discussions, Intermedia expressed a willingness to (a)
reimburse certain expenses of the Company which would be due Tel-Save in the
event of a termination of the Tel-Save merger agreement; and (b) pay TelSave
certain sums to purchase $163,367,000 face amount of 12 1/4% Senior Subordinated
Discount Notes Due 2006 of the Company held by Tel-Save and for Tel-Save to
agree to amend a Long Distance Communication Services Agreement entered into by
Tel-Save and the Company on November 13, 1997 to permit an early termination
thereof without penalty to STT.
On the evening of November 19 and during the day on November 20, 1997,
representatives of Intermedia, the Company and Tel-Save met to explore such
proposals and negotiate the terms thereof. On the evening of November 20, 1997,
the Company Board met and, after receiving the oral opinion of CSFB that, based
upon and subject to certain factors and assumptions, the consideration to be
received by the shareholders of the Company (other than Intermedia, TFC and RHI)
pursuant to the terms of the revised Intermedia offer was fair from a financial
point of view to such shareholders, voted to terminate the Tel-Save merger
agreement and approve the Intermedia merger agreement. The Company Board also
approved the vesting of certain director stock options, the redemption of the
Special Preferred Stock held by RHI (subject to bank approval) with the proceeds
of a loan made by Intermedia and the waiver of certain transfer restrictions in
a shareholder agreement with Mr. Autorino and a subsidiary of TFC. On the night
of November 20, 1997, the Company entered into the Merger Agreement, and the
Company, Intermedia, Moonlight, Tel-Save and TSHCo entered into a settlement
agreement described herein under "Settlement Agreement". On the morning of
November 21, 1997, the Merger Agreement was publicly announced and the Delaware
litigation brought by Intermedia and Moonlight was dismissed with prejudice.
In reaching its conclusion to approve the Intermedia merger agreement, the
Company Board considered the following material information and factors:
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(1) the familiarity of the Board of Directors with the Company's
business, financial condition, results of operations, properties and
prospects as an independent entity, and the nature of the industry in which
it operates;
(2) the terms and structure of the transaction and the terms and
conditions of the Merger Agreement, particularly that Intermedia was
offering $15.00 in cash and would commence a tender offer almost immediately
for up to 4,000,000 Shares and that there were fewer conditions to closing
than in the Tel-Save merger agreement;
(3) the economic terms of the Intermedia proposal were superior to those
offered in the TelSave merger agreement and represented a significant
premium to the Company's stock price prior to the Intermedia proposal;
(4) the oral opinion of CSFB to the Company Board that, based upon and
subject to certain factors and assumptions, as of such date, the
consideration to be received by the stockholders of the Company (other than
Intermedia, TFC and RHI) from Intermedia was fair from a financial point of
view to such holders;
(5) the ability of Intermedia and Moonlight to consummate the Offer and
the Merger without having to raise additional financing; and
(6) the willingness of Mr. Steiner, RHI and Mr. Autorino to enter into
the Stock Option Agreement.
The foregoing discussion of the information and factors considered and given
weight by the Company Board is not intended to be exhaustive. In view of the
wide variety of factors considered in connection with its evaluation of the
Merger, the Company Board did not find it practicable to and did not attempt to
rank or assign relative weights to these factors. In addition, individual
members of the Company Board may have given different weights to different
factors.
OPINION OF FINANCIAL ADVISOR
CSFB has acted as financial advisor to the Company in connection with the
Offer and the Merger. CSFB is an internationally recognized investment banking
firm and is regularly engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, leveraged buyouts, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes.
In connection with CSFB's engagement, the Company requested that CSFB
evaluate the fairness, from a financial point of view, of the consideration to
be received by the stockholders of the Company (other than Intermedia and The
Fairchild Corporation and RHI Holdings (collectively, "Fairchild/RHI")) in the
Offer and the Merger. At a meeting of the Company Board held on November 20,
1997, CSFB orally advised the Company Board that, as of such date, based upon
CSFB's preliminary valuation analysis and subject to certain matters discussed
with the Company Board, the consideration to be received by the stockholders of
the Company (other than Intermedia and Fairchild/RHI) in the Offer and the
Merger, taken together, was fair to such holders from a financial point of view.
On November 26, 1997, CSFB delivered its final valuation analysis and confirmed
its oral opinion in writing (the "CSFB Opinion").
In arriving at the CSFB Opinion, CSFB, among other things, (i) reviewed
certain publicly available business and financial information relating to the
Company, as well as the Merger Agreement, (ii) reviewed certain other
information, including financial forecasts, provided to CSFB by the Company,
(iii) met with the management of the Company to discuss the business and
prospects of the Company, (iv) considered certain financial and stock market
data of the Company and compared that data with similar data for other publicly
held companies in businesses similar to that of the Company, (v) considered the
financial terms of certain other business combinations and other transactions
that had recently been effected, and (vi) considered such other information,
financial studies, analyses and investigations and financial, economic and
market criteria which CSFB deemed relevant.
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In connection with the CSFB Opinion, CSFB did not assume responsibility for
independent verification of any of the information provided to or otherwise
reviewed by CSFB and relied upon such information being complete and accurate in
all material respects. With respect to the financial forecasts, CSFB assumed
that they were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the Company's management as to the future
financial performance of the Company. In addition, CSFB did not make an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of the Company, nor was CSFB furnished with any such evaluations or
appraisals. The CSFB Opinion is necessarily based on information available to it
and financial, economic, market and other conditions as they existed and could
be evaluated on the date of the CSFB Opinion. Although CSFB evaluated the
fairness from a financial point of view of the consideration to be received by
the stockholders of the Company (other than Intermedia and Fairchild/RHI) in the
Offer and the Merger, CSFB was not requested to, and did not, recommend the
specific consideration payable in the Offer and the Merger, which consideration
was determined through arm's-length negotiations between the Company and
Intermedia. No other limitations were imposed by the Company on CSFB with
respect to the investigations made or procedures followed by CSFB in rendering
its opinions.
A copy of the CSFB Opinion, which sets forth the assumptions made, matters
considered and limitations on the review undertaken by CSFB, is attached as
Appendix II to this Proxy Statement/ Prospectus and is incorporated herein by
reference. CSFB has consented to the use of the CSFB Opinion in this Proxy
Statement of such opinion. Stockholders of the Company are urged to read the
CSFB Opinion carefully in its entirety. The CSFB Opinion is addressed to the
Company Board and relates only to the fairness from a financial point of view of
the consideration to be received by the stockholders of the Company (other than
Intermedia and Fairchild/RHI) in the Offer and the Merger, does not address any
other aspects of the Offer, the Merger or any related transaction and does not
constitute a recommendation to any stockholder as to how such stockholder should
vote with respect to the proposed Merger or whether any such stockholder should
or should not have tendered the Company shares in the Offer. The summary of the
CSFB Opinion set forth in this Proxy Statement/Prospectus is qualified in its
entirety by reference to the full text of the CSFB Opinion.
SUMMARY OF ANALYSES
The following is a summary of the material financial analyses performed by
CSFB in connection with its presentation to the Company Board on November 20,
1997 and delivery of the CSFB Opinion, and does not purport to be a complete
description of the analyses conducted by CSFB in arriving at its opinion.
DISCOUNTED CASH FLOW ANALYSIS. CSFB performed a discounted cash flow
analysis of the projected unlevered free cash flows of the Company for the
period 1998 through 2007, based upon projections developed with the management
of the Company (the "Base Case"). The Base Case projections included (i)
projected revenues of $195.8 million in 1997, $209.3 million in 1998, $235.0
million in 1999, $259.6 million in 2000, $284.4 million in 2001, $311.3 million
in 2002, $340.7 million in 2003, $373.0 million in 2004, $408.4 million in 2005,
$447.1 million in 2006 and $489.9 million in 2007; (ii) projected earnings
before interest, taxes, depreciation and amortization ("EBITDA") of $50.4
million in 1997, $49.4 million in 1998, $55.9 million in 1999, $61.4 million in
2000, $66.8 million in 2001, $73.1 million in 2002, $79.9 million in 2003, $87.5
million in 2004, $95.9 million in 2005, $105.1 million in 2006 and $115.3
million in 2007; and (iii) projected unlevered net income of $17.3 million in
1997, $15.6 million in 1998, $18.5 million in 1999, $20.7 million in 2000, $22.8
million in 2001, $25.2 million in 2002, $28.2 million in 2003, $31.4 million in
2004, $35.0 million in 2005, $39.0 million in 2006 and $43.4 million in 2007.
CSFB was advised following receipt of the Base Case projections that, due in
part to transactional distractions, the Company's 1997 results are expected to
fall short of the mid-year 1997 expectation, that management expects that both
1997 revenues and EBITDA will be approximately $7 million less than expected in
mid-1997, and that had these new expectations been incorporated in new long-term
projections, the results could be modestly lower than the projections used by
CSFB, which reflect management's mid-year estimate of future performance.
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Based on these various projections, CSFB developed an enterprise value range
for the Company utilizing discount rates of 12% to 15% and terminal value
multiples of EBITDA of 9.0x to 12.0x applied to estimated 2007 EBITDA. CSFB
utilized the Base Case scenario for the Company merely as a point of reference
for the Company Board and in no way intended to suggest parameters or forecasts
as to minimum or maximum enterprise valuation ranges for the Company. When taken
together with the value of the Company's interest in Shared Technologies
Communications LLC, Shared Technologies of Canada, the expected cash proceeds
from the exercise of warrants issued by the Company relating to its stake in
Shared Technologies Cellular, Inc., and the value of the Company's net operating
losses to an acquiror, the discounted cash flow analysis resulted in an overall
enterprise value range and equity value range of approximately $460 million to
$510 million and $7.97 to $9.94 per share, respectively. When synergies (of $10
million after tax grown at 2% in perpetuity) were taken into account, the
discounted cash flow analysis resulted in an enterprise value range and equity
value range of approximately $500 million to $555 million and $9.55 to $11.72,
respectively (assuming 50% of synergies to the Company), and approximately $520
million to $575 million and $10.34 to $12.51, respectively (assuming 75% of
synergies to the Company).
COMPARABLE COMPANIES ANALYSIS. CSFB performed a comparable companies
analysis in which it compared certain publicly available financial data,
projections of future financial performance and market statistics (based upon
closing stock prices as of November 18, 1997) of certain selected publicly
traded companies in the telecommunications industry (the "Comparable
Companies"). The Comparable Companies were: ACC Corporation, Aliant
Communications, SmarTalk Teleservices and U.S. Long Distance Corp. CSFB derived
multiples of common stock prices per share relative to earnings per share for
the Comparable Companies. This analysis indicated multiples of common stock
prices to (i) latest twelve months ("LTM") earnings per share ranging from 20.0x
to 65.2x, (ii) estimated 1997 earnings per share ranging from 19.4x to 42.1x and
(iii) estimated 1998 earnings per share ranging from 17.5x to 32.7x.
CSFB then calculated the enterprise value (equity value (share price
multiplied by fully diluted shares outstanding less proceeds from the exercise
of options and warrants) plus total debt, total preferred stock and "out of the
money" convertible preferred stock and minority interest, less cash and cash
equivalents) of the Comparable Companies as multiples of latest twelve months
("LTM"), estimated 1997 and estimated 1998 sales, EBITDA and EBIT of the
Comparable Companies. This analysis indicated (a) multiples of (i) enterprise
value to LTM sales ranging from a low of 1.7x to a high of 8.6x, with an average
of 4.2x and a median of 3.1x, (ii) enterprise value to LTM EBITDA ranging from a
low of 8.0x to a high of 19.4x, with an average of 15.1x and a median of 17.8x
and (iii) enterprise value to LTM EBIT ranging from a low of 12.7x to a high of
37.1x, with an average of 24.9x and a median of 24.9x, (b) multiples of (i)
enterprise value to estimated 1997 sales ranging from a low of 1.6x to a high of
4.7x, with an average of 3.1x and a median of 3.0x, (ii) enterprise value to
estimated 1997 EBITDA ranging from a low of 7.8x to a high of 52.7x, with an
average of 23.2x and a median of 16.1x and (iii) enterprise value to estimated
1997 EBIT ranging from a low of 12.2x to a high of 31.1x, with an average of
24.6x and a median of 30.4x and (c) multiples of (i) enterprise value to
estimated 1998 sales ranging from a low of 1.2x to a high of 3.5x, with an
average of 2.0x and a median of 1.6x, (ii) enterprise value to estimated 1998
EBITDA ranging from a low of 7.2x to a high of 11.6x, with an average of 9.5x
and a median of 9.6x and (iii) enterprise value to estimated 1998 EBIT ranging
from a low of 10.8x to a high of 20.1x, with an average of 15.4x and a median of
15.4x.
CSFB also calculated the equity value as multiples of LTM, estimated 1997
and estimated 1998 net income and LTM book value of the Comparable Companies.
This analysis indicated multiples of equity value to (i) LTM net income ranging
from a low of 20.0x to a high of 45.7x, with an average of 32.8x and a median of
32.8x, (ii) estimated 1997 net income ranging from a low of 19.4x to a high of
58.3x, with an average of 38.7x and a median of 38.5x, (iii) estimated 1998 net
income ranging from a low of 17.5x to a high of 35.3x, with an average of 25.0x
and a median of 23.6x, and (iv) LTM book value ranging from a low of 3.4x to a
high of 5.3x, with an average of 4.4x and a median of 4.4x.
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CSFB then applied these multiples to corresponding financial data of the
Company to derive an implied trading value range and equity value range for the
Company. When taken together with the value of the Company's interest in Shared
Technologies Communications LLC, Shared Technologies of Canada, the expected
cash proceeds from the exercise of warrants issued by the Company relating to
its stake in Shared Technologies Cellular, Inc., and the value of the Company's
net operating losses to an acquiror, the comparable companies analysis resulted
in an implied trading value range and equity value range of $460 million to $510
million and $7.97 to $9.94 per share, respectively.
COMPARABLE ACQUISITIONS ANALYSIS. Using publicly available information,
CSFB reviewed eight merger and acquisition transactions in the
telecommunications industry (the "Acquisition Comparables"). The Acquisition
Comparables included (listed as acquiror/target): LCI International Inc./USLD
Communications Corp.; McLeodUSA/Consolidated Communications Inc.; Shared
Technologies/Fairchild Industries, Inc.; Frontier Corp./Enhanced Telemanagement,
Inc.; Rochester Telephone Corp./American Sharecom, Inc.; Intermedia
Communications/Phone One Inc.; MFS Communications/RealCom Office Communications;
and MFS Communications/Centex Telemanagement.
For each of the analyzed acquisitions, CSFB compared enterprise value as a
multiple of LTM revenues, EBITDA and EBIT. CSFB's analysis indicated that
enterprise value as a multiple of LTM (i) revenues ranged from 0.9x to 2.4x,
with a mean of 1.4x and a median of 1.4x, (ii) EBITDA ranged from 9.1x to 37.5x,
with a mean of 14.7x and a median of 9.7x, and (iii) EBIT ranged from 15.7x to
17.3x, with a mean of 16.5x and a median of 16.5x. When taken together with the
value of the Company's interest in Shared Technologies Communications LLC,
Shared Technologies of Canada, the expected cash proceeds from the exercise of
warrants issued by the Company relating to its stake in Shared Technologies
Cellular, Inc., and the value of the Company's net operating losses to an
acquiror, the comparable acquisitions analysis resulted in an enterprise value
range and equity value range for the Company of $460 million to $560 million and
$7.97 to $11.92 per share, respectively.
The preparation of a fairness opinion is a complex analytic process
involving various determinations as to the most appropriate and relevant methods
of financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. Selecting portions of the analyses or
of the summary set forth above, without considering the analyses as a whole,
could create an incomplete view of the process underlying the CSFB Opinion. In
arriving at its opinion, CSFB considered the results of all such analyses taken
as a whole. Furthermore, in arriving at its fairness opinion, CSFB 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. No company or transaction used in the above analyses as a
comparison is identical to Intermedia, the Company or the Offer and the Merger,
nor is an evaluation of the results of such analyses entirely mathematical;
rather, it involves complex considerations and judgments concerning financial
and operating characteristics and other factors that could affect the
acquisition, public trading or other values of the companies, business segments
or transactions being analyzed. The analyses were prepared solely for purposes
of CSFB providing its opinion to the Company Board as to the fairness from a
financial point of view of the consideration to be received by Stockholders
shares (other than Intermedia, Fairchild and RHI) in the Offer and the Merger,
and do not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based upon forecasts of
future results are not necessarily indicative of actual future results, which
may be significantly more or less favorable than suggested by such analyses.
Such analyses are based upon numerous factors or events beyond the control of
the Company, its advisors or any other person and are inherently uncertain.
Actual future results may be materially different from those forecast.
FEE AND OTHER INFORMATION
Pursuant to the terms of CSFB's engagement, the Company has agreed to pay
CSFB a financial advisory fee of $5 million for its services in connection with
the Offer and the Merger and to indemnify
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CSFB and certain related persons against certain liabilities, including
liabilities under the federal securities laws.
In the ordinary course of business, CSFB and its affiliates may actively
trade the debt and equity securities of both the Company and Intermedia for
their own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities. In the past, CSFB has
provided certain investment banking services for the Company and Intermedia and
has received customary fees for such services.
INTERESTS OF CERTAIN PERSONS
In considering the recommendation of the Company Board, the Stockholders
should be aware that, as described below, certain members of the Company's
management and the Company Board may have interests in the Merger that are
different from, or may conflict with, the interests of the Stockholders
generally and which may create potential conflicts of interest.
EMPLOYMENT AGREEMENTS
Each of Messrs. Autorino, Steiner, Borer and DiVincenzo have employment
agreements with the Company that provide for the payment to each of them of an
amount in cash equal to two years of base salary plus target bonus (defined as
50% of base salary) payable upon a "change of control" of the Company. The
consummation of the Merger will constitute such a change of control. Pursuant to
such employment agreements, payments of up to $4,155,000 in the aggregate are
payable to the Company's executives in the event of a change of control of the
Company. The employment agreements of such executives also provide for the
vesting of all options for shares of the Company's Common Stock owned by such
executive immediately prior to the consummation of the Merger. Furthermore,
following consummation of the Merger, it is not anticipated that Messrs.
Autorino, Steiner and DiVincenzo will continue to hold the same executive
positions, and, pursuant to their employment agreements, they will be entitled
to receive non-compete payments up to approximately $2,671,000 in the aggregate.
On December 30, 1997, Mr. Steiner resigned as Vice Chairman of the Company
and his employment agreement with the Company was amended such that certain
payments owed to Mr. Steiner under his employment agreement were accelerated. On
or about December 30, 1997, Mr. Steiner received a lump-sum cash payment of
$5,328,750 (the "Lump-Sum Payment") which amount constituted the amounts Mr.
Steiner was owed pursuant to his employment agreement and the cashing out of his
stock options pursuant to the Merger Agreement. In the event that the Merger
Agreement is terminated, Mr. Steiner must within 30 days of such termination
reimburse the Company for the Lump-Sum Payment, together with interest thereon
computed at a rate of 10% per annum.
Mr. Steiner is also the Chairman, Chief Executive Officer and President of
TFC. Mr. Steiner is the beneficial owner of approximately 37% of the outstanding
common stock of TFC and has approximately 73% of the voting power of all common
stock of TFC. TFC, through RHI, owns approximately 27.2% of the outstanding
Common Stock of the Company. Ms. Natalia Hercot, a director of the Company, is
employed by TFC as an International Coordinator and Translator and is the
daughter of Mr. Steiner. Donald E. Miller, a director of the Company, is a
Senior Vice President, General Counsel and Secretary of TFC.
STOCK OPTION PLANS
1987 STOCK OPTION PLAN. Under the 1987 Stock Option Plan, the Company is
authorized to issue options to purchase an aggregate of 1,200,000 Shares.
Options to purchase 299,248 Shares were outstanding at January 6, 1998 under the
1987 Stock Option Plan. Options granted pursuant to the 1987 Stock Option Plan
shall vest upon consummation of the Merger and each holder will receive an
amount in cash equal to the difference of $15.00 and the exercise price of such
option.
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BOARD OF DIRECTORS STOCK OPTION PLAN. Under the Directors' Stock Option
Plan, options to purchase 115,000 Shares were outstanding as of January 6, 1998.
Of such options, 85,000 are vested and such option holders will receive and
amount in cash equal to the difference of $15.00 and the exercise price of such
option.
1996 EQUITY INCENTIVE PLAN. The 1996 Equity Incentive Plan provides for
issuance of options to key employees to purchase up to 2,250,000 Shares, subject
to anti-dilutive adjustments, as determined by the Company's Compensation
Committee. Options to purchase 969,001 Shares were outstanding under the 1996
Equity Incentive Plan at January 6, 1998. The vesting of outstanding options
granted pursuant to the 1996 Equity Incentive Plan will not accelerate as a
result of the consummation of Merger, except as provided in the Company's
employment agreements (as described above), which provide that an aggregate of
1,492,000 of such outstanding options will vest upon consummation of the Merger
and such option holders will receive an amount in cash equal to the difference
of $15.00 and the exercise price of such option. Intermedia has agreed to assume
certain options pursuant to the 1996 Equity Incentive Plan that will not
accelerate as a result of the Merger Agreement.
INDEMNITY ARRANGEMENTS
Pursuant to the Merger Agreement, Intermedia has agreed to maintain in
effect for six years from the Effective Time, directors' and officers' liability
insurance for any persons who were directors or officers of the Company or a
subsidiary of the Company prior to the Effective Time, with respect to any act
or failure to act by any such persons prior to the Effective Time, and the
Surviving Corporation will indemnify such directors and officers to the fullest
extent that they would have been indemnified prior to the Effective Time. See.
"THE MERGER AGREEMENT -- Director and Officer Indemnification."
THE FAIRCHILD CORPORATION
TFC, of which Mr. Steiner, a director and the Vice Chairman of the Company,
is the Chairman, Chief Executive Officer and President and significant
stockholder, through RHI, owns approximately 27.2% of the Shares. In connection
with the Merger, the Company has redeemed the Special Preferred Stock held by
TFC for an aggregate redemption price of $21,899,455 in cash and Intermedia has
purchased the Convertible Preferred Stock held by TFC for an aggregate purchase
price of $62,833,815. See "Stock Purchase Agreement" and "Loan Agreement."
OUTSIDE DIRECTOR PAYMENTS
The Merger Agreement provides that the Company may make to its non-employee
directors honorarium payments not to exceed $300,000 in the aggregate. The
Company intends to make the full amount of such payments should the Merger be
consummated.
CERTAIN EFFECTS OF THE CONSUMMATION OF THE MERGER
Upon consummation of the Merger, the Company intends to delist the Shares,
to terminate the registration of Shares under the Exchange Act and to terminate
the duty of the Company to file reports under the Exchange Act. In addition, if
the Shares are not listed on the Nasdaq National Market or any other national
exchange, the Shares will no longer constitute "margin securities" under the
rules of the Federal Reserve Board, with the result, among others, that lenders
may no longer extend credit on collateral of the Shares.
In addition, as described under "INTRODUCTION--Purpose of the Special
Meeting," at the Effective Time, each outstanding share of Common Stock and
Series D Preferred Stock will be converted into the right to receive $15.00 in
cash and the holders of shares of Common Stock and Series D Preferred Stock
immediately before the consummation of the Merger will possess no further
interest in, or rights as stockholders of, the Company.
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THE MERGER AGREEMENT
Each material contract, agreement, arrangement and understanding between the
Company or its affiliates and (i) the Company, its executive officers, directors
or affiliates and (ii) Intermedia, Moonlight, their respective executive
officers, directors or affiliates is described below.
The following is a summary of certain provisions of the Merger Agreement.
This summary is qualified in its entirety by reference to the full text thereof
which is attached as Annex I hereto and is incorporated by reference.
THE MERGER. The Merger Agreement provides that upon the terms and subject
to the conditions of the Merger Agreement, and in accordance with relevant law,
Moonlight shall be merged with and into the Company as soon as practicable
following the satisfaction or waiver, if permissible, of the conditions to the
Merger. The Company shall be the Surviving Corporation and shall continue its
existence under the laws of the State of Delaware, and the Certificate of
Incorporation and the Bylaws of Moonlight as in effect immediately prior to the
Effective Time (as defined in the Merger Agreement) shall be the Certificate of
Incorporation and Bylaws of the Surviving Corporation (except the name of the
Surviving Corporation shall be Shared Technologies Fairchild, Inc.). The
directors of Moonlight immediately prior to the Effective Time and the officers
of the Company immediately prior to the Effective Time shall be the directors
and officers, respectively, of the Surviving Corporation until their respective
successors are duly elected and qualified. Each share of the common stock of
Moonlight issued and outstanding immediately prior to the Effective Time shall
be converted into and become one share of common stock of the Surviving
Corporation, which will thereupon become a direct wholly owned subsidiary of
Intermedia. The parties to the Merger Agreement shall cause the Merger to be
consummated by filing with the Secretary of State of the State of Delaware a
duly executed and verified certificate of merger, as required by the DGCL. The
Merger will become effective upon such filing or at such time thereafter as is
provided under applicable law.
CONSIDERATION TO BE PAID IN THE MERGER. In the Merger, each Share issued
and outstanding immediately prior to the Effective Time (other than Shares held
by Intermedia, Moonlight or any subsidiary of Moonlight or Intermedia or in the
treasury of the Company, all of which shall be canceled, and other than
Dissenting Shares (as defined in the Merger Agreement)) shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive in cash an amount per Share (subject to any applicable
withholding tax) equal to $15.00, without interest.
Additionally, each share of the Series D Preferred Stock and Convertible
Preferred Stock (collectively, the "Preferred Shares") issued and outstanding
immediately prior to the Effective Time (other than the Preferred Shares held by
Intermedia, Moonlight or any subsidiary of Intermedia, Moonlight or in the
treasury of the Company, all of which shall be canceled, and other than
Dissenting Shares (as defined in the Merger Agreement)) shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive in cash an amount per share (subject to any applicable
withholding tax) equal to $15.00 per share of Series D Preferred Stock and
$251.21 per share of Convertible Preferred Stock of Special Preferred Stock,
without interest.
COMPANY STOCK OPTIONS AND WARRANTS. Prior to the Effective Time, the
Company shall take all actions necessary (and Intermedia and Moonlight consent
to the taking of such actions) so that all options and warrants outstanding
immediately prior to the Effective Time under any option plan or warrant
including, without limitation, the 1994 Director's Option Plan (with respect to
which the term of office of each director shall be deemed to have been
terminated on May 1, 1998), the 1996 Equity Incentive Plan and Shared
Technologies, Inc.'s 1987 Stock Option Plan (all such warrants and options
collectively, the "Company Stock Option Plans") shall be cancelled and
terminated at the Effective Time and that each holder of such options and
warrants shall receive in the Merger a cash payment equal to the difference
between (A) the Merger Consideration (as defined in the Merger Agreement) times
the number of Shares
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subject to such outstanding options or warrants (to the extent then exercisable
at prices not in excess of the Merger Consideration) and (B) the aggregate
exercise price of all such outstanding options and warrants. From and after the
date hereof, no additional options or warrants shall be granted under the
Company Stock Option Plans.
STOCKHOLDER MEETING. The Merger Agreement provides that the Company will,
as soon as practicable following consummation of the Offer, duly call a meeting
of its Stockholders for the purpose of adopting the plan of merger contained in
the Merger Agreement and the transactions contemplated thereby. The Merger
Agreement also provides that, subject to the fiduciary duties of its Board of
Directors under applicable law as set forth in a written opinion of outside
counsel, the Company shall recommend that Stockholders vote in favor of the
adoption of the agreement of merger set forth in the Merger Agreement.
VOTING OF SHARES ACQUIRED BY MOONLIGHT. During the period beginning on the
date on which the Offer is consummated and ending on the later of (a) the date
on which the Merger Agreement is terminated, and (b) the date on which Moonlight
receives any regulatory approvals necessary to consummate the Merger, Moonlight
agrees to exercise its voting rights in respect of any Shares it owns for the
election of directors to the Company Board in the same proportion as the voting
rights of any Shares not owned by Moonlight have been exercised.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations and warranties by the Company with respect to corporate
existence and good standing, capital structure, subsidiaries, corporate
authorization, absence of changes, filings with the Securities and Exchange
Commission (the "Commission"), consents and approvals, no violations of other
agreements, investment banking fees and opinions, employee benefits, labor
relations, litigation, taxes, compliance with applicable laws, intellectual
property, real property, insurance, material contracts, related party
transactions, liens, title to and condition of properties, environmental
matters, absence of undisclosed liabilities, pending transactions, certain
indemnification agreements and other matters.
Moonlight and Intermedia have also made certain representations and
warranties with respect to corporate existence and good standing, corporate
authorization, Commission filings, consents and approvals, no violations of
other agreements, investment banking fees and other matters.
CONDUCT OF BUSINESS AND OTHER COVENANTS PENDING THE MERGER. Pursuant to the
Merger Agreement, the Company has agreed that during the period from the date of
the Merger Agreement until the Effective Time, except as otherwise consented to
in writing by Moonlight or Intermedia or as contemplated by the Merger
Agreement, it and each of its respective subsidiaries will carry on its business
in the ordinary course in substantially the same manner as previously conducted.
Specifically, the Company has agreed not to (a) amend its certificate of
incorporation or bylaws, (b) issue or sell any shares of capital stock or
securities convertible into shares of capital stock, subject to certain
exceptions, (c) effect a stock split or declare or make any dividends or other
distribution on any shares of its capital stock, (d) incur or assume any new
debt or make any loans or capital investments in any other person or entity in
excess of $1.0 million, (e) adopt or amend any employee benefit plan or
severance arrangement or increase the compensation of its directors or officers
or employees generally, subject to certain exceptions, (f) enter into, amend,
modify or relinquish any material rights under any material contract, (g) sell,
lease, mortgage, pledge or otherwise dispose of any assets or property other
than in the ordinary course of business, (h) make or commit to make any material
capital expenditure, (i) change its accounting methods, (j) settle any material
claim, (k) amend certain indemnification agreements relating to the Merger
Agreement or (l) make any election under the Code (as defined in the Merger
Agreement) that would have a material adverse effect on the Company or the
Merger.
Pursuant to the Merger Agreement, Intermedia will appoint a senior executive
as a management consultant (the "Consultant") to the Company. The Consultant
will liaise directly with the executive
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officers of the Company and shall be informed of and participate in all
management decisions. As more fully described in the Merger Agreement, if the
Company does not comply with the management decisions and the recommendations of
the Consultant, the Moonlight, under certain circumstances, may have the right
to terminate the Merger Agreement.
Pursuant to the Merger Agreement, Intermedia, Moonlight and the Company have
agreed to use their respective best efforts to take all actions and to do all
things necessary, proper or advisable to consummate the transactions
contemplated by the Merger Agreement.
Intermedia, Moonlight and the Company have also entered into covenants
regarding the preparation of the Company's proxy statement, press releases,
access to information, notification if any of the representations and warranties
are materially untrue, the designation of the directors of the Company,
indemnification of directors and officers of the Company, fees and expenses
relating to the Merger and stockholder litigation.
NO SOLICITATION. Pursuant to the Merger Agreement, the Company has agreed
that it will not, and it will not permit any of its subsidiaries, officers,
directors, employees, representatives and agents to, directly or indirectly, (i)
solicit any Company Takeover Proposal (as defined below) or (ii) participate in
any discussions or negotiations regarding any Company Takeover Proposal;
PROVIDED, HOWEVER, that if at any time prior to the Company Meeting, the Company
Board 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 the
Company stockholders under applicable law the Company may, in response to a
Company Takeover Proposal that was not solicited, furnish confidential
information with respect to the Company and participate in negotiations
regarding such Company Takeover Proposal. "Company Takeover Proposal" means any
inquiry, proposal or offer from any person relating to any direct or indirect
acquisition or purchase of 20% or more of the assets of the Company or its
subsidiaries or 20% or more of any class of equity securities of the Company or
any of its subsidiaries, any tender offer or exchange offer that if consummated
would result in any person beneficially owning 20% or more of any class of
equity securities of the Company or any of its subsidiaries, any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving the Company or any of its subsidiaries, other
than the transactions contemplated by the Merger Agreement, or any other
transaction the consummation of which would reasonably be expected to impede,
interfere with, prevent or materially delay the Merger or that would reasonably
be expected to dilute materially the benefits to Intermedia or Moonlight of the
transactions contemplated by the Merger Agreement.
In the event that prior to the Company Meeting (as defined in the Merger
Agreement) the 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 to the Company's stockholders under applicable law, the Board
of Directors may (subject to this and the following sentences) (x) withdraw or
modify its approval or recommendation of the Merger or (y) approve or recommend
a Superior Proposal (as defined below) or terminate the Merger Agreement (and
concurrently with or after such termination, if it so chooses, cause the Company
to enter into any acquisition agreement with respect to a Superior Proposal),
but in each of the cases set forth in this clause (y) not until a time that is
after the fifth business day following the Intermedia's or Moonlight's receipt
of written notice advising Intermedia or Moonlight that the Company Board has
received a Superior Proposal, specifying the material terms and conditions of
such Superior Proposal and identifying the person making such Superior Proposal,
to the extent that such identification of such person making such proposal does
not breach the fiduciary duties of the Company Board as advised by outside legal
counsel. A "Superior Proposal" means any bona fide proposal made by a third
party to acquire, directly or indirectly, for consideration consisting of cash
and/or securities, more than 50% of the combined voting power of the shares of
the Company's Common Stock and Company preferred stock then outstanding or all
or substantially all the assets of the Company and otherwise on terms that the
Board of Directors determines in its good faith judgment to be more favorable to
the Company's stockholders than the Merger.
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FEES AND EXPENSES. The Merger Agreement provides that all costs and
expenses incurred in connection with the Merger Agreement and the transactions
contemplated by the Merger Agreement shall be paid by the party incurring such
expenses, except that the Company will be required to pay a termination fee and
reimburse certain expenses of Intermedia and Moonlight to Intermedia or
Moonlight under certain circumstances described in "Termination" below.
CONDITIONS TO THE MERGER. Pursuant to the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the satisfaction
or waiver, prior to the proposed Effective Time, of the following conditions:
(a) the Merger and the Merger Agreement shall have been validly approved and
adopted by the affirmative votes of the holders of a majority of the outstanding
Shares entitled to vote thereon; (b) the waiting period (and any extension
thereof) applicable to the Merger under the HSR Act shall have been terminated
or shall have expired; and (c) no judgment, order, decree, statute, law
ordinance, rule or regulation entered, enacted, promulgated, enforced or issued
by any court, other governmental entity or other legal restraint or prohibition
shall be in effect preventing the consummation of the Offer or the Merger.
The obligations of Moonlight and Intermedia to effect the Merger are further
subject to the satisfaction or waiver, where permissible, on or prior to the
proposed Effective Time of the following conditions: (a) all of the
representations and warranties of the Company set forth in the Merger Agreement
shall be true and correct as of July 16, 1997, and the representations and
warranties set forth in Sections 3.2, 3.3, 3.4, 3.10, 3.14, 3.21, 3.22, 3.23 and
3.29 of the Merger Agreement shall be true and correct as of the date of the
Merger Agreement and the Closing Date (as defined in the Merger Agreement), as
if made at and as of such time, except where the failure of such representations
and warranties to be so true and correct (without giving effect to any
limitation as to "materiality" or "material adverse effect" set forth therein)
does not have, and is not likely to have, individually or in the aggregate, a
Company Material Adverse Effect (as defined in the Merger Agreement) or cause
any material increase in the consideration required to be paid by Intermedia and
Moonlight effectively to consummate the Merger; (b) the Company shall have
performed in all material respects all obligations required to be performed by
it under the Merger Agreement at or prior to the Closing Date; and (c) all
necessary consents and approvals of any federal, state or local governmental
authority or any other third party required for the consummation of the
transactions contemplated by the Merger Agreement shall have been obtained
except for such consents and approvals the failure to obtain which individually
or in the aggregate would not have a material adverse effect on the Surviving
Corporation or a Intermedia Material Adverse Effect (as defined in the Merger
Agreement).
The obligations of the Company to effect the Merger are further subject to
the satisfaction or waiver, where permissible, on or prior to the proposed
Effective Time of the following conditions: (a) the representations and
warranties of Intermedia and Moonlight set forth herein shall be true and
correct both when made and at and as of the Closing Date, as if made at and as
of such date, except where the failure of such representations and warranties to
be so true and correct (without giving effect to any limitation as to
"materiality" or "material adverse effect" set forth therein) does not have, and
is not likely to have, individually or in the aggregate, a Intermedia Material
Adverse Effect; and (b) Intermedia and Moonlight shall have performed in all
material respects all obligations required to be performed by them under the
Merger Agreement at or prior to the Closing Date.
TERMINATION. The Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval by the Stockholders: (a) by
consent of the Boards of Directors of the Company, Intermedia and Moonlight; (b)
by Intermedia and Moonlight upon notice to the Company if any material default
under or material breach of any covenant or agreement in the Merger Agreement by
the Company shall have occurred and shall not have been cured within ten days
after receipt of such notice, or any representation or warranty contained herein
on the part of the Company shall not have been true and correct in any material
respect at and as of the date made; (c) by the Company upon notice to Intermedia
and Moonlight if any material default under or material breach of any covenant
or agreement in the
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Merger Agreement by Intermedia or Moonlight shall have occurred and shall not
have been cured within ten days after receipt of such notice, or any
representation or warranty contained herein on the part of Intermedia or
Moonlight shall not have been true and correct in any material respect at and as
of the date made; (d) by Intermedia and Moonlight, on the one hand, or the
Company, on the other, upon notice to the other if the Merger shall not have
become effective on or before September 30, 1998, unless such date is extended
by the consent of the Boards of Directors of the Company, Intermedia and
Moonlight evidenced by appropriate resolutions; PROVIDED, HOWEVER, that the
right to terminate the Merger Agreement under Section 7.1(d) of the Merger
Agreement shall not be available to any party whose failure to fulfill any
obligation under the Merger Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date; (e) by any of
Intermedia, Moonlight and the Company if the approval of the Stockholders
required for consummation of the Merger shall not have been obtained by reason
of the failure to obtain the required vote at a duly held meeting of
Stockholders or any adjournment thereof; (f) by Intermedia or Moonlight, if
Section 5.5 of the Merger Agreement shall be breached by the Company or any of
its officers, directors or employees or any investment banker, financial
advisor, attorney, accountant or other representative of the Company, in any
material respect and the Company shall have failed promptly to terminate the
activity giving rise to such breach and use best efforts to cure such breach
upon notice thereof from Intermedia or Moonlight, or the Company shall breach
Section 5.5 of the Merger Agreement by failing to promptly notify Intermedia or
Moonlight as required thereunder; (g) by Intermedia or Moonlight if, at any
time, (i) the Company shall have withdrawn or modified in any manner adverse to
Intermedia or Moonlight its approval or recommendation of the Merger Agreement
or the Merger or failed to reconfirm its recommendation within 15 business days
after a written request to do so, or recommended any Company Takeover Proposal
or (ii) the Board of Directors of the Company or any committee thereof shall
have resolved to take any of the foregoing actions; (h) by the Company if it
elects to terminate the Merger Agreement in accordance with Section 5.5 (b) of
the Merger Agreement; PROVIDED that it has complied with all provisions thereof,
including the notice provisions therein, and that it complies with applicable
requirements relating to the payment (including the timing of the payment) of
the termination fee required by Section 7.3 of the Merger Agreement; or (i) by
Intermedia or Moonlight in accordance with the provisions of the last paragraph
of Section 5.1 of the Merger Agreement; PROVIDED that it has complied with all
provisions thereof, including the notice provisions therein.
EFFECT OF TERMINATION. In the event of the termination of the Merger
Agreement pursuant to the provisions of Section 7.1, the provisions of the
Merger Agreement (other than Sections 5.10, 7.2, 7.3 and 7.4 thereof) shall
become void and have no effect, with no liability on the part of any party
hereto or its stockholders or directors or officers in respect thereof, except
as set forth in Sections 7.3 and 7.4 of the Merger Agreement provided that
nothing contained herein shall be deemed to relieve any party of any liability
it may have to any other party with respect to a breach of its obligations under
the Merger Agreement.
TERMINATION PAYMENT. As compensation for entering into the Merger
Agreement, taking action to consummate the transactions hereunder and incurring
the related costs and expenses related thereto and other losses and damages,
including the foregoing of other opportunities, the Company and Intermedia have
agreed that the Company shall pay to Intermedia the sum of $10.0 million plus
all reasonably documented out-of-pocket expenses (including, but not limited to,
the reasonable fees and expenses of counsel and its other advisers) of
Intermedia and Moonlight incurred in connection with the transactions
contemplated by the Merger Agreement (including the preparation and negotiation
of the Merger Agreement) promptly after, but in no event later than two days
following, whichever of the following first occurs: (i) Intermedia or Moonlight
shall have exercised its right to terminate the Merger Agreement pursuant to
(b), (f), (g) or (i) of the "Termination" section above; or (ii) the Company
shall have exercised its right to terminate the Merger Agreement pursuant to (e)
or (h) of the "Termination" section above. The Company shall not be obligated to
make any such payment if at the time such payment becomes due Intermedia or
Moonlight is in material breach of its obligations under the Merger Agreement.
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Pursuant to the Merger Agreement, Intermedia has paid to the Company
$26,250,000 as a "Good Faith Deposit." The Company has paid from the proceeds of
the Good Faith Deposit an amount equal to $15,000,000 to Tel-Save to satisfy
termination fees arising from the Company's termination of the Tel-Save Merger
Agreement. The Company has paid an amount equal to $11,250,000 to Tel-Save in
exchange for the termination of any options to purchase Company Common Stock
held by Tel-Save under that certain Option Agreement dated as of July 16, 1997
by and between Tel-Save and the Company. In the event that Intermedia or
Moonlight terminates the Merger Agreement pursuant to Section (a), (b), (f), (g)
or (i) of the "Termination" section above or the Company terminates the Merger
Agreement other than pursuant to Section (c) or (d) of the "Termination" section
above, then the Company must repay all such amounts to Moonlight.
PARTIES IN INTEREST. Nothing in the Merger Agreement is intended to confer
upon any person, other than the parties thereto, any rights or remedies.
TIMING. The exact timing and details of the Merger will depend upon legal
requirements and a variety of other factors. Although Intermedia has agreed to
cause the Merger to be consummated on the terms and subject to the conditions
set forth above, there can be no assurance as to the timing of the Merger.
PUBLIC ANNOUNCEMENTS. Intermedia and the Company agreed to consult with
each other before issuing any press release or otherwise making any public
statements with respect to the Merger Agreement or any transaction contemplated
therein and not to issue any such press release or make any such public
statement prior to such consultation, except as may be required by law or any
listing agreement with any national securities exchange or the Nasdaq National
Market to which Intermedia or the Company is a party.
NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. No
representations, warranties or agreements in the Merger Agreement or in any
instrument delivered by Intermedia, Moonlight or the Company pursuant to the
Merger Agreement will survive the Merger.
DELAWARE LAW. The Board of Directors of the Company has approved the Merger
Agreement and the transactions contemplated thereby, including the Offer, the
Stock Purchase Agreement and the Merger. Accordingly, the restrictions of
Section 203 of the DGCL do not apply to the transactions contemplated by the
Stock Purchase Agreement and the Merger Agreement. Section 203 of the DGCL
prevents an "interested stockholder" (generally, a stockholder owning or having
the right to acquire 15% or more of a corporation's outstanding voting stock or
an affiliate or associate thereof) from engaging in a "business combination"
(defined to include a merger and certain other transactions) with a Delaware
corporation for a period of three years following the date on which such
stockholder became an interested stockholder unless (i) prior to such time, the
corporation's board of directors approved either the business combination or the
transaction which resulted in such stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in such
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the corporation's voting stock outstanding at the time the
transaction commenced (excluding shares owned by certain employee stock plans
and persons who are directors and also officers of the corporation) or (iii) at
or subsequent to such time the business combination is approved by the
corporation's board of directors and authorized at an annual or special meeting
of stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock not owned by the interested stockholder.
As described above, the foregoing description of Section 203 of the DGCL does
not apply to the Stock Purchase Agreement or the Merger.
STOCK PURCHASE AGREEMENT
In connection with the execution of the Merger Agreement, Intermedia and the
Company entered into a stock purchase agreement (the "Stock Purchase Agreement")
dated November 24, 1997. The
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following is a summary of the material terms of the Stock Purchase Agreement.
This summary is not a complete description of the terms and conditions thereof
and is qualified in its entirety by reference to the full text thereof.
Pursuant to the terms of the Stock Purchase Agreement, Intermedia purchased
all of the shares of the Convertible Preferred Stock owned by RHI on November
25, 1997, consisting of 250,000 shares of the Convertible Preferred Stock, for
an aggregate purchase price of $62,833,815. The 250,000 shares of the
Convertible Preferred Stock which were sold to Intermedia by RHI constitute all
of the issued and outstanding shares of the Convertible Preferred Stock.
LOAN AGREEMENT
In connection with the execution of the Merger Agreement, Intermedia and the
Company entered into a loan agreement (the "Loan Agreement"). The following is a
summary of the material terms of the Loan Agreement. This summary is not a
complete description of the terms and conditions thereof and is qualified in its
entirety by reference to the full text thereof.
Pursuant to the terms of the Loan Agreement, on November 24, 1997 Intermedia
provided the Company with a loan in the amount of $21,899,455 for redemption of
the Special Preferred Stock in accordance with the terms of the promissory note
issued by the Company. All of the issued and outstanding shares of the Special
Preferred Stock were redeemed in full on November 24, 1997. Payments of the
principal amount on the promissory note will be made at the same time and on the
same terms as payments of the liquidation preference were required to be made
under the terms of the Special Preferred Stock issued by the Company. Interest
on the promissory note will accrue and be payable on the same terms as dividends
were payable under the terms of the Special Preferred Stock.
THE STOCK OPTION AGREEMENT
Simultaneously with the execution of the Merger Agreement, Intermedia and
certain investors named therein (the "Investors") entered into a stock option
agreement (the "Stock Option Agreement") pursuant to which Intermedia was
granted irrevocable stock options to purchase from certain investors of the
Company their outstanding Shares, shares of Series D Preferred Stock of the
Company and options to acquire such shares owned by them. The following is a
summary of the material terms of the Stock Option Agreement. This summary is not
a complete description of the terms and conditions thereof and is qualified in
its entirety by reference to the full text thereof.
OPTION. To induce Intermedia and Moonlight to enter into the Merger
Agreement and subject to the terms and conditions set forth in the Stock Option
Agreement, each of the Investors has granted Intermedia an option to purchase
its respective Shares at $15.00 per Share, $15.00 minus the exercise price of
any options to purchase Shares or $15.00 per share of Series D Preferred Stock,
as the case may be. Intermedia may assign to any subsidiary or affiliate of
Intermedia (including Moonlight) the right to exercise the options. Each option
may be exercised individually from each Investor, in whole or in part, at any
time or from time to time, on or after November 20, 1997 and prior to the close
of business on the earlier of (i) the second business day after the termination
of the Merger Agreement; (ii) the Effective Time; and (iii) the date of the
termination of the Stock Option Agreement (such earliest date, the "Termination
Date").
VOTING OF SHARES. Each Investor, until the Termination Date, shall cause
the Shares owned by such Investor to be voted at any meeting of the stockholders
of the Company or in any consent in lieu of such a meeting in favor of the
consummation of the transactions contemplated by the Merger Agreement, against
any transactions inconsistent therewith, and as otherwise reasonably requested
by Moonlight in order to carry out the purposes of the Merger Agreement.
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<PAGE>
IRREVOCABLE PROXY. Each Investor has irrevocably appointed Intermedia,
until the Termination Date, as its attorney and proxy pursuant to the provisions
of Section 212 of the DGCL, with full power of substitution, to vote and take
other actions (by written consent or otherwise) in favor of the consummation of
the transactions contemplated by the Merger Agreement, against any transactions
inconsistent therewith, and as otherwise reasonably required in order to carry
out the purposes of the Merger Agreement with respect to the Option Shares (and
all other securities issued to such Investor in respect of the Shares) which
each Investor is entitled to vote at any meeting of stockholders of the Company
(whether annual or special and whether or not an adjourned or postponed meeting)
or in respect of any consent in lieu of any such meeting or otherwise. This
proxy and power of attorney is irrevocable and coupled with an interest in favor
of Intermedia. Each Investor has revoked all other proxies and powers of
attorney with respect to the Option Shares (and all other securities issued to
such Investor in respect of the Option Shares) which it may have heretofore
appointed or granted. No subsequent proxy or power of attorney may be given or
written consent executed (and if given or executed, will not be effective) by
the Investors with respect thereto.
RESTRICTIONS ON TRANSFER. Each Investor has covenanted and agreed that,
until the expiration of the Investor Options as provided in the Stock Option
Agreement, except as contemplated by the Stock Option Agreement, the Investor
shall not, and shall not offer or agree to, sell, transfer, tender, assign,
hypothecate or otherwise dispose of, or create or permit to exist any security
interest, lien, claim, pledge, option, right of first refusal, agreement,
limitation on the Investor's voting rights, charge or other encumbrance of any
nature whatsoever with respect to the Option Shares.
NO SOLICITATION. Except as provided in the Stock Option Agreement, each
Investor shall not, directly or indirectly, through any agent or representative
or otherwise, (i) solicit, initiate or encourage the submission of any proposal
or offer from any individual, corporation, partnership, limited partnership,
syndicate, person (including, without limitation, a "person" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended), trust,
association or entity or government, political subdivision, agency or
instrumentality of a government (collectively, other than Intermedia and any
affiliate of Intermedia, a "Person") relating to (a) any acquisition or purchase
of all or any of the Option Shares or (b) any acquisition or purchase of all or
any portion of the assets of, or any equity interest in, the Company or any
subsidiary of the Company or any business combination with the Company or any
subsidiary of the Company or (ii) participate in any negotiations regarding, or
furnish to any Person any information with respect to, or otherwise cooperate in
any way with, or assist or participate or facilitate or encourage, any effort or
attempt by any Person to do or seek any of the foregoing. Each Investor
immediately shall cease and cause to be terminated all existing discussions or
negotiations of the Investor and its agents or other representatives with any
Person conducted heretofore with respect to any of the foregoing. Each Investor
shall notify Intermedia promptly if any such proposal or offer, or any inquiry
or contact with any Person with respect thereto, is made and shall, in any such
notice to Intermedia, indicate in reasonable detail the identity of the Person
making such proposal, offer, inquiry or contact and the terms and conditions of
such proposal, offer, inquiry or contact.
SETTLEMENT AGREEMENT
In connection with entering into the Merger Agreement, the Company,
Intermedia, Moonlight, Tel-Save and TSHCo., entered into a Settlement Agreement
which provides, among other things, for (i) a dismissal with prejudice of the
litigation commenced by Intermedia and Moonlight in Chancery Court of Delaware,
New Castle County seeking, among other things, to enjoin the Tel-Save Merger;
(ii) the purchase by Intermedia of $163,367,000 face amount of the 12 1/4%
Senior Subordinated Notes due 2006 of the Company that were owned by Tel-Save;
(iii) releases and covenants not to sue in connection with the Merger Agreement
and the termination of the Tel-Save Merger Agreement; and (iv) an agreement by
Tel-Save that for a period of one year or the earlier termination of the Merger
Agreement, Tel-Save will not
20
<PAGE>
acquire or make any attempts to acquire the Company. This summary is not a
complete description of the terms thereof and is qualified in its entirety by
reference to the full text thereof.
SOURCE AND AMOUNT OF FUNDS
The total amount of funds required by Moonlight to effect the Merger and to
pay related fees and expenses is approximately $395 million. Moonlight will
obtain all funds needed for the Merger through Intermedia's available cash
reserves.
INTERMEDIA'S PURPOSE FOR THE MERGER
The purposes of the Offer and the Stock Option Agreement was, as promptly as
practicable, to acquire as many Shares as possible, and transfer the
consideration for such Shares to the Company's Stockholders, without needing to
obtain any FCC or state regulatory consents. Such consents are a condition to
the consummation of the Merger. The purpose of the Merger is for Intermedia and
Moonlight to acquire all Shares not purchased pursuant to the Offer and the
Stock Option Agreement.
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for under the "purchase" method of accounting
whereby the purchase price will be allocated based on the fair values of assets
acquired and liabilities assumed.
21
<PAGE>
RIGHTS OF DISSENTING STOCKHOLDERS
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS AND SERIES D HOLDERS
Section 262 of the DGCL ("Section 262") entitles Stockholders and Series D
Holders who object to the Merger and who follow the procedures prescribed by
Section 262, to have the "fair value" of their shares at the Effective Time of
the Merger (exclusive of any element of value arising from accomplishment or
expectation of the Merger) judicially appraised and paid to them in cash.
Set forth below in a summary of the procedures relating to the exercise of
the appraisal rights provided to the holders of Shares and shares of Series D
Preferred Stock pursuant to Section 262. This summary does not purport to be a
complete statement of appraisal rights under Section 262 and is qualified in its
entirety by reference to Section 262, which is reproduced in full as Annex III
attached to this Proxy Statement and to any amendments to such provisions of the
DGCL as may be adopted after the date of this Proxy Statement.
ANY STOCKHOLDER OR SERIES D HOLDER CONTEMPLATING THE POSSIBILITY OF
EXERCISING APPRAISAL RIGHTS SHOULD CAREFULLY REVIEW THE TEXT OF ANNEX III
(PARTICULARLY THE PROVISIONS RELATING TO THE SPECIFIED PROCEDURAL STEPS REQUIRED
TO PERFECT APPRAISAL RIGHTS, WHICH STEPS ARE COMPLEX) AND ALSO SHOULD CONSULT
SUCH HOLDER'S LEGAL COUNSEL. SUCH APPRAISAL RIGHTS WILL BE LOST IF THE
PROCEDURAL REQUIREMENTS OF SECTION 262 ARE NOT FULLY AND PRECISELY SATISFIED.
Stockholders or Series D Holders, as the case may be, who desire to exercise
their appraisal rights must fully satisfy all of the following conditions. A
written demand for appraisal of Shares or shares of Series D Preferred Stock, as
the case may be, must be delivered to the Secretary of the Company before the
taking of the vote on the approval and adoption of the Merger Agreement. Any
holder of record of Shares or shares of Series D Preferred Stock, as the case
may be, seeking appraisal rights must hold the shares for which appraisal is
sought on the date of the making of the demand, continuously hold such shares
through the Effective Time of the Merger, and otherwise comply with the
provisions of Section 262.
A demand for appraisal must be executed by or for the holder of record of
Shares or Series D Preferred Stock, fully and correctly, as such holder's name
appears on the stock certificates. If shares for which appraisal is sought are
owned of record in a fiduciary capacity, such as by a trustee, guardian or
custodian, such demand must be executed by the fiduciary. If shares for which
appraisal is sought are owned of record by more than one person, as in a joint
tenancy or tenancy in common, such demand must be executed by all joint owners.
An authorized agent, including an agent for two or more joint owners, may
execute the demand for appraisal for a holder of record of Shares or shares of
Series D Preferred Stock, as the case may be; provided that the agent must
identify the record owner and expressly disclose the fact that, in exercising
the demand, he is acting as agent for the record owner.
A record owner, such as a broker, who holds Shares or shares of Series D
Preferred Stock, as the case may be, as a nominee for others, may exercise
appraisal rights with respect to such shares held for all or less than all
beneficial owners of such shares as to which the holder is the record owner. In
such case, the written demand must set forth the number of Shares or shares of
Series D Preferred Stock covered by such demand. Where the number of shares is
not expressly stated, the demand will be presumed to cover all Shares or shares
of Series D Preferred Stock, as the case may be, outstanding in the name of such
record owner. Beneficial owners who are not record owners and who intend to
exercise appraisal rights should instruct the record owner to comply strictly
with the statutory requirements with respect to the exercise of appraisal rights
before the date of the Special Meeting.
Record holders of Shares or shares of Series D Preferred Stock, as the case
may be, who elect to exercise appraisal rights must mail or deliver their
written demands to the attention of Kenneth M. Dorros,
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<PAGE>
Secretary, Shared Technologies Fairchild, Inc., 100 Great Meadow Road, Suite
104, Wethersfield, Connecticut 06109. The written demand for appraisal should
specify the stockholder's name and mailing address, the number of Shares or
shares of Series D Preferred Stock, as the case may be, covered by the demand,
and that the stockholder is thereby demanding appraisal of such shares. Within
ten days after the Effective Time of the Merger, the Company must provide notice
of the Effective Time of the Merger to all holders of record of the Shares or
shares of Series D Preferred Stock, as the case may be, who have complied with
Section 262.
Within 120 days after the Effective Time of the Merger, either the Company
or any Stockholder or Series D Holder, as the case may be, who has complied with
the required conditions of Section 262 and who is otherwise entitled to
appraisal rights may file a petition in the Delaware Court of Chancery demanding
a determination of the fair value of the shares of the dissenting Stockholder or
Series D Holder, as the case may be. If a petition for an appraisal is timely
filed, after a hearing on such petition, the Delaware Court of Chancery will
determine which Stockholders or Series D Holders, as the case may be, are
entitled to appraisal rights and thereafter will appraise the shares owned by
such Stockholders or Series D Holders, as the case may be, determining the fair
value of such shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest to be paid, if any, upon the amount determined to be the fair value.
Such interest may be simple or compound as determined by the Delaware Court of
Chancery. In determining fair value, the Delaware Court of Chancery is to take
into account all relevant factors. In WEINBERGER V. UOP, INC., 457 A.2D 701
(DEL. 1983), the Delaware Supreme Court discussed the factors that could be
considered in determining fair value in an appraisal proceeding, stating that
"proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in Court," should
be considered. The Delaware Supreme Court stated that in making a determination
of fair value, the Court of Chancery must consider "market value, asset value,
dividends, earning prospects, the nature of the enterprise and any other facts
which were known or which could be ascertained as of the date of Merger and
which throw any Light on future prospects of the merged corporation. . . ."
However, the Court noted that Section 262 provides that fair value is to be
determined "exclusive of any element of value arising from accomplishment or
expectation of the merger." The cost of the appraisal proceeding may be
determined by the Delaware Court of Chancery and taxed upon the parties as the
Delaware Court of Chancery deems equitable in the circumstances. Upon
application of a dissenting Stockholder or Series D Holder, as the case may be,
the Delaware Court of Chancery may order that all or a portion of the expenses
incurred by any dissenting Stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts, be charged pro rata against the value of all
shares entitled to appraisal. In the absence of such a determination or
assessment, each party bears its own expenses.
Any Stockholder or Series D Holder, as the case may be, who has duly
demanded appraisal in compliance with Section 262 will not, after the Effective
Time of the Merger, be entitled to vote for any purpose the shares subject to
such demand or to receive payment of dividends or other distributions on such
shares, except for dividends or other distributions payable to Stockholders of
record at a date prior to the Effective Time of the Merger.
At any time within 60 days after the Effective Time of the Merger, any
Stockholders or Series D Holder, as the case may be, who has sought appraisal of
such shares will have the right to withdraw his or her demand for appraisal and
to accept the terms of the Merger. After this period, such holder may withdraw
his or her demand for appraisal only with the consent of the Company, as the
surviving corporation. If no petition for appraisal is filed with the Delaware
Court of Chancery within 120 days after the Effective Time, Stockholders 'or
Series D Holders' rights to appraisal will cease. Inasmuch as the Company has no
obligation to file such a petition, and has no present intention to do so, any
Stockholder or Series D Holder, as the case may be, who desires such a petition
to be filed is advised to file it on a timely basis. No petition timely filed in
the Delaware Court of Chancery demanding appraisal will be
23
<PAGE>
dismissed as to any Stockholder without the approval of the Delaware Court of
Chancery, and such approval may be conditioned upon such terms as the Delaware
Court of Chancery deems just.
Failure to take any required step in connection with the exercise of
appraisal rights may result in the termination or waiver of such rights.
If Stockholders or Series D Holders, as the case may be, elect to exercise
these rights of appraisal, the receipt of cash for Shares or shares of Series D
Preferred Stock will be a taxable transaction to the such holders receiving such
cash, as described below under "Certain Federal Income Tax Consequences."
STOCKHOLDERS AND SERIES D HOLDERS CONSIDERING EXERCISING STATUTORY RIGHTS OF
APPRAISAL SHOULD CONSULT WITH THEIR OWN TAX ADVISORS WITH REGARD TO THE TAX
CONSEQUENCES OF SUCH ACTIONS.
To the extent there are any inconsistencies between the foregoing summary
and the DGCL, the DGCL shall control.
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<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The receipt of cash for Shares and shares of Series D Preferred Stock
pursuant to the Merger will be a taxable transaction for U.S. federal income tax
law purposes and may also be a taxable transaction under applicable state, local
or foreign tax laws. The tax consequences of such receipt pursuant to the Merger
may vary depending upon, among other things, the particular circumstances of the
stockholder. In general, a stockholder who receives cash for Shares or shares of
Series D Preferred Stock pursuant to the Merger will recognize gain or loss for
federal income tax purposes equal to the difference between the amount of cash
received in exchange for the Shares and shares of Series D Preferred Stock sold
and such stockholder's adjusted tax basis in such Shares or shares of Series D
Preferred Stock.
Provided that the Shares or shares of Series D Preferred Stock constitute
capital assets in the hands of the stockholder, such gain or loss will be
capital gain or loss, and will be long term capital gain or loss if the holder
has held the Shares or shares of Series D Preferred Stock for more than one year
at the time of sale.
DISSENTERS
A holder of Shares or shares of Series D Preferred Stock who exercises and
perfects his or her applicable rights under Section 262 of the DGCL to demand
fair value for such Shares or shares of Series D Preferred Stock (see "Rights of
Dissenting Stockholders" above) will recognize capital gain or loss (and may
recognize an amount of interest income) for federal income tax purposes
attributable to any payment received pursuant to the exercise of such rights
based upon the principles described in the previous paragraphs.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED UPON PRESENT LAW. STOCKHOLDERS AND SERIES D
HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF THE
ALTERNATIVE MINIMUM TAX, AND STATE, LOCAL AND FOREIGN TAX LAWS. IN ADDITION, THE
DISCUSSION SET FORTH ABOVE MAY NOT APPLY TO PARTICULAR CATEGORIES OF
STOCKHOLDERS, INCLUDING STOCKHOLDERS WHO ACQUIRED SHARES OR SHARES OF SERIES D
PREFERRED STOCK PURSUANT TO THE EXERCISE OF EMPLOYER STOCK OPTIONS OR OTHERWISE
AS COMPENSATION, INDIVIDUALS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED
STATES, AND FOREIGN CORPORATIONS, LIFE INSURANCE COMPANIES, TAX-EXEMPT
ORGANIZATIONS, FINANCIAL INSTITUTIONS OR ENTITIES THAT ARE OTHERWISE SUBJECT TO
SPECIAL TAX TREATMENT.
REGULATORY APPROVALS
STATE TAKEOVER LAWS. A number of states throughout the United States have
enacted takeover statutes that purport, in varying degrees, to be applicable to
attempts to acquire securities of corporation that are incorporated or have
assets, stockholders, executive officers or places of business in such states.
In EDGAR V. MITE CORP., the Supreme Court of the United States held that the
Illinois Business Takeover Act, which involved state securities laws that made
the takeover of certain corporations more difficult, imposes a substantial
burden on interstate commerce and therefore was unconstitutional. In CTS CORP.
V. DYNAMICS CORP. OF AMERICA, however, the Supreme Court of the United States
held that a state may, as a matter of corporate law and, in particular, those
laws concerning corporate governance, constitutionally disqualify a potential
acquirer from voting on the affairs of a target corporation without prior
approval of the remaining stockholders, provided that such laws were applicable
only under certain conditions.
Section 203 of the Delaware General Corporate Law ("GCL") limits the ability
of a Delaware corporation to engage in business combinations with "interested
stockholders" (defined as any beneficial owner of 15% or more of the outstanding
voting stock of the corporation) unless, among other things, the corporation's
board of directors has given its prior approval to either the business
combination or the transaction which resulted in the stockholder becoming an
"interested stockholder." The Company has represented in the Merger Agreement
that it properly approved, among other things, the Offer, the Stock Option
Agreement and the Merger for purposes of Section 203 of the GCL.
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<PAGE>
Based on information supplied by the Company, neither Intermedia nor
Moonlight believes that any other state takeover statutes apply to the Offer or
the Merger. Neither Intermedia nor Moonlight has currently complied with any
state takeover statute or regulation. Intermedia and Moonlight reserve the right
to challenge the applicability or validity of any state law purportedly
applicable to the Offer, the Stock Option Agreement, the Stock Purchase
Agreement or the Merger and any action taken in connection with the Offer, the
Stock Option Agreement, the Stock Purchase Agreement or the Merger is not
intended as a waiver of such right. If it is asserted that any state takeover
statute is applicable to the Offer, the Stock Option Agreement, the Stock
Purchase Agreement or the Merger and an appropriate court does not determine
that it is inapplicable or invalid as applied to the Offer, the Stock Option
Agreement, the Stock Purchase Agreement or the Merger, the Merger will not be
consummated.
GOVERNMENT REGULATIONS. The Company's services business is subject to
specific regulations in several states. Within various states, such regulations
may include limitations on the number of lines or PBX switches per system,
limitations of shared telecommunications systems to single buildings or building
complexes, requirements that such building complexes be under common ownership
or common ownership, management and control and the imposition of local exchange
access rates that may be higher than those for similar single user PBX systems.
The Company's systems business is generally exempt from governmental regulation
with respect to marketing and sales. However, various regulatory bodies,
including the Federal Communications Commission ("FCC"), require that
manufacturers of equipment obtain certain certifications.
The Company holds an authorization issued by the FCC to provide
international telecommunications services and it also holds authorizations from
various state public utility commissions permitting it to provide intrastate
telecommunications services. The FCC and many of these state public utility
commissions require their prior approval in the event control of the Company is
transferred to another party.
Prior approval of the FCC and notification to or approval by various state
public utility commissions will be required for consummation of the Merger or
the acquisition by Intermedia or Moonlight of sufficient additional Shares
(pursuant to the Stock Option Agreement, conversion of the Convertible Preferred
Stock or otherwise) to effect a DE JURE or DE FACTO transfer of control of the
Company. The Company believes that all necessary approvals will be obtained, but
there can be no assurance that the Company, Intermedia and Moonlight will obtain
all necessary approvals or, if they can be obtained, that the process can be
completed on a timely basis. The Merger will require permission or consents from
certain state regulatory agencies. There can be no assurance that the Company,
Intermedia and Moonlight can obtain such permissions or consents, or, if they
can be obtained, that the process can be completed on a timely basis.
ANTITRUST. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act") and the rules promulgated thereunder by the Federal
Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the applicable waiting period has expired or been terminated. On
November 28, 1997, the Company and Intermedia, filed Notification and Report
Forms under the HSR Act with the FTC and the Antitrust Division. On December 28,
1997, the waiting period under the HSR Act with respect to the Merger expired.
At any time before or after consummation of the Merger, notwithstanding
expiration of the waiting period under the HSR Act, the Antitrust Division or
the FTC could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the consummation
of the Merger or seeking divestiture of shares acquired by moonlight or of
substantial assets of the Company. Private parties may also seek to take legal
action under the antitrust laws under certain circumstances.
Based on information available to them, the Company, Intermedia and
Moonlight believe that the Merger can be effected in compliance with federal and
state antitrust laws. However, there can be no assurance that a challenge to the
consummation of the Merger on antitrust grounds will not be made or that, if
such a challenge were made, the Company, Intermedia and Moonlight would prevail
or would not be required to accept certain adverse conditions in order to
consummate the Merger.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data below should be read in conjunction
with, and is qualified in its entirety by, the Company's Consolidated Financial
Statements incorporated by reference in this Proxy Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS
------------------------------------------------------ ENDED SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues..................................... $ 24,077 $ 25,426 $ 45,367 $ 47,086 $ 157,241 $ 141,779
Gross margin................................. 9,254 10,912 19,195 18,214 74,669 70,654
Selling, general and administrative
expenses................................... 9,959 10,102 16,909 16,188 55,329 51,536
Operating income (loss)...................... (705) 810 2,286 2,026 19,340 19,118
Interest expense, net........................ (290) (438) (359) (667) (22,888) (21,694)
Equity in loss of affiliate.................. -- -- -- (1,752) (3,927) (210)
Minority interest in net income of
subsidiaries............................... (37) (82) (128) -- -- --
Gain on sale of subsidiary stock............. -- -- -- 1,375 -- --
Income taxes................................. -- -- 487 (45) (783) (214)
Extraordinary Items: (Loss) gain on
restructuring.............................. 3,756 (150) -- -- -- --
Loss on early retirement of debt............. -- -- -- -- (311) --
Net income (loss)............................ 2,724 140 2,286 927 (8,569) (3,000)
Net income (loss) per common share applicable
to common stockholders..................... $ .59 $ (.04) $ .27 $ .06 $ (.79) $ (.42)
Weighted average common shares outstanding... 4,063 5,132 6,792 8,482 13,787 16,039
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------- AT SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEETS DATA:
Total assets........................................... 18,752 20,601 37,925 42,863 369,566 370,242
Notes payable, convertible promissory notes payable,
other long-term debt (incl. current portion and
redeemable preferred stock).......................... 4,745 3,719 4,727 6,998 291,004 295,777
Stockholders' equity................................... 6,034 9,302 20,881 22,844 43,209 38,602
</TABLE>
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's discussion and analysis of results of operations
and financial condition include forward-looking statements with respect to the
Company's future financial performance. These forward-looking statements are
subject to various risks and uncertainties which could cause actual results to
differ materially from historical results or those currently anticipated.
OVERVIEW AND RECENT DEVELOPMENTS
The Company is a national provider of shared telecommunications services
("STS") and telecommunications systems ("Systems") to tenants of multi-tenant
commercial office buildings. One of the Company's affiliates, Shared
Technologies Cellular Inc. ("STC"), is a provider of short-term portable
cellular telephone rentals and prepaid, or debit, cellular telephone service.
In March 1996, the Company's stockholders approved, and the Company
completed, a merger with Fairchild Industries, Inc. ("FII") following a
reorganization in which FII transferred all non-communications assets to its
parent, RHI. As a result of the merger, the Company is the largest provider of
STS in the United States. On a pro forma basis, the Company generated
approximately $185 million in revenues and $24 million in operating income for
the year ended December 31, 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SEPTEMBER 30, 1996
REVENUES
The Company's revenues rose to $141.8 million in 1997, an increase of 27.8%
over 1996 revenues of $110.9 million. This increase was principally due to the
March 13, 1996 merger with FII. STS revenue increased $13.2 million, or 19.1%,
and Systems revenue increased $17.6 million, or 42.5%.
Approximately $7.0 million of the increase in the Systems revenue was due to
the inclusion of management fees from ICS Communications, Inc. ("ICS") and GE
Capital-ResCom, L.P. ("ResCom"). During this period, the Company operated as the
manager of each of these businesses. These management agreements terminated
during the third quarter of 1997.
GROSS MARGIN
Gross margin increased to 49.8% of revenues for 1997, from 46.6% for 1996.
The change in gross margin was mainly the result of changes in sales mix and the
merger with FII. In addition, the revenues generated from the management
agreements with ICS and ResCom were included in Systems revenue. Since the
associated cost for this revenue of approximately $9.0 million was in selling,
general and administrate expense, it had no material adverse effect on Systems
gross margin. The following table sets forth the components of the Company's
overall gross margin (GM) for the nine months ended September 30, 1997 as a
factor of sales percentage and gross margin percentage per line of business:
<TABLE>
<CAPTION>
DIVISION SALES GM WEIGHTED GM
- ----------------------------------------------------------- --------- --------- -------------
<S> <C> <C> <C>
STS........................................................ 58.2% 52.4% 30.5%
Systems.................................................... 41.8% 46.2% 19.3%
--------- --------- ------
Company Total.......................................... 100.0% 49.8%
--------- ------
--------- ------
</TABLE>
As shown above, the 1997 gross margin was a mix of STS gross margin of 52.4%
and Systems gross margin of 46.2%. In 1996, the company's gross margin was a
combination of STS gross margin of 31.1% and Systems gross margin of 14.9%.
28
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses increased $12.4
million to $51.5 million, due entirely to the merger with FII and the associated
increased headcount, goodwill amortization and other general overhead expenses.
SG&A as a percentage of revenue increased from 35.3% in 1996 to 36.3% in 1997.
OPERATING INCOME
Operating income increased by $6.6 million to $19.1 million in 1997 from
$12.5 million in 1996. The increase was mainly the result of the FII merger
mentioned earlier.
INTEREST EXPENSE
Interest expense net of interest income increased by $6.5 million for the
nine months ended September 30, 1997 over the nine months ended September 30,
1996. This was attributable to the addition of approximately $245 million in new
debt on March 13, 1996 in connection with the FII merger.
NET INCOME (LOSS)
As a result of the factors listed above, net loss for the nine months ended
September 30, 1997 decreased $2.1 million to $3.0 million, compared to a net
loss of $5.1 million in the nine months ended September 30, 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES
The Company's revenues for the year ended December 31, 1996 increased by
$110.2 million, or 233.8%, to $157.2 million compared to $47.1 million for the
year ended December 31, 1995. This increase was principally due to the March 13,
1996 merger with FII. STS revenue increased $60.8 million, or 173.0%, and
Systems revenue increased $49.3 million or 414%.
GROSS MARGIN
Gross margin increased in 1996 to 47.5% of revenues, from 38.7% of revenues
in 1995. The following table sets forth the components of the Company's overall
gross margin for 1996 for the STS and Systems divisions, respectively.
<TABLE>
<CAPTION>
DIVISION REVENUES GM WEIGHTED GM
- ----------------------------------------------------------- ----------- --------- -------------
<S> <C> <C> <C>
STS........................................................ 61.1% 53.0% 32.4%
Systems.................................................... 38.9% 38.9% 15.1%
----------- --------- ------
Company Total.......................................... 100.0% 47.5%
----------- ------
----------- ------
</TABLE>
In 1996, the Company's gross margin was a combination of STS gross margin of
53.0% and Systems gross margin of 38.9%. In 1995, the Company's gross margin was
a combination of STS gross margin of 44.6% and Systems gross margin of 21.1%.
STS increased gross margin From the 1995 level mainly due to the network
synergies resulting from the March 1996 FII merger. Systems margins increased
from 21.1% in 1995 to 38.9% in 1996. This increase was due primarily to the FII
merger and the resultant change in the mix of systems revenue. The Company's
Systems revenue was comprised of long-distance revenues outside of its building
sites and the sale and ongoing maintenance of equipment to customers in and out
of its building. The long distance component had-margins in the range of 20-25%,
while the sale of equipment, with its maintenance component, provides margins in
the range of 35-40%. With the completion of the
29
<PAGE>
March 1996 merger of FII, the Company's sales mix in Systems became more
concentrated in the equipment sale and maintenance end. Therefore, the Company's
margin has increased accordingly.
In addition the revenues generated from the management agreement with ICS
have been included in Systems revenue. Since the associated cost for this
revenue of $5 million is in the selling, general and administrative expense, it
has a positive effect on Systems gross margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A as a percentage of revenue increased to 35.2% for 1996, compared to
34.4% for 1995. This increase was due to the merger with FII, principally in the
Systems division, as the higher margin sale of equipment and maintenance
requires sales and support personnel.
OPERATING INCOME
Operating income increased by $17.3 million, or 854.6%, to $19.3 million in
1996, from $2.0 million in 1995. The increase was mainly due to the merger with
FII.
EQUITY IN LOSS OF AFFILIATES
The Company recorded an equity loss of $3.9 million, $3.7 of which came as a
result of STC losses of $8.9 million for the year ended December 31, 1996. The
remaining $0.2 million came as a result of the Company's portion of the losses
incurred by Shared Technologies of Canada, Inc.
INTEREST EXPENSE
Interest expense, net of interest income, increased by $22.2 million to
$22.9 million for 1996, compared to $0.7 million in 1995. This increase was due
to the merger with FII and the resulting bank and bond debt incurred as a result
of the transaction. As of December 31, 1996, the Company has bank debt in the
amount of $123.3 million and bond debt in the amount of $126.5 million. It
should be noted that the interest on the bonds is initially accretive and,
therefore, non-cash. The total non-cash portion of interest expense was $12.1
million as of December 31, 1996.
EXTRAORDINARY ITEM--LOSS ON EARLY RETIREMENT OF DEBT
An extraordinary loss of $0.3 million for 1996 was recorded to reflect the
expense associated with the early retirement of pre-merger bank debt which was
paid at the conclusion of the March 1996 FII merger.
INCOME TAX EXPENSE
The Company's income tax expense of $0.8 million consisted of actual
payments of tax for approximately $.2 million and the reversal of a tax asset
benefit of $0.6 million. Since the March 1996 merger, and the corresponding loss
due primarily to interest charges on debt, the Company reversed its tax benefit.
NET INCOME (LOSS)
As a result of the factors listed above, net loss for the year ended
December 31, 1996 was $8.6 million compared to net income of $0.9 million for
1995.
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS
As a result of the FII merger, the Company issued additional mandatorily
redeemable preferred stock; this resulted in the Company recording higher
preferred cash dividends and non-cash dividends through the accretion of these
instruments to liquidation values.
30
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES
The Company's revenues rose to a record $47.1 million in 1995 an increase of
$1.7 million or 3.7% over 1994 revenues of $45.4 million. This increase occurred
despite the loss of STC revenue as STC results were recorded pursuant to the
equity method in 1995; STC accounted for $10.2 million of 1994 revenue. STS
revenue increased $6.5 million or 22.7% and Systems $5.4 million or 83.1% in
1995 over 1994 levels. Approximately $2.9 million of the growth in revenue for
STS was attributable to a full year of service at locations acquired in June
1994 with the acquisition of Access Telecommunications Group, L.P. ("Access"),
$1.6 million was attributable to the June 1995 acquisition of Office Telephone
Management ("OTM"), the remaining increase of approximately $2.0 million was
generated through internal growth at existing and new locations. Approximately
$4.7 million of the growth in Systems revenues is attributable to a full year of
activity at accounts acquired with the June 1994 acquisition of Access, the
remaining increase of $1.8 million was generated internally.
GROSS MARGIN
Gross margin dropped to 38.7% of revenues for 1995 from 42.3% for 1994, a
reduction of 3.6%. The following table sets forth the components of the
Company's overall gross margin for 1995 as a factor of sales percentage and
gross margin percentage per line of business:
<TABLE>
<CAPTION>
DIVISION REVENUES GM WEIGHTED GM
- ----------------------------------------------------------- ----------- --------- -------------
<S> <C> <C> <C>
STS........................................................ 74.7% 44.6% 33.3%
Systems.................................................... 25.3% 21.1% 5.4%
----------- --------- ------
Company Total.......................................... 100.0% 38.7%
----------- ------
----------- ------
</TABLE>
As shown above, the 1995 gross margin was a mix of STS gross margin of 44.6%
and Systems gross margin of 21.1%. In 1994 the Company's gross margin was a
combination of STS gross margin of 45.2%, Systems gross margin of 20.4% and STC
gross margin of 48.2%. STS produced slightly reduced gross margin from the 1994
level mainly due to the acquisition of OTM operations which produced gross
margin of approximately 30%. Systems experienced slightly improved gross margin
mainly due to a full year of operations obtained with the Access acquisition.
The overall decrease in the Company's gross margin was principally the result of
changes in sales mix. The change in accounting to the equity method for STC
results of operations created an overall drop in gross margin of approximately
1.7% for 1995. The drop in STS gross margin for 1995 contributed 0.4% to the
overall reduction in gross margin for 1995. The remainder of the decrease in
gross margin was generated by Systems. As noted above, Systems revenues grew at
a faster rate than STS revenues in 1995. Since Systems produces significantly
lower gross margin compared to STS, the growth in Systems sales depressed
overall gross margin for the Company 1.5%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A as a percentage of revenues decreased to 34.4% for 1995 compared to
37.3% for 1994. The Company has reduced SG&A as a percentage of revenues by
increasing revenues without adding a comparable percentage of SG&A costs.
Certain SG&A costs are essentially fixed and do not increase significantly with
revenue growth. In addition the Company has carefully chosen to expand in
locations with existing management infrastructures already in place.
OPERATING INCOME
Operating income decreased by $0.3 million or 11.4% to $2.0 million in 1995
from $2.3 million in 1994. The decrease was partially the result of STC no
longer a part of the Company consolidated group in
31
<PAGE>
1995. STC contributed approximately $0.7 million to operating income in 1994.
This was offset by improved STS and Systems contribution of $0.4 million in 1995
over 1994 levels.
GAIN ON SALE OF SUBSIDIARY STOCK
In April 1995, the Company successfully completed a public offering of STC
stock. Following the offering the Company's percentage of ownership decreased
from approximately 86% to 60%. The accounting treatment of the sale required the
Company to record a gain of $1.4 million or the year ended December 31, 1995.
EQUITY IN LOSS OF SUBSIDIARY
In December 1995, STC issued approximately $3.0 million in voting preferred
stock to third parties. While the Company's ownership percentage did not change,
the Company's voting interest in STC was reduced to 42.7%, resulting in the
Company's loss of voting control. Accordingly, subsequent to this stock
issuance, STC was accounted for under the equity method, The Company recorded an
equity loss of $1.7 million as a result of STC losses of $2.8 million for the
year ended December 31, 1995.
INTEREST EXPENSE
Interest expense net of interest income increased by $0.3 million for the
year ended December 31, 1995 over the year ended December 31, 1994. This was
attributable to the addition of approximately $4.4 million in interest bearing
debt during 1995. Approximately $0.3 million in non interest bearing debts were
repaid during 1995.
INCOME TAX BENEFIT (EXPENSE)
The Company recorded an insignificant amount of income tax expense for the
year ended December 31, 1995 compared to a net benefit of $0.5 million for the
year ended December 31, 1994. Income tax expense for 1995 was mainly the result
of state income taxes. During 1994, the Company adjusted the deferred tax asset
valuation reserve per Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" ("SFAS 109"). This adjustment resulted in a
deferred tax asset of $8.0 million, a corresponding valuation reserve of $7.4
million and a $0.6 million tax benefit for the year ended December 31, 1994.
This benefit was partially offset by state income taxes resulting in a net
benefit of $0.5 million for 1994. The source of the deferred tax asset was
principally the expected future utilization on a conservative basis of net
operating losses ("NOL") generated in prior years. Based on the requirements of
SFAS 109, the Company recalculated the deferred tax asset and adjusted the
valuation reserve for the year ended December 31, 1995. This adjustment resulted
in no significant impact to the Company's results of operations for the year
ended December 31, 1995. At December 31, 1995 the Company's NOL carryforward for
federal income tax purposes was approximately $21.8 million.
NET INCOME
As a result of the factors listed above, net income for the year ended
December 31, 1995 decreased by $1.4 million or 60.9% to $0.9 million from $2.3
million for 1994.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations reached $24.4 million in 1996 compared to
$4.9 million in 1995 and $3.1 million in 1994. The Company's working capital
deficit was $8.8 million at December 31, 1996 compared to $3.4 million and $3.7
million for December 31, 1995 and 1994 respectively. The increase in the
Company's working capital deficit was directly related to the March 1996 merger
with FII and the current portion of bank debt raised as part of this
transaction. The Company's current portion of long-term
32
<PAGE>
debt and capital leases went from $2.9 million in the year ended December 31,
1995 to $13.6 million in the year ended December 31, 1996.
The merged Company has continued to invest in capital equipment directed at
internal growth, expansion into new operations and upgrading telecommunication
equipment at existing locations. The Company invested $9.7 million in the
purchase of equipment in 1996 compared to $3.7 million and $3.2 million in 1995
and 1994, respectively. The Company invested $225.9 million in connection with
the merger with FII and had invested $5.3 million to complete two other
acquisitions; OTM in June 1995 and Access in June 1994.
Financing activities were focused primarily on raising capital to provide
cash for investing activities. For the year ended 1996 the company raised $125
million of bank debt of which $5 million was the amount taken down on a $25
million revolver, and $115 million in Senior Subordinated Discount Notes both in
connection with the March 1996 merger with FII. Additionally, the Company
received $3.2 million from the exercise of employee and director options as well
as the exercise of warrants issued in conjunction with its Series D Preferred
Stock. The Company paid $9.4 million in deferred financing and debt issuance
costs and $8.4 million in payments to affiliates, both of which are related
directly to the merger with FII. The Company paid $1.5 million in preferred
stock dividends and $12.7 million for repayments of debt. During 1995 the
Company borrowed $2.7 million and raised $1.2 million from sales of common stock
to help finance the current year's equipment purchases and the acquisition of
OTM. During 1994, approximately $4.6 million was raised from sales of common and
preferred stock to help the Company fund operations. In 1995 and 1994 the
Company spent $4.6 million to repay notes, long-term debt and capital lease
obligations.
Due to the merger with FII and the associated borrowings of $245 million,
the Company's liquidity and capital resources were significantly changed. At
September 30, 1997, the Company had $370 million in assets, $256 million in
various long and short-term debt and capital lease obligations, and $40.1
million in recently issued preferred stock. The balance sheet at September 30,
1997 showed a working capital deficit of $8.0 million, compared to a deficit of
$22.7 million at September 30, 1996. As of September 30, 1997 the Company had
available for future borrowings under its credit facility of approximately $11
million. Cash provided by operations was $18.1 million for the nine months ended
September 30, 1997, compared to $12.1 million for the nine months ended
September 30, 1996.
The Company invested $9.4 million in equipment purchases in the nine months
ended September 30, 1997, compared to $7.1 million in the nine months ended
September 30, 1996. These expenditures were used to grow additional business and
sustain the Company's underlying revenue stream.
Financing activities for the period ended September 30, 1997 involved
principal payments on the Company's debt of $9.9 million, offset by a $2.0
million take down on the Company's revolver availability. Subsequent to end of
the quarter, the Company borrowed an additional $5 million under its revolver
increasing total borrowings thereunder to $17 million with availability under
the revolver of $6 million.
Cash requirements for 1997 have been significant due to the acquisition of
FII and the associated new debt mentioned earlier. The Company anticipates to
continue repaying these borrowings and providing cash for operations and capital
expenditures through cash from operations.
Due to the Company's net operating loss carryforwards, the Company currently
anticipates minimal federal income tax payments during 1997.
Inflation has not materially impacted the Company's operations in 1997.
33
<PAGE>
PRICE RANGE OF SHARES
The Shares trade on the Nasdaq National Market under the symbol "STCH". The
following table sets forth, for the fiscal quarters indicated, the high and low
sales price per Share on the Nasdaq National Market. All prices set forth are as
reported in published financial sources:
<TABLE>
<CAPTION>
MARKET PRICE
------------------
HIGH LOW
------- -------
<S> <C> <C>
QUARTER ENDED
March 31, 1995................................................................ $ 5 1/8 $ 3 9/16
June 30, 1995................................................................. 5 1/2 4
September 30, 1995............................................................ 5 1/4 4 1/8
December 31, 1995............................................................. 4 3/4 3 1/4
March 31, 1996................................................................ 6 5/16 3 3/4
June 30, 1996................................................................. 9 1/8 4 3/8
September 30, 1996............................................................ 7 7/8 5 3/8
December 31, 1996............................................................. 9 1/2 6 11/16
March 31, 1997................................................................ 9 1/8 5 1/8
June 30, 1997................................................................. 7 3/4 5
September 30, 1997............................................................ 12 3/16 6 7/8
December 31, 1997............................................................. 14 3/4 11 1/4
Through January 8, 1998....................................................... 14 3/4 14 5/8
</TABLE>
On November 20, 1997, the last full trading day prior to the announcement of
the terms of the Merger Agreement, the reported closing sales price per Share on
the Nasdaq National Market was 14 3/16. On November 25, 1997, the last full
trading day prior to the commencement of the Offer, the reported closing sales
price per Share on the Nasdaq National Market was 14 1/2. On January 8, 1998 the
last full trading day prior to the mailing of this proxy statement, the reported
closing sales price per share on the Nasdaq National Market was 14 41/69.
STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES. THE
COMPANY HAS NEVER DECLARED OR PAID A DIVIDEND ON THE SHARES.
BUSINESS OF THE COMPANY
The Company is the largest provider of shared telecommunications services in
the United States. The Company also sells, installs and maintains
telecommunications systems for businesses and government agencies. As of July 1,
1997, the Company provided shared telecommunications services across the United
States servicing approximately 9,000 customers in 463 buildings with over
110,000 lines. As of July 1, 1997, the Company also provided maintenance and
other services through its telecommunications systems business to approximately
6,000 customers with over 400,000 lines nationwide. The Company currently
provides shared telecommunications services and telecommunications systems in
over 36 metropolitan markets.
The Company provides shared telecommunications services to commercial
tenants in office buildings in which the Company typically has installed a
dedicated private branch exchange switch under exclusive agreement with the
building owner, thereby permitting the Company's customers to obtain all their
telephone and telecommunications needs from a single source and a single point
of contact. Under multi-year contracts that usually extend through the term of
the tenants' leases, the Company offers its customers access to services
provided by regulated communications companies, such as local, discounted long
distance, international and "800" telephone services. The Company also provides
telephone switching equipment and telephones, as well as voice mail, telephone
calling cards, local area network wiring, voice and data cable installation.
Other services provided by the Company include audio conferencing, automatic
call distribution services and message center capability.
34
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information known to the Company with respect
to beneficial ownership of Common Stock as of January 6, 1998 by (i) each
stockholder who is known by the Company to own beneficially more than five
percent of the outstanding Common Stock, (ii) each of the Company's directors,
(iii) each of the executive officers named below and (iv) all current directors
and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF SHARES
BENEFICIALLY OWNED BENEFICIALLY
NAME OF BENEFICIAL OWNER OR IDENTITY OF GROUP (A) (B) OWNED
- ------------------------------------------------------------------------ --------------------- -----------------
<S> <C> <C>
Anthony D. Autorino (c)
Chairman, Chief Executive Officer and Director........................ 1,358,215 7.49%
Thomas H. Decker (d)
Director.............................................................. 5,000 *
William A. DiBella (e)
Director.............................................................. 68,178 *
Vincent Di Vincenzo (f)
Director, Senior Vice President--Administration and Finance, Treasurer
and Chief Financial Officer........................................... 136,391 *
Natalia Hercot (g)
Director.............................................................. 10,000 *
Ajit G. Hutheesing (h)
Director.............................................................. 323,457 1.78%
Jo McKenzie (i)
Director.............................................................. 24,575 *
Donald E. Miller (j)
Director.............................................................. 11,000 *
All Directors and Executive Officers as a Group (k)
(11 persons).......................................................... 2,183,455 12.04%
The Fairchild Corporation and RHI Holdings, Inc.
300 West Service Road
P. O. Box 10803
Chantilly, VA 20153................................................... 4,669,352 25.77%
Intermedia Communications, Inc.
3625 Queen Palm Drive
Tampa, FL 33619 (o)................................................... 5,134,564 28.3%
</TABLE>
- ------------------------
<TABLE>
<S> <C>
(a) The mailing address of each of the Company's directors and executive officers is c/o
Shared Technologies Fairchild Inc., 100 Great Meadow Road, Wethersfield, Connecticut
06109.
(b) Except as otherwise specifically noted, the number of shares stated as being owned
beneficially includes shares believed to be held beneficially by spouses and minor
children. The inclusion herein of any shares deemed beneficially owned does not
constitute an admission of beneficial ownership of those shares. Each shareholder
possesses sole voting and investment power with respect to the shares listed opposite
such stockholder's name, except as otherwise indicated.
</TABLE>
35
<PAGE>
<TABLE>
<S> <C>
(c) Includes 685,000 shares currently issuable upon exercise of opinions. Also includes
69,599 shares owned of record by the estate of Mr. Autorino's late spouse, as to which
Mr. Autorino disclaims beneficial ownership. Also includes 7,203 shares owned by Mr.
Autorino through the Company's Savings and Retirement Plan. Also includes 11,500
shares of Series D Preferred, which are convertible into 11,500 shares of Common
Stock. Also includes 150,020 shares owned by the Autorino Family Limited Partnership,
of which Mr. Autorino is the general partner. Also includes 17,500 shares of Series D
Preferred owned of record by the estate of Mr. Autorino's late spouse, as to which Mr.
Autorino disclaims beneficial ownership.
(d) Includes 5,000 shares currently issuable upon exercise of options by Mr. Decker.
(e) Includes 24,663 shares currently issuable upon exercise of options by Mr. DiBella.
Also includes 43,515 shares owned of record by Mr. DiBella's spouse, as to which
shares Mr. DiBella disclaims beneficial ownership.
(f) Includes 132,500 shares currently issuable upon exercise of options by Mr. DiVincenzo.
Also includes 3,439 shares owned by Mr. DiVincenzo through the Company's Savings and
Retirement Plan.
(g) Includes 10,000 shares currently issuable upon exercise of options by Ms. Hercot.
(h) Includes 20,000 shares currently issuable upon exercise of options by Mr. Hutheesing.
Also includes a warrant which is convertible into 298,957 shares of Common Stock,
which is owned of record by International Capital Partners, Inc., of which Mr.
Hutheesing is the Chairman, Chief Executive Officer and a stockholder.
(i) Includes 24,575 shares currently issuable upon exercise of options by Mrs. McKenzie.
(j) Includes 10,000 shares currently issuable upon exercise of options by Mr. Miller.
(k) Includes a total of 1,078,955 shares which officers and directors of the Company have
the right to acquire under outstanding stock options. Also includes 29,000 shares of
Series D Preferred currently convertible into 29,000 shares of Common Stock. Also
includes 298,957 shares of Common Stock issuable upon conversion by warrant, as set
forth in footnote (h) above. Also includes 18,764 shares owned by officers and
directors through the Company's Savings and Retirement Plan as of June 30, 1997.
(o) Does not assume conversion of the 250,000 shares of Convertible Preferred Stock held
by Intermedia. Assuming conversion of such shares, Intermedia would own 9,344,183
shares of Common Stock, approximately 38.2% of the outstanding Common Stock on a fully
diluted basis. In addition, does not assume ownership of the shares of Common Stock
Intermedia can acquire pursuant to the Stock Option Agreement.
</TABLE>
CERTAIN INFORMATION CONCERNING INTERMEDIA AND MOONLIGHT
Moonlight is a newly incorporated Delaware corporation and a wholly-owned
subsidiary of Intermedia. To date, Moonlight has not conducted any business
other than in connection with its organization, the Offer and the Merger.
Accordingly, no meaningful financial information with respect to Moonlight is
available. The principal executive offices of Moonlight are located at 3625 Palm
Drive, Tampa, Florida 33619.
Intermedia, a Delaware corporation, has its principal executive office at
3625 Queen Palm Drive, Tampa, Florida 33619.
OTHER MATTERS
Management knows of no other matter which may properly be brought before the
Meeting. Under the Company's Bylaws, no business may be transacted at a special
meeting of stockholders unless it is included in the notice of the meeting. If
any other matters properly come before the Special Meeting, it is intended
36
<PAGE>
that the holders of the proxies hereby solicited will act in respect to such
matters in accordance with their best judgment. Representatives of Arthur
Andersen LLP are expected to be present at the special meeting, where they will
have the opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. All such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission 450 Fifth Street, N.W., Room 1024, Washington D.C. 20549, and at
the Commission's regional offices at 7 World Trade Center, Suite 1300, New York,
NY 10048 and 500 West Madison Street, Suite 1300, Chicago, IL 60661. Copies of
such material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Room 3190, Washington, D.C. 20549 at
prescribed rates. Such material should also be available on-line through the
Commission's EDGAR electronic filing and retrieval system and on the
Commission's World Wide Web site at http://www.sec.gov.
37
<PAGE>
STOCKHOLDER PROPOSALS
If the Merger is not consummated, the Company will hold an annual meeting of
Stockholders in 1998. Stockholder proposals for such annual meeting were
required to have been received by the Company no later than December 16, 1997.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Exchange Act are incorporated herein by reference:
1. The Annual Report of the Company on Form 10-K for its fiscal year
ended December 31, 1996;
2. The Quarterly Report of the Company on Form 10-Q for its fiscal
periods ended March 31, June 30 and September 30, 1997;
3. Current Report on Form 8-K dated July 22, August 4, November 18 and
November 24, 1997;
4. All other reports filed by the Company since the end of the fiscal
year covered by the Annual Report referred to above; and
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to date hereof and
prior to the Special Meeting shall be deemed to be incorporated herein by
reference. Any statement contained herein or in a document all or a portion of
which is incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Proxy Statement to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
By Order of the Board of Directors,
Kenneth M. Dorros
Secretary
January 9, 1998
PLEASE MARK, SIGN AND DATE THE ACCOMPANYING PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
38
<PAGE>
ANNEX I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRIVILEGED AND CONFIDENTIAL
AGREEMENT AND PLAN OF MERGER
AMONG
INTERMEDIA COMMUNICATIONS INC.,
MOONLIGHT ACQUISITION CORP.
AND
SHARED TECHNOLOGIES FAIRCHILD INC.
DATED NOVEMBER 20, 1997
- --------------------------------------------------------------------------------
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I. THE OFFER............................................................................................. 1
1.1. The Offer.................................................................................. 1
1.2. Company Action............................................................................. 2
1.3. Voting of Shares Acquired by Purchaser..................................................... 3
II. THE MERGER............................................................................................ 3
2.1. Merger; Surviving Corporation.............................................................. 3
2.2. Certificate of Incorporation............................................................... 3
2.3. Bylaws..................................................................................... 3
2.4. Directors and Officers..................................................................... 3
2.5. Effective Time............................................................................. 3
2.6. Conversion of Shares....................................................................... 4
2.7. Purchaser Common Stock..................................................................... 4
2.8. Surrender of Shares........................................................................ 5
2.9. Company Stock Options and Warrants......................................................... 6
2.10. Good Faith Deposit......................................................................... 6
2.11. Termination of the Pledge Agreement........................................................ 6
III. REPRESENTATIONS AND WARRANTIES OF COMPANY............................................................. 6
3.1. Organization and Qualification............................................................. 6
3.2. Capital Stock of Subsidiaries.............................................................. 6
3.3. Capitalization............................................................................. 7
3.4. Authority Relative to This Agreement....................................................... 7
3.5. No Violations, etc. ....................................................................... 8
3.6. Commission Filings; Financial Statements................................................... 8
3.7. Absence of Changes or Events............................................................... 9
3.8. Proxy Statement............................................................................ 9
3.9. Litigation................................................................................. 9
3.10. Title to and Condition of Properties....................................................... 9
3.11. Contracts and Commitments.................................................................. 9
3.12. Labor Matters.............................................................................. 10
3.13. Compliance with Law........................................................................ 10
3.14. Board Recommendation....................................................................... 10
3.15. Patents and Trademarks..................................................................... 10
3.16. Taxes...................................................................................... 10
3.17. Employee Benefit Plans; ERISA.............................................................. 11
3.18. Environmental Matters...................................................................... 13
3.19. Disclosure................................................................................. 14
3.20. Absence of Undisclosed Liabilities......................................................... 14
3.21. Finders or Brokers......................................................................... 14
3.22. State Antitakeover Statutes................................................................ 14
3.23. Opinion of Financial Advisor............................................................... 15
3.24. Insurance.................................................................................. 15
3.25. Employment and Labor Contracts............................................................. 15
3.26. Pending Transactions....................................................................... 15
3.27. Indemnification Agreements................................................................. 15
3.28. Indemnified Liabilities.................................................................... 15
3.29. Commercial Arrangements with Tel-Save Holdings, Inc. ...................................... 15
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IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER................................................ 16
4.1. Organization and Qualification............................................................. 16
4.2. Authority Relative to This Agreement....................................................... 16
4.3. No Violations, etc......................................................................... 16
4.4. Proxy Statement............................................................................ 17
4.5. Finders or Brokers......................................................................... 17
4.6. Offer Documents............................................................................ 17
V. COVENANTS............................................................................................. 17
5.1. Conduct of Business of Company Pending the Merger.......................................... 17
5.2. Preparation of the Proxy Statement; Stockholders Meetings.................................. 19
5.3. Additional Agreements; Cooperation......................................................... 20
5.4. Publicity.................................................................................. 20
5.5. No Solicitation............................................................................ 20
5.6. Access to Information...................................................................... 22
5.7. Notification of Certain Matters............................................................ 22
5.8. Resignation of Directors................................................................... 22
5.9. Indemnification............................................................................ 22
5.10. Fees and Expenses.......................................................................... 23
5.11. Stockholder Litigation..................................................................... 23
VI. CONDITIONS............................................................................................ 23
6.1. Conditions to the Merger................................................................... 23
6.2. Conditions to Obligations of Parent........................................................ 23
6.3. Conditions to Obligations of Company....................................................... 23
VII. TERMINATION, AMENDMENT AND WAIVER..................................................................... 24
7.1. Termination................................................................................ 24
7.2. Effect of Termination...................................................................... 25
7.3. Termination Payment........................................................................ 25
7.4 Proceeds of the Good Faith Deposit......................................................... 25
7.5 Amendment.................................................................................. 25
7.6 Waiver..................................................................................... 26
VIII. GENERAL PROVISIONS.................................................................................... 26
8.1. Definitions................................................................................ 26
8.2. Non-Survival of Representations, Warranties and Agreements................................. 28
8.3. Notices.................................................................................... 28
8.4. Severability............................................................................... 29
8.5. Miscellaneous.............................................................................. 29
8.6. Specific Performance....................................................................... 30
8.7. Waiver Of Jury Trial....................................................................... 30
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "AGREEMENT") being made and entered into
as of this 20th day of November, 1997 by and among INTERMEDIA COMMUNICATIONS
INC., a Delaware corporation ("PARENT"), MOONLIGHT ACQUISITION CORP., a Delaware
corporation which is wholly owned by Parent ("PURCHASER"), and SHARED
TECHNOLOGIES FAIRCHILD INC., a Delaware corporation ("COMPANY").
WHEREAS, the Boards of Directors of Parent, Purchaser and Company have each
determined that it is in the best interests of their respective stockholders for
Parent to acquire Company upon the terms and subject to the conditions set forth
herein; and
WHEREAS, in furtherance of such acquisition, it is proposed that Purchaser
shall make a cash tender offer (the "OFFER") to acquire 4,000,000 of the issued
and outstanding shares of Common Stock, par value $.004 per share, of Company
("COMPANY COMMON STOCK") (shares of Company Common Stock being hereinafter
collectively referred to as "SHARES") for $15.00 per Share (such amount being
hereinafter referred to as the "PER SHARE OFFER AMOUNT") net to the seller in
cash, upon the terms and subject to the conditions of this Agreement and the
Offer; and
WHEREAS, the Board of Directors of Company (the "BOARD") has unanimously
approved the making of the Offer and resolved and agreed to recommend that
holders of Shares tender their Shares pursuant to the Offer; and
WHEREAS, also in furtherance of such acquisition, the Boards of Directors of
Parent, Purchaser and Company have each approved the merger (the "MERGER") of
Purchaser with and into Company in accordance with the General Corporation Law
of the State of Delaware (the "GCL") and upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
I. THE OFFER
1.1. THE OFFER. (a) Provided that this Agreement shall not have been
terminated in accordance with Section 7.1 and none of the events set forth in
Annex A hereto shall have occurred or be existing, Purchaser shall commence the
Offer as promptly as reasonably practicable after the date hereof, but in no
event later than five business days after the initial public announcement of
Purchaser's intention to commence the Offer. The Offer shall, unless extended as
provided below, expire 20 business days after the commencement of the Offer. The
obligation of Purchaser to accept for payment and pay for Shares tendered
pursuant to the Offer shall be subject to the satisfaction of the conditions set
forth in Annex A hereto. The number of Shares that Purchaser will accept in the
Offer shall be 4,000,000 Shares. Purchaser expressly reserves the right to waive
any such condition, to increase the price per Share payable in the Offer, to
increase the maximum number of Shares to be purchased in the Offer and to make
any other changes in the terms and conditions of the Offer; PROVIDED, HOWEVER,
that, without the consent of Company, no change may be made which decreases the
price per Share payable in the Offer, which reduces the maximum number of Shares
to be purchased in the Offer or which imposes conditions to the Offer in
addition to those set forth in Annex A hereto or modifies such conditions, or
which changes the form of consideration payable in the Offer. The Per Share
Offer Amount shall, subject to applicable withholding of taxes, be net to the
seller in cash, upon the terms and subject to the conditions of the Offer.
Subject to the terms and conditions of the Offer, Purchaser shall pay, as
promptly as practicable after expiration of the Offer, for all Shares validly
tendered and not withdrawn. The Offer may not be extended for more than 20 days
beyond its original scheduled expiration date unless any of the conditions to
the Offer shall not have been satisfied, in which case the Offer shall remain
open until such time as all of the conditions to the Offer have been satisfied;
PROVIDED, HOWEVER, in no event will Purchaser be required to extend the Offer
beyond February 28, 1998.
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(b) As soon as reasonably practicable on the date of commencement of the
Offer, Purchaser shall file with the Securities and Exchange Commission (the
"SEC") a Tender Offer Statement on Schedule 14D-1 (together with all amendments
and supplements thereto, the "SCHEDULE 14D-1") with respect to the Offer. The
Schedule 14D-1 shall contain or shall incorporate by reference an offer to
purchase (the "OFFER TO PURCHASE") and forms of the related letter of
transmittal and any related summary advertisement (the Schedule 14D-1, the Offer
to Purchase and such other documents, together with all supplements and
amendments thereto, being referred to herein collectively as the "OFFER
DOCUMENTS"). Company and its counsel shall be given an opportunity to review the
Offer Documents prior to their filing with the SEC. Parent, Purchaser and
Company agree to correct promptly any information provided by any of them for
use in the Offer Documents which shall have become false or misleading, and
Parent and Purchaser further agree to take all steps necessary to cause the
Schedule 14D-1 as so corrected to be filed with the SEC and the other Offer
Documents as so corrected to be disseminated to holders of Shares, in each case
as and to the extent required by applicable federal securities laws.
1.2. COMPANY ACTION. (a) Company hereby approves of and consents to the
Offer and represents that (i) the Board, at a meeting duly called and held on
November 20, 1997, has unanimously (A) determined that this Agreement and the
transactions contemplated hereby, including each of the Offer and the Merger,
are fair to and in the best interests of the holders of Shares, (B) approved and
adopted this Agreement and the transactions contemplated hereby and (C)
recommended that the stockholders of Company accept the Offer and approve and
adopt this Agreement and the transactions contemplated hereby, and (ii) Credit
Suisse First Boston Corporation ("FIRST BOSTON") has rendered to the Board its
opinion that the consideration to be received by the holders of Shares pursuant
to each of the Offer and the Merger is fair to the holders of Shares from a
financial point of view, subject to the assumptions and qualifications contained
in such opinion, and which shall be confirmed promptly in writing. Company
hereby consents to the inclusion in the Offer Documents of the recommendation of
the Board described in the immediately preceding sentence. Assuming that neither
Parent nor Purchaser are Interested Stockholders (as such term is defined in
Section 203 of the GCL) immediately prior to the Board taking the action
described in this Section 1.2, the approval set forth in clause (a)(i) shall,
among other things, satisfy the restrictions on business combinations contained
in Section 203 of the GCL with respect to the transactions contemplated hereby.
Company has been advised by each of its directors and executive officers that
they intend to vote all Shares beneficially owned by them in favor of the
approval and adoption by the stockholders of Company of this Agreement and the
transactions contemplated hereby.
(b) As soon as reasonably practicable on or after the date of commencement
of the Offer, Company shall file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 (together with all amendments and supplements
thereto, the "SCHEDULE 14D-9") containing the recommendation of the Board
described in Section 1.2(a) and shall disseminate the Schedule 14D-9 to the
extent required by Rule 14d-9 promulgated under the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), and any other applicable federal
securities laws. Company, Parent and Purchaser agree to correct promptly any
information provided by any of them for use in the Schedule 14D-9 which shall
have become false or misleading, and Company further agrees to take all steps
reasonably necessary to cause the Schedule 14D-9 as so corrected to be filed
with the SEC and disseminated to holders of Shares, in each case as and to the
extent required by applicable federal securities laws.
(c) Company shall promptly furnish Purchaser with mailing labels containing
the names and addresses of all record holders of Shares and with security
position listings of Shares held in stock depositories, each as of a recent
date, together with all other available listings and computer files containing
names, addresses and security position listings of record holders and beneficial
owners of Shares. Company shall furnish Purchaser with such additional
information, including, without limitation, updated listings and computer files
of stockholders, mailing labels and security position listings, and such other
assistance as Parent, Purchaser or their agents may reasonably request. Subject
to the requirements of applicable law, and except for such steps as are
necessary to disseminate the Offer Documents and any
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other documents necessary to consummate the Offer or the Merger, Parent and
Purchaser shall hold in confidence the information contained in such labels,
listings and files, shall use such information only in connection with the Offer
and the Merger, and, if this Agreement shall be terminated in accordance with
Section 7.1, shall deliver to Company all copies of such information then in
their or their agents' possession.
1.3. VOTING OF SHARES ACQUIRED BY PURCHASER. During the period beginning
on the date on which the Offer is consummated and ending on the later of (a) the
date on which this Agreement is terminated, and (b) the date on which Purchaser
receives any regulatory approvals necessary to consummate the Merger (as more
fully described in Section 6.2(c)), Purchaser hereby agrees to exercise its
voting rights in respect of any Shares it owns for the election of directors to
the Board in the same proportion as the voting rights of any Shares not owned by
Purchaser have been exercised.
II. THE MERGER
2.1. MERGER; SURVIVING CORPORATION. In accordance with the provisions of
this Agreement and the GCL, at the Effective Time (as such term is defined in
Section 2.5; other capitalized terms used herein without definition are defined
in Section 8.1), Purchaser shall be merged with and into Company, and Company
shall be the surviving corporation (hereinafter sometimes called the "SURVIVING
CORPORATION") and shall continue its corporate existence under the laws of the
State of Delaware. At the Effective Time the separate corporate existence of
Purchaser shall cease. All properties, franchises and rights belonging to
Company and Purchaser, by virtue of the Merger and without further act or deed,
shall be deemed to be vested in the Surviving Corporation, which shall
thenceforth be responsible for all the liabilities and obligations of each of
Purchaser and Company.
2.2. CERTIFICATE OF INCORPORATION. At the Effective Time, the Certificate
of Incorporation of Company shall be the Certificate of Incorporation of the
Surviving Corporation; PROVIDED, HOWEVER, that, at the Effective Time, the
Certificate of Incorporation of the Surviving Corporation shall be amended in
its entirety so that it will read as Purchaser's Certificate of Incorporation,
except that the name of the Surviving Corporation shall be "SHARED TECHNOLOGIES
FAIRCHILD INC.". As so amended, the Certificate of Incorporation of Company as
in effect immediately prior to the Effective Time shall thereafter continue in
full force and effect as the Certificate of Incorporation of the Surviving
Corporation until further altered or amended as provided therein or by law.
2.3. BYLAWS. The Bylaws of Purchaser in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation until altered,
amended or repealed as provided therein and in the Certificate of Incorporation
of the Surviving Corporation.
2.4. DIRECTORS AND OFFICERS. The Directors of Purchaser prior to the
Effective Time shall be the directors of the Surviving Corporation. The officers
of Company immediately prior to the Effective Time shall be the officers of the
Surviving Corporation. Each of such directors and officers shall hold office in
accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation.
2.5. EFFECTIVE TIME. The Merger shall become effective at the time of
filing of a certificate of merger with the Secretary of State of the State of
Delaware in accordance with the provisions of Sections 251 or 253, as the case
may be, of the GCL (the "CERTIFICATE OF MERGER"), or at a later time specified
as the effective time in the Certificate of Merger, which Certificate of Merger
shall be so filed as soon as practicable after the meeting of stockholders
contemplated in Section 5.2 and the satisfaction or, if permissible, waiver of
the conditions set forth in Article VI. The date and time when the Merger shall
become effective are referred to herein as the "EFFECTIVE TIME."
Contemporaneously with such filing, a closing shall be held at the offices of
Kronish, Lieb, Weiner & Hellman LLP, 1114 Avenue of the Americas, New York, New
York 10036, or such other place as shall be agreed to by the parties, for the
purpose of confirming the satisfaction or waiver, as the case may be, of the
conditions set forth in Article VI.
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2.6. CONVERSION OF SHARES. (a) Each issued and outstanding share of
Company Common Stock immediately prior to the Effective Time (other than shares
of Company Common Stock to be cancelled as set forth in Section 2.6(b) and
2.6(c)) shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into, exchanged for and represent the right to
receive an amount equal to $15.00 per Share (the "PER SHARE AMOUNT") in cash
(the "SHARES CONSIDERATION"), payable, without interest, to the holder of such
Share, upon surrender, in the manner described below, of the certificate that
formerly evidenced such Share.
(b) Each Share and Preferred Share (as defined below) issued and outstanding
immediately prior to the Effective Time which is then owned beneficially or of
record by Parent or any Subsidiary of Parent shall, by virtue of the Merger and
without any action on the part of the holder thereof, be cancelled and retired
and cease to exist, without any conversion thereof.
(c) Each Share and Preferred Share (as defined below) held in Company's
treasury immediately prior to the Effective Time shall, by virtue of the Merger,
be cancelled and retired and cease to exist, without any conversion thereof.
(d) Each issued and outstanding share of Series D Preferred Stock, par value
$.01 per share (the "SERIES D STOCK"), Series I 6% Cumulative Convertible
Preferred Stock, par value $.01 per share (the "CONVERTIBLE PREFERRED STOCK"),
and Series J Special Preferred Stock, par value $.01 per share (the "SPECIAL
PREFERRED STOCK"), of Company (all such shares of Preferred Stock being
hereafter collectively referred to as the "PREFERRED SHARES") immediately prior
to the Effective Time (other than the Preferred Shares to be cancelled as set
forth in Section 2.6(b) and 2.6(c)) shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into, exchanged for
and represent the right to receive an amount equal to $15.00 per share of the
Series D Stock, $251.21 per share of the Convertible Preferred Stock and $109.44
per share of the Special Preferred Stock (all such amounts collectively, the
"PREFERRED PER SHARE AMOUNT") in cash (the "PREFERRED SHARES CONSIDERATION"; the
Shares Consideration and the Preferred Shares Consideration collectively, the
"MERGER CONSIDERATION"), payable, without interest, to the holder of such
Preferred Share, upon surrender in the manner described above of the certificate
that formerly evidenced such Preferred Share.
(e) Notwithstanding anything in this Section 2.6 to the contrary, Shares
which are issued and outstanding immediately prior to the Effective Time and
which are held by any stockholder of Company who has not voted such shares in
favor of the Merger and who shall have properly exercised its rights of
appraisal for such shares in the manner provided by the GCL (the "DISSENTING
SHARES") shall not be converted into or be exchangeable for the right to receive
the Merger Consideration, unless and until such holder shall have failed to
perfect or shall have effectively withdrawn or lost his right to appraisal and
payment, as the case may be. If such holder shall have so failed to perfect or
shall have effectively withdrawn or lost such right, his shares shall thereupon
be deemed to have been converted into and to have become exchangeable for, at
the Effective Time, the right to receive the Merger Consideration, without any
interest thereon. Company shall give Parent prompt notice of any Dissenting
Shares (and shall also give Parent prompt notice of any withdrawals of such
demands for appraisal rights) and Parent shall have the right to direct all
negotiations and proceedings with respect to any such demands. Neither Company
nor the Surviving Corporation shall, except with the prior written consent of
Parent, voluntarily make any payment with respect to, or settle or offer to
settle, any such demand for appraisal rights. Stockholders of Company who shall
have perfected their right of appraisal and not withdrawn or otherwise lost such
right of appraisal, shall be entitled to receive payment of the appraised value
of the shares of Company Common Stock held by them in accordance with the
provisions of Section 262 of the GCL.
2.7. PURCHASER COMMON STOCK. Each share of common stock of Purchaser
issued and outstanding immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of Purchaser or the holder
thereof, be converted into and become one fully paid and nonassessable share of
common stock of the Surviving Corporation. From and after the Effective Time,
each outstanding
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certificate theretofore representing shares of Purchaser common stock shall be
deemed for all purposes to evidence ownership of and to represent the number of
shares of Surviving Corporation common stock into which such shares of Purchaser
common stock shall have been converted. Promptly after the Effective Time, the
Surviving Corporation shall issue to Parent a stock certificate or certificates
representing 100 shares of Surviving Corporation common stock in exchange for
the certificate or certificates that formerly represented shares of Purchaser
common stock, which shall be surrendered by Parent and cancelled.
2.8. SURRENDER OF SHARES. (a) Prior to the Effective Time, Parent shall
make available, by transferring to the Exchange Agent for the benefit of the
stockholders of Company, such amount of cash as shall be payable in exchange for
outstanding Shares or Preferred Shares pursuant to Section 2.6 hereof. Such
funds shall be invested by the Exchange Agent as directed by Parent, PROVIDED
that such investments shall be in obligations of or guaranteed by the United
States of America or of any agency thereof and backed by the full faith and
credit of the United States of America, or in deposit accounts, certificates of
deposit or banker's acceptances of, repurchase or reverse repurchase agreements
with, or Eurodollar time deposits purchased from, commercial banks with capital,
surplus and undivided profits aggregating in excess of $50 million (based on the
most recent financial statements of such bank which are then publicly available
at the SEC or otherwise).
(b) As soon as practicable after the Effective Time, the Exchange Agent
shall mail to each holder of record (other than to holders of Shares or
Preferred Shares to be cancelled as set forth in Section 2.6(b) or 2.6(c) or
Dissenting Shares) of a certificate or certificates that immediately prior to
the Effective Time represented outstanding Shares or Preferred Shares (the
"CERTIFICATES") (I) a form letter of transmittal (which shall be in customary
form and shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent) and (II) instructions for effecting the
surrender of the Certificates in exchange for the Merger Consideration.
(c) Upon surrender of a Certificate for cancellation to the Exchange Agent,
together with such letter of transmittal, duly executed, and such other
agreements as the Exchange Agent shall reasonably request, the holder of such
Certificate shall be entitled to receive in exchange therefor the Merger
Consideration, and the Certificate so surrendered shall forthwith be cancelled.
Until surrendered as contemplated by this Section 2.8, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration with respect to the Shares or Preferred Shares
formerly represented thereby. No interest shall accrue or be paid on the Merger
Consideration payable upon the surrender of any Certificate.
(d) Any amounts of cash delivered or made available to the Exchange Agent
pursuant to this Section 2.8 and not exchanged for Certificates within six
months after the Effective Time pursuant to this Section 2.8 shall be returned
by the Exchange Agent to Parent, which thereafter shall act as Exchange Agent
subject to the rights of holders of unsurrendered Certificates under this
Article II. Thereafter such holders shall be entitled to look to the Surviving
Corporation (subject to abandoned property, escheat and other similar laws) only
as general creditors thereof with respect to any Merger Consideration that may
be payable upon due surrender of the Certificates held by them. Notwithstanding
the foregoing, neither the Surviving Corporation nor the Exchange Agent shall be
liable to any holder of Shares or Preferred Shares for any Merger Consideration
delivered in respect of such Share or Preferred Share to a public official
pursuant to any abandoned property, escheat or other similar law.
(e) If any payment of the Merger Consideration is to be made to a person
other than that in which the Certificate surrendered is registered, it shall be
a condition of payment that the Certificate so surrendered shall be properly
endorsed or otherwise in proper form for transfer and that the person requesting
such payment shall pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of the Certificate
surrendered or establish to the satisfaction of the Surviving Corporation that
such tax has been paid or is not applicable.
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(f) After the Effective Time, there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the Shares
or Preferred Shares which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates representing such shares are
presented to the Surviving Corporation, they shall be cancelled and exchanged
for the Merger Consideration as provided in this Article II.
2.9. COMPANY STOCK OPTIONS AND WARRANTS. Prior to the Effective Time,
Company shall take all actions necessary (and Parent and Purchaser consent to
the taking of such actions) so that all options and warrants outstanding
immediately prior to the Effective Time under any option plan or warrant
including, without limitation, the 1994 Director's Option Plan (with respect to
which the term of office of each director shall be deemed to have been
terminated on May 1, 1998), the 1996 Equity Incentive Plan and Shared
Technologies, Inc.'s 1987 Stock Option Plan (all such warrants and options
collectively, the "COMPANY STOCK OPTION PLANS") shall be cancelled and
terminated at the Effective Time and that each holder of such options and
warrants shall receive in the Merger a cash payment equal to the difference
between (A) the Per Share Amount times the number of Shares subject to such
outstanding options or warrants (to the extent then exercisable at prices not in
excess of the Per Share Amount) and (B) the aggregate exercise price of all such
outstanding options and warrants. From and after the date hereof, no additional
options or warrants shall be granted under the Company Stock Option Plans.
2.10. GOOD FAITH DEPOSIT. Concurrently with the execution and delivery of
this Agreement, Purchaser shall pay to Company $26,250,000 (the "GOOD FAITH
DEPOSIT"). The proceeds of the Good Faith Deposit shall be disbursed in
accordance with Section 7.4.
2.11. TERMINATION OF THE PLEDGE AGREEMENT. If the Merger is consummated,
then Parent and Purchaser shall terminate the Pledge Agreement, and the Pledge
Agent shall return to RHI any collateral which has been pledged pursuant to the
Pledge Agreement.
III. REPRESENTATIONS AND WARRANTIES OF COMPANY
Company hereby makes the following representations and warranties to Parent
and Purchaser, which representations and warranties (except for those contained
in Sections 3.2, 3.3, 3.4, 3.10, 3.14, 3.21, 3.22, 3.23 and 3.29) shall be
deemed to have been made on July 16, 1997:
3.1. ORGANIZATION AND QUALIFICATION. Each of Company and its subsidiaries
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Each of Company and its subsidiaries is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or leased or the
nature of its activities makes such qualification necessary, except for failures
to be so qualified or in good standing which would not, individually or in the
aggregate, have a material adverse effect on the general affairs, management,
business, operations, condition (financial or otherwise) or prospects of Company
and its subsidiaries taken as a whole (a "COMPANY MATERIAL ADVERSE EFFECT").
Section 3.1 of the Disclosure Statement sets forth, with respect to Company and
each of its subsidiaries, the jurisdictions in which they are qualified or
otherwise licensed as a foreign corporation to do business. Neither Company nor
any of its subsidiaries is in violation of any of the provisions of its
Certificate of Incorporation (or other applicable charter document) or Bylaws.
Company has delivered to Parent accurate and complete copies of the Certificate
of Incorporation (or other applicable charter document) and Bylaws, as currently
in effect, of each of Company and its subsidiaries.
3.2. CAPITAL STOCK OF SUBSIDIARIES. The only direct or indirect
subsidiaries of Company are those listed in Section 3.2 of the Disclosure
Statement previously delivered by Company to Parent (the "DISCLOSURE
STATEMENT"). Company is directly or indirectly the record (except for directors'
qualifying shares) and beneficial owner (including all qualifying shares owned
by directors of such subsidiaries as
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reflected in Section 3.2 of the Disclosure Statement) of all the outstanding
shares of capital stock of each of its subsidiaries, there are no proxies with
respect to such shares, and no equity securities of any of such subsidiaries are
or may be required to be issued by reason of any options, warrants, scrip,
rights to subscribe for, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of any capital stock of any such subsidiary, and there are no contracts,
commitments, understandings or arrangements by which any such subsidiary is
bound to issue additional shares of its capital stock or securities convertible
into or exchangeable for such shares. Other than as set forth in Section 3.2 of
the Disclosure Statement, all of such shares so owned by Company are validly
issued, fully paid and nonassessable and are owned by it free and clear of any
claim, lien or encumbrance of any kind with respect thereto. Except as disclosed
in Section 3.2 of the Disclosure Statement, Company does not directly or
indirectly own any interest in any corporation, partnership, joint venture or
other business association or entity.
3.3. CAPITALIZATION. The authorized capital stock of Company consists of
50,000,000 shares of Company Common Stock, and 25,000,000 shares of preferred
stock, $.01 par value per share, of which 1,000,000 shares have been designated
Series D Stock, 250,000 shares have been designated Convertible Preferred Stock,
and 200,000 shares have been designated Special Preferred Stock. As of the close
of business on November 20, 1997, 17,187,605 shares of Company Common Stock were
issued and outstanding. All of such issued and outstanding shares are validly
issued, fully paid and nonassessable and free of preemptive rights. As of
November 20, 1997, (x) 2,051,364 shares of Company Common Stock were reserved
for issuance upon exercise of outstanding options and 4,244,740 shares of
Company Common Stock were reserved for issuance upon exercise of outstanding
convertible preferred securities and (y) 1,873,550 shares of Company Common
Stock were reserved for issuance upon exercise of the warrants, all of which
warrants, options and Company Stock Option Plans are listed and described in
Section 3.3 of the Disclosure Statement. Other than the Company Stock Option
Plans and the warrants, Company has no other plan which provides for the grant
of options or warrants to purchase shares of capital stock, stock appreciation
or similar rights or stock awards. Except as set forth above, there are not now,
and at the Effective Time, except for shares of Company Common Stock issued
after the date hereof upon the conversion of convertible securities and the
exercise of warrants and options outstanding on the date hereof or pursuant to
Company's 401(k) Plan, there will not be, any shares of capital stock of Company
issued or outstanding or any subscriptions, options, warrants, calls, claims,
rights (including without limitation any stock appreciation or similar rights),
convertible securities or other agreements or commitments of any character
obligating Company to issue, transfer or sell any of its securities. Company has
paid all dividends payable through November 28, 1997 in respect of each of the
Series D Preferred Stock and the Convertible Preferred Stock.
3.4. AUTHORITY RELATIVE TO THIS AGREEMENT. Company is a corporation duly
organized, validly existing and in good standing under the laws of Delaware.
Company has full corporate power and authority to execute and deliver this
Agreement and to consummate the Merger and other transactions contemplated
hereby and thereby. The execution and delivery of this Agreement and the
consummation of the Merger and other transactions contemplated hereby and
thereby have been duly and validly authorized by the Board of Directors of
Company and no other corporate proceedings on the part of Company are necessary
to authorize this Agreement or to consummate the Merger or other transactions
contemplated hereby or thereby (other than, with respect to the Merger, the
approval of Company's stockholders pursuant to Section 251(c) of the GCL). This
Agreement has been duly and validly executed and delivered by Company and,
assuming the due authorization, execution and delivery hereof by Parent and
Purchaser, constitutes a valid and binding agreement of Company, enforceable
against Company in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally or by general equitable or fiduciary principles.
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3.5. NO VIOLATIONS, ETC. (a) Assuming that all filings, permits,
authorizations, consents and approvals or waivers thereof have been duly made or
obtained as contemplated by Section 3.5(b) hereof, except as listed in Section
3.5 of the Disclosure Statement, neither the execution and delivery of this
Agreement by Company nor the consummation of the Merger or other transactions
contemplated hereby or thereby nor compliance by Company with any of the
provisions hereof will (i) violate, conflict with, or result in a breach of any
provisions of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
or suspension of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of Company or any of its subsidiaries under, any of the terms, conditions
or provisions of (x) their respective charters or bylaws, (y) except as set
forth in Section 3.5 of the Disclosure Statement, any note, bond, mortgage,
indenture or deed of trust, or (z) any license, lease, agreement or other
instrument or obligation to which Company or any such subsidiary is a party or
to which they or any of their respective properties or assets may be subject, or
(ii) subject to compliance with the statutes and regulations referred to in the
next paragraph, violate any judgment, ruling, order, writ, injunction, decree,
statute, rule or regulation applicable to Company or any of its subsidiaries or
any of their respective properties or assets, except, in the case of clauses
(i), (z) and (ii) above, for such violations, conflicts, breaches, defaults,
terminations, suspensions, accelerations, rights of termination or acceleration
or creations of liens, securities interests, charges or encumbrances which would
not, individually or in the aggregate, either have a Company Material Adverse
Effect or materially impair Company's ability to consummate the Merger or other
transactions contemplated hereby.
(b) No filing or registration with, notification to and no permit,
authorization, consent or approval of any governmental entity (including,
without limitation, any federal, state or local regulatory authority or agency)
is required by Company in connection with the execution and delivery of this
Agreement or the consummation by Company of the Merger or other transactions
contemplated hereby or thereby, except (i) in connection with the applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR ACT"), (ii) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware, (iii) the approval of Company's
stockholders pursuant to the GCL, (iv) filings with applicable state public
utility commissions identified in Section 2.5 of the Disclosure Statement, (v)
filings with the SEC and (vi) such other filings, registrations, notifications,
permits, authorizations, consents or approvals the failure of which to be
obtained, made or given would not, individually or in the aggregate, either have
a Company Material Adverse Effect or materially impair Company's ability to
consummate the Merger or other transactions contemplated hereby or thereby.
(c) Company and its subsidiaries are not in violation of or default under,
except as set forth in Section 3.5 of the Disclosure Statement, (x) any note,
bond, mortgage, indenture or deed of trust, or (y) and license, lease, agreement
or other instrument or obligation to which Company or any such subsidiary is a
party or to which they or any of their respective properties or assets may be
subject, except, in the case of clauses (x) and (y) above, for such violations
or defaults which would not, individually or in the aggregate, either have a
Company Material Adverse Effect or materially impair Company's ability to
consummate the Merger or other transactions contemplated hereby. It is
understood that Company has certain covenants in its bank facilities which
Company from time to time may violate and that such violations shall not be
deemed a breach so long as Company promptly seeks, and in a reasonable period
time obtains, waivers of such violations from the lenders under such facilities
(unless such lenders have accelerated the indebtedness under such facilities).
3.6. COMMISSION FILINGS; FINANCIAL STATEMENTS. Company has filed all
forms, reports, schedules, statements and other documents required to be filed
by it since December 31, 1994 (as supplemented and amended since the time of
filing collectively, the "SEC REPORTS") with the SEC, each of which complied
when filed in all material respects with all applicable requirements of the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (the "SECURITIES ACT") and the Exchange
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Act. The audited consolidated financial statements and unaudited consolidated
interim financial statements of Company and its subsidiaries included or
incorporated by reference in such SEC Reports have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto)
and present fairly, in all material respects, the financial position and results
of operations and cash flows of Company and its subsidiaries on a consolidated
basis at the respective dates and for the respective periods indicated (and in
the case of all such financial statements that are interim financial statements,
contain all adjustments so to present fairly). None of the SEC Reports contained
at the time filed any untrue statement of a material fact or omitted 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.
3.7. ABSENCE OF CHANGES OR EVENTS. Except as set forth in Section 3.7 of
the Disclosure Statement and in Company's Form 10-K for the fiscal year ended
December 31, 1996, as filed with the SEC, since December 31, 1996, Company and
its subsidiaries have not incurred any material liability, except in the
ordinary course of their businesses consistent with their past practices, and
there has not been any change, or any event involving a prospective change, in
the business, financial condition or results of operations of Company or any of
its subsidiaries which has had, or is reasonably likely to have, a Company
Material Adverse Effect and Company and its subsidiaries have conducted their
respective businesses in the ordinary course consistent with their past
practices.
3.8. PROXY STATEMENT. None of the information supplied or to be supplied
by or on behalf of Company for inclusion or incorporation by reference in the
proxy statement, in definitive form, relating to Company Stockholder Meeting (as
hereinafter defined), or in the related proxy and notice of meeting, or
soliciting material used in connection therewith (referred to herein
collectively as the "PROXY STATEMENT") will, at the dates mailed to stockholders
and at the time of Company Stockholder 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 Proxy Statement
(except for information relating solely to Parent and Purchaser) will comply as
to form in all material respects with the provisions of the Securities Act and
the Exchange Act and the rules and regulations promulgated thereunder.
3.9. LITIGATION. Except as set forth in Section 3.9 of the Disclosure
Statement, there is no (i) claim, action, suit or proceeding pending or, to the
best knowledge of Company or any of its subsidiaries, threatened against or
relating to Company or any of its subsidiaries before any court or governmental
or regulatory authority or body or arbitration tribunal, or (ii) outstanding
judgment, order, writ, injunction or decree, or application, request or motion
therefor, of any court, governmental agency or arbitration tribunal in a
proceeding to which Company, any subsidiary of Company or any of their
respective assets was or is a party except, in the case of clauses (i) and (ii)
above, such as would not, individually or in the aggregate, either have a
Company Material Adverse Effect or materially impair Company's ability to
consummate the Merger.
3.10. TITLE TO AND CONDITION OF PROPERTIES. Except as set forth in Section
3.10 of the Disclosure Statement, Company and its subsidiaries have good title
to all of the real property and own outright all of the personal property
(except for leased property or assets) which is reflected on Company's and its
subsidiaries' December 31, 1996 audited consolidated balance sheet contained in
Company's Form 10-K for the fiscal year ended December 31, 1996 filed with the
SEC except for property since sold or otherwise disposed of in the ordinary
course of business and consistent with past practice.
3.11. CONTRACTS AND COMMITMENTS. Other than as disclosed in Section 3.11
of the Disclosure Statement, no existing material contract or material
commitment of Company or any of its subsidiaries, or as to which any thereof is
a party or their respective assets are bound, contains an agreement with respect
to any change of control that would be triggered by the Merger. Other than as
set forth in Section 3.11 of the Disclosure Statement, neither this Agreement,
the Merger nor the other transactions contemplated
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hereby will result in any outstanding loans or borrowings by Company or any
subsidiary of Company becoming due, going into default or giving the lenders or
other holders of debt instruments the right to require Company or any of its
subsidiaries to repay all or a portion of such loans or borrowings; provided
that it is expressly understood and agreed that Company is not making any
representations or warranties with respect to the effect of the financial
condition or results of operation of Parent and Purchaser.
3.12. LABOR MATTERS. Each of Company and its subsidiaries is in compliance
in all material respects with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and neither Company nor any of its subsidiaries is engaged in any unfair labor
practice. There is no labor strike, slowdown or stoppage pending (or, to the
best knowledge of Company, any labor strike or stoppage threatened) against or
affecting Company or any of its subsidiaries. No petition for certification has
been filed and is pending before the National Labor Relations Board with respect
to any employees of Company or any of its subsidiaries who are not currently
organized.
3.13. COMPLIANCE WITH LAW. Except for matters set forth in Section 3.13 of
the Disclosure Statement, neither Company nor any of its subsidiaries has
violated or failed to comply with any statute, law, ordinance, regulation, rule
or order of any foreign, federal, state or local government or any other
governmental department or agency, or any judgment, decree or order of any
court, applicable to its business or operations, except where any such violation
or failure to comply would not, individually or in the aggregate, have a Company
Material Adverse Effect; the conduct of the business of Company and its
subsidiaries is in conformity with all foreign, federal, state and local energy,
public utility and health requirements, and all other foreign, federal, state
and local governmental and regulatory requirements, except where
non-conformities would not, individually or in the aggregate, have a Company
Material Adverse Effect. Company and its subsidiaries have all permits, licenses
and franchises from governmental agencies required to conduct their businesses
as now being conducted, except for such permits, licenses and franchises the
absence of which would not, individually or in the aggregate, have a Company
Material Adverse Effect.
3.14. BOARD RECOMMENDATION. The Board of Directors of Company has, by a
majority vote at a meeting of such Board duly held on November 20, 1997,
approved and adopted this Agreement, the Merger and the other transactions
contemplated hereby, determined that the Merger is fair to the stockholders of
Company and recommended that the stockholders of Company approve and adopt this
Agreement, the Merger and the other transactions contemplated hereby.
3.15. PATENTS AND TRADEMARKS. Company and its subsidiaries own or have the
right to use all patents, patent applications, trademarks, trademark
applications, trade names, inventions, processes, know-how and trade secrets
necessary to the conduct of their respective businesses, except for those which
the failure to own or have the right to use would not, individually or in the
aggregate, have a Company Material Adverse Effect.
3.16. TAXES. "TAX" or "TAXES" shall mean all federal, state, local and
foreign taxes, duties, levies, charges and assessments of any nature, including
social security payments and deductibles relating to wages, salaries and
benefits and payments to subcontractors (to the extent required under applicable
Tax law), and also including all interest penalties and additions imposed with
respect to such amounts. Except as set forth in Section 3.16 of the Disclosure
Statement: (i) Company and its subsidiaries have prepared and timely filed or
will timely file with the appropriate governmental agencies all franchise,
income and all other material Tax returns and reports required to be filed for
any period ending on or before the Effective Time, taking into account any
extension of time to file granted to or obtained on behalf of Company and/or its
subsidiaries; (ii) all material Taxes of Company and its subsidiaries in respect
of the pre-Merger period have been paid in full to the proper authorities, other
than such Taxes as are being contested in good faith by appropriate proceedings
and/or are adequately reserved for in accordance with generally accepted
accounting principles; (iii) all deficiencies resulting from Tax examinations of
federal, state and foreign income, sales and franchise and all other material
Tax returns filed by Company and its subsidiaries have
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either been paid or are being contested in good faith by appropriate
proceedings; (iv) to the best knowledge of Company, no deficiency has been
asserted or assessed against Company or any of its subsidiaries, and no
examination of Company or any of its subsidiaries is pending or threatened for
any material amount of Tax by any taxing authority; (v) no extension of the
period for assessment or collection of any material Tax is currently in effect
and no extension of time within which to file any material Tax return has been
requested, which Tax return has not since been filed; (vi) no material Tax liens
have been filed with respect to any Taxes; (vii) Company and each of its
subsidiaries will not make any voluntary adjustment by reason of a change in
their accounting methods for any pre-Merger period that would affect the taxable
income or deductions of Company or any of its subsidiaries for any period ending
after the Effective Date; (viii) Company and its subsidiaries have made timely
payments of the Taxes required to be deducted and withheld from the wages paid
to their employees; and (ix) Company and its subsidiaries are not parties to any
tax sharing or tax matters agreement other than the tax sharing agreement dated
March 13, 1996 by and among TFC, RHI and Company.
3.17. EMPLOYEE BENEFIT PLANS; ERISA. Except as set forth in Section 3.17
of the Disclosure Statement:
(a) There are no "employee pension benefit plans" as defined in Section 3(2)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
maintained or contributed to by Company or any of its subsidiaries, or with
respect to which Company or any of its subsidiaries contributes or is obligated
to make payments thereunder or otherwise may have any liability ("PENSION
BENEFITS PLANS").
(b) Company has furnished Purchaser with a true and complete schedule of all
"welfare benefit plans" (as defined in Section 3(1) of ERISA), maintained or
contributed to by Company or any of its subsidiaries or with respect to which
Company or any of its subsidiaries otherwise may have any liability ("WELFARE
PLANS"), all multiemployer plans as defined in Section 3(37) of ERISA covering
employees employed in the United States to which Company or any of its
subsidiaries is required to make contributions or otherwise may have any
liability, all stock bonus, stock option, restricted stock, stock appreciation
right, stock purchase, bonus, incentive, deferred compensation, severance and
vacation or other employee benefit plans, programs or arrangements that are not
Pension Benefit Plans or Welfare Plans maintained or contributed to by Company
or a subsidiary or with respect to which Company or any subsidiary otherwise may
have any liability ("OTHER PLANS").
(c) Company and each of its subsidiaries, and each of the Pension Benefit
Plans, Welfare Plans and Other Plans (collectively, the "PLANS"), are in
compliance with the applicable provisions of ERISA, the Code and other
applicable laws except where the failure to comply would not, individually or in
the aggregate, have a Company Material Adverse Effect.
(d) All contributions to, and payments from, the Plans which are required to
have been made in accordance with the Plans and, when applicable, Section 302 of
ERISA or Section 412 of the Code, have been timely made except where the failure
to make such contributions or payments on a timely basis would not, individually
or in the aggregate, have a Company Material Adverse Effect. All contributions
required to have been made in accordance with Section 302 of ERISA or Section
412 of the Code to any employee pension benefit plan (as defined in Section 3(2)
of ERISA) maintained by Company or any ERISA Affiliate have been timely made
except where the failure to make such contributions on a timely basis would not
individually or in the aggregate have a Company Material Adverse Effect. For
purposes of this Agreement, "ERISA AFFILIATE" shall mean any person (as defined
in Section 3(9) of ERISA) that is a member of any group of persons described in
Section 414(b), (c), (m) or (o) of the Code of which Company or a subsidiary of
Company is a member.
(e) The Pension Benefit Plans intended to qualify under Section 401 of the
Code are so qualified and have been determined by the Internal Revenue Service
("IRS") to be so qualified and nothing has occurred with respect to the
operation of such Pension Benefit Plans which would cause the loss of such
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qualification or exemption or the imposition of any material liability, penalty
or tax under ERISA or the Code. Such plans have been or will be, on a timely
basis, (i) amended to comply with changes to the Code made by the Tax Reform Act
of 1986, the Unemployment Compensation Amendments of 1992, the Omnibus Budget
Reconciliation Act of 1993, and other applicable legislative, regulatory or
administrative requirements; and (ii) submitted to the Internal Revenue Service
for a determination of their tax qualification, as so amended; and no such
amendment will adversely affect the qualification of such plans.
(f) Each Welfare Plan that is intended to qualify for exclusion of benefits
thereunder from the income of participants or for any other tax-favored
treatment under any provisions of the Code (including, without limitation,
Sections 79, 105, 106, 125 or 129 of the Code) is and has been maintained in
compliance in all material respects with all pertinent provisions of the Code
and Treasury Regulations thereunder.
(g) Except as disclosed in Company's Form 10-K for the fiscal year ended
December 31, 1996, there are (i) no investigations, audits or examinations
pending, or to the best knowledge of Company, threatened by any governmental
entity involving any of the Plans, (ii) no termination proceedings involving the
Plans and (iii) no pending or, to the best of Company's knowledge, threatened
claims (other than routine claims for benefits), suits or proceedings against
any Plan, against the assets of any of the trusts under any Plan or against any
fiduciary of any Plan with respect to the operation of such plan or asserting
any rights or claims to benefits under any Plan or against the assets of any
trust under such plan, which would, in the case of clause (i), (ii) or (iii) of
this paragraph (g), give rise to any liability which would, individually or in
the aggregate, have a Company Material Adverse Effect, nor, to the best of
Company's knowledge, are there any facts which would give rise to any liability
which would, individually or in the aggregate, have a Company Material Adverse
Effect in the event of any such investigation, audit, examination, claim, suit
or proceeding.
(h) None of Company, any of its subsidiaries or any employee of the
foregoing, nor any trustee, administrator, other fiduciary or any other "party
in interest" or "disqualified person" with respect to the Pension Benefit Plans
or Welfare Plans, has engaged in a "prohibited transaction" (within the meaning
of Section 4975 of the Code or Section 406 of ERISA) which presents a material
risk of resulting in a tax or penalty on Company or any of its subsidiaries
under Section 4975 of the Code or Section 502(i) of ERISA which would,
individually or in the aggregate, have a Company Material Adverse Effect.
(i) Neither the Pension Benefit Plans subject to Title IV of ERISA nor any
trust created thereunder has been terminated nor have there been any "reportable
events" (as defined in Section 4043 of ERISA and the regulations thereunder)
with respect to either thereof which would, individually or in the aggregate,
have a Company Material Adverse Effect nor has there been any event with respect
to any Pension Benefit Plan requiring disclosure under Section 4063(a) of ERISA
or any event with respect to any Pension Benefit Plan requiring disclosure under
Section 4041(c)(3)(C) of ERISA which would, individually or in the aggregate,
have a Company Material Adverse Effect.
(j) Neither Company nor any ERISA Affiliate of Company has incurred any
currently outstanding liability to the Pension Benefit Guaranty Corporation (the
"PBGC") or to a trustee appointed under Section 4042(b) or (c) of ERISA other
than for the payment of premiums, all of which have been paid when due. No
Pension Benefit Plan has applied for, or received, a waiver of the minimum
funding standards imposed by Section 412 of the Code. The information supplied
to the actuary by Company or any of its subsidiaries for use in preparing the
most recent actuarial report for Pension Benefit Plans is complete and accurate
in all material respects.
(k) Neither Company, any of its subsidiaries nor any of their ERISA
Affiliates has any liability (including any contingent liability under Section
4204 of ERISA) with respect to any multiemployer plan, within the meaning of
Section 3(37) of ERISA (a "MULTIEMPLOYER PLAN"), covering employees employed in
the United States.
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(l) With respect to each of the Plans, true, correct and complete copies of
the following documents have been made available to Parent (i) the current plans
and related trust documents, including amendments thereto, (ii) any current
summary plan descriptions, (iii) the most recent Forms 5500 (if any) filed with
respect to each such Plan, (iv) the three most recent financial statements and
actuarial reports, if applicable (v) the most recent IRS determination letter,
if applicable, (vi) if any application for an IRS determination letter is
pending, copies of all such applications for determination including
attachments, exhibits and schedules thereto, (vii) all material agreements
(including settlement agreements or other similar agreements relating to any
Plan); and (viii) all material correspondence between Company and any of its
subsidiaries and the IRS, PBGC, Department of Labor or any other governmental
entity relating to any of the Plans.
(m) Neither Company, any of its subsidiaries, any organization to which
Company is a successor or parent corporation, within the meaning of Section
4069(b) of ERISA, nor any of their ERISA Affiliates has engaged in any
transaction described in Section 4069(a) of ERISA, the liability for which
would, individually or in the aggregate, have a Company Material Adverse Effect.
(n) Except as disclosed in Section 2.17 of the Disclosure Statement, none of
the Welfare Plans maintained by Company or any of its subsidiaries are retiree
life or retiree health insurance plans which provide for continuing benefits or
coverage for any participant or any beneficiary of a participant following
termination of employment, except as may be required under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), or except where
the full expense of such coverage or benefits is paid by the participant or the
participant's beneficiary. Company and each of its subsidiaries which maintain a
"group health plan" within the meaning of Section 5000(b)(1) of the Code have
complied with the notice and continuation requirements of Section 4980B of the
Code, COBRA, Part 6 of Subtitle B of Title I of ERISA and the regulations
thereunder except where the failure to comply would not, individually or in the
aggregate, have a Company Material Adverse Effect.
(o) No liability under any Plan has been funded nor has any such obligation
been satisfied with the purchase of a contract from an insurance company as to
which Company or any of its subsidiaries has received notice that such insurance
company is in rehabilitation.
(p) The consummation of the transactions contemplated by this Agreement will
not either alone or in connection with an employee's termination of employment
or other event result in an increase in the amount of compensation or benefits
or accelerate the vesting or timing of payment of any benefits or compensation
payable to or in respect of any employee of Company or any of its subsidiaries.
3.18. ENVIRONMENTAL MATTERS. Except as set forth in Section 3.18 of the
Disclosure Statement and except for such matters as would not, individually or
in the aggregate, have a Company Material Adverse Effect:
(a) Company and its subsidiaries have obtained all Environmental Permits and
all licenses and other authorizations and have made all registrations and given
all notifications that are required under any applicable Environmental Law.
(b) Except as set forth in Section 3.18 of the Disclosure Statement, there
is no Environmental Claim pending against Company and its subsidiaries under an
Environmental Law.
(c) Except as set forth in Section 3.18 of the Disclosure Statement, Company
and its subsidiaries are in compliance with all terms and conditions of their
Environmental Permits, and are in compliance with all applicable Environmental
Laws.
(d) Except as set forth in Section 3.18 of the Disclosure Statement, Company
and its subsidiaries did not generate, treat, store, transport, discharge,
dispose of or release any Hazardous Materials on or from any property now or
previously owned, leased or used by Company and its subsidiaries.
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(e) For purposes of Section 3.18(a):
(i) "Environment" shall mean any surface water, ground water, or
drinking water supply, land surface or subsurface strata, or ambient air and
includes, without limitation, any indoor location;
(ii) "Environmental Claim" means any written notice or written claim by
any person alleging potential liability (including, without limitation,
potential liability for investigatory costs, cleanup costs, governmental
costs, or harm injuries or damages to any person, property or natural
resources, and any fines or penalties) arising out of, based upon, resulting
from or relating to (1) the emission, discharge, disposal or other release
or threatened release in or into the Environment of any Hazardous Materials
or (2) circumstances forming the basis of any violation, or alleged
violation, of any applicable Environmental Law;
(iii) "Environmental Laws" means any federal, state, and local laws,
codes, and regulations as now or previously in effect relating to pollution,
the protection of human health, the protection of the Environment or the
emission, discharge, disposal or other release or threatened release of
Hazardous Materials in or into the Environment;
(iv) "Environmental Permit" shall mean a permit, identification number,
license or other written authorization required under any applicable
Environmental Law; and
(v) "Hazardous Materials" shall mean all pollutants, contaminants, or
chemical, hazardous or toxic materials, substances, constituents or wastes,
including, without limitation, asbestos or asbestos-containing materials,
polychlorinated biphenyls and petroleum, oil, or petroleum or oil
derivatives or constituents, including, without limitation, crude oil or any
fraction thereof.
3.19. DISCLOSURE. All of the facts and circumstances not required to be
disclosed as exceptions under or to any of the foregoing representations and
warranties made by Company, in this Article III by reason of any minimum
disclosure requirement in any such representation and warranty would not, in the
aggregate, have a Company Material Adverse Effect.
3.20. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in Section
3.20 of the Disclosure Statement, neither Company nor any of its subsidiaries
has any liabilities or obligations of any nature, whether absolute, accrued,
unmatured, contingent or otherwise, or any unsatisfied judgments or any leases
of personality or realty or unusual or extraordinary commitments, except the
liabilities recorded on Company's consolidated balance sheet at December 31,
1996 included in the financial statements referred in Section 3.6 and the notes
thereto, and except for liabilities or obligations incurred in the ordinary
course of business and consistent with past practice since December 31, 1996
that would not individually or in the aggregate have a Company Material Adverse
Effect.
3.21. FINDERS OR BROKERS. Except as set forth in Section 3.21 of the
Disclosure Statement, none of Company, the subsidiaries of Company, the Board of
Directors of Company or any member of the Board of Directors of Company has
employed any investment banker, broker, finder or intermediary in connection
with the transactions contemplated hereby who might be entitled to a fee or any
commission in connection with the Merger, and Section 3.21 of the Disclosure
Statement sets forth the maximum consideration (present and future) agreed to be
paid to each such party.
3.22. STATE ANTITAKEOVER STATUTES. Company has granted all approvals and
taken all other steps necessary to exempt the Merger and the other transactions
contemplated hereby from the requirements and provisions of Section 203 of the
GCL and any other applicable state antitakeover statute or regulation such that
none of the provisions of such Section 203 or any other "business combination,"
"moratorium," "control share" or other state antitakeover statute or regulation
(x) prohibits or restricts Company's ability to perform its obligations under
this Agreement or its ability to consummate the Merger and the other
transactions contemplated hereby, (y) would have the effect of invalidating or
voiding this Agreement or
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any provision hereof, or (z) would subject Parent to any material impediment or
condition in connection with the exercise of any of its rights under this
Agreement.
3.23. OPINION OF FINANCIAL ADVISOR. Company has received the opinion of
First Boston dated the date of this Agreement, to the effect that, as of such
date, the Merger Consideration is fair from a financial point of view to the
holders of shares of Company Common Stock.
3.24. INSURANCE. Section 3.24 of the Disclosure Statement lists all
insurance policies in force on the date hereof covering the businesses,
properties and assets of Company and its subsidiaries, and all such policies are
currently in effect.
3.25. EMPLOYMENT AND LABOR CONTRACTS. Neither Company nor any of its
subsidiaries is a party to any employment contract or other similar contract or
any other contract for the provision of management or consulting services to
Company or any of its subsidiaries with any past or present officer, director,
employee or, to the best of Company's knowledge, any entity affiliated with any
past or present officer, director or employee other than the agreements executed
by employees generally, the forms of which have been delivered to Parent.
3.26. PENDING TRANSACTIONS. Section 3.26 of the Disclosure Statement lists
the status of the Pending Transactions.
3.27. INDEMNIFICATION AGREEMENTS. Each of the RHI Indemnification
Agreement, the FHC Indemnification Agreement and the Pledge Agreement is a valid
and binding agreement of Company and, to the knowledge of Company, each of such
agreements is enforceable against RHI Holdings, Inc. ("RHI") and The Fairchild
Corporation ("TFC"), Fairchild Holding Corp. ("FHC"), and RHI, respectively,
except to the extent that such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting the
enforcement of creditors' rights generally or by general equitable or fiduciary
principles. Each of the RHI Indemnification Agreement, the FHC Indemnification
Agreement and the Pledge Agreement shall inure to the benefit of the Surviving
Corporation and shall be enforceable by the Surviving Corporation except to the
extent that such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting the enforcement
of creditors' rights generally or by general equitable or fiduciary principles.
As of the date hereof, Company has no knowledge of any liabilities or claims for
which Company is indemnified under the RHI Indemnification Agreement and FHI
Indemnification Agreement (other than (i) the contingent liabilities related to
a dispute with the United States Government under government contract accounts
rules concerning potential liability arising out of the use of and accounting
for approximately $50.0 million in excess pension funds relating to certain
government contracts in the discontinued aerospace business of Fairchild
Industries, Inc. ("FII"), the nonsurviving constituent corporation in their
merger of March 13, 1996, with Shared Technologies, Inc.; (ii) all
non-telecommunications environmental liabilities of FII; and (iii) approximately
$50.0 million (at June 30, 1995 of costs associated with post-retirement
healthcare benefits of FII) as such items are described in Company's Annual
Report on Form 10-K for the year ended December 31, 1996) that would (were the
indemnification under the RHI Indemnification Agreement and FHI Indemnification
Agreement not available), individually or in the aggregate, have a Company
Material Adverse Effect.
3.28. INDEMNIFIED LIABILITIES. Notwithstanding all of the representations
and warranties contained in this Article III (except for Section 3.27), it is
hereby agreed that Company need not disclose as exceptions to any of the
foregoing representations and warranties any losses, liabilities and damages or
actions or claims for which Company is indemnified under each of the FHI
Indemnification Agreement and the RHI Indemnification Agreement.
3.29. COMMERCIAL ARRANGEMENTS WITH TEL-SAVE HOLDINGS, INC. Except as
disclosed in Schedule A attached hereto, neither Company nor any of its
subsidiaries or affiliates has entered into, or is a party to,
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any commercial contracts, agreements, leases, plans, instruments, registrations,
licenses, permits, commitments, arrangements or undertakings with Tel-Save
Holdings, Inc. or any of its subsidiaries or affiliates, whether written or
oral.
IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Each of Parent and Purchaser jointly and severally represents and warrants
to Company as follows:
4.1. ORGANIZATION AND QUALIFICATION. Each of Parent and Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Each of Parent and Purchaser is duly qualified
as a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or leased or the nature
of its activities makes such qualification necessary, except for failures to be
so qualified or in good standing which would not, individually or in the
aggregate, have a material adverse effect on Parent's or Purchaser's ability to
consummate the Offer, the Merger or the other transactions contemplated hereby
(a "PARENT MATERIAL ADVERSE EFFECT"). Neither Parent nor Purchaser is in
violation of any of the provisions of its Certificate of Incorporation (or other
applicable charter document) or Bylaws.
4.2. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and Purchaser
has full corporate power and authority to execute and deliver this Agreement and
to consummate the Offer, the Merger and other transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the Offer,
the Merger and other transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of Parent and Purchaser and no other
corporate proceedings on the part of Parent and Purchaser are necessary to
authorize this Agreement or to consummate the Offer, the Merger or other
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each of Parent and Purchaser and, assuming the due
authorization, execution and delivery hereof by Company, constitutes a valid and
binding agreement of Parent and Purchaser, enforceable against Parent and
Purchaser in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally or by general equitable or fiduciary principles.
4.3. NO VIOLATIONS, ETC. (a) Assuming that all filings, permits,
authorizations, consents and approvals or waivers thereof have been duly made or
obtained as contemplated by Section 4.3(b) hereof, neither the execution and
delivery of this Agreement by Parent and Purchaser nor the consummation of the
Offer, the Merger or other transactions contemplated hereby nor compliance by
Parent and Purchaser with any of the provisions hereof will (i) violate,
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination or suspension of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of Parent and
Purchaser under, any of the terms, conditions or provisions of (x) their
respective charters or bylaws or (y) any note, bond, mortgage, indenture or deed
of trust, or (ii) subject to compliance with the statutes and regulations
referred to in the next paragraph, violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to Parent or
Purchaser or any of their respective properties or assets, except, in the case
of clause (ii) above, for such violations, conflicts, breaches, defaults,
terminations, suspensions, accelerations, rights of termination or acceleration
or creations of liens, security interests, charges or encumbrances which would
not, individually or in the aggregate, have a Parent Material Adverse Effect.
(b) No filing or registration with, notification to and no permit,
authorization, consent or approval of any governmental entity is required by
Parent or Purchaser in connection with the execution and delivery of this
Agreement or the consummation by Parent and Purchaser of the Offer, the Merger
or other transactions contemplated hereby, except (i) in connection with the
applicable requirements of the HSR
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Act, (ii) the filing of the Certificate of Merger with the Secretary of State of
the State of Delaware, (iii) filings with the SEC and state securities
administrators, (iv) filings with the Federal Communications Commission or any
applicable state public utility commissions or applicable state or local
regulatory agency or authority, and (v) such other filings, registrations,
notifications, permits, authorizations, consents or approvals the failure of
which to be obtained, made or given would not, individually or in the aggregate,
have a Parent Material Adverse Effect.
(c) As of the date hereof (x) Parent and Purchaser are not in violation of
or default under any note, bond, mortgage, indenture or deed of trust, or (y)
any license, lease, agreement or other instrument or obligation to which Parent
is a party or to which they or any of their respective properties or assets may
be subject, except, in the case of clauses (x) and (y) above, for such
violations or defaults which would not, individually or in the aggregate, have a
Parent Material Adverse Effect.
4.4. PROXY STATEMENT. None of the information supplied or to be supplied
by or on behalf of Parent and Purchaser for inclusion or incorporation by
reference in the Proxy Statement will, at the dates mailed to stockholders and
at the time of Company Stockholder 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.
4.5. FINDERS OR BROKERS. None of Parent, Purchaser, the Board of Directors
of Parent or Purchaser or any member of the Board of Directors of Parent or
Purchaser has employed any investment banker, broker, finder or intermediary in
connection with the transactions contemplated hereby who might be entitled to a
fee or any commission in connection with the Offer or the Merger other than
Bear, Stearns & Co., Inc., whose fees shall be paid by Parent.
4.6. OFFER DOCUMENTS. The Offer Documents will not, at the time the Offer
Documents are filed with the SEC or are first published, sent or given to
stockholders of Company, as the case may be, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they are made, not misleading. Notwithstanding the
foregoing, Parent and Purchaser make no representation or warranty with respect
to any information supplied by Company or any of its representatives which is
contained in any of the foregoing documents or the Offer Documents. The Offer
Documents shall comply in all material respects as to form with the requirements
of the Exchange Act and the rules and regulations thereunder.
V. COVENANTS
5.1. CONDUCT OF BUSINESS OF COMPANY PENDING THE MERGER. Except as
contemplated by this Agreement or as expressly agreed to in writing by Parent,
during the period from the date of this Agreement to the Effective Time, each of
Company and its subsidiaries will conduct their respective operations according
to its ordinary course of business consistent with past practice, and will use
all commercially reasonable efforts to preserve intact its business
organization, to keep available the services of its officers and employees and
to maintain satisfactory relationships with suppliers, distributors, customers
and others having business relationships with it and will take no action which
would materially adversely affect the ability of the parties to consummate the
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, and except as otherwise expressly provided in this Agreement,
prior to the Effective Time, Company will not, nor will it permit any of its
subsidiaries to, without the prior written consent of Parent, which consent
shall not be unreasonably withheld:
(a) amend its certificate of incorporation or bylaws;
(b) authorize for issuance, issue, sell, deliver, grant any options for, or
otherwise agree or commit to issue, sell or deliver any shares of any class of
its capital stock or any securities convertible into shares of any class of its
capital stock, except (i) pursuant to and in accordance with the terms of
currently
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outstanding convertible securities, warrants and options, and (ii) shares
granted to employees as matching contributions pursuant to Company's 401(k) Plan
in an aggregate amount not to exceed 40,000 shares;
(c) split, combine or reclassify any shares of its capital stock, declare,
set aside or pay any dividend (other than a dividend of stock of Shared
Technologies Cellular, Inc. owned by Company) or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its capital
stock or purchase, redeem or otherwise acquire any shares of its own capital
stock or of any of its subsidiaries, except as otherwise expressly provided in
this Agreement;
(d) (i) create, incur, assume, maintain or permit to exist any debt for
borrowed money other than under existing lines of credit in the ordinary course
of business consistent with past practice; (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person except for (a) its wholly
owned subsidiaries, and (b) STF Canada, Inc. in the ordinary course of business
and consistent with past practices; or (iii) make any loans, advances or capital
contributions to, or investments in, any other person except for STF Canada,
Inc. in an aggregate amount not to exceed $1,000,000;
(e) (i) increase in any manner the compensation of (x) any employee except
in the ordinary course of business consistent with past practice or (y) any of
its directors or officers; (ii) pay or agree to pay any pension, retirement
allowance or other employee benefit not required, or enter into or agree to
enter into any agreement or arrangement with any director or officer or
employee, whether past or present, relating to any such pension, retirement
allowance or other employee benefit, except as required under currently existing
agreements, plans or arrangements; (iii) grant any severance or termination pay
to, or enter into any employment or severance agreement with, (x) any employee
except in the ordinary course of business consistent with past practice or (y)
any of its directors or officers except for honorarium payments to outside
directors of Company in an amount not to exceed $300,000 in the aggregate; or
(iv) except as may be required to comply with applicable law, become obligated
(other than pursuant to any new or renewed collective bargaining agreement)
under any new pension plan, welfare plan, multiemployer plan, employee benefit
plan, benefit arrangement, or similar plan or arrangement, which was not in
existence on the date hereof, including any bonus, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right, group
insurance, severance pay, retirement or other benefit plan, agreement or
arrangement, or employment or consulting agreement with or for the benefit of
any person, or amend any of such plans or any of such agreements in existence on
the date hereof; provided, however, that this clause (iv) shall not prohibit
Company from renewing any such plan, agreement or arrangement already in
existence on terms no more favorable to the parties to such plan, agreement or
arrangement;
(f) except as otherwise expressly contemplated by this Agreement, enter into
any other agreements, commitments or contracts, except agreements, commitments
or contracts for the purchase, sale or lease of goods or services involving
payments or receipts by Company or its subsidiaries not in excess of $50,000,
other than (i) customer agreements, (ii) leases for rental space in an amount
not to exceed $250,000 for any lease or (iii) developer agreements in an amount
not to exceed $250,000 for any agreement; provided, however, that Company will
not enter into agreements with any local exchange carriers, competitive local
exchange carriers or incumbent local exchange companies which require a
financial commitment by Company or any of its subsidiaries or which limit the
ability of Company or any of its subsidiaries to conduct their respective
business;
(g) authorize, recommend, propose or announce an intention to authorize,
recommend or propose, or enter into any agreement in principle or an agreement
with respect to, any plan of liquidation or dissolution, any acquisition of a
material amount of assets or securities, any sale, transfer, lease, license,
pledge, mortgage, or other disposition or encumbrance of a material amount of
assets or securities or any material change in its capitalization, or any entry
into a material contract or any amendment or modification of any material
contract or any release or relinquishment of any material contract rights;
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(h) authorize or commit to make capital expenditures in excess of $200,000
for any one order in Company's service business (other than purchases by
Company's systems business in the ordinary course of business consistent with
past practice);
(i) make any change in the accounting methods or accounting practices
followed by Company;
(j) settle any action, suit, claim, investigation or proceeding (legal,
administrative or arbitrative) in excess of $50,000 without the consent of the
Parent; provided, however, that Company may settle the matter set forth in item
2 of Section 3.9 of the Disclosure Statement as previously discussed with
Parent;
(k) make any election under the Code which would have a Company Material
Adverse Effect;
(l) amend, change or alter in any respect any of the RHI Indemnification
Agreement, the FHC Indemnification Agreement or the Pledge Agreement (except as
specifically contemplated by this Agreement); or
(m) agree to do any of the foregoing.
Promptly following execution and delivery of this Agreement, Parent shall
appoint a senior executive (the "CONSULTANT") to act as a management consultant
and advisor to the Company relative to the conduct of its business in the
ordinary course, including the activities described in clauses (d)-(j) of this
Section 5.1. The Consultant shall liaise directly with the chief executive
officer and chief operating officer of the Company and shall be informed of, and
participate as a consultant in, all management decisions made by such officers.
In the event that the Company determines to implement management decisions
contrary to the advice of the Consultant, and the Consultant determines in his
good faith judgment, that such management decisions either alone or taken
together with other management decisions implemented against the advice of the
Consultant, could lead to a Company Material Adverse Effect, the Consultant
shall promptly notify the Executive Committee of the Board of Directors of the
Company in writing of his determination and his contrary recommendation (the
"CONSULTANT NOTICE"). In the event the Executive Committee of the Board of
Directors does not cause management of the Company to act in accordance with the
recommendations of the Consultant set forth in the Consultant Notice by
directing management so to act in writing within five days of receipt of the
Consultant Notice, Parent and Purchaser may, by delivery of written notice to
the Company within 30 days following the expiration of such five day period,
terminate this Agreement in accordance with the provisions of Section 7.1(i)
hereof. The written consent or recommendation of the Consultant with respect to
any matter shall be deemed to be the consent of Parent thereto.
5.2. PREPARATION OF THE PROXY STATEMENT; STOCKHOLDERS MEETINGS.
(a) As soon as practicable following the date hereof, Company shall prepare
and file the Proxy Statement with the SEC under the Exchange Act, and shall use
its reasonable best efforts to have the Proxy Statement cleared by the SEC.
Parent, Purchaser and Company shall cooperate with each other in the preparation
of the Proxy Statement, and Company shall notify Parent of the receipt of any
comments of the SEC with respect to the Proxy Statement and of any requests by
the SEC for any amendment or supplement thereto or for additional information
and shall provide to Parent promptly copies of all correspondence between
Company or any representative of Company and the SEC. Company shall give Parent
and its counsel the opportunity to review the Proxy Statement prior to its being
filed with the SEC and shall give Parent and its counsel the opportunity to
review all amendments and supplements to the Proxy Statement and all responses
to requests for additional information and replies to comments prior to their
being filed with, or sent to, the SEC, and prior to the filing of the Proxy
Statement, any amendments or supplements to the Proxy Statement or any other
correspondence to the SEC (collectively, the "PROXY FILINGS"), the Proxy Filings
shall be reasonably satisfactory to Parent. Each of Company, Parent and
Purchaser agrees to use its reasonable best efforts, after consultation with the
other parties hereto, to respond promptly to all such comments of and requests
by the SEC and to cause the Proxy Statement and
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all required amendments and supplements thereto to be mailed to the holders of
Shares entitled to vote at the Stockholders' Meeting at the earliest practicable
time.
(b) Company shall, as soon as practicable after the date hereof, duly call,
give notice of, convene and hold a meeting of its stockholders (the "COMPANY
STOCKHOLDER MEETING"), as promptly as practicable after the date hereof, for the
purpose of obtaining the approval (the "COMPANY STOCKHOLDER APPROVAL") of a
majority of the stockholders of Company of this Agreement 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, and
shall use all commercially reasonable efforts to solicit from its stockholders
proxies in favor of approval and adoption of this Agreement; provided, however,
that such recommendation is subject to any action required by the fiduciary
duties of the Board of Directors.
5.3. ADDITIONAL AGREEMENTS; COOPERATION. (a) Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use its best
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable to consummate and make effective
as promptly as practicable the transactions contemplated by this Agreement, and
to cooperate with each other in connection with the foregoing, including using
its best efforts (i) to obtain all necessary waivers, consents and approvals
from other parties to loan agreements, material leases and other material
contracts that are specified on Schedule 5.3 to the Disclosure Statement, (ii)
to obtain all necessary consents, approvals and authorizations as are required
to be obtained under any federal, state or foreign law or regulations, (iii) to
defend all lawsuits or other legal proceedings challenging this Agreement or the
consummation of the transactions contemplated hereby, (iv) to lift or rescind
any injunction or restraining order or other order adversely affecting the
ability of the parties to consummate the transactions contemplated hereby, (v)
to effect all necessary registrations and filings, including, but not limited
to, filings under the HSR Act and submissions of information requested by
governmental authorities, (vi) provide all necessary information for the Proxy
Statement and (vii) to fulfill all conditions to this Agreement.
(b) Each of the parties hereto agrees to furnish to the other party hereto
such necessary information and reasonable assistance as such other party may
request in connection with its preparation of necessary filings or submissions
to any regulatory or governmental agency or authority, including, without
limitation, any filing necessary under the provisions of the HSR Act or any
other applicable Federal or state statute. At any time upon the written request
of Parent, Company shall advise Parent of the number of shares of Company Common
Stock or any series of Preferred Stock outstanding on such date.
5.4. PUBLICITY. Company, Parent and Purchaser agree to consult with each
other in issuing any press release and with respect to the general content of
other public statements with respect to the transactions contemplated hereby,
and shall not issue any such press release prior to such consultation, except as
may be required by law.
5.5. NO SOLICITATION. (a) Company shall not, nor shall it permit any of
its subsidiaries to, nor shall it authorize or permit any of its officers,
directors 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, (i) solicit any Company Takeover Proposal (as
hereinafter defined) or (ii) participate in any discussions or negotiations
regarding any Company Takeover Proposal; provided, however, that if, at any time
prior to Company Stockholders Meeting, the Board of Directors of Company
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 Company's
stockholders under applicable law the Company may, in response to a Company
Takeover Proposal that was not solicited, and subject to compliance with Section
5.5(c), (x) furnish information with respect to Company to any person pursuant
to a customary confidentiality agreement (as determined by Company after
consultation with its outside counsel) and (y) participate in negotiations
regarding such Company Takeover Proposal. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the preceding
sentence by any director or executive officer of Company or any of its
subsidiaries, whether or not such person is purporting to act on behalf of
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Company or any of its subsidiaries or otherwise, shall be deemed to be a breach
of this Section 5.5(a) by Company. For purposes of this Agreement, "COMPANY
TAKEOVER PROPOSAL" means any inquiry, proposal or offer from any person relating
to any direct or indirect acquisition or purchase of 20% or more of the assets
of Company or its subsidiaries or 20% or more of any class of equity securities
of Company or any of its subsidiaries, any tender offer or exchange offer that
if consummated would result in any person beneficially owning 20% or more of any
class of equity securities of Company or any of its subsidiaries, any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving Company or any of its subsidiaries, other than
the transactions contemplated by this Agreement, or any other transaction the
consummation of which would reasonably be expected to impede, interfere with,
prevent or materially delay the Merger or which would reasonably be expected to
dilute materially the benefits to Parent of the transactions contemplated by
this Agreement.
(b) Except as set forth in this Section 5.5, neither the Board of Directors
of Company nor any committee thereof shall (i) withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to Parent, 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 to
recommend, any Company Takeover Proposal or (iii) cause Company to enter into
any letter of intent, agreement in principle, acquisition agreement or other
similar agreement (each, a "COMPANY ACQUISITION AGREEMENT") related to any
Company Takeover Proposal. Notwithstanding the foregoing, in the event that
prior to the Company Stockholders Meeting the Board of Directors of Company
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 Company's
stockholders under applicable law, the Board of Directors of Company may
(subject to this and the following sentences) (x) withdraw or modify its
approval or recommendation of the Merger and this Agreement or (y) approve or
recommend a Company Superior Proposal (as defined below) or terminate this
Agreement (and concurrently with or after such termination, if it so chooses,
cause Company to enter into any Company Acquisition Agreement with respect to
any Company Superior Proposal) but in each of the cases set forth in this clause
(y), no action shall be taken by Company pursuant to clause (y) until a time
that is after the fifth business day following Parent's receipt of written
notice advising Parent that the Board of Directors of Company has received a
Company Superior Proposal, specifying the material terms and conditions of such
Company Superior Proposal and identifying the person making such Company
Superior Proposal, to the extent such identification of the person making such
proposal does not breach the fiduciary duties of the Board of Directors as
advised by outside legal counsel. For purposes of this Agreement, a "COMPANY
SUPERIOR PROPOSAL" means any bona fide proposal made by a third party to
acquire, directly or indirectly, for consideration consisting of cash and/or
securities, more than 50% of the combined voting power of the shares of Company
Common Stock and Company Preferred Stock then outstanding or all or
substantially all the assets of Company and otherwise on terms that the Board of
Directors of Company determines in its good faith judgment (based on the advice
of a financial advisor of nationally recognized reputation) to be more favorable
to Company's stockholders than the Merger.
(c) In addition to the obligations of Company set forth in paragraphs (a)
and (b) of this Section 5.5, Company shall immediately advise Parent orally and
in writing of any request for information or of any Company Takeover Proposal,
the material terms and conditions of such request or Company Takeover Proposal,
and to the extent such disclosure is not a breach of the fiduciary duties of the
Board of Directors as advised by outside legal counsel, the identity of the
person making such request or Company Takeover Proposal.
(d) Nothing contained in this Section 5.5 shall prohibit Company 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 Company's
stockholders if, in the good faith judgment of the Board of Directors of
Company, after consultation with outside counsel, failure so to disclose would
be inconsistent with its fiduciary duties to Company's stockholders under
applicable law; provided, however, neither Company nor its Board of Directors
nor any committee thereof shall, except as permitted by Section 5.5(b), 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 company Takeover Proposal.
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5.6. ACCESS TO INFORMATION. From the date of this Agreement until the
Effective Time, Company shall provide Parent and its authorized representatives
(including counsel, environmental and other consultants, accountants and
auditors) full access during normal business hours to all facilities, personnel
and operations and to all books and records of it and its subsidiaries, will
permit Parent to make such inspections as it may reasonably require and will
cause its officers and those of its subsidiaries to furnish Parent with such
financial and operating data and with respect to its business and properties as
Parent may from time to time reasonably request.
5.7. NOTIFICATION OF CERTAIN MATTERS. Company or Parent, as the case may
be, shall promptly notify the other of (i) its obtaining of actual knowledge as
to the matters set forth in clauses (x) and (y) below, or (ii) the occurrence,
or failure to occur, of any event, which occurrence or failure to occur would be
likely to cause (x) any representation or warranty contained in Section 3.2,
3.3, 3.4, 3.10, 3.14, 3.21, 3.22, 3.23 or 3.29 to be untrue or inaccurate in any
material respect at any time from the date hereof to the Effective Time, or (y)
any material failure of Company or Parent, as the case may be, or of any
officer, director, employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by its under
this Agreement; provided, however, that no such notification shall affect the
representations or warranties of the parties or the conditions to the
obligations of the parties hereunder.
5.8. RESIGNATION OF DIRECTORS. At or prior to the Effective Time, Company
shall take all commercially reasonable efforts to deliver to Parent the
resignations of such directors of Company and its subsidiaries as Parent shall
specify, effective at the Effective Time.
5.9. INDEMNIFICATION. (a) As of the date of this Agreement and for a
period of six years following the Effective Time of the Merger, Parent and the
Surviving Corporation will indemnify and hold harmless any persons who were
directors or officers of Company or a subsidiary of Company prior to the
Effective Time of the Merger (the "INDEMNIFIED PERSONS") to the fullest extent
such person could have been indemnified under the GCL or under the certificate
of incorporation or bylaws of Company or the certificate of incorporation or
bylaws of any subsidiary of Company in effect immediately prior to the Effective
Time of the Merger, with respect to any act or failure to act by any such
Indemnified Person prior to the Effective Time of the Merger.
(b) Any determination required to be made with respect to whether an
Indemnified Person's conduct complies with the standards set forth under the GCL
or other applicable corporate law shall be made by independent counsel selected
by the Indemnified Persons and reasonably acceptable to Parent and the Surviving
Corporation. Parent or the Surviving Corporation shall pay such counsel's fees
and expenses (it being agreed that neither the Indemnified Persons, Parent nor
the Surviving Corporation shall challenge any such determination by such
independent counsel).
(c) The provisions of this Section 5.9 are for the benefit of the
Indemnified Persons, any of whom shall have all rights at law and in equity to
enforce the rights hereunder.
(d) In the event that Parent or the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person and
Parent or the Surviving Corporation or such successor or assign is not the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers all or substantially all of its properties and assets to any
person, then, and in each case, proper provision shall be made so that such
person or the continuing or surviving corporation assumes the obligations set
forth in this Section 5.9.
(e) Parent shall cause the Surviving Corporation to maintain in effect for
not less than five years from the Effective Time the current policies of
directors' and officers' liability insurance maintained by Company and its
subsidiaries (provided that Parent may substitute therefor policies of at least
the same coverage containing terms and conditions which are no less advantageous
to the Indemnified Parties in all material respects so long as no lapse in
coverage occurs as a result of such substitution) with respect to all matters,
including the transactions contemplated hereby, occurring prior to, and
including the Effective
22
<PAGE>
Time, provided that, in the event that any claim is asserted or made within such
five year period, such insurance shall be continued in respect of any such claim
until final disposition of any and all such claims, provided, further, that
Parent shall not be obligated to make annual premium payments for such insurance
to the extent such premiums exceed 200% of the premiums paid as of the date
hereof by Company for such insurance.
5.10. FEES AND EXPENSES. Whether or not the Merger is consummated, Company
and Parent shall bear their respective expenses incurred in connection with the
Merger, including, without limitation, the preparation, execution and
performance of this Agreement and the transactions contemplated hereby, and all
fees and expenses of investment bankers, finders, brokers, agents,
representatives, counsel and accountants.
5.11. STOCKHOLDER LITIGATION. Each of Company and Parent shall give the
other the reasonable opportunity to participate in the defense of any
stockholder litigation against or in the name of Company or Parent, as
applicable, and/or their respective directors relating to the transactions
contemplated by this Agreement.
VI. CONDITIONS
6.1. CONDITIONS TO THE MERGER. The obligations of each party to effect the
Merger shall be subject to the satisfaction or waiver, at or prior to the
Effective Time, of each of the following conditions:
(a) The Merger and this Agreement shall have been validly approved and
adopted by the affirmative votes of the holders of a majority of the outstanding
shares of Company Common Stock entitled to vote thereon.
(b) 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 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 shall be in effect preventing the consummation of the Offer or the
Merger.
6.2. CONDITIONS TO OBLIGATIONS OF PARENT. The obligation of Parent to
effect the Merger is further subject to satisfaction or waiver of the following
conditions:
(a) All of the representations and warranties of Company set forth herein
shall be true and correct as of July 16, 1997, and the representations and
warranties set forth in Sections 3.2, 3.3, 3.4, 3.10, 3.14, 3.21, 3.22, 3.23 and
3.29 shall be true and correct as of the date hereof and the Closing Date, as if
made at and as of such time, except where the failure of such representations
and warranties to be so true and correct (without giving effect to any
limitation as to "materiality" or "material adverse effect" set forth therein)
does not have, and is not likely to have, individually or in the aggregate, a
Company Material Adverse Effect or cause any material increase in the
consideration required to be paid by Parent and Purchaser effectively to
consummate the Merger.
(b) Company 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) All necessary consents and approvals of any federal, state or local
governmental authority or any other third party required for the consummation of
the transactions contemplated by this Agreement shall have been obtained except
for such consents and approvals the failure to obtain which individually or in
the aggregate would not have material adverse effect on the Surviving
Corporation or a Parent Material Adverse Effect.
6.3. CONDITIONS TO OBLIGATIONS OF COMPANY. The obligation of Company to
effect the Merger is further subject to satisfaction or waiver of the following
conditions:
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<PAGE>
(a) The representations and warranties of Parent and Purchaser set forth
herein shall be true and correct both when made and at and as of the Closing
Date, as if made at and as of such date, except whether the failure of such
representations and warranties to be so true and correct (without giving effect
to any limitation as to "materiality" or "material adverse effect" set forth
therein) does not have, and is not likely to have, individually or in the
aggregate, a Parent Material Adverse Effect.
(b) Parent and Purchaser 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.
VII. TERMINATION, AMENDMENT AND WAIVER
7.1. TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval by the stockholders of
Company:
(a) by consent of the Boards of Directors of Company, Parent and Purchaser;
(b) by Parent and Purchaser upon notice to Company if any material default
under or material breach of any covenant or agreement in this Agreement by
Company shall have occurred and shall not have been cured within ten days after
receipt of such notice, or any representation or warranty contained herein on
the part of Company shall not have been true and correct in any material respect
at and as of the date made;
(c) by Company upon notice to Parent and Purchaser if any material default
under or material breach of any covenant or agreement in this Agreement by
Parent or Purchaser shall have occurred and shall not have been cured within ten
days after receipt of such notice, or any representation or warranty contained
herein on the part of Parent or Purchaser shall not have been true and correct
in any material respect at and as of the date made;
(d) by Parent and Purchaser, on the one hand, or Company, on the other, upon
notice to the other if the Merger shall not have become effective on or before
September 30, 1998, unless such date is extended by the consent of the Boards of
Directors of Company, Parent and Purchaser evidenced by appropriate resolutions;
PROVIDED, HOWEVER, that the right to terminate this Agreement under this Section
7.1(d) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date;
(e) by any of Parent, Purchaser and Company if the approval of the
stockholders of Company required for consummation of the Merger shall not have
been obtained by reason of the failure to obtain the required vote at a duly
held meeting of stockholders or any adjournment thereof;
(f) by Parent or Purchaser, if Section 5.5 shall be breached by Company or
any of its officers, directors or employees or any investment banker, financial
advisor, attorney, accountant or other representative of Company, in any
material respect and Company shall have failed promptly to terminate the
activity giving rise to such breach and use best efforts to cure such breach
upon notice thereof from Parent or Purchaser, or Company shall breach Section
5.5 by failing to promptly notify Parent or Purchaser as required thereunder;
(g) by Parent or Purchaser if, at any time, (i) Company shall have withdrawn
or modified in any manner adverse to Parent or Purchaser its approval or
recommendation of this Agreement or the Merger or failed to reconfirm its
recommendation within 15 business days after a written request to do so, or
recommended any Company Takeover Proposal or (ii) the Board of Directors of
Company or any committee thereof shall have resolved to take any of the
foregoing actions;
(h) by the Company if it elects to terminate this Agreement in accordance
with Section 5.5(b); PROVIDED that it has complied with all provisions thereof,
including the notice provisions therein, and that it complies with applicable
requirements relating to the payment (including the timing of the payment) of
the termination fee required by Section 7.3; or
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<PAGE>
(i) by Parent or Purchaser in accordance with the provisions of the last
paragraph of Section 5.1 of this Agreement; provided that it has complied with
all provisions thereof, including the notice provisions therein.
7.2. EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to the provisions of Section 7.1, the provisions of this
Agreement (other than Sections 5.10, 7.2, 7.3 and 7.4 hereof) shall become void
and have no effect, with no liability on the part of any party hereto or its
stockholders or directors or officers in respect thereof, except as set forth in
Sections 7.3 and 7.4, PROVIDED that nothing contained herein shall be deemed to
relieve any party of any liability it may have to any other party with respect
to a breach of its obligations under this Agreement.
7.3. TERMINATION PAYMENT. As compensation for entering into this
Agreement, taking action to consummate the transactions hereunder and incurring
the costs and expenses related thereto and other losses and damages, including
the foregoing of other opportunities, Company and Parent agree as follows:
(a) Company shall pay to Parent the sum of $10.0 million plus all reasonably
documented out-of-pocket expenses (including, but not limited to, the reasonable
fees and expenses of counsel and its other advisers) of Parent and Purchaser
incurred in connection with the transactions contemplated by this Agreement
(including the preparation and negotiation of this Agreement) promptly after,
but in no event later than two days following, whichever of the following first
occurs:
(i) Parent or Purchaser shall have exercised its right to terminate this
Agreement pursuant to Sections 7.1(b), 7.1(f), 7.1(g) or 7.1(i) hereof.
(ii) Company shall have exercised its right to terminate this Agreement
pursuant to Section 7.1(e) or Section 7.1(h).
(c) Company shall not be obligated to make any payment pursuant to this
Section 7.3, if at the time such payment becomes due Parent or Purchaser is in
material breach of its obligations under this Agreement.
7.4. PROCEEDS OF THE GOOD FAITH DEPOSIT. (a) Subject to Section 7.4(c),
Company shall pay out from the proceeds of the Good Faith Deposit an amount
equal to $15,000,000 (the "TERMINATION FEE") to Tel-Save Holdings, Inc.
("TEL-SAVE") to satisfy termination fees arising from Company's termination of
that certain Agreement and Plan of Merger dated as of July 16, 1997 among
Tel-Save, TSHCo, Inc. and Company.
(b) Subject to Section 7.4(c), Company shall pay the Good Faith Deposit
(less the Termination Fee) to Tel-Save in exchange for the termination of any
options to purchase Company Common Stock held by Tel-Save under that certain
Option Agreement dated as of July 16, 1997 by and between Tel-Save and Company.
(c) In the event that Parent or Purchaser terminates this Agreement pursuant
to Section 7.1(a), 7.1(b), 7.1(f), 7.1(g) or 7.1(i) or Company terminates this
Agreement other than pursuant to Section 7.1(c) or Section 7.1(d), then Company
must repay to Purchaser the Good Faith Deposit (including any Termination Fee
which has been paid to Tel-Save).
7.5. AMENDMENT. This Agreement may be amended by the parties hereto only
in a writing signed on behalf of each of them, at any time before or after
approval of the Agreement by the stockholders of Company, but after such
approval no amendment shall be made which alters the Merger Consideration
without the further approval of the stockholders of Company other than Parent;
provided that no amendment or consent given or made on behalf of Company shall
be effective unless approved by a majority of the members of the Board as
constituted as of the date hereof (or of any successor directors duly elected by
such members).
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<PAGE>
7.6. WAIVER. Any term or provision of this Agreement (other than the
requirements for approval by the stockholders of Company) may be waived in
writing at any time by the party which is, or whose stockholders are, entitled
to the benefits thereof.
VIII. GENERAL PROVISIONS
8.1. DEFINITIONS. As used in the Agreement, the following terms have the
following respective meanings:
AGREEMENT: as defined in the recitals.
BOARD: as defined in the recitals.
CERTIFICATE OF MERGER: as defined in Section 2.5.
CERTIFICATES: as defined in Section 2.8(b).
CLOSING DATE: means the date on which the Effective Time occurs.
COBRA: as defined in Section 3.17(n).
CODE: means the Internal Revenue Code of 1986, as amended.
COMPANY: as defined in the first paragraph of this Agreement.
COMPANY ACQUISITION AGREEMENT: as defined in Section 5.5(b).
COMPANY COMMON STOCK: means issued and outstanding shares of Common Stock,
par value $.004 per share, of Company.
COMPANY MATERIAL ADVERSE EFFECT: as defined in Section 3.1.
COMPANY STOCKHOLDER APPROVAL: as defined in Section 5.2(b).
COMPANY STOCKHOLDER MEETING: as defined in Section 5.2(b).
COMPANY STOCK OPTION PLANS: as defined in Section 2.9.
COMPANY SUPERIOR PROPOSAL: as defined in Section 5.5(b).
COMPANY TAKEOVER PROPOSAL: as defined in Section 5.5(a).
CONSULTANT: as defined in Section 5.1.
CONSULTANT NOTICE: as defined in Section 5.1.
CONVERTIBLE PREFERRED STOCK: as defined in Section 2.6(d).
DISCLOSURE STATEMENT: as defined in Section 3.2.
DISSENTING SHARES: as defined in Section 2.6(e).
EFFECTIVE TIME: as defined in Section 2.5.
ERISA: the Employee Retirement Income Security Act of 1974, as amended.
ERISA AFFILIATE: as defined in Section 3.17(d).
EXCHANGE ACT: as defined in Section 1.2(b).
26
<PAGE>
EXCHANGE AGENT: Continental Stock Transfer & Trust Company or such other a
bank or trust company to be designated by Parent prior to the Effective Time to
act as exchange agent.
FHC: means Fairchild Holding Corp.
FHC INDEMNIFICATION AGREEMENT: means the Indemnification Agreement between
FHC and Company dated March 13, 1996.
FII: as defined in Section 3.27.
FIRST BOSTON: as defined in Section 1.2(a).
GCL: as defined in the recitals.
GOOD FAITH DEPOSIT: as defined in Section 2.10.
HSR ACT: as defined in Section 3.5(b).
INDEMNIFIED PERSONS: as defined in Section 5.9(a).
IRS: as defined in Section 3.17(e).
MERGER: as defined in the recitals.
MERGER CONSIDERATION: as defined in Section 2.6(d).
MULTIEMPLOYER PLAN: as defined in Section 3.17(k).
OFFER DOCUMENTS: as defined in Section 1.1(b).
OFFER TO PURCHASE: as defined in Section 1.1(b).
OTHER PLANS: as defined in Section 3.17(b).
PARENT: as defined in the first paragraph of this Agreement.
PARENT MATERIAL ADVERSE EVENT: as defined in Section 4.1.
PBGC: as defined in Section 3.17(j).
PENDING TRANSACTIONS: means the pending transactions regarding ICS
Communications, Inc. and GE Capital-Rescum, L.L.P.
PENSION BENEFIT PLANS: as defined in Section 3.17(a).
PER SHARE AMOUNT: as defined in Section 2.6(a).
PER SHARE OFFER AMOUNT: as defined in the recitals.
PERSON: an individual, partnership, joint venture, corporation, trust,
unincorporated organization and a government or any department or agency
thereof.
PLANS: as defined in Section 3.17(c).
PLEDGE AGENT: shall mean Gadsby & Hannah.
PLEDGE AGREEMENT: means the Pledge Agreement dated as of March 13, 1996 by
RHI in favor of Gadsby & Hannah as pledge agent.
PREFERRED PER SHARE AMOUNT: as defined in Section 2.6(d).
27
<PAGE>
PREFERRED SHARES: as defined in Section 2.6(d).
PROXY FILINGS: as defined in Section 5.2(a).
PROXY STATEMENT: as defined in Section 3.8.
PURCHASER: as defined in the first paragraph of this Agreement.
RHI: means RHI Holdings, Inc.
RHI INDEMNIFICATION AGREEMENT: means the Indemnification Agreement dated
March 13, 1996 by and among TFC, RHI and Company.
SCHEDULE 14D-1: as defined in Section 1.1(b).
SCHEDULE 14D-9: as defined in Section 1.2(b).
SEC: as defined in Section 1.1(b).
SEC REPORTS: as defined in Section 3.6.
SECURITIES ACT: as defined in Section 3.6.
SERIES D STOCK: as defined in Section 2.6(d).
SHARES: means collectively, all shares of Company Common Stock.
SHARES CONSIDERATION: as defined in Section 2.6(a).
SPECIAL PREFERRED STOCK: as defined in Section 2.6(d).
SUBSIDIARY: with respect to any Person, any corporation or other business
entity, a majority (by number of votes) of the shares of capital stock (or other
voting interests) of which at the time outstanding is owned by such Person
directly or indirectly through Subsidiaries.
SURVIVING CORPORATION: as defined in Section 2.1.
TEL-SAVE: as defined in Section 7.4(a).
TERMINATION FEE: as defined in Section 7.4(a).
TFC: means The Fairchild Corporation.
TAX OR TAXES: as defined in Section 3.16.
WELFARE PLANS: as defined in Section 3.17(b).
8.2. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. No
representations, warranties or agreements in this Agreement or in any instrument
delivered by Parent, Purchaser or Company pursuant to this Agreement shall
survive the Merger.
8.3. NOTICES. All notices, requests, claims, demands, consents and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally or by fax or mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
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<PAGE>
if to Parent or Purchaser, a copy to:
Intermedia Communications Inc.
3625 Queen Palm Drive
Tampa, Florida 33619
Attention: Chief Financial Officer
Telecopy: (813) 829-2470
with a copy to:
Kronish, Lieb, Weiner & Hellman LLP
1114 Avenue of the Americas
New York, NY 10036
Attention: Ralph J. Sutcliffe, Esq.
Telecopy: (212) 479-6275
if to Company, a copy to:
Shared Technologies Fairchild Inc.
100 Great Meadow Road, Suite 104
Wethersfield, CT 06109
Telecopy No.: (860) 258-2455
Attention: Kenneth M. Dorros, Esq.
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
Telecopy No.: (212) 269-5420
Attention: James J. Clark, Esq..
and
The Fairchild Corporation
300 West Service Road
P.O. Box 10803
Chantilly, VA 22021
Telecopy No.: (703) 478-5775
Attention: Donald E. Miller, Esq.
8.4. 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 so long as the economic or legal substance of
the transactions contemplated thereby is not affected in any manner materially
adverse to any party. 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 in a mutually acceptable manner in
order that the transactions contemplated by this Agreement including the Merger,
be consummated as originally contemplated to the fullest extent possible.
8.5. MISCELLANEOUS. This Agreement (including the exhibits, documents and
instruments referred to herein or therein) (a) constitutes the entire agreement
and supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof and thereof; (b) is not intended to confer upon any other person other
than the parties hereto any rights or remedies hereunder; (c) shall not be
assigned by operation of law or otherwise, except
29
<PAGE>
that each of Parent and Purchaser may assign its rights and obligations
hereunder without the consent of Company to one or more direct or indirect
Subsidiaries of Parent (it being recognized that such an assignment shall not
release or discharge the assignor from its obligations under this Agreement);
and (d) shall be governed in all respects, including validity, interpretation
and effect, by the laws of the State of Delaware. The descriptive headings
contained in this Agreement are included for convenience of reference only and
shall not affect in any way the meaning or interpretation of this Agreement.
This Agreement may be executed in two or more counterparts which together shall
constitute a single instrument.
8.6. SPECIFIC PERFORMANCE. The parties agree that due to the unique
subject matter of this transaction, monetary damages will be insufficient to
compensate the non-breaching party in the event of a breach of any part of this
Agreement. Accordingly, the parties agree that the non-breaching party shall be
entitled (without prejudice to any other right or remedy to which it may be
entitled) to an appropriate decree of specific performance, or an injunction
restraining any violation of this Agreement or other equitable remedies to
enforce this Agreement (without establishing the likelihood of irreparable
injury or posting bond or other security), and the breaching party waives in any
action or proceeding brought to enforce this Agreement the defense that there
exists an adequate remedy at law.
8.7. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY OR AGAINST IT ON
ANY MATTERS WHATSOEVER, IN CONTRACT OR IN TORT, ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS AGREEMENT.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, Parent, Purchaser and Company have caused this Agreement
to be executed by their respective duly authorized officers on the date first
above written.
<TABLE>
<S> <C> <C>
INTERMEDIA COMMUNICATIONS INC.
By: /s/ROBERT M. MANNING
Name: Robert M. Manning
Title: Senior Vice President
and Chief Financial Officer
MOONLIGHT ACQUISITION CORP.
By: /s/ROBERT M. MANNING
Name: Robert M. Manning
Title: President
SHARED TECHNOLOGIES FAIRCHILD INC.
By: /s/ANTHONY D. AUTORINO
Name: Anthony D. Autorino
Title: Chief Executive Officer
</TABLE>
30
<PAGE>
SCHEDULE A
Long Distance Services Agreement, dated November 13, 1997, between Company
and Tel-Save Holdings, Inc.
<PAGE>
ANNEX A
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, Purchaser shall not be
required to accept for payment or pay for any Shares tendered pursuant to the
Offer, and may terminate or amend the Offer and may postpone the acceptance for
payment of and payment for Shares tendered, if (i) any applicable waiting period
under the HSR Act shall not have expired or been terminated prior to the
expiration of the Offer, or (ii) at any time on or after the date of this
Agreement, and prior to the acceptance for payment of Shares, any of the
following conditions shall exist:
(a) any 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 shall be in effect preventing the consummation of the Offer;
(b) all necessary consents and approvals of any federal, state or local
governmental authority or any other third party required for the
consummation of the Offer and the transactions contemplated by this
Agreement shall not have been obtained except for such consents and
approvals the failure to obtain which individually or in the aggregate would
not have a material adverse effect on the Surviving Corporation or a Parent
Material Adverse Effect;
(c) any of the representations and warranties of Company set forth in
the Agreement shall not be true and correct as of July 16, 1997 or any of
the representations and warranties set forth in Sections 3.2, 3.3, 3.4,
3.10, 3.14, 3.21, 3.22, 3.23 and 3.29 of the Agreement shall not be true as
of the date Parent shall first accept Shares for payment, where the failure
of such representations and warranties to be so true and correct (without
giving effect to any limitation as to "materiality" or "material adverse
effect" set forth therein) has, or is likely to have, individually or in the
aggregate, a Company Material Adverse Effect or cause any material increase
in the consideration required to be paid by Parent and Purchaser effectively
to consummate the Offer or the Merger;
(d) Company shall not have performed any obligation required to be
performed by it under this Agreement as of the date Parent shall first
accept Shares for payment, where the non-performance of such obligation has,
or is likely to have, individually or in the aggregate, a Company Material
Adverse Effect or cause any material increase in the consideration required
to be paid by Parent and Purchaser effectively to consummate the Offer;
(e) the Merger Agreement shall have been terminated in accordance with
its terms; or
(f) Purchaser and Company shall have agreed that Purchaser shall
terminate the Offer or postpone the acceptance for payment of or payment for
Shares thereunder;
which, in the reasonable judgment of Purchaser in any such case, and regardless
of the circumstances (including any action or inaction by Parent or any of its
affiliates) giving rise to any such condition, makes it inadvisable to proceed
with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Purchaser and Parent
and may be asserted by Purchaser or Parent regardless of the circumstances
giving rise to any such condition or may be waived by Purchaser or Parent in
whole or in part at any time and from time to time in their sole discretion. The
failure by Parent or Purchaser at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right; the waiver of any such
right with respect to particular facts and other circumstances shall not be
deemed a waiver with respect to any other facts and circumstances; and each such
right shall be deemed an ongoing right that may be asserted at any time and from
time to time.
<PAGE>
[LOGO]
[LOGO]
ANNEX II
November 26, 1997
The Board of Directors
Shared Technologies Fairchild Inc.
100 Great Meadow Road
Wethersfield, CT 06109
Dear Sir and Madam:
You have asked us to advise you with respect to the fairness to the
stockholders of Shared Technologies Fairchild Inc. (the "Company"), other than
Intermedia Communications Inc. (the "Acquiror") and The Fairchild Corporation
and RHI Holdings, Inc. (collectively, "Fairchild/RHI"), from a financial point
of view, of the consideration to be received by such stockholders pursuant to
the terms of the Agreement and Plan of Merger, dated as of November 20, 1997
(the "Merger Agreement"), among the Company, the Acquiror, and Moonlight
Acquisition Corp. (the "Sub"). The Merger Agreement provides, among other
things, that (i) the Sub will commence, as soon as practicable, a cash tender
offer to acquire 4,000,000 of the issued and outstanding shares of Company
common stock, par value $0.004 per share (the "Common Shares") at a price of
$15.00 per Common Share, net to the seller (the "Offer"); (ii) promptly
following the consummation of the Offer, the Sub will be merged with and into
the Company with the Company as the surviving corporation (the "Merger"); (iii)
the Company will become a wholly owned subsidiary of the Acquiror as a result of
the Merger; and (iv) each of the then outstanding Common Shares will be
converted into the right to receive $15.00 cash.
Immediately prior to the execution of the Merger Agreement, the Acquiror
entered into a stock option agreement (the "Option Agreement") with certain
stockholders of the Company granting the Acquiror an exclusive and irrevocable
option to (i) purchase from Fairchild/RHI (x) 6,225,000 Common Shares at $15.00
net to the seller in cash per share and (y) 250,000 shares of the Company's
Convertible Preferred Stock at $15.00 multiplied by the number of shares of
Common Stock into which such share of the Company's Convertible Preferred Stock
is convertible; (ii) purchase from Anthony D. Autorino 870,416 Common Shares and
options to purchase 296,667 Common Shares at $15.00 net to the seller in cash
per share; and (iii) purchase from Jefferey J. Steiner up to 47,500 Common
Shares and options to purchase 116,667 Common Shares at $15.00 net to the seller
in cash per share. The Option Agreement also provides for each stockholder named
in the preceding sentence to irrevocably appoint the Acquiror its attorney and
proxy to, among other things, vote and take other actions in favor of the
consummation of the transactions contemplated by the Merger Agreement. The
shares to which the Acquiror was granted an irrevocable option to purchase under
the Option Agreement, together with the shares owned directly by the Acquiror,
will give the Acquiror control of slightly in excess of 50% of the Company's
common stock on a fully diluted basis.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company, as well as the
Merger Agreement. We have also reviewed certain other information, including
financial forecasts, provided to us by the Company and have met with the
Company's management to discuss the business and prospects of the Company.
We have also considered certain financial and stock market data of the
Company, and we have compared those data with similar data for other publicly
held companies in businesses similar to the Company and we have considered the
financial terms of certain other business combinations and other
<PAGE>
transactions which have recently been effected. We also considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's management as to the future financial performance of the Company. In
addition, we have not been requested to make, and have not made, an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of the Company, nor have we been furnished with any such evaluations or
appraisals. Our opinion is necessarily based upon financial, economic, market
and other conditions as they exist as of the date hereof and can be evaluated on
the date hereof.
We have acted as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon the consummation of the Merger. We will also receive a fee
for rendering this opinion. In the past, we have performed certain investment
banking services for the Company and the Acquiror and have received customary
fees for such services.
In the ordinary course of business, we and our affiliates may actively trade
the debt and equity securities of both the Company and the Acquiror for our and
such affiliates' own accounts and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Company in
connection with its consideration of the Offer and the Merger, does not
constitute a recommendation to any stockholder as to how such stockholder should
vote on the proposed Merger or whether such stockholder should tender shares
pursuant to the Offer and is not to be quoted or referred to, in whole or in
part, in any registration statement, prospectus or proxy statement, or in any
other document used in connection with the offering or sales of securities, nor
shall this letter be used for any other purposes, without or prior written
consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be received by the stockholders of the Company
in the Offer and the Merger is fair to such stockholders, other than the
Acquiror and Fairchild/RHI, from a financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
2
<PAGE>
ANNEX III
TEXT OF SECTION 262 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
SECTION 262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value the stockholder's shares of stock under the circumstances described
in subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designed as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or (ii) held of record by more than
2,000 holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation surviving a
merger if the merger did not require for its approval the vote of the
stockholders of the surviving corporation as provided in subsection (f) of
Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to Sections
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
<PAGE>
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the Intermedia corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not Less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock
of such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation the appraisal of such holder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send such
a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who
2
<PAGE>
has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation
may fix, in advance, a record date that shall be not more than 10 days prior
to the date the notice is given, provided, that if the notice is given on or
after the effective date of the merger or consolidation, the record date
shall be such effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the close of
business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation
3
<PAGE>
or by any stockholder entitled to participate in the appraisal proceeding, the
Court may, in its discretion, permit discovery or other pretrial proceedings and
may proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted his certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings until
it is finally determined that he is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
4
<PAGE>
SHARED TECHNOLOGIES FAIRCHILD INC.
100 GREAT MEADOW ROAD, SUITE 104
WETHERSFIELD, CONNECTICUT 06109
Proxy for Special Meeting of Stockholders
February 10, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Vincent DiVincenzo and Kenneth Dorros,
jointly and severally, proxies for the undersigned with full power of
substitution, and hereby authorizes them to represent and to vote, in accordance
with the instructions on the reverse side of this card, all shares of the common
stock par value $.004 per share (the "Shares") of Shared Technologies Fairchild
Inc. the undersigned is entitled to vote at the Special Meeting of Stockholders
to be held on February 10, 1998 at 100 Great Meadow Road, Suite 104,
Wethersfield, Connecticut 06109, commencing at 9:00, Eastern Time, or at any
postponement or adjournment thereof. The proxies may vote in their discretion
upon such other business as may properly be brought before the meeting or any
postponement or adjournment thereof.
COMMENTS/ADDRESS CHANGE: PLEASE MARK COMMENTS/ADDRESS BOX ON REVERSE SIDE
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
<TABLE>
<S> <C> <C>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE STOCKHOLDER. WHERE NO /X/ PLEASE MARK
VOTING INSTRUCTIONS ARE GIVEN, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR ITEM 1. YOUR VOTES AS
THIS
</TABLE>
<TABLE>
<S> <C> <C> <C>
Item 1--Approve the Merger Agreement as described in the Company's Proxy Statement. The Board FOR AGAINST ABSTAIN
of Directors unanimously recommends a vote FOR the Merger Agreement. / / / / / /
Item 2--In the discretion of the Board of Directors, upon such / / / / / /
other business as may be properly brought before the Special
Meeting or any postponement or adjournment thereof.
</TABLE>
<TABLE>
<S> <C>
If you plan to attend the Special Meeting,
please check this box
COMMENTS/ADDRESS CHANGE
Please mark this box if you have written
comments/ address change on the reverse side.
Receipts is hereby acknowledged of the Notice of
Special Meeting and Proxy Statement of Shared
Technologies Fairchild, Inc.
<CAPTION>
/ /
<CAPTION>
/ /
</TABLE>
Signature(s)________________________________________________ Date_______________
Please mark, date and sign as your name appears opposite and return it in the
enclosed envelope. If acting as executor, administrator, trustee, guardian, etc.
you should so indicate when signing. If the signer is a corporation, please sign
full corporate name.
