<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
XPEDITE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4822 22-2903158
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
</TABLE>
------------------------
ROY B. ANDERSEN, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
XPEDITE SYSTEMS, INC.
ONE INDUSTRIAL WAY WEST
EATONTOWN, NEW JERSEY 07724
(732) 389-3900
(Name and address, including zip code, and telephone number, including area
code,
of registrant's principal executive offices and agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
NEIL A. TORPEY, ESQ. NANCY E. FUCHS, ESQ.
Paul, Hastings, Janofsky & Walker LLP Kaye, Scholer, Fierman, Hays
399 Park Avenue & Handler LLP
New York, New York 10022 425 Park Avenue
(212) 318-6000 New York, New York 10022
(212) 836-8000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective and upon
consummation of the transactions described in the enclosed Proxy Statement/
Prospectus.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
AMOUNT PROPOSED MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE PER AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED(1) REGISTERED(1) UNIT(1) OFFERING PRICE(2) FEE(3)
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 205,000 shares $23.25 $4,766,250 $1,444.32
</TABLE>
(1) This Registration Statement relates to Common Stock of the Registrant to be
retained by holders of the Registrant's Common Stock in the proposed merger
of Xpedite Acquisition Corp. with and into the Registrant, with the
Registrant continuing as the surviving corporation in the merger.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457 under the Securities Act of 1933, based upon the
proposed offering price to existing security holders.
(3) Pursuant to Rule 457(b), the required fee of $1,444.32 is reduced by the fee
of $43,813 previously paid at the time of filing of preliminary proxy
materials in connection with this transaction on September 18, 1997,
resulting in a net payment of $0.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
XPEDITE SYSTEMS, INC.
ONE INDUSTRIAL WAY WEST
EATONTOWN, NEW JERSEY 07724
, 1997
Dear Stockholders:
You are cordially invited to attend a Special Meeting of the stockholders of
Xpedite Systems, Inc. (the "Company" or "Xpedite"), to be held at on
, 1997 at a.m.
As described in the enclosed Proxy Statement/Prospectus (the "Proxy
Statement"), at the Special Meeting you will be asked to approve and adopt an
Agreement and Plan of Merger dated as of August 8, 1997 (the "Merger Agreement")
between Xpedite Acquisition Corp., a Delaware corporation ("Acquisition Corp."),
whose stockholders, as of the date hereof, include UBS Partners LLC, Fenway
Partners Capital Fund, L.P. and/or certain of their affiliates (collectively,
the "Investors"), and Xpedite, and the Merger (as defined below) contemplated
thereby.
The Merger Agreement provides, among other things, for the merger of
Acquisition Corp. into the Company (the "Merger") with the Company continuing as
the surviving corporation (the "Surviving Corporation"). In the Merger, (i) each
outstanding share of common stock, par value $0.01 per share (the "Common
Stock"), of the Company will be converted into (a) the right to receive $23.25
in cash or (b) at the election of each stockholder and subject to the
limitations described below, one share of common stock, par value $.01 per
share, of the Surviving Corporation (the "Surviving Corporation Common Stock")
(except that any shares held in the Company's treasury will be canceled and any
stockholder who properly dissents from the Merger will be entitled to appraisal
rights under Delaware law); (ii) each outstanding share of Class B Common Stock,
par value $0.01 per share (the "Class B Common Stock") of the Company will be
converted into a share of Surviving Corporation Common Stock; and (iii) each
share of Acquisition Corp. Common Stock will be converted into a share of
Surviving Corporation Common Stock.
Immediately prior to the Merger, the Management Stockholders (as defined
below) will exchange 643,569 shares of Common Stock for the same number of
shares of Class B Common Stock, 322,709 of which shares of Class B Common Stock
will be acquired by the Investors for a price per share equal to $23.25
immediately prior to the Merger and the remainder of which will be retained by
such Management Stockholders, and the Investors will purchase from the Company
2,162,183 shares of Class B Common Stock for a purchase price per share of
$23.25 and all such shares of Class B Common Stock will be converted into
Surviving Corporation Common Stock in the Merger. As a result of the Merger and
these related transactions, immediately following the Merger, the Investors will
own approximately 82% of the outstanding Surviving Corporation Common Stock, the
Management Stockholders will own approximately 11% of the outstanding Surviving
Corporation Common Stock and stockholders other than the Management Stockholders
will own the remaining approximately 7%.
A stockholder may elect to retain all, but not less than all, the shares of
Common Stock held by such stockholder by 5:00 p.m. Eastern time on the second
business day preceding the Special Meeting. If no election is made, a
stockholder will receive cash consideration for such stockholder's shares of
Common Stock. A stockholder who elects to retain shares will be required to
enter into a stockholders agreement (the "Stockholders Agreement") with the
other stockholders of the Surviving Corporation. A copy of the form of such
Stockholders Agreement is attached as Appendix D to the Proxy Statement.
In order to have the Merger treated as a "recapitalization" for financial
reporting purposes, Acquisition Corp. is requiring that (i) the Management
Stockholders exchange an aggregate of 643,569 shares of Common Stock for shares
of Class B Common Stock prior to the Merger, of which 322,709 shares of Class B
Common Stock will be acquired by the Investors for a price per share equal to
$23.25 immediately prior to the Merger and the remainder of which will be
retained by the Management Stockholders and (ii) existing stockholders of the
Company (other than the Management Stockholders) retain an aggregate of 205,000
shares of Common Stock. In the event holders of more than 205,000 shares of
Common Stock
<PAGE>
(other than the Management Stockholders) elect to retain their shares, the
number of shares to be retained by such stockholders will be reduced on a pro
rata basis to an aggregate of 205,000 shares of Common Stock and such
stockholders will receive $23.25 per share in cash for the balance of their
shares of Common Stock. If holders of fewer than 205,000 shares of Common Stock
(other than the Management Stockholders) elect to retain their shares, certain
stockholders have agreed with Acquisition Corp. to retain an aggregate of
205,000 shares MINUS the number of shares that other stockholders (other than
the Management Stockholders) have elected to retain.
In addition, you will be asked to approve a new Amended and Restated
Certificate of Incorporation of the Company (the "Charter Amendment"). The
purpose of the Charter Amendment is to authorize the issuance of the Class B
Common Stock, which will have the same rights as the Common Stock except that
each share of Class B Common Stock will entitle the holder thereof to two votes
in connection with the election of directors. Other than the authorization of
the Class B Common Stock, the provisions of the Company's certificate of
incorporation will not be changed by the Charter Amendment. If the Agreement and
Plan of Merger and the Merger are not approved, however, the Charter Amendment
will be abandoned and it will not be filed with the Delaware Secretary of State.
It is a condition to the obligation of Acquisition Corp. to consummate the
Merger that the stockholders approve and adopt the Charter Amendment.
At a meeting on August 8, 1997, a Special Committee (the "Special
Committee") of the Board of Directors of the Company (the "Board"), recommended
that the Board approve the Merger Agreement, the Merger and the Charter
Amendment, and the Board (other than Roy B. Andersen, Jr., who did not attend or
vote at such meeting due to his participation with the Investors in the proposed
Merger transaction) unanimously approved the Merger Agreement and the
transactions contemplated thereby, including the Merger and the Charter
Amendment. The Board has determined that the Merger is fair to and in the best
interests of the stockholders. The recommendation of the Special Committee and
the approval and determination of the Board were based on a number of factors
described in the Proxy Statement, including the written opinion dated as of
August 8, 1997 of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"), the financial advisor engaged by the Special Committee and the Board,
to the effect that, as of that date, based upon and subject to various
considerations set forth in such opinion, the right of the holders of Common
Stock of Xpedite to receive $23.25 per share in cash was fair to such holders
from a financial point of view. Merrill Lynch did not express an opinion on the
fairness from a financial point of view of shares of Common Stock to be retained
by the Management Stockholders or other stockholders. The full text of the
written opinion of Merrill Lynch, which sets forth the assumptions made, matters
considered, and qualifications and limitations on the review undertaken by
Merrill Lynch, is attached as Appendix C to the enclosed Proxy Statement and the
stockholders are urged to read such opinion in its entirety. The Board
recommends that the stockholders vote FOR the approval and adoption of the
Merger Agreement, the Merger and the Charter Amendment. The Board makes no
recommendation with respect to whether any stockholder should elect to receive
cash in the Merger or to retain such stockholder's shares of Common Stock.
Approval and adoption of the Merger Agreement, the Merger and the Charter
Amendment requires the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock held by stockholders of record on the Record
Date. Each of Roy B. Andersen, Jr., Robert S. Vaters, Dennis Schmaltz, Max A.
Slifer and Vincent DeVita (collectively, the "Management Stockholders"), each
member of the Board of Directors, certain funds managed by Patricof & Co.
Ventures, Inc. and each of David Epstein, Stuart Epstein and Robert Epstein, who
collectively owned shares of Common Stock as of the Record Date (which
represented % of the outstanding shares of Common Stock as of the Record
Date), has entered into an individual voting agreement with Acquisition Corp.
pursuant to which each of them has agreed, among other things, to vote his or
its shares in favor of the Merger Agreement, the Merger and the Charter
Amendment.
2
<PAGE>
You are urged to read the accompanying Proxy Statement, which describes the
terms of the Merger Agreement, the Merger and the Charter Amendment. A copy of
the Merger Agreement is included as Appendix A to the enclosed Proxy Statement,
a copy of the Charter Amendment is included as Appendix B to the enclosed Proxy
Statement and a copy of the opinion of Merrill Lynch is included as Appendix C
to the enclosed Proxy Statement.
It is very important that your shares be represented at the Special Meeting.
We invite all stockholders to attend the Special Meeting. Whether or not you
plan to attend the Special Meeting, you are requested to complete, date, sign
and return the proxy card in the enclosed postage-paid envelope. Failure to
return a properly executed proxy card or vote at the Special Meeting will have
the same effect as a vote against approval of the Merger Agreement, the Merger
and the Charter Amendment. Executed proxies with no instructions indicated
thereon will be voted for approval and adoption of the Merger Agreement, the
Merger and the Charter Amendment. If you attend the Special Meeting, you may
vote in person even though you have sent in your proxy.
Stockholders electing to retain Common Stock should return the enclosed
non-cash election form together with duly endorsed stock certificates as
instructed in the Proxy Statement. Otherwise, please do not send in your stock
certificates at this time. In the event the Merger Agreement is approved by the
stockholders and the Merger is consummated, you will be sent a letter of
transmittal for that purpose as soon as reasonably practicable thereafter.
Sincerely,
--------------------------------------
Roy B. Andersen, Jr.
President and Chief Executive Officer
3
<PAGE>
XPEDITE SYSTEMS, INC.
ONE INDUSTRIAL WAY WEST
EATONTOWN, NEW JERSEY 07724
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that a Special Meeting of the stockholders (including
any adjournments or postponements thereof, the "Special Meeting") of Xpedite
Systems, Inc. ("Xpedite" or the "Company") will be held on , 1997 at
a.m. at , for the following purposes, all of which
are more fully described in the accompanying Proxy Statement/Prospectus (the
"Proxy Statement"):
(i) To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger dated as of August 8, 1997 (the "Merger
Agreement") between Xpedite Acquisition Corp., a Delaware corporation
("Acquisition Corp."), whose stockholders, as of the date hereof, include
UBS Partners LLC, Fenway Partners Capital Fund, L.P. and/or certain of their
affiliates (collectively, the "Investors"), and Xpedite, and the Merger (as
defined below) contemplated thereby.
The Merger Agreement provides, among other things, for the merger of
Acquisition Corp. into the Company (the "Merger") with the Company
continuing as the surviving corporation (the "Surviving Corporation"). In
the Merger, (i) each outstanding share of common stock, par value $0.01 per
share (the "Common Stock"), of the Company will be converted into (a) the
right to receive $23.25 in cash or (b) at the election of each stockholder
and subject to the limitations described below, one share of common stock,
par value $.01 per share, of the Surviving Corporation (the "Surviving
Corporation Common Stock") (except that any shares held in the Company's
treasury will be canceled and any stockholder who properly dissents from the
Merger will be entitled to appraisal rights under Delaware law); (ii) each
outstanding share of Class B Common Stock, par value $0.01 per share (the
"Class B Common Stock") of the Company will be converted into a share of
Surviving Corporation Common Stock; and (iii) each share of Acquisition
Corp. Common Stock will be converted into a share of Surviving Corporation
Common Stock.
Immediately prior to the Merger, the Management Stockholders (as defined
below) will exchange 643,569 shares of Common Stock for the same number of
shares of Class B Common Stock, 322,709 of which shares of Class B Common
Stock will be acquired by the Investors for a price per share equal to
$23.25 immediately prior to the Merger and the remainder of which will be
retained by such Management Stockholders, and the Investors will purchase
from the Company 2,162,183 shares of Class B Common Stock for a purchase
price per share of $23.25 and all such shares of Class B Common Stock will
be converted into Surviving Corporation Common Stock in the Merger. As a
result of the Merger and these related transactions, immediately following
the Merger, the Investors will own approximately 82% of the outstanding
Surviving Corporation Common Stock, the Management Stockholders will own
approximately 11% of the outstanding Surviving Corporation Common Stock and
stockholders other than the Management Stockholders will own the remaining
approximately 7%.
A stockholder may elect to retain all, but not less than all, the shares
of Common Stock held by such stockholder by 5:00 Eastern time on the second
business day preceding the Special Meeting. If no election is made, a
stockholder will receive cash consideration for such stockholder's shares of
Common Stock. A stockholder who elects to retain shares will be required to
enter into a stockholders agreement (the "Stockholders Agreement") with the
other stockholders of the Surviving Corporation. A copy of the form of such
Stockholders Agreement is attached as Appendix D to the Proxy Statement.
In order to have the Merger treated as a "recapitalization" for
financial reporting purposes, Acquisition Corp. is requiring that (i) the
Management Stockholders exchange an aggregate of 643,569 shares of Common
Stock for shares of Class B Common Stock prior to the Merger, of which
322,709 shares of Class B Common Stock will be acquired by the Investors for
a price per share equal to $23.25 immediately prior to the Merger and the
remainder of which will be retained by the
<PAGE>
Management Stockholders and (ii) existing stockholders of the Company (other
than the Management Stockholders) retain an aggregate of 205,000 shares of
Common Stock. In the event holders of more than 205,000 shares of Common
Stock (other than the Management Stockholders) elect to retain their shares,
the number of shares to be retained by such stockholders will be reduced on
a pro rata basis to an aggregate of 205,000 shares of Common Stock and such
stockholders will receive $23.25 per share in cash for the balance of their
shares of Common Stock. If holders of fewer than 205,000 shares of Common
Stock (other than the Management Stockholders) elect to retain their shares,
certain stockholders have agreed with Acquisition Corp. to retain an
aggregate of 205,000 shares MINUS the number of shares that other
stockholders (not including the Management Stockholders) have elected to
retain.
(ii) To consider and act upon a proposal to approve a new Amended and
Restated Certificate of Incorporation of the Company (the "Charter
Amendment"). The purpose of the Charter Amendment is to authorize the
issuance of the Class B Common Stock, which will have the same rights as the
Common Stock except that each share of Class B Common Stock will entitle the
holder thereof to two votes in connection with the election of directors.
Other than the authorization of the Class B Common Stock, the provisions of
the Company's certificate of incorporation will not be changed by the
Charter Amendment. If the Agreement and Plan of Merger and the Merger are
not approved, however, the Charter Amendment will be abandoned and it will
not be filed with the Delaware Secretary of State. It is a condition to the
obligation of Acquisition Corp. to consummate the Merger that the
stockholders approve and adopt the Charter Amendment.
(iii) To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on , 1997 (the
"Record Date") as the record date for the determination of stockholders entitled
to notice of and to vote at the Special Meeting. Only holders of Common Stock of
record at the close of business on the Record Date will be entitled to notice of
and to vote at the Special Meeting.
The accompanying Proxy Statement describes the Merger Agreement, the Merger
and the actions to be taken in connection with the Merger and the proposed
Charter Amendment. To ensure that your vote will be counted, please complete,
date and sign the enclosed proxy card and return it promptly in the enclosed
postage-paid envelope, whether or not you plan to attend the Special Meeting.
Executed proxies with no instructions indicated thereon will be voted for
approval and adoption of the Merger Agreement, the Merger and the Charter
Amendment. You may revoke your proxy in the manner described in the accompanying
Proxy Statement at any time before it is voted at the Special Meeting.
Approval and adoption of the Merger Agreement, the Merger and the Charter
Amendment requires the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock held by stockholders of record on the Record
Date. Each of Roy B. Andersen, Jr., Robert S. Vaters, Dennis Schmaltz, Max A.
Slifer and Vincent DeVita (collectively, the "Management Stockholders"), each
member of the Board of Directors, certain funds managed by Patricof & Co.
Ventures, Inc. and each of David Epstein, Stuart Epstein and Robert Epstein, who
collectively owned shares of Common Stock as of the Record Date (which
represented % of the outstanding shares of Common Stock as of the Record
Date), has entered into an individual voting agreement with Acquisition Corp.
pursuant to which each of them has agreed, among other things, to vote his or
its shares in favor of the Merger Agreement, the Merger and the Charter
Amendment.
In the event that there are not sufficient votes to approve and adopt the
Merger Agreement, the Merger and the Charter Amendment, it is expected that the
Special Meeting will be postponed or adjourned in order to permit further
solicitation of proxies by the Company.
2
<PAGE>
If the Merger is consummated, holders of Common Stock who do not vote in
favor of approval of the Merger Agreement and the Merger and who otherwise
comply with the requirements of Section 262 of the General Corporation Law of
the State of Delaware will be entitled to statutory dissenters' rights of
appraisal.
By Order of the Board of Directors
--------------------------------------
Corporate Secretary
Eatontown, New Jersey
, 1997
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES
OF COMMON STOCK ENTITLED TO VOTE THEREON IS REQUIRED TO APPROVE AND ADOPT THE
MERGER AGREEMENT, THE MERGER AND THE CHARTER AMENDMENT. THE BOARD OF DIRECTORS
URGES YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, WHETHER
OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. YOU MAY REVOKE THE PROXY AT ANY
TIME PRIOR TO ITS EXERCISE IN THE MANNER DESCRIBED IN THE ATTACHED PROXY
STATEMENT. ANY STOCKHOLDER PRESENT AT THE SPECIAL MEETING, INCLUDING ANY
ADJOURNMENT OR POSTPONEMENT THEREOF, MAY REVOKE SUCH HOLDER'S PROXY AND VOTE
PERSONALLY ON THE MERGER AGREEMENT, THE MERGER AND THE CHARTER AMENDMENT AT THE
SPECIAL MEETING.
STOCKHOLDERS ELECTING TO RETAIN COMMON STOCK SHOULD RETURN THE ENCLOSED FORM
OF NON-CASH ELECTION TOGETHER WITH DULY ENDORSED STOCK CERTIFICATES AS
INSTRUCTED IN THE PROXY STATEMENT. SEE "THE MERGER--NON-CASH ELECTION" FOR
INSTRUCTIONS FOR STOCKHOLDERS ELECTING TO RETAIN SHARES. OTHERWISE, STOCK
CERTIFICATES SHOULD BE RETAINED UNTIL LETTERS OF TRANSMITTAL ARE RECEIVED AFTER
THE EFFECTIVE TIME OF THE MERGER. SEE "THE MERGER--CONVERSION/RETENTION OF
SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES."
3
<PAGE>
PROXY STATEMENT/PROSPECTUS
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1997
This Proxy Statement/Prospectus (the "Proxy Statement") is being furnished
to the holders of common stock, par value $0.01 per share (the "Common Stock"),
of Xpedite Systems, Inc., a Delaware corporation (the "Company" or "Xpedite"),
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 the Special Meeting
of Stockholders to be held on , 1997 at a.m. at
, and at any adjournments or postponements thereof (the
"Special Meeting"). The Board of Directors has fixed the close of business on
, 1997 as the record date (the "Record Date") for the Special Meeting with
respect to this solicitation.
At the Special Meeting, the holders of Common Stock (the "Stockholders")
will consider and vote upon (i) a proposal to approve and adopt an Agreement and
Plan of Merger dated as of August 8, 1997 (the "Merger Agreement") between
Xpedite Acquisition Corp., a Delaware corporation ("Acquisition Corp."), whose
stockholders, as of the date hereof, include UBS Partners LLC ("UBS"), Fenway
Partners Capital Fund, L.P. ("Fenway") and/or certain of their affiliates
(collectively, the "Investors"), and the Company, and the Merger (as defined
below) contemplated thereby and (ii) a proposal to approve and adopt a new
Amended and Restated Certificate of Incorporation of the Company (the "Charter
Amendment"). A copy of the Merger Agreement is attached to this Proxy Statement
as Appendix A and a copy of the Charter Amendment is attached to this Proxy
Statement as Appendix B.
The Merger Agreement provides, among other things, for the merger of
Acquisition Corp. into the Company (the "Merger") with the Company continuing as
the surviving corporation (the "Surviving Corporation"). In the Merger, (i) each
outstanding share of common stock, par value $0.01 per share (the "Common
Stock"), of the Company will be converted into (a) the right to receive $23.25
in cash or (b) at the election of each Stockholder and subject to the
limitations described below, one share of common stock, par value $.01 per
share, of the Surviving Corporation (the "Surviving Corporation Common Stock")
(except that any shares held in the Company's treasury will be canceled and any
Stockholder who properly dissents from the Merger will be entitled to appraisal
rights under Section 262 of the Delaware General Corporation Law (the "DGCL"));
(ii) each outstanding share of Class B Common Stock, par value $0.01 per share
(the "Class B Common Stock") of the Company will be converted into a share of
Surviving Corporation Common Stock; and (iii) each share of Acquisition Corp.
Common Stock will be converted into a share of Surviving Corporation Common
Stock.
Immediately prior to the Merger, Management Stockholders (as defined below)
will exchange 643,569 shares of Common Stock for the same number of shares of
Class B Common Stock, 322,709 of which shares of Class B Common Stock will be
acquired by the Investors for a price per share equal to $23.25 immediately
prior to the Merger and the remainder of which will be retained by such
Management Stockholders, and the Investors will purchase from the Company
2,162,183 shares of Class B Common Stock for a purchase price per share of
$23.25 and all such shares of Class B Common Stock will be converted into shares
of Surviving Corporation Common Stock in the Merger. As a result of the Merger
and these related transactions, immediately following the Merger, the Investors
will own approximately 82% of the outstanding Surviving Corporation Common
Stock, the Management Stockholders will own approximately 11% of the outstanding
Surviving Corporation Common Stock and Stockholders other than the Management
Stockholders will own the remaining approximately 7%.
A Stockholder may elect to retain all, but not less than all, the shares of
Common Stock held by such Stockholder by 5:00 p.m. Eastern time on the second
business day preceding the Special Meeting (the "Election Date"). If no election
is made, a Stockholder will receive the cash consideration for such
Stockholder's shares of Common Stock. A Stockholder who elects to retain shares
will be required to enter into a stockholders agreement (the "Stockholders
Agreement"), the terms of which are more fully described elsewhere in this Proxy
Statement. A copy of the form of Stockholders Agreement is attached as Appendix
D to this Proxy Statement.
<PAGE>
In order to have the Merger treated as a "recapitalization" for financial
reporting purposes, Acquisition Corp. is requiring that (i) the Management
Stockholders exchange an aggregate of 643,569 of their shares of Common Stock
for 643,569 shares of Class B Common Stock (provided that the Charter Amendment
is approved and adopted by the Stockholders) of which 322,709 shares of Class B
Common Stock will be acquired by the Investors for a price per share equal to
$23.25 immediately prior to the Merger and the remainder of which will be
retained by the Management Stockholders on a one-for-one basis and (ii) existing
Stockholders (other than the Management Stockholders) retain an aggregate of
205,000 shares of Common Stock. In the event holders of more than 205,000 shares
(other than the Management Stockholders) elect to retain their shares, the
number of shares to be retained by such Stockholders will be reduced on a pro
rata basis to an aggregate of 205,000 shares and such Stockholders will receive
$23.25 per share in cash for the balance of their shares of Common Stock.
Accordingly, Stockholders who elect to retain shares may in fact receive a
combination of shares of Common Stock and cash in an amount which varies from
the amount such holders elected to retain. If holders of fewer than 205,000
shares of Common Stock (other than the Management Stockholders) elect to retain
their shares, certain Stockholders have agreed to retain an aggregate of 205,000
shares MINUS the number of shares that the other Stockholders have elected to
retain.
This Proxy Statement constitutes a prospectus of the Company with respect to
the 205,000 shares to be retained by Stockholders and the shares to be retained
by the Management Stockholders upon consummation of the Merger.
At the Special Meeting, the holders of Common Stock will also consider and
act upon a proposal to approve a new Amended and Restated Certificate of
Incorporation of the Company (the "Charter Amendment"). The purpose of the
Charter Amendment is to authorize the issuance of the Class B Common Stock,
which will have the same rights as the Common Stock except that each share of
Class B Common Stock will entitle the holder thereof to two votes in connection
with the election of directors. Other than the authorization of the Class B
Common Stock, the provisions of the Company's certificate of incorporation will
not be changed by the Charter Amendment. If the Merger Agreement and the Merger
are not approved, however, the Charter Amendment will be abandoned and it will
not be filed with the Delaware Secretary of State. It is a condition to the
obligation of Acquisition Corp. to consummate the Merger that the stockholders
approve and adopt the Charter Amendment.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND MERGER AND "FOR" APPROVAL AND ADOPTION OF
THE CHARTER AMENDMENT. THE BOARD MAKES NO RECOMMENDATION WITH RESPECT TO WHETHER
ANY STOCKHOLDER SHOULD ELECT TO RECEIVE CASH IN THE MERGER OR TO RETAIN SUCH
STOCKHOLDER'S SHARES OF COMMON STOCK.
Approval and adoption of the Merger Agreement, the Merger and the Charter
Amendment requires the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock held by Stockholders on the Record Date. Each
of Roy B. Andersen, Jr., Robert S. Vaters, Dennis Schmaltz, Max A. Slifer and
Vincent DeVita (collectively, the "Management Stockholders"), each member of the
Board of Directors, certain funds managed by Patricof & Co. Ventures, Inc. (the
"Patricof Stockholders") and David Epstein, Stuart Epstein and Robert Epstein
(collectively, the "Epstein Stockholders"), who collectively owned shares
of Common Stock as of the Record Date (which represented % of the outstanding
shares of Common Stock as of the Record Date) has entered into an individual
voting agreement with Acquisition Corp. pursuant to which each of them has
agreed, among other things, to vote his or its shares of Common Stock in favor
of the Merger Agreement, the Merger and the Charter Amendment.
Stockholders are urged to read and consider carefully the information
contained in this Proxy Statement and to consult with their personal legal,
financial and tax advisors.
2
<PAGE>
This Proxy Statement, the accompanying Notice of Special Meeting and the
accompanying form of proxy are first being mailed to Stockholders on or about
, 1997.
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.
A STOCKHOLDER ELECTING TO RETAIN COMMON STOCK MUST RETURN THE ENCLOSED FORM
OF ELECTION TOGETHER WITH DULY ENDORSED COMMON STOCK CERTIFICATES AS INSTRUCTED
IN THIS PROXY STATEMENT BY 5:00 P.M., NEW YORK CITY TIME, ON , 1997. SEE
"The Merger Agreement -- Non-Cash Election" and "-- Non-Cash Election
Procedure."
SEE "RISK FACTORS" BEGINNING ON PAGE [ ] FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS OF COMMON STOCK IN CONNECTION WITH THEIR
CONSIDERATION OF THE MERGER.
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION. THE SECURITIES AND EXCHANGE COMMISSION HAS NOT PASSED UPON THE
FAIRNESS OR MERITS OF THIS TRANSACTION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The date of this Proxy Statement is , 1997.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVAILABLE INFORMATION...................................................................................... iv
FORWARD-LOOKING STATEMENTS................................................................................. iv
ADDITIONAL INFORMATION..................................................................................... v
SUMMARY.................................................................................................... 1
THE COMPANY.............................................................................................. 1
THE SPECIAL MEETING...................................................................................... 1
Time and Place; Matters To Be Considered at the Special Meeting........................................ 1
Record Date and Voting................................................................................. 1
Vote Required; Revocability of Proxies................................................................. 2
Solicitation of Proxies................................................................................ 2
Security Ownership of Certain Beneficial Owners and Management......................................... 2
THE MERGER............................................................................................... 3
General................................................................................................ 3
Effective Time of Merger............................................................................... 3
Effect of the Merger................................................................................... 3
Investors Ownership of Surviving Corporation Common Stock.............................................. 4
Recommendation of Board of Directors................................................................... 4
Opinion of Financial Advisor........................................................................... 4
Non-Cash Election...................................................................................... 4
Fractional Shares...................................................................................... 5
Conditions to the Merger............................................................................... 5
Merger Financings...................................................................................... 6
Certain Effects of Recapitalization.................................................................... 6
Certain Federal Income Tax Consequences................................................................ 6
Treatment of Company Stock Options..................................................................... 6
Interests of Certain Persons in the Merger............................................................. 7
Termination; Termination Fees.......................................................................... 9
Acquisition Corp....................................................................................... 10
Appraisal Rights....................................................................................... 10
Risk Factors........................................................................................... 10
Market Prices of Common Stock.......................................................................... 10
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA............................................................ 11
SELECTED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............................................. 13
RATIO OF EARNINGS TO FIXED CHARGES......................................................................... 20
PRO FORMA CAPITALIZATION................................................................................... 21
MARKET PRICES OF COMMON STOCK.............................................................................. 22
RISK FACTORS............................................................................................... 23
Control by Stockholders of Acquisition Corp............................................................ 23
Restrictions under Stockholders Agreement.............................................................. 23
Delisting of Common Stock on the Nasdaq National Market................................................ 23
Termination of Exchange Act Reporting.................................................................. 24
Substantial Leverage; Stockholders' Deficit; Liquidity................................................. 24
Issuance of Preferred Stock............................................................................ 25
Non-Cash Election and Proration into Cash; Possible Dividend Treatment................................. 25
Business Expansion..................................................................................... 25
Integration of Acquisitions............................................................................ 26
Technological Change................................................................................... 26
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Risks Associated with International Operations......................................................... 26
Competition............................................................................................ 27
Regulation of Telecommunications Industry.............................................................. 27
THE COMPANY................................................................................................ 28
Products and Services.................................................................................. 29
Customer Base.......................................................................................... 30
The Xpedite Network.................................................................................... 30
Sales and Marketing.................................................................................... 30
Strategic Relationships and Acquisitions............................................................... 31
Competition............................................................................................ 32
THE SPECIAL MEETING........................................................................................ 34
Matters To Be Considered At The Special Meeting........................................................ 34
Record Date And Voting................................................................................. 35
Vote Required; Revocability of Proxies................................................................. 35
Solicitation of Proxies................................................................................ 36
PROPOSAL ONE
THE MERGER................................................................................................. 37
Background............................................................................................. 37
Recommendation of Board; Reasons for the Merger........................................................ 41
Opinion of Financial Advisor........................................................................... 43
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................................................... 48
Characterization of the Merger for U.S. Federal Income Tax Purposes.................................... 48
Stockholders Receiving Cash............................................................................ 48
Stockholders Retaining Common Stock and Receiving No Cash.............................................. 50
Stockholders Retaining a Portion of Their Common Stock and Receiving Cash.............................. 50
Foreign Stockholders -- Withholding.................................................................... 50
Information Reporting and Backup Withholding........................................................... 51
INTERESTS OF CERTAIN PERSONS IN THE MERGER................................................................. 52
REGULATORY APPROVALS....................................................................................... 53
THE MERGER AGREEMENT....................................................................................... 54
Merger Consideration................................................................................... 54
Non-Cash Election...................................................................................... 54
Non-Cash Election Procedure............................................................................ 55
Effective Time of the Merger........................................................................... 55
Conversion/Retention of Shares; Procedures for Exchange of Certificates................................ 56
Fractional Shares...................................................................................... 56
Accounting Treatment................................................................................... 56
Effect on Stock Options and Employee Benefit Matters................................................... 57
Representations and Warranties......................................................................... 57
No Solicitation........................................................................................ 58
Cooperation and Best Efforts........................................................................... 58
Conduct of Business Pending the Merger................................................................. 59
Indemnification and Insurance.......................................................................... 60
Conditions to the Merger............................................................................... 60
Termination; Termination Fees.......................................................................... 61
Amendment; Waiver...................................................................................... 63
MERGER FINANCINGS.......................................................................................... 63
Senior Facilities...................................................................................... 64
Senior Subordinated Financing.......................................................................... 66
Equity Financing....................................................................................... 68
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
LITIGATION................................................................................................. 69
ACQUISITION OF XSL......................................................................................... 69
General................................................................................................ 69
Representations and Warranties......................................................................... 69
Covenants.............................................................................................. 69
No Solicitation........................................................................................ 70
Conditions to Closing.................................................................................. 70
Termination............................................................................................ 71
Termination Fee........................................................................................ 71
DESCRIPTION OF XSL'S BUSINESS.............................................................................. 71
General................................................................................................ 71
Products and Services.................................................................................. 72
The XSL Network........................................................................................ 72
Sales and Marketing.................................................................................... 72
Strategic Acquisitions and Relationships............................................................... 72
Competition............................................................................................ 72
Employees.............................................................................................. 73
Properties............................................................................................. 73
THE STOCKHOLDERS AGREEMENT................................................................................. 73
APPRAISAL RIGHTS........................................................................................... 74
PROPOSAL TWO
CHARTER AMENDMENT.......................................................................................... 77
DESCRIPTION OF CAPITAL STOCK BEFORE MERGER................................................................. 77
Voting Rights.......................................................................................... 77
Dividend Rights........................................................................................ 77
Liquidation Rights..................................................................................... 77
THE CHARTER AMENDMENT; DESCRIPTION OF CAPITAL STOCK AFTER MERGER........................................... 77
OTHER INFORMATION AND STOCKHOLDER PROPOSALS................................................................ 78
EXPERTS.................................................................................................... 78
LEGAL COUNSEL.............................................................................................. 78
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 78
FINANCIAL STATEMENTS OF XSL................................................................................ F-1
</TABLE>
<TABLE>
<S> <C> <C>
Appendix A -- Merger Agreement
Appendix B -- Charter Amendment
Appendix C -- Merrill Lynch Opinion
Appendix D -- Form of Stockholders Agreement
Appendix E -- Section 262 of the DGCL
</TABLE>
iii
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROXY STATEMENT AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ACQUISITION CORP. 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 SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: Northeast Regional Office, 7 World Trade Center, Suite 1300, New
York, New York 10048; and Midwest Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such reports and other
information may be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, on payment of prescribed
charges. In addition, such reports, proxy statements and other information may
be electronically accessed at the Commission's site on the World Wide Web
located at http://www.sec.gov. Such reports, proxy statements and other
information concerning the Company may also be inspected at the offices of the
Nasdaq National Market, 1735 K Street, N.W., Washington, D.C. 20006.
As described herein, the Common Stock will be deregistered under the
Exchange Act following the Merger if the number of record holders permits such
deregistration. If that deregistration occurs, the Company does not plan to
provide any reports or information to its public stockholders other than as may
be required by law or under the Stockholders Agreement (as defined and described
below). However, the Company currently plans to register certain debt securities
under the Exchange Act in the near future. Until such debt securities are
repaid, the Company will be subject to the reporting requirements of the
Exchange Act and such information will be publicly available to holders of
Common Stock. Upon the repayment of such debt securities, the Company may no
longer be subject to the reporting requirements of the Exchange Act unless it
has registered other securities under the Exchange Act.
All information contained in this Proxy Statement concerning Acquisition
Corp. has been supplied by Acquisition Corp. and has not been independently
verified by the Company. Except as otherwise indicated, all other information
contained in this Proxy Statement has been supplied by the Company.
This Proxy Statement also constitutes a prospectus of the Company filed as
part of a Registration Statement on Form S-4 (the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"). This Proxy
Statement omits certain information contained in the Registration Statement and
the exhibits thereto. Reference is made to the Registration Statement and
related exhibits for further information with respect to the Company and the
retention of Common Stock. Statements contained herein concerning the contents
of any document referred to herein are qualified by reference to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission.
FORWARD-LOOKING STATEMENTS
This Proxy Statement includes "forward-looking statements" within the
meaning of various provisions of the Securities Act and the Exchange Act,
including, without limitation, statements under "The Company" and "The Merger
- --Background of the Merger." All statements, other than statements of historical
facts, included in this Proxy Statement (including, but not limited to, any pro
forma financial information contained in this Proxy Statement) that address
activities, events or developments that the
iv
<PAGE>
Company expects or anticipates will or may occur in the future, including such
things as future capital expenditures (including the amount and nature thereof),
business strategy and measures to implement strategy, competitive strengths,
goals, expansion and growth of the Company's business and operations, plans,
references to future success and other such matters, are forward-looking
statements. These statements are based on certain assumptions and analyses made
by the Company in light of its experience and its perception of historical
trends, current conditions and expected future developments as well as other
factors it believes are appropriate in the circumstances. However, whether
actual results and developments will conform with the Company's expectations and
predictions is subject to a number of risks and uncertainties, including the
risk factors discussed in this Proxy Statement and other factors, many of which
are beyond the control of the Company.
Consequently, all of the forward-looking statements made in this Proxy
Statement are qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequences to or effects on the Company or its business or
operations.
ADDITIONAL INFORMATION
This Proxy Statement includes information to be disclosed pursuant to Rule
13e-3 under the Exchange Act, which governs so-called "going private"
transactions by certain issuers or their affiliates. The Company and the
Management Stockholders are filing a Rule 13e-3 Transaction Statement (the
"Schedule 13E-3") to furnish information with respect to the transactions
described herein. This Proxy Statement does not contain all the information set
forth in the Schedule 13E-3, parts of which are omitted in accordance with the
regulations of the Commission. The Schedule 13E-3, and any amendments thereto,
including exhibits filed as a part thereof, will be available for inspection at
the offices of the Commission as set forth above.
v
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF MATERIAL INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT. THIS SUMMARY IS NOT INTENDED TO BE A COMPLETE DESCRIPTION
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION
CONTAINED IN THIS PROXY STATEMENT OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT OR IN THE DOCUMENTS ATTACHED AS APPENDICES HERETO. EACH STOCKHOLDER IS
URGED TO GIVE CAREFUL CONSIDERATION TO ALL THE INFORMATION CONTAINED IN THIS
PROXY STATEMENT AND THE APPENDICES BEFORE VOTING.
FOR A DISCUSSION OF CERTAIN IMPORTANT FACTORS THAT SHOULD BE CONSIDERED BY
HOLDERS OF COMMON STOCK IN CONNECTION WITH THEIR CONSIDERATION OF THE MERGER,
INCLUDING CERTAIN RISKS RELATED TO RETAINING COMMON STOCK, SEE "RISK FACTORS."
THE COMPANY
The Company was formed in 1988 and provides a wide range of computer and
fax-based services focused primarily on high volume electronic document
distribution. The Company is the leading independent worldwide provider of
enhanced fax services ("Enhanced Fax Services"), and a leading provider of
discounted international fax services via a worldwide network with points of
presence in over 70 cities in over 35 countries and over 12,900 fax lines. The
Company also provides telex, Internet, e-mail and mailgram services. The
Company's principal executive offices are located at One Industrial Way West,
Eatontown, New Jersey 07724; telephone number (732) 389-3900.
In addition to the Merger Agreement described herein, the Company also
entered into a Share Purchase Agreement, dated as of August 8, 1997 (the "XSL
Purchase Agreement") among the Company, PHJ&W No. 2 Limited, a newly-formed and
wholly-owned subsidiary of the Company ("XSL Acquisition Corp."), and the
shareholders of Xpedite Systems Limited, an English corporation ("XSL"),
pursuant to which XSL Acquisition Corp. has agreed to purchase all the share
capital of XSL for a purchase price of $87.0 million, subject to certain
adjustments. See "Description of XSL's Business" and "Acquisition of XSL." The
Company is currently engaged in preliminary negotiations with the shareholders
of Xpedite Systems GmbH, a German corporation ("XSG"), for the purchase of a
majority of the shares of XSG not currently owned by the Company. There can be
no assurance that such purchase will be consummated.
THE SPECIAL MEETING
TIME AND PLACE; MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
The Special Meeting will be held at a.m. on , 1997, at
. At the Special Meeting, Stockholders will consider and vote upon (i) a
proposal to approve and adopt the Merger Agreement and the Merger; (ii) a
proposal to approve and adopt the Charter Amendment; and (iii) such other
matters as may properly be brought before the Special Meeting. See "The Special
Meeting--Matters To Be Considered at the Special Meeting" and "Other Information
and Stockholder Proposals".
RECORD DATE AND VOTING
The Record Date for the Special Meeting is the close of business on
, 1997. At the close of business on the Record Date, there were
shares of Common Stock outstanding and entitled to vote, held by
approximately stockholders of record. Each holder of Common Stock on the
Record Date will be entitled to one vote for each share held of record. The
presence, either in person or by proxy, of a majority of the outstanding shares
of Common Stock entitled to be voted is necessary to constitute a quorum at the
Special Meeting. Abstentions (including broker non-votes) are included in the
calculation of the number of votes represented at a meeting for purposes of
determining whether a quorum has been achieved. See "The Special Meeting--Record
Date and Voting."
<PAGE>
VOTE REQUIRED; REVOCABILITY OF PROXIES
Approval and adoption of the Merger Agreement, the Merger and the Charter
Amendment requires the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock entitled to vote thereon. Each of the members
of the Board of Directors, each of the Management Stockholders, the Patricof
Stockholders and the Epstein Stockholders, who collectively owned shares
of Common Stock as of the Record Date (which represented % of the outstanding
shares of Common Stock as of the Record Date) has entered into an individual
voting agreement (the "Voting Agreements") with Acquisition Corp. pursuant to
which each of them has agreed, among other things, to vote his or its shares of
Common Stock in favor of the Merger Agreement, the Merger and the Charter
Amendment.
The required vote of the Stockholders to approve and adopt the Merger
Agreement, the Merger and the Charter Amendment is based upon the total number
of outstanding shares of Common Stock on the Record Date. The failure to submit
a proxy card (or vote in person at the Special Meeting) or the abstention from
voting by a Stockholder (including broker non-votes) will have the same effect
as an "against" vote with respect to the adoption and approval of the Merger
Agreement, the Merger and the Charter Amendment. Proxies that do not contain any
instruction to vote for or against a particular matter will be voted in favor of
such matter. See "The Special Meeting--Vote Required; Revocability of Proxies"
and "The Merger Agreement--Conditions to the Merger."
The presence of a Stockholder at the Special Meeting will not automatically
revoke such Stockholder's proxy. However, a Stockholder may revoke a proxy at
any time prior to its exercise by (i) delivering to the Secretary of the
Company, One Industrial Way West, Eatontown, New Jersey 07724, a written notice
of revocation prior to the Special Meeting, (ii) delivering prior to the Special
Meeting a duly executed proxy bearing a later date or (iii) attending the
Special Meeting and voting in person. Unless revoked in one of the manners set
forth above, proxies in the form enclosed will be voted at the Special Meeting
in accordance with your instructions.
SOLICITATION OF PROXIES
The Company will bear the costs of soliciting proxies from Stockholders. In
addition to soliciting proxies by mail, directors, officers and employees of the
Company may solicit proxies by telephone, by telegram or in person. Such
directors, officers and employees will not be additionally compensated for any
such solicitation but may be reimbursed for reasonable out-of-pocket expenses
incurred in connection therewith. Arrangements will also be made with brokerage
firms and other custodians, nominees and fiduciaries to forward solicitation
materials to the beneficial owners of shares held of record by such persons, and
the Company will reimburse such brokerage firms, custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred by them in connection
therewith.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of , 1997, the directors and executive officers of the
Company beneficially owned, in the aggregate, shares of Common Stock
(excluding shares subject to unvested options), representing approximately %
of such shares outstanding. Each member of the Board of Directors, the
Management Stockholders, the Patricof Stockholders and the Epstein Stockholders
(who collectively owned approximately % of the outstanding Common Stock as of
the Record Date) has entered into a Voting Agreement pursuant to which each of
them has agreed, among other things, to vote their outstanding shares of Common
Stock for the approval and adoption of the Merger Agreement, the Merger and the
Charter Agreement. As of the Record Date, Roy B. Andersen, Jr. beneficially
owned shares of Common Stock; Robert S. Vaters beneficially owned
shares of Common Stock; Dennis Schmaltz beneficially owned shares of
Common Stock; Max A. Slifer beneficially owned shares of Common Stock; and
Vincent DeVita beneficially owned shares of Common Stock.
2
<PAGE>
THE MERGER
GENERAL
Upon the consummation of the Merger, Acquisition Corp. will be merged with
and into the Company and the Company will be the Surviving Corporation. The
Surviving Corporation will succeed to all the rights and obligations of the
Company and Acquisition Corp.
EFFECTIVE TIME OF MERGER
Pursuant to the Merger Agreement, the "Effective Time" will occur upon the
filing of a certificate of merger with the Delaware Secretary of State.
EFFECT OF THE MERGER
At the Effective Time, (i) each share of Common Stock outstanding
immediately prior to the Effective Time will be converted into (a) the right to
receive $23.25 in cash (the "Cash Price") or (b) with respect to shares of
Common Stock as to which an election to retain has been made and not revoked or
lost in accordance with the Merger Agreement (an "Electing Share"), subject to
the limitations described below, the right to retain one fully paid and
nonassessable share of Surviving Corporation Common Stock (a "Non-Cash Election
Share") (except that any shares held in the Company's treasury will be canceled,
and any Stockholder that properly dissents from the Merger will be entitled to
appraisal rights under Delaware law); (ii) each outstanding share of Class B
Common Stock will be converted into a share of Surviving Corporation Common
Stock; and (iii) each share of Acquisition Corp. Common Stock will be converted
into a share of Surviving Corporation Common Stock. Each Stockholder (other than
the Management Stockholders who will be required to retain shares in the manner
described below) may elect to receive the Cash Price or Non-Cash Election Shares
with respect to all, but not less than all, of such Stockholder's shares of
Common Stock, subject to the limitation that the aggregate number of shares of
Common Stock to be retained at the Effective Time by Stockholders (other than
the Management Stockholders) will be 205,000 (the "Non-Cash Election Number").
If no election is made by a Stockholder such Stockholder will receive the Cash
Price for such Stockholder's shares. In addition, as a condition to the election
to retain shares, a Stockholder must become a party to, and agree to be bound
by, the Stockholders Agreement, the terms of which are summarized elsewhere in
this Proxy Statement. See "The Stockholders Agreement."
The Company expects to have the Merger qualify to be treated as a
recapitalization for financial reporting purposes. In order to have the Merger
treated as a recapitalization for financial reporting purposes, the Merger
Agreement provides for (i) the Management Stockholders to exchange an aggregate
of 643,569 of their shares of Common Stock for 643,569 shares of Class B Common
Stock (which will require that the Charter Amendment is approved and adopted by
the Stockholders), 336,173 of such shares of Class B Common Stock will be sold
to the Investors immediately prior to the Merger for a price of $23.25 per share
and 322,709 of such shares will be retained by such Management Stockholders, and
all such shares of Class B Common Stock will be converted in the Merger into
shares of Surviving Corporation Common Stock on a one-for-one basis and (ii)
existing Stockholders (other than the Management Stockholders) retain an
aggregate of 205,000 shares of Common Stock. In the event holders of more than
205,000 shares (other than the Management Stockholders) elect to retain their
shares, the number of shares to be retained by such Stockholders will be reduced
on a pro rata basis to an aggregate of 205,000 shares and such Stockholders will
receive $23.25 per share in cash for the balance of their shares of Common
Stock. Accordingly, Stockholders who elect to retain shares may in fact receive
a combination of shares of Common Stock and cash in an amount which varies from
the amount such holders elected to retain. If holders of fewer than 205,000
shares of Common Stock (other than the Management Stockholders) elect to retain
their shares, the Patricof Stockholders and the Epstein Stockholders have
agreed, pursuant to the Voting Agreement, to retain, on a pro rata basis, an
aggregate of 205,000 shares minus the number of shares that the other
Stockholders have elected to retain.
3
<PAGE>
The total number of outstanding shares of Common Stock will decrease from
approximately 9,010,000 shares to 3,010,852 shares immediately following the
Merger.
INVESTORS OWNERSHIP OF SURVIVING CORPORATION COMMON STOCK
In connection with the Merger, the 100 shares of issued and outstanding
common stock of Acquisition Corp. will be converted into 100 shares of Surviving
Corporation Common Stock. In addition, the Investors will purchase 322,709
shares of Class B Common Stock from the Management Stockholders and 2,162,183
shares of Class B Common Stock from the Company for a price per share equal to
the Cash Price all of which shares of Class B Common Stock will be converted
into Surviving Corporation Common Stock in the Merger.
RECOMMENDATION OF BOARD OF DIRECTORS
At a meeting on August 8, 1997, the Special Committee recommended that the
Board approve the Merger Agreement, the Merger and the Charter Amendment and the
Board (other than Roy B. Andersen, Jr., who did not attend or vote at such
meeting due to his participation with the Investors in the Merger transaction)
unanimously approved the Merger Agreement and the transactions contemplated
thereby, including the Merger and the Charter Amendment. The Board has
determined that the Merger Agreement is fair to and in the best interests of the
Stockholders and recommends that the Stockholders vote FOR the approval and
adoption of the Merger Agreement, the Merger and the Charter Amendment. The
Board makes no recommendation with respect to whether any Stockholder should
elect to receive cash in the Merger or to retain such Stockholder's shares of
Common Stock.
The Board of the Company also determined that the Charter Amendment is fair
to and in the best interests of the Company and the Stockholders and unanimously
approved the Charter Amendment.
For a discussion of the factors considered by the Special Committee and the
Board in reaching their recommendations and determination, see "The
Merger--Background" and "--Recommendations of Board; Reasons for the Merger."
OPINION OF FINANCIAL ADVISOR
On August 8, 1997, Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), financial advisor to the Special Committee, delivered its
written opinion to the Special Committee and the Board of Directors that, as of
that date, the Cash Price to be received by the Stockholders in the Merger is
fair to the Stockholders from a financial point of view. No opinion was given by
Merrill Lynch with respect to the Non-Cash Election Shares or the shares
retained by the Management Stockholders. The full text of the written opinion of
Merrill Lynch dated August 8, 1997, which sets forth the assumptions made,
general procedures followed, matters considered and limitations on the review
undertaken in connection with the opinion, is attached hereto as Appendix C.
Stockholders should read such opinion carefully and in its entirety. See "The
Merger--Opinion of Financial Advisor."
NON-CASH ELECTION
Record holders of shares of Common Stock will be entitled to make an
unconditional election (a "Non-Cash Election"), on or prior to the Election Date
(as defined below), to retain all, but not less than all, their shares as
Non-Cash Election Shares. As a condition to the election to retain shares,
however, a Stockholder must become a party to, and agree to be bound by, the
Stockholders Agreement described below. See "The Stockholders Agreement." If the
number of Electing Shares exceeds 205,000, then the number of Electing Shares
covered by a holder's Non-Cash Election to be converted into the right to retain
Non-Cash Election Shares will be determined by multiplying the total number of
Electing Shares covered by such Non-Cash Election by a proration factor
determined by dividing 205,000 by the total number of Electing Shares. All
Electing Shares, other than those shares converted into the right to retain
Non-Cash
4
<PAGE>
Election Shares as described in the immediately preceding sentence, will be
converted into cash in the amount of $23.25 per share (on a consistent basis
among Stockholders who made the election to retain Non-Cash Election Shares, pro
rata to the number of shares as to which they made such election) as if such
shares were not Electing Shares. The Patricof Stockholders and the Epstein
Stockholders, who collectively owned shares of Common Stock on the Record
Date, have advised the Company that they do not intend to make a Non-Cash
Election.
If a Stockholder makes a Non-Cash Election and receives cash as a result of
the proration procedures described above, such Stockholder may receive dividend
treatment (rather than capital gain treatment) for any cash received in the
Merger as a result of such proration procedures. See "Risk Factors--Non-Cash
Election and Proration into Cash; Possible Dividend Treatment." See also
"Certain Federal Income Tax Consequences."
If the number of Electing Shares is less than the Non-Cash Election Number,
then (i) all Electing Shares will be converted into the right to retain Non-Cash
Election Shares in accordance with the Merger Agreement and (ii) the Patricof
Stockholders and the Epstein Stockholders will retain a number of their shares
of Common Stock equal to 205,000 minus the number of Electing Shares. See "The
Merger Agreement--Non-Cash Election."
Stockholders electing to retain Non-Cash Election Shares must properly
complete and sign the Non-Cash Election Form (the "Form of Election") and
Stockholders Agreement accompanying this Proxy Statement, and such Form of
Election and Stockholders Agreement, together with all certificates representing
shares of Common Stock duly endorsed in blank or otherwise in form acceptable
for transfer on the books of the Company (or by appropriate guarantee of
delivery, as set forth in such Form of Election), must be received by
(the "Exchange Agent") at one of the addresses listed on the Form of
Election by 5:00 p.m., Eastern time, on the second business day next preceding
the date of the Special Meeting (i.e., , 1997) (the "Election Date")
and may not be withdrawn. See "The Merger Agreement--Non-Cash Election
Procedure." Stockholders electing to receive the Cash Price for their shares of
Common Stock should not complete the Form of Election or return it to the
Exchange Agent.
FRACTIONAL SHARES
Fractional shares of Common Stock will not be issued in the Merger.
Stockholders otherwise entitled to a fractional share of Common Stock following
the Merger will be paid cash in lieu of such fractional share as described in
"The Merger--Fractional Shares."
CONDITIONS TO THE MERGER
The obligations of the Company and Acquisition Corp. to consummate the
Merger are subject to various conditions, including, without limitation, the
approval and adoption of the Merger Agreement and the Merger by the requisite
vote of Stockholders, the absence of any injunction or other legal restraint
preventing consummation of the Merger and the expiration of the applicable
waiting period imposed by the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act").
In addition, Acquisition Corp.'s obligations to effect the Merger are
further subject, among other things, to (i) all conditions precedent to the
closing of the transactions contemplated by the XSL Purchase Agreement having
been satisfied; (ii) the management team and officers of the Company, its
subsidiaries and XSL being satisfactory in all respects to Acquisition Corp. in
its sole discretion; (iii) the Stockholders having approved and adopted the
Charter Amendment; (iv) holders of no more than 10% of the outstanding shares of
the Common Stock having perfected their dissenters' rights in accordance with
Section 262 of the DGCL; (v) there having been no governmental ruling or advice
with respect to, or any change in existing accounting standards or
interpretations thereof relating to, the permitted use of accounting for a
transaction as a recapitalization which, in the opinion of Acquisition Corp.'s
independent accountants, would materially and adversely affect the ability of
the Surviving Corporation to account for
5
<PAGE>
the transactions contemplated by the Merger Agreement as a recapitalization;
(vi) there being no material adverse effect on the business, assets, properties,
condition (financial or other), results of operations or prospects of the
Company since August 8, 1997; (vii) the Company having obtained the funds
pursuant to the Merger Financings (as hereinafter defined) substantially on the
terms provided therein; (viii) in the event the Charter Amendment is approved by
the Stockholders, the Management Stockholders (a) having exchanged 643,569
shares of Common Stock for shares of Class B Common Stock, and (b) having sold
to the Investors an aggregate of 322,709 such shares of Class B Common Stock for
a per share amount equal to the Cash Price; and (ix) the Put and Call Option
Agreement dated as of December 15, 1993 with respect to XSSA (as hereinafter
defined) (the "France Option Agreement") having been amended to provide that the
consideration payable thereunder may be satisfied in cash, securities or any
combination thereof, at the Company's option. See "The Merger
Agreement--Conditions to the Merger" and "Merger Financings."
MERGER FINANCINGS
Acquisition Corp. has received financing commitments (the "Financing
Commitments") with respect to amounts adequate to complete the financing
necessary to consummate the Merger and the XSL Acquisition (the "Merger
Financings"). Such Merger Financings will be provided by a combination of (i)
senior credit facilities of up to $129.5 million (which includes the provision
of a letter of credit in the face amount of $31.5 million to be used for the XSL
Acquisition) (see "Merger Financings--Senior Financing"), (ii) senior
subordinated financing of up to $150 million (see "Merger Financings--Senior
Subordinated Financing") and (iii) equity financing of an aggregate of
approximately $102.8 million through the purchase of 322,709 shares of Class B
Common Stock from the Management Stockholders and the issuance by the Company of
common stock and preferred stock (see "Merger Financings--Equity Financing").
The Financing Commitments set forth certain agreed upon terms and conditions for
the Senior Facilities (as defined in "Merger Financings") and the Senior
Subordinated Facilities (as defined in "Merger Financings") although definitive
documentation of the Merger Financings has not yet been finalized as of the date
of this Proxy Statement.
CERTAIN EFFECTS OF RECAPITALIZATION
Upon consummation of the Merger, shares of Common Stock which are to be
retained by Stockholders in the Merger (including the Management Stockholders)
will represent approximately 18% of the outstanding Common Stock of the
Surviving Corporation. Because the Merger will be accounted for as a
recapitalization, it will have no impact on the historical basis of the
Company's operating assets and liabilities. One result of such accounting
treatment will be a retention in stockholders' equity of the Company of a
deficit of approximately $133 million on a pro forma basis as of June 30, 1997.
See "Risk Factors--Substantial Leverage; Stockholders' Deficit; Liquidity" and
"Pro Forma Capitalization."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For a summary of the material U.S. federal income tax consequences of the
Merger, see "Certain Federal Income Tax Consequences."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING ON THE
PARTICULAR CIRCUMSTANCES OF EACH STOCKHOLDER, IT IS RECOMMENDED THAT HOLDERS OF
COMMON STOCK CONSULT THEIR TAX ADVISORS CONCERNING THE FEDERAL (AND ANY STATE,
LOCAL AND FOREIGN) TAX CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR
CIRCUMSTANCES.
TREATMENT OF COMPANY STOCK OPTIONS
Pursuant to the Merger Agreement, at the Effective Time, (i) each Company
Stock Option granted under the Stock Plans (as such terms are defined under "The
Merger--Effect on Stock and Employee
6
<PAGE>
Benefit Matters") outstanding immediately prior to the Effective Time, whether
or not then exercisable, will be cancelled and retired and (ii) each holder of
any such cancelled Company Stock Option having an exercise price of less than
the Cash Price (which as of the date of this Proxy Statement constitutes all
outstanding Company Stock Options) will receive, in consideration of such
cancellation, a payment from the Company after the Merger (subject to any
applicable withholding taxes) equal to the product of (A) the total number of
shares of Common Stock subject to such Company Stock Option and (B) the excess
of the Cash Price over the exercise price per share of Common Stock subject to
such Company Stock Option, payable in cash as of or as soon as practicable after
the Effective Time.
It is anticipated that the Stock Plans will terminate as of the Effective
Time, and that following the Effective Time, no current holder of a Company
Stock Option nor any current participant in any Stock Plan will have any right
thereunder to acquire equity securities of the Company. It is expected that
certain members of the Company's management will receive new options to acquire
shares of Common Stock after the Merger. See "Interests of Certain Persons in
the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and executive officers of the Company have interests,
described herein, that may present them with potential conflicts of interest in
connection with the Merger. The Board of Directors is aware of the conflicts
described below and considered them in addition to other matters described under
"The Merger--Recommendation of the Board of Directors; Reasons for the Merger."
Each of the members of the Board of Directors, the Management Stockholders,
the Patricof Stockholders and the Epstein Stockholders have agreed pursuant to
an individual Voting Agreement with Acquisition Corp. to vote his or its shares
of Common Stock in favor of adoption of the Merger Agreement, the Merger and the
Charter Amendment. In addition, the Management Stockholders have agreed that
they will exchange 643,569 shares of Common Stock owned by them for shares of
Class B Common Stock (on a one-for-one basis), provided that the Charter
Amendment is approved and adopted by the Stockholders. An aggregate of 322,709
of such shares of Class B Common Stock will be sold to the Investors for cash at
a price per share equal to the Cash Price and an aggregate of 320,860 of such
shares will be retained by the Management Stockholders. At the Effective Time,
each share of Class B Common Stock will automatically be converted into the
right to receive one share of Surviving Corporation Common Stock.
Pursuant to the Merger Agreement, the Surviving Corporation has agreed to
indemnify all present directors and officers of the Company and its subsidiaries
for six years after the Effective Time and will maintain during such period, if
available, a directors' and officers' insurance policy with respect to such
indemnification containing terms comparable to those applicable as of August 8,
1997 to directors and officers of the Company.
In 1996, the Company adopted the Officers' Contingent Stock Option Plan (the
"Officers' Plan"). Pursuant to the Officers' Plan, options exercisable for a
maximum aggregate of 200,000 shares of Common Stock were granted to certain
members of the Company's senior management, including the Management
Stockholders. The options authorized under the Officers' Plan were to be granted
in two equal tranches upon the Common Stock attaining and maintaining certain
specified market prices. Options for 92,500 shares of Common Stock (the "Tranche
1 Options") were granted upon the Common Stock attaining and maintaining a price
of $22.50 or more during 1996, as follows: Mr. Andersen--40,000 shares; Mr.
Schmaltz--20,000 shares; Mr. Slifer--20,000 shares; and a former officer of the
Company--12,500 shares. Options for an additional 100,000 shares of Common Stock
(the "Tranche 2 Options") were to be granted upon the Company attaining and
maintaining a price of $30.00 or more during 1997. In April 1997, the Board
adopted resolutions to amend the Officers' Plan to eliminate the Tranche 2
Options, and in lieu thereof, in the event of a merger or consolidation of the
Company, the sale of all or substantially all of the assets of the Company, the
acquisition by any party of 51% or more of the Common Stock or a liquidation
7
<PAGE>
or dissolution of the Company following which the Company's business is
conducted by another entity, cash bonuses were to be payable to senior,
mid-level and low-level management and staff of the Company (the "Bonus Plan").
The approximate total bonus to be paid to each of the Management Stockholders
pursuant to the Bonus Plan as a result of the Merger is as follows: Mr.
Andersen--$521,000; Mr. Vaters-- $423,000; Mr. Schmaltz--$193,000; Mr.
Slifer--$199,000; and Mr. DeVita--$195,000. Cash bonuses payable to other
employees will be approximately $860,000 in the aggregate.
The Directors' Warrant Plan (the "Directors' Plan") adopted by the Company
in 1996 provides for the issuance by the Company of warrants to purchase 25,000
shares of Common Stock at a purchase price of $17.50 per share to non-employee
directors of the Company. Pursuant to the Directors' Plan, each of Messrs.
Baker, Campbell, Chefitz and Epstein were awarded warrants to purchase 25,000
shares of Common Stock.
Robert Chefitz, a member of the Board of Directors who is also a general
partner or executive officer of each of the Patricof Stockholders, owns an
interest in the Patricof Stockholders. Mr. Chefitz also owns an indirect profit
interest in APAX Ventures IV and APAX Ventures IV International Partners LP
(collectively, the "APAX Funds"), which in turn own shares of XSL. Mr. Chefitz
has not participated and does not participate in the management of the APAX
Funds. The Patricof Stockholders and the APAX Funds, respectively, have or have
had investments in businesses other than the Company and XSL, respectively;
accordingly, the value to Mr. Chefitz of his interest in the Patricof
Stockholders and the APAX Funds, respectively, is dependent in part upon the
performance of such other investments, and cannot be calculated at this time.
John C. Baker, a member of the Board of Directors, is a former general
partner or executive officer of each of the Patricof Stockholders. Mr. Baker
retains an interest in the Patricof Stockholders. The Patricof Stockholders have
or have had investments in businesses other than the Company; accordingly, the
value to Mr. Baker of his interest in the Patricof Stockholders is dependent in
part on the performance of such other investments, and cannot be calculated at
this time.
As members of the Special Committee of the Company, Messrs. Philip A.
Campbell and Robert Chefitz are each entitled to a fee equal to $25,000 plus
$1,500 for each eight hours of time which such Special Committee member devoted
to the business of the Special Committee. The aggregate amount of such fees
payable is expected to be approximately $200,000.
Each of the Management Stockholders will enter into new employment
agreements with the Company which will take effect upon consummation of the
Merger. The new employment agreements will replace such Management Stockholders'
existing employment agreements with the Company. The terms of such new
employment agreements have not yet been finalized.
In the event the Merger is consummated, the Company will pay up to $25,000
of the Management Stockholders' aggregate legal and accounting fees incurred in
connection with entering into the new employment agreements.
It is anticipated that after the Merger the Company will establish a
management option plan, pursuant to which it will grant to the Management
Stockholders (i) performance based Options (the "Performance Options") to
purchase up to an aggregate of approximately 11.5% of the outstanding common
stock of the Company and (ii) time-vested Options ("Time-Vested Options") to
purchase up to an aggregate of 3.5% of the outstanding common stock of the
Company (not including shares to be received upon exercise of Performance
Options). The Performance Options will be granted in two categories. Performance
Options to purchase up to an aggregate of 8.0% of the outstanding common stock
of the Company ("Class I Options") will vest over a five-year period based on
the attainment of specified EBITDA targets. Any Class I Options that do not vest
in the five-year period will vest at the end of seven years. Performance Options
to purchase up to an aggregate of 3.5% of the outstanding common stock of the
Company ("Class II Options") will vest as the Investors realize specified rates
of return on their investment in the
8
<PAGE>
Company. In the event the Investors do not realize such specified rates of
return, Class II Options will vest at the end of seven years. Time-Vested
Options will vest ratably on an annual basis over the four-year period following
the Merger or upon a change of control of the Company, if earlier. The
Performance Options will have an exercise price of $24.09 and the Time-Vested
Options will have a nominal exercise price. All Options will expire at the end
of ten years.
It is also anticipated that each of the Management Stockholders will enter
into a stockholders agreement with the Company and the Investors which will
contain provisions regarding corporate governance and restrictions on transfer
of Common Stock held by the Management Stockholders.
TERMINATION; TERMINATION FEES
The Merger Agreement may be terminated, and the Merger abandoned prior to
the Effective Time: (i) upon the mutual written consent of the Company and
Acquisition Corp.; (ii) by either the Company or Acquisition Corp., if the
Merger is not completed by February 28, 1998, although such deadline may be
extended by an additional 30 days if this Proxy Statement has been mailed to
Stockholders on or prior to such date; (iii) by either the Company or
Acquisition Corp. if a court or other governmental body has issued a
nonappealable final order permanently restraining, enjoining or otherwise
legally prohibiting the Merger (provided that if a temporary order has been
entered restraining, enjoining or prohibiting the Merger, such temporary order
will be deemed a nonappealable final order if it remains continuously in effect
for 60 days); (iv) by either the Company or Acquisition Corp., if (A) the Board
of Directors recommends an Alternative Transaction (as defined in "The Merger
Agreement--Termination; Termination Fees") or (B) a tender offer or exchange
offer for 15% or more of the Common Stock is commenced by a third party and the
Board of Directors recommends that the Stockholders tender their shares in such
tender or exchange offer (provided that the Company will not be entitled to
exercise such termination right unless the Board determines that the failure to
accept or recommend such proposal would constitute a breach of its fiduciary
duties to the Stockholders); (v) by Acquisition Corp., if the Board of Directors
withdraws or modifies its approval or recommendation of the Merger Agreement and
the transactions contemplated thereunder in a manner adverse to Acquisition
Corp.; or (vi) by either the Company or Acquisition Corp., if the other party
breaches or fails to comply with any of its material representations or
warranties or obligations under the Merger Agreement such that the conditions to
the obligations of the terminating party would be incapable of being satisfied
by February 28, 1998, unless such breach or failure to comply is cured within 30
days.
In general, except as otherwise described in this paragraph, if the Merger
Agreement is terminated, the Company will be obligated to pay Acquisition Corp.
a fee of $7,500,000 and reimburse Acquisition Corp. for its documented fees and
expenses incurred in connection with the transactions contemplated by the Merger
Agreement up to a maximum of $2,000,000. The Company will not be required to pay
such fee or reimburse Acquisition Corp. for such expenses in the event the
Merger Agreement is terminated in any one of the following manners: (i) by the
mutual written consent of the Company and Acquisition Corp.; (ii) by the Company
(A) if Acquisition Corp. breaches or fails to comply with any of its material
representations or warranties or obligations under the Merger Agreement such
that the conditions to the Company's obligations would be incapable of being
satisfied by February 28, 1998, unless such breach or failure to comply by
Acquisition Corp. is cured within 30 days; or (B) if the Merger is not
consummated by February 28, 1998 (as such date may be extended by 30 days as
described above), in either case as a result of a breach of representation or
warranty by Acquisition Corp. or failure by Acquisition Corp. to comply with any
of its material representations or warranties or obligations under the Merger
Agreement; or (iii) by Acquisition Corp. solely due to a failure to satisfy
specified closing conditions. The Company will not be obligated to pay the
$7,500,000 fee, but will be obligated to reimburse Acquisition Corp. for its
expenses in an amount up to $2,000,000, in the event the Merger Agreement is
terminated by Acquisition Corp. as a result of (i) the failure of the
transactions contemplated by the XSL Purchase Agreement to be consummated (other
than as a result of a breach or failure to comply with any representation or
warranty
9
<PAGE>
or obligation of the Company in the XSL Purchase Agreement) or (ii) a material
adverse effect on the business, assets, properties, condition (financial or
other), results of operations or prospects of the Company and its subsidiaries,
taken as a whole, occurring after August 8, 1997. See "The Merger
Agreement--Termination; Termination Fees."
ACQUISITION CORP.
Acquisition Corp. is a Delaware corporation that was incorporated on July
14, 1997. Acquisition Corp.'s principal executive offices are located at 299
Park Avenue, 34th Floor, New York, New York 10171. As of the date of this Proxy
Statement, the sole stockholders of Acquisition Corp. are the Investors.
Prior to the Merger, Acquisition Corp. will not have any significant assets
or liabilities (other than its rights and obligations in connection with the
Merger Agreement) and will not engage in any activities other than those
incident to its formation and the transactions contemplated by the Merger
Agreement. Pursuant to the terms of the Merger Agreement, Acquisition Corp. will
be merged with and into the Company, and Acquisition Corp. will cease to exist.
APPRAISAL RIGHTS
Under Section 262 of the DGCL, a stockholder of the Company may dissent from
the Merger and obtain payment for the fair value of his or her shares of Common
Stock. In order to dissent, (i) the dissenting stockholder must deliver to the
Company, prior to the vote being taken on the Merger at the Special Meeting,
written notice of his or her intent to demand payment for his or her shares of
Common Stock if the Merger is effected and (ii) the dissenting stockholder must
not vote in favor of the Merger. A copy of Section 262 of the DGCL is attached
as Appendix E to this Proxy Statement. See "Appraisal Rights."
RISK FACTORS
Holders of Common Stock should carefully consider certain risk factors
discussed in more detail elsewhere in this Proxy Statement in connection with
their consideration of the Merger and their retention of Common Stock. See "Risk
Factors."
MARKET PRICES OF COMMON STOCK
The Common Stock is listed on the Nasdaq National Market under the symbol
"XPED." On February 6, 1997, the last trading day before the public announcement
that the Company was considering strategic alternatives to maximize stockholder
value, the reported closing sale price per share of Common Stock was $20.75. On
August 8, 1997, the last trading day before the Company announced the execution
of the Merger Agreement, the reported closing sale price per share of Common
Stock was $21.625. On , 1997, the last full trading day prior to the
date of this Proxy Statement, the reported closing sale price per share of
Common Stock was $ . For additional information concerning historical
market prices of the Common Stock, see "Market Prices of Common Stock."
10
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data of the Company. The historical consolidated financial data for the three
fiscal years ended December 31, 1996 have been derived from, and should be read
in conjunction with, the audited consolidated financial statements of the
Company and related notes thereto incorporated by reference herein. The
historical consolidated financial data for the six months ended June 30, 1996
and 1997 are derived from the unaudited consolidated financial statements of the
Company and related notes thereto incorporated by reference herein. The
unaudited consolidated financial data include all adjustments, consisting of
normal, recurring accruals, which management considers necessary for a fair
presentation of the consolidated financial position and consolidated results of
operations for these periods. Operating results for the six-month period ended
June 30, 1997 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1997. The historical consolidated financial
data for the two fiscal years ended December 31, 1993 have been derived from
audited consolidated financial statements of the Company which are not
incorporated by reference herein. See "Available Information" and "Incorporation
of Certain Documents by Reference."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1992 1993(1) 1994 1995(2) 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Service revenues................... $ 9,400 $ 28,341 $ 39,523 $ 51,840 $ 122,426 $ 58,015 $ 76,751
System sales and other............. 629 731 1,906 3,844 7,422 3,581 2,992
--------- --------- --------- --------- --------- --------- ---------
Total net revenues................. 10,029 29,072 41,429 55,684 129,848 61,596 79,743
Costs and expenses:
Cost of sales...................... 4,731 14,000 16,992 21,602 59,977 28,238 38,776
Selling and marketing.............. 3,284 7,680 11,180 15,059 28,579 13,305 18,341
General and administrative......... 982 1,942 2,746 3,964 8,332 4,015 4,433
Research and development........... 569 1,695 2,834 3,415 4,888 2,483 2,413
Depreciation and amortization...... 428 975 1,432 2,723 7,619 3,498 4,783
Write off of in-process research
and development costs(3)......... -- -- -- 53,000 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss).............. 35 2,780 6,245 (44,079) 20,453 10,057 10,997
Interest income (expense)............ (523) (373) 433 233 (3,155) (1,757) (1,257)
Other income (expense)............... -- -- -- 23 254 130 (77)
Income tax expense................... -- 712 1,950 2,741 7,119 3,461 3,873
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).................... $ (488) $ 1,695 $ 4,728 $ (46,564) $ 10,433 $ 4,969 $ 5,790
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) per common
share(5)........................... -- -- $ 0.71 $ (6.67) $ 1.20 $ 0.61 $ 0.62
Pro forma net income (loss) per
common share(5).................... $ (0.17) $ 0.34 -- -- --
Weighted average shares
outstanding........................ 2,826 4,599 6,600 6,982 8,716 8,204 9,344
Other Data:
Earnings before interest, taxes,
depreciation and amortization,
and non-recurring charge
("EBITDA")(4).................... $ 467 $ 3,967 $ 7,919 $ 12,030 $ 29,145 $ 14,111 $ 16,145
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short
term investments................. $ 1,906 $ 472 $ 16,139 $ 9,076 $ 6,680 $ 5,124
Total assets....................... 5,019 13,962 34,352 72,883 91,192 95,533
Long-term debt, excluding current
maturities....................... 4,201 3,098 13 36,323 27,473 24,267
Preferred Stock.................... 6,663 7,262 -- -- -- --
Stockholders' equity (deficit)..... (7,502) (6,599) 27,085 (1,116) 25,137 30,403
Book value per share(6)............ $ 2.82 $ 3.40
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) The Company acquired certain assets from TRT Communications, Inc. as of
February 1, 1993.
(2) On November 20, 1995, the Company acquired Swift Global Communications, Inc.
("Swift"), ViTel International Holdings Company, Inc. ("ViTel") and Comwave
Communications, AG ("Comwave," and collectively with Swift and ViTel, the
"SVC Companies").
(3) In connection with the acquisitions of the SVC Companies, the Company wrote
off $53.0 million of in-process research and development costs.
(4) EBITDA consists of operating income plus depreciation and amortization. For
1995, EBITDA was computed excluding the non-recurring charge resulting from
the write-off of in-process research and development. EBITDA is a commonly
used measure of financial performance in the telecommunications industry,
but it is not intended to be a substitute for or replacement of operating
income or reported net income.
(5) Net income per share in 1994, and pro-forma net income per share in 1993,
were calculated after giving effect to dividends payable on outstanding
Preferred Stock, in the amounts $74,476, and $149,337, respectively.
(6) Based on 8,903,240 and 8,945,051 issued and outstanding shares of Common
Stock as of December 31, 1996 and as of June 30, 1997, respectively.
12
<PAGE>
SELECTED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following selected pro forma condensed consolidated financial statements
have been derived by the application of pro forma adjustments to the Company's
historical financial statements incorporated by reference herein and the
historical financial statements of XSL included herein. See "Available
Information," "Incorporation of Certain Documents by Reference" and "Financial
Statements of XSL."
The following unaudited pro forma condensed consolidated statements of
operations of the Company for the year ended December 31, 1996 and the six
months ended June 30, 1997 give effect to (1) the XSL Acquisition and (2) the
Merger as if they occurred on January 1, 1996.
The following unaudited pro forma condensed consolidated balance sheet gives
effect to (1) the XSL Acquisition and (2) the Merger as if they occurred on June
30, 1997. The adjustments are described in the accompanying notes.
The historical results for XSL represent the actual results of operations
for XSL for the year ended December 31, 1996 and for the six months ended June
30, 1997.
The historical results of XSL were translated into U.S. dollars using
average exchange rates for the unaudited pro forma condensed consolidated
statements of operations and the period end exchange rate for the unaudited pro
forma condensed consolidated balance sheet. These rates are .6380 and .6090 for
the year ended December 31, 1996 and the six months ended June 30, 1997,
respectively, and .6009 as of June 30, 1997.
The following selected pro forma condensed consolidated financial statements
do not purport to represent what the results of operations or the balance sheet
data actually would have been had (1) the XSL Acquisition and (2) the Merger
occurred on the date or for the periods indicated or to project the Company's
results of operations or balance sheet for any future period or date.
This information should be read in conjunction with the Company's
consolidated financial statements, together with the notes thereto and the
financial statements of XSL together with the notes thereto.
The XSL Acquisition is not contingent upon the consummation of the Merger
but the Merger is contingent upon the consummation of the XSL Acquisition.
The pro forma adjustments were applied to the respective historical
consolidated financial statements to reflect and account for the Merger as a
recapitalization.
Accordingly, the historical basis of the Company's operating assets and
liabilities has not been impacted by the transaction.
The pro forma condensed consolidated financial statements assume that there
are no Stockholders that exercise their statutory rights of appraisal in the
Merger.
Please see "Acquisition of XSL" and "The Merger."
13
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO
PRO FORMA
XSL ACQUISITION FORMA XSL
THE COMPANY --------------------------- XSL ACQUISITION
AS REPORTED HISTORICAL ADJUSTMENTS ACQUISITION MERGER AND MERGER
------------ ----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues.................... $129,847,651 $25,598,616 $ (2,011,620)(a) $ 150,783,516 $ 150,783,516
(2,651,131)(b)
Cost of sales................... 59,976,829 14,080,825 (2,011,620)(a) 69,940,014 69,940,014
(2,106,020)(b)
------------ ----------- ------------- -------------
Gross margin.................... 69,870,822 11,517,791 80,843,502 80,843,502
Operating expenses, excluding
depreciation and
amortization.................. 41,798,702 3,373,979 45,172,681 $ 634,715(h) 45,807,396
Depreciation and amortization... 7,619,330 750,134 375,000(c) 11,141,634 635,000(e) 11,776,634
1,962,625(d)
668,571(e)
(234,026)(f)
------------ ----------- ------------- -------------
Total operating expenses........ 49,418,032 4,124,113 56,314,315 57,584,030
------------ ----------- ------------- -------------
Operating income................ 20,452,790 7,393,678 24,529,187 23,259,472
Interest and other income
(expense)..................... (2,900,157) (695,167) 4,377,117(f) (9,711,052) (13,179,110)(e) (22,890,162)
(10,492,845)(e)
------------ ----------- ------------- -------------
Income before income taxes...... 17,552,633 6,698,511 14,818,135 369,310
Income tax expense (benefit).... 7,119,171 1,401,733 (2,622,717)(g) 5,898,187 (5,490,554)(g) 407,634
------------ ----------- ------------- -------------
Net income (loss)............... 10,433,462 5,296,778 8,919,948 (38,324)
Preferred dividend.............. -- -- -- (6,040,125)(i) (6,040,125)
------------ ----------- ------------- -------------
Net income (loss) attributable
to common stockholders........ $ 10,433,462 $ 5,296,778 $ 8,919,948 $ (6,078,449)
------------ ----------- ------------- -------------
------------ ----------- ------------- -------------
Net income per common share..... $ 1.20 $ 1.02 $ (2.02)
------------ ------------- -------------
------------ ------------- -------------
Weighted average shares
outstanding................... 8,716,300 8,716,300 3,010,852
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
14
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO
PRO FORMA
XSL ACQUISITION FORMA XSL
THE COMPANY ---------------------------- XSL ACQUISITION
AS REPORTED HISTORICAL ADJUSTMENTS ACQUISITION MERGER AND MERGER
------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues....................... $79,742,623 $ 16,012,629 $ (1,110,750)(a) $ 93,640,215 $ 93,640,215
(1,004,287)(b)
Cost of sales...................... 38,775,656 6,518,776 (1,110,750)(a) 43,204,749 43,204,749
(978,933)(b)
------------ ------------ ------------ -------------
Gross margin....................... 40,966,967 9,493,853 50,435,466 50,435,466
Operating expenses, excluding
depreciation and amortization.... 25,186,883 2,035,163 27,222,046 $ 317,358(h) 27,539,404
Depreciation and amortization...... 4,783,015 497,029 187,500(c) 6,664,512 317,500(e) 6,982,012
981,313(d)
334,286(e)
(118,631)(f)
------------ ------------ ------------ -------------
Total operating expenses........... 29,969,898 2,532,192 33,886,558 34,521,416
------------ ------------ ------------ -------------
Operating income................... 10,997,069 6,961,661 16,548,908 15,914,050
Interest and other income
(expense)........................ (1,334,407) (257,979) 1,709,168(f) (5,155,641) (6,589,555)(e) (11,745,196)
(5,272,423)(e)
------------ ------------ ------------ -------------
Income before income taxes......... 9,662,662 6,703,682 11,393,267 4,168,854
Income tax expense (benefit)....... 3,872,735 2,143,253 (1,413,655)(g) 4,602,333 (2,745,277)(g) 1,857,056
------------ ------------ ------------ -------------
Net income......................... 5,789,927 4,560,429 6,790,934 2,311,798
Preferred dividend................. -- -- -- (3,317,608)(i) (3,317,608)
------------ ------------ ------------ -------------
Net income (loss) attributable to
common stockholders.............. $ 5,789,927 $ 4,560,429 $ 6,790,934 $ (1,005,810)
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Net income per common share........ $ 0.62 $ 0.73 $ (0.33)
------------ ------------ -------------
------------ ------------ -------------
Weighted average shares
outstanding...................... 9,344,000 9,344,000 3,010,852
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
15
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
The historical financial statements of the Company include $147,558 and
$243,104 of compensation expense recorded in "Operating expenses, excluding
depreciation and amortization" related to the Officers' Plan for the year ended
December 31, 1996 and the six months ended June 30, 1997, respectively.
The pro forma condensed consolidated statement of operations does not
include a charge of approximately $1.6 million related to the acceleration of
vesting of options under the Officers' Plan due to the Merger. Additionally, the
pro forma condensed consolidated statements of operations do not include
approximately $2.4 million of payments under the Bonus Plan. The pro forma
condensed consolidated statements of operations do not include a payment of
approximately $4.6 million to holders of Company stock options and warrants. See
"Interests of Certain Persons in the Merger."
(a) To eliminate telecommunications costs incurred by the Company and XSL
delivered on behalf of each other.
(b) To eliminate system sales from the Company to XSL and royalty revenue from
the Company's results and related expense from XSL's results.
(c) To record amortization related to the estimated fair value of customer lists
of XSL assuming an 8 year useful life.
(d) To record amortization of costs in excess of fair value of net assets
acquired of XSL assuming a 40 year useful life.
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------------
XSL
ACQUISITION MERGER TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
(e) To record interest and amortization of debt issue costs:
For the year ended December 31, 1996
Interest:
Senior Facility @ 8.5% per annum (including interest expense on the
$30 million obligation due six months after closing of the XSL
Acquisition which was discounted for financial statement
purposes).......................................................... $10,492,845 $ -- $10,492,845
Portion of Senior Facility for the XSL Acquisition refinanced with
Senior Subordinated Facilities..................................... -- (2,195,890) (2,195,890)
Senior Subordinated Facilities @ 10.25% per annum.................... -- 15,375,000 15,375,000
----------- ----------- -----------
$10,492,845 $13,179,110 $23,671,955
----------- ----------- -----------
----------- ----------- -----------
Amortization:
Senior Facility over 7 years......................................... $ 668,571 $ -- $ 668,571
Senior Subordinated Facilities over 10 years......................... $ -- $ 635,000 $ 635,000
A 0.125% increase or decrease in the assumed interest rate applicable to
the Senior Facility and the Senior Subordinated Facilities would change
pro forma interest expense by approximately:............................. $ 153,543 $ 155,208 $ 308,751
For the six months ended June 30, 1997
Interest:
Senior Facility @ 8.5% per annum..................................... $ 5,272,423 $ -- $ 5,272,423
Portion of Senior Facility for the XSL Acquisition refinanced with
Senior Subordinated Facilities..................................... -- (1,097,945) (1,097,945)
Senior Subordinated Facilities @ 10.25% per annum.................... -- 7,687,500 7,687,500
----------- ----------- -----------
$ 5,272,423 $ 6,589,555 $11,861,978
----------- ----------- -----------
----------- ----------- -----------
Amortization:
Senior Facility over 7 years......................................... $ 334,286 $ -- $ 334,286
Senior Subordinated Facilities over 10 years......................... $ -- $ 317,500 $ 317,500
----------- ----------- -----------
A 0.125% increase or decrease in the assumed interest rate applicable to
the Senior Facility and the Senior Subordinated Facilities would change
pro forma interest expense by approximately:
$ 76,711 $ 77,604 $ 154,375
</TABLE>
16
<PAGE>
(f) To eliminate historical interest expense and related amortization of debt
costs on existing Company and XSL debt to be refinanced in connection with
the XSL Acquisition. The pro forma condensed consolidated statements of
operations do not include an extraordinary charge of approximately $1.4
million related to unamortized debt issue costs which will be written off
upon the repayment of existing indebtedness.
(g) To record tax effect (US tax rate: 38%; UK tax rate: 33%) on adjustments.
(h) To record compensation expense related to the Time-Vested Options to be
awarded to certain members of management after the closing of the Merger.
See "Interests of Certain Persons in the Merger." The value of the options
at closing is expected to be approximately $2.5 million amortized over a
four year vesting period.
(i) To record dividends accrued on preferred stock assuming a rate of 13% per
annum.
17
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO
PRO FORMA
THE XSL ACQUISITION FORMA XSL
COMPANY AS ---------------------------- XSL ACQUISITION
ASSETS REPORTED HISTORICAL ADJUSTMENTS ACQUISITION MERGER AND MERGER
- ----------------------------------- ------------ ----------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.......... $ 5,124,188 $ 314,712 $ 5,438,900 $ 5,438,900
Accounts receivable................ 30,076,912 9,157,247 $(1,122,231)(a) 38,111,928 38,111,928
Other current assets............... 6,987,837 -- 6,987,837 6,987,837
------------ ----------- ------------ ------------
Total current assets........... 42,188,937 9,471,959 50,538,665 50,538,665
Property, plant and equipment,
net.............................. 21,981,552 4,855,555 26,837,107 26,837,107
Customer lists..................... 8,059,579 -- 3,000,000(b) 11,059,579 11,059,579
Purchased software................. 2,669,917 -- 2,669,917 2,669,917
Costs in excess of fair value of
net assets acquired.............. 9,997,945 -- 77,427,570(c) 88,502,515 88,502,515
1,077,000(f)
Other assets....................... 10,635,230 -- (1,040,437)(d) 14,274,793 $ 6,350,000(e) 20,624,793
4,680,000(e)
------------ ----------- ------------ ------------
$95,533,160 $14,327,514 $193,882,576 $200,232,576
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued
expenses......................... $22,402,074 $ 3,378,552 $(1,122,231)(a) $ 24,658,395 $ 24,658,395
Current portion of long-term
debt............................. 7,671,208 -- (7,300,000)(g) 2,121,208 2,121,208
1,750,000(e)
Current portion of capital lease
obligations...................... 230,315 -- 230,315 230,315
Income taxes payable and other
current liabilities.............. 6,184,696 5,869,625 (1,200,093)(n) 10,854,228 10,854,228
------------ ----------- ------------ ------------
Total current liabilities...... 36,488,293 9,248,177 37,864,146 37,864,146
Payable to shareholders of XSL..... -- -- 28,777,000(f) 28,777,000 28,777,000
Long-term debt..................... 24,060,352 3,611,314 (24,000,000)(g) 92,367,352 150,000,000(e) 216,533,352
(3,611,314)(g) (25,834,000)(e)
92,307,000(e)
Long-term portion of capital lease
obligations...................... 206,219 -- 206,219 206,219
Other liabilities.................. 4,375,487 -- 930,000(h) 5,305,487 5,305,487
Preferred stock.................... -- -- -- -- 45,000,000(i) 45,000,000
Stockholders' equity (deficit)..... 30,402,809 1,468,023 (1,468,023)(j) 29,362,372 70,000,000(i) (133,453,628)
(1,040,437)(d) (13,753,000)(l)
(219,063,000)(k)
------------ ----------- ------------ ------------
$95,533,160 $14,327,514 $193,882,576 $200,232,576
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
Book value per share(m)............ $ 3.40 $ 3.28 $ (44.32)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
18
<PAGE>
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
Pro forma adjustments to the pro forma consolidated balance sheet are
summarized in the following table:
<TABLE>
<CAPTION>
REPAY FEES
PAYMENT OF EXISTING AND NET XSL
XSL ACQUISITION: FINANCING CONSIDERATION DEBT EXPENSES ADJUSTMENT
- ----------------------------------- ------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.......... $ 94,057,000(e) $ (57,000,000)(f) $ (31,300,000)(g) $ (5,757,000)(e,f) --
Customer lists..................... -- 3,000,000(b) -- -- $ 3,000,000
Costs in excess of fair value of
net assets acquired.............. -- 77,427,570(c) -- 1,077,000(f) 78,504,570
Other assets....................... -- -- (1,040,437)(d) 4,680,000(e) 3,639,563
Current portion of long-term
debt............................. 1,750,000(e) -- (7,300,000)(g) -- (5,550,000)
Income taxes payable and other
current liabilities.............. -- (1,200,093)(n) -- -- (1,200,093)
Payable to shareholders of XSL..... -- 28,777,000(f) -- -- 28,777,000
Long-term debt..................... 92,307,000(e) (3,611,314)(g) (24,000,000)(g) -- 64,695,686
Other liabilities.................. -- 930,000(h) -- -- 930,000
Stockholders' equity (deficit)..... -- (1,468,023)(j) (1,040,437)(d) -- (2,508,460)
<CAPTION>
PAYMENT OF REPAY FEES
MERGER MERGER EXISTING AND NET MERGER
MERGER: FINANCINGS CONSIDERATION DEBT EXPENSES ADJUSTMENT
- ----------------------------------- ------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.......... $ 265,000,000(e,i) $(219,063,000)(k) $ (25,834,000)(e) $ (20,103,000)(e,l) --
Other assets....................... -- -- -- 6,350,000(e) $ 6,350,000
Long-term debt..................... -- -- (25,834,000)(e) -- (25,834,000)
Senior Subordinated Debt........... 150,000,000(e) -- -- -- 150,000,000
Preferred Stock.................... 45,000,000(i) -- -- -- 45,000,000
Stockholders' equity (deficit)..... 70,000,000(i) (219,063,000)(k) -- (13,753,000)(l) (162,816,000)
</TABLE>
- ------------------------
(a) To eliminate amounts due from XSL to the Company.
(b) To record the estimated fair value of XSL's customer lists.
(c) To record costs in excess of fair value of net assets acquired of XSL.
(d) To eliminate debt issue costs on existing Company debt.
(e) To record acquisition and merger financing and related debt issuance costs
assuming that the closing of the permanent Senior Subordinated Facilities
precedes the closing of the Merger. The fees and expenses related to the XSL
Acquisition and the Merger are shown herein as estimates and are subject to
change.
(f) To record payment of $57 million cash consideration due at closing of the
XSL Acquisition, related fees and an obligation of $30 million due six
months after closing of the XSL Acquisition (amount shown discounted for
financial statement purposes assuming a 8.5% discount rate). The fees and
expenses related to the XSL Acquisition and the Merger are shown herein as
estimates and are subject to change.
(g) To record repayment of the Company's existing credit facility and the
elimination of the debt of XSL which is not assumed.
(h) To record a deferred tax liability related to the difference in basis in tax
and financial reporting purposes for customer lists of XSL.
(i) To record issuance of preferred stock and the infusion of new equity in
connection with the Merger.
(j) To reflect the elimination of stockholder's equity accounts based upon the
purchase method of accounting.
(k) To record payment of cash merger consideration to existing exiting
Stockholders, holders of warrants and incentive stock options. The payment
to holders of warrants and incentive stock options will be the difference
between the exercise price and $23.25.
(l) To record transaction costs as a result of the Merger, including amounts
payable under the Bonus Plan. The fees and expenses related to the XSL
Acquisition and the Merger are shown herein as estimates and are subject to
change.
(m) Based on 8,945,051 shares of Common Stock issued and outstanding at June 30,
1997 for stockholders' equity as reported and pro forma for the XSL
Acquisition; 3,010,852 shares of Common Stock for stockholders' deficit pro
forma for the XSL Acquisition and the Merger.
(n) To record payment of dividends accrued on existing XSL preferred stock.
19
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, JUNE 30, 1997
---------------------------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA
PRO FORMA ACQUISITION PRO FORMA
ACQUISITION OF XSL AND PRO FORMA ACQUISITION
HISTORICAL HISTORICAL OF XSL MERGER ACQUISITION OF XSL AND
1995 1996 1996 1996 HISTORICAL OF XSL MERGER
------------ ------------ ------------ ------------- ----------- ----------- ------------
Income (loss) before
income taxes......... $(43,823,054) $ 17,552,633 $ 14,818,135 $ 369,310 $ 9,662,662 $11,393,267 $ 4,168,854
Add back fixed
charges.............. 962,433 4,981,819 12,088,253 25,902,363 2,095,738 6,068,484 12,975,539
------------ ------------ ------------ ------------- ----------- ----------- ------------
Earnings............... $(42,860,621) $ 22,534,452 $ 26,906,388 $ 26,271,673 $11,758,400 $17,461,751 $17,144,393
------------ ------------ ------------ ------------- ----------- ----------- ------------
------------ ------------ ------------ ------------- ----------- ----------- ------------
Fixed charges:
Interest expenses...... $ 535,889 $ 3,662,118 $ 10,492,845 $ 23,671,955 $ 1,434,244 $ 5,272,423 $11,861,978
Amortization of debt
issue costs.......... 26,000 234,000 434,571 1,069,571 118,644 215,642 533,142
Portion of rent expense
representative of the
interest factor...... 400,544 1,085,701 1,160,837 1,160,837 542,850 580,419 580,419
------------ ------------ ------------ ------------- ----------- ----------- ------------
Total fixed charges.... $ 962,433 $ 4,981,819 $ 12,088,253 $ 25,902,363 $ 2,095,738 $ 6,068,484 $12,975,539
------------ ------------ ------------ ------------- ----------- ----------- ------------
------------ ------------ ------------ ------------- ----------- ----------- ------------
Ratio.................. (44.53)x 4.52x 2.23x 1.01x 5.61x 2.88x 1.32x
</TABLE>
20
<PAGE>
PRO FORMA CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997, on an actual basis and as adjusted to give effect to (1) the XSL
Acquisition and (2) the Merger as if they occurred on June 30, 1997:
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------------------
AS ADJUSTED FOR THE
-------------------------------
XSL
THE COMPANY XSL ACQUISITION
AS REPORTED ACQUISITION AND MERGER
------------- -------------- ------------
<S> <C> <C> <C>
Short-term debt (1)(2)(3).................... $ 7,901,523 $ 2,351,523 $ 2,351,523
------------- -------------- ------------
------------- -------------- ------------
Long-term debt, excluding current maturities
(2)........................................ $ 24,266,571 $ 266,571 $ 266,571
Senior Facilities (3)........................ 92,307,000 66,473,000
Payment to shareholders of XSL (6)........... -- 28,777,000 28,777,000
Senior Subordinated Facilities (3)........... -- -- 150,000,000
Preferred stock (4).......................... -- -- 45,000,000
Stockholders' equity:
Preferred stock, $.01 par value, authorized
1,000,000; none issued and outstanding at
June 30, 1997; as adjusted x,xxx,xxx....... -- -- --
Common stock, $.01 par value, authorized
15,000,000; issued and outstanding
8,945,051 at June 30, 1997, as adjusted
3,010,852.................................. 89,451 89,451 30,109(4)(5)
Additional paid-in capital................... 65,191,986 65,191,986 56,216,891(4)(5)
Accumulated deficit.......................... (34,662,628) (35,703,065)(2) (189,700,628)(5)
Less: Treasury stock; 72,000 shares at June
30, 1997, none as adjusted................. (216,000) (216,000) -- (5)
------------- -------------- ------------
Total stockholders' equity................. 30,402,809 29,362,372 (133,453,628)
------------- -------------- ------------
Total capitalization....................... $ 54,669,380 $ 150,712,943 $157,062,943
------------- -------------- ------------
------------- -------------- ------------
</TABLE>
- ------------------------
(1) Includes current maturities of long-term debt and capital lease obligations.
(2) Reflects repayment of the Company's existing credit facility and elimination
of related debt issue costs.
(3) Reflects the acquisition and merger financing assuming that the closing of
the permanent Senior Subordinated Facilities precedes the closing of the
Merger.
(4) Reflects the issuance of preferred stock and the contribution of new equity
in connection with the Merger and payment of related transaction costs. The
fees and expenses related to the XSL Acquisition and the Merger are shown
herein as estimates and are subject to change.
(5) Reflects the payment of cash merger consideration and the retirement of
treasury stock.
(6) Reflects an obligation of $30 million due six months after closing the XSL
Acquisition (amount shown discounted for financial statement purposes) which
will be financed with a portion of the proceeds of the Senior Facility.
21
<PAGE>
MARKET PRICES OF COMMON STOCK
The Common Stock was included in the Nasdaq Stock Market's National Market,
and commenced trading, beginning on February 14, 1994, under the symbol "XPED."
The number of stockholders of record at , 1997 was , which number
includes certain registered holders who hold Common Stock for an undetermined
number of beneficial owners.
The following table shows, for the fiscal periods indicated, the high and
low sale prices of a share of Common Stock on the Nasdaq Stock Market's National
Market.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
- ---------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
June 30, 1997..................................................................... $ 20 3/4 $ 16 3/4
March 31, 1997.................................................................... $ 23 $ 18 3/4
December 31, 1996................................................................. $ 23 1/4 $ 16 1/4
September 30, 1996................................................................ 27 3/4 17
June 30, 1996..................................................................... 28 1/4 16 1/4
March 31, 1996.................................................................... 18 1/4 14 1/4
December 31, 1995................................................................. $ 17 7/8 $ 12 1/2
September 30, 1995................................................................ 18 3/4 13 1/2
June 30, 1995..................................................................... 23 1/2 13 1/4
March 31, 1995.................................................................... 20 3/4 16 1/4
</TABLE>
The Company has never declared or paid cash dividends on its Common Stock.
The Company intends to retain earnings for use in the operation and expansion of
its business. The Company's current term loan prohibits and it is contemplated
that the Merger Financings will prohibit the payment of dividends on its Common
Stock.
22
<PAGE>
RISK FACTORS
Holders of Common Stock should carefully review and consider, among other
things, the factors set forth below, as well as the other information included
in this Proxy Statement, before casting their votes with respect to the Merger
Agreement, the Merger and the Charter Amendment and making a decision with
respect to retaining their Common Stock.
CONTROL BY STOCKHOLDERS OF ACQUISITION CORP.
Immediately following the Merger, the Investors will control approximately
82% of the outstanding shares of Common Stock of the Company. In addition, the
Management Stockholders will control approximately an additional 11% of the
outstanding shares of Common Stock of the Company. It is anticipated that the
Investors and the Management Stockholders will enter into stockholders
agreements which will contain provisions regarding corporate governance of the
Company and restrictions on transfer of Common Stock. Accordingly, such
stockholders will have the ability to elect the directors of the Company,
appoint management and determine the outcome of matters requiring approval by
the stockholders of the Company, including adopting amendments to the
certificate of incorporation of the Company and approving any merger or sale of
all or substantially all the assets of the Company. The directors so elected
will have the authority to effect changes in the capital structure of the
Company, including the issuance of additional classes or series of preferred
stock and the declaration of dividends. It is anticipated that one or more
series of preferred stock will be issued in connection with the Merger, all or a
portion of which may be purchased by the Investors. See "Merger Financings --
Equity Financing." There can be no assurance that the policies of the Company in
effect prior to the Merger with respect to such matters or other matters will
continue after the Merger.
Moreover, concentration of ownership of Common Stock of the Company will
have the effect of preventing a change in control of the Company without the
approval of the Investors. The existence of a small group of controlling
stockholders of the Company will have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from seeking to
acquire, control of the Company. A third party would be required to negotiate
any such transaction with the Investors and the interests of the Investors may
be different from the interests of other stockholders with respect to such a
transaction.
RESTRICTIONS UNDER STOCKHOLDERS AGREEMENT
As a condition to electing to retain shares of Common Stock in the Merger, a
Stockholder must become a party to, and agree to be bound by, the Stockholders
Agreement with Acquisition Corp., the Investors and the Company. The
Stockholders Agreement will significantly restrict the transferability of the
Common Stock held by the Stockholders party thereto (other than the Investors).
In particular, the Stockholders Agreement will provide that the Common Stock
held by the Stockholders party thereto (other than the Investors) is
nontransferable prior to the first anniversary of the Effective Time.
Thereafter, the Company and the Investors will have a right of first refusal
with respect to any proposed sale of shares of Common Stock by such
Stockholders. The Investors will have the right to require such Stockholders to
sell their shares (or vote in favor of any merger or other transaction) in the
event that the Investors decide to sell all their shares of Common Stock to a
non-affiliate if at such time the Investors hold in the aggregate more than 40%
of the then-outstanding shares of Common Stock. Such restrictions on
transferability may have a material adverse effect on the market value of the
Common Stock. A form of the Stockholders Agreement which Stockholders will be
required to execute is attached as Appendix D to this Proxy Statement. See "The
Stockholders Agreement."
DELISTING OF COMMON STOCK ON THE NASDAQ NATIONAL MARKET
As a result of the Merger, it is expected that the Common Stock will no
longer meet the listing requirements of the Nasdaq National Market, and the
Nasdaq National Market may act unilaterally to
23
<PAGE>
delist the Common Stock. However, even if the Nasdaq National Market does not
take such action unilaterally, it is the intention of the Company to delist the
Common Stock after the Effective Time if such delisting is permitted and
thereafter not to list the Common Stock on any other national securities
exchange or quotation system. Such delisting of the Common Stock is likely to
have a material adverse effect on the trading market for and liquidity of, and
may have a material adverse effect on the value of, shares of Common Stock, and
there can be no assurance that any trading market will exist for the Common
Stock after the Merger.
In addition, the shares of Common Stock are currently "margin securities"
under the regulations of the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board"), which has the effect, among other things, of
allowing brokers to extend credit on the collateral of the Common Stock. It is
possible that after the Merger (depending upon certain factors) that the shares
of Common Stock would no longer constitute "margin securities" for the purposes
of the margin regulations of the Federal Reserve Board and therefore could no
longer be used as collateral for loans made by brokers.
TERMINATION OF EXCHANGE ACT REPORTING
As a result of the Merger, it is expected that there will be significantly
fewer than 300 holders of record of Common Stock. Accordingly, the Company
intends to deregister the Common Stock from the reporting requirements of the
Exchange Act if such deregistration is permitted. Upon such deregistration, the
Company will no longer be required to comply with the proxy or periodic
reporting requirements of the Exchange Act and, except as provided in the
Stockholders Agreement, does not plan to provide any reports or information to
its stockholders other than as may be required by applicable law. Such reduction
in the amount of information available to stockholders concerning the business
and financial condition of the Company is likely to have a material adverse
effect on the transferability, and may have a material adverse effect on the
value, of the Common Stock.
SUBSTANTIAL LEVERAGE; STOCKHOLDERS' DEFICIT; LIQUIDITY
In order to consummate the transactions contemplated by the Merger Agreement
and the acquisition of XSL, the Company will enter into the Merger Financings to
(i) fund payment of the cash consideration in the Merger and the acquisition of
XSL, (ii) repay or repurchase certain indebtedness of the Company, (iii) pay
fees and expenses incurred in connection with securing the Merger Financings and
consummating the Merger and the acquisition of XSL and (iv) provide working
capital to the Company. Although the definitive terms of the Merger Financings
have not been finalized as of the date of this Proxy Statement, the Company
expects that such terms will include significant restrictions on the ability of
the Company to conduct its operations and engage in corporate or financing
transactions, including limitations on the Company's ability to incur
indebtedness, create liens, sell assets, engage in mergers or consolidations,
make investments and pay dividends. As of June 30, 1997, after giving pro forma
effect to the XSL Acquisition, the Merger and the Merger Financings and the
application of the net proceeds therefrom, the Company would have had
approximately (i) $248 million of consolidated indebtedness and (ii) as a result
of the Merger, because the cash payments to Stockholders in connection therewith
and all expenses related to the Merger will be charged to stockholders' equity,
approximately $133 million of consolidated stockholders' deficit. Such level of
consolidated indebtedness is substantially greater than the Company's pre-Merger
indebtedness. Such high leverage may have important consequences for the
Company, including the following: (a) the Company's ability to obtain additional
financing for future acquisitions (if any), working capital, capital
expenditures or other purposes may be impaired or any such financing may not be
on terms favorable to the Company; (b) a substantial portion of the Company's
cash flow available from operations after satisfying certain liabilities arising
in the ordinary course of business will be dedicated to the payment of principal
and interest on its indebtedness, thereby reducing funds that would otherwise be
available to the Company, including for future business opportunities; (c) a
substantial decrease in net operating cash flows or an increase in expenses of
the Company could make it difficult for
24
<PAGE>
the Company to meet its debt service requirements or force it to modify its
operations; and (d) high leverage may place the Company at a competitive
disadvantage and may make it vulnerable to a downturn in its business or the
economy generally. See "Merger Financings."
In addition, the increased leverage of the Company will have a negative
effect on the Company's net income. Pro forma net loss attributable to common
stockholders for the year ended December 31, 1996 would have been approximately
$6.1 million, as compared to net income of approximately $10.4 million for the
same period on a historical basis, and pro forma interest expense for 1996 would
have been approximately $23.7 million, as compared to approximately $3.7 million
for the same period on a historical basis.
After the Merger and the acquisition of XSL are consummated, the Company's
principal sources of liquidity are expected to be cash flow from operations and
borrowings under a revolving credit facility. It is anticipated that the
Company's principal uses of liquidity will be to provide working capital, to
meet debt service requirements and other liabilities arising in the ordinary
course and to finance the Company's strategic plans. A term loan facility will
be drawn in full upon consummation of the Merger. The Company's growth strategy
will require the expenditure of a significant amount of capital. No assurance
can be given that such capital will be available to the Company, either through
cash flow from operations or through third party financings. See "Merger
Financings."
ISSUANCE OF PREFERRED STOCK
Immediately after the Merger, the Company will have one or more series of
preferred stock outstanding. In addition, the Board of Directors of the Company
will have the ability to issue additional series of preferred stock without the
approval of holders of Common Stock. The rights of holders of Common Stock will
be subject to, and may be adversely affected by, the rights of the holders of
any preferred stock that may be issued by the Company in connection with the
Merger or in the future. Such preferred stock may have preferential rights with
respect to, among other things, dividends, liquidation rights and mandatory
redemption rights. In addition, the issuance of such preferred stock could have
the effect of making it more difficult for a third party to acquire, or
discourage a third party from acquiring, a majority of the outstanding shares of
voting stock of the Company.
NON-CASH ELECTION AND PRORATION INTO CASH; POSSIBLE DIVIDEND TREATMENT
As described herein, a Stockholder may elect to retain all, but not less
than all, of such Stockholder's shares of Common Stock in the Merger. However,
in the event the Stockholders (other than the Management Stockholders) elect to
retain more than an aggregate of 205,000 shares of Common Stock, the
Stockholders electing to retain Common Stock will receive some cash for a
portion of his, her or its Common Stock as a result of the proration procedures
described herein under "The Merger Agreement -- Non-Cash Election." Accordingly,
if the Merger is consummated, a Stockholder electing to retain all his, her or
its shares may not necessarily receive the type of consideration specified in
his, her or its Form of Election. See "The Merger Agreement -- Merger
Consideration." In such event, a Stockholder may receive dividend treatment
(rather than capital gain treatment) for any cash received in the Merger as a
result of such proration procedures. See "Certain Federal Income Tax
Consequences." No such dividend treatment should be applicable to Stockholders
who do not elect to retain shares and instead receive cash for their shares in
the Merger.
BUSINESS EXPANSION
The Company's principal objective is the achievement of accelerated growth
throughout the world, by expansion of existing facilities and acquisition of
entities engaged in the Company's businesses. There can be no assurance that the
Company will be able to expand its ability to provide fax services at a rate or
in a manner satisfactory to meet the demands of existing or future customers,
including, but not limited to,
25
<PAGE>
increasing the capacity of the Company's system to process increasing amounts of
fax traffic, increasing the capability of the Company's system to perform tasks
required by the Company's customers, or identifying and establishing alliances
with new nodal partners in order to enable the Company to expand its network in
new geographic regions. Such inability may adversely affect customer
relationships and perceptions of the Company in the markets in which it provides
its fax services, which could have an adverse effect on the Company's business.
In addition, such growth will involve substantial investments of capital,
management and other resources. The Company may be required to raise additional
capital through private or public equity or debt financings in order to execute
its growth strategy. There can be no assurance that the Company will generate
sufficient cash for future growth through earnings or external financings, or
that such financing will be available on terms acceptable to the Company, or
that the Company will be able to employ any such resources in a manner which
will result in accelerated growth.
INTEGRATION OF ACQUISITIONS
An element of the Company's expansion strategy has been the acquisition by
the Company of entities engaged in the electronic document distribution services
business worldwide, primarily in international markets. The success of the
Company's acquisitions will be dependent upon its ability to manage and
integrate effectively the operations of entities it acquires. The process of
integrating acquired businesses worldwide may involve unforeseen difficulties
and may require a disproportionate amount of management resources. There can be
no assurance that the Company will be able to successfully integrate the
operations of any businesses it acquires or that the Company will not experience
losses as a result of such acquisitions and integration.
The Company's acquisition of XSL presents certain risks, including but not
limited to the following: (i) a substantial portion of XSL's revenue
(approximately 68% in the twelve months ended December 31, 1996) is generated by
customers in the financial services industry and a downturn in this industry
could have a material adverse impact on XSL's business, (ii) it is unclear
whether XSL's business will continue to grow at the rates achieved since its
inception in 1993, (iii) it is unclear as to what effect on XSL's pricing
structure and revenues increased competition in XSL's markets may produce and
(iv) the Company will be required to integrate members of XSL's management, who
previously operated independently, into the Company's management team. See
"Description of XSL's Business" and "Acquisition of XSL."
TECHNOLOGICAL CHANGE
The telecommunications industry is characterized by continuous technological
change. Future technological advances in the telecommunications industry may
result in the availability of new services, products or methods of electronic
document delivery (such as the Internet) that could compete with the electronic
document distribution services currently provided by the Company or decreases in
the cost of existing products or services that could enable the Company's
established or potential customers to meet their own needs for electronic
document distribution services more cost efficiently than through the use of the
Company's services. There can be no assurance that the Company will not be
adversely affected in the event of such technological change, or that changes in
technology will not enable additional companies to offer services which could
replace some or all of the services presently offered by the Company.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
Many aspects of the Company's international operations and business
expansion plans are subject to foreign government regulations, currency
fluctuations, political uncertainties and differences in business practices.
There can be no assurance that foreign governments will not adopt regulations or
take other actions that would have a direct or indirect adverse impact on the
business or market opportunities of the Company within such governments'
countries. Furthermore, there can be no assurance that the political, cultural
and economic climate outside the United States will be favorable to the
Company's operations and growth strategy. As a result of the XSL Acquisition, a
higher proportion of the Company's business will be
26
<PAGE>
conducted outside the United States and, accordingly, the Company may be
subject, to a greater degree, to the foregoing risks.
COMPETITION
The Company faces a high degree of competition in each of its businesses.
Many of the Company's competitors, which include AT&T Corp. ("AT&T"), MCI
Communications Corp. ("MCI"), Sprint Corp. ("Sprint") and numerous national
post, telephone and telegraph companies ("PTTs") around the world, and potential
competitors such as the regional Bell operating companies ("RBOCs"), possess
significantly greater financial, marketing, technological and other resources
than the Company. Each of AT&T, MCI and Sprint, and many of the PTTs, offer fax
communications services similar to those offered by the Company. The Company
cannot predict whether AT&T, MCI, Sprint, any PTT or any other competitor will
expand its fax communications services business, and there can be no assurance
that these or other competitors will not commence or expand their businesses.
Moreover, the Company's receiving, queuing, routing and other systems logic and
architecture are not proprietary to the Company and as a result, there can be no
assurance that such information will not be acquired or duplicated by the
Company's existing and potential competitors. Generally, the Company does not
typically have long-term contractual agreements with its customers and there can
be no assurance that its customers will continue to transact business with the
Company in the future. In addition, even if there is continued growth in the use
of fax services, there can be no assurance that potential customers will not
elect to use their own equipment to fulfill their needs for fax communications
services. There also can be no assurance that customers will not elect to use
alternatives to the Company's fax communications services, including the
Internet, to carry such customers' communications or that companies offering
such alternatives will not develop product features or pricing policies which
are more attractive to customers than those offered by the Company.
REGULATION OF TELECOMMUNICATIONS INDUSTRY
The Company is subject to regulation by the Federal Communications
Commission (the "FCC"), which adopts and implements regulations and policies
that directly or indirectly affect the ownership and operation of
telecommunications service providers, and has the power to impose penalties for
violations of relevant statutes and FCC regulations. The Telecommunications Act
of 1996 (the "Telecommunications Act") substantially amended existing law
applicable to the telecommunications industry. Although the Telecommunications
Act may substantially lessen regulatory burdens, certain provisions of the
Telecommunications Act could materially affect the growth and operation of the
Company's business and subject the Company to additional competition. Moreover,
the impact of the Telecommunications Act is difficult to predict at this time,
because of the uncertainty surrounding future rulemaking by the FCC to interpret
its provisions, the delayed effectiveness of other provisions of the
Telecommunications Act and the outcome of pending and potential judicial
challenges.
27
<PAGE>
THE COMPANY
Xpedite is a worldwide leader and innovator in high volume electronic
document distribution services. The Company provides its services to businesses
which require high-quality, low cost, rapid, and confirmed communications.
Xpedite has developed sophisticated applications in a wide range of industries
that help businesses deliver common or customized documents to hundreds or
thousands of recipients around the world via fax or electronic mail using
Xpedite's proprietary private world-wide document distribution network (the
"Xpedite Network").
Based in Eatontown, New Jersey, the Company provides a wide range of
services including enhanced fax, Internet, e-mail, telex, mailgram and discount
fax over the Xpedite Network which includes over 70 cities in over 35 countries
around the world. The Xpedite Network includes over 12,900 dedicated lines in
addition to complete Internet access and compatibility to allow for the ability
to receive and deliver messages in whatever format is optimal to ensure timely
delivery.
In 1988, the Company was formed and began marketing enhanced fax and
messaging delivery services ("Enhanced Services"). From its inception, the
Company's focus was on the provision of value-added fax services to the United
States market. The Company's growth plan was comprised of three elements: (1)
identify new applications for the Company's fax services and offer messaging
capabilities beyond fax (e.g., telex and e-mail); (2) export the Company's
service business internationally by operating service bureaus overseas; and (3)
as the Enhanced Services business grew and justified domestic and international
networks, add new services to the product mix and leverage the Company's sales
and marketing distribution network. The tactical execution of this strategy has
involved and continues to involve the continuous expansion of the Company's
sales organization, acquisitions where feasible, continuous development of the
enhanced messaging service platform and the selection of the Company's second
major product offering: international point-to-point fax service.
By expanding its sales organization and developing new applications for its
services, the Company has become the largest United States provider of enhanced
fax services and now offers these services throughout Europe, North America and
the Pacific Rim. In many cases, applications that are well proven in the United
States are only in the early stages of adoption overseas. In addition, the
Company's United States sales and marketing organization continues to identify
new applications and expand upon those already established. The international
network justified by establishing these services overseas is also being utilized
to support the Company's launch and development of its international
point-to-point fax services. The Company's ability to leverage (1) its
solution-oriented sales organization by developing new applications to stimulate
market demand through customer education, and (2) its network infrastructure
through growth in fax traffic resulting from existing applications, new
applications and new products, creates a platform for very profitable
incremental growth on a worldwide basis. To date, the Company's strategy has
been to pass along a portion of these benefits to reduce pricing and further
stimulate market demand.
The Company's current strategy is to expand from being primarily a provider
of Enhanced Services in North America to become a provider of both Enhanced
Services and discounted international electronic messaging services ("Discounted
International Services") on a worldwide basis and to continue to integrate
multiple transmission approaches like fax, Internet and e-mail in unique ways
for customers. The key elements of the Company's strategic plan are to (1)
leverage its proven experience in the Enhanced Services market by continuing to
develop new applications for its Enhanced Services and by establishing a
leadership position in new markets through "exporting" proven Enhanced Services
to geographic areas in which the Company has not historically offered such
services; (2) capitalize on the multi-billion dollar market for Discounted
International Services by aggressively marketing both its "store and forward"
and "real-time" services through its direct sales force, sales agents, resellers
and Nodal Partners (as defined below), and by installing the infrastructure
required for the delivery of such services on a worldwide basis; (3) continue to
expand and develop its "solution-oriented" direct sales force which the Company
believes is one of the key elements of its success; (4) develop and/or acquire
additional technologies and
28
<PAGE>
applications to expand Xpedite's messaging capabilities and leverage its sales
force and market presence; (5) expand the Xpedite Network by adding new Nodes
(as defined below) and leased telecommunications lines in order to continue to
lower its fax delivery costs; and (6) increase market share, expand geographic
coverage, leverage the Xpedite Network, and achieve economies of scale and
operating efficiencies through strategic acquisitions, alliances and other
business relationships. In connection with this growth strategy, the Company,
through a wholly-owned subsidiary, has entered into an agreement to purchase the
share capital of XSL and is currently negotiating with the shareholders of XSG
for the purchase of a majority of the shares of XSG. See "--
Strategies/Relationships and Acquisitions" and "Acquisition of XSL."
PRODUCTS AND SERVICES
The Company's services provide customers with a lower cost, more reliable
and more time efficient information delivery method than most other document
distribution alternatives. The Company's Enhanced Services consist primarily of
its "fax broadcast" and "gateway messaging" services. The fax broadcast services
enable a customer to rapidly distribute the same document to multiple recipients
by sending a single transmission through the Company's system to a list of fax
addresses. The appeal of the fax broadcast service is the significant cost and
time savings as compared to internally printing and mailing documents or
managing the fax process. Examples of the types of communications delivered via
fax broadcast services include the dissemination of research reports by
financial services organizations and the transmission of campaign information by
political groups. In addition, a portion of the Company's fax broadcast revenues
are attributable to customers utilizing the Company's proprietary "PC Xpedite"
software, which enables a customer to input the document to be broadcast and
transmit it to the Company, and supports the customer's capability to maintain
lists of fax addresses. Gateway messaging, the Company's other primary Enhanced
Service, enables a customer to send information from the customer's computer
through the Company's system to a recipient's fax or telex machine, or to a
recipient via the Internet or X.400 electronic mail networks or other electronic
media. The Company's gateway messaging service typically involves the processing
of a large volume of individual communications (i.e., a single document to a
single recipient), each of which is in the same format but contains different
information. Examples of the types of communications delivered via gateway
messaging services include the delivery of confirmations of reservations by
hotels and airlines and the delivery of invoices, purchase orders and shipping
documents by manufacturing and shipping companies.
In connection with its Enhanced Services, the Company offers a number of
applications which increase the attractiveness of its products and
differentiates the Company in the marketplace. Examples of these applications
include: (1) "Fax on Demand" which allows callers to select information using a
touch tone phone and to have such information sent directly to their fax
machine; (2) "Enhanced Fax Merging" which permits senders to personalize
information which can be inserted into original text at any point in a standard
multi-address document; and (3) "Toll-Free Fax Response" which allows senders to
receive responses by fax to a toll-free 800 number.
The Company's Discounted International Fax Service allows a customer to use
an automatic dialing device attached to the customer's fax machine (at a cost of
less than $100) to direct international faxes to the Xpedite Network for
delivery to the recipient at a discount of approximately 15% to 25% to standard
international toll calls. The Company's initial Discounted International Fax
Service was a "store and forward" service, in which the fax is transmitted by
the sender to and stored in the Company's system for subsequent delivery. In
response to demand in the market for a discounted international fax service
which would enable the sender to obtain immediate confirmation that the fax had
been delivered, the Company launched its "real-time" service in the second half
of 1996. With real-time service, the customer uses the same automatic dialing
device as is used in the store and forward service, but rather than store the
fax for subsequent delivery, the Company connects the sender's fax machine
directly to the recipient's fax machine, thereby delivering the fax immediately.
29
<PAGE>
CUSTOMER BASE
The Company has achieved significant growth in its customer base.
Applications for the Company's messaging services are utilized by a broad array
of customers including those in the publishing, public relations and investor
relations, commercial banking, manufacturing, travel, electronics, legal and
pharmaceutical industries. The Company's customer base is broadly diversified,
with no single domestic industry group accounting for greater than 15% of
revenues. The Company believes that this diversification provides it with
assurance that its revenues will not be greatly affected by the cyclicality of
any particular industry or a general business downturn in any particular sector.
The Company's international network and capabilities have also attracted
customers from additional industries such as the global freight industry.
THE XPEDITE NETWORK
In order to offer high quality Enhanced Services and Discounted
International Services cost effectively, the Company has established the Xpedite
Network. The Xpedite Network consists of the Company's document distribution
system, the Company's "Nodal Partners" and the leased telecommunications lines
which connect all of these systems. "Nodal Partners" are certain independent
entities which have purchased an electronic document distribution system from
the Company and which sell Discounted International Services. A "Node" is an
element of the Xpedite Network located at a geographically distinct "point of
presence" which allows access to or egress from the Xpedite Network via a local
telephone call. The Company's Nodes allow it to deliver a larger number of faxes
using inexpensive local calls rather than higher priced long distance or
international fax calls and provide customers with significant discounts and
cost savings on its international traffic. The Company's leased
telecommunications lines, which connect the Nodes, provide secure, high quality
connections and minimize third-party telecommunications expenses. In addition,
the Company's leased telecommunications lines provide the reliable, continuous,
high-speed throughput required for delivery of real-time services. The Company
currently leases telecommunications lines from a variety of the major
telecommunications carriers both in the U.S. and overseas. These lines are
leased on a one- to two-year basis with an option to upgrade to higher speed
lines and are generally billed on a monthly basis.
The Company has experienced significant growth in fax traffic since 1993,
with average daily fax minutes increasing from approximately 0.3 million in 1993
to 1.4 million in 1996; this increase represents a compound annual growth rate
of approximately 67%.
The Company charges for its fax services both on a per minute and a per page
basis, with the bulk of its sales occurring on a per minute basis. A substantial
portion of the Company's fax traffic terminates in cities where the Company or
its affiliates have Nodes. The Company estimates that approximately 40% of its
domestic fax deliveries in 1996 were routed over the Xpedite Network. The
Company purchases long-distance services from MCI Communications Corp., Cable
and Wireless Communications, Inc., LDDS (WorldCom) and a number of PTTs around
the world, among others, to carry fax traffic that is routed to destinations
where the Company does not have Nodes. In the future, the Company expects its
total telecommunications costs per minute of fax traffic to decrease as an
increasing amount of traffic is routed over the Xpedite Network.
SALES AND MARKETING
The markets for the Company's services are large and growing. The Company
believes that the market for Enhanced Services is annually at least $300 million
in North America and $800 million worldwide. The Company believes that the
market for Enhanced Services is customer- and applications-driven. The Company
expects expansion in the market to be derived from the continued development of
new applications for Enhanced Services within particular industries and the
development of individual applications for use across several different
industries. The target market for the Company's Discounted International
Services is the global fax transmission market, which the Company believes is
annually in
30
<PAGE>
excess of $3 billion in North America and $10 billion worldwide. The Company
believes that its markets will continue to grow, fueled by growth in
international trade and continued growth in the utilization of fax machines and
computer fax devices.
The Company's business has grown as a result of, among other things, the
development of a highly-trained sales organization. In selling Enhanced
Services, the Company's sales force is trained to identify the issues
surrounding a specific industry sector and consult and educate its clients to
create the optimal solution for the clients' needs. Technically competent sales
people are required to market and implement the Company's product due to the
"problem solving" or "solution-oriented" nature of the selling strategy. In
addition, through the launch of the Company's real time service, the Company's
global sales force has exhibited the ability to successfully and quickly
implement the sale of new products and services. The Company's full-time direct
sales force has increased from 41 people at the end of 1992 to 268 people as of
June 30, 1997. These full-time sales personnel are deployed throughout the
Company's 48 sales offices in 14 countries today with approximately 150
operating in North America. The Company also utilizes a significant network of
third party distributors (sales agents and resellers) both in countries where it
has a direct sales presence and in locations where it does not currently have
such a presence. These third party distributors accounted for approximately 20%
of the Company's net revenues in 1996.
STRATEGIC RELATIONSHIPS AND ACQUISITIONS
To complement its organic sales growth and expand internationally, the
Company has completed six acquisitions since 1993. In February 1993, the Company
acquired certain enhanced fax and messaging services assets from TRT/FTC
Communications, Inc. In November 1995, the Company acquired Swift Global
Communications, Inc. ("Swift"), ViTel International Holding Company, Inc.
("ViTel") and Comwave Communications AG ("Comwave," and collectively with Swift
and ViTel, the "SVC Companies") which together had points of presence in 35
countries and a 45 person direct sales force. This acquisition significantly
expanded the Company's North American and international businesses and allowed
the Company to accelerate its entry into the international fax market. On a pro
forma basis, the acquisition of the SVC Companies, which had revenues of over
$55 million in 1995, approximately doubled the Company's net revenues for the
year ended December 31, 1995. More recently, the Company continued its expansion
in the Pacific Rim through (i) the acquisition in September 1996 of the fax
service business of PosData Company Ltd., the Company's Nodal Partner in Korea,
(ii) the acquisition in December 1996 of the enhanced fax service business of
Pacific Star, known as Fax 2000, an Australian fax service provider, and (iii)
the establishment in early 1997 of a 50%-owned joint venture which offers
message delivery services in Singapore.
In connection with its international expansion, the Company has also entered
into relationships in Europe with Xpedite Systems, S.A. ("XSSA"), XSG and XSL
(collectively with XSSA and XSG, the "European Affiliates"). At the time of
formation of each of these entities, the Company entered into a Systems and
Marketing Agreement and a Put and Call Option Agreement (collectively, the
"Put/Call Agreements") with each European Affiliate and, in the case of the
Put/Call Agreements, each affiliate's shareholders. These agreements provide for
the sale by the Company to each European Affiliate of the Company's document
distribution system, along with a license to the software used to operate such
system (for which the European Affiliate pays royalties), joint marketing
efforts, and "put" and "call" rights which, upon the achievement of specified
levels of financial performance by the relevant European Affiliate and
fulfillment of certain other conditions, would enable or require the Company to
purchase interests in the relevant European Affiliate. The Company currently
owns 18.8% of XSSA and 19.9% of XSG, and has an option to purchase an additional
17.1% of XSG held by a significant shareholder of XSG.
The Company has no current ownership stake in XSL. However, the Company,
through XSL Acquisition Corp., has entered into an agreement with the
shareholders of XSL pursuant to which all of the outstanding share capital of
XSL will be purchased by XSL Acquisition Corp. for a purchase price of $87.0
million, subject to certain adjustments. This acquisition is expected to be
completed simultaneously
31
<PAGE>
with, and is a condition to, the Merger. However, such acquisition is not
conditioned upon the completion of the Merger. For a more detailed description
of XSL, its business, and the terms and conditions of the agreement pursuant to
which XSL Acquisition Corp. will purchase the share capital of XSL see
"Description of XSL's Business" and "Acquisition of XSL."
The Company believes that XSG may achieve the DM 1.7 million net profit
required for the relevant calculation period for the respective "put" and "call"
rights regarding XSG to be exercised at or shortly after the end of 1997.
Assuming that XSG achieves such minimum net profit and utilizing the Company's
stock prices and earnings as of the twelve months ended June 30, 1997, the
purchase price payable in connection with the exercise of 100% of the "put"
option with respect to XSG would be approximately $6.8 million (not including
the assumption of approximately $6.2 million of indebtedness), after the
exercise of the option for the additional 17.1% referred to above (for an
exercise price of approximately $27,000). The Company is currently engaged in
preliminary negotiations with the shareholders of XSG for the purchase of a
majority of the shares of XSG. There can be no assurance that such purchase will
be consummated. The Company does not believe that XSSA will achieve the 6.0
million FF required for the relevant calculation period for the "put" and "call"
rights regarding XSSA to be exercised at or shortly after the end of 1997.
COMPETITION
The Company competes based on a number of factors, such as customer service
and support, service features and price. Of these factors, the Company believes
that service and support are the most important for Enhanced Services, while
price is the critical competitive component with respect to Discounted
International Services in developed countries with high quality long distance
networks. In a service industry in which a broad range of optional features are
offered, the Company's competitive strategy emphasizes a sales and support
network that is well-versed in the capabilities of the services offered to
customers. The Company believes that, while it continues to expand its
development activity in order to add a broad range of features to its services,
it is the focus of its sales and support organizations on customers' needs that
enables the Company to compete effectively.
AT&T, MCI and Sprint, as well as other long distance carriers and national
PTTs, provide certain fax communications services in competition with the
Company. The Company believes it can compete effectively with its competitors
because of its focus on the fax communications services market, its broad array
of service features and its cost-effective worldwide Xpedite Network. The
Company believes that, while AT&T and Sprint have begun to expand the number of
international Nodes employed by them, they have not committed to the direct
deployment of targeted sales personnel to focus on the international fax
markets, and that AT&T and Sprint currently are relying primarily on worldwide
partners and agents in marketing their fax services outside of the United
States.
In addition to the long distance carriers and PTTs, the Company competes
with a number of service bureaus based on the factors described above. Many
service bureaus face considerable obstacles in developing a business competitive
with the Company's. While it may be easy to begin service with a small personal
computer-based system, considerable system development expenditures are required
to enable such a system to grow to support the volumes and features needed to be
an effective competitor in the marketplace. Further, a small service bureau
typically will not have a sufficient volume of traffic to develop the economic
leverage necessary to obtain telecommunications services at rates enabling it to
compete cost-effectively with the Company. In addition, considerable investment
in a sales and marketing organization is required to develop a substantial
business base. As a result of the Company's investment in its sales and
marketing organization, the Company believes that the size of its sales force
significantly exceeds that of any service bureau in the United States, and the
Company knows of no other service bureau with as many sales personnel and Nodes
in as many countries as the Company.
32
<PAGE>
As of June 30, 1997, the Company had approximately 12,900 telecommunication
lines dedicated to fax transmission, which the Company believes was more than
twice as many dedicated lines as its nearest competitor. The Company intends to
continue to add dedicated lines as its volume of fax transmissions makes the
installation of such lines cost effective to support the growth of the Company's
business.
The Company believes that its major advantages in addressing the
international market is that it is offering its services and already has
operating centers and full time sales personnel in the major telecommunications
centers around the world, and that its network of Nodal Partners extends this
presence beyond such major centers. Another major advantage is that the
Company's basic fax services include both real-time and store and forward
options, while the Company's competitors may only offer one of such options.
Another alternative to using the Company's services is for a potential
customer to fulfill its own needs for fax communications services. The "home
grown" solution may simply be an individual at a fax machine or may involve the
customer acquiring its own computerized fax communications system (sometimes
known as "customer premise equipment" or "CPE"). The Company believes that the
CPE solution is suitable in some applications, but is generally not feasible for
the Company's customers, who require the capacity to effect a significant volume
of electronic document deliveries in a short period of time. The Company
believes that the CPE solution for a fax broadcast application would require the
customer to obtain and maintain a large number of telephone transmission lines
which would remain idle for significant periods of time. Further, for
international fax traffic, the customer would be required to set up a worldwide
nodal network; the Company believes that this is only practical for large
multinational firms and even these firms would be unlikely to develop a network
which would reach as many countries as the Xpedite Network. As a fax
communications services provider with many customers, the Company is able to
spread the costs of operating the Xpedite Network over a large number of users.
In addition to being concerned with the irregular nature of demand, a customer
selecting a CPE solution must consider the total cost of system acquisition,
ongoing technical support, reliability, technological obsolescence and
accountability. Based on the foregoing, the Company believes that a substantial
percentage of customers in the market for fax communications services will elect
a service provider rather than CPE. In fact, as the Company's prices have fallen
over time in the United States, a number of customers who tried to implement CPE
solutions have returned as service customers.
Similarly, delivery of electronic information via the Internet provides an
alternative to the Company's fax services. However, Internet delivery does not
offer prompt confirmation of receipt of information in "real time" and has the
additional risks of limited security and confidentiality of information
delivered over a worldwide network easily accessed by third parties. Finally,
while a fax transmission alerts the recipient that information has been
delivered, information delivered via e-mail often relies on the recipient
inquiring whether information has been delivered. Delivery by the Internet
cannot be an alternative if a sender or recipient of information does not have
access to the Internet. The Company currently has the capability to deliver
information using the Internet and utilizes this network both as an optional
access vehicle to its services and as an e-mail delivery vehicle. The Company
may expand the use of these features as business users increase their reliance
on the Internet.
33
<PAGE>
THE SPECIAL MEETING
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
Each copy of this Proxy Statement mailed to Stockholders is accompanied by a
proxy card furnished in connection with the solicitation of proxies by the Board
of Directors for use at the Special Meeting. The Special Meeting is scheduled to
be held on , 1997 at a.m. at . At the Special Meeting,
Stockholders will consider and vote upon (i) a proposal to approve and adopt the
Merger Agreement and the Merger, (ii) a proposal to approve and adopt the
Charter Amendment, and (iii) such other matters as may properly be brought
before the Special Meeting.
At the Special Meeting, Stockholders will be asked to consider and vote upon
a proposal to approve and adopt the Merger Agreement between Acquisition Corp.
and Xpedite and the Merger contemplated thereby. A copy of the Merger Agreement
is attached as Appendix A to this Proxy Statement. The Merger Agreement
provides, among other things, for the merger of Acquisition Corp. into the
Company (the "Merger") with the Company continuing as the surviving corporation
(the "Surviving Corporation"). In the Merger, (i) each outstanding share of
Common Stock will be converted into (a) the right to receive $23.25 in cash or
(b) at the election of each Stockholder and subject to the limitations described
below, one share of Surviving Corporation Common Stock (except that any shares
held in the Company's treasury will be canceled and any Stockholder who properly
dissents from the Merger will be entitled to appraisal rights under the DGCL);
(ii) each outstanding share of Class B Common Stock will be converted into a
share of Surviving Corporation Common Stock; and (iii) each share of Acquisition
Corp. Common Stock will be converted into a share of Surviving Corporation
Common Stock.
Immediately prior to the Merger, the Management Stockholders will exchange
643,569 shares of Common Stock for the same number of shares of Class B Common
Stock, 322,709 of which shares of Class B Common Stock will be acquired by the
Investors for a price per share equal to $23.25 immediately prior to the Merger
and the remainder of which will be retained by such Management Stockholders, and
the Investors will purchase from the Company 2,162,183 shares of Class B Common
Stock for a purchase price per share of $23.25 and all such shares of Class B
Common Stock will be converted into Surviving Corporation Common Stock in the
Merger. As a result of the Merger and these related transactions, immediately
following the Merger, the Investors will own approximately 82% of the
outstanding Surviving Corporation Common Stock, the Management Stockholders will
own approximately 11% of the outstanding Surviving Corporation Common Stock, and
Stockholders other than the Management Stockholders will own the remaining
approximately 7%.
A Stockholder may elect to retain all, but not less than all, the shares of
Common Stock held by such Stockholder on the second business day preceding the
Special Meeting. If no election is made, a Stockholder will receive cash
consideration for such Stockholder's shares of Common Stock. A Stockholder who
elects to retain shares will be required to enter into the Stockholders
Agreement with the Investors, Acquisition Corp. and the Company.
In order to have the Merger treated as a recapitalization for financial
reporting purposes, Acquisition Corp. is requiring that (i) the Management
Stockholders exchange an aggregate of 643,569 shares of Common Stock for shares
of Class B Common Stock prior to the Merger, of which 322,709 shares of Class B
Common Stock will be acquired by the Investors for a price per share equal to
$23.25 immediately prior to the Merger and the remainder of which will be
retained by the Management Stockholders and (ii) existing Stockholders of the
Company (other than the Management Stockholders) retain an aggregate of 205,000
shares of Common Stock. In the event holders of more than 205,000 shares of
Common Stock (other than the Management Stockholders) elect to retain their
shares, the number of shares to be retained by such Stockholders will be reduced
on a pro rata basis to an aggregate of 205,000 shares of Common Stock and such
Stockholders will receive $23.25 per share in cash for the balance of their
shares of Common Stock. If holders of fewer than 205,000 shares of Common Stock
elect to retain their shares, the Patricof Stockholders and the Epstein
Stockholders have agreed with Acquisition Corp. to retain an
34
<PAGE>
aggregate of 205,000 shares minus the number of shares that other Stockholders
(other than the Management Stockholders) have elected to retain.
The Board of Directors has determined that the Merger Agreement and the
Merger are advisable and fair to and in the best interests of the Company and
its Stockholders, and has unanimously approved the Merger and the Merger
Agreement. ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
MERGER AND THE CHARTER AMENDMENT. See "The Merger -- Background of the Merger,"
"-- Reasons for the Merger" and "Charter Amendment."
THE BOARD OF DIRECTORS MAKES NO RECOMMENDATION WITH RESPECT TO WHETHER ANY
STOCKHOLDER SHOULD ELECT TO RECEIVE CASH IN THE MERGER OR TO RETAIN SUCH
STOCKHOLDER'S SHARES OF COMMON STOCK. STOCKHOLDERS ARE REQUESTED TO PROMPTLY
COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR TO
VOTE AT THE SPECIAL MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE
MERGER AGREEMENT, THE MERGER AND THE CHARTER AMENDMENT.
RECORD DATE AND VOTING
The Record Date for the Special Meeting is the close of business on ,
1997. At the close of business on the Record Date, there were shares of
Common Stock outstanding and entitled to vote, held by approximately
stockholders of record. Each holder of Common Stock on the Record Date will be
entitled to one vote for each share held of record. The presence, either in
person or by proxy, of a majority of the outstanding shares of Common Stock
entitled to be voted is necessary to constitute a quorum at the Special Meeting.
Abstentions (including broker non-votes) are included in the calculation of the
number of votes represented at a meeting for purposes of determining whether a
quorum has been achieved.
The Board is not aware of any matters other than those set forth in the
Notice of Special Meeting of Stockholders that may be brought before the Special
Meeting. If any other matters properly come before the Special Meeting, the
persons named in the accompanying proxy will vote the shares represented by all
properly executed proxies on such matters in such manner as shall be determined
by a majority of the Board, except that shares represented by proxies which have
been voted "against" the Merger Agreement and Merger will not be used to vote
"for" postponement or adjournment of the Special Meeting for the purpose of
allowing additional time for soliciting additional votes "for" the Merger
Agreement and the Merger. See "-- Vote Required; Revocability of Proxies" and
"Other Information and Stockholder Proposals."
STOCKHOLDERS ELECTING TO RETAIN COMMON STOCK SHOULD RETURN THE ENCLOSED
NON-CASH ELECTION FORM AND STOCKHOLDERS AGREEMENT TOGETHER WITH DULY ENDORSED
STOCK CERTIFICATES AS INSTRUCTED IN THE PROXY STATEMENT. OTHERWISE, STOCKHOLDERS
SHOULD NOT FORWARD ANY COMMON STOCK CERTIFICATES WITH THEIR PROXY CARDS. IN THE
EVENT THE MERGER IS CONSUMMATED, STOCK CERTIFICATES SHOULD BE DELIVERED IN
ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A LETTER OF TRANSMITTAL, WHICH WILL BE
SENT TO STOCKHOLDERS BY , IN ITS CAPACITY AS THE EXCHANGE AGENT, AS SOON
AS REASONABLY PRACTICABLE AFTER THE EFFECTIVE TIME.
VOTE REQUIRED; REVOCABILITY OF PROXIES
Approval and adoption of the Merger Agreement, the Merger and the Charter
Amendment requires the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock entitled to
35
<PAGE>
vote thereon. Each of the members of the Board of Directors, each of the
Management Stockholders, the Patricof Stockholders and the Epstein Stockholders,
who collectively owned shares of Common Stock as of the Record Date (which
represented % at the outstanding shares of Common Stock as of the Record
Date), has entered into a Voting Agreement with Acquisition Corp. pursuant to
which each of them has agreed, among other things, to vote his or its shares of
Common Stock in favor of the Merger Agreement, the Merger and the Charter
Amendment.
Because the required vote of the Stockholders on the Merger Agreement, the
Merger and the Charter Amendment is based upon the total number of outstanding
shares of Common stock, the failure to submit a proxy card (or to vote in person
at the Special Meeting) or the abstention from voting by a Stockholder
(including broker non-votes) will have the same effect as an "against" vote with
respect to approval and adoption of the Merger Agreement, the Merger and the
Charter Amendment. Proxies delivered to Xpedite's Corporate Secretary that do
not contain any instruction to vote for or against a particular matter will be
voted in favor of such matter.
The presence of a Stockholder at the Special Meeting will not automatically
revoke such Stockholder's proxy. However, a Stockholder may revoke a proxy at
any time prior to its exercise by (i) delivering to Xpedite's Corporate
Secretary a written notice of revocation prior to the Special Meeting, (ii)
delivering prior to the Special Meeting a duly executed proxy bearing a later
date or (iii) attending the Special meeting and voting in person.
If a quorum is not obtained, or if fewer shares of Common Stock are voted in
favor of approval and adoption of the Merger Agreement and Merger than the
number required for approval, it is expected that the Special Meeting will be
postponed or adjourned for the purpose of allowing additional time for
soliciting and obtaining additional proxies or votes, and, at any subsequent
reconvening of the Special Meeting, all proxies will be voted in the same manner
as such proxies would have been voted at the original convening of the special
meeting, except for any proxies which have theretofore effectively been revoked
or withdrawn.
No vote of the stockholders of Acquisition Corp. is required in connection
with the Merger Agreement or Merger. The obligations of the Company and
Acquisition Corp. to consummate the Merger are subject, among other things, to
the condition that the Stockholders approve and adopt the Merger Agreement and
Merger. See "The Merger Agreement -- Conditions to the Merger."
SOLICITATION OF PROXIES
The Company will bear the costs of soliciting proxies from Stockholders. In
addition to soliciting proxies by mail, directors, officers and employees of the
Company may solicit proxies by telephone, by telegram or in person. Such
directors, officers and employees will not be additionally compensated for any
such solicitation but may be reimbursed for reasonable out-of-pocket expenses
incurred in connection therewith. Arrangements also will be made with brokerage
firms and other custodians, nominees and fiduciaries to forward solicitation
materials to the beneficial owners of shares held of record by such persons, and
the Company will reimburse such brokerage firms, custodians, nominees and
fiduciaries for the reasonable out-of-pocket expenses incurred by them in
connection therewith.
ONLY HOLDERS OF COMMON STOCK WHO WISH TO MAKE A NON-CASH ELECTION ARE
REQUIRED TO SEND STOCK CERTIFICATES WITH THEIR FORM OF ELECTION. IN THE EVENT
THE MERGER IS CONSUMMATED, HOLDERS OF COMMON STOCK WHO DO NOT MAKE A NON-CASH
ELECTION WILL RECEIVE, BY MAIL, LETTERS OF TRANSMITTAL WITH WHICH SUCH STOCK
CERTIFICATES SHOULD BE RETURNED AFTER THE EFFECTIVE TIME. HOLDERS WHO DO NOT
MAKE A NON-CASH ELECTION SHOULD THEREFORE NOT SEND STOCK CERTIFICATES WITH THEIR
PROXY CARDS. SEE "The Merger Agreement -- Non-Cash Election" and "-- Non-Cash
Election Procedure."
36
<PAGE>
PROPOSAL ONE
THE MERGER
BACKGROUND
During 1995 and 1996, on various occasions a number of significant
stockholders of the Company expressed to the Board and senior management the
view that (i) the value of the Common Stock was not being accurately reflected
in the market price of the Common Stock, (ii) the Company's stockholders were
unable to achieve liquidity at the then-prevailing market prices of the Common
Stock and (iii) that, accordingly, the Company should explore strategic
alternatives to enhance stockholder value.
Based upon the foregoing, (i) certain members of senior management of the
Company began in the fall of 1996, with the approval of the Board, to explore
the possibility of making a proposal to acquire the Company, and (ii) on
February 5, 1997, the Board appointed a Special Strategic Committee (the
"Special Committee"), consisting of Philip A. Campbell ("Campbell") and Robert
Chefitz ("Chefitz"), to evaluate the strategic opportunities and alternatives
available to the Company, including, without limitation, leveraged
recapitalizations, business combinations or other methods for enhancing
stockholder value (collectively, the "Strategic Alternatives").
On February 7, 1997, after interviewing a number of prominent investment
banking firms, the Special Committee engaged Merrill Lynch to act as independent
investment banker to the Special Committee and to advise the Special Committee
with respect to the Company's Strategic Alternatives. In light of the
exploration by certain members of senior management of the possibility of making
a proposal to acquire the Company, neither Roy B. Andersen, Jr., the President
and Chief Executive Officer of the Company ("Andersen"), nor any other member of
management participated in the Board's deliberations with respect to such
engagement.
On February 7, 1997, UBS, Fenway and certain members of senior management of
the Company (collectively, the "MBO Group"), made an offer to acquire the
Company for $22.50 per share in cash, subject to satisfaction of a number of
conditions, including but not limited to (i) the acquisition by the Company of
XSL (the "XSL Acquisition Condition") and XSG, (ii) the satisfactory completion
of a due diligence investigation of the Company by the MBO Group and (iii) the
approval of the acquisition by the Board (the "MBO Proposal"). The MBO Proposal,
by its terms, was to expire on March 7, 1997. In connection with the MBO
Proposal, on February 7, 1997, the members of the MBO Group filed with the
Securities and Exchange Commission ("SEC") a report on Schedule 13D (the "13D").
Following receipt of the MBO Proposal, the Special Committee instructed
Merrill Lynch to conduct a process to identify additional bidders and solicit
additional bids to purchase the Company. Throughout February, March and April
1997, Merrill Lynch conducted such process. In the first stage of this process,
Merrill Lynch contacted numerous strategic and financial investors and inquired
as to such parties' interest in the Company. Merrill Lynch provided to
interested parties certain publicly available information regarding the Company
and, subject to the execution and delivery of a confidentiality agreement with
each of the interested parties, certain non-public information regarding the
Company and the European Affiliates. Except when such participation was
requested by the Special Committee or Merrill Lynch, members of the Company's
management did not participate in the process conducted by Merrill Lynch.
In February and March 1997, in light of the XSL Acquisition Condition, the
Special Committee engaged in preliminary discussions with the shareholders of
XSL (the "XSL Shareholders") in an attempt to agree on terms and conditions
under which the Company could acquire XSL. As the parties were unable to agree
on the price payable for XSL, these discussions were not extensive and produced
no agreements as to any such terms or conditions. Further, in addition to
conducting the process referred to herein, Merrill Lynch advised the Special
Committee and the Board as to the Strategic Alternatives which were
37
<PAGE>
available to the Company. Such Strategic Alternatives were discussed by the
Special Committee with its legal and financial advisors and the Board throughout
the process described herein.
Because the Special Committee's evaluation of Strategic Alternatives, and
the process being conducted by Merrill Lynch, had only recently commenced and
because the Special Committee did not believe it to be in the best interests of
the Stockholders to enter into any material transaction prior to the completion
of such evaluation and process, the Special Committee did not engage in
extensive negotiations with the MBO Group regarding the MBO Proposal. The MBO
Proposal expired, by its terms, on March 7, 1997.
On or about April 1, 1997, Merrill Lynch invited interested parties to
submit preliminary indications of interest in pursuing the acquisition of the
Company.
On April 21, 1997, Merrill Lynch reported to the Special Committee that
three additional parties had submitted indications of interest in acquiring the
Company. Previously, on April 16, 1997, the MBO Group confirmed to the Special
Committee that it would continue to participate in the process being conducted
by Merrill Lynch. On April 25, 1997, the MBO Group amended the 13D to disclose
that, notwithstanding the expiration of the MBO Proposal by its terms on March
7, 1997, the MBO Group continued to have a significant interest in acquiring the
Company and that the MBO Group had informed the Special Committee that it
expected to make a new offer to acquire the Company at an appropriate time, and
that it had not done so by such time in order to facilitate the review by the
Special Committee and its advisors of the Company's Strategic Alternatives.
On the basis of the indications of interest described above, the four
interested parties (including the MBO Group) were invited to conduct further due
diligence regarding the Company and the European Affiliates (the "Second
Round"). Such due diligence included review of documents, presentations by
management of the Company and certain of the European Affiliates and site visits
to the facilities of the Company and the European Affiliates. One of the parties
which had submitted an indication of interest ceased to pursue its investigation
of the Company early in the Second Round. In June, the MBO Group and the other
interested parties conducted additional due diligence regarding the Company.
On June 5, 1997, Merrill Lynch requested that the interested parties (other
than the MBO Group) submit by June 27, 1997 a full and final offer to acquire
the Company. A similar request was made to the MBO Group on June 16, 1997, with
a response date on July 7, 1997.
Of the interested parties which received the June 5, 1997 letter from
Merrill Lynch, one agreed to be acquired by a third party shortly thereafter and
ceased to participate in the process. The other of such interested parties
elected not to submit a final offer to purchase the Company.
On July 7, 1997, the MBO Group submitted an offer to acquire the Company for
$22.50 per share in cash (the "Final Offer"). Pursuant to the instructions of
Merrill Lynch set forth in its request for a final offer, the Final Offer
provided that such purchase price was to increase or decrease on a "dollar-for-
dollar" basis to the extent that the aggregate purchase price for XSL and XSG
was less or more, as applicable, than $93 million. The Final Offer included,
among other things, a requirement that the Patricof Stockholders and the Epstein
Stockholders agree to retain approximately $5 million of their Common Stock (the
"Roll-over Requirement") in order to permit the Company to account for the
transaction as a "recapitalization" (the "Recap Accounting Condition"). The
Final Offer, by its terms, was to expire on August 4, 1997; PROVIDED, that it
was to expire on July 11, 1997 unless the Company assured the MBO Group that it
would not pursue other offers to acquire the Company and would grant the MBO
Group the exclusive rights to negotiate to acquire XSL and XSG. The MBO Group
amended the 13D on July 7, 1997, to reflect the terms of the Final Offer.
From July 7 through July 10, 1997, the Special Committee and its advisors
extensively discussed the Final Offer with the MBO Group.
38
<PAGE>
On July 11, 1997, the MBO Group amended the Final Offer (the "Amended Final
Offer") as follows: (i) the per share purchase price was increased to $23.00,
assuming a purchase price for XSL of $85 million; the aggregate purchase price
for shares of Common Stock would be reduced by 50% of any amount by which the
purchase price for XSL exceeded $85 million, but not below $22.50 per share;
(ii) closing would still be subject to the XSL Acquisition Condition, but not on
the acquisition of XSG; (iii) although the Patricof Stockholders and the Epstein
Stockholders would continue to be subject to the Roll-over Requirement, the MBO
Group agreed to seek other institutional investors to retain their shares and
thus reduce the number of shares required to be retained by the Patricof
Stockholders and the Epstein Stockholders and (iv) the closing would be
conditioned upon the shareholders of XSSA agreeing to accept all cash in the
event of the exercise of a "put" or "call" option pursuant to the France Option
Agreement.
In separate discussions not involving the Special Committee or management of
the Company, the Patricof Stockholders and the Epstein Stockholders expressed to
the MBO Group their view that the opportunity to retain shares of Common Stock
should be offered to all Stockholders of the Company, but that they were
prepared to consider agreeing that, if such opportunity were offered to certain
other institutional investors, and such investors did not agree to retain a
number of shares of Common Stock sufficient to fulfill the Roll-over Condition,
the Patricof Stockholders and the Epstein Stockholders would retain a number of
their shares sufficient to enable the Roll-over Requirement to be fulfilled (the
"Backstop").
On July 13, 1997, following extensive discussions between them on July 11,
12 and 13, 1997, the Special Committee advised the MBO Group that, in
consideration of the extension of the Amended Final Offer (i) the Special
Committee was not considering and would not consider any offer to purchase the
Company other than the Amended Final Offer and (ii) the Special Committee would
reimburse the MBO Group for expenses incurred from and including July 12, 1997
through July 16, 1997 in an amount not to exceed $100,000. Such arrangements
were to expire on July 16, 1997.
On July 15, 1997, in view of the interests of certain principals of Patricof
in the APAX Funds, and in view of the pending discussions between the Special
Committee and the XSL shareholders regarding the purchase of XSL by the Company,
Chefitz resigned as a member of the Special Committee. See "Interests of Certain
Persons in the Merger."
From July 13 through July 17, the Special Committee and its advisors
extensively discussed the Amended Final Offer with the MBO Group.
On the morning of July 17, 1997, the Special Committee advised the MBO Group
that, in consideration of the extension of the Amended Final Offer (i) the
Special Committee was not considering and would not consider any offer to
purchase the Company other than the Amended Final Offer and (ii) the Special
Committee would reimburse the MBO Group for expenses incurred from and including
July 12, 1997 through July 17, 1997 in an amount not to exceed $100,000. Such
arrangements were to expire at 5:00 p.m. on July 17, 1997.
During the period from early July through July 17, 1997, Campbell engaged in
extensive discussions on behalf of the Special Committee with the shareholders
of XSL in an effort to agree upon terms and conditions pursuant to which the
Company would purchase XSL, in order to enable the Company to satisfy the XSL
Acquisition Condition. In the absence of such agreement or an agreement to
further extend the Amended Final Offer, it expired at 5:00 p.m. on July 17,
1997.
On July 18, 1997, the Board met via telephonic conference call to discuss
the status of negotiations with the MBO Group and the transaction with XSL. It
was determined that consummating a transaction to acquire XSL at a negotiated
purchase price was beneficial to the Company (whether or not negotiations with
the MBO Group were to be reinstated) and the Board instructed the Special
Committee to continue negotiations with the shareholders of XSL. Beginning July
20, 1997, the Special Committee and, at the request of the Special Committee,
Andersen engaged in further extensive discussions with the XSL
39
<PAGE>
shareholders regarding the purchase by the Company of XSL. On July 24, 1997, the
Special Committee and Andersen presented to the Board of Directors a term sheet
which set forth an agreement in principle with the XSL shareholders for the
purchase of XSL by the Company (the "XSL Term Sheet"). The Board of Directors
extensively discussed, and voted to approve, the XSL Term Sheet.
The XSL Term Sheet was executed by the Company and the XSL shareholders on
July 25, 1997.
After July 25, Andersen negotiated extensively with the XSL shareholders
regarding definitive documentation of an agreement by the Company to purchase
XSL.
On July 28, the Special Committee informed the MBO Group that the XSL Term
Sheet had been executed and delivered by the parties thereto, and explored the
possibility that, if the Company were to be able to finalize an agreement to
purchase XSL, the MBO Group might make a new offer to acquire the Company.
On and after July 28, 1997, representatives of the XSL shareholders came to
New York and engaged in extensive and continuous negotiations with Andersen and
the Company's advisors regarding definitive documentation of an agreement by the
Company to purchase XSL. The Special Committee and other members of the Board
were apprised as to the progress of these negotiations on a daily basis.
On July 29, 1997, the MBO Group informed the Special Committee that it would
consider making a new offer to acquire the Company if (i) the Patricof
Stockholders and the Epstein Stockholders would agree to provide the Backstop,
(ii) the XSL Purchase Agreement was acceptable to the MBO Group in all respects,
(iii) various legal issues which had not been resolved prior to July 17, 1997
(the "Open Issues") could be resolved and (iv) the parties could agree on a
price for the Company. No offer to purchase the Company was made by the MBO
Group at this time.
After July 29, 1997, the Company's legal advisors (i) worked with the MBO
Group's legal advisors to resolve the Open Issues, and (ii) explored with the
Patricof Stockholders and the Epstein Stockholders terms under which such
Stockholders would agree to provide the Backstop. Separate discussions regarding
the Backstop were conducted between the MBO Group and the Patricof Stockholders
and the Epstein Stockholders.
On the evening of August 5, 1997, Andersen reported to the Special Committee
that all significant issues relating to the acquisition of XSL had been
resolved. Following such report, the Special Committee called a meeting of the
Board to consider the acquisition of XSL.
On August 6, 1997, four of the five members of the Board held a special
meeting to consider the acquisition of XSL (the "XSL Acquisition"). Andersen and
the Company's legal advisors explained in detail the material terms of the XSL
Purchase Agreement and related agreements. In addition, Merrill Lynch made a
presentation regarding the financial aspects of the XSL Acquisition. After
extensive discussion and consideration, the members of the Board in attendance
at the meeting unanimously approved the XSL Acquisition, the XSL Purchase
Agreement and related agreements, and the transactions contemplated thereby, and
authorized execution of such agreements.
Following approval of the acquisition of XSL, the Board received an update
as to the status of discussions between the Company's legal advisors and the MBO
Group regarding the Open Issues, and as to the status of discussions between the
MBO Group and the Patricof Stockholders and the Epstein Stockholders regarding
the Backstop.
Later in the day on August 6, 1997, the Company's legal advisors conducted a
meeting with the MBO Group, at which the MBO Group presented a proposal to
resolve the Open Issues. Such proposal included the provision that the
opportunity to retain shares would be made available to all Stockholders of the
Company on an "all or none" basis (I.E.,that an election to retain shares, if
made by a Stockholder, would apply to all, but not less than all, such
Stockholder's shares of Common Stock); PROVIDED, that if Stockholders elected to
retain (i) more shares than were needed to fulfill the Roll-over Requirement,
the
40
<PAGE>
shares actually retained would be allocated among the electing Stockholders on a
PRO RATA basis, and (ii) fewer shares than were needed to fulfill the Roll-over
Requirement, the Patricof Stockholders and the Epstein Stockholders would
provide the Backstop. After consideration of this proposal by the Special
Committee and the Company's legal and financial advisors, and negotiation of
such proposal with the MBO Group, the Open Issues were resolved.
On August 7, 1997, Andersen and the Company's legal advisors (i) negotiated
the final details of the XSL Purchase Agreement and related agreements, and (ii)
revised the draft Merger Agreement to reflect the resolution of the Open Issues
agreed to on August 6, 1997, and negotiated the final details of the Merger
Agreement and related agreements. At approximately 8:30 p.m. on August 7, 1997,
the Special Committee conducted a telephonic meeting with the MBO Group to
discuss the final terms of the Merger Agreement, including the price per share
to be paid to acquire the Company. The MBO Group proposed, among other things,
to pay $23.25 per share of Common Stock to be acquired pursuant to the Merger
Agreement. After the receipt of the MBO Group's proposal and consultation with
the Special Committee's financial and legal advisors, the Special Committee
agreed to present the MBO Group's proposal to the Board.
On August 8, 1997, the Board held a special meeting to consider the Merger
Agreement. Since Andersen is a member of the MBO Group, he did not participate
in or vote at such meeting, but was available by telephone to answer questions.
The Company's legal advisors reviewed the material terms of the Merger
Agreement; and Merrill Lynch reviewed the process it had conducted at the
instruction of the Special Committee to identify bidders for the Company,
reviewed the financial aspects of the Merger Agreement, discussed Strategic
Alternatives other than the transactions contemplated by the Merger Agreement,
and delivered their oral opinion (subsequently confirmed in writing) to the
Board that, based upon and subject to the matters set forth in its written
opinion, the Cash Price to be received by Stockholders in the Merger is fair,
from a financial point of view. No opinion was given by Merrill Lynch with
respect to any shares of Common Stock to be retained by the Management
Stockholders or Stockholders who elect to retain shares of Common Stock. After
further discussions and consideration, the members of the Board in attendance
unanimously approved the Merger Agreement and the transactions contemplated
thereby and authorized execution of the Merger Agreement.
The Merger Agreement and the XSL Purchase Agreement were executed and
announced on August 8, 1997.
The Cash Price for the shares of Common Stock and the number of shares to be
retained by Stockholders agreed to by the parties was the result of arms'-length
negotiations.
RECOMMENDATION OF BOARD; REASONS FOR THE MERGER
THE BOARD BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST INTEREST OF,
XPEDITE AND ITS STOCKHOLDERS. THE BOARD UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, THE MERGER AND THE CHARTER AMENDMENT AND UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT, THE MERGER AND THE
CHARTER AMENDMENT.
In reaching its unanimous determination that the Merger Agreement and the
Merger are in the best interests of the Company and its Stockholders, the Board
considered a number of factors (both positive and negative), including without
limitation, the following:
(i) the written opinion of Merrill Lynch that the Cash Price to be received
by the Stockholders in the Merger (other than shares to be retained by the
Management Stockholders and other Stockholders electing to retain shares in the
Merger, as to which no opinion was rendered) is fair to such Stockholders from a
financial point of view (see "-- Opinion of Financial Advisor");
(ii) the relationship of the Cash Price to the historical market prices for
the Common Stock (see "Market Prices Of Common Stock");
41
<PAGE>
(iii) the Board's view that the terms of the Merger Agreement, as reviewed
by the Board with its legal advisors and Merrill Lynch, are advisable and fair
to the Company and its Stockholders in light of the nature of the transaction
and provided the Company and the Stockholders with the flexibility to, under
certain circumstances, accept a third party proposal for an Alternative
Transaction and terminate the Merger Agreement (see "The Merger Agreement -- No
Solicitation" and "-- Termination; Termination Fees");
(iv) information relating to the financial condition and results of
operations of the Company (see "Selected Historical Consolidated Financial
Data") and the Company's financial projections (see "Opinion of Financial
Advisor"), which, in the Board's view, supported a determination that the cash
Merger Consideration payable for the Common Stock is fair to the Company and the
Stockholders;
(v) the lack of final proposals from any other third party, which the Board
considered to support its determination that the Merger Agreement and the Merger
are in the best interests of the Company and the Stockholders;
(vi) the Company's exploration of Strategic Alternatives for maximizing
stockholder value, as described under "-- Background of the Merger," and
particularly the Board's conclusion that, based upon such exploration, it
appeared that such Strategic Alternatives, even if successfully carried to
completion, would not likely result in a per share cash consideration payable to
Stockholders as high as the Cash Price;
(vii) the Board's desire to enable the Stockholders to achieve liquidity
with respect to their investment in the Company at a fair price and the Board's
conclusion that the acquisition of the Company as a whole was the best way to
achieve such liquidity in the foreseeable future;
(viii) the fact that all Stockholders will have the opportunity to elect to
receive cash or participate in the aggregate of 205,000 shares of Common Stock
to be retained, which opportunity the Board believes will provide some
flexibility to any of the Stockholders who might desire to retain Common Stock
after the Merger; and
(ix) the fact that the Merger Agreement requires the Merger to be submitted
to the Stockholders for approval, which allows for an informed vote of the
Stockholders on the merits of the transaction without requiring a tender of
shares or other potentially coercive transaction structure; and the fact that
the Merger Agreement provides that it may be terminated by the Company if such
approval is not received.
The foregoing discussion of the information and factors discussed by the
Board of Directors is not meant to be exhaustive but includes all material
factors considered by the Board. The Board of Directors did not quantify or
attach any particular weight to the various factors that it considered in
reaching its determination that the Merger is in the best interests of the
Stockholders.
The Board was aware that certain members of Xpedite management and the Board
may be deemed to have certain interests in the Merger that are in addition to
their interests as Stockholders generally and considered these interests in
approving the Merger. Such interests did not weigh either in favor of or against
approving the Merger. See "Interests of Certain Persons in the Merger."
If the holders of Common Stock do not approve and adopt the Merger
Agreement, or if the Merger is not consummated for any other reason, the Board
expects to continue to operate Xpedite as an ongoing business.
The Special Committee and the Board of Directors have determined that the
Merger Agreement and the Merger are advisable and fair to and in the best
interests of the Company and its Stockholders and have unanimously approved the
Merger Agreement and the Merger. Accordingly, the Board of Directors unanimously
recommends that Stockholders vote "FOR" approval and adoption of the Merger
Agreement and the Merger. See "-- Background of the Merger" and "-- Opinion of
Financial Advisor."
42
<PAGE>
OPINION OF FINANCIAL ADVISOR
The Company retained Merrill Lynch to act as its exclusive financial advisor
in connection with its evaluation of Strategic Alternatives. On August 8, 1997,
Merrill Lynch rendered to the Board of Directors its written opinion (the
"Merrill Lynch Opinion") that, as of such date and based upon and subject to the
factors and assumptions set forth therein, the Cash Price to be received by the
Stockholders in the Merger in consideration for each share of Common Stock was
fair, from a financial point of view, to the holders of such shares of Common
Stock. No opinion was given by Merrill Lynch with respect to any shares of
Common Stock to be retained by the Management Stockholders or Stockholders who
elect to retain shares of Common Stock.
The full text of the Merrill Lynch Opinion, which sets forth the assumptions
made, matters considered, and qualifications and limitations on the review
undertaken by Merrill Lynch, is attached as Appendix C to this Proxy Statement
and is incorporated herein by reference. The summary of the Merrill Lynch
Opinion set forth in this Proxy Statement is qualified in its entirety by
reference to the full text of such opinion. Stockholders are urged to read such
opinion in its entirety. The Merrill Lynch Opinion was provided to the Board for
its information and is directed only to the fairness from a financial point of
view of the Cash Price to the Stockholders, does not address the merits of the
underlying decision by the Company to engage in the Merger and does not
constitute a recommendation to any Stockholder as to how such Stockholder should
vote on the proposed Merger or as to whether such Stockholder should make an
election to retain all such Stockholder's Common Stock, subject to proration, in
lieu of receiving the Cash Price for such Common Stock.
The Cash Price was determined through negotiations between the stockholders
of Acquisition Corp. and the Company and was approved by the Board. Merrill
Lynch provided advice to the Company during the course of such negotiations.
The summary set forth below does not purport to be a complete description of
the analyses underlying the Merrill Lynch Opinion or the presentation made by
Merrill Lynch to the Board. The preparation of a fairness opinion is a complex
analytic process involving various determinations as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to partial analysis or summary description. In arriving at its
opinion, Merrill Lynch did not attribute any particular weight to any analysis
or factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Merrill
Lynch believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying its opinion.
In performing its analyses, numerous assumptions were made with respect to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Merrill
Lynch, the Company, Acquisition Corp. and the stockholders of Acquisition Corp.
Any estimates contained in the analyses performed by Merrill Lynch are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
Additionally, estimates of the value of businesses or securities do not purport
to be appraisals or to reflect the prices at which such businesses or securities
might actually be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty. In addition, as described above, the Merrill
Lynch Opinion was among several factors taken into consideration by the Board in
making its determination to approve the Merger Agreement and the Merger.
Consequently, the Merrill Lynch analyses described below should not be viewed as
determinative of the decision of the Board with respect to the fairness of the
Cash Price.
Merrill Lynch was not asked to and did not express any opinion with respect
to the fairness, from a financial point of view, of the shares of Common Stock
to be retained by the Management Stockholders or other Stockholders who elect to
retain shares of Common Stock. In rendering its opinion, Merrill Lynch
43
<PAGE>
evaluated the Company on a pro forma basis after giving effect to the proposed
acquisition of XSL. However, the Merrill Lynch Opinion does not constitute an
opinion on the fairness or any other aspect of the XSL Acquisition itself.
Furthermore, in rendering its opinion, due to the speculative nature of the
existing put-call arrangements relating to XSL, XSG and XSSA (the "Put-Call
Agreements"), Merrill Lynch evaluated the Company without regard to any aspect
of the Put-Call Agreements. Merrill Lynch rendered its opinion as if the XSL
Acquisition had been consummated and the Put-Call Agreements were not
contemplated or consummated, and the Merrill Lynch Opinion does not take into
consideration the potential financial ramifications to the Company of the
Put-Call Agreements, including any element of value associated therewith.
In arriving at its opinion, Merrill Lynch, among other things, (i) reviewed
certain publicly available business and financial information relating to the
Company which Merrill Lynch deemed to be relevant, (ii) reviewed certain
information, including financial forecasts, relating to the business, earnings,
cash flow, assets, liabilities and prospects of the Company (including after
giving effect to the XSL Acquisition), furnished to Merrill Lynch by the
Company, (iii) reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and prospects
of XSL, furnished to Merrill Lynch by the Company and XSL, (iv) conducted
discussions with members of senior management and representatives of the Company
concerning the matters described in clauses (i), (ii) and (iii) above, (v)
conducted discussions with members of senior management and representatives of
XSL concerning the matters described in clause (iii) above, (vi) reviewed the
market prices and valuation multiples for the Common Stock and compared them
with those of certain publicly traded companies which Merrill Lynch deemed to be
relevant, (vii) reviewed the results of operations of the Company (including
after giving effect to the XSL Acquisition) and compared them with those of
certain publicly traded companies which Merrill Lynch deemed to be relevant,
(viii) compared the proposed financial terms of the Merger with the financial
terms of certain other transactions which Merrill Lynch deemed to be relevant,
(ix) participated in certain discussions and negotiations among representatives
of the Company and Acquisition Corp. and their financial and legal advisers, (x)
reviewed a draft of the Merger Agreement and (xi) reviewed such other financial
studies and analyses and took into account such other matters as Merrill Lynch
deemed necessary, including Merrill Lynch's assessment of general economic,
market and monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to
Merrill Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly
available, and Merrill Lynch did not assume any responsibility for independently
verifying such information and Merrill Lynch has not undertaken an independent
evaluation or appraisal of any of the assets or liabilities of the Company
(including after giving effect to the XSL Acquisition) or been furnished with
any such evaluation or appraisal. In addition, Merrill Lynch did not assume any
obligation to conduct any physical inspection of the properties or facilities of
the Company (including after giving effect to the XSL Acquisition). With respect
to the financial forecast information furnished to or discussed with Merrill
Lynch by the Company or XSL, Merrill Lynch assumed that they have been
reasonably prepared and reflect the best currently available estimates and
judgment of the Company's or XSL's management as to the expected future
financial performance of the Company (including after giving effect to the XSL
Acquisition). Based upon consultations with representatives of the Company,
Merrill Lynch assumed that XSL's financial data prepared in accordance with
United Kingdom generally accepted accounting principles did not require material
adjustments to conform to United States generally accepted accounting principles
for purposes of Merrill Lynch's presentation of the pro forma financial analyses
with respect to the XSL Acquisition. Merrill Lynch also assumed that the final
form of the Merger Agreement would be substantially similar to the last draft it
reviewed. The Merrill Lynch Opinion is necessarily based upon market, economic
and other conditions as they existed on, and could be evaluated as of, the date
of such opinion.
The following is a brief summary of the material analyses presented by
Merrill Lynch to the Board in connection with the rendering of the Merrill Lynch
Opinion.
44
<PAGE>
VALUATION OF XPEDITE
COMPARABLE PUBLIC COMPANY ANALYSIS. Merrill Lynch concluded that there were
no publicly-traded enhanced fax services providers comparable to the Company
other than FaxSav, Inc., which, due to its relatively small market
capitalization, could not be considered a good comparable company. As a proxy
for publicly traded companies comparable to the Company, Merrill Lynch compared
certain financial and operating information and multiples for the Company with
corresponding financial and operating information and multiples for a group of
publicly-traded long-distance resellers which exhibited properties similar to
the Company as value-added resellers of communications services. These companies
included ACC Corp., EXCEL Communications, Inc., LCI International, Inc. and
Tel-Save Holdings, Inc. (collectively, the "Public Comparables"). Based on
information from certain publicly available research reports and analysts'
forecasts, Merrill Lynch compared the (i) outstanding public float for the
Public Comparables, which ranged from $368 million to $1,780 million, to the
Company's public float of $73 million, (ii) last twelve months ("LTM") earnings
before interest, taxes, depreciation and amortization ("EBITDA") margin for the
Public Comparables, which ranged from 8.7% to 19%, to the Company's LTM EBITDA
margin of 20.5% (calculated on a stand-alone basis before giving effect to the
XSL Acquisition), (iii) 5-year estimated earnings growth rate, based on research
estimates, for the Public Comparables, which ranged from 20% to 32%, to the
Company's 5-year estimated earnings growth rate, based on research estimates, of
22% (calculated on a stand-alone basis before giving effect to the XSL
Acquisition), (iv) 1997 estimated EBITDA trading multiples for the Public
Comparables, which ranged from 8.1x to 20.4x, to the Company's 1997 estimated
EBITDA trading multiple of 6.7x, (calculated on a stand-alone basis before
giving effect to the XSL Acquisition), (v) 1997 estimated net income trading
multiples for the Public Comparables, which ranged from 16.4x to 33.5x, to the
Company's 1997 estimated net income trading multiple of 15.3x (calculated on a
stand-alone basis before giving effect to the XSL Acquisition) and (vi) 1998
estimated net income trading multiples for the Public Comparables, which ranged
from 13.1x to 23.7x, to the Company's 1998 estimated net income trading multiple
of 11.9x (calculated on a stand-alone basis before giving effect to the XSL
Acquisition). Merrill Lynch also compared historical multiples of one year
forward looking earnings per share for the Public Comparables, which averaged
28.6x, to the Company's historical multiples of one year forward looking
earnings per share of 16.7x (calculated on a stand-alone basis before giving
effect to the XSL Acquisition).
Merrill Lynch also compared the ratio of the 1997 estimated price to
earnings ratio to the 5-year growth rate (the "P/E to Growth Rate Ratio") for
the Public Comparables (based on certain information provided by IBES), which
ranged from 82% to 112%, to the Company's P/E to Growth Rate Ratio of 70%.
Merrill Lynch noted that the Public Comparables typically trade at a multiple of
forward earnings representing a discount to their expected long-term earnings
growth rate. Due to a number of qualitative considerations regarding the Company
and the market for enhanced fax services, Merrill Lynch determined that it was
reasonable to expect that the Company would trade at a greater discount to its
expected 5-year earnings growth rate than the Public Comparables.
Merrill Lynch calculated a range of implied per share equity trading values
for the Common Stock based on 1997 pro forma earnings per share of $1.80 (giving
effect to the XSL Acquisition), a range of long-term compounded annual "core"
earnings growth rates representing growth in earnings before interest and taxes
("Compounded Annual Core Earnings Growth Rates") of 12.5% to 22.5% and a range
of P/E to Growth Rate Ratios of 60% to 80%. The range of Compounded Annual Core
Earnings Growth Rates was determined by Merrill Lynch from its review of the pro
forma projected long-term compounded annual "core" earnings growth rates
resulting from the Company's acquisition of XSL which were based on the Scenario
A Pro Forma Projections, the Scenario B Pro Forma Projections and the Scenario C
Pro Forma Projections (all as defined below under "Valuation of Xpedite
- --Discounted Cash Flow Analysis"). Merrill Lynch also calculated a range of
implied price to earnings multiples ("P/E Multiples") for the Common Stock based
on these parameters. The summary reference range of per share values for the
Common Stock resulting from the analysis was $19.75 to $25.25 (representing P/E
Multiples of 11.0x to
45
<PAGE>
14.0x 1997 estimated earnings per share, pro forma for the XSL Acquisition, of
$1.80) as compared to the Cash Price of $23.25.
Due to the lack of comparable publicly-traded enhanced fax services
providers, Merrill Lynch compared the Company with publicly-traded resellers of
long-distance communications services in its analysis. An analysis of the
results of such a comparison is not purely mathematical; rather, it involves
complex considerations and judgments concerning differences in historical and
projected financial and operating characteristics of the comparable companies
and other factors that could affect the value of such companies and the Company,
including the differences between the enhanced fax services industry and the
long-distance resellers industry.
COMPARABLE ACQUISITION TRANSACTION ANALYSIS. Merrill Lynch reviewed certain
publicly available information regarding 14 selected long-distance
communications and enhanced fax services related acquisitions and calculated
trailing twelve-months EBITDA multiples, earnings before interest and taxes
("EBIT") multiples and revenue multiples for such acquisitions. Among the 14
selected acquisitions, the analysis indicated transaction value as a multiple of
(i) trailing twelve-month EBITDA ranging from 6.8x to 18.7x with a mean of
11.9x, (ii) trailing twelve-month EBIT ranging from 6.2x to 22.4x with a mean of
14.4x and (iii) trailing twelve-month revenues ranging from 0.60x to 2.87x with
a mean of 1.57x. Based on its comparison of such multiples, placing particular
significance on the multiples of the proposed XSL Acquisition, Merrill Lynch
calculated a summary reference range of implied per share values of the Common
Stock of $20.00 to $26.50 as compared to the Cash Price of $23.25.
No company utilized in the comparable transaction analysis was identical to
the Company. Accordingly, an analysis of the results of this comparison is not
purely mathematical; rather, it involves complex considerations and judgments
primarily concerning differences in historical and projected financial,
operating and trading characteristics of the companies involved in such other
transactions and the circumstances surrounding such transactions.
DISCOUNTED CASH FLOW ANALYSIS. Using a discounted cash flow methodology,
Merrill Lynch calculated a range of implied per share values for the Common
Stock based on (i) a range of terminal EBITDA multiples of 5.5x to 7.5x, (ii) a
range of cash flow perpetuity rates of 4.0% to 6.0% and (iii) a range of
discount rates of 14% to 16%. Based on the Company's "base-case" and XSL's
"management case" projections ("Scenario A Pro Forma Projections"), Merrill
Lynch calculated a summary reference range of implied per share values for the
Common Stock of $22.50 to $35.50. Based on the Company's "base-case" and XSL's
"more conservative case projections" ("Scenario B Pro Forma Projections"),
Merrill Lynch calculated a summary reference range of implied per share values
for the Common Stock of $20.75 to $33.00. Based on the Company's "more
conservative case" and XSL's "more conservative case" projections ("Scenario C
Pro Forma Projections"), Merrill Lynch calculated a summary reference range of
implied per share values for the Common Stock of $15.50 to $25.25.
LBO FEASIBILITY ANALYSIS. Merrill Lynch calculated certain pro forma credit
statistics for the Company based on the MBO Proposal pro forma capital structure
for the Company following the Merger. Based on pro forma financial results
(giving effect to the XSL Acquisition) for the last twelve months ending June
30, 1997 and the Company pro forma management estimates (giving effect to the
XSL Acquisition) for the last twelve months ending December 31, 1997, Merrill
Lynch calculated (i) earnings before interest, taxes, depreciation and
amortization ("EBITDA") as a multiple of total interest of approximately 1.8x
and 2.1x, respectively, (ii) EBITDA minus capital expenditures as a multiple of
total interest of approximately 1.4x and 1.7x, respectively, (iii) senior
indebtedness as a multiple of EBITDA of approximately 2.3x and 2.0x,
respectively and (iv) total indebtedness as a multiple of EBITDA of 5.7x and
5.0x, respectively.
Merrill Lynch also calculated ranges of implied 5-year equity returns for
the Common Stock based Scenario A Projections, Scenario B Projections and
Scenario C Projections of (i) 36% to 39%, 32% to 35%
46
<PAGE>
and 18% to 21%, respectively, based on a terminal EBITDA multiple of 5.5x and
(ii) 49% to 52%, 46% to 49% and 33% to 36%, respectively, based on a terminal
EBITDA multiple of 7.5x.
Based on its analysis of leveraged buyout feasibility utilizing such credit
statistics and 5-year equity returns, Merrill Lynch calculated a summary
reference range implied per share values of the Common Stock of $21.00 to $25.00
as compared to the Cash Price of $23.25.
HISTORICAL TRADING OBSERVATIONS. Merrill Lynch observed the historical
stock price for the Common Stock from January 1, 1995 to August 8, 1997. Merrill
Lynch calculated that the Cash Price of $23.25 represented (x) a premium of (i)
55% over the February 14, 1994 IPO price of $15.00, (ii) 18% over the twelve
month average historical closing price of $19.70, (iii) 0% over the 52 week high
price on November 6, 1996 of $23.25, (iv) 24.8% over the closing price on July
3, 1997 of $18.63, and (v) 7.5% over the closing price on August 7, 1997 of
$21.63, and (y) a discount of 16.2% under the all time high closing price on
July 3, 1996 of $27.75.
LEVERAGED RECAPITALIZATION ANALYSIS. Merrill Lynch analyzed the effects of
a leveraged recapitalization accomplished through a share repurchase on the
Company's financial condition and results of operations (pro forma for the XSL
Acquisition). For purposes of its analysis, Merrill Lynch assumed (i) a pro rata
repurchase of 50% of the outstanding shares of Common Stock at a price of
$23.25, (ii) a range of estimated 1997 P/E multiples for the remaining
outstanding equity of 10.0x to 13.0x representing a discount to the assumed
public market valuation range of 11.0x to 14.0x due to the significant reduction
in public float and liquidity and (iii) estimated pro forma 1997 earnings per
share of $1.81 (after giving effect to the leveraged recapitalization) based on
Scenario A Pro Forma Projections. Based on such parameters, Merrill Lynch
calculated a summary reference range of implied per share values of the Common
Stock of $20.75 to $23.50 as compared to the Cash Price of $23.25.
Pursuant to a letter agreement between the Company and Merrill Lynch, the
Company agreed to pay Merrill Lynch (i) a fee of $100,000 payable on the date of
the letter agreement, (ii) a fee in the amount of $750,000 payable upon the
closing of the XSL Acquisition or certain other business combinations involving
the Company or its affiliates and XSL, (iii) a fee in the amount of $500,000
payable upon the consummation of a recapitalization transaction, provided that
such a fee will be reduced by any fee paid pursuant to clause (i), and (iv) an
additional fee in an amount equal to 0.75% of the aggregate purchase price paid
in the Merger or certain other business combinations involving the Company,
payable upon the closing of the Merger or such other business combination,
provided that any fee paid pursuant to clause (iv) will be reduced by (A) the
portion of any fee paid to Merrill Lynch pursuant to clause (ii) above in excess
of $500,000 and (B) any fee paid pursuant to clause (iii) provided, however,
that if no fee has been paid pursuant to clause (iii), then the fee paid
pursuant to clause (i) in lieu thereof. Pursuant to such letter agreement, the
Company also agreed to reimburse Merrill Lynch for its reasonable out-of-pocket
expenses, including certain reasonable fees and disbursements of its legal
counsel. Additionally, the Company agreed to indemnify Merrill Lynch and certain
related persons for certain liabilities related to or arising out of its
engagement, including liabilities under the federal securities laws.
The Company retained Merrill Lynch based upon Merrill Lynch's experience and
expertise. Merrill Lynch is an internationally recognized investment banking and
advisory firm. Merrill Lynch, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes.
Merrill Lynch may provide financial advisory and financing services to the
Surviving Corporation and/ or its affiliates and may receive fees for the
rendering of such services. In the ordinary course of its business, Merrill
Lynch and its affiliates may actively trade the debt and equity securities of
the Company for their own account and for the accounts of customers and, may at
any time hold a long or short position in such securities.
47
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain material United States federal
income tax considerations generally applicable to the Merger under currently
applicable law. The tax treatment described herein may vary depending upon each
Stockholder's particular circumstances and tax position. Certain Stockholders
(including insurance companies, tax-exempt organizations, financial institutions
or broker-dealers, foreign corporations, persons who are not citizens or
residents of the United States ("U.S."), Stockholders who do not hold their
shares as capital assets and Stockholders who have acquired their existing
Common Stock upon the exercise of options or otherwise as compensation) may be
subject to special rules not discussed below. No ruling from the Internal
Revenue Service ("IRS") will be applied for with respect to the federal income
tax consequences discussed herein and, accordingly, there can be no assurance
that the IRS will agree with the conclusions stated herein. The discussion below
is based upon the provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), and regulations, rulings and judicial decisions thereunder as of
the date hereof, and such authorities may be repealed, revoked or modified so as
to result in U.S. federal income tax consequences different from those discussed
below. In addition, this discussion does not consider the effect of any
applicable foreign, state, local or other tax laws.
The Taxpayer Relief Act of 1997 (the "1997 Act") was recently enacted and
contains an assortment of sometimes complex changes to the Code, some of which
could affect the Stockholders. For example, under the 1997 Act, net gains of
individuals from the sale or exchange of capital assets held for more than 18
months are generally taxed at a maximum rate of 20 percent, while net capital
gains of individuals from capital assets held more than one year, but less than
18 months, are taxed at a maximum rate of 28 percent.
EACH STOCKHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY FOREIGN, STATE, LOCAL OR OTHER TAX LAWS.
CHARACTERIZATION OF THE MERGER FOR U.S. FEDERAL INCOME TAX PURPOSES
For U.S. federal income tax purposes, Acquisition Corp. should be
disregarded as a transitory entity, and the Merger of Acquisition Corp. with and
into the Company should be treated as a sale of a portion of a tendering
Stockholder's Common Stock to Acquisition Corp.'s stockholders (the "Acquisition
Corp. Common Stockholders") and as a redemption of a portion of the
Stockholder's Common Stock by the Company. It is unclear how the allocation of
proceeds between the sale and redemption should be determined. The Company
intends to take the position that the percentage of a Stockholder's Common Stock
disposed of by the Stockholder pursuant to the Merger which will be treated as
sold to the Acquisition Corp. Common Stockholders will be a percentage of such
Common Stock equal to (i) the amount contributed to Acquisition Corp. by the
Acquisition Corp. Common Stockholders in exchange for Acquisition Corp. stock
divided by (ii) the aggregate amount of cash paid to Stockholders pursuant to
the Merger. The remainder of the Stockholder's Common Stock disposed of in the
Merger will be treated as redeemed by the Company. The IRS could, however, adopt
a different approach in determining the portion, if any, of a Stockholder's
Common Stock which is treated as redeemed by the Company. See
"-- Stockholders Receiving Cash" below for a discussion of the consequences of
cash being deemed paid in redemption of Common Stock.
STOCKHOLDERS RECEIVING CASH
As described more fully below, the U.S. federal income tax consequences of
the Merger with respect to a particular Stockholder will depend upon, among
other things, (i) whether the Stockholder received any cash proceeds pursuant to
the Merger, (ii) the extent to which a Stockholder is deemed to have sold his or
her Common Stock to Acquisition Corp. Common Stockholders or is deemed to have
had his or her Common Stock redeemed by the Company and (iii) whether the
redemption of a holder's Common Stock by the Company will qualify as a sale or
exchange under Section 302 of the Code. First, to the extent that a
48
<PAGE>
Stockholder is considered to have sold Common Stock to the Acquisition Corp.
Common Stockholders, such Stockholder will recognize either capital gain or loss
(assuming the Common Stock is held by such Stockholder as a capital asset) equal
to the difference between the amount realized on his or her deemed sale of
Common Stock to the Acquisition Corp. Common Stockholders (i.e., the cash
proceeds properly allocated to such sale) and the Stockholder's adjusted tax
basis in such Common Stock. Such gain or loss generally will be long-term
capital gain or loss if the Common Stock is held as a capital asset by the
Stockholder for more than one year (and under the 1997 Act, a lower capital
gains tax rate will apply for any Stockholder who is an individual who has held
such Common Stock for more than 18 months). Second, a Stockholder also will
recognize either capital gain or loss equal to the difference between the cash
proceeds allocable to the redemption of such Stockholder's Common Stock by the
Company and the Stockholder's adjusted tax basis in such Common Stock, to the
extent such redemption is treated as a sale or exchange under Section 302 of the
Code with respect to such Stockholder. Such gain or loss generally will be
long-term capital gain or loss if the Common Stock is held as a capital asset by
the Stockholder for more than one year (and under the 1997 Act, a lower capital
gains tax rate will apply for any Stockholder who is an individual who has held
such Common Stock for more than 18 months). Under Section 302 of the Code, a
redemption of Common Stock pursuant to the Merger will, as a general rule, be
treated as a sale or exchange if such redemption (a) is "substantially
disproportionate" with respect to the Stockholder, (b) results in a "complete
redemption" of the Stockholder's interest in the Company or (c) is "not
essentially equivalent to a dividend" with respect to the Stockholder.
In determining whether any of these Section 302 tests is satisfied,
Stockholders must take into account not only the Common Stock that they actually
own, but also any Common Stock they are deemed to own under the constructive
ownership rules set forth in Section 318 of the Code. Pursuant to these
constructive ownership rules, a Stockholder is deemed to constructively own any
Common Stock that is owned by certain related individuals or entities and any
Common Stock that the Stockholder has the right to acquire by exercise of an
option or by conversion or exchange of a security.
The redemption of a Stockholder's Common Stock will be "substantially
disproportionate" with respect to such Stockholder if, among other things, the
percentage of the outstanding Common Stock actually and constructively owned by
such Stockholder immediately following the Merger is less than 80% of the
percentage of the outstanding Common Stock actually and constructively owned by
such Stockholder immediately prior to the Merger. STOCKHOLDERS SHOULD CONSULT
THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE "SUBSTANTIALLY
DISPROPORTIONATE" TEST TO THEIR PARTICULAR FACTS AND CIRCUMSTANCES.
The redemption of a Stockholder's Common Stock will result in a "complete
redemption" of a Stockholder's interest in the Company if either (a) all the
Common Stock actually and constructively owned by the Stockholder is redeemed
pursuant to the Merger or (b) all the Common Stock actually owned by the
Stockholder is redeemed pursuant to the Merger and the Stockholder is eligible
to waive, and does effectively waive in accordance with Section 302(c) of the
Code, attribution of all Common Stock which otherwise would be considered to be
constructively owned by such Stockholder.
Even if the redemption of a Stockholder's Common Stock fails to satisfy the
"substantially disproportionate" test or the "complete redemption" test
described above, the redemption of a Stockholder's Common Stock may nevertheless
satisfy the "not essentially equivalent to a dividend" test if the Stockholder's
redemption of Common Stock pursuant to the Merger results in a "meaningful
reduction" in such Stockholder's proportionate Common Stock interest in the
Company. Whether the receipt of cash by a Stockholder will be considered "not
essentially equivalent to a dividend" will depend upon such Stockholder's facts
and circumstances. In certain circumstances, even a small reduction in a
Stockholder's proportionate equity interest may satisfy this test. For example,
the IRS has indicated in a published ruling that a 3.3% reduction in the
proportionate equity interest of a small (substantially less than 1%)
stockholder in a publicly held corporation who exercises no control over
corporate affairs constitutes such
49
<PAGE>
a "meaningful reduction." STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX
ADVISORS AS TO THE APPLICATION OF THIS TEST IN THEIR PARTICULAR SITUATION.
A Stockholder may not be able to satisfy any of the above three tests
because of contemporaneous acquisitions of Common Stock by such Stockholder or a
related party whose Common Stock would be attributed to such Stockholder under
Section 318 of the Code. STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF SUCH ACQUISITION OF COMMON STOCK IN THEIR
PARTICULAR CIRCUMSTANCES.
If a Stockholder cannot satisfy any of the three tests described above and
to the extent the Company has sufficient current and/or accumulated earnings and
profits, such Stockholder will be treated as having received a dividend which
will be includible in gross income (and treated as ordinary income) in an amount
equal to the cash received (without regard to gain or loss, if any).
In the case of a corporate Stockholder, if the cash paid is treated as a
dividend, such dividend income may be eligible for the 70% dividends-received
deduction. The dividends-received deduction is subject to certain limitations,
and may not be available if the corporate Stockholder does not satisfy certain
holding period requirements with respect to the Common Stock or if the Common
Stock is treated as "debt financed portfolio Common Stock" within the meaning of
Section 246A(c) of the Code. Additionally, if a dividends-received deduction is
available, the dividend may be treated as an "extraordinary dividend" under
Section 1059(a) of the Code, in which case a corporate Stockholder's adjusted
tax basis in the Common Stock retained by such Stockholder would be reduced, but
not below zero, by the amount of the nontaxed portion of such dividend. Under
the 1997 Act, any amount of the nontaxed portion of the dividend in excess of
the corporate Stockholder's adjusted tax basis generally will be treated as gain
from the sale or exchange of the Common Stock for the taxable year in which the
extraordinary dividend is received. CORPORATE STOCKHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE EFFECT OF SECTION 1059 OF THE CODE ON THE
ADJUSTED TAX BASIS OF THEIR COMMON STOCK.
STOCKHOLDERS RETAINING COMMON STOCK AND RECEIVING NO CASH
The Merger will have no U.S. federal income tax consequences for
Stockholders who retain their Common Stock and receive no cash. Accordingly, a
Stockholder will not recognize any gain or loss on any Common Stock retained by
such Stockholder.
STOCKHOLDERS RETAINING A PORTION OF THEIR COMMON STOCK AND RECEIVING CASH
If a Stockholder who elects to retain his or her shares of Common Stock
receives cash in exchange for some portion of his or her Common Stock by virtue
of the proration procedure, the tax treatment of the Stockholder's receipt of
such cash will be the same as set forth above under "-- Stockholders Receiving
Cash."
As described above under "-- Stockholders Retaining Common Stock and
Receiving No Cash," the Merger will have no tax consequences to a Stockholder
(and, thus, a Stockholder will not recognize any gain or loss as a result of the
Merger), to the extent such Stockholder retains Common Stock. However, as
described more fully above under "-- Stockholders Receiving Cash," a
Stockholder's retention of Common Stock may, under certain circumstances, cause
the cash received by such Stockholder pursuant to the Merger to be treated as a
dividend for U.S. federal income tax purposes.
FOREIGN STOCKHOLDERS -- WITHHOLDING
The following is a general discussion of certain U.S. federal income tax
consequences of the Merger to foreign Stockholders. For this purpose, a foreign
Stockholder is any person who is, for U.S. federal income
50
<PAGE>
tax purposes, a foreign corporation, a non-resident alien individual, a foreign
partnership or a foreign estate or trust.
In the case of any foreign Stockholder, the Exchange Agent will withhold 30%
of the amount paid to redeem the Common Stock of such Stockholder in order to
satisfy certain U.S. withholding requirements, unless such foreign Stockholder
proves in a manner satisfactory to the Company and the Exchange Agent that
either (i) the redemption of his or her Common Stock pursuant to the Merger will
qualify as a sale or exchange under Section 302 of the Code, rather than as a
dividend for U.S. federal income tax purposes, in which case no withholding will
be required, (ii) the foreign Stockholder is eligible for a reduced tax treaty
rate with respect to dividend income, in which case the Exchange Agent will
withhold at the reduced treaty rate or (iii) no U.S. withholding is otherwise
required.
FOREIGN STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE
APPLICATION OF THESE WITHHOLDING RULES.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the IRS and to each Stockholder the
amount of dividends paid to such Stockholder and the backup withholding tax, if
any, withheld with respect to such dividends. Copies of these information
returns also may be made available to the tax authorities in the country in
which a foreign Stockholder resides under the provisions of an applicable income
tax treaty. Backup withholding (which generally is a withholding tax imposed at
the rate of 31% on certain payments to persons that fail to furnish certain
information under the United States information reporting requirements)
generally will not apply to dividends paid to a foreign Stockholder at an
address outside the United States (unless the payor has knowledge that the payee
is a U.S. person).
Payment of the proceeds of a sale of Common Stock by or through a United
States office of a broker is subject to both backup withholding and information
reporting unless the beneficial owner certifies under penalties of perjury that
it is a foreign Stockholder and the payor does not have actual knowledge that
such owner is a U.S. person, or otherwise establishes an exemption. In general,
backup withholding and information reporting will not apply to a payment of the
proceeds of a sale of Common Stock by or through a foreign office of a broker.
If, however, such broker is, for United States federal income tax purposes, a
U.S. person, a controlled foreign corporation, or a foreign person that derives
50% or more of his or her gross income for certain periods from the conduct of a
trade or business in the United States, such payments will not be subject to
backup withholding but will be subject to information reporting, unless (1) such
broker has documentary evidence in its records that the beneficial owner is a
foreign holder and certain other conditions are met, or (2) the beneficial owner
otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against the holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
The backup withholding and information reporting rules are currently under
review by the Treasury Department and their application to the Common Stock
could be changed by future regulations.
THOUGH THE FOREGOING ARE CERTAIN MATERIAL U.S. FEDERAL INCOME TAX
CONSIDERATIONS GENERALLY APPLICABLE TO THE MERGER, THE DISCUSSION DOES NOT
ADDRESS EVERY FEDERAL INCOME TAX CONCERN WHICH MAY BE APPLICABLE TO A PARTICULAR
STOCKHOLDER. EACH STOCKHOLDER IS URGED TO CONSULT SUCH STOCKHOLDER'S OWN TAX
ADVISOR TO DETERMINE THE TAX CONSEQUENCES TO SUCH STOCKHOLDER, IN THE LIGHT OF
HIS OR HER PARTICULAR CIRCUMSTANCES, OF THE DISPOSITION OF COMMON STOCK PURSUANT
TO THE MERGER.
51
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and executive officers of the Company have interests,
described herein, that may present them with potential conflicts of interest in
connection with the Merger. The Board of Directors is aware of the conflicts
described below and considered them in addition to the other matters described
under "The Merger -- Recommendation of the Board of Directors; Reasons for the
Merger."
Each of the members of the Board of Directors, the Management Stockholders,
the Patricof Stockholders and the Epstein Stockholders have agreed pursuant to
an individual Voting Agreement with Acquisition Corp. to vote his or its shares
of Common Stock in favor of adoption of the Merger Agreement, the Merger and the
Charter Amendment. In addition, the Management Stockholders have agreed that
they will exchange 643,569 shares of Common Stock owned by them for shares of
Class B Common Stock (on a one-for-one basis), provided that the Charter
Amendment is approved and adopted by the Stockholders. An aggregate of 322,709
of such shares of Class B Common Stock will be sold to the Investors for cash at
a price per share equal to the Cash Price and an aggregate of 320,860 of such
shares will be retained by the Management Stockholders. At the Effective Time,
each share of Class B Common Stock will automatically be converted into the
right to receive one share of Common Stock of the Surviving Corporation.
Pursuant to the Merger Agreement, the Surviving Corporation has agreed to
indemnify all present directors and officers of the Company and its subsidiaries
for six years after the Effective Time and will maintain during such period, if
available, a directors' and officers' insurance policy with respect to such
indemnification containing terms comparable to that applicable as of August 8,
1997 to directors and officers of the Company.
In 1996, the Company adopted the Officers' Plan. Pursuant to the Officers'
Plan, options exercisable for a maximum aggregate of 200,000 shares of Common
Stock were granted to certain members of the Company's senior management,
including the Management Stockholders. The options authorized under the
Officers' Plan were to be granted in two equal tranches upon the Common Stock
attaining and maintaining certain specified market prices. The Tranche 1 Options
were granted upon the Common Stock attaining and maintaining a price of $22.50
or more during 1996, as follows: Mr. Andersen -- 40,000 shares; Mr. Schmaltz --
20,000 shares; Mr. Slifer -- 20,000 shares; and a former officer of the Company
- -- 12,500 shares. Options for an additional 100,000 Tranche 2 Options were to be
granted upon the Company attaining and maintaining a price of $30.00 or more
during 1997. In April 1997, the Board adopted resolutions to amend the Officers'
Plan to eliminate the Tranche 2 Options, and in lieu thereof, the Bonus Plan was
implemented. The approximate total bonus to be paid to each of the Management
Stockholders pursuant to the Bonus Plan as a result of the Merger is as follows:
Mr. Andersen -$521,000; Mr. Vaters -- $423,000; Mr. Schmaltz -- $193,000; Mr.
Slifer -- $199,000; and Mr. DeVita -- $195,000. Cash bonuses payable to other
employees will be approximately $860,000 in the aggregate.
The Directors' Plan provides for the issuance by the Company of warrants to
purchase 25,000 shares of Common Stock at a purchase price of $17.50 per share
to non-employee directors of the Company. Pursuant to the Directors' Plan,each
of Messrs. Baker, Campbell, Chefitz and Epstein were granted warrants to
purchase 25,000 shares of Common Stock.
Robert Chefitz, a member of the Board of Directors who is also a general
partner or executive officer of each of the Patricof Stockholders, owns an
interest in the Patricof Stockholders. Mr. Chefitz also owns an indirect profits
interest in APAX Ventures IV and APAX Ventures IV International Partners LP
(collectively, the "APAX Funds"), which in turn own shares of XSL. Mr. Chefitz
has not participated and does not participate in the management of the APAX
Funds. The Patricof Stockholders and the APAX Funds, respectively, have or have
had investments in businesses other than the Company and XSL; accordingly, the
value to Mr. Chefitz of his interest in the Patricof Stockholders and the APAX
Funds, is dependent in part upon the performance of such other investments, and
cannot be calculated at this time.
52
<PAGE>
John C. Baker, a member of the Board of Directors, is a former general
partner or executive officer of each of the Patricof Stockholders. Mr. Baker
retains an interest in the Patricof Stockholders. The Patricof Stockholders have
or have had investments in businesses other than the Company; accordingly, the
value to Mr. Baker of his interest in the Patricof Stockholders is dependent in
part on the performance of such other investments, and cannot be calculated at
this time.
As members of the Special Committee of the Company, Messrs. Campbell and
Chefitz are each entitled to a fee equal to $25,000 plus $1,500 for each eight
hours of time which such Special Committee member devoted to the business of the
Special Committee. The aggregate amount of such fees payable is expected to be
approximately $200,000.
Each of the Management Stockholders will enter into new employment
agreements with the Company which will take effect upon consummation of the
Merger. The new employment agreements will replace such Management Stockholders'
existing employment agreements with the Company. The terms of such new
employment agreements have not yet been finalized.
In the event the Merger is consummated, the Company will pay up to $25,000
of the Management Stockholders' aggregate legal and accounting fees incurred in
connection with entering into the new employment agreements.
It is anticipated that after the Merger the Company will establish a
management option plan, pursuant to which it will grant to the Management
Stockholders (i) Performance Options to purchase up to an aggregate of
approximately 11.5% of the outstanding common stock of the Company (including
shares to be received upon exercise of Time-Vested Options) and (ii) Time-Vested
Options to purchase up to an aggregate of 3.5% of the outstanding common stock
of the Company (not including shares to be received upon exercise of Performance
Options). The Performance Options will be granted in two categories. Performance
Options to purchase up to an aggregate of 8.0% of the outstanding common stock
of the Company ("Class I Options") will vest over a five-year period based on
the attainment of specified EBITDA targets. Any Class I Options that do not vest
in the five-year period will vest at the end of seven years. Performance Options
to purchase up to an aggregate of 3.5% of the outstanding common stock of the
Company ("Class II Options") will vest as the Investors realize specified rates
of return on their investment in the Company. In the event the Investors do not
realize such specified rates of return, Class II Options will vest at the end of
seven years. Time-Vested Options will vest ratably on an annual basis over the
four-year period following the Merger or upon a change of control of the
Company, if earlier. The Performance Options will have an exercise price of
$24.09 and the Time-Vested Options will have a nominal exercise price. All
Options will expire at the end of ten years.
It is also anticipated that each of the Management Stockholders will enter
into a stockholders agreement with the Company and the Investors which will
contain provisions regarding corporate governance and restrictions on transfer
of Common Stock held by the Management Stockholders.
REGULATORY APPROVALS
Under the HSR Act and the rules promulgated thereunder by the (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 , 1997, the Company and certain
stockholders of Acquisition Corp. filed Notification and Report Forms under the
HSR Act with the FTC and the Antitrust Division. On , 1997, the FTC and
the Antitrust Division granted early termination of the waiting period under the
HSR Act with respect to the Merger effective immediately.
53
<PAGE>
THE MERGER AGREEMENT
The following is a summary of the Merger Agreement, a copy of which is
attached hereto as Appendix A and incorporated by reference herein. All
references to and summaries of the Merger Agreement in this Proxy Statement are
qualified in their entirety by reference to the Merger Agreement. Stockholders
are urged to read the Merger Agreement carefully and in its entirety.
MERGER CONSIDERATION
Subject to certain provisions as described herein with respect to shares of
Common Stock owned by the Company, any subsidiary of the Company, and with
respect to fractional shares, Dissenting Shares and the newly authorized shares
of Class B Common Stock that will be issued in exchange for certain shares of
Common Stock owned by the Management Stockholders, and subject to the effects of
proration as described herein, at the Effective Time (i) each issued and
outstanding share of Common Stock (other than Electing Shares as defined below)
will be converted into the right to receive in cash from the Company following
the Merger an amount equal to $23.25 and (ii) each issued and outstanding share
of Common Stock with respect to which an election to retain Common Stock has
been made and not revoked or lost in accordance with the Merger Agreement will
be converted into the right to retain one Non-Cash Election Share; subject to
the limitation that the aggregate number of Non-Cash Election Shares will be
205,000. With respect to certain risks related to the retention of Common Stock,
see "RISK FACTORS" above.
Immediately prior to the Merger, upon the approval and filing of the Charter
Amendment, the Management Stockholders will exchange 643,569 shares of Common
Stock for the same number of shares of Class B Common Stock, 322,709 of which
shares of Class B Common Stock will be acquired by the Investors for a price per
share equal to $23.25 immediately prior to the Merger and the remainder of which
will be retained by such Management Stockholders, and the Investors will
purchase from the Company 2,162,183 shares of Class B Common Stock for a
purchase price per share of $23.25. All such shares of Class B Common Stock will
be converted into Surviving Corporation Common Stock in the Merger on a
one-for-one basis.
The Merger contemplates that the aggregate number of shares of Common Stock
to be retained by existing Stockholders in the Merger is 205,000. In the event
holders of more than 205,000 shares elect to retain their shares, the number of
shares to be retained by such Stockholders will be reduced on a pro rata basis
to an aggregate of 205,000 shares and such Stockholders will receive $23.25 per
share in cash for the balance of their shares of Common Stock. See "Risk Factors
- -- Certain Proration Risks."
Fractional shares of Common Stock will not be issued in the Merger. Holders
of Common Stock otherwise entitled to a fractional share of Common Stock
following the Merger will be paid cash in lieu of such fractional share
determined and paid as described under "-- Fractional Shares" below.
Any shares of Common Stock held in the Company's treasury will automatically
be cancelled at the Effective Time and will cease to exist.
In the Merger, each share of common stock of Acquisition Corp. issued and
outstanding immediately prior to the Effective Time will be converted into one
share of Surviving Corporation Common Stock. As a result of the Merger and the
purchase of 2,484,892 shares of Class B Common Stock from the Management
Stockholders and the Company prior to the Merger, the Investors will hold
2,484,992 shares, or approximately 82% of the outstanding shares Surviving
Corporation Common Stock expected to be outstanding immediately after the
Merger.
NON-CASH ELECTION
Stockholders of shares of Common Stock will be entitled to make a Non-Cash
Election on or prior to the Election Date to retain Non-Cash Election Shares.
Such election must be with respect to all of such
54
<PAGE>
Stockholder's shares of Common Stock owned as of the Election Date. In addition,
as a condition to the election to retain shares, a Stockholder must become a
party to, and agree to be bound by, the Stockholders Agreement described
elsewhere in this Proxy Statement. See "Stockholders Agreement." If no election
is made, a Stockholder will receive the Cash Price for such Stockholder's shares
of Common Stock. If the number of Electing Shares exceeds the Non-Cash Election
Number, however, then the number of Electing Shares covered by a holder's
Non-Cash Election to be converted into the right to retain Non-Cash Election
Shares will be determined by multiplying the total number of Electing Shares
covered by such Non-Cash Election by a proration factor determined by dividing
the Non-Cash Election Number by the total number of Electing Shares. All
Electing Shares, other than those shares converted into the right to retain
Non-Cash Election Shares as described in the immediately preceding sentence,
will be converted into cash (on a consistent basis among stockholders who made
the election to retain Non-Cash Election Shares, pro rata to the number of
shares as to which they made such election) as if such shares were not Electing
Shares.
If a Stockholder elects to make a Non-Cash Election and receives cash as a
result of the proration procedures described above, such Stockholder may receive
dividend treatment (rather than capital gain treatment) for any cash received in
the Merger as a result of such proration procedures. See "Risk Factors --
Non-Cash Election and Proration into Cash; Possible Dividend Treatment." See
also "Certain Federal Income Tax Consequences." If the number of Electing Shares
is less than the Non-Cash Election Number, then (i) all Electing Shares will be
converted into the right to retain Non-Cash Election Shares and (ii) the
Patricof Stockholders and the Epstein Stockholders will retain, on a pro rata
basis, a number of shares of Common Stock equal to 205,000 MINUS the number of
Electing Shares.
With respect to certain risks related to the retention of Common Stock, see
"RISK FACTORS" above.
NON-CASH ELECTION PROCEDURE
The Form of Election and Stockholders Agreement is being mailed to holders
of record of Common Stock together with this Proxy Statement. IN ORDER TO ELECT
TO RETAIN NON-CASH ELECTION SHARES IN THE MERGER, A STOCKHOLDER MUST PROPERLY
COMPLETE SUCH FORM OF ELECTION WITH RESPECT TO ALL SHARES HELD BY SUCH
STOCKHOLDER, AND SUCH FORM OF ELECTION, TOGETHER WITH THE EXECUTED STOCKHOLDERS
AGREEMENT AND ALL CERTIFICATES FOR ALL SHARES OF COMMON STOCK HELD BY SUCH
HOLDER, DULY ENDORSED IN BLANK OR OTHERWISE IN FORM ACCEPTABLE FOR TRANSFER ON
THE BOOKS OF THE COMPANY (OR BY APPROPRIATE GUARANTEE OF DELIVERY AS SET FORTH
IN SUCH FORM OF ELECTION), MUST BE RECEIVED BY (THE "EXCHANGE AGENT") AT
ONE OF THE ADDRESSES LISTED ON THE FORM OF ELECTION (AND NOT SUBSEQUENTLY
WITHDRAWN BY SUCH STOCKHOLDERS), BY 5:00 P.M., EASTERN TIME, ON THE SECOND
BUSINESS DAY PRECEDING THE DATE OF THE SPECIAL MEETING (THE "ELECTION DATE").
HOLDERS OF COMMON STOCK MAY NOT MAKE A NON-CASH ELECTION FOR LESS THAN ALL OF
THEIR SHARES.
The determinations of the Exchange Agent as to whether or not Non-Cash
Elections have been properly made or revoked, and when such election or
revocations were received, will be binding.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware or such later date
as is specified in such Certificate of Merger. The filing of the Certificate of
Merger will occur as soon as practicable on or after the satisfaction or waiver
of the conditions to the Merger specified in the Merger Agreement unless another
date is agreed to in writing by the Company and Acquisition Corp. Subject to
certain limitations, the Merger Agreement may be
55
<PAGE>
terminated by either Acquisition Corp. or the Company. See "The Merger Agreement
- -- Conditions to the Merger" and "-- Termination; Termination Fees."
CONVERSION/RETENTION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
The conversion of shares of Common Stock (other than Dissenting Shares) into
the right to receive cash or the right to retain shares of Common Stock
following the Merger will occur at the Effective Time. As soon as practicable as
of or after the Effective Time, the Exchange Agent will send a letter of
transmittal to each holder of Common Stock (other than holders of Common Stock
making a Non-Cash Election with respect to all such holders' shares who have
properly submitted Forms of Election and share certificates to the Exchange
Agent). The letter of transmittal will contain instructions with respect to the
surrender of certificates representing shares of Common Stock in exchange for
cash for which the shares represented by the certificates so surrendered are
exchangeable pursuant to the Merger Agreement.
EXCEPT FOR COMMON STOCK CERTIFICATES SURRENDERED WITH A FORM OF ELECTION AS
DESCRIBED ABOVE UNDER "-- NON-CASH ELECTION PROCEDURE", STOCKHOLDERS OF THE
COMPANY SHOULD NOT FORWARD STOCK CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY
HAVE RECEIVED THE LETTER OF TRANSMITTAL.
As soon as practicable after the Effective Time, each holder of an
outstanding certificate or certificates at such time which prior thereto
represented shares of Common Stock will, upon surrender to the Exchange Agent of
such certificate or certificates and acceptance thereof by the Exchange Agent,
be entitled to the amount of cash, if any, into which the number of shares of
Common Stock previously represented by such certificate or certificates
surrendered will have been converted pursuant to the Merger Agreement. The
Exchange Agent will accept such certificates upon compliance with such
reasonable terms and conditions as the Exchange Agent may impose to effect an
orderly exchange thereof in accordance with normal exchange practices. After the
Effective Time, there will be no further transfer on the records of the Company
or its transfer agent of certificates representing shares of Common Stock which
have been converted, in whole or in part, pursuant to the Merger Agreement into
the right to receive cash, and if such certificates are presented to the Company
for transfer, they will be cancelled against delivery of cash. Until surrendered
as contemplated by the Merger Agreement, each certificate for shares of Common
Stock will be deemed at any time after the Effective Time to represent only the
right to receive upon such surrender the consideration contemplated by the
Merger Agreement. No interest will be paid or will accrue on any cash payable as
consideration in the Merger or in lieu of any fractional shares of retained
Common Stock.
FRACTIONAL SHARES
No certificates or scrip representing fractional shares of retained Common
Stock will be issued in connection with the Merger, and such fractional share
interests will not entitle the owner thereof to vote or to any rights of a
stockholder of the Company after the Merger. Each holder of shares of Common
Stock exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of retained Common Stock (after taking into
account all shares of Common Stock delivered by such holder) will receive, in
lieu thereof, a cash payment (without interest) representing such holder's
proportionate interest in the per share Cash Price of such share.
ACCOUNTING TREATMENT
It is intended that the Merger will be treated as a recapitalization for
financial reporting purposes. Accordingly, the historical basis of the Company's
operating assets and liabilities will not be impacted by the transaction. The
acquisition of XSL will be treated as a purchase for financial reporting
purposes.
56
<PAGE>
EFFECT ON STOCK OPTIONS AND EMPLOYEE BENEFIT MATTERS
Pursuant to the Merger Agreement, at the Effective Time, (i) each Company
Stock Option granted under the Stock Plans (as such terms are defined under "The
Merger -- Effect on Stock and Employee Benefit Matters") outstanding immediately
prior to the Effective Time, whether or not then exercisable, will be cancelled
and retired and (ii) each holder of any such cancelled Company Stock Option
having an exercise price of less than the Cash Price (which as of the date of
this Proxy Statement constitutes all outstanding Company Stock Options) will
receive, in consideration of such cancellation, a payment from the Company after
the Merger (subject to any applicable withholding taxes) equal to the product of
(A) the total number of shares of Common Stock subject to such Company Stock
Option and (B) the excess of the Cash Price over the exercise price per share of
Common Stock subject to such Company Stock Option, payable in cash as of or as
soon as practicable after the Effective Time.
It is anticipated that the Stock Plans will terminate as of the Effective
Time, and that following the Effective Time no holder of a Company Stock Option
nor any participant in any Stock Plan will have any right thereunder to acquire
equity securities of the Company following the Merger. It is expected that
certain members of management will receive new options to acquire shares of
Common Stock after the Merger. See "Interests of Certain Persons in the Merger."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties of
the Company relating, with respect to the Company and its subsidiaries, to,
among other things, (a) organization, standing and similar corporate matters;
(b) the authorization, execution, delivery, performance and enforceability of
the Merger Agreement; (c) the Company's capital structure; (d) documents filed
by the Company with the Commission and the accuracy of information contained
therein; (e) the absence of any violation, breach, termination, acceleration,
default (i) under certain agreements to which the Company is a party, (ii) under
the certificate of incorporation or bylaws of the Company or (iii) as a result
of the execution of the Merger Agreement any of the items referred to in clauses
(i) and (ii) above; (f) the absence of the need for governmental approvals and
consents in connection with the Merger Agreement; (g) the accuracy of
information supplied by the Company in connection with this Proxy Statement; (h)
the absence of certain changes or events since the date of the most recent
audited financial statements filed with the Commission, including material
adverse changes with respect to the Company; (i) the absence of undisclosed
liabilities; (j) pending or threatened material litigation, certain labor
matters and compliance with applicable laws; (k) benefit plans and other matters
relating to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and employment matters; (l) title to owned real or personal property
and valid leasehold and subleasehold interests in leased real or personal
property; (m) filing of tax returns and payment of taxes; (n) environmental
matters; (o) insurance matters; (p) receipt of an opinion of the Company's
financial advisor; (q) brokers' fees and expenses; (r) books and records; (s)
ownership of or rights to use Company intellectual property; (t) material
contracts; (u) information systems; (v) improper payments; (w) transactions with
affiliates; and (x) the regulation of the Company's business.
The Merger Agreement also contains customary representations and warranties
of Acquisition Corp. relating to, among other things, (a) organization, standing
and similar corporate matters; (b) the authorization, execution delivery,
performance and enforceability of the Merger Agreement and related matters; (c)
the accuracy of information supplied by Acquisition Corp. in connection with
this Proxy Statement; (d) the absence of the need for governmental approvals and
consents in connection with the Merger Agreement; (e) brokers' fees and
expenses; (f) the business of Acquisition Corp. outside the consummation of the
transactions contemplated by the Merger Agreement; and (g) financing matters.
57
<PAGE>
NO SOLICITATION
The Merger Agreement provides that the Company will not, directly or
indirectly, through any officer, director, employee, representative or agent of
the Company or any of its subsidiaries (i) solicit, initiate or encourage or
take any other action to facilitate the institution of any inquiries or
proposals regarding any merger, reorganization, consolidation, business
combination, recapitalization, liquidation, dissolution, sale of all or any
significant portion of assets, sale of shares of capital stock (including
without limitation by way of a tender or exchange offer) or similar transactions
involving the Company or any its subsidiaries other than the Merger (any of the
foregoing inquiries or proposals being referred to herein as an "Acquisition
Proposal"), (ii) engage in negotiations or discussions concerning, or provide
any nonpublic information or assistance to any person in connection with any
Acquisition Proposal or (iii) agree to, approve or recommend any Acquisition
Proposal. By the terms of the Merger Agreement, the Company is permitted to
engage in negotiations or discussions with respect to a recapitalization
transaction after November 30, 1997; provided that it does not incur or commit
to incur, except in each case upon consummation of such transaction, fees and
expenses in excess of $250,000 in the aggregate in connection with such
negotiations or discussions. In addition, the Merger Agreement provides that the
Board is permitted to consider, negotiate, discuss, approve and recommend to the
Stockholders a bona fide Acquisition Proposal not solicited in violation of the
Merger Agreement, PROVIDED that the Board has determined in good faith (after
consultation with and based upon the advice of outside counsel) that it is
required to do so in order to discharge properly its fiduciary duties to the
Stockholders; and PROVIDED, FURTHER, that the Company keep Acquisition Corp.
informed, on a reasonably current basis, as to the status and details of any
such consideration, negotiations or discussions.
The Merger Agreement provides that in the event the Company receives (a) an
Acquisition Proposal from any third party or any modification or amendment
thereto or (b) any request for nonpublic information relating to the Company or
any of its subsidiaries in connection with an Acquisition Proposal or for access
to the properties, books or records of the Company or any of its subsidiaries,
by any person or entity that informs the Board or any of its subsidiaries that
it is considering making, or has made, an Acquisition Proposal, the Company will
immediately notify Acquisition Corp. after the receipt thereof.
The Merger Agreement further provides that if the Board receives a request
for material nonpublic information by a person who makes, or indicates that it
is considering making, a bona fide Acquisition Proposal, and the Board
determines in good faith and upon the advice of outside counsel that it is
required to cause the Company to provide such person such material nonpublic
information in order to discharge properly the directors' fiduciary duties to
the Stockholders, then, PROVIDED that such person has executed a confidentiality
agreement substantially similar to the one then in effect among the Company and
Acquisition Corp.'s stockholders the Company may provide such person with access
to information regarding the Company.
COOPERATION AND BEST EFFORTS
Pursuant to the Merger Agreement and subject to certain conditions and
limitations described therein, the parties have agreed to cooperate with each
other and use their respective best efforts to take certain specified and other
actions so that the transactions contemplated by the Merger Agreement may be
consummated as soon as practicable.
58
<PAGE>
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, the Company made various customary
covenants relating to the conduct of its business prior to the Merger. The
Company has agreed that, prior to the Effective Time, unless Acquisition Corp.
agrees otherwise in writing and except as required by the XSL Purchase
Agreement, it will conduct its business and will cause its subsidiaries to
conduct their businesses in the ordinary course of business and in a manner
consistent with past practice and, to the extent consistent therewith, will use
all reasonable efforts to preserve substantially intact its business
organization, keep available the services of its current officers and employees
and preserve its relationships with customers, suppliers and others having
business relations with it. In the Merger Agreement, the Company has further
agreed, among other things, that prior to the Effective Time it will not and it
will cause each of its subsidiaries to not: (a) amend its charter or bylaws or
similar organizational documents; (b) issue, sell, pledge, dispose of or
encumber, or authorize the issuance, sale, pledge, disposition or encumbrance of
any shares of capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of capital stock,
or any other ownership interest (including, without limitation, any phantom
interest) in the Company or any of its subsidiaries; (c) sell, pledge, dispose
of or encumber any assets of the Company or any of its subsidiaries (except in
the ordinary of business and in certain other limited circumstances); (d)
declare, set aside, make or pay any dividend or other distribution in respect of
any of its capital stock; (e) split, combine or reclassify any of its capital
stock or issue or authorize or propose the issuance of any other securities or
property in respect of, in lieu of or in substitution for shares of its capital
stock; (f) amend the terms or change the period of exercisability of, purchase,
repurchase, redeem or otherwise acquire, any of its securities or any securities
of any of its subsidiaries, or provide that upon the exercise or conversion of
any option, warrant or right to acquire shares of Common Stock the holder
thereof will receive cash, or propose to do any of the foregoing; (g) acquire
any corporation, partnership or other business organization or division or any
equity interest therein; (h) incur any indebtedness for borrowed money or issue
any debt securities or assume, guarantee or endorse or otherwise as an
accommodation become responsible for, the obligations of any person or make any
loans or advances (except in certain limited circumstances in the ordinary
course of business); (i) enter into or amend any material contract or agreement;
(j) authorize any capital expenditures or purchase of fixed assets in excess of
$1,000,000 per month in the aggregate for the Company and its subsidiaries taken
as a whole; (k) make any loan to, or investment in, any of its minority-owned
affiliates or XSL, other than business transactions with minority-owned
affiliates or XSL in the ordinary course of business; (l) enter into or amend
any contract, agreement, commitment or arrangement to effect any of the matters
prohibited by the Merger Agreement; (m) increase the compensation payable or to
become payable to its officers or employees except for increases in salary or
wages as provided for in employment agreements (other than certain increases in
the ordinary course of business); (n) grant any severance or termination pay to,
or enter into or amend any employment or severance agreement with any director,
officer or other employee of the Company or any of its subsidiaries; (o)
establish, adopt, enter into or amend any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
current or former directors, officers or employees, except, in each case, as may
be required by law; (p) except as may be required as a result of a change in law
or in generally accepted accounting principles take any action to change
accounting policies or procedures; (q) make any material tax election
inconsistent with past practice or settle or compromise or amend any material
federal, state, local or foreign tax liability or agree to an extension of a
statute of limitations; (r) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of liabilities reflected or
reserved against in the financial statements contained in the Company's filings
with the Commission filed prior to the date of the Merger Agreement or incurred
in the ordinary course of business and consistent with past practice; (s) offer
employment to any person as an officer of the Company, or promote any existing
employee to such office; (t) settle or agree to a final
59
<PAGE>
settlement of any litigation against the Company or any of its subsidiaries for
an amount in excess of $250,000; (u) amend or grant waivers or approvals in its
discretion under the XSL Purchase Agreement; or (v) take, or agree in writing or
otherwise to take, any of the actions described in this paragraph, or any action
which would make any of the representations or warranties of the Company
contained in the Merger Agreement untrue or incorrect or prevent the Company
from performing or cause the Company not to perform its covenants thereunder.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that the By-Laws of the Surviving Corporation
will contain the provisions with respect to indemnification set forth in the
By-Laws of the Company on the date of the Merger Agreement, which provisions may
not be amended, repealed or otherwise modified for a period of six years from
the Effective Time in any manner that would adversely affect the rights
thereunder of individuals who on or prior to the Effective Time were directors,
officers, employees or agents of the Company, unless such modification is
required by law.
The Merger Agreement also provides that after the Effective Time, the
Surviving Corporation will, to the fullest extent permitted under applicable law
or under the Surviving Corporation's Certificate of Incorporation or By-Laws as
in effect at the Effective Time, indemnify and hold harmless, each present and
former director, officer or employee of the Company or any of its subsidiaries
(collectively, the "Indemnified Parties") against any cost or expense (including
attorney's fees), judgments, fines, losses, claims, damages, liabilities and
amounts paid in settlement in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, (x) arising out of or pertaining to the transactions contemplated
by the Merger Agreement or (y) otherwise with respect to any acts or omissions
occurring at or prior to the Effective Time, to the same extent as provided in
the Company's Certificate of Incorporation or By-Laws or any applicable contract
or agreement as in effect on the date of the Merger Agreement, in each case for
a period of six years after the date of the Merger Agreement.
Pursuant to the Merger Agreement, Acquisition Corp. has agreed that, for a
period of six years after the Effective Time, it will cause the Surviving
Corporation to maintain in effect, if available, directors' and officers'
liability insurance covering those persons who are currently covered by the
Company's directors' and officers' liability insurance policy on terms
comparable to those now applicable to directors and officers of the Company;
PROVIDED that in no event will Acquisition Corp. or the Surviving Corporation be
required to expend in excess of 150% of the annual premium currently paid by the
Company for such coverage; and provided further, that if the premium for such
coverage exceeds such amount, Acquisition Corp. or the Surviving Corporation
will purchase a policy with the greatest coverage available for such 150% of the
annual premium.
CONDITIONS TO THE MERGER
ALL PARTIES. Pursuant to the Merger Agreement, the respective obligations
of each party to effect the Merger are subject to the satisfaction or waiver of
the following conditions at or prior to the Closing Date: (i) approval and
adoption of the Merger Agreement and the Merger by the Stockholders; (ii)
termination or expiration of the waiting period (and any extension thereof)
applicable to the Merger under the HSR Act and under any legal requirement of
the European community; and (iii) no statute, rule, regulation, executive order,
decree, ruling, temporary restraining order, preliminary or permanent injunction
or other order having been enacted, entered, promulgated, enforced or issued by
any court or governmental authority of competent jurisdiction or otherwise being
in effect which prohibits, restrains, enjoins or restricts the consummation of
the Merger.
ACQUISITION CORP. Acquisition Corp.'s obligation to effect the Merger is
further subject to the satisfaction or waiver of the following conditions: (i)
the representations and warranties of the Company
60
<PAGE>
contained in the Merger Agreement being true and correct in all material
respects at and as of the Effective Time except for (a) changes contemplated by
the Merger Agreement and (b) those representations and warranties which address
matters only as of a particular date (which shall have been true and correct as
of such date); (ii) the Company having performed or complied in all material
respects with all agreements and covenants required to be complied with by it
under the Merger Agreement at or prior to the Effective Time; (iii) all
conditions precedent to the closing of the transactions contemplated by the XSL
Purchase Agreement having been satisfied; (iv) the management team and officers
of the Company, its subsidiaries and XSL being satisfactory in all respects to
Acquisition Corp. in its sole discretion; (v) the Stockholders having approved
and adopted the Charter Amendment and the Company having filed the Charter
Amendment with the Delaware Secretary of State; (vi) the Company having
authorized the issuance of one or more series of preferred stock and having
filed the certificate(s) of designation setting forth the rights, preferences
and privileges of such preferred stock with the Delaware Secretary of State;
(vii) holders of no more than 10% of the outstanding shares of the Common Stock
having perfected their dissenters' rights in accordance with Section 262 of the
DGCL; (viii) there being no governmental ruling or advice with respect to, or
any change in existing accounting standards or interpretations thereof relating
to, the permitted use of recapitalization accounting for the Merger which, in
the opinion of Acquisition Corp.'s independent accountants, would materially and
adversely affect the ability of the Surviving Corporation to account for the
transactions contemplated by the Merger Agreement as a recapitalization; (ix)
there being no material adverse effect on the business, assets, properties,
condition (financial or other), results of operations or prospects of the
Company since August 8, 1997; (x) the Company having obtained the funds pursuant
to the Financing Commitments, substantially on the terms provided therein; (xi)
in the event the Charter Amendment is approved by the Stockholders, the
Management Stockholders (a) having exchanged an aggregate of 643,569 shares of
Common Stock for shares of Class B Common Stock, and (b) having sold to the
Investors an aggregate of 322,709 of such shares of Class B Common Stock for a
per share amount equal to the Cash Price; and (xii) the France Option Agreement
having been amended to provide that the consideration thereunder may be
satisfied in cash, securities or any combination thereof, at the Company's
option.
THE COMPANY. The obligation of the Company to effect the Merger is further
subject to the representations and warranties of Acquisition Corp. set forth in
the Merger Agreement being true and correct as of the Effective Time (except for
changes contemplated by the Merger Agreement and except to the extent such
representations and warranties speak as of an earlier date), and Acquisition
Corp. having performed all obligations required to be performed by it under the
Merger Agreement at or prior to the Effective Time.
TERMINATION; TERMINATION FEES
The Merger Agreement may be terminated, and the Merger abandoned prior to
the Effective Time as follows: (i) upon the mutual written consent of the
Company and Acquisition Corp.; (ii) by either the Company or Acquisition Corp.,
if the Merger is not completed by February 28, 1998, although such deadline may
be extended by an additional 30 days if this Proxy Statement has been mailed to
Stockholders on or prior to such date; (iii) by either the Company or
Acquisition Corp. if a court or other governmental body has issued a
nonappealable final order permanently restraining, enjoining or otherwise
legally prohibiting the Merger (provided that if a temporary order has been
entered restraining, enjoining or prohibiting the Merger, such temporary order
will be deemed a nonappealable final order if it remains continuously in effect
for 60 days); (iv) by either the Company or Acquisition Corp., if (A) the Board
of Directors recommends an Alternative Transaction or (B) a tender offer or
exchange offer for 15% or more of the Common Stock is commenced by a third party
and the Board of Directors recommends that the Stockholders tender their shares
in such tender or exchange offer (provided that the Company will not be entitled
to exercise such termination right unless the Board determines that the failure
to accept or recommend such proposal would constitute a breach of its fiduciary
duties to the Stockholders); (v) by Acquisition Corp., if the Board of Directors
withdraws or modifies its approval or recommendation of the
61
<PAGE>
Merger Agreement and the transactions contemplated thereunder in a manner
adverse to Acquisition Corp.; (vi) by either the Company or Acquisition Corp.,
if the other party breaches or fails to comply with any of its material
representations or warranties or obligations under the Merger Agreement such
that the conditions to the obligation of the terminating party would be
incapable of being satisfied by February 28, 1998, unless such breach or failure
to comply is cured within 30 days.
The term "Alternative Transaction" means (i) a transaction or series of
transactions pursuant to which any person (or group of persons) other than
Acquisition Corp. or its subsidiaries (a "Third Party") acquires or would
acquire more than 15% of the outstanding shares of Common Stock, whether from
the Company or pursuant to a tender offer or exchange offer or otherwise, (ii)
any acquisition or proposed acquisition of the Company or any of its
subsidiaries by a merger, consolidation or other business combination (including
any so-called "merger of equals" and whether or not the Company or any of its
subsidiaries is the entity surviving any such merger or business combination),
(iii) any reorganization, recapitalization, liquidation or dissolution of the
Company or any of its subsidiaries (other than the liquidation or dissolution of
a wholly-owned subsidiary of the Company or any of its subsidiaries) or (iv) any
other transaction pursuant to which any Third Party acquires or would acquire
control of assets (including for this purpose the outstanding equity securities
of subsidiaries of the Company and any entity surviving any merger or business
combination with any such subsidiary) of the Company or any of its subsidiaries
having a fair market value equal to more than 15% of the fair market value of
all the assets of the Company and its subsidiaries, taken as a whole,
immediately prior to such transaction.
In general, except as otherwise described in this paragraph, if the Merger
Agreement is terminated, the Company will be obligated to pay Acquisition Corp.
a fee of $7,500,000 and reimburse Acquisition Corp. for its documented fees and
expenses incurred in connection with the transactions contemplated by the Merger
Agreement up to a maximum of $2,000,000. The Company will not be required to pay
such fee or reimburse Acquisition Corp. for such expenses in the event the
Merger Agreement is terminated in any one of the following manners: (i) by the
mutual written consent of the Company and Acquisition Corp.; (ii) by the Company
(a) if Acquisition Corp. breaches or fails to comply with any of its material
representations or warranties or obligations under the Merger Agreement such
that the conditions to the Company's obligation would be incapable of being
satisfied by February 28, 1998, unless such breach or failure to comply by
Acquisition Corp. is cured within 30 days; or (b) if the Merger is not
consummated by February 28, 1998 (as may be extended by 30 days as described
above), in either case as a result of a breach of representation or warranty by
Acquisition Corp. or failure by Acquisition Corp. to comply with any of its
material representations or warranties or obligations under the Merger
Agreement; or (iii) by Acquisition Corp. solely due to a failure of any one of
the following conditions to be satisfied: (a) the approval by Acquisition Corp.
of the management team of the Company and its subsidiaries, (b) there being no
adverse ruling or advice or change in existing accounting standards or
interpretations relating to the Company accounting for the transactions
contemplated by the Merger Agreement as a recapitalization, (c) the receipt of
the financing necessary to consummate the Merger, (d) the Management
Stockholders exchanging a specified portion of their Common Stock for Class B
Common Stock and selling a portion of such shares to UBS or an affiliate of
Fenway or (e) the satisfactory amendment of the France Option Agreement. The
Company will not be obligated to pay the $7,500,000 fee, but will be obligated
to reimburse Acquisition Corp. for its expenses in an amount up to $2,000,000,
in the event the Merger Agreement is terminated by Acquisition Corp. as a result
of (i) the failure of the transactions contemplated by the XSL Purchase
Agreement to be consummated (other than as a result of a breach or failure to
comply with any representation or warranty or obligation of the Company in the
XSL Purchase Agreement) or (ii) a material adverse effect occurring on the
business, assets, properties, condition (financial or other), results of
operations or prospects of the Company and its subsidiaries taken as a whole
after August 8, 1997.
62
<PAGE>
AMENDMENT; WAIVER
The Merger Agreement provides that it may be amended only by written
agreement of both the Company and Acquisition Corp. at any time prior to the
Effective Time; provided, however, that, after the Stockholders have approved
the Merger Agreement and the Merger at the Special Meeting, no such amendment is
permitted which by applicable law would require further approval by the
Stockholders, without first obtaining such further approval. The Merger
Agreement further provides that, at any time prior to the Effective Time, the
parties to the Merger Agreement, by action taken or authorized by their
respective Boards of Directors, may, by written agreement signed by the party to
be bound, (i) extend the time for the performance of any of the obligations or
other acts of the other party thereto, (ii) waive any inaccuracies in the
representations and warranties of any other party contained in the Merger
Agreement or in any document delivered pursuant to the Merger Agreement or (iii)
waive compliance by any other party with any of the conditions and agreements
contained in the Merger Agreement.
MERGER FINANCINGS
Acquisition Corp. has received Financing Commitments adequate to complete
the financing necessary to consummate the Merger. Such Merger Financings will be
provided by a combination of (i) a portion of the senior credit facilities of up
to $129.5 million (which includes the provision of a letter of credit in the
face amount of $31.5 million to be used for the XSL Acquisition), (ii) senior
subordinated financing of up to $150 million and (iii) equity financing of
approximately $102.8 million through the purchase of 322,709 shares of Class B
Common Stock from the Management Stockholders and the issuance by the Company of
common stock and preferred stock. The Financing Commitments set forth certain
agreed upon terms and conditions for each type of financing, as follows
(definitive documentation has not yet been finalized as of the date of this
Proxy Statement):
63
<PAGE>
SENIOR FACILITIES
The Financing Commitment for the senior financing (the "Senior Facilities")
provided by the lenders (the "Lenders") and arranged by Goldman Sachs Credit
Partners L.P. ("GSCP") and Union Bank of Switzerland ("UBS", and collectively
with GSCP, the "Arrangers") comprises term loans totalling up to $78 million, a
revolving facility of up to $20 million and a letter of credit facility of up to
$31.5 million (the
"L/C Facility"), all with guarantees (the "Guarantees") from certain
subsidiaries of the Company. The Senior Facilities and the Guarantees will be
secured by first priority security interests in substantially all assets of the
Company and such guarantors and by pledges of the stock of the Company and
certain of its subsidiaries (subject to exceptions and limitations as to foreign
subsidiaries based on adverse tax consequences).
The Senior Facilities will contain customary and appropriate affirmative and
negative covenants including, without limitation, covenants with respect to: (a)
financial ratios and tests relating to minimum EBITDA, maximum capital
expenditures, minimum interest coverage and maximum leverage; (b) limitations on
other indebtedness, liens, negative pledges, investments and guarantees; (c)
restrictions on certain payments (including, without limitation, dividends,
redemptions and payments on subordinated debt); and (d) limitations on mergers
and sales of assets, leases and transactions with affiliates. The Senior
Facilities will also contain customary and appropriate events of default
including, without limitation, events of default with respect to: (a) failure to
make payments when due, (b) defaults under other agreements or instruments of
indebtedness, (c) noncompliance with covenants, (d) breaches of representations
and warranties, (e) bankruptcy, (f) judgments in excess of specified amounts,
(g) ERISA and pension matters, (h) impairment of security interests in
collateral, (i) invalidity of the Guarantees, and (j) certain changes of
control.
Voluntary prepayment of the Senior Facilities, in whole or in part, will be
allowed without premium or penalty, subject to payment of breakage costs.
Mandatory prepayments will be required upon the occurrence of certain events
including asset sales, debt and equity issuances, the generation of excess cash
flow and the receipt of insurance or condemnation proceeds and other
extraordinary payments.
The obligations of the Lenders to make extensions of credit under the Senior
Facilities will be subject to certain conditions precedent including, without
limitation: (a) the structure, documentation and consummation of the Merger
satisfactory to the Arrangers and Lenders and the requirement that XSL become a
subsidiary of the Company as of the closing; (b) the concurrent issuance of
subordinated debt by the Company on terms and conditions satisfactory to the
Arrangers and Lenders (see "Merger Financings--Senior Subordinated Financing"),
with proceeds applied in full to pay a portion of the costs of the Merger, to
repay certain indebtedness of the Company and one or more of the European
Affiliates and to pay transaction costs; (c) the receipt of proceeds from the
issuance of equity by the Company on terms and conditions satisfactory to the
Arrangers and Lenders (see "Merger Financings--Equity Financing"), with proceeds
applied in full to pay a portion of the costs of the Merger, to repay certain
indebtedness of the Company and the European Affiliates and to pay transaction
costs; (d) receipt by the Arrangers of an officer's financial condition
certificate from the Company and a solvency letter from an independent valuation
consultant satisfactory to the Arrangers; (e) since December 31, 1996, no
material adverse change in the business or prospects of the Company and its
subsidiaries and the European Affiliates taken as a whole, and no information
submitted to the Arrangers that proves to have been inaccurate, incomplete or
misleading in any material respect; (f) no disruption or adverse change in the
financial or capital markets generally or in the market for loan syndications in
particular; (g) receipt by the Arrangers of financial statements, auditors'
letters and pro forma balance sheet and income and cash flow statements
satisfactory to the Lenders; (h) receipt of all necessary governmental and third
party approvals; (i) absence of litigation reasonably likely to have a material
adverse effect on the Senior Facilities or on the business or prospects of the
Company and its subsidiaries and the European Affiliates taken as a whole; (j)
payment of fees and transaction costs; (k) all material contracts (including key
employee contracts), constitutive documents, licenses, permits, franchises,
insurance policies and other intangible rights of the Company and
64
<PAGE>
its subsidiaries and the European Affiliates being satisfactory to the
Arrangers; (l) receipt by the Arrangers of opinions and certificates
satisfactory to the Arrangers; (m) completion of due diligence with respect to
relevant foreign regulatory and structural matters satisfactory to the
Arrangers; and (n) closing of the Senior Facilities on or prior to December 31,
1997.
Amounts outstanding under the Senior Facilities will mature, amortize and
bear interest as follows:
<TABLE>
<CAPTION>
MATURITIES AMORTIZATION INTEREST RATE(1)
--------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Term Loan A 5 1/2 years following year 1: $1.5MM Base Rate +
Closing Date (6-mo grace period) 1.50% or reserve
year 2: $3.5MM adjusted
year 3: $4.5MM Eurodollar Rate
year 4: $5.5MM + 2.50%
year 5: $6.5MM
year 5 1/2: $3.5MM
Term Loan B 7 years following Closing year 1: $0.25MM Base Rate +
Date (6-mo grace period) 2.00% or reserve
each of years 2-5: adjusted
$0.50MM Eurodollar Rate
each of years 6-7: + 3.00%
$25.375MM
Revolving Facility 5 1/2 years none Base Rate +
following 1.50% or reserve
Closing Date adjusted
Eurodollar Rate
+ 2.50%
L/C Facility(2) available through first proportionate to If drawn and not
anniversary of amortization of reimbursed, Base Rate +
Closing Date Term Loan B 2.00% or reserve adjusted
Eurodollar Rate + 3.00%
</TABLE>
- ------------------------
(1) In each case, the Company has a choice of two rates. "Base Rate" and
"reserve adjusted Eurodollar Rate" shall have meanings customary and
appropriate to similar financings, and the basis for calculating accrued
interest and the interest periods for loans bearing interest at the reserve
adjusted Eurodollar Rate shall be customary and appropriate to similar
financings. Upon the occurrence of a payment default, outstanding amounts
will bear interest at the rate otherwise applicable to such amounts plus
2.00% per annum and shall be payable on demand.
(2) Drawings made under the L/C Facility not immediately reimbursed will be
treated for all purposes as additional amounts outstanding under Term Loan
B.
Fees payable under the Senior Facilities include a fee of 3.00% per annum of
the face amount of letters of credit outstanding under the L/C Facility, plus
standard L/C issuance and administrative charges. A per annum fee for letters of
credit issued and outstanding under the revolving facility will equal the
applicable interest rate margin on reserve adjusted Eurodollar Rate loans
outstanding under the revolving facility. Commitment fees on the revolving
facility will equal 0.50% per annum times the daily average unused portion (L/Cs
issued under the revolving facility will be considered a "used" portion thereof
for the
65
<PAGE>
purpose of calculating commitment fees). An agent's fee will also be payable to
UBS as administrative agent for the Lenders in an amount and on dates to be
agreed.
SENIOR SUBORDINATED FINANCING
The Financing Commitment for the senior subordinated financing (the "Senior
Subordinated Facilities") provides that UBS or one of its affiliates (the
"Initial Purchaser") will purchase from the Company $150 million of Unsecured
Senior Subordinated Increasing Rate Notes (together with the Rollover Notes
defined below, the "Bridge Notes"). On the first anniversary of the date of
issue, the Bridge Notes will be exchanged for an equal principal amount of
senior subordinated rollover notes (the "Rollover Notes") with a maturity of
nine years.
Notwithstanding the terms of this Financing Commitment, the parties intend
to consummate an offering of $150 million of senior subordinated notes in a
public offering or private placement transaction (a "Debt Offering") as
expeditiously as possible, and it is intended that bridge financing on the terms
and conditions set forth in the following paragraphs will be drawn down only if
a Debt Offering cannot be completed prior to the closing of the Merger. The
parties have entered into an engagement letter (the "Engagement") with UBS
Securities LLC ("UBS Securities") with respect to a Debt Offering.
The Bridge Notes will contain certain financial and operating covenants
customary and appropriate for unsecured senior subordinated bridge financings
including, without limitation, covenants with respect to: (a) limitations on
other indebtedness and liens; (b) restrictions on certain payments; (c)
limitations on mergers and consolidations, sales of assets, transactions with
affiliates and issuances of stock by subsidiaries; and (d) subordination. The
Bridge Notes will also contain customary events of default.
Borrowings under the Bridge Notes may be prepaid at any time at par, plus
accrued and unpaid interest. Subject to any required payment under the Senior
Facilities, the Bridge Notes will be required to be repaid at par plus accrued
and unpaid interest upon the occurrence of certain events, including a change of
control, the proceeds of issuances of debt and equity and certain asset sales.
The obligations of the Initial Purchaser to purchase the Bridge Notes will
be subject to several conditions customary for similar bridge financings
including, without limitation: (a) the Company shall not have issued securities
(the "Debt Securities") pursuant to the Debt Offering, and neither the Company
nor any of its subsidiaries shall, since the date of the Financing Commitment
relating to the Bridge Notes, have sold securities that would in the reasonable
judgment of the Initial Purchaser impair the ability of the Initial Purchaser to
sell the Debt Securities or to syndicate the Bridge Notes; (b) the Company shall
have performed its obligations under the Engagement, and shall have used its
reasonable best efforts to cause the Debt Securities to be sold, in a public
registration or a private placement; (c) the Company shall have deposited into
escrow certain warrants representing 3% of the Surviving Corporation Common
Stock on a fully-diluted basis subject to release to the Initial Purchaser upon
the issuance of the Rollover Notes; (d) receipt by the Initial Purchaser of
solvency letters, legal opinions and officers' certificates satisfactory to the
Initial Purchaser; (e) no material adverse change in the business, prospects or
material agreements of the Company and its subsidiaries taken as a whole; (f) no
dividend or distribution after the date of the relevant Financing Commitment
being declared or paid by the Company on its capital stock; (g) no disruption or
material adverse change in the financial, banking or capital markets or in the
market for loan syndications that in the Initial Purchaser's judgment could
reasonably be expected to adversely affect the ability of the Initial Purchaser
to successfully syndicate the commitment or to place or sell the Debt
Securities, and the absence of a banking moratorium declared by federal or New
York State banking authorities; (h) no litigation or governmental or regulatory
action adverse to the transactions contemplated; (i) capitalization, corporate
and organizational structure of the Company and its subsidiaries satisfactory to
the Initial Purchaser; (j) no default under the Bridge Notes documentation,
under material agreements of the Company resulting from the transactions
contemplated by the Financing Commitment not resolved to the satisfaction of the
Initial Purchaser; (k) all material governmental and third party
66
<PAGE>
consents and expiration of all waiting periods for the transactions contemplated
by the Financing Commitment, and no law or regulation restraining, prohibiting
or imposing materially adverse conditions on any material component of such
transactions; (l) documentation for the Merger and other transactions
contemplated by the Financing Commitment reasonably satisfactory to the Initial
Purchaser and all conditions precedent thereunder satisfied; (m) financial
statements, auditors' letters, and pro forma balance sheet and income and cash
flow statement for the Company, its subsidiaries and those European Affiliates
which will become subsidiaries on closing, including as may be required for a
registration statement for the Debt Securities, as may be required by the
Initial Purchaser or as may be required under federal securities laws, all
satisfactory to the Initial Purchaser; (n) concurrent closing of and extensions
of credit under the Senior Facilities, on terms and conditions reasonably
satisfactory to the Initial Purchaser; (o) receipt of proceeds from equity
issuance of the Company on terms and conditions satisfactory to the Initial
Purchaser; (p) consummation of the Merger satisfactory to the Initial Purchaser;
(q) payment of transaction costs including all fees payable to the Initial
Purchaser; and (r) closing of the Bridge Notes on or prior to December 31, 1997.
The Bridge Notes will have a maturity of one year from their date of issue
(the "Issuance Date") and will bear interest for each interest period at a rate
per annum equal to the three-month LIBOR rate plus, initially, 5.00%. If the
Bridge Notes are not retired in whole by the end of the first six-month period
following the Issuance Date, they will accrue interest for the next three-month
period at a rate per annum equal to the three-month LIBOR rate plus 7.00%. Such
rate will continue to increase by an additional 0.25% per annum at the end of
each subsequent three-month period for so long as the Bridge Notes are
outstanding; provided that such rate shall never exceed 17.00% per annum, and
provided further that the Company may pay the portion of interest payments
representing a per annum interest rate in excess of 13.50% by issuing additional
Bridge Notes with a principal amount equal to such excess portion. Upon the
occurrence of a payment default, outstanding amounts will bear interest at the
rate otherwise applicable to such amounts plus 1.00% per annum.
At their maturity, the Bridge Notes will be exchanged for an equal principal
amount of senior subordinated rollover notes (the "Rollover Notes") to be issued
pursuant to an indenture. The Rollover Notes will mature in nine years and are
non-callable for the first four years, callable at a premium in the fifth year
and at declining premiums thereafter, and callable at par in years eight and
nine; provided that the Company may call one-third of the Rollover Notes in the
first three years (the definitive terms of which shall be agreed upon by the
Issuance Date), and provided further that the Company at any time may call any
Rollover Notes held by the Initial Purchaser at par plus accrued and unpaid
interest.
The Rollover Notes will bear interest (payable semiannually in cash) at
either (a) a fixed rate equal to the higher of (i) the rate borne by the Bridge
Loans at their maturity plus 0.50% per annum and (ii) the rate applicable to the
most recent (prior to the maturity of the Bridge Notes) auction of U.S.
Treasuries having a maturity closest to that of the Rollover Notes plus 7.00%
per annum, or (b) a floating rate equal to three-month LIBOR plus the spread
borne by the Bridge Notes at their maturity plus 0.50%, provided that such rate
shall never exceed 17.00% per annum, and provided further that the Company may
pay the portion of interest payments representing a per annum interest rate in
excess of 13.50% by issuing additional Rollover Notes with a principal amount
equal to such excess portion.
Upon the issuance of the Bridge Notes, warrants representing 3.00% (as of
the issuance date) of the fully diluted common stock of the Company (the
"Warrants") to acquire Surviving Corporation Common Stock for a nominal value
will be placed in anescrow account. The Warrants will expire on the date of
final maturity of the Rollover Notes and will contain standard anti-dilution
provisions. In the event that the Bridge Notes are exchanged for the Rollover
Notes, the Initial Purchaser shall be entitled to one-third of the Warrants upon
such exchange, to an additional one-third of the Warrants after the Rollover
Notes have been outstanding for six months and to the remaining one-third of the
Warrants after the Rollover Notes have been outstanding for one year.
Notwithstanding the foregoing, each such one-third tranche of warrants to which
the Initial Purchaser shall be entitled shall be reduced to an amount equal to
the product
67
<PAGE>
obtained by multiplying (i) a number equal to one-third of the Warrants by (ii)
a fraction, the numerator of which is the aggregate principal amount of the
Bridge Notes outstanding immediately prior to the exchange for the Rollover
Notes, and the denominator of which is the original aggregate principal amount
of the Bridge Notes upon their issuance.
The Debt Securities to be offered in the Debt Offering will have a maturity
of ten years and will be issued pursuant to an indenture containing customary
terms for debt offerings similar to the Debt Offering (the "Debt Securities
Indenture"). The Debt Securities will be general unsecured obligations of the
Company and subordinated in right of payment to all senior indebtedness of the
Company, including all indebtedness of the Company under the Senior Facility.
The Debt Securities will be guaranteed on a senior subordinated unsecured basis
by the subsidiary guarantors under the Senior Facility. Interest on the Debt
Securities will be payable semi-annually.
The Debt Securities will be subject to redemption at any time on or after
the fifth anniversary of issuance at the option of the Company at redemption
prices of %, % and % during the 12-month periods beginning on the
fifth, sixth and seventh anniversary of issuance, respectively and thereafter at
par. In addition, the Company may redeem up to 33 1/3% of the original principal
amount of the Debt Securities with the proceeds of certain public equity
offerings.
Upon a "change of control" (as defined in the Debt Securities Indenture),
each holder of the Debt Securities will have the right to require the Company to
repurchase such holder's Debt Securities at a price equal to 101% of the
principal amount thereof plus accrued interest through the date of repurchase in
the event of certain asset sales.
The Debt Securities Indenture will include covenants that impose certain
limitations on the ability of the Company and its subsidiaries to, among other
things, incur additional indebtedness, incur liens, impose restrictions on the
ability of the subsidiaries to pay dividends or make any payments to the
Company, or merge or consolidate with any other person or sell, assign,
transfer, lease, convey, or otherwise dispose of all or substantially all of the
assets of the Company. See "Risk Factors -- Substantial Leverage; Stockholders'
Deficit; Liquidity."
EQUITY FINANCING
UBS Partners LLC and Fenway Partners, Inc. have provided to the Company a
Financing Commitment stating that each will provide or cause to be provided
one-half of the equity financing (I.E., the equity other than that provided by
the Roll-over Requirement and the shares to be retained by the Management
Stockholders) necessary to consummate the Merger. It is anticipated that such
financing will be in the form of common stock and preferred stock issuances.
Such common stock will be purchased by the Investors through purchases of Class
B Common from the Management Stockholders and directly from the Company and all
such Class B Common Stock will be converted into Surviving Corporation Common
Stock in the Merger. The Investors have also committed to buy $45 million of
redeemable preferred stock, with a dividend rate (payable semi-annually in-kind
or in cash at the option of the Company) of 13% per annum and mandatory
redemption required on the twelfth anniversary of issuance (with optional
redemption available to the Company under certain circumstances and to holders
on a change of control at a premium prior to that time); in connection
therewith, the Investors will receive warrants to purchase 9.41% of the fully
diluted Surviving Corporation Common Stock at a nominal purchase price. However,
the Investors are currently exploring opportunities to privately or publicly
place such preferred stock prior to or after the closing of the transaction and
may offer warrants to purchasers in connection with any such placement.
68
<PAGE>
LITIGATION
The Company and the individual members of the Board of Directors and certain
of its executive officers have been named as defendants in THREE (3) lawsuits
filed in Court of Chancery of the State of Delaware in connection with the
Merger. In these proceedings the plaintiffs, on behalf of themselves and other
Stockholders, primarily assert that the members of the Board of Directors have
failed to maximize shareholder value and have breached their fiduciary duties
and that the Merger does not provide sufficient value to the Company and its
Stockholders. The plaintiffs seek, among other things, to enjoin the Merger. The
Company has consulted with counsel and believes that each of these lawsuits is
without merit and, accordingly, will have no material adverse affect on the
Company or the Merger. See "Litigation."
ACQUISITION OF XSL
GENERAL
On August 8, 1997, the Company, XSL Acquisition Corp. and the shareholders
of XSL (the "XSL Shareholders") entered into a share purchase agreement (the
"XSL Purchase Agreement"). A copy of the XSL Purchase Agreement is attached as
an exhibit to the Report on Form 8-K filed by the Company on August 12, 1997
which is incorporated by reference in this Proxy Statement. This summary of the
XSL Purchase Agreement is qualified in its entirety by reference to the entire
XSL Purchase Agreement included in such Form 8-K. Pursuant to the XSL Purchase
Agreement, XSL Acquisition Corp. agreed to acquire all of the share capital of
XSL for an aggregate purchase price of $87.0 million. The purchase price is
payable in two installments with an installment of $57.0 million due at the
closing and the remaining balance to be paid six months after such closing date.
Such purchase is subject to a maximum adjustment upward or downward of $1.5
million based upon the difference between XSL's net asset value on the last day
of the calendar month prior to the closing of the XSL Purchase Agreement based
upon the balance sheet of XSL for such date as audited by the Company's auditors
(Ernst & Young LLP) after the closing of such transaction and XSL's net asset
value for such date shown on the projected balance sheets previously delivered
to the Company.
REPRESENTATIONS AND WARRANTIES
The XSL Purchase Agreement contains customary representations and warranties
from the XSL Shareholders including, without limitation, with respect to (i) the
existence and good standing of XSL, (ii) the capital structure and outstanding
securities of XSL, (iii) the accuracy of XSL's historical financial statements
and the outstanding liabilities of XSL, (iv) tax matters with respect to XSL,
(v) XSL's title to its real and personal property, (vi) absence of changes with
respect to XSL since December 31, 1996, (vii) litigation matters, (viii) permits
and licenses held or used by XSL, (ix) material contracts to which XSL is a
party or is otherwise bound, (x) intellectual property matters, (xi) insurance
matters, (xii) employee benefit plans, (xiii) labor relations and employees,
(xiv) customers and suppliers and (xv) environmental matters. The XSL Purchase
Agreement also contains representations from the XSL Shareholders regarding
their ownership of the shares of XSL free and clear of all liens and their power
and authority to sell such shares. The representations and warranties given by
the XSL Shareholders will survive the closing of the XSL Purchase Agreement for
a period of one year and the APAX Funds are required to deliver a deed of
guaranty or letter of credit in the amount of $5,000,000 (the "APAX Letter of
Credit") to secure the payment of any claim of breach of representation or
warranty.
COVENANTS
The XSL Purchase Agreement also contains customary covenants regarding the
conduct of XSL's business pending the closing of such acquisition. Such
covenants include, without limitation, covenants with respect to: (a) operating
the business in the ordinary course, (b) preserving XSL's relationships with its
customers and suppliers, (c) maintaining its properties in their current state
of repair, (d) maintaining the
69
<PAGE>
current level of insurance, (e) limitations with respect to increases in
compensation for XSL's employees, (f) making no changes to its current capital
structure except as expressly contemplated by the XSL Purchase Agreement, (g)
restricting dividends and other distributions that may be made to XSL's
shareholders and (h) limiting the amount of capital expenditures that may be
made and indebtedness that may be incurred.
NO SOLICITATION
In addition, the XSL Purchase Agreement provides that the XSL Shareholders
may not initiate or solicit, directly or indirectly, any inquiries or the making
of any proposal with respect to, or engage in negotiations concerning, or
provide any confidential information or data to any person with respect to, or
have any discussions with any person relating to, any acquisition, business
combination, tender or exchange offer or purchase of all or any significant
asset of, or any equity interest in, directly or indirectly, XSL or its
subsidiaries, or otherwise facilitate any effort or attempt to do or seek any of
the foregoing and were required as of August 8, 1997 to cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
conducted theretofore with respect to any of the foregoing. The XSL Purchase
Agreement further provides that the XSL Shareholders will not permit XSL to
engage in any of the activities described in the preceding sentence.
CONDITIONS TO CLOSING
The obligation of XSL Acquisition Corp. to close the transactions
contemplated by the XSL Purchase Agreement are subject to several conditions
including, but not limited to: (a) the representations and warranties of the XSL
Shareholders being true and correct in all material respects on and as of such
closing date PROVIDED, that this condition will be satisfied unless the failure
of such representations and warranties to be true and correct (i) constitutes a
Material Adverse Change (as defined below) or (ii) with respect to certain
specified matters relating to the capitalization of XSL, the ownership of the
shares of XSL or the ability of the XSL Shareholders to sell the shares of XSL
to XSL Acquisition Corp., would cause any party to the XSL Purchase Agreement to
be unable to complete the transactions contemplated thereby or (iii) is as a
result of the actual revenues, cash flow (I.E., earnings before interest, taxes,
depreciation and amortization) or net profit for the aggregate six-month period
covered by the June 30, 1997 balance sheet delivered to XSL Acquisition Corp.,
being in any case less than 90% of the amount thereof reflected in such balance
sheet; (b) the XSL Shareholders having performed and complied in all material
respects with all agreements and covenants required by the XSL Purchase
Agreement to be performed and complied with by them; PROVIDED, that such
condition will be deemed satisfied unless the failure to perform and comply with
such agreements and covenants (1) constitutes a Material Adverse Change or (2)
involves a breach of certain specified covenants set forth in the XSL Purchase
Agreement; (c) all material consents required to be obtained by the XSL
Shareholders having been so obtained; (d) there being no pending legal action
that would make the XSL Acquisition illegal or prevent or delay such
transaction; (e) the APAX Funds delivering the APAX Letter of Credit; (f) there
having been no material adverse change in the business, financial condition or
operations of XSL which would reasonably likely result in a 10% or greater
decline in calendar 1998 for (i) revenues, (ii) cash flow or (iii) net profit of
XSL and its subsidiaries, taken as a whole, when compared to the period from
January 1, 1997 to the closing date of the XSL Purchase Agreement annualized (a
"Material Adverse Change"); (g) all stock options of XSL having either lapsed or
been exercised and included in the shares sold to XSL Acquisition Corp.; (h) a
key employee of XSL entering into an employment agreement with the Company; (i)
to the extent required, XSL having made all filings and satisfied all other
material requirements under English law to enable XSL to make certain payments;
and (j) all requirements necessary to redeem certain outstanding preferred
shares of XSL having been satisfied.
The obligation of the XSL Shareholders to close the transactions
contemplated by the XSL Purchase Agreement are subject to the following
conditions: (a) the representations and warranties of the Company
70
<PAGE>
and XSL Acquisition Corp. being true and correct in all material respects on and
as of such closing date; (b) XSL Acquisition Corp. having performed and complied
in all material respects with all agreements and covenants required by the XSL
Purchase Agreement to be performed and complied with by it; (c) all material
consents required to be obtained by the Company and XSL Acquisition Corp. having
been so obtained; (d) there being no pending legal action commenced against the
Company or XSL that would make the acquisition illegal or preventing or delaying
such transaction; and (e) the Company delivering a letter of credit in the
amount of $31.5 million to the XSL Shareholders to secure the payment of the
second installment of the purchase price pursuant to the XSL Purchase Agreement.
TERMINATION
The XSL Purchase Agreement may be terminated as follows: (i) by the mutual
written consent of the Company, XSL Acquisition Corp. and the XSL Shareholders,
(ii) by XSL Acquisition Corp., if (a) there is a Material Adverse Change, unless
such Material Adverse Change is cured by the XSL Shareholders within 10 days
after receipt of notice thereof, (b) the representations, warranties or
agreements of the XSL Shareholders contained in the XSL Purchase Agreement are
not true and correct or performed in all material respects and such
misrepresentation or breach (1) constitutes a Material Adverse Change and (2)
has not been waived by XSL Acquisition Corp. or cured by the XSL Shareholders
within 10 days after receipt of notice thereof, (iii) by the XSL Shareholders if
the representations, warranties or agreements of the Company and XSL Acquisition
Corp. contained in the XSL Purchase Agreement are not true and correct or
performed in all material respects and such misrepresentation or breach has not
been waived by the XSL Shareholders or cured by the Company and XSL Acquisition
Corp. within 10 days after receipt of notice thereof from the XSL Shareholders,
or (iv) by either XSL Acquisition Corp. or the XSL Shareholders if in the
reasonable judgment of such party there is an immovable and insurmountable legal
impediment to closing the transactions contemplated by the XSL Purchase
Agreement if such closing has not occurred on or prior to December 31, 1997 or
such later date as agreed upon the parties.
TERMINATION FEE
In the event the XSL Purchase Agreement is terminated by XSL Acquisition
Corp. in certain circumstances it will be entitled to receive a fee of $1.7
million from the XSL Shareholders or, under certain circumstances, it may be
entitled to seek specific performance from the XSL Shareholders.
DESCRIPTION OF XSL'S BUSINESS
GENERAL
XSL is a leading provider of Enhanced Services in the United Kingdom. To
capitalize on the market need for the provision of Enhanced Services, XSL was
formed as a start-up company in January 1993 by certain members of XSL's
management and the APAX Funds. The APAX Funds currently own approximately 75% of
XSL's outstanding share capital, a United Kingdom bank owns approximately 0.5%,
and the remainder of such outstanding share capital is held by XSL's management.
Through internal growth and strategic acquisitions, XSL has significantly
improved its financial performance since its formation. For the fiscal year
ended December 31, 1996, net revenues increased 143% to L16.3 million, EBITDA
increased 814% to L5.2 million and net income increased to L3.4 million from a
loss of L0.3 million in the prior year. Excluding acquisitions, XSL "same store"
revenues grew 262% to L15.9 million in 1996 from L4.4 million in 1995. The
historical audited consolidated financial data of XSL for the three fiscal years
ended December 31, 1996 and the unaudited consolidated data for the six months
ended June 30, 1997 and 1996 and the related notes thereto are included
elsewhere in this Proxy Statement. See "Financial Statements of XSL."
Based in York, England, XSL primarily provides to the U.K. market fax
broadcast and gateway messaging services similar to those provided by the
Company via XSL's network with points of presence in
71
<PAGE>
five cities located in three countries and approximately 1,000 fax lines. XSL's
customer base has historically been concentrated in the U.K. financial sector
where XSL has a significant market share.
PRODUCTS AND SERVICES
XSL currently provides a wide range of Enhanced Services. XSL's offering of
broadcast fax and gateway messaging services is substantially similar to those
offered by the Company with the exception that XSL does not offer certain
specialty broadcast fax services such as the Company's "Enhanced Fax Merging"
service. Gateway messaging services accounted for approximately 5% of XSL's net
revenues in 1996.
THE XSL NETWORK
Since January 1993, XSL and the Company have been party to a System and
Marketing Agreement (the "System and Marketing Agreement") whereby, among other
things, XSL agreed to purchase the Company's document distribution system and
license the Company's software (for which XSL pays royalties to the Company of
approximately 8% of XSL's net revenues). As a result, XSL's network architecture
essentially mirrors the Company's architecture. The main operations center and
system resides in York, England with remote delivery capability in Leeds,
London, Milan, Zurich and Geneva, all linked by XSL-leased private circuits.
XSL's system is then interconnected with the networks and systems of Xpedite,
XSG and XSSA via private circuits owned by the Company, XSG and XSSA. Currently
XSL has over 1,000 outbound telephone lines operational in the U.K. and has a
dual carrier strategy in the U.K. to provide enhanced fault protection.
A substantial portion of XSL's fax traffic terminates in major capital
cities where XSL or its affiliates have Nodes. XSL purchases its
telecommunications services in the U.K. primarily from two carriers. In 1996,
approximately L6.9 million of the total L8.9 million cost of sales related to
telecommunications costs with another L0.2 million relating to XSL network
costs.
SALES AND MARKETING
Direct sales by XSL's sales personnel accounted for more than 90% of XSL's
net revenues in 1996. As of June 30, 1997, XSL employed an 18-member sales
force.
In addition to XSL's direct sales force, indirect sales are made through
sales agents and resellers. While indirect sales were not a significant
component of XSL's sales efforts in prior years, it is becoming an increasing
focus of XSL's sales program. Sales agents accounted for approximately 7% of
XSL's net revenues in 1996 with resellers representing the remaining 3%.
STRATEGIC ACQUISITIONS AND RELATIONSHIPS
Another component of XSL's recent growth has been through several strategic
acquisitions completed by XSL. In July 1995, XSL acquired Transmit International
Ltd., and in March 1996 it acquired Connaught Commercial Services Ltd. Both
businesses consisted entirely of fax broadcast services. The customer bases from
both of these acquisitions have been migrated to XSL's network and both of the
acquired businesses' U.K. operations have been closed down.
In addition, XSL has entered into a number of agreements with U.K. companies
who are primarily systems integrators to provide computer to fax capabilities
utilizing the XSL network.
COMPETITION
Competition is relatively fragmented in the U.K. Enhanced Services market
due to the recent consolidation of the industry.
72
<PAGE>
EMPLOYEES
As of June 30, 1997, XSL employed 70 individuals. None of the employees are
represented by a union or subject to a collective bargaining agreement. XSL
considers its relations with its employees to be good.
PROPERTIES
In early 1997, XSL completed the purchase of a two-story building in York,
England consisting of 13,000 square feet in which XSL's headquarters are
located.
XSL also leases a self-contained facility within a multi-occupancy building
in the City of London consisting of 1,500 square feet on a lease which expires
in November 1997 on an annual rental of L22,500. XSL is currently searching for
new premises for its London sales operation. XSL also leases 3,000 square feet
of offices in York, England on a lease due to expire in May 1999. Currently XSL
subleases 1,500 square feet.
THE STOCKHOLDERS AGREEMENT
As provided in the Merger Agreement, the Company, the Investors and the
Stockholders (such Stockholders being the "Retaining Stockholders") who retain
Non-Cash Election Shares (the "Retained Shares") in the Merger will enter into
the Stockholders Agreement as of the Effective Time that will contain, among
other things, certain restrictions on the transfer of the Retained Shares. A
copy of the Stockholders Agreement is attached as Appendix D to this Proxy
Statement. The following is a summary of the Stockholders Agreement. All
references to and summaries of the Stockholders Agreement are qualified in their
entirety by reference to the Stockholders Agreement. Stockholders are urged to
read the Stockholders Agreement carefully and in its entirety prior to making a
determination on whether to elect to retain all such Stockholder's shares in the
Merger.
The Stockholders Agreement provides that the Retaining Stockholders will
agree not to transfer the Retained Shares prior to the first anniversary of the
Effective Time and will grant a right of first refusal to the Company and the
Investors with respect to any proposed sale of the Retained Shares thereafter.
The Stockholders Agreement also provides that the Investors will have
"drag-along" rights and the Retaining Stockholders will have "tag-along" rights
with respect to the Retained Shares. If the Investors decide to sell (x) all of
their remaining shares of the Company (other than to an affiliate of any of the
Investors) or (y) at least 80% of their shares of the Company provided that the
acquiring party or parties are acquiring at least 80% of the then outstanding
shares of the Company, and collectively hold more than 40% of the then
outstanding shares of the Company, then the Investors will have the right to
require the Retaining Stockholders to sell their remaining Retained Shares as
part of that sale on the same price and terms (or to vote in favor of any merger
or other transaction which would effect such a sale). If, prior to a registered
offering of equity securities of the Company or an institutional private
placement or an offering of such equity securities under Rule 144A of the
Securities Act (a "Public Offering"), the Investors propose to engage in a sale
of equity interests by them that would result in a transfer of 40% or more of
the then outstanding shares of the Company to an unaffiliated purchaser, then
the Retaining Stockholders will have the right to participate pro rata in such
sale transaction.
The Retaining Stockholders will be entitled to unlimited "piggyback"
registration rights at the Company's expense, subject to customary provisions
and restrictions. If requested by the Company in a non-underwritten public
offering, or by the underwriters for an underwritten public offering, of equity
securities of the Company, the Retaining Stockholders will agree not to sell or
transfer any equity securities of the Company for a period of 90 days (or such
longer period as may be required by the underwriters) following the
effectiveness of the registration statement relating to a Public Offering.
The Stockholders Agreement will grant the Retaining Stockholders the right
to receive quarterly and annual financial statements of the Company.
73
<PAGE>
The Stockholders Agreement will provide that, except under certain
conditions, agreements or transactions between the Company and any of the
Investors will require the prior approval of the holders of a majority of the
then outstanding voting common stock of the Company (excluding shares held by
the interested person and its affiliates).
APPRAISAL RIGHTS
If the Merger is consummated, a holder of record of Common Stock on the date
of making a demand for appraisal, as described below, who (i) continues to hold
such shares through the Effective Time, (ii) strictly complies with the
procedures set forth under Section 262 of the DGCL ("Section 262") and (iii) has
not voted in favor of the Merger will be entitled to have such shares appraised
by the Delaware Court of Chancery under Section 262 and to receive payment for
the "fair value" of such shares in lieu of the consideration provided for in the
Merger Agreement. This Proxy Statement is being sent to all holders of record of
Common Stock as of , 1997 and constitutes notice of the appraisal rights
available to such holders under Section 262. THE STATUTORY RIGHT OF APPRAISAL
GRANTED BY SECTION 262 REQUIRES STRICT COMPLIANCE WITH THE PROCEDURES SET FORTH
IN SECTION 262. FAILURE TO FOLLOW ANY OF SUCH PROCEDURES MAY RESULT IN A
TERMINATION OR WAIVER OF DISSENTERS' RIGHTS UNDER SECTION 262. The following is
a summary of certain of the provisions of Section 262 and is qualified in its
entirety by reference to the full text of Section 262, a copy of which is
attached to this Proxy Statement as Appendix E.
A holder of Common Stock electing to exercise appraisal rights under Section
262 must deliver a written demand for appraisal for such Stockholder's shares to
the Company prior to the vote on the Merger Agreement and the Merger. Such a
written demand must reasonably inform Xpedite Systems, Inc., One Industrial Way
West, Eatontown, N.J. 07724, Attention: Corporate Secretary of the identity of
the Stockholder of record and of such Stockholder's intention to demand
appraisal of his or its shares. All such demands should be delivered to the
Company.
Only a holder of shares of Common Stock on the date of making such written
demand for appraisal who continuously holds such shares through the Effective
Time is entitled to seek appraisal. Demand for appraisal must be executed by or
for the holder of record, fully and correctly, as such holder's name appears on
the holder's stock certificates representing shares of Common Stock. If Common
Stock is owned of record in a fiduciary capacity, such as by a trustee, guardian
or custodian, the demand should be made in that capacity, and if Common Stock is
owned of record by more than one person, as in a joint tenancy or tenancy in
common, the demand should be made by or for all owners of record. An authorized
agent, including one or more joint owners, may execute the demand for appraisal
for a holder of record; however, such agent must identify the record owner or
owners and expressly disclose in such demand that the agent is acting as agent
for the record owner or owners of such shares.
A record holder such as a broker who holds shares of Common Stock as a
nominee for beneficial owners, some of whom desire to demand appraisal, must
exercise appraisal rights on behalf of such beneficial owners with respect to
the shares of Common Stock held for such beneficial owners. In such case, the
written demand for appraisal should set forth the number of shares of Common
Stock covered by it. Unless a demand for appraisal specifies a number of shares,
such demand will be presumed to cover all shares of Common Stock held 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 with the statutory
requirements with respect to the exercise of appraisal rights before the date of
the Special Meeting.
Within ten days after the Effective Time, the Surviving Corporation is
required to send notice of the effectiveness of the Merger to each Stockholder
who prior to the Effective Time complied with the requirements of Section 262.
74
<PAGE>
Within 120 days after the Effective Time, the Surviving Corporation or any
Stockholder who has complied with the requirements of Section 262 may file a
petition in the Delaware Court of Chancery demanding a determination of the fair
value of the shares of Common Stock held by all Stockholders seeking appraisal.
A dissenting Stockholder must serve a copy of such petition on the Surviving
Corporation. If no petition is filed by either the Surviving Corporation or any
dissenting Stockholders within such 120 day period, the rights of all dissenting
Stockholders to appraisal will cease. Stockholders seeking to exercise appraisal
rights should not assume that the Surviving Corporation will file a petition
with respect to the appraisal of the fair value of their shares or that the
Surviving Corporation will initiate any negotiations with respect to the fair
value of such shares. Acquisition Corp. is under no obligation to and has no
present intention to take any action in this regard. Accordingly, Stockholders
who wish to seek appraisal of their shares should initiate all necessary action
with respect to the perfection of their appraisal rights within the time periods
and in the manner prescribed in Section 262. Failure to file the petition on a
timely basis will cause the Stockholder's right to an appraisal to cease.
Within 120 days after the Effective Time, any stockholder who has complied
with subsections (a) and (d) of Section 262 is entitled, upon written request,
to receive from the Company a statement setting forth the aggregate number of
shares of Common Stock not voted in favor of the Merger with respect to which
demands for appraisal have been received by the Company and the number of
holders of such shares. Such statement must be mailed within ten days after the
written request therefor has been received by the Company or within ten days
after expiration of the time for delivery of demands for appraisal under
subsection (d) of Section 262, whichever is later.
If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court of Chancery will determine which Stockholders are
entitled to appraisal rights and will appraise the shares of Common Stock owned
by such Stockholders, 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. In determining such fair value, the
court is to take into account all relevant factors. The Delaware Supreme Court
has stated 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 in the appraisal proceedings. The Delaware Supreme
Court has stated that, in making this determination of fair value, the court
must consider "market value, asset value, dividends, earnings prospects, the
nature of the enterprise and any other facts which were known or which could be
ascertained as of the date of the Merger which throw any light on future
prospects of the merged corporation." The Delaware Supreme Court also held that
"elements of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the merger and not the product
of speculation, may be considered." In addition, Delaware courts have decided
that the statutory appraisal remedy, depending on factual circumstances, may or
may not be a dissenter's exclusive remedy.
Stockholders considering seeking appraisal should consider that the fair
value of their shares determined under Section 262 could be more, the same or
less than the value of the Cash Price without the exercise of appraisal rights,
and that investment banking opinions as to fairness from a financial point of
view are not necessarily opinions as to fair value as determined under Section
262. The cost of the appraisal proceeding may be determined by the Court of
Chancery and assessed against the parties as such Court deems equitable in the
circumstances. Upon application of a dissenting Stockholder, the court 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 of the Common Stock entitled to appraisal.
In the absence of such a determination or assessment, each party bears its own
expenses.
Any Stockholder who has fully demanded appraisal in compliance with Section
262 will not, after the Effective Time, be entitled to receive payment of
dividends or other distributions on the Common Stock, except for dividends or
distributions payable to stockholders of record at a date prior to the Effective
75
<PAGE>
Time. The Company has no intention of declaring or paying any dividends on the
Common Stock prior to the consummation of the Merger.
A Stockholder may withdraw a demand for appraisal and accept the Cash Price
any time within 60 days after the Effective Time, or thereafter may withdraw
such demand with the written approval of the Company. In the event an appraisal
proceeding is properly instituted, such proceeding may not be dismissed as to
any Stockholder without the approval of the Delaware Court of Chancery, and any
such approval may be conditioned on the terms the Court of Chancery deems just.
If after the Effective Time a holder of Common Stock who had demanded appraisal
for such shares fails to perfect or loses his right to appraisal, such shares
will be treated under the Merger Agreement as if they had been converted as of
the Effective Time into the right to receive the Cash Price.
In view of the complexity of these provisions of Delaware law, any
Stockholder who is considering exercising appraisal rights should consult his
legal advisor.
76
<PAGE>
PROPOSAL TWO
CHARTER AMENDMENT
DESCRIPTION OF CAPITAL STOCK BEFORE MERGER
The Company is currently authorized by its Amended and Restated Certificate
of Incorporation to issue an aggregate of 15,000,000 shares of Common Stock and
1,000,000 shares of preferred stock, par value $.01 per share (the "Preferred
Stock"). As of the date of this Proxy Statement, there are no shares of
Preferred Stock issued or outstanding. The following is a summary of certain of
the rights and privileges pertaining to the Common Stock. For a full description
of Common Stock, reference is made to the Company's Amended and Restated
Certificate of Incorporation and By-Laws, as amended, as currently in effect,
copies of which are on file with the Commission, and to the Company's Amended
and Restated Certificate of Incorporation as the same is proposed to be in
effect in the case that the Charter Amendment is approved by the Stockholders.
VOTING RIGHTS
Holders of Common Stock are entitled to one vote per share on all matters
submitted to a vote of stockholders. Approval of matters brought before the
stockholders requires the affirmative vote of a majority of shares present and
voting.
DIVIDEND RIGHTS
Holders of Common Stock are entitled to participate in dividends as and when
declared by the Board of Directors of the Company out of funds legally available
therefor.
LIQUIDATION RIGHTS
Subject to the rights of creditors and holders of preferred stock, if any,
holders of Common Stock are entitled to share ratably in a distribution of
assets of the Company upon any liquidation, dissolution or winding-up of the
Company.
THE CHARTER AMENDMENT; DESCRIPTION OF CAPITAL STOCK AFTER MERGER
If the Merger and Charter Amendment are approved by the requisite vote of
the Stockholders at the Special Meeting, at the Effective Time, the Company's
Amended and Restated Certificate of Incorporation will be amended and restated.
A complete copy of the Company's Certificate of Incorporation as proposed to be
amended and restated by the Charter Amendment is attached as Appendix B to this
Proxy Statement and the summary contained herein is qualified in its entirety by
reference to the Charter Amendment.
The Charter Amendment provides for the authorization of a new class of
capital stock, the Class B Common Stock. The Common Stock and the Class B Common
Stock will have identical rights other than that holders of Class B Common Stock
will have two votes per share in the election of directors as compared to one
vote per share for holders of Common Stock. On all other matters, both Class B
Common Stock and Common Stock have one vote per share.
In connection with the Merger, 643,569 shares of Class B Common Stock will
be issued to the Management Stockholders in exchange for 643,569 shares of
Common Stock owned by them. Such shares will either be sold immediately prior to
the Merger by the Management Stockholders to the Investors or retained by the
Management Stockholders. In addition, the Investors will purchase 2,162,183
shares of Class B Common Stock from the Company prior to the Merger. All shares
of Class B Common Stock will be converted into shares of Common Stock of the
Surviving Corporation at the Effective Time on a one-for-one basis.
77
<PAGE>
The Board of Directors is currently, and after the Merger will be,
authorized (without obtaining the approval of the Stockholders), by adopting
appropriate resolutions and causing one or more certificates of designation to
be executed, acknowledged, filed, recorded and to become effective in accordance
with the DGCL, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences
and rights, dividend rights, dividend rate, conversion rights, exchange rights,
voting rights, rights and terms of redemption (including sinking fund
provisions), the redemption price or prices, and the liquidation preferences of
any wholly unissued series of shares of preferred stock. It is anticipated that
the Company will issue one or more series of preferred stock in connection with
the Merger.
OTHER INFORMATION AND STOCKHOLDER PROPOSALS
Management of the Company knows of no other matters that may properly be, or
which are likely to be, brought before the Special Meeting. However, if any
other matters are properly brought before such Special Meeting, the persons
named in the enclosed Proxy Statement or their substitutes intend to vote the
proxies in accordance with their judgment with respect to such matters, unless
authority to do so is withheld in the proxy.
EXPERTS
The consolidated financial statements of Xpedite Systems, Inc. appearing in
the Company's Annual Report on Form 10-K for the year ended December 31, 1996,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon included therein and incorporated herein by reference.
Such consolidated financial statements and schedule are incorporated by
reference in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing. Representatives of Ernst & Young 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.
The consolidated financial statements of Xpedite Systems Limited for the
year ended December 31, 1996 have been audited by Price Waterhouse LLP,
independent auditors to Xpedite Systems Limited, to the extent and for the
periods indicated in their report appearing elsewhere herein, and are included
herein upon the authority of such firm as experts in accounting and auditing.
LEGAL COUNSEL
The legality of the shares of Common Stock being retained in the Merger will
be passed upon by Paul, Hastings, Janofsky & Walker LLP, New York, New York.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement incorporates by reference documents which are not
presented herein or delivered herewith. Copies of any such documents relating to
the Company, other than exhibits to such documents (unless such exhibits
specifically are incorporated by reference in such documents), are available
without charge, upon written or oral request, from Xpedite Systems, Inc., One
Industrial Way West, Eatontown, New Jersey 07724, Attention: Corporate
Secretary, telephone: (732) 389-3900. In order to ensure timely delivery of the
documents requested, any such request should be made by , 1997.
The following documents previously filed by the Company with the Commission
(File Number 0-23394) are incorporated in this Proxy Statement by reference:
(1) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 filed with the Commission on March 28, 1997;
78
<PAGE>
(2) the Company's Proxy Statement for the Annual Meeting of Stockholders
held on May 15, 1997 and mailed to the Stockholders on April 14, 1997;
(3) the Company's Quarterly Report on Form 10-Q for the period ended March
31, 1997 filed with the Commission on May 15, 1997;
(4) the Company's Quarterly Report on Form 10-Q for the period ended June
30, 1997 filed with the commission on August 14, 1997; and
(5) the Company's Current Report on Form 8-K filed with the Commission on
August 12, 1997.
All reports and other documents subsequently filed by the Company with the
Commission pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act
prior to the date of the Special Meeting shall be deemed to be incorporated by
reference herein and to be part hereof from the date of the filing of such
reports and documents.
Any statement contained in a document 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 that also is or is deemed to
be incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute part of this Proxy Statement.
79
<PAGE>
XPEDITE SYSTEMS LIMITED
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of directors and
shareholders of Xpedite Systems Limited
We have audited the accompanying consolidated balance sheets of Xpedite
Systems Limited (the "company") and its subsidiary companies (the "group") at 31
December 1995 and 1996 and the related consolidated profit and loss accounts,
and cash flows for each of the three years ended 31 December, all expressed in
pounds sterling, and prepared on the basis set forth in Note 1 to the
consolidated financial statements. The financial statements are the
responsibility of the company's directors. Our responsibility is to express an
opinion on those financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United Kingdom which do not differ in any significant respect
from auditing standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the group's financial position at 31
December 1995 and 1996 and the results of its operations and its cash flows for
each of the three years ended 31 December 1996, in conformity with accounting
principles generally accepted in the United Kingdom.
Accounting principles generally accepted in the United Kingdom differ in
certain significant respects from accounting principles generally accepted in
the United States of America. The application of the latter would have affected
the determination of the group's consolidated profit after taxation for each of
the three years ended 31 December 1996 and of consolidated shareholders' equity
and of the consolidated financial position at 31 December 1995 and 1996. Note 22
to the consolidated financial statements summarises these effects for each of
the three years ended 31 December 1996 and at 31 December 1995 and 1996.
PRICE WATERHOUSE
Leeds, England
16 September 1997
F-1
<PAGE>
XPEDITE SYSTEMS LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED 31 DECEMBER
------------------------------------------
NOTES 1994 1995 1996
----- ------------- ------------- ------------
<S> <C> <C> <C> <C>
TURNOVER
Continuing operations......................................... 1,144,318 4,396,376 15,892,498
Acquisitions.................................................. 2 -- 2,431,418 440,634
------------- ------------- ------------
1,144,318 6,827,794 16,333,132
Cost of sales................................................. (884,375) (4,334,054) (8,984,235)
------------- ------------- ------------
GROSS PROFIT 259,943 2,493,740 7,348,897
Administrative expenses....................................... (1,011,573) (2,179,349) (2,631,380)
OPERATING PROFIT/(LOSS)....................................... 3
- -Continuing operations........................................ (751,630) 222,415 4,783,732
- -Acquisitions................................................. -- 91,976 (66,215)
------------- ------------- ------------
(751,630) 314,391 4,717,517
Exceptional write down of fixed assets -- (390,548) --
Interest receivable........................................... 9,167 25,610 12,654
Interest payable.............................................. 5 (584) (161,631) (456,203)
------------- ------------- ------------
PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE TAXATION.......... (743,047) (212,178) 4,273,968
Tax on profit/(loss) on ordinary activities................... 6 -- (63,617) (894,372)
------------- ------------- ------------
PROFIT/(LOSS) ON ORDINARY ACTIVITIES AFTER TAXATION........... (743,047) (275,795) 3,379,596
Appropriations in respect of non-equity shares................ 7 (141,829) (315,186) (672,865)
------------- ------------- ------------
PROFIT/(LOSS) FOR THE FINANCIAL YEAR TRANSFERRED TO/(FROM)
RESERVES.................................................... 13 L(884,876) L(590,981) L2,706,731
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
The financial statements are prepared on an unmodified historical cost basis.
There are no recognised gains or losses other than as shown above.
The above-noted appropriations in respect of non-equity shares includes amounts
which cannot legally be declared as dividends and have been added back as a
movement on the profit and loss account reserve as shown in Note 13.
F-2
<PAGE>
XPEDITE SYSTEMS LIMITED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOTES 31 DECEMBER
----- ----------------------------
<S> <C> <C> <C>
1995 1996
------------- -------------
FIXED ASSETS
Tangible fixed assets....................................................... 8 1,466,680 1,864,630
------------- -------------
CURRENT ASSETS
Debtors..................................................................... 9 2,833,101 4,761,650
Cash........................................................................ 587,586 419,765
------------- -------------
3,420,687 5,181,415
CREDITORS (AMOUNTS FALLING DUE WITHIN ONE YEAR) 10 (4,091,619) (5,308,574)
------------- -------------
NET CURRENT ASSETS/(LIABILITIES)............................................ (670,932) (127,159)
TOTAL ASSETS LESS CURRENT LIABILITIES....................................... 795,748 1,737,471
------------- -------------
CREDITORS (AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR).................... 11 (3,250,000) (3,515,000)
------------- -------------
L(2,454,252) L(1,777,529)
------------- -------------
------------- -------------
CAPITAL AND RESERVES
Called up share capital..................................................... 12 3,749,274 5,329,033
Unissued non-equity share capital........................................... 12 1,568,959 --
Profit and loss account..................................................... 13 (1,582,074) 1,194,173
------------- -------------
3,736,159 6,523,206
Goodwill write-off reserve.................................................. 13 (6,190,411) (8,300,735)
------------- -------------
TOTAL SHAREHOLDERS' FUNDS-DEFICIT........................................... L(2,454,252) L(1,777,529)
------------- -------------
------------- -------------
EQUITY INTERESTS............................................................ (7,929,500) (7,323,093)
NON-EQUITY INTERESTS........................................................ 5,475,248 5,545,564
------------- -------------
L(2,454,252) L(1,777,529)
------------- -------------
------------- -------------
</TABLE>
F-3
<PAGE>
XPEDITE SYSTEMS LIMITED
CONSOLIDATED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED 31 DECEMBER
------------------------------------
NOTES 1994 1995 1996
----- ---------- ----------- -----------
<S> <C> <C> <C> <C>
CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES................... 17 (595,776) 533,134 2,536,277
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received................................................. 9,167 25,610 12,653
Interest paid..................................................... -- (33,336) (583,019)
Interest element of hire purchase lease payments.................. (584) (295) (50)
---------- ----------- -----------
NET CASH INFLOW/(OUTFLOW) FROM RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE............................................ 8,583 (8,021) (570,416)
TAXATION
Corporation tax paid.............................................. -- (239,028) (5,500)
ACT paid.......................................................... -- (221,639) --
---------- ----------- -----------
-- (460,667) (5,500)
INVESTING ACTIVITIES
Deferred consideration............................................ -- -- (154,086)
Payments to acquire tangible fixed assets......................... (295,782) (1,093,675) (876,571)
Purchase of subsidiary undertakings............................... 18 -- (3,168,703) (2,105,523)
---------- ----------- -----------
NET CASH OUTFLOW FROM INVESTING ACTIVITIES........................ (295,782) (4,262,378) (3,136,180)
---------- ----------- -----------
NET CASH OUTFLOW BEFORE FINANCING................................. (882,975) (4,197,932) (1,175,819)
FINANCING
Issue of ordinary share capital................................... -- -- 10,000
Issue of A ordinary share capital................................. -- 50,000 --
Issue of cumulative redeemable preference shares.................. 1,000,000 400,000 --
Secured loan repayable within five years.......................... -- 4,000,000 1,000,000
Capital element of HP hire purchase lease payments................ (2,951) (2,942) (2,002)
---------- ----------- -----------
NET CASH INFLOW FROM FINANCING.................................... 19 997,049 4,447,058 1,007,998
---------- ----------- -----------
(DECREASE)/INCREASE IN CASH....................................... 20 L114,074 L249,126 L(167,821)
CASH AT 1 JANUARY................................................. 224,386 338,460 587,586
---------- ----------- -----------
CASH AT 31 DECEMBER............................................... L338,460 L587,586 L419,765
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
F-4
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
1 ACCOUNTING POLICIES
The financial statements have been prepared under the historical cost
convention and in accordance with applicable accounting standards. The principal
accounting policies are set out below.
(1) BASIS OF CONSOLIDATION
The group's financial statements consolidate the financial statements of
Xpedite Systems Limited and its subsidiaries. When businesses are acquired or
sold during the year, their results are included from or to the date on which
control passes.
(2) TURNOVER
Turnover represents the invoiced value of services provided in the year,
excluding Value Added Tax.
(3) TANGIBLE FIXED ASSETS AND DEPRECIATION
Tangible fixed assets are stated at cost less accumulated depreciation. The
cost of assets is written off in equal annual instalments over estimated useful
lives, which are as follows:
<TABLE>
<S> <C>
Motor vehicles.................................................... 3 years
Computers, equipment and furniture................................ 3-5 years
</TABLE>
(4) FOREIGN EXCHANGE
Transactions denominated in foreign currencies are converted into sterling
at the rates ruling at the transaction date. Assets and liabilities denominated
in foreign currencies are included in the balance sheet at the rates prevailing
at that date. Any translation differences arising are dealt with in the profit
and loss account.
(5) LEASE AND HIRE PURCHASE ARRANGEMENTS
Assets held under hire purchase arrangements and their related obligations
are recorded at the value of the asset at inception. The amount by which
payments exceed the recorded liability are treated as finance charges and are
written off over the term of the hire purchase agreement so as to give a
constant rate of charge.
Rental costs under operating leases are charged to the profit and loss
account in the period in which they are incurred.
(6) GOODWILL
Goodwill represents the difference between the value of a business acquired,
as represented by the consideration paid, and the fair value of the net assets
acquired and is written off to a goodwill reserve on consolidation.
(7) TAXATION
The charge for taxation is based upon the results for the year and takes
into account deferred taxation, calculated on the liability method, which is
provided to the extent that the directors consider a liability will crystallise
in the foreseeable future.
F-5
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2 INVESTMENTS IN SUBSIDIARIES
On 7 July 1995 the company acquired the whole of the issued ordinary share
capital of Transmit International Limited.
The aggregate book and fair values of the assets acquired were as follows:
<TABLE>
<CAPTION>
BOOK VALUE AND
FAIR VALUE TO
GROUP
-----------------
<S> <C>
Tangible fixed assets.......................................................................... 390,548
Debtors........................................................................................ 1,237,113
Cash........................................................................................... 354,695
Creditors (amounts falling due within one year)................................................ (1,849,895)
-----------------
Net assets acquired............................................................................ L132,461
-----------------
-----------------
Consideration
Cash........................................................................................... 3,364,504
Cumulative redeemable A preference shares issued (Note 12)..................................... 1,074,274
Expenses of acquisitions....................................................................... 158,894
-----------------
4,597,672
Deferred consideration.........................................................................
Cash........................................................................................... 156,241
Cumulative redeemable A preference shares (Note 12)............................................ 1,568,959
-----------------
1,725,200
-----------------
L6,322,872
-----------------
-----------------
Goodwill written off to reserves (Note 13)..................................................... L6,190,411
-----------------
-----------------
</TABLE>
The following cumulative redeemable A preference shares were issued as fully
paid and cash payments made in satisfaction of the deferred consideration:
<TABLE>
<CAPTION>
CUMULATIVE
REDEEMABLE
PREFERENCE
CASH SHARES TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
12 January 1996......................................................... 90,900 909,900 1,000,800
15 February 1996........................................................ 60,986 609,859 670,845
11 September 1996....................................................... 2,200 50,000 52,200
------------ ------------ ------------
L154,086 L1,569,759 L1,723,845
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The par value of the redeemable A preference shares was considered to be
equivalent to their fair market value at the date of question.
The total deferred consideration of L1,723,845 when compared to the original
estimate of L1,725,200 provided at 31 December 1995, resulted in a downward
revision of L1,355 to goodwill in 1996. The level of deferred consideration was
based on sales levels for the six month period ended 31 December 1995. These
targets were substantially achieved.
F-6
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2 INVESTMENTS IN SUBSIDIARIES (CONTINUED)
The results of Transmit International Limited from 1 January 1995 to the
date of acquisition were as follows compared with its results for the previous
year:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
31 DECEMBER 1994 7 JULY 1995
----------------- -------------
<S> <C> <C>
Turnover........................................................................ 3,472,499 2,558,838
Cost of sales................................................................... (1,939,758) (1,625,914)
Gross profit.................................................................... 1,532,741 932,924
Other operating expenses........................................................ (762,110) (469,922)
----------------- -------------
Operating profit................................................................ 770,631 463,002
Interest........................................................................ 3,458 24,438
----------------- -------------
Profit before taxation.......................................................... 774,089 487,440
Taxation........................................................................ (239,028) (168,343)
----------------- -------------
Profit after taxation........................................................... L535,061 L319,097
----------------- -------------
----------------- -------------
</TABLE>
Transmit International Limited recognised no gains or losses other than the
profit for the periods.
On 15 March 1996 the company acquired the whole of the issued ordinary share
capital of Connaught Commercial Services Limited.
The aggregate book and fair values of the assets acquired were as follows:
<TABLE>
<CAPTION>
FAIR VALUE
BOOK VALUE ADJUSTMENTS TO GROUP
------------ ----------- ------------
<S> <C> <C> <C>
Intangible fixed assets................................................. 2,676,550 (2,676,550) --
Debtors................................................................. 336,810 (18,618) 318,192
Creditors (amounts falling due within one year)......................... (324,348) -- (324,348)
Net liabilities acquired................................................ 2,689,012 (2,695,168) (6,156)
Intangible assets held for sale......................................... 1,152,150 -- 1,152,150
Net assets acquired..................................................... L1,145,994
------------
------------
Consideration:
Cash.................................................................... 3,146,613
Expenses of acquisition................................................. 111,060
------------
L3,257,673
Goodwill written off to reserves (Note 13).............................. L2,111,679
------------
------------
</TABLE>
On the day of acquisition of Connaught Commercial Services Limited, the
company sold intangible assets, representing customer lists for U.S.A. and
Germany based customers, at estimated book value to Xpedite Systems, Inc. and
Xpedite Systems GmbH for total cash consideration of L1,152,150.
F-7
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2 INVESTMENTS IN SUBSIDIARIES (CONTINUED)
The results of Connaught Commercial Services Limited for the 26 weeks ended
13 March 1996, were as follows:
<TABLE>
<S> <C>
Turnover.......................................................................... 224,859
Cost of sales..................................................................... (173,356)
---------
Gross profit...................................................................... 51,503
Other operating expenses.......................................................... (32,878)
---------
Profit before taxation............................................................ 18,625
Taxation.......................................................................... (6,156)
---------
Profit after taxation............................................................. L12,469
---------
---------
</TABLE>
The principal activity of the subsidiary undertakings was the provision of
fax broadcast services in the United Kingdom and both have ceased to trade in
the period since acquisition. The subsidiary undertakings are registered in
England.
3 OPERATING PROFIT/(LOSS)
<TABLE>
<CAPTION>
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C>
L L L
Operating profit/(loss) is stated after charging:
Rentals under operating leases
Plant and machinery.......................................................... 41,382 54,071 57,147
Land and buildings........................................................... 33,011 73,965 86,675
Depreciation
Owned assets................................................................. 132,122 251,825 476,305
Assets held under hire purchase contracts.................................... 4,638 2,316 2,316
Auditors' remuneration....................................................... 5,000 12,000 12,000
Staff costs (Note 4)......................................................... 508,728 1,244,439 2,007,962
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
F-8
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
4 DIRECTORS' EMOLUMENTS AND STAFF COSTS
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Staff costs during the year comprised:
Salaries (including directors' emoluments).............................. 455,306 1,123,651 1,847,884
Social security costs................................................... 53,422 120,788 160,078
------------ ------------ ------------
------------ ------------ ------------
L508,728 L1,244,439 L2,007,962
Remuneration of Chairman................................................ LNil LNil LNil
------------ ------------ ------------
------------ ------------ ------------
Remuneration of highest paid director................................... L74,656 L225,183 L73,888
------------ ------------ ------------
------------ ------------ ------------
No pension contributions are made in respect of directors.
The average number of persons employed by the group during the year
was:.................................................................. Number Number Number
Sales................................................................... 11 15 12
Administration.......................................................... 9 18 51
------------ ------------ ------------
20 33 63
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
5 INTEREST PAYABLE
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Hire purchase interest....................................................... 584 295 50
Interest on loans repayable within five years................................ -- 161,336 456,153
---------- ---------- ----------
L584 L161,631 L456,203
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
6 TAXATION
<TABLE>
<CAPTION>
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C>
Current year corporation tax at 33%............................................ -- 63,717 1081289
Prior years.................................................................... -- -- (186,917)
--------- ---------- ----------
L- L63,717 L894,372
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
The tax charges have been reduced due to the utilisation of tax losses
brought forward from previous years.
7 APPROPRIATIONS IN RESPECT OF NON-EQUITY SHARES
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cumulative redeemable preference share dividends (Note 12)................... 141,829 224,020 237,500
Cumulative redeemable A preference share redemption premium (Note 12)........ -- 91,166 435,365
---------- ---------- ----------
L141,829 L315,186 L672,865
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-9
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
8 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
COMPUTERS,
EQUIPMENT
FREEHOLD MOTOR AND
PROPERTY VEHICLES FURNITURE TOTAL
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
GROUP AND COMPANY
COST
At 1 January 1995............................................... -- 11,595 812,235 823,830
Assets of acquired business..................................... -- -- 659,342 659,342
Additions....................................................... -- -- 1,093,675 1,093,675
Exceptional write down.......................................... -- -- (659,342) (659,342)
--------- --------- ------------ ------------
At 1 January 1996............................................... -- 11,595 1,905,910 1,917,505
Additions....................................................... 90,000 -- 786,571 876,571
--------- --------- ------------ ------------
At 31 December 1996............................................. 90,000 11,595 2,692,481 2,794,076
--------- --------- ------------ ------------
--------- --------- ------------ ------------
DEPRECIATION
At 1 January 1995............................................... -- 5,797 190,887 196,684
Assets of acquired business..................................... -- -- 268,794 268,794
Charge for the year............................................. -- 2,316 251,825 254,141
Exceptional write down.......................................... -- -- (268,794) (268,794)
--------- --------- ------------ ------------
At 1 January 1996............................................... -- 8,113 442,712 450,825
Charge for the year............................................. -- 2,316 476,305 478,621
--------- --------- ------------ ------------
At 31 December 1996............................................. -- 10,429 919,017 929,446
--------- --------- ------------ ------------
--------- --------- ------------ ------------
NET BOOK AMOUNT
At 31 December 1996............................................. L90,000 L1,166 L1,773,464 L1,864,630
--------- --------- ------------ ------------
--------- --------- ------------ ------------
At 31 December 1995............................................. LNil L3,482 L1,463,198 L1,466,680
--------- --------- ------------ ------------
--------- --------- ------------ ------------
</TABLE>
The net book amount at 31 December 1996 includes no amount (1995 L5,798) in
respect of equipment held under hire purchase arrangements.
9 DEBTORS
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Trade debtors......................................................................... 2,435,896 4,294,176
Amounts owed by related parties (Note 21)............................................. 378,750 304,373
Other debtors and prepayments......................................................... 18,455 163,101
------------ ------------
L2,833,101 L4,761,650
------------ ------------
------------ ------------
</TABLE>
F-10
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10 CREDITORS (AMOUNTS FALLING DUE WITHIN ONE YEAR)
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Bank loan (Note 11)................................................................... 750,000 1,485,000
Hire purchase liabilities............................................................. 2,002 --
Trade creditors....................................................................... 1,686,357 1,533,210
Dividend payable...................................................................... -- 603,349
Amounts owed to related parties (Note 21)............................................. 804,642 243,299
Other creditors and accruals.......................................................... 450,714 96,120
Corporation tax....................................................................... 10,322 905,349
Social security and other taxes....................................................... 231,341 442,247
Deferred purchase consideration....................................................... 156,241 --
------------ ------------
L4,091,619 L5,308,574
------------ ------------
------------ ------------
</TABLE>
11 CREDITORS (AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR)
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Bank loan............................................................................. L3,250,000 L3,515,000
------------ ------------
------------ ------------
</TABLE>
The loan is wholly repayable within five years and is secured by a mortgage
over the assets of the company and its subsidiary undertakings.
AGGREGATE AMOUNTS REPAYABLE
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Within one year....................................................................... 750,000 1,485,000
Between one and two years............................................................. 750,000 1,515,000
Between two and five years............................................................ 2,500,000 2,000,000
------------ ------------
L4,000,000 L5,000,000
------------ ------------
------------ ------------
</TABLE>
F-11
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
12 CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
1995 1996
-------------------------- --------------------------
NUMBER L NUMBER L
<S> <C> <C> <C> <C>
AUTHORISED
Ordinary shares of L1.................................... 83,333 83,333 83,333 83,333
A ordinary shares of L1.................................. 250,000 250,000 250,000 250,000
Cumulative redeemable preference shares of L1............ 2,775,000 2,775,000 2,775,000 2,775,000
Cumulative redeemable A preference shares of L1.......... 2,712,094 2,712,094 2,712,094 2,712,094
Cumulative redeemable B preference shares of L1.......... 6,238,778 6,238,778 6,238,778 6,238,778
------------ ------------ ------------ ------------
12,059,205 12,059,205 12,059,205 12,059,205
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
ISSUED AND FULLY PAID
Ordinary shares of L1 50,000 50,000 60,000 60,000
A ordinary shares of L1.................................. 250,000 250,000 250,000 250,000
Cumulative redeemable preference shares of L1............ 2,375,000 2,375,000 2,375,000 2,375,000
Cumulative redeemable A preference shares of L1.......... 1,074,274 1,074,274 2,644,033 2,644,033
Cumulative redeemable B preference shares of L1.......... -- -- -- --
------------ ------------ ------------ ------------
3,749,274 3,749,274 5,329,033 5,329,033
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
During the year ended 31 December 1995, the authorised numbers of ordinary
and A ordinary shares were increased to 83,333 and 250,000, respectively. Two
new classes of cumulative preference share were created during the year ended 31
December 1995.
During the year ended 31 December 1995, 400,000 cumulative redeemable
preference shares and 50,000 A ordinary shares were issued at par to existing
shareholders. In addition 1,074,274 cumulative redeemable A preference shares
were issued to finance the acquisition of Transmit International Limited (Note
2).
During the year ended 31 December 1996, 10,000 ordinary shares were issued
for cash at par and 1,569,759 cumulative redeemable A preference share were
issued at par. The preference shares were issued as part of the consideration
for the acquisition of Transmit International Limited.
The A ordinary and ordinary shares have equal voting rights. None of the
cumulative redeemable preference shares have voting rights. The A and B
cumulative redeemable preference shares rank PARI PASSU with the cumulative
redeemable preference shares for capital distribution purposes. The A ordinary
shares rank pari passu with the ordinary shares for dividend and in priority to
them for capital distribution purposes, but behind the cumulative redeemable
preference shares for both.
The cumulative redeemable A preference shares are redeemable at a premium
representing 17.5% of the paid up amount in issue per annum. The accumulated
premium at 31 December 1996 was L526,531 (1995 L91,166). The shares are
redeemable at the earlier of:
-- a request from holders of these shares on the anniversary of the date of
issue
-- an agreement being reached for the sale of the ordinary and A ordinary
shares
-- 1 January 1998
F-12
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
12 CALLED UP SHARE CAPITAL (CONTINUED)
The cumulative redeemable B preference shares are entitled to receive a
dividend at the annual rate of 15% of the paid up amount. No cumulative
redeemable B preference shares have been issued. The cumulative redeemable A
preference share dividend is to be paid in priority to dividends on cumulative
redeemable B preference shares and both in priority to the dividends on
cumulative redeemable preference shares.
No dividends were payable in respect of the cumulative redeemable preference
shares in respect of accounting periods up to 31 December 1994. Subject to the
availability of sufficient distributable reserves, dividends are to be declared
payable in respect of subsequent years at the annual rate of 10% of the paid up
amount. The dividend amount in respect of 1996 was L237,500 (1995 L224,020,
declared in 1996, L141,824 declared in 1996). Dividends are payable on
redemptions of the shares. The cumulative redeemable preference shares and
redeemable preference shares are redeemable when agreement is reached for sale
of the ordinary and A ordinary shares.
13 RESERVES
<TABLE>
<CAPTION>
PROFIT AND LOSS ACCOUNT GOODWILL WRITE-OFF RESERVE
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
1995 1996 1995 1996
------------- ------------- ------------- -------------
At 1 January.......................................... (1,306,279) (1,582,074) -- (6,190,411)
Profit/(loss) for the financial year.................. (590,981) 2,706,731 -- --
Goodwill written off (Note 2)......................... -- -- (6,190,411) (2,111,679)
Goodwill adjustment re prior year acquisition (Note
2).................................................. -- -- -- 1,355
Adjustment in respect of premium on redemption of
preference shares................................... 91,166 435,365 -- --
Preference share dividend (from prior year
declared)/not declarable............................ 224,020 (365,849) -- --
------------- ------------- ------------- -------------
At 31 December........................................ L(1,582,074) L1,194,173 L(6,190,411) L(8,300,735)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
F-13
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
14 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1994 1995 1996
---------- ------------- -------------
<S> <C> <C> <C>
Profit/(loss) on ordinary activity for the year......................... (743,047) (275,795) 3,379,596
Dividends declared on cumulative redeemable preference shares........... -- -- (603,349)
New unissued cumulative redeemable A preference shares.................. -- 1,568,959 --
Adjustment to cumulative redeemable A preference shares................. -- -- 800
New share capital issued................................................ 1,000,000 1,524,274 10,000
Adjustment to goodwill.................................................. -- -- 1,355
Goodwill written off on acquisition..................................... (6,190,411) (2,111,679)
---------- ------------- -------------
Net addition to/(reduction in) shareholders' funds...................... 256,953 (3,372,973) 676,723
Shareholders' funds at 1 January........................................ 661,768 918,721 (2,454,252)
---------- ------------- -------------
Shareholders' funds at 31 December...................................... L918,721 L(2,454,252) L(1,777,529)
---------- ------------- -------------
---------- ------------- -------------
</TABLE>
15 CAPITAL COMMITMENTS
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Authorised and contracted................................................................. L276,315 L810,000
---------- ----------
---------- ----------
</TABLE>
16 OPERATING LEASE COMMITMENTS
The group was committed to make the following payments in respect of
operating leases in the subsequent year:
<TABLE>
<CAPTION>
LAND AND BUILDINGS OTHER
-------------------- --------------------
<S> <C> <C> <C> <C>
1995 1996 1995 1996
--------- --------- --------- ---------
Leases which expire:
Within less than two years............................................ L15,555 L8,128 L23,833 L16,230
Within two to five years.............................................. L45,385 L48,025 L7,620 L13,752
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
17 RECONCILIATION OF OPERATING PROFIT/(LOSS) TO CASH INFLOW (OUTFLOW) FROM
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Operating profit/(loss).................................................. (751,630) 314,391 4717517
Depreciation charge...................................................... 136,760 254,141 478,621
Increase in debtors...................................................... (257,196) (1,278,535) (1,610,357)
(Decrease)/increase in creditors......................................... 276,290 1,243,137 (1,049,504)
----------- ----------- ------------
Net cash inflow/(outflow) from operating activities...................... L(595,776) L533,134 L2,536,277
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
F-14
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
18 ANALYSIS OF OUTFLOW OF CASH IN RESPECT OF THE PURCHASE
OF SUBSIDIARY UNDERTAKINGS
<TABLE>
<CAPTION>
1994 1995 1996
----- ------------ -------------
<S> <C> <C> <C>
Cash consideration paid....................................................... -- 3,364,504 3146613
Cash received on disposal of intangible assets................................ -- -- (1,152,150)
Cash balances acquired........................................................ -- (354,695) --
Expenses...................................................................... -- 158,894 111,060
--- ------------ -------------
L-- L3,168,703 L2,105,523
--- ------------ -------------
--- ------------ -------------
</TABLE>
19 ANALYSIS OF CHANGES IN FINANCING
<TABLE>
<CAPTION>
LOAN AND HIRE
ISSUED PURCHASE
SHARE LEASE
CAPITAL OBLIGATIONS
------------ -------------
<S> <C> <C>
At 1 January 1994................................................................... 1,225,000 7395
Cash inflow from financing.......................................................... 1,000,000 (2,451)
------------ -------------
At 1 January 1995................................................................... 2,225,000 4,944
Cash inflow from financing.......................................................... 450,000 3,997,058
Shares issued for non-cash consideration............................................ 1,074,274 --
------------ -------------
At 1 January 1996................................................................... 3,749,274 4,002,002
Cash inflows from financing......................................................... 10,000 997,998
Shares issued for non-cash consideration............................................ 1,569,759 --
------------ -------------
At 31 December 1996................................................................. L5,329,033 L5,000,000
------------ -------------
------------ -------------
</TABLE>
F-15
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
20 RECONCILIATION OF CASHFLOW TO MOVEMENT IN CASH
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
Cash balance................................................................ L338,460 L587,586 L 419,765
---------- ---------- -----------
---------- ---------- -----------
Cash inflow/(outflow)....................................................... L114,074 L249,126 L(167,821)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
21 RELATED PARTIES
Xpedite Systems Inc ("XSI"), a US corporation, had, during the period of
these financial statements, an option to acquire, under certain conditions at
some future date, shares of the company. XSI has similar arrangements with a
French company, Xpedite Systems SA ("XSF") and with a German company Xpedite
Systems GmbH ("XSG") which are engaged in the same area of business as Xpedite
Systems Limited. Under the terms of a license agreement between the company and
XSI, royalty payments are made to XSI as a fixed percentage of sales less
communication costs. During the ordinary course of business the company has
entered into certain transactions with XSI, XSF and XSG which are summarised
below:
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- ---------
<S> <C> <C> <C>
L'000 L'000 L'000
Sales by the group......................................................................... 224 568 889
--- --- ---------
--- --- ---------
Purchase of tangible fixed assets.......................................................... 139 935 609
--- --- ---------
--- --- ---------
Charges payable by the group, reflected in cost of sales................................... 67 338 2,048
--- --- ---------
--- --- ---------
Proceeds from sale of intangible assets.................................................... -- -- 1,152
--- --- ---------
--- --- ---------
</TABLE>
22 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED KINGDOM AND THE UNITED STATES
These consolidated financial statements of the group have been prepared in
accordance with accounting principles generally accepted in the United Kingdom
("UK GAAP ") which differ in certain significant respects from accounting
principles generally accepted in the United States of America ("US GAAP"). The
effects of significant differences between UK GAAP and US GAAP, insofar as they
relate to the group, are as follows:
(A) GOODWILL AND OTHER INTANGIBLE ASSETS
Under UK GAAP goodwill arising on consolidation may be written off directly
to reserves. Under US GAAP goodwill, representing the excess of consideration
paid over the fair value of the net assets of businesses acquired is amortised,
the estimated period of useful life, not to exceed 40 years. US GAAP requires
valuation of identifiable acquired intangible assets. For US GAAP purposes the
company, having evaluated their reasonable lives, is amortising goodwill and
other acquired intangible assets arising on acquisitions over a period of ten
years. Goodwill is not an allowable charge for taxation purposes in the United
Kingdom.
For UK GAAP purposes, the company recorded fixed assets acquired in 1995 in
the acquisition of Transmit International Limited at book value which
approximated the fair value in use at the time of
F-16
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED KINGDOM AND THE UNITED STATES (CONTINUED)
acquisition. The assets were subsequently abandoned resulting in a loss for UK
GAAP purposes of L390,548.
For US GAAP purposes, such assets have been accounted for as assets to be
disposed of at their disposed value of nil. Accordingly, for US GAAP purposes
the loss on disposal has been reversed with a corresponding increase in
goodwill.
(B) DEFERRED INCOME TAXES
Under UK GAAP, deferred income taxes are accounted for, in calculating the
effect of such difference in accounting policy, to the extent that it is
considered probable that a liability or asset will crystallise in the
foreseeable future. Under US GAAP, deferred income taxes are accounted for on
all temporary differences between the book and tax values of assets and
liabilities. A valuation allowance is established where it is more likely than
not that they will be realised.
The company has no significant deferred tax assets or liabilities, other
than net operating losses existing as of 31 December 1995 and 1994. Due to the
company's recurring losses, prior to 1996, at 31 December 1995 and 1994 the
company considered it more likely than not that the deferred tax asset arising
from the net operating losses would not be realised and established a valuation
allowance for the full amount of the deferred tax asset. Such net operating loss
was fully realised in 1996, however, giving rise to a tax benefit in 1996 of
L386,000. Accordingly, there are no US GAAP differences with respect to deferred
taxes.
(C) REDEEMABLE EQUITY
Under UK GAAP, redeemable preference shares are included in shareholders'
funds with disclosure within the non-equity element. Under US GAAP, redeemable
preference shares do not form part of shareholders' equity.
The effects in the group's reported results of the significant differences
between UK GAAP and US GAAP, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED 31 DECEMBER
--------------------------------------
<S> <C> <C> <C>
1994 1995 1996
----------- ----------- ------------
Profit after taxation in accordance with UK GAAP.......................... (743,047) (275,795) 3,379,596
Appropriation in respect of non-equity shares............................. (141,829) (375,186) (672,865)
Adjustments:
Reclassification of exceptional write down of fixed assets to
goodwill.............................................................. -- 390,548 --
Goodwill amortisation................................................... -- (320,934) (825,005)
----------- ----------- ------------
Net income/(loss) in accordance with US GAAP.............................. L(884,876) L(521,367) L1,881,726
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
F-17
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED KINGDOM AND THE UNITED STATES (CONTINUED)
The effects on equity shareholders' funds of the significant differences
between UK GAAP and US GAAP are as follows:
<TABLE>
<CAPTION>
31 DECEMBER
--------------------------
<S> <C> <C>
1995 1996
------------- -----------
Shareholders' equity:
Equity shareholders' fund in accordance with UK GAAP--deficit........................ (2,454,252) (1,777,529)
Adjustments:
Redeemable preference shares....................................................... (5,475,248) (5,545,364)
Goodwill............................................................................. 6,260,025 7,546,698
------------- -----------
Shareholders' equity in accordance with US GAAP...................................... L(1,669,475) L223,605
------------- -----------
------------- -----------
</TABLE>
There are certain differences between the classification of cash flow items
between UK GAAP and US GAAP. Following is condensed cash flow information
prepared in accordance with US GAAP.
<TABLE>
<CAPTION>
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Cash flow from operations................................................. (587,193) 64,446 1,960,361
Cash flow from investing activities....................................... (295,782) (4,262,378) (3,136,180)
Cash flow from financing activities....................................... 997,049 4,447,058 1,007,998
---------- ----------- -----------
Net increase/(decrease) in cash........................................... 114,074 249,126 (167,821)
Cash at beginning of year................................................. 224,386 338,460 587,586
---------- ----------- -----------
Cash at end of year....................................................... L338,460 L587,586 L419,765
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
F-18
<PAGE>
CONSOLIDATED UNAUDITED PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED 30 JUNE 1997
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
TURNOVER.............................................................................. 7,443,150 9,752,115
Continuing operations................................................................. 422,209 --
------------ ------------
Acquisitions.......................................................................... 7,865,359 9,752,115
Cost of sales......................................................................... (4,645,716) (3,970,107)
------------ ------------
GROSS PROFIT.......................................................................... 3,219,643 5,782,008
Administrative expenses............................................................... (1,402,050) (1,542,172)
------------ ------------
OPERATING PROFIT...................................................................... 1,822,704 4,239,836
Continuing operations................................................................. (5,111) --
------------ ------------
Acquisitions.......................................................................... 1,817,593 4,239,836
Interest payable (net)................................................................ (211,368) (157,116)
------------ ------------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION......................................... 1,606,225 4,082,720
Tax on profit on ordinary activities.................................................. (142,934) (1,305,298)
------------ ------------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION.......................................... 1,463,291 2,777,422
Appropriations in respect of non-equity shares........................................ (319,885) (347,225)
------------ ------------
PROFIT FOR THE FINANCIAL PERIOD
TRANSFERRED TO RESERVES........................................................... L1,143,406 L2,430,197
------------ ------------
------------ ------------
</TABLE>
F-19
<PAGE>
XPEDITE SYSTEMS LIMITED
CONSOLIDATED UNAUDITED BALANCE SHEET-30 JUNE 1997
<TABLE>
<CAPTION>
31 DECEMBER 1996 30 JUNE 1997
----------------- -------------
<S> <C> <C>
FIXED ASSETS
Tangible fixed assets........................................................... 1,864,630 2,917,651
----------------- -------------
CURRENT ASSETS
Debtors......................................................................... 4,761,650 5,502,492
Cash............................................................................ 419,765 189,107
----------------- -------------
5,181,415 5,691,599
CREDITORS (AMOUNTS FALLING DUE WITHIN ONE YEAR)................................. (5,308,574) (5,557,131)
----------------- -------------
NET CURRENT ASSETS.............................................................. (127,159) 134,468
TOTAL ASSETS LESS CURRENT LIABILITIES........................................... 1,737,471 3,052,119
----------------- -------------
CREDITORS (AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR)........................ (3,515,000) (2,170,000)
----------------- -------------
L(1,777,529) L882,119
----------------- -------------
----------------- -------------
CAPITAL AND RESERVES
Called up share capital......................................................... 5,329,033 5,329,033
Profit and loss account......................................................... 1,194,173 3,853,821
----------------- -------------
6,523,206 9,182,854
Goodwill write-off reserve...................................................... (8,300,735) (8,300,735)
----------------- -------------
TOTAL SHAREHOLDERS' FUNDS....................................................... L(1,777,529) L882,119
----------------- -------------
----------------- -------------
</TABLE>
F-20
<PAGE>
XPEDITE SYSTEMS LIMITED
CONSOLIDATED UNAUDITED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 1997
<TABLE>
<CAPTION>
NOTES 1996 1997
----- ----------- -----------
<S> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES...................................... 2 278,254 4,111,049
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received.............................................................. 3,624 10,320
Interest paid.................................................................. (341,808) (166,302)
Interest element of hire purchase lease payments............................... (50) --
----------- -----------
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE.......... (338,234) (155,982)
INVESTING ACTIVITIES
Deferred consideration......................................................... (154,086) --
Payments to acquire tangible fixed assets...................................... (447,237) (1,355,725)
Purchase of subsidiary undertakings............................................ 3 (1,861,269) --
----------- -----------
NET CASH OUTFLOW FROM INVESTING ACTIVITIES..................................... (2,462,592) (1,355,725)
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING..................................... (2,522,572) 2,599,342
FINANCING
Repayment of secured loan...................................................... -- (2,830,000)
Additional secured loan repayable within five years............................ 2,049,338 --
Capital element of HP hire purchase lease payments (2,002) --
----------- -----------
NET CASH (OUTFLOW)/INFLOW FROM FINANCING....................................... 4 2,047,336 (2,830,000)
----------- -----------
DECREASE IN CASH............................................................... 5 L(475,236) L(230,658)
CASH AT 1 JANUARY.............................................................. 587,586 419,765
----------- -----------
CASH AT 30 JUNE................................................................ L112,350 L189,107
----------- -----------
----------- -----------
</TABLE>
F-21
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
1 BASIS OF PREPARATION
The unaudited consolidated financial statements for the six months ended 30
June 1996 and 1997 have been prepared in accordance with accounting principles
generally accepted in the United Kingdom ("UK GAAP"). See Note 5 for a summary
of significant differences between UK GAAP and accounting principles generally
accepted in the United States of America ("US GAAP") as they relate to Xpedite
Systems Limited and its subsidiary undertakings (together the "group") to the
extent such principles relate to the presentation of abbreviated interim
financial information. These financial statements have been prepared in
accordance with accounting principles consistent with those applied in the
preparation of the audited financial statements for the three years ended 31
December 1996.
In the opinion of management, all adjustments considered necessary for a
fair presentation of results for the periods reported have been included. The
adjustments consist only of normal recurring adjustments. Operating results for
the six months ended 30 June 1997 are not necessarily indicative of the results
that may be expected for the year ending 31 December 1997.
2 RECONCILIATION OF OPERATING LOSS TO NET CASH INFLOW FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1996 1997
----------- ------------
<S> <C> <C>
Operating profit...................................................................... 1,817,593 4,239,836
Depreciation charge................................................................... 233,467 302,704
Increase in debtors................................................................... (596,462) (740,842)
(Decrease)/increase in creditors...................................................... (1,176,344) 309,351
----------- ------------
L278,254 L4,111,049
----------- ------------
----------- ------------
</TABLE>
3 ANALYSIS OF OUTFLOW OF CASH IN RESPECT OF THE PURCHASE OF SUBSIDIARY
UNDERTAKINGS
<TABLE>
<CAPTION>
1996 1997
------------ -----
<S> <C> <C>
Cash consideration paid...................................................................... 3,013,419 --
Cash received on disposal of intangible assets............................................... (1,152,150) --
Expenses..................................................................................... -- --
------------ ---
L1,861,269 L-
------------ ---
------------ ---
</TABLE>
4 ANALYSIS OF CHANGES IN FINANCING
<TABLE>
<CAPTION>
LOAN AND HIRE
ISSUED PURCHASE
SHARE LEASE
CAPITAL OBLIGATIONS
------------ -------------
<S> <C> <C>
At 1 January 1997................................................................... 5,329,033 5,000,000
Cash outflows from financing........................................................ -- (2,830,000)
------------ -------------
At 30 June 1997..................................................................... L5,329,033 L2,170,000
------------ -------------
------------ -------------
</TABLE>
F-22
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
5 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED KINGDOM AND THE UNITED STATES
These consolidated financial statements of the group have been prepared in
accordance with accounting principles generally accepted in the United Kingdom
("UK GAAP ") which differ in certain significant respects from accounting
principles generally accepted in the United States of America ("US GAAP"). The
effects of significant differences between UK GAAP and US GAAP, insofar as they
relate to the group, are as follows:
(A) GOODWILL AND OTHER INTANGIBLE ASSETS
Under UK GAAP goodwill arising on consolidation may be written off directly
to reserves. Under US GAAP goodwill, representing the excess of consideration
paid over the fair value of the net tangible assets of businesses acquired, is
amortised over the estimated period of useful life, not to exceed 40 years. US
GAAP requires valuation of identifiable acquired intangible assets. For US GAAP
purposes the company, having evaluated their reasonable lives, is amortising
goodwill and other acquired intangible assets arising on acquisitions over a
period of ten years. Goodwill is not an allowable charge for taxation purposes
in the United Kingdom.
(B) DEFERRED INCOME TAXES
Under UK GAAP, deferred income taxes are accounted for, in calculating the
effect of such difference in accounting policy, to the extent that it is
considered probable that a liability or asset will chrystallise in the
foreseeable future. Under US GAAP, deferred income taxes are accounted for on
all temporary differences between the book and tax values of assets and
liabilities and deferred tax assets are recognised, net of a valuation
allowance, where it is more likely than not that they will be realised.
The company has no significant deferred tax assets or liabilities.
(C) REDEEMABLE EQUITY
Under UK GAAP, redeemable preference shares are included in shareholders'
funds with disclosure within the non-equity element. Under US GAAP, redeemable
preference shares do not form part of shareholders' equity.
The effects on net income of the significant differences between UK GAAP and
US GAAP are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED 30 JUNE
--------------------------
<S> <C> <C>
1996 1997
------------ ------------
Profit after taxation in accordance with UK GAAP...................................... 1,463,291 2,777,422
Adjustments:
Goodwill amortisation............................................................... (362,313) (434,632)
------------ ------------
Net income in accordance with US GAAP................................................. L1,100,978 L2,342,790
------------ ------------
------------ ------------
</TABLE>
F-23
<PAGE>
XPEDITE SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
5 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED KINGDOM AND THE UNITED STATES (CONTINUED)
The effects on shareholders' equity of the significant differences between
UK GAAP and US GAAP are as follows:
<TABLE>
<CAPTION>
30 JUNE 1997
------------
<S> <C>
Shareholders' equity:
Shareholders' funds in accordance with UK GAAP...................................................... 882,119
Adjustments:
Redeemable preference shares...................................................................... (5,775,515)
Goodwill.......................................................................................... 7,112,066
------------
Shareholders' equity in accordance with US GAAP..................................................... L2,218,670
------------
------------
</TABLE>
There are certain differences between the classification of cash flow items
between UK GAAP and US GAAP. Following is condensed cash flow information
prepared in accordance with US GAAP.
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Cash flow from operations.............................................................. (59,980) 3,955,067
Cash flow from investing activities.................................................... (2,462,592) (1,355,725)
Cash flow from financing activities.................................................... 2,047,336 (2,830,000)
----------- -----------
Net increase/(decrease) in cash........................................................ (475,236) (230,658)
Cash at 1 January...................................................................... 587,586 419,765
----------- -----------
Cash at 30 June........................................................................ L112,350 L189,107
----------- -----------
----------- -----------
</TABLE>
F-24
<PAGE>
APPENDIX A
EXECUTION COPY
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
XPEDITE ACQUISITION CORP.
AND
XPEDITE SYSTEMS, INC.
DATED AS OF AUGUST 8, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE I [INTENTIONALLY OMITTED]..................................................... 1
ARTICLE II The Merger.................................................................. 1
SECTION 2.01. The Merger.............................................................. 1
SECTION 2.02. Closing................................................................. 1
SECTION 2.03. Certificate of Incorporation............................................ 1
SECTION 2.04. By-Laws................................................................. 1
SECTION 2.05. Directors............................................................... 1
SECTION 2.06. Officers................................................................ 1
SECTION 2.07. Effective Time.......................................................... 1
ARTICLE III Effect of the Merger on the Capital Stock of the Constituent Corporations;
Exchange of Certificates.................................................... 2
SECTION 3.01. Effect on Company Common Stock and Class B Common Stock................. 2
SECTION 3.02. Conversion of Acquisition Sub Common Stock.............................. 4
SECTION 3.03. Dissenting Shares....................................................... 4
SECTION 3.04. Exchange Procedures..................................................... 5
SECTION 3.05. Stock Transfer Books.................................................... 6
SECTION 3.06. No Further Ownership Rights in Company Common Stock or Class B Common
Stock................................................................. 6
SECTION 3.07. Lost, Stolen or Destroyed Certificates.................................. 7
SECTION 3.08. Company Stock Options and Warrants...................................... 7
ARTICLE IV Representations and Warranties of the Company............................... 7
SECTION 4.01. Organization and Standing............................................... 7
SECTION 4.02. Authority and Status.................................................... 8
SECTION 4.03. Capitalization.......................................................... 8
SECTION 4.04. No Conflict; Required Filings and Consents.............................. 9
SECTION 4.05. Compliance; Permits..................................................... 10
SECTION 4.06. SEC Filings; Financial Statements....................................... 10
SECTION 4.07. Absence of Certain Changes or Events.................................... 11
SECTION 4.08. No Undisclosed Liabilities.............................................. 11
SECTION 4.09. Absence of Litigation................................................... 11
SECTION 4.10. Employee Benefit Plans, Employment Agreements........................... 11
SECTION 4.11. Labor Matters........................................................... 12
SECTION 4.12. Information Supplied.................................................... 12
SECTION 4.13. Title to Property....................................................... 12
SECTION 4.14. Taxes................................................................... 13
SECTION 4.15. Environmental Matters................................................... 14
SECTION 4.16. Insurance............................................................... 14
SECTION 4.17. Opinion of Financial Advisor............................................ 14
SECTION 4.18. Brokers................................................................. 14
SECTION 4.19. Books and Records....................................................... 14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
SECTION 4.20. Certain Payments........................................................ 15
SECTION 4.21. Intellectual Property................................................... 15
SECTION 4.22. Contracts............................................................... 15
SECTION 4.23. Information Systems..................................................... 15
SECTION 4.24. Regulation of Business.................................................. 15
ARTICLE V Representations and Warranties of Acquisition Sub........................... 16
SECTION 5.01. Corporate Organization.................................................. 16
SECTION 5.02. Authorization........................................................... 16
SECTION 5.03. No Conflict; Required Filings and Consents.............................. 16
SECTION 5.04. Information Supplied.................................................... 17
SECTION 5.05. Brokers................................................................. 17
SECTION 5.06. No Business............................................................. 17
SECTION 5.07. Financing............................................................... 17
ARTICLE VI Conduct of Business Pending the Merger...................................... 17
SECTION 6.01. Conduct of Business by the Company Pending the Merger................... 17
SECTION 6.02. No Solicitation......................................................... 19
ARTICLE VII Additional Agreements....................................................... 20
SECTION 7.01. HSR Act; Etc............................................................ 20
SECTION 7.02. Preparation of the Prospectus/Proxy Statement........................... 20
SECTION 7.03. Stockholder Approval.................................................... 21
SECTION 7.04. Access to Information; Confidentiality.................................. 21
SECTION 7.05. Consents; Approvals..................................................... 21
SECTION 7.06. Indemnification and Insurance........................................... 22
SECTION 7.06A. Employment and Benefit Matters.......................................... 23
SECTION 7.07. Notification of Certain Matters......................................... 23
SECTION 7.08. Further Action.......................................................... 23
SECTION 7.09. Public Announcements.................................................... 23
SECTION 7.10. Conveyance Taxes........................................................ 23
SECTION 7.11. NASDAQ Listing.......................................................... 23
SECTION 7.12. Stockholders Agreement.................................................. 23
SECTION 7.13. No Acquisition Sub Business............................................. 23
SECTION 7.14. Solvency Opinion........................................................ 24
SECTION 7.15. Negotiations with Minority Affiliate.................................... 24
SECTION 7.16. Rollover................................................................ 24
ARTICLE VIII Conditions to the Merger.................................................... 24
SECTION 8.01. Conditions to Obligation of Each Party to Effect the Merger............. 24
SECTION 8.02. Additional Conditions to Obligations of Acquisition Sub................. 24
SECTION 8.03. Additional Conditions to Obligation of the Company...................... 26
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE IX Termination................................................................. 26
SECTION 9.01. Termination............................................................. 26
SECTION 9.02. Effect of Termination................................................... 27
SECTION 9.03. Fees and Expenses....................................................... 28
ARTICLE X General Provisions.......................................................... 28
SECTION 10.01. Effectiveness of Representations, Warranties and Agreements, Etc........ 28
SECTION 10.02. Notices................................................................. 28
SECTION 10.03. Certain Definitions..................................................... 29
SECTION 10.04. Amendment............................................................... 30
SECTION 10.05. Waiver.................................................................. 30
SECTION 10.06. Headings................................................................ 30
SECTION 10.07. Severability............................................................ 30
SECTION 10.08. Entire Agreement........................................................ 30
SECTION 10.09. Assignment.............................................................. 30
SECTION 10.10. Parties in Interest..................................................... 30
SECTION 10.11. Failure or Indulgence Not Waiver; Remedies Cumulative................... 31
SECTION 10.12. Governing Law........................................................... 31
SECTION 10.13. Counterparts............................................................ 31
SECTION 10.14. Consent to Jurisdiction................................................. 31
EXHIBIT A Certificate of Merger
EXHIBIT B Affiliate Letter
EXHIBIT C Terms of Stockholders Agreement
EXHIBIT D Charter Amendment
SCHEDULE 3.01(e) Principal Stockholders
SCHEDULE 4.01(b) Certificate of Incorporation and By-Laws of the Company
SCHEDULE 4.03(a) Capitalization
SCHEDULE 4.03(b) Conversion Rights
SCHEDULE 4.03(c) Minority Affiliates
SCHEDULE 4.04(a) Contracts
SCHEDULE 4.04(b) Defaults
SCHEDULE 4.04(c) Conflicts
SCHEDULE 4.05(a) Compliance with Laws and Agreements
SCHEDULE 4.05(b) Permits
SCHEDULE 4.06 SEC Reports
SCHEDULE 4.07(a)-(g) Absence of Certain Changes
SCHEDULE 4.08 Liabilities
SCHEDULE 4.09 Litigation
SCHEDULE 4.10 ERISA Matters
SCHEDULE 4.11 Labor Matters
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
SCHEDULE 4.13 Title to Property
SCHEDULE 4.14 Taxes
SCHEDULE 4.15 Environmental Matters
SCHEDULE 4.18 Brokers
SCHEDULE 4.21 Intellectual Property Rights
SCHEDULE 4.22(a) Change of Control Provisions
SCHEDULE 4.22(b) Affiliate Contracts
SCHEDULE 5.01(b) Certificate of Incorporation and By-Laws of Acquisition Sub
SCHEDULE 5.03(a) Acquisition Sub Conflicts
SCHEDULE 5.05 Acquisition Sub Brokers
SCHEDULE 5.07 Financing Commitments
SCHEDULE 6.01 Conduct of Business by the Company
SCHEDULE 7.06A(a) Benefit Plans
SCHEDULE 8.02(j) Class B Common Stock Conversion
</TABLE>
iv
<PAGE>
INDEX OF DEFINITIONS
<TABLE>
<CAPTION>
DEFINITION SECTION
- --------------------------------------------------------------------------------------------- -------------------
<S> <C>
"Acquisition Proposal"....................................................................... Section 6.02(a)
"Acquisition Sub"............................................................................ Introduction
"Acquisition Sub Common Stock"............................................................... Section 3.02
"Agreement".................................................................................. Introduction
"Alternative Transaction".................................................................... Section 9.01(g)
"Antitrust Division"......................................................................... Section 7.01
"Benefit Plan"............................................................................... Section 7.06A(a)
"Blue Sky Laws".............................................................................. Section 4.04(d)
"Cash Election Price"........................................................................ Section 3.01(a)
"Cash Proration Factor"...................................................................... Section 3.01(e)
"Certificate"................................................................................ Section 3.04(b)
"Certificate of Merger"...................................................................... Introduction
"Charter Amendment".......................................................................... Section 8.02(e)
"Class B Certificates"....................................................................... Section 3.04(d)
"Class B Common Stock"....................................................................... Section 3.01(b)
"Class B Merger Consideration"............................................................... Section 3.01(b)
"Class B Shares"............................................................................. Section 3.01(b)
"Closing".................................................................................... Section 2.02
"Closing Date"............................................................................... Section 2.02
"Code"....................................................................................... Section 3.04(f)
"Company".................................................................................... Introduction
"Company Common Stock"....................................................................... Section 3.01(a)
"Company Employee Plans"..................................................................... Section 4.10
"Company Permits"............................................................................ Section 4.05(b)
"Company SEC Reports"........................................................................ Section 4.06(a)
"Company Stockholders Meeting"............................................................... Section 4.12
"Company Stock Option Plans"................................................................. Section 3.08(a)
"Confidentiality Letter"..................................................................... Section 7.04
"Dissenting Consideration"................................................................... Section 3.03
"Dissenting Shares".......................................................................... Section 3.03
"Effective Time"............................................................................. Section 2.07
"Election Date".............................................................................. Section 3.01(d)
"Electing Shares"............................................................................ Section 3.01(a)
"Environmental Laws"......................................................................... Section 4.15
"ERISA"...................................................................................... Section 4.10
"Exchange Act"............................................................................... Section 4.04(a)
"Exchange Agent"............................................................................. Section 3.04(a)
"Exchange Fund".............................................................................. Section 3.04(a)
"Excluded Shares"............................................................................ Section 3.01(c)
"Expenses"................................................................................... Section 9.02(b)
"Fee"........................................................................................ Section 9.02(b)
"Financing Commitments"...................................................................... Section 5.07
"Form of Election"........................................................................... Section 3.01(d)
"FTC"........................................................................................ Section 7.01
"GCL"........................................................................................ Section 2.01
"HSR Act".................................................................................... Section 4.04(d)
"Indemnified Parties"........................................................................ Section 7.06(b)
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
DEFINITION SECTION
- --------------------------------------------------------------------------------------------- -------------------
<S> <C>
"Intellectual Property Rights"............................................................... Section 4.21
"IRS"........................................................................................ Section 4.10
"Laws"....................................................................................... Section 4.04(c)
"Liens"...................................................................................... Section 4.03(a)
"Material Adverse Effect".................................................................... Section 4.01(a)
""Merger".................................................................................... Introduction
"Merger Consideration"....................................................................... Section 3.01(a)
"Minority Affiliate"......................................................................... Section 4.03(c)
"NASDAQ"..................................................................................... Section 7.09
"Non-Cash Election".......................................................................... Section 3.01(d)
"Non-Cash Election Holder Number"............................................................ Section 3.01(e)
"Non-Cash Election Share".................................................................... Section 3.01(a)
"Non-Cash Election Share Number"............................................................. Section 3.01(e)
"Non-Cash Proration Factor".................................................................. Section 3.01(e)
"1996 Company Balance Sheet"................................................................. Section 4.08
"Option"..................................................................................... Section 3.08(a)
"Option Consideration"....................................................................... Section 3.08(a)
"PBGC"....................................................................................... Section 4.10
"Principal Non-Cash Election Shares"......................................................... Section 3.01(e)
"Principal Stockholders"..................................................................... Section 3.01(e)
"Prospectus/Proxy Statement"................................................................. Section 4.12
"Preferred Stock"............................................................................ Section 8.02(e)
"Recap Accounting"........................................................................... Section 8.02(g)
"Securities Act"............................................................................. Section 4.04(d)
"SEC"........................................................................................ Section 4.01(a)
"S-4 Registration Statement"................................................................. Section 4.12
"Shares"..................................................................................... Section 3.01(a)
"Significant Subsidiary"..................................................................... Section 4.01(a)
"Subsidiary"................................................................................. Section 4.01(a)
"Stockholders Agreement"..................................................................... Section 7.12
"Surviving Corporation"...................................................................... Section 2.01
"Surviving Corporation Common Stock"......................................................... Section 3.01(a)
"Tax" or ""Taxes"............................................................................ Section 4.14(a)
"Tax Returns"................................................................................ Section 4.14(a)
"Third-Party"................................................................................ Section 9.01
"Xpedite".................................................................................... Introduction
"Xpedite"GmbH................................................................................ Section 7.15
"XSL"........................................................................................ Section 8.02(c)
"XSL Purchase Agreement"..................................................................... Section 8.02(c)
</TABLE>
vi
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER ("AGREEMENT"), dated as of August 8, 1997,
is entered into by and between XPEDITE ACQUISITION CORP., a Delaware corporation
("ACQUISITION SUB"), and XPEDITE SYSTEMS, INC., a Delaware corporation (the
"COMPANY" or "XPEDITE").
WHEREAS, the respective Boards of Directors of Acquisition Sub and the
Company have approved the merger of Acquisition Sub with and into the Company
(the "MERGER") upon the terms and subject to the conditions set forth herein and
in the articles of merger annexed as EXHIBIT A (the "CERTIFICATE OF MERGER");
and
WHEREAS, Acquisition Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the mutual benefits to be derived from
this Agreement and of the representations, warranties, covenants and agreements
hereinafter contained, Acquisition Sub and the Company agree as follows:
ARTICLE I
[INTENTIONALLY OMITTED]
ARTICLE II
THE MERGER
SECTION 2.01. THE MERGER. In accordance with the provisions of this
Agreement, the Certificate of Merger and the General Corporation Law of the
State of Delaware, as amended (the "GCL"), at the Effective Time (as defined in
SECTION 2.07), Acquisition Sub shall be merged with and into the Company, and
the Company shall be the surviving corporation in the Merger (hereinafter
sometimes called the "SURVIVING CORPORATION"). At the Effective Time, the
separate existence of Acquisition Sub shall cease.
SECTION 2.02. CLOSING. The closing of the Merger (the "CLOSING") will take
place as soon as practicable after the satisfaction or waiver of the conditions
set forth in Article VIII (the "CLOSING DATE") at the offices of Paul, Hastings,
Janofsky & Walker LLP, 399 Park Avenue, New York, NY 10022, unless another date
or place is agreed to in writing by the parties hereto.
SECTION 2.03. CERTIFICATE OF INCORPORATION. As of the Effective Time, the
Certificate of Incorporation of the Company immediately prior to the Effective
Time shall be the Certificate of Incorporation of the Surviving Corporation,
until thereafter amended as provided by law or in such Certificate of
Incorporation.
SECTION 2.04. BY-LAWS. The By-Laws of Acquisition Sub as in effect at the
Effective Time shall be the By-Laws of the Surviving Corporation, until
thereafter amended or repealed as provided by law.
SECTION 2.05. DIRECTORS. The directors of Acquisition Sub at the Effective
Time shall, from and after the Effective Time, be the directors of the Surviving
Corporation and shall hold office from the Effective Time until their respective
successors are duly elected or appointed and qualified in the manner provided in
the Certificate of Incorporation and By-Laws of the Surviving Corporation, or as
otherwise provided by law.
SECTION 2.06. OFFICERS. The officers of the Company at the Effective Time
shall, from and after the Effective Time, be the officers of the Surviving
Corporation and shall hold office from the Effective Time until their respective
successors are duly elected or appointed and qualified in the manner provided in
the Certificate of Incorporation and By-Laws of the Surviving Corporation, or as
otherwise provided by law.
SECTION 2.07. EFFECTIVE TIME. The Merger shall become effective at the time
of filing of the Certificate of Merger with the Secretary of State of the State
of Delaware in accordance with the provisions of Section 251 of the GCL. The
Certificate of Merger shall be filed with the Secretary of State of the State of
Delaware on the Closing Date. The time when the Merger becomes effective is
herein referred to as the "EFFECTIVE TIME."
<PAGE>
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 3.01. EFFECT ON COMPANY COMMON STOCK AND CLASS B COMMON STOCK.
(a) Except as otherwise provided herein and subject to SECTION 3.01(D) and
SECTION 3.01(E), each share of common stock, par value $.01 per share of the
Company (each, a "SHARE" or collectively, the "SHARES" or the "COMPANY COMMON
STOCK") actually issued and outstanding immediately prior to the Effective Time
(except for the Excluded Shares and Dissenting Shares) shall, at the Effective
Time, by virtue of the Merger and without any action on the part of the holder
thereof, be converted into one of the following (the "MERGER CONSIDERATION"):
(i) for each Share with respect to which an election to retain pursuant
to SECTION 3.01(D) has been effectively made, and not revoked or lost (each,
an "ELECTING SHARE" and collectively, the "ELECTING SHARES"), the right to
retain one fully paid and nonassessable Share (a "NON-CASH ELECTION SHARE"),
and the certificate representing such retained Share shall be surrendered in
exchange pursuant to the terms of this Agreement, for a certificate
representing one fully paid and nonassessable share of common stock, par
value $.01 per share (the "SURVIVING CORPORATION COMMON STOCK"), of the
Surviving Corporation; or
(ii) for each Share (other than Electing Shares), the right to receive
$23.25 in cash, payable to the holder of such Share, without interest
thereon, less any required back-up withholding taxes (the "CASH ELECTION
PRICE").
(b) Each share of Class B Common Stock, par value $.01 per share, of the
Company (the "CLASS B SHARES" or the "CLASS B COMMON STOCK") issued and
outstanding immediately prior to the Effective Time, shall, at the Effective
Time, by virtue of the Merger and without any action on the part of the holder
thereof, be converted into one fully paid and nonassessable share of Surviving
Corporation Common Stock (the "CLASS B MERGER CONSIDERATION"). From and after
the Effective Time, each outstanding certificate theretofore representing Class
B Shares 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 Class B Shares shall have been converted.
(c) Each share of Company Common Stock and Class B Common Stock held in the
Company's treasury immediately prior to the Effective Time (the "EXCLUDED
SHARES") shall, at the Effective Time, by virtue of the Merger, be cancelled
without payment of any consideration therefor and without any conversion
thereof.
(d) SHARE ELECTIONS.
(i) Each person who, on or prior to the Election Date, is a record
holder of Shares will be entitled, with respect to all, but not less than
all, such holder's Shares, to make an unconditional election (a "NON-CASH
ELECTION") on or prior to such Election Date to retain Non-Cash Election
Shares, on the basis set forth herein.
(ii) The Company shall prepare and mail a form of election, which form
shall be subject to the reasonable approval of Acquisition Sub (the "FORM OF
ELECTION"), with the Prospectus/Proxy Statement to the record holders of
Shares as of the record date for the Company Stockholders Meeting, which
Form of Election shall be used by each record holder of Shares that wishes
to elect, with respect to all, but not less than all, such holder's Shares,
to retain Non-Cash Election Shares. The Company will use its reasonable
efforts to make the Form of Election and the Prospectus/Proxy Statement
available to all persons who become holders of Shares during the period
between such record date and the Election Date. Any such holder's election
to retain Non-Cash Election Shares shall have been
2
<PAGE>
properly made only if the Exchange Agent shall have received at its
designated office by 5:00 p.m., New York City time, on the second trading
day (the "ELECTION DATE") next preceding the date of the Company
Stockholders Meeting, a Form of Election reflecting such holder's election
with respect to all, but not less than all, such holder's Shares and the
Stockholders Agreement, in each case, properly completed and signed and
accompanied by certificates for all Shares held by such holder, duly
endorsed in blank or otherwise in form acceptable for transfer on the books
of the Company (or by an appropriate guarantee of delivery of such
certificates as set forth in such Form of Election from a firm which is a
member of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., or a commercial bank or trust
company having an office in the United States, PROVIDED that such
certificates are in fact delivered to the Exchange Agent within three New
York Stock Exchange trading days after the date of execution of such
guarantee of delivery).
(iii) Any Form of Election may be revoked by the holder submitting it to
the Exchange Agent only by written notice received by the Exchange Agent
prior to 5:00 p.m., New York City time, on the Election Date. In addition,
all Forms of Election shall automatically be revoked if the Exchange Agent
is notified in writing by the Company and Acquisition Sub that the Merger
has been abandoned. If a Form of Election is revoked, the certificate or
certificates (or guarantees of delivery, as applicable) for the Shares to
which such Form of Election relates shall be promptly returned to the holder
submitting the same to the Exchange Agent.
(iv) The determination of the Exchange Agent shall be binding as to
whether or not elections to retain Non-Cash Election Shares have been
properly made or revoked pursuant to this SECTION 3.01(D) with respect to
Shares and when elections and revocations were received by it. If the
Exchange Agent determines that any election to retain Non-Cash Election
Shares was revoked or was not properly made with respect to Shares, such
Shares shall be treated by the Exchange Agent as Shares which were not
Electing Shares at the Effective Time. The Exchange Agent also shall make
all computations as to the allocation and the proration contemplated by
SECTION 3.01(E), and any such computation shall be conclusive and binding on
the holders of Shares. The Exchange Agent may, with the mutual agreement of
the Company and Acquisition Sub, make such rules as are consistent with this
Section 3.01 for the implementation of the elections provided for herein as
shall be necessary or desirable fully to effect such elections.
(e) PRORATION.
(i) Notwithstanding anything in this Agreement to the contrary, the
aggregate number of Shares to be converted into the right to retain Shares
at the Effective Time (the "NON-CASH ELECTION SHARE NUMBER") shall equal
205,000 Shares (excluding for this purpose any Excluded Shares).
(ii) If the number of Electing Shares exceeds the Non-Cash Election
Share Number, then the Electing Shares covered by each Non-Cash Election
shall be converted into the right to retain Non-Cash Election Shares or to
receive cash in accordance with the terms of SECTION 3.01(A) in the
following manner:
(A) A proration factor (the "NON-CASH PRORATION FACTOR") shall be
determined by dividing the Non-Cash Election Share Number by the total
number of Electing Shares.
(B) The number of Electing Shares covered by each Non-Cash Election
to be converted into the right to retain Non-Cash Election Shares shall
be determined by multiplying the Non-Cash Proration Factor by the total
number of Electing Shares covered by such Non-Cash Election.
(C) All Electing Shares, other than that number of shares converted
into the right to receive Non-Cash Election Shares in accordance with
SECTION 3.01(E)(II)(B), shall be converted into cash (on a consistent
basis among holders who made the election referred to in SECTION
3
<PAGE>
3.01(A)(I), pro rata to the number of Shares as to which they made such
election) as if such Shares were not Electing Shares in accordance with
the terms of SECTION 3.01(A)(II).
(iii) If the number of Electing Shares is less than the Non-Cash Election
Share Number, then:
(A) All Electing Shares shall be converted into the right to retain
Non-Cash Election Shares in accordance with the terms of SECTION
3.01(A)(I).
(B) Additional Shares held by the Persons listed on SCHEDULE 3.01(E)
(the "PRINCIPAL STOCKHOLDERS") shall be converted into the right to
retain Non-Cash Election Shares in accordance with the terms of SECTION
3.01(A)(I) in the following manner:
(1) A proration factor (the "CASH PRORATION FACTOR" shall be
determined by dividing (x) the difference between the Non-Cash
Election Number and the number of Electing Shares, by (y) the total
number of Shares held by the Principal Stockholders (the "PRINCIPAL
NON-CASH ELECTION SHARES").
(2) The number of Shares in addition to Electing Shares to be
converted into the right to retain Non-Cash Election Shares shall be
determined by multiplying the Cash Proration Factor by the total
number of Principal Non-Cash Election Shares.
(C) Shares subject to clause (B) of this SECTION 3.01(E)(III) shall
be converted into the right to retain Non-Cash Election Shares in
accordance with SECTION 3.01(A)(I) on a consistent basis among the
Principal Stockholders who held Principal Non-Cash Election Shares, pro
rata to the number of Principal Non-Cash Election Shares held by each
Principal Stockholder, and each Principal Stockholder will enter into the
Stockholders Agreement.
SECTION 3.02. CONVERSION OF ACQUISITION SUB COMMON STOCK. Each share of
common stock, par value $.01 per share, of Acquisition Sub (the "ACQUISITION SUB
COMMON STOCK") issued and outstanding at the Effective Time shall, at the
Effective Time by virtue of the Merger and without any action on the part of the
holder thereof, be converted into and exchangeable for one fully paid and
nonassessable share of Surviving Corporation Common Stock. From and after the
Effective Time, each outstanding certificate theretofore representing shares of
Acquisition Sub 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 Acquisition Sub Common Stock shall have
been converted.
SECTION 3.03. DISSENTING SHARES. Notwithstanding anything in this Agreement
to the contrary, shares of Company Common Stock and Class B Common Stock issued
and outstanding at the Effective Time which are held of record by stockholders
who shall not have voted such shares (or, in the case of shares of Class B
Common Stock, shares converted into such shares) in favor of the Merger and who
shall have properly exercised rights to demand payment of the fair value of such
shares in accordance with Section 262 of the GCL ("DISSENTING SHARES") shall not
be converted into the right to receive any portion of the Merger Consideration
or the Class B Merger Consideration, as the case may be, specified in SECTION
3.01, but the holders thereof instead shall be entitled to payment of the fair
value of such shares in accordance with the provisions of Section 262 of the GCL
(the "DISSENTING CONSIDERATION"); PROVIDED that (i) if such a holder fails to
file a notice of election to dissent in accordance with Section 262 of the GCL
or, after filing such notice of election, subsequently delivers an effective
written withdrawal of such notice or fails to establish his entitlement to
appraisal rights as provided in Section 262 of the GCL, if he or she be so
required, or (ii) if a court shall determine that such holder is not entitled to
receive payment for his shares or such holder shall otherwise lose his or her
appraisal rights, then in either of such cases, each share of Company Common
Stock and Class B Common Stock held of record by such holder or holders shall
automatically be converted into and represent only the right to receive the
Merger Consideration or the Class B Merger Consideration, as the case may be,
upon the surrender of the certificate or certificates representing such
Dissenting Shares.
4
<PAGE>
SECTION 3.04. EXCHANGE PROCEDURES.
(a) Prior to the Effective Time, the Company and Acquisition Sub jointly
shall select a bank or trust company to act as exchange agent in the Merger (the
"EXCHANGE AGENT") and, as of or as soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall deposit or cause to be deposited
with the Exchange Agent, for exchange in accordance with this Article, in a
separate fund (the "EXCHANGE FUND") established for the benefit of the holders
of Shares (other than Dissenting Shares and Excluded Shares) immediately
available funds in an amount necessary to make the payments of the cash portion
of the Merger Consideration to the holders of Company Common Stock entitled
thereto pursuant to SECTION 3.01.
(b) As soon as reasonably practicable after the Effective Time, the
Surviving Corporation shall mail to each holder of record entitled to the Merger
Consideration, (i) a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates which
immediately prior to the Effective Time represented outstanding Shares (the
"CERTIFICATES") shall pass, only upon proper delivery of the Certificates to the
Surviving Corporation, and shall be in such form and have such other provisions
as the Surviving Corporation reasonably may specify) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for the Merger
Consideration to which such holder is entitled pursuant to Section 3.01. Upon
the proper surrender of a Certificate to the Exchange Agent, together with such
letter of transmittal and any additional documentation as the Surviving
Corporation may reasonably require, the holder of such Certificate shall be
entitled to receive in exchange therefor a certificate or certificates
representing the number of whole retained Shares, if any, to be retained by the
holder of such Certificates (and cash in lieu of any fractional retained Shares)
pursuant to this Agreement or the amount of cash into which the number of Shares
previously represented by such Certificates shall have been converted pursuant
to this Agreement (less any required withholding tax), and the Certificate so
surrendered shall forthwith be cancelled. If payment is to be made to a person
other than the person in whose name the surrendered Certificate is registered,
it shall be a condition of payment that the Certificate so surrendered shall be
promptly 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 surrendered
Certificate or established to the satisfaction of the Surviving Corporation that
such tax has been paid or is not applicable.
(c) Until surrendered in accordance with the provisions of this SECTION
3.04, from and after the Effective Time, each Certificate (other than
Certificates representing Excluded Shares or Dissenting Shares) shall represent
for all purposes only the right to receive, upon such surrender, the Merger
Consideration, without interest, into which the Shares represented by such
Certificates shall have been converted pursuant to SECTION 3.01, and shall cease
to have any rights with respect to the shares of Company Common Stock formerly
represented thereby, except as otherwise provided herein or by law.
(d) As soon as reasonably practicable after the Effective Time, the
Surviving Corporation shall deliver to each holder of record entitled to the
Class B Merger Consideration, (i) a form of letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
certificates which immediately prior to the Effective Time represented
outstanding Class B Shares (the "CLASS B CERTIFICATES") shall pass, only upon
proper delivery of the Class B Certificates to the Surviving Corporation, and
shall be in such form and have such other provisions as the Surviving
Corporation reasonably may specify) and (ii) instructions for use in effecting
the surrender of the Class B Certificates in exchange for the Class B Merger
Consideration to which such holder is entitled pursuant to SECTION 3.01. Upon
the proper surrender of a Class B Certificate to the Exchange Agent, together
with such letter of transmittal and any additional documentation as the
Surviving Corporation may reasonably require, the holder of such Class B
Certificate shall be entitled to receive a certificate or certificates
representing the number of shares of Surviving Corporation Common Stock into
which the Class B Shares previously represented by such Class B Certificate
shall have been converted pursuant to this Agreement, and the Class B
Certificate so surrendered shall forthwith be cancelled.
5
<PAGE>
(e) Any portion of the Exchange Fund which remains undistributed to the
holders of Company Common Stock for six months after the Effective Time will be
returned to the Surviving Corporation and any holder of shares of Company Common
Stock or Class B Common Stock prior to the Merger who has not theretofore
complied with this Article III shall look thereafter only to the Surviving
Corporation for payment of the Merger Consideration or Class B Merger
Consideration, as applicable, in respect of such holder's shares. Any amounts
remaining unclaimed by former stockholders of the Company one year after the
Effective Time shall, to the extent permitted by abandoned property and any
other applicable law, become the property of the Surviving Corporation, free and
clear of all claims or interest of any Person previously entitled to such
claims. All interest accrued in respect of the Exchange Fund shall inure to the
benefit of and be paid to the Surviving Corporation. If any certificate
representing shares of Company Common Stock or Class B Common Stock (or such
documents as may be required pursuant to SECTION 3.07 if such certificate is
lost, stolen or destroyed) shall not have been surrendered prior to one year
after the Effective Time (or immediately prior to such earlier date on which any
cash, if any, any cash in lieu of fractional shares of retained Company Common
Stock or any dividends or distribution with respect to retained Company Common
Stock in respect of such certificate would otherwise escheat to or become the
property of any applicable governmental entity), any such cash, dividends or
distributions in respect of such certificate shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation, free and clear
of all claims or interest of any person previously entitled thereto.
Notwithstanding the foregoing, the Surviving Corporation shall not be liable to
any person in respect of retained Company Common Stock or Class B Common Stock
(or dividends or distributions with respect to either of the foregoing) for any
amount delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(f) The Surviving Corporation shall be entitled to deduct and withhold from
the consideration otherwise payable pursuant to this Agreement to any holder of
shares of Company Common Stock or Class B Common Stock such amounts as the
Surviving Corporation is required to deduct and withhold with respect to the
making of such payment under the Internal Revenue Code of 1986, as amended (the
"Code"), or any provision of state, local or foreign tax law. To the extent that
amounts are so withheld by the Surviving Corporation, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of the shares of Company Common Stock or Class B Common Stock in respect
of which such deduction and withholding was made by the Surviving Corporation.
SECTION 3.05. STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers of Company Common Stock or Class B Common Stock
thereafter on the records of the Company.
SECTION 3.06. NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK OR CLASS B
COMMON STOCK. The Merger Consideration delivered upon the surrender of a
certificate representing Shares and the Class B Merger Consideration delivered
upon surrender of a certificate representing Class B Shares in accordance with
the terms hereof shall be deemed to have been issued in full satisfaction of all
rights pertaining to such Shares or Class B Shares, as the case may be, and
there shall be no further registration of transfers on the records of the
Surviving Corporation of Shares or Class B Shares which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates or Class B Certificates are presented to the Surviving Corporation
for any reason, they shall be cancelled and exchanged as provided in this
Article III.
6
<PAGE>
SECTION 3.07. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates or Class B Certificates shall have been lost, stolen or destroyed,
the Exchange Agent shall pay in exchange for such lost, stolen or destroyed
Certificates, upon the making of an affidavit of that fact by the holder thereof
and delivery of bond in such sum as it may reasonably direct as indemnity
against any claim that may be made against Acquisition Sub or any stockholder of
Acquisition Sub or the Exchange Agent with respect to the Certificates or Class
B Certificates alleged to have been lost, stolen or destroyed, the Merger
Consideration or Class B Merger Consideration, as applicable, attributable to
such Certificates or Class B Certificates as may be required pursuant to SECTION
3.04.
SECTION 3.08. COMPANY STOCK OPTIONS AND WARRANTS.
(a) At the Effective Time, except as otherwise provided in this SECTION
3.08, each option and warrant granted by the Company to purchase shares of
Company Common Stock, which is outstanding immediately prior thereto (an
"OPTION" or, collectively, the "OPTIONS"), shall be cancelled and retired and
shall cease to exist and no consideration shall be delivered or deliverable in
exchange therefor, except to the extent that (i) any such Option granted by the
Company to purchase shares of Company Common Stock has vested and is exercisable
immediately prior to the Effective Time, whether as a result of the passing of
time, the Merger or otherwise, or (ii) any such Option was granted pursuant to
the Company's 1992, 1993 or 1996 Incentive Stock Option Plans or the Officers'
Contingent Stock Option Plan (collectively, the "COMPANY STOCK OPTION PLANS")
and such option has not yet vested. In such event, each holder of such an Option
shall, individually, in settlement thereof, receive from the Surviving
Corporation for each share subject to such an Option an amount (subject to any
applicable back-up withholding taxes) in cash equal to the difference between:
(i) the Merger Consideration and (ii) the per share exercise price of such
Option, to the extent such difference is a positive number (the "OPTION
CONSIDERATION").
(b) Upon receipt of the Option Consideration, the Option shall be cancelled.
The surrender of an Option to the Surviving Corporation in exchange for the
Option Consideration shall be deemed a release of any and all rights the holder
had or may have had in respect of such Option.
(c) Prior to the Effective Time, the Company shall use its reasonable best
efforts to obtain all necessary consents or releases from holders of Options
under any of the Company Stock Option Plans and take all such other lawful
action as may be necessary to give effect to the transactions contemplated by
this Section (except for such action that may require the approval of the
Company's stockholders). Except as otherwise agreed to by the parties: (i) the
Company Stock Option Plans shall terminate as of the Effective Time and the
provisions in any other plan, program or arrangement providing for the issuance
or grant of any other interest in respect of the capital stock of the Company
shall be cancelled as of the Effective Time and (ii) the Company shall take all
commercially reasonable action in an effort to provide that following the
Effective Time no participant in any stock option plans or other plans, programs
or arrangements shall have any right thereunder to acquire equity securities of
the Company or the Surviving Corporation and to terminate all such plans.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Acquisition Sub as follows:
SECTION 4.01. ORGANIZATION AND STANDING.
(a) Each of the Company and its Subsidiaries (as hereinafter defined) is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation, and has the full corporate power
and authority to carry on its business in the places as it is now being
conducted and to own and lease the properties and assets which it now owns or
leases, except where the failure of same will not in any case result in a
Material Adverse Effect. The Company and each of its Subsidiaries is now duly
qualified to transact business and in good standing as a foreign corporation in
all jurisdictions in which the
7
<PAGE>
character of the property owned or leased by it and the nature of the business
conducted by it require such qualification, except where failure to be qualified
could not reasonably be expected to have a Material Adverse Effect. When used in
connection with the Company or any of its Subsidiaries or Acquisition Sub or any
of its Subsidiaries, as the case may be, a "MATERIAL ADVERSE EFFECT" is a
material adverse effect on the business, assets, properties, condition
(financial or other), results of operations or prospects of the Company and its
Subsidiaries or Acquisition Sub and its Subsidiaries, as the case may be, in
each case taken as a whole. For purposes of this Agreement, a "SUBSIDIARY" of
any Person is any corporation, partnership, joint venture or other legal entity
of which a majority of all outstanding shares of capital stock or other equity
interests (the holders of which are ordinarily and generally entitled to vote
for the election of the board of directors or other governing body thereof) is
owned, directly or indirectly, by such Person (either alone or through or
together with any other Subsidiary). For purposes of this agreement "SIGNIFICANT
SUBSIDIARY" means any Subsidiary of the Company or Acquisition Sub as the case
may be, that constitutes a significant subsidiary within the meaning of Rule
1.02(w) of Regulation S-X of the United States Securities and Exchange
Commission (the "SEC").
(b) True, correct and complete copies of the Certificate of Incorporation,
certified by the Secretary of State of the State of Delaware, and By-Laws of the
Company are attached hereto as SCHEDULE 4.01(B).
SECTION 4.02. AUTHORITY AND STATUS.
(a) The Company has requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
(b) This Agreement and the Charter Amendment (as hereinafter defined) have
been approved by the Board of Directors of the Company in accordance with the
GCL and except for the approval of the stockholders of the Company, no other
corporate proceeding on the part of the Company is necessary to authorize this
Agreement or the Charter Amendment or to consummate the transactions
contemplated hereby or thereby. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock approving this
Agreement and the Charter Amendment is the only vote of the holders of any class
or series of the Company's capital stock necessary to approve this Agreement and
the Charter Amendment and the transactions contemplated by this Agreement and
the Charter Amendment.
(c) This Agreement has been duly and validly executed and delivered by the
Company and is a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws in effect now or hereafter relating to creditors'
rights generally, and by equitable principles (whether considered in a
proceeding at law or in equity).
SECTION 4.03. CAPITALIZATION.
(a) The authorized capital stock of the Company consists of (i) fifteen
million (15,000,000) shares of common stock, par value $.01 per share, of which
8,987,233 shares were issued and outstanding and 72,000 shares were held in the
Company's treasury as of July 31, 1997; (ii) one million (1,000,000) shares of
preferred stock, par value $.01 per share, of which none are outstanding or held
in the Company's treasury as of July 31, 1997; and (iii) as of July 31, 1997,
866,913 and 136,832 Shares reserved for future issuance pursuant to outstanding
stock options and warrants under the Company Stock Option Plans and the Non-
Employee Directors' Warrant Plan together with certain other warrant awards,
respectively. All of the issued and outstanding capital stock of the Company is
validly issued, fully paid and non-assessable. All of the outstanding capital
stock of each of the Company's Subsidiaries is owned directly or indirectly by
the Company free and clear of all security interests, liens, pledges, claims,
charges, escrows, encumbrances, mortgages, indentures or easements
(collectively, "LIENS") of any nature, except as disclosed on SCHEDULE 4.03(A).
(b) Except as set forth on SCHEDULE 4.03(B), there are no other shares of
capital stock of the Company or any of its Subsidiaries, or securities
convertible into or exchangeable or exercisable for shares of capital
8
<PAGE>
stock of the Company or any of its Subsidiaries, outstanding, and there are no
outstanding options, warrants, rights, contracts, commitments, understandings,
arrangements or claims of any character by which the Company or any of its
Subsidiaries is or may become bound to issue, transfer, sell, repurchase or
otherwise acquire or retire any shares of capital stock or other ownership
interest of the Company or any of its Subsidiaries, or any securities
convertible into or exchangeable or exercisable for any such shares or other
ownership interest.
(c) SCHEDULE 4.03(C) sets forth a complete and accurate list of entities
(each, a "MINORITY AFFILIATE"), other than the Company's Subsidiaries, of which
the Company owns equity securities (as defined in Rule 3a-11 promulgated under
the Exchange Act (as hereinafter defined)), including, as to each Minority
Affiliate, its name, its jurisdiction of incorporation, formation or
organization and its capitalization (including the identity of each stockholder
or owner of equity securities or other securities and the number of shares or
other securities held thereby). None of the Company or any of its Subsidiaries
has entered into any commitment, contract or agreement to provide equity
financing to any other person or entity.
SECTION 4.04. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The exhibit index to the Company's most recently filed Annual Report on
Form 10-K, as supplemented by SCHEDULE 4.04(A), includes each agreement,
contract or other instrument (including all amendments thereto) to which the
Company or any of its Subsidiaries is a party or by which any of them is bound
and which would be required pursuant to the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT") and the rules and regulations thereunder to be
filed as an exhibit to an Annual Report on Form 10-K, a Quarterly Report on Form
10-Q or a Current Report on Form 8-K. The Company has made available to
Acquisition Sub on or prior to the date hereof true, correct and complete copies
in all material respects of each such agreement, contract, instrument and
amendment.
(b) Except as disclosed in SCHEDULE 4.04(B), (i) neither the Company nor any
of its Subsidiaries has breached, is in default under, or has received written
notice of any breach of or default under, any of the agreements, contracts or
other instruments referred to in SECTION 4.04(A), (ii) to the best knowledge of
the Company, no other party to any of the agreements, contracts or other
instrument referred to in SECTION 4.04(A) has breached or is in default of any
of its obligations thereunder, and (iii) each of the agreements, contracts and
other instruments referred to in SECTION 4.04(A) is in full force and effect,
except in any such case for breaches, defaults or failures to be in full force
and effect that do not constitute a Material Adverse Effect.
(c) Except as set forth in SCHEDULE 4.04(C), the execution and delivery of
this Agreement by the Company does not, and the performance of this Agreement by
the Company and the consummation of the transactions contemplated hereby will
not, (i) conflict with or violate the Certificate of Incorporation or By-Laws of
the Company or the organizational documents of any of its Subsidiaries, (ii)
conflict with or violate in any material respect any federal, foreign, state,
local or provincial law, rule, regulation, order, judgment or decree
(collectively, "LAWS") applicable to the Company or any of its Subsidiaries or
by which its or any of their respective properties is bound or affected, or
(iii) result in any material breach of or constitute a material default (or an
event that with notice or lapse of time or both would become a material default)
under, or materially impair the Company's or any of its Subsidiaries' rights or
materially alter the rights or obligations of any third party under, or give to
others any material rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a material Lien on any of the
properties or assets of the Company or any of its Subsidiaries pursuant to, any
material note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or its or any of their respective properties is bound or affected.
(d) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, require any
material consent, approval, authorization or permit of, or filing with or
notification to, any domestic or foreign governmental or regulatory authority
except for
9
<PAGE>
applicable requirements, if any, of the Securities Act of 1933, as amended (the
"SECURITIES ACT"), the Exchange Act, state securities laws ("BLUE SKY LAWS"),
the pre-merger notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT"), the premerger notification
requirements of the European Community and other requirements of foreign
jurisdictions and the filing and recordation of the Certificate of Merger or
other documents as required by the GCL.
SECTION 4.05. COMPLIANCE; PERMITS.
(a) Except as disclosed in SCHEDULE 4.05(A), neither the Company nor any of
its Subsidiaries is in conflict with, or in default or violation in any material
respect of, (i) any Law applicable to the Company or any of its Subsidiaries or
by which its or any of their respective properties is bound or affected or (ii)
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or its or any of their respective properties is bound or affected,
except, in the case of clause (ii), for any such conflicts, defaults or
violations which do not constitute a Material Adverse Effect.
(b) Except as disclosed in SCHEDULE 4.05(B), the Company and its
Subsidiaries hold all permits, licenses, easements, variances, exemptions,
consents, certificates, orders and approvals from governmental authorities which
are material to the operation of the business of the Company and its
subsidiaries taken as a whole as it is now being conducted (collectively, the
"COMPANY PERMITS"). The Company and its Subsidiaries are in compliance in all
material respects with the terms of the Company Permits.
SECTION 4.06. SEC FILINGS; FINANCIAL STATEMENTS.
(a) The Company has filed all forms, reports and documents required to be
filed with the SEC and has made available to Acquisition Sub (i) its Annual
Report on Form 10-K for the fiscal year ended December 31, 1996, (ii) all other
reports or registration statements filed by the Company with the SEC since
January 1, 1997, (iii) all proxy statements relating to the Company's meetings
of stockholders (whether annual or special) since January 1, 1997, and (iv) all
amendments and supplements to all such reports and registration statements filed
by the Company with the SEC ((i)-(iv) collectively, the "COMPANY SEC REPORTS").
Except as disclosed in SCHEDULE 4.06, the Company SEC Reports (A) were prepared
in all material respects in accordance with the requirements of the Securities
Act or the Exchange Act, as the case may be, and (B) did not at the time they
were filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. None of the Company's
Subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports was prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
thereto), and each fairly presents the consolidated financial position of the
Company and its Subsidiaries as at the respective dates thereof and the
consolidated results of its operations and cash flows and stockholder equity for
the periods indicated, except that the unaudited interim financial statements
were or are subject to normal and recurring year-end adjustments which were not
or are not expected to be material in amount.
10
<PAGE>
SECTION 4.07. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
SCHEDULE 4.07(A) through SCHEDULE 4.07(G) or the Company SEC Reports, since
December 31, 1996, the Company has conducted its business in the ordinary course
and there has not occurred: (a) any Material Adverse Effect; (b) any amendments
or changes in the Certificate of Incorporation or By-Laws of the Company or
similar organizational documents of its Subsidiaries; (c) any damage to,
destruction or loss of any asset of the Company or any of its Subsidiaries
(whether or not covered by insurance) that constitutes a Material Adverse Effect
or that would constitute a Material Adverse Effect if not covered by insurance;
(d) any material change by the Company in its accounting methods, principles or
practices except as required by any change in generally accepted accounting
principles; (e) any material revaluation by the Company of any of its or any of
its Subsidiaries' assets, including, without limitation, writing off notes or
accounts receivable other than in the ordinary course of business; (f) any sale,
pledge, disposition of or encumbrance upon any assets of the Company or any of
its Subsidiaries (except (i) sales of assets in the ordinary course of business
and in a manner consistent with past practice, (ii) dispositions of obsolete or
worthless assets and (iii) sales of other assets not in excess of $100,000 in
the aggregate); or (g) any other action or event that would have required the
consent of Acquisition Sub pursuant to SECTION 6.01 had such event occurred
after the date of this Agreement.
SECTION 4.08. NO UNDISCLOSED LIABILITIES. Except as is disclosed in SCHEDULE
4.08, neither the Company nor any of its Subsidiaries has any material
liabilities (absolute, accrued, contingent or otherwise), except liabilities (a)
in the aggregate adequately provided for in the Company's audited balance sheet
(including any related notes thereto) for the fiscal year ended December 31,
1996 included in the Company's 1996 Annual Report on Form 10-K (the "1996
COMPANY BALANCE SHEET"), (b) incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected on the
1996 Company Balance Sheet, (c) incurred since December 31, 1996 in the ordinary
course of business consistent with past practice or (d) incurred in connection
with this Agreement.
SECTION 4.09. ABSENCE OF LITIGATION. Except as set forth in SCHEDULE 4.09,
there are no claims, actions, suits, proceedings or investigations pending or,
to the knowledge of the Company, threatened against the Company or any of its
Subsidiaries, or any properties or rights of the Company or any of its
Subsidiaries, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, that if determined adversely
to the Company, would be reasonably likely to constitute a Material Adverse
Effect.
SECTION 4.10. EMPLOYEE BENEFIT PLANS, EMPLOYMENT AGREEMENTS. Except in each
case as set forth in SCHEDULE 4.10, (i) there has been no "prohibited
transaction," as such term is defined in Section 406 of the Employee Retirement
Income Security Act of 1975, as amended ("ERISA") and Section 4975 of the Code,
with respect to any employee pension plans (as defined in Section 3(2) of ERISA,
any material employee welfare plans (as defined in Section 3(1) of ERISA), or
any material bonus, stock option, stock purchase, incentive, deferred
compensation, supplemental retirement, severance and other similar fringe or
employee benefit plans, programs or arrangements (collectively, the "COMPANY
EMPLOYEE PLANS") which could result in any liability of the Company or any of
its Subsidiaries; (ii) all Company Employee Plans are in compliance in all
material respects with the requirements prescribed by any and all Laws
(including ERISA and the Code), currently in effect with respect thereto
(including all applicable requirements for notification to participants or the
Department of Labor, Pension Benefit Guaranty Corporation (the "PBGC"), Internal
Revenue Service (the "IRS") or Secretary of the Treasury), and the Company and
each of its Subsidiaries have performed all material obligations required to be
performed by them under, are not in any material respect in default under or
violation of, and have no knowledge of any material default or violation by any
other party to, any of the Company Employee Plans; (iii) each Company Employee
Plan intended to qualify under Section 401(a) of the Code and each trust
intended to qualify under Section 501(a) of the Code is the subject of a
favorable determination letter from the IRS, and nothing has occurred which may
reasonably be expected to impair such determination; (iv) all contributions
required to be made to any Company Employee Plan pursuant to Section 412 of the
Code, or the terms of the
11
<PAGE>
Company Employee Plan or any collective bargaining agreement, have been made on
or before their due dates; (v) with respect to each Company Employee Plan, no
"reportable event" within the meaning of Section 4043 of ERISA (excluding any
such event for which the 30-day notice requirement has been waived under the
regulations to Section 4043 of ERISA) nor any event described in Section 4062,
4063 or 4041 of ERISA has occurred; (vi) no withdrawal (including a partial
withdrawal) has occurred with respect to any multiemployer plan within the
meaning set forth in Section 3(37) of ERISA that has resulted in, or could
reasonably be expected to result in, any withdrawal liability for the Company or
any of its Subsidiaries; (vii) neither the Company nor any of its Subsidiaries
has incurred, or reasonably expects to incur, any liability under Title IV of
ERISA (other than liability for premium payments to the PBGC, and contributions
not in default to the respective plans, arising in the ordinary course), (viii)
none of the Company or any of its Subsidiaries is a party to any employment,
consulting or similar agreement; and (ix) none of the Company or any of its
Subsidiaries is or will be liable for any severance or other payments to any of
its employees as a result of this Agreement or the consummation of the
transactions contemplated hereby.
SECTION 4.11. LABOR MATTERS. Except as set forth in Schedule 4.11: (i) there
are no claims or proceedings pending or, to the knowledge of the Company or any
of its Subsidiaries, threatened, between the Company or any of its Subsidiaries
and any of their respective employees, which claims or proceedings constitute a
Material Adverse Effect; (ii) neither the Company nor any of its Subsidiaries is
a party to any collective bargaining agreement or other labor union contract
applicable to persons employed by the Company or its subsidiaries, nor does the
Company or any of its Subsidiaries know of any activities or proceedings of any
labor union to organize any such employees; and (iii) neither the Company nor
any of its Subsidiaries has any knowledge of any strikes, slowdowns, work
stoppages, lockouts, or threats thereof, by or with respect to any employees of
the Company or any of its Subsidiaries.
SECTION 4.12. INFORMATION SUPPLIED. The information supplied or to be
supplied by the Company for inclusion or incorporation by reference in (i) the
Registration Statement on Form S-4 to be filed by the Company with the SEC in
connection with the Merger, including the definitive proxy statement and
prospectus (the "PROSPECTUS/PROXY STATEMENT") constituting a part thereof (the
"S-4 REGISTRATION STATEMENT"), will not, at the time the S-4 Registration
Statement becomes effective under the Securities Act, and (ii) the
Prospectus/Proxy Statement and any amendments or supplements thereto, will not,
on the date the Prospectus/Proxy Statement (or any amendment thereof or
supplement thereto) is first mailed to stockholders in connection with the
meeting of the Company stockholders to consider the Merger and the Charter
Amendment (the "COMPANY STOCKHOLDERS MEETING"), at the time of the Company
Stockholders Meeting, or at the Effective Time, contain any statement which, at
such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or shall omit to state
any material fact required to be stated therein or necessary in order to make
the statements made therein not false or misleading, or omit to state any
material fact necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for the Company Stockholders Meeting
which has become false or misleading. If at any time prior to the Effective Time
any event relating to the Company or any of its Subsidiaries or any of their
respective affiliates, officers or directors should be discovered by the Company
which should be set forth in a supplement to the Prospectus/Proxy Statement, the
Company shall promptly inform Acquisition Sub. Notwithstanding the foregoing,
the Company makes no representation or warranty with respect to any information
supplied by Acquisition Sub or any of its representatives which is contained or
incorporated by reference in any of the foregoing documents.
SECTION 4.13. TITLE TO PROPERTY. Except as set forth in SCHEDULE 4.13, the
Company and each of its Subsidiaries have good and defensible title to all of
their properties and assets, free and clear of all material liens, charges and
encumbrances, except liens for taxes not yet due and payable and such liens or
other imperfections of title, none of which is substantial in amount, materially
detracts from the value or impairs the use of the property subject thereto, or
impairs the operations of the Company or any of its Subsidiaries; and, all
leases pursuant to which the Company or any of its Subsidiaries lease from
others
12
<PAGE>
material amounts of real or personal property, are in good standing, valid and
effective in accordance with their respective terms, and there is not, to the
knowledge of the Company, under any of such leases, any existing material
default or event of default (or event which with notice or lapse of time, or
both, would constitute a material default).
SECTION 4.14. TAXES.
(a) For purposes of this Agreement, "TAX" or "TAXES" shall mean taxes, fees,
levies, duties, tariffs, imposts, and governmental impositions or charges of any
kind in the nature of (or similar to) taxes, payable to any federal, state,
local or foreign taxing authority, including (without limitation) (i) income,
franchise, profits, gross receipts, ad valorem, net worth, value added, sales,
use, service, real or personal property, special assessments, capital stock,
license, payroll, withholding, employment, social security, workers'
compensation, unemployment compensation, utility, severance, production, excise,
stamp, occupation, premiums, windfall profits, transfer and gains taxes, and
(ii) interest, penalties, additional taxes and additions to tax imposed with
respect thereto; and "TAX RETURNS" shall mean returns, reports, and information
statements with respect to Taxes required to be filed with the IRS or any other
federal, foreign, state or provincial taxing authority, domestic or foreign,
including, without limitation, consolidated, combined and unitary tax returns.
(b) Other than as disclosed in SCHEDULE 4.14, (i) the Company and its
Subsidiaries have filed all United States federal income Tax Returns and all
other material Tax Returns required to be filed by them, (ii) the Company and
its Subsidiaries have paid and discharged all Taxes due in connection with or
with respect to the periods or transactions covered by such Tax Returns and have
paid all other Taxes as are due, except such as are being contested in good
faith by appropriate proceedings (to the extent that any such proceedings are
required) and with respect to which the Company is maintaining adequate
reserves, and (iii) there are no other material Taxes that would be due if
asserted by a taxing authority, except with respect to which the Company is
maintaining reserves to the extent currently required. Except as does not
involve or would not result in material liability to the Company or any of its
Subsidiaries: (i) there are no tax liens on any assets of the Company or any
Subsidiary thereof; and (ii) neither the Company nor any of its Subsidiaries has
been granted a waiver of any statute of limitations with respect to, or any
extension of a period for the assessment of, any Tax. The accruals and reserves
for Taxes (including deferred taxes) reflected in the 1996 Company Balance Sheet
are in all material respects adequate to cover all Taxes required to be accrued
through the date thereof (including interest and penalties, if any, thereon and
Taxes being contested) in accordance with generally accepted accounting
principles applied on a consistent basis, and the accrual and reserves for Taxes
(including deferred taxes) reflected in the books and records of the Company as
at the last day of the Company's most recently completed fiscal month end are in
all material respects adequate to cover all Taxes required to be accrued through
such date (including interest and penalties, if any, thereon and Taxes being
contested) in accordance with generally accepted accounting principles applied
on a consistent basis.
(c) Other than as disclosed in SCHEDULE 4.14, (i) all Tax Returns filed with
respect to Tax years of the Company and each of the Subsidiaries through the Tax
year ended December 31, 1992 have been examined and closed or are Tax Returns
with respect to which the applicable period for assessment under applicable law,
after giving effect to extensions or waivers, has expired; (ii) to the knowledge
of the Company, there is no claim, audit, action, suit, proceeding, or
investigation now pending against or with respect to the Company or any
Subsidiary in respect of any Tax; (iii) there are no written requests for
rulings or determinations in respect of any Tax pending between the Company or
any Subsidiary and any taxing authority; (iv) neither the Company nor any
Subsidiary will be required to include any adjustment in taxable income for any
Tax period following the Closing under Section 481(c) of the Code (or any
similar provision of the Tax laws of any jurisdiction) as a result of a change
in method of accounting for a Tax period prior to the Closing or pursuant to the
provisions of any agreement entered into with any taxing authority with regard
to the Tax liability of the Company or any Subsidiary for any Tax period prior
to the Closing; (v) all Taxes that the Company or any Subsidiary is, or was,
required by law to withhold or collect
13
<PAGE>
have been duly withheld or collected and, to the extent required, have been paid
to the appropriate taxing authority; (vi) the Company is not a U.S. real
property holding corporation, as defined under Section 897(c)(2) of the Code;
and (vii) there is no contract, agreement, plan or arrangement covering any
person that, individually or collectively, as a consequence of the transactions
contemplated by this Agreement could give rise to the payment of any amount that
would not be deductible by the Company or any Subsidiary by reason of Section
280G of the Code.
SECTION 4.15. ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 4.15,
the Company and each of its Subsidiaries: (i) have obtained all material
approvals which are required to be obtained under all applicable federal, state,
foreign or local laws or any regulation, code, plan, order, decree, judgment,
notice or demand letter issued, entered, promulgated or approved thereunder
relating to pollution or protection of the environment, including laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials or wastes into ambient air,
surface water, ground water, or land or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or hazardous or toxic materials or wastes
("ENVIRONMENTAL LAWS") by the Company or its Subsidiaries or their respective
agents; (ii) are in compliance in all material respects with all terms and
conditions of such required approvals, and also are in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in applicable Environmental Laws; (iii) as of the date hereof, are not
aware of nor have received notice of any past or present violations of
Environmental Laws or any event, condition, circumstance, activity, practice,
incident, action or plan which is reasonably likely to interfere with or prevent
continued compliance with Environmental Laws or which would give rise to any
material common law or statutory liability, or otherwise form the basis of any
claim, action, suit or proceeding, against the Company or any of its
Subsidiaries based on or resulting from the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge or release into the environment, of any pollutant,
contaminant or hazardous or toxic material or waste; and (iv) have taken all
actions necessary under applicable Environmental Laws to register any products
or materials required to be registered by the Company or its Subsidiaries (or
any of their respective agents) thereunder.
SECTION 4.16. INSURANCE. The Company maintains fire and casualty, general
liability, business interruption, product liability, professional liability and
sprinkler and water damage insurance policies with reputable insurance carriers,
which provide full and adequate coverage for all normal risks incident to the
business of the Company and its Subsidiaries and their respective properties and
assets and are in character and amount similar to that carried by entities
engaged in similar business and subject to the same or similar perils or
hazards.
SECTION 4.17. OPINION OF FINANCIAL ADVISOR. The Company has been advised by
its financial advisor, Merrill Lynch & Co., that in its opinion, as of the date
hereof, the cash Merger Consideration set forth herein is fair to the holders of
Shares from a financial point of view.
SECTION 4.18. BROKERS. Except as set forth in SCHEDULE 4.18, no broker,
finder or investment banker or other party is entitled to any brokerage,
finder's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company or its Subsidiaries or affiliates. The fees and expenses of the
entities listed on SCHEDULE 4.18 will be paid by the Company. The Company has
heretofore furnished to Acquisition Sub a complete and correct copy of all
agreements between the Company and the entities listed on SCHEDULE 4.18 pursuant
to which such entities would be entitled to any payment relating to the
transactions contemplated hereunder.
SECTION 4.19. BOOKS AND RECORDS. The books of account, minute books, stock
record books, and other records of the Company and its Subsidiaries, all of
which have been made available to Acquisition Sub, are complete and correct in
all material respects and have been maintained in accordance with sound business
practices and the requirements of Section 13(b)(2) of the Exchange Act
(regardless of whether or
14
<PAGE>
not the Company and its Subsidiaries are subject to that Section), including the
maintenance of an adequate system of internal controls. The minute books of the
Company and its Subsidiaries contain accurate and complete records of all
meetings held of and corporate action taken by, the stockholders, the Boards of
Directors, and committees of the Boards of Directors of the Company and its
Subsidiaries, and no meeting of any such stockholders, Board of Directors, or
committee has been held for which minutes have not been prepared and are not
contained in such minute books. At the Closing, all of those books and records
will be in the possession of the Company and its Subsidiaries.
SECTION 4.20. CERTAIN PAYMENTS. Since June 17, 1992, none of the Company or
any of its Subsidiaries or any director, officer, agent, or employee of, or any
other Person associated with or acting for or on behalf of, the Company or any
of its Subsidiaries, has directly or indirectly (a) made any contribution, gift,
bribe, rebate, payoff, influence payment, kick-back, or other payment to any
Person, private or public, regardless of form, whether in money, property, or
services in violation of any Laws, or (b) established or maintained any fund or
asset that has not been recorded in the books and records of the Company or any
of its Subsidiaries.
SECTION 4.21. INTELLECTUAL PROPERTY. The Intellectual Property Rights (as
hereinafter defined) of the Company and its Subsidiaries are listed in SCHEDULE
4.21. Except as set forth in SCHEDULE 4.21, each of the Company and each of its
Subsidiaries owns or possesses adequate licenses or other valid rights to use
all patents, patent rights, trademarks, trademark rights, trade names, trade
name rights, copyrights, service marks, trade secrets, applications for
trademarks and for service marks, knowhow and other proprietary rights and
information (collectively, "INTELLECTUAL PROPERTY RIGHTS") used or held for use
in connection with its business as currently conducted or as contemplated to be
conducted, and, to the knowledge of the Company, there is no assertion or claim
challenging the validity of any of the foregoing. Except as set forth in
SCHEDULE 4.21, the conduct of the business of the Company and its Subsidiaries
as currently conducted does not conflict with any Intellectual Property Rights
of any third party. To the knowledge of the Company, there are no infringements
of any Intellectual Property Rights used or held for use in connection with the
business of the Company and its Subsidiaries.
SECTION 4.22. CONTRACTS. (a) Except as set forth on SCHEDULE 4.22(A), none
of the Company or any of its Subsidiaries is a party to or is bound by any
employment agreement, telecommunications agreement, vendor agreement, credit
agreement, mortgage or indenture, or any material joint venture agreement which
(i) provides that the terms thereof or any or all of the benefits or burdens
thereunder will be affected or altered (including, without limitation, by means
of acceleration) by, or are contingent upon, or (ii) will be subject to
termination or cancellation as a result of, the execution of this Agreement or
the consummation of the transactions contemplated hereby.
(b) Except as set forth on SCHEDULE 4.22(B), (i) none of the Company or any
of its Subsidiaries is a party to any agreement with any beneficial owner of 5%
or more of the capital stock of, or any executive officer or director of, the
Company or any of its Subsidiaries or any "associate" (as such term is defined
in Rule 12b-2 under the Exchange Act) of any such person, (ii) no officer or
director of the Company or any of its Subsidiaries or any associate of any such
person has any material interest in any material contract or property (real or
personal, tangible or intangible), used in or pertaining to the business of the
Company or any of its Subsidiaries and (iii) none of the Company or any of its
Subsidiaries is a party to any agreement with any of the Company's Minority
Affiliates or XSL.
SECTION 4.23. INFORMATION SYSTEMS. The Company's computer and software
systems (including backup systems) are fully operational, and, to the best of
the Company's knowledge, there has been no material malfunction or other
material problem with such systems.
SECTION 4.24. REGULATION OF BUSINESS. To the best knowledge of the Company's
management, there has not been any change or proposed change in any Laws which
has resulted in or is reasonably likely to result in the regulation of the
business of the Company or any of its Subsidiaries by the Federal Communications
Commission or any other foreign, federal, state or local governmental agency or
other governing body, the compliance with which would have a material cost to
the Company or an adverse impact on the business of the Company.
15
<PAGE>
ARTICLE V
REPRESENTATIONS AND
WARRANTIES OF ACQUISITION SUB
Acquisition Sub hereby represents and warrants to the Company as follows:
SECTION 5.01. CORPORATE ORGANIZATION.
(a) Acquisition Sub is a corporation duly organized, validly existing, and
in good standing under the laws of the jurisdiction of its incorporation, and
has the full corporate power and authority to carry on its business in the
places and as it is now being conducted and to own and lease the properties and
assets which it now owns or leases except where the failure of same will not in
any case result in a Material Adverse Effect. Acquisition Sub is duly qualified
to transact business and in good standing as a foreign corporation in all
jurisdictions in which the character of the property owned or leased by it and
the nature of the business conducted by it require such qualification, except
where failure to be so qualified could not reasonably be expected to have a
Material Adverse Effect.
(b) True, correct and complete copies of the Certificate of Incorporation,
certified by the Secretary of State of the State of Delaware, and By-Laws (or
equivalent documents) of Acquisition Sub as of the date hereof are attached
hereto as SCHEDULE 5.01(B).
(c) Acquisition Sub has no direct or indirect Subsidiaries.
SECTION 5.02. AUTHORIZATION.
(a) Acquisition Sub has requisite corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby.
(b) This Agreement has been approved by the Board of Directors of
Acquisition Sub in accordance with the GCL and no other corporate proceeding on
the part of Acquisition Sub is necessary to authorize this Agreement or to
consummate the transactions contemplated hereby.
(c) This Agreement has been duly and validly executed and delivered by
Acquisition Sub and is a valid and binding agreement of Acquisition Sub,
enforceable against Acquisition Sub in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or similar laws in effect now or hereafter in
effect relating to creditors' rights generally and by equitable principles
(whether considered in a proceeding at law or in equity).
SECTION 5.03. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Except as set forth in SCHEDULE 5.03(A), the execution and delivery of
this Agreement by Acquisition Sub does not, and the performance of this
Agreement by Acquisition Sub and the consummation of the transactions
contemplated hereby will not, (i) conflict with or violate the Certificate of
Incorporation or By-Laws of Acquisition Sub, (ii) conflict with or violate in
any material respect any Laws applicable to Acquisition Sub or by which any of
its properties is bound or affected, or (iii) result in any material breach of
or constitute a material default (or an event that with notice or lapse of time
or both would become a material default) under, or materially impair Acquisition
Sub's rights or materially alter the rights or obligations of any third party
under, or give to others any material rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a material Lien on
any of the properties or assets of Acquisition Sub pursuant to, any material
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Acquisition Sub is a party
or by which Acquisition Sub or any of its properties is bound or affected.
(b) The execution and delivery of this Agreement by Acquisition Sub does
not, and the performance of this Agreement by Acquisition Sub will not, require
any material consent, approval, authorization or permit of, or filing with or
notification to, any domestic or foreign governmental or regulatory authority
16
<PAGE>
except for applicable requirements, if any, of the Securities Act, the Exchange
Act, the Blue Sky Laws, the HSR Act, the premerger notification requirements of
the European Community and other requirements of foreign jurisdictions and the
filing and recordation of appropriate merger or other documents as required by
the GCL.
SECTION 5.04. INFORMATION SUPPLIED. The information supplied or to be
supplied by Acquisition Sub for inclusion or incorporation by reference in (i)
the S-4 Registration Statement will not, at the time the S-4 Registration
Statement becomes effective under the Securities Act, and (ii) the
Prospectus/Proxy Statement (or any amendment thereof or supplement thereto) will
not, on the date the Prospectus/Proxy Statement (or any amendment thereof or
supplement thereto) is first mailed to stockholders, at the time of the Company
Stockholders Meeting, or at the Effective Time, contain any statement which, at
such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or shall omit to state
any material fact necessary in order to make the statements made therein not
false or misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Company Stockholders Meeting which has become false or
misleading. If at any time prior to the Effective Time any event relating to
Acquisition Sub or any of its affiliates, officers or directors should be
discovered by Acquisition Sub which should be set forth in a supplement to the
Prospectus/Proxy Statement, Acquisition Sub shall promptly inform the Company.
Notwithstanding the foregoing, Acquisition Sub makes no representation or
warranty with respect to any information supplied by the Company which is
contained or incorporated by reference in any of the foregoing documents.
SECTION 5.05. BROKERS. Except as set forth in SCHEDULE 5.05, no broker,
finder or investment banker or other party is entitled to any brokerage,
finder's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Acquisition Sub or its affiliates. The fees and expenses of the entities listed
on SCHEDULE 5.05 will be paid by Acquisition Sub.
SECTION 5.06. NO BUSINESS. Acquisition Sub was formed solely for the purpose
of effecting the Merger, and has undertaken no business other than in connection
with the transactions contemplated by this Agreement.
SECTION 5.07. FINANCING. Acquisition Sub or its affiliates has received the
executed commitments (including the term sheets related thereto) attached as
SCHEDULE 5.07 ("FINANCING COMMITMENTS") from one or more financial institutions
or other entities to provide to the Company, subject to the conditions specified
therein, funds sufficient in amount to consummate the Merger and the respective
transactions contemplated thereby.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.01. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. The
Company covenants and agrees that, during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, unless Acquisition Sub shall otherwise agree in writing
and except as required by the XSL Purchase Agreement, (i) the Company shall
conduct its business and shall cause the businesses of its Subsidiaries to be
conducted only in, and the Company and its Subsidiaries shall not take an action
except in, the ordinary course of business and in a manner consistent with past
practice, and (ii) the Company shall use all reasonable effort to preserve
substantially intact the business organization of the Company and its
Subsidiaries, to keep available the services of the present officers, employees
and consultants of the Company and its Subsidiaries and to preserve the present
relationships of the Company and its Subsidiaries with customers, suppliers and
other persons with which the Company or any of its Subsidiaries has significant
business relations. By way of amplification and not limitation, except as
contemplated by this Agreement or as required by the XSL Purchase Agreement or
as
17
<PAGE>
described on SCHEDULE 6.01, neither the Company nor any of its Subsidiaries
shall, during the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, directly
or indirectly do, or propose to do, any of the following without the prior
written consent of Acquisition Sub:
(a) amend or otherwise change the Certificate of Incorporation or By-Laws of
the Company or similar organizational documents of any of its Subsidiaries;
(b) issue, sell, pledge, dispose of or encumber, or authorize the issuance,
sale, pledge, disposition or encumbrance of any shares of capital stock of any
class, or any options, warrants, convertible securities or other rights of any
kind to acquire any shares of capital stock, or any other ownership interest
(including, without limitation, any phantom interest) in the Company or any of
its Subsidiaries (except for the issuance of shares of Company Common Stock
issuable pursuant to stock options which were granted under the Company Stock
Option Plans and are outstanding on the date hereof, in accordance with the
terms of the Company Stock Option Plans);
(c) sell, pledge, dispose of or encumber any assets of the Company or any of
its Subsidiaries (except for (i) sales of assets in the ordinary course of
business and in a manner consistent with past practice, (ii) dispositions of
obsolete or worthless assets, and (iii) sales of other assets not in excess of
$100,000 in the aggregate);
(d) (i) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock, except that a wholly owned Subsidiary of the Company
may declare and pay a dividend to its parent, (ii) split, combine or reclassify
any of its capital stock or issue or authorize or propose the issuance of any
other securities or property in respect of, in lieu of or in substitution for
shares of its capital stock, or (iii) amend the terms or change the period of
exercisability of, purchase, repurchase, redeem or otherwise acquire, any of its
securities or any securities of its Subsidiaries, including, without limitation,
shares of Company Common Stock or any option, warrant or right, directly or
indirectly, to acquire shares of Company Common Stock, or provide that upon the
exercise or conversion of any such option, warrant or right the holder thereof
shall receive cash, or propose to do any of the foregoing;
(e) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
or any equity interest therein; (ii) incur any indebtedness for borrowed money
or issue any debt securities, except for short-term, working capital and
commercial paper borrowings not in excess of $1,000,000 in the aggregate for the
Company and its Subsidiaries, taken as a whole at any one time outstanding
incurred in the ordinary course of business consistent with past practice and
except for the intercompany indebtedness between the Company and any of its
wholly owned Subsidiaries or between such wholly owned Subsidiaries, or assume,
guarantee or endorse or otherwise as an accommodation become responsible for,
the obligations of any person or, except in the ordinary course of business
consistent with past practice, make any loans or advances; (iii) enter into or
amend any material contract or agreement; (iv) authorize any capital
expenditures or purchase of fixed assets, in the aggregate, in excess of
$1,000,000 per month for the Company and its Subsidiaries taken as a whole; (v)
make any loan to, or investment in, any Minority Affiliate or XSL, other than
business transactions with Minority Affiliates or XSL in the ordinary course of
business; or (vi) enter into or amend any contract, agreement, commitment or
arrangement to effect any of the matters prohibited by this Section 6.01;
(f) (i) increase the compensation payable or to become payable to its
officers or employees, except for increases in salary or wages of employees of
the Company or its Subsidiaries who are not officers of the Company in the
ordinary course of business in accordance with past practice and except for
increases in salary or wages as provided for in employment agreements; (ii)
grant any severance or termination pay to, or enter into or amend any employment
or severance agreement with any director, officer or other employee of the
Company or any of its Subsidiaries; or (iii) establish, adopt, enter into or
amend any collective bargaining, bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension,
18
<PAGE>
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
current or former directors, officers or employees, except, in each case, as may
be required by law;
(g) except as may be required as a result of a change in law or in generally
accepted accounting principles take any action to change accounting policies or
procedures (including, without limitation, procedures with respect to revenue
recognition, payments of accounts payable and collection of accounts
receivable);
(h) make any material tax election inconsistent with past practice or settle
or compromise or amend any material federal, state, local or foreign tax
liability or agree to an extension of a statute of limitations;
(i) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities reflected or reserved against in
the financial statements contained in the Company SEC Reports filed prior to the
date of this Agreement or incurred in the ordinary course of business and
consistent with past practice;
(j) offer employment to any person as an officer of the Company, or promote
any existing employee to such office;
(k) settle or agree to a final settlement of any litigation against the
Company or any of its Subsidiaries for an amount in excess of $250,000;
(l) amend or grant waivers or approvals in its discretion under the XSL
Purchase Agreement; or
(m) take, or agree in writing or otherwise to take, any of the actions
described in Sections 6.01(a) through (l) above, or any action which would make
any of the representations or warranties of the Company contained in this
Agreement untrue or incorrect or prevent the Company from performing or cause
the Company not to perform its covenants hereunder.
SECTION 6.02. NO SOLICITATION.
(a) The Company shall not, directly or indirectly, through any officer,
director, employee, representative or agent of the Company or any of its
Subsidiaries, (i) solicit, initiate or encourage or take any other action to
facilitate the institution of any inquiries or proposals regarding any merger,
reorganization, consolidation, business combination, recapitalization,
liquidation, dissolution, sale of all or any significant portion of assets, sale
of shares of capital stock (including without limitation by way of a tender or
exchange offer) or similar transactions involving the Company or any
Subsidiaries of the Company other than the Merger (any of the foregoing
inquiries or proposals being referred to herein as an "ACQUISITION PROPOSAL"),
(ii) engage in negotiations or discussions concerning, or provide any nonpublic
information or assistance to any person in connection with any Acquisition
Proposal or (iii) agree to, approve or recommend any Acquisition Proposal.
Notwithstanding the foregoing, the Company may engage in negotiations or
discussions with respect to a recapitalization transaction after November 30,
1997; provided that the Company does not incur or commit to incur, except in
each case upon consummation of such transaction, fees and expenses in excess of
$250,000 in the aggregate in connection with such negotiations or discussions.
Nothing contained in this SECTION 6.02(A) shall prevent the Board of Directors
of the Company from considering, negotiating, discussing, approving and
recommending to the stockholders of the Company a bona fide Acquisition Proposal
not solicited in violation of this Agreement, PROVIDED that the Board of
Directors of the Company determines in good faith (after consultation with and
based upon the advice of outside counsel) that it is required to do so in order
to discharge properly its fiduciary duties to the Company's stockholders; and
PROVIDED, FURTHER, that the Company shall keep Acquisition Sub informed, on a
reasonably current basis, as to the status and details of any such
consideration, negotiations or discussions. Nothing contained in this Section
6.02 shall prohibit the Board of Directors of the Company
19
<PAGE>
from complying with Rule 14e-2 promulgated under the Exchange Act with regard to
a tender or exchange offer.
(b) The Company shall immediately notify Acquisition Sub after receipt of
any Acquisition Proposal or any modification of or amendment to any Acquisition
Proposal, or any request for nonpublic information relating to the Company or
any of its Subsidiaries in connection with an Acquisition Proposal or for access
to the properties, books or records of the Company or any Subsidiary by any
person or entity that informs the Board of Directors of the Company or such
Subsidiary that it is considering making, or has made, an Acquisition Proposal.
Such notice to Acquisition Sub shall be made orally and in writing, shall
indicate whether the Company is providing or intends to provide the person
making the Acquisition Proposal with access to information concerning the
Company as provided in SECTION 6.02(C) and, if reasonably practicable, shall be
made prior to furnishing any such information to, or entering into negotiations
or discussions with, such person.
(c) If the Board of Directors of the Company receives a request for material
nonpublic information by a person who makes, or indicates that it is considering
making, a bona fide Acquisition Proposal, and the Board of Directors determines
in good faith and upon the advice of outside counsel that it is required to
cause the Company to act as provided in this SECTION 6.02(C) in order to
discharge properly the directors' fiduciary duties to the Company's
stockholders, then, PROVIDED that such person has executed a confidentiality
agreement substantially similar to the one then in effect among the Company and
Acquisition Sub's stockholders the Company may provide such person with access
to information regarding the Company.
(d) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any persons (other than Acquisition
Sub) conducted heretofore with respect to any of the foregoing. The Company
agrees not to release any third party from the confidentiality provisions of any
confidentiality agreement to which the Company is a party.
(e) The Company shall ensure that the officers, directors and employees of
the Company and its Subsidiaries and any investment banker or other advisor or
representative retained by the Company are aware of the restrictions described
in this SECTION 6.02.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01. HSR ACT; ETC. As promptly as practicable after the date of the
execution of this Agreement, the Company and Acquisition Sub shall file
notifications under and in accordance with the HSR Act and the legal
requirements of the European Community and any other foreign jurisdictions
requiring notification in connection with the Merger and the transactions
contemplated hereby. The Company and Acquisition Sub shall respond as promptly
as practicable to any inquires received from the Federal Trade Commission (the
"FTC") and the Antitrust Division of the Department of Justice (the "ANTITRUST
DIVISION") for additional information or documentation and shall respond as
promptly as practicable to all inquires and requests received from any State
Attorney General or other governmental authority (foreign or domestic) in
connection with antitrust matters.
SECTION 7.02. PREPARATION OF THE PROSPECTUS/PROXY STATEMENT.
(a) As promptly as practicable after the execution of this Agreement, the
Company and Acquisition Sub shall prepare and file with the SEC the
Prospectus/Proxy Statement and thereafter the S-4 Registration Statement. The
Company shall use its reasonable best efforts to respond to all SEC comments, to
have the S-4 Registration Statement declared effective under the Securities Act
as promptly as practicable after such filing and to cause the Prospectus/Proxy
Statement to be mailed to the Company's stockholders at the earliest practicable
date.
20
<PAGE>
(b) Prior to the Closing Date, the Company shall deliver to Acquisition Sub
a letter identifying all persons whom the Company believes to be, at the date of
the Company Stockholders Meeting, "affiliates" of the Company for purposes of
Rule 145 under the Securities Act and who shall have made a Non-Cash Election.
Each of the Company and Acquisition Sub shall use all reasonable efforts to
cause each Person who is identified as an "affiliate" in the letter referred to
above to deliver to Acquisition Sub on or prior to the Closing Date a written
agreement substantially in the form of Exhibit B.
SECTION 7.03. STOCKHOLDER APPROVAL.
(a) As soon as practicable after the S-4 Registration Statement is
effective, the Company shall call and hold the Company Stockholders Meeting in
accordance with applicable laws for the purpose of voting upon the approval of
the Merger and the Charter Amendment and the adoption of this Agreement and the
transactions contemplated hereby. At the Company Stockholders Meeting,
Acquisition Sub shall cause all of the shares of Company Common Stock for which
it holds proxies to vote to be voted in favor of the Merger and the Charter
Amendment.
(b) Acquisition Sub shall (i) promptly submit this Agreement and the
transactions contemplated hereby for approval and adoption by its stockholders;
and (ii) cause to be taken all additional actions necessary for Acquisition Sub
to adopt and approve this Agreement and the transactions contemplated hereby.
SECTION 7.04. ACCESS TO INFORMATION; CONFIDENTIALITY. Upon reasonable notice
and subject to restrictions contained in confidentiality agreements to which
such party is subject (from which such party shall use reasonable efforts to be
released), the Company and Acquisition Sub shall each (and shall cause each of
their Subsidiaries, and use commercially reasonable efforts to cause their
Minority Affiliates and XSL, to) afford to the officers, employees, accountants,
counsel and other representatives of the other, reasonable access, during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, the Company and Acquisition Sub
each shall (and shall cause each of their Subsidiaries, and use commercially
reasonable efforts to cause their Minority Affiliates and XSL, to) furnish
promptly to the other all information concerning its business, properties and
personnel as such other party may reasonably request, and each shall make
available to the other the appropriate individuals (including attorneys,
accountants and other professionals) for discussion of the other's business
(including, in the case of the Company, the business of the Minority Affiliates
and XSL), properties and personnel as either Acquisition Sub or the Company may
reasonably request. From and after the date of this Agreement through the
Effective Time, the Company shall provide to Acquisition Sub monthly
consolidated statements of operations and cash flows and monthly consolidated
balance sheets for the Company and its Subsidiaries and, if the Company receives
such statements from its Minority Affiliates or XSL, from such Minority
Affiliates or XSL, within 30 days following the end of each calendar month
during such period. Each party shall keep such information confidential in
accordance with the terms of the confidentiality letter, dated April 4, 1997
(the "CONFIDENTIALITY LETTER") among Acquisition Sub's stockholders and the
Company.
SECTION 7.05. CONSENTS; APPROVALS. The Company and Acquisition Sub shall
each use all reasonable efforts to obtain all consents, waivers, approvals,
authorizations or orders (including, without limitation, all United States and
foreign governmental and regulatory rulings and approvals), and the Company and
Acquisition Sub shall make all filings (including, without limitation, all
filings with United States and foreign governmental or regulatory agencies)
required in connection with the authorization, execution and delivery of this
Agreement by the Company and Acquisition Sub and the consummation by them of the
transactions contemplated hereby, in each case as promptly as practicable. The
Company and Acquisition Sub shall furnish promptly all information required to
be included in the Prospectus/Proxy Statement or for any application or other
filing to be made pursuant to the rules and regulations of any United States or
foreign governmental body in connection with the transactions contemplated by
this Agreement. The Company will take all actions reasonably requested by
Acquisition Sub (including, without limitation,
21
<PAGE>
entering into agreements with underwriters, placement agents and other financing
sources and assuming the obligations of Acquisition Sub and its stockholders
under the Financing Commitments) in order to effect or facilitate the financing
described in the Financing Commitments.
SECTION 7.06. INDEMNIFICATION AND INSURANCE.
(a) The By-Laws of the Surviving Corporation shall contain the provisions
with respect to indemnification set forth in the By-Laws of the Company on the
date hereof, which provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who on or prior to
the Effective Time were directors, officers, employees or agents of the Company,
unless such modification is required by law.
(b) The Company shall, to the fullest extent permitted under applicable law
or under the Company's Certificate of Incorporation or By-Laws and regardless of
whether the Merger becomes effective, indemnify and hold harmless, and, after
the Effective Time, the Surviving Corporation shall, to the fullest extent
permitted under applicable law or under the Surviving Corporation's Certificate
of Incorporation or By-Laws as in effect at the Effective Time, indemnify and
hold harmless, each present and former director, officer or employee of the
Company or any of its Subsidiaries (collectively, the "INDEMNIFIED PARTIES")
against any cost or expense (including attorney's fees), judgments, fines,
losses, claims, damages, liabilities and amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, (x) arising out of or
pertaining to the transactions contemplated by this Agreement or (y) otherwise
with respect to any acts or omissions occurring at or prior to the Effective
Time, to the same extent as provided in the Company's Certificate of
Incorporation or By-Laws or any applicable contract or agreement as in effect on
the date hereof, in each case for a period of six years after the date hereof.
In the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), (i) any counsel retained
by the Indemnified Parties for any period after the Effective Time shall be
reasonably satisfactory to the Surviving Corporation, (ii) after the Effective
Time, the Surviving Corporation shall pay the reasonable fees and expenses of
such counsel, promptly after statements therefor are received, and (iii) the
Surviving Corporation will cooperate in the defense of any such matter; PROVIDED
that the Surviving Corporation shall not be liable for any settlement effected
without its written consent (which consent shall not be unreasonably withheld);
and PROVIDED, FURTHER, that in the event that any claim or claims for
indemnification are asserted or made within such six-year period, all rights to
indemnification in respect of any such claim or claims shall continue until the
disposition of any and all such claims. The Indemnified Parties as a group may
retain only one law firm to represent them with respect to any single action
unless there is, under applicable standards of professional conduct, a conflict
on any significant issue between the positions of any two or more Indemnified
Parties.
(c) Acquisition Sub and the Surviving Corporation shall honor and fulfill in
all respects the obligations of the Company pursuant to indemnification
agreements with the Company's directors and officers existing at or before the
Effective Time.
(d) For a period of six years after the Effective Time, Acquisition Sub
shall cause the Surviving Corporation to maintain in effect, if available,
directors' and officers' liability insurance covering those persons who are
currently covered by the Company's directors' and officers' liability insurance
policy (a copy of which has been made available to Acquisition Sub) on terms
comparable to those now applicable to directors and officers of the Company;
PROVIDED that in no event shall Acquisition Sub or the Surviving Corporation be
required to expend in excess of 150% of the annual premium currently paid by the
Company for such coverage; and PROVIDED, FURTHER, that if the premium for such
coverage exceeds such amount, Acquisition Sub or the Surviving Corporation shall
purchase a policy with the greatest coverage available for such 150% of the
annual premium.
22
<PAGE>
(e) This Section shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, the Surviving Corporation
and the Indemnified Parties, shall be binding on all successors and assigns of
Acquisition Sub and the Surviving Corporation and shall be enforceable by the
Indemnified Parties.
SECTION 7.06A. EMPLOYMENT AND BENEFIT MATTERS. The Surviving Corporation
shall for a period of one (1) year following the Effective Time maintain the
contractual benefit programs identified in SCHEDULE 7.06A (each, a "BENEFIT
PLAN"); PROVIDED that nothing herein shall affect the Surviving Corporation's
rights to modify or terminate any such Benefit Plan at or after the end of such
one (1) year period.
SECTION 7.07. NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to Acquisition Sub, and Acquisition Sub shall give prompt notice to the
Company, of (i) the occurrence and nonoccurrence of any event the occurrence or
nonoccurrence of which would be likely to cause any representation or warranty
contained in this Agreement to become materially untrue or inaccurate, or (ii)
any failure of the Company or Acquisition Sub, as the case may be, materially to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder; PROVIDED that the delivery of any notice pursuant
to this Section shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice; and PROVIDED, FURTHER, that
failure to give such notice shall not be treated as a breach of covenant for the
purposes of SECTIONS 8.02(A) and 8.03(a) unless the failure to give such notice
results in material prejudice to the other party.
SECTION 7.08. FURTHER ACTION. Upon the terms and subject to the conditions
hereof each of the parties hereto shall use all reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all other things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement, to obtain in a
timely manner all necessary waivers, consents and approvals and to effect all
necessary registrations and filings, and otherwise to satisfy or cause to be
satisfied all conditions precedent to its obligations under this Agreement.
SECTION 7.09. PUBLIC ANNOUNCEMENTS. Acquisition Sub and the Company shall
consult with each other before issuing any press release with respect to the
Merger or this Agreement and shall not issue any such press release or make any
such public statement without the prior consent of the other party, but
following consultation with the other party and the use of reasonable efforts to
agree on a mutually satisfactory text, which shall not be unreasonably withheld;
PROVIDED that a party may, without the prior consent of the other party, issue
such press release or make such public statement as may upon the advice of
outside counsel be required by law or the rules and regulations of the NASDAQ
National Market ("NASDAQ"), as the case may be.
SECTION 7.10. CONVEYANCE TAXES. Acquisition Sub and the Company shall
cooperate in the preparation, execution and filing of all returns,
questionnaires, applications, or other documents regarding any real property
transfer or gains, sales, use, transfer, value added, stock transfer and stamp
taxes, any transfer, recording, registration and other fees, and any similar
taxes which become payable in connection with the transactions contemplated
hereby that are required or permitted to be filed at or before the Effective
Time.
SECTION 7.11. NASDAQ LISTING. The Company shall use its best efforts to
continue the listing of the Company Common Stock on the NASDAQ during the term
of this Agreement.
SECTION 7.12. STOCKHOLDERS AGREEMENT. The Company and Acquisition Sub agree
that, prior to the Effective Time, each of them will enter into a stockholders
agreement containing terms consistent with the provisions of EXHIBIT C (the
"STOCKHOLDERS AGREEMENT"), with the Principal Stockholders and the other holders
of Electing Shares in the Merger.
SECTION 7.13. NO ACQUISITION SUB BUSINESS. Prior to the Effective Time,
Acquisition Sub shall not undertake any business other than as necessary to
consummate the transactions contemplated by this Agreement.
23
<PAGE>
SECTION 7.14. SOLVENCY OPINION. The parties hereto shall use commercially
reasonable efforts to obtain an opinion addressed to the Company, the lenders to
this transaction and the Board (and on which the Board is entitled to rely)
confirming the solvency and adequacy of capital of the Surviving Corporation
after the Merger and related financings, taking into account the transactions
contemplated hereby and the financial ramifications thereof.
SECTION 7.15. NEGOTIATIONS WITH MINORITY AFFILIATE. Acquisition Sub shall be
entitled to commence and conduct (including without limitation the formulation
of the terms and conditions of) negotiations with Xpedite Systems, GmbH
("XPEDITE GMBH") with respect to the acquisition by the Company of all or
substantially all the outstanding capital stock or assets of Xpedite GmbH (which
acquisition shall be conditioned upon the consummation of the Merger), PROVIDED
that the Company agrees to use reasonable efforts requested by Acquisition Sub
to facilitate such negotiations and the Company and its representatives shall be
entitled to participate in all such negotiations.
SECTION 7.16. ROLLOVER. Acquisition Sub agrees that, immediately following
the Merger and assuming that Section 3.01(e) has been satisfied, the Non-Cash
Election Share Number shall constitute not less than 5.1% of the total
outstanding capital stock of the Surviving Corporation on a fully-diluted basis,
taking into account all shares issued and reserved for issuance.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01. CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) STOCKHOLDER APPROVAL OF THE MERGER. This Agreement and the Merger shall
have been approved and adopted by the requisite vote of the stockholders of the
Company;
(b) HSR ACT, ETC. The waiting period applicable to the consummation of the
Merger under the HSR Act and under any legal requirement of the European
Community shall have expired or been terminated, and any material requirements
of other foreign jurisdictions applicable to the consummation of the Merger
shall have been satisfied; and
(c) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No statute, rule, regulation,
executive order, decree, ruling, temporary restraining order, preliminary or
permanent injunction or other order shall have been enacted, entered,
promulgated, enforced or issued by any court or governmental authority of
competent jurisdiction or shall otherwise be in effect which prohibits,
restrains, enjoins or restricts the consummation of the Merger.
SECTION 8.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF ACQUISITION SUB. The
obligations of Acquisition Sub to effect the Merger are also subject to the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company contained in this Agreement shall be true and correct in all
material respects at and as of the Effective Time with the same force and effect
as if made at and as of such time, except for (i) changes contemplated by this
Agreement and (ii) those representations and warranties which address matters
only as of a particular date (which shall have been true and correct as of such
date) and Acquisition Sub shall have received a certificate to such effect
signed by the Chief Executive Officer and the Chief Financial Officer of the
Company;
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Effective
Time, and Acquisition Sub shall have received a certificate to such effect
signed by the Chief Executive Officer and the Chief Financial Officer of the
Company;
24
<PAGE>
(c) ACQUISITION OF XPEDITE SYSTEMS LTD. All conditions precedent to the
closing of the transactions contemplated by the Stock Purchase Agreement dated
as of the date hereof (the "XSL PURCHASE AGREEMENT") by and among PHJ&W No. 2
Limited, Xpedite Systems, Inc. and the stockholders of Xpedite Systems Limited,
a company organized under the laws of the United Kingdom ("XSL") shall have been
satisfied;
(d) MANAGEMENT TEAM. The management team and officers of the Company, its
Subsidiaries and XSL shall be satisfactory in all respects to Acquisition Sub in
its sole discretion.
(e) CHARTER AMENDMENT. The Company shall have obtained the requisite vote of
the stockholders of the Company, approving and adopting an amendment to the
Company's Certificate of Incorporation, in the form attached hereto as EXHIBIT D
(the "CHARTER AMENDMENT"), which amendment shall authorize the Class B Common
Stock, which shall be a new class of common stock identical in all respects to,
and voting as a class with, the Company Common Stock, except that it shall have
two votes per share in any election of directors. The Company shall have
authorized the issuance of one or more series of preferred stock (the "PREFERRED
STOCK"), with rights, preferences and privileges to be specified by Acquisition
Sub. The Company shall have filed the Charter Amendment and certificate(s) of
designation setting forth the rights, preferences and privileges of the
Preferred Stock with the Secretary of State of the State of Delaware;
(f) APPRAISAL RIGHTS. Holders of no more than 10% of the outstanding shares
of the Company Common Stock shall have perfected their appraisal rights with
respect to the Merger in accordance with Section 262 of the GCL, and Acquisition
Sub shall have received a certificate to such effect signed by the Chief
Executive Officer and the Chief Financial Officer of the Company;
(g) NO ADVERSE CHANGE REGARDING "RECAP ACCOUNTING". There shall have been no
ruling or advice given by any governmental body with respect to, or any change
in existing accounting standards or interpretations thereof relating to, the
permitted use of Recap Accounting (as defined below) which, in the opinion of
Acquisition Sub's independent accountants, would materially and adversely affect
the ability of the Surviving Corporation to account for the transactions
contemplated by this Agreement using Recap Accounting (as used herein, "Recap
Accounting" means that the transactions contemplated by this Agreement qualify
to be accounted for as a recapitalization for financial reporting purposes);
(h) NO MATERIAL ADVERSE EFFECT. There shall have been no Material Adverse
Effect with respect to the Company since the date of this Agreement, and
Acquisition Sub shall have received a certificate to such effect signed by the
Chief Executive Officer and the Chief Financial Officer of the Company.
(i) FINANCING. The Company shall have obtained the funds pursuant to the
Financing Commitments, substantially on the terms provided therein; and
(j) CONVERSION TO CLASS B COMMON STOCK. In the event the Charter Amendment
has been approved by the requisite vote of the stockholders of the Company, each
person set forth on SCHEDULE 8.02(J) (A) shall have converted into shares of
Class B Common Stock the number of shares of Company Common Stock set forth in
Column A next to such person's name on SCHEDULE 8.02(J), and (B) shall have sold
to UBS Partners LLC or an affiliate of Fenway Partners, Inc. the number of
shares of Class B Common Stock set forth in Column B next to such person's name
on SCHEDULE 8.02(J) for a per share amount equal to the Cash Election Price, as
provided in the stockholder agreement dated as of the date hereof among such
person, the Company and Acquisition Sub.
(k) AMENDMENT TO MINORITY AFFILIATE AGREEMENT. The Put and Call Option
Agreement dated as of December 15, 1993 by and among the Company, Apax Partners
& CIE. Gestion S.A., Apax Partners & Co. Ventures Limited, Olivier de Puymorin
and Xpedite Systems S.A. shall have been amended to provide that the
consideration thereunder may be satisfied in cash, securities or any combination
thereof, at the Company's option.
25
<PAGE>
SECTION 8.03. ADDITIONAL CONDITIONS TO OBLIGATION OF THE COMPANY. The
obligation of the Company to effect the Merger is also subject to the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Acquisition Sub contained in this Agreement shall be true and correct in all
material respects on and as of the Effective Time, except for (i) changes
contemplated by this Agreement and (ii) those representations and warranties
which address matters only as of a particular date (which shall have been true
and correct as of such date), and the Company shall have received a certificate
to such effect signed by the Chief Executive Officer or President of Acquisition
Sub; and
(b) AGREEMENTS AND COVENANTS. Acquisition Sub shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Effective Time, and the Company shall have received a certificate to such effect
signed by the Chief Executive Officer or President of Acquisition Sub.
ARTICLE IX
TERMINATION
SECTION 9.01. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, notwithstanding approval thereof by the
stockholders of the Company:
(a) by mutual written consent duly authorized by the Boards of Directors of
Acquisition Sub and the Company; or
(b) by either Acquisition Sub or the Company if the Merger shall not have
been consummated by February 28, 1998 (PROVIDED that such date shall be extended
by an additional 30 days in the event the Prospectus/Proxy Statement shall have
been mailed to stockholders by such date; and PROVIDED, FURTHER, that the right
to terminate this Agreement under this SECTION 9.01(B) 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 Merger to occur on or before such
date); or
(c) by either Acquisition Sub or the Company if a court of competent
jurisdiction or governmental, regulatory or administrative agency or commission
shall have issued a nonappealable final order, decree or ruling or taken any
other action having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger (PROVIDED that the right to terminate this
Agreement under this SECTION 9.01(C) shall not be available to any party who has
not complied with its obligations under SECTION 7.08 and such noncompliance
materially contributed to the issuance of any such order, decree or ruling or
the taking of such action); PROVIDED, FURTHER, that for the purposes of this
SECTION 9.01(C), a temporary injunction restraining, enjoining or otherwise
prohibiting the Merger shall be deemed to be a nonappealable final order
hereunder if such injunction remains continuously in effect for 60 days after
the date of issuance thereof; and PROVIDED, FURTHER, that during such period all
obligations of the Company or Acquisition Sub to expend funds or incur monetary
obligations in connection with the transactions contemplated hereby shall be
suspended; or
(d) [INTENTIONALLY OMITTED]
(e) by Acquisition Sub or the Company, if: (i) the Board of Directors of the
Company shall have recommended to the stockholders of the Company an Alternative
Transaction (as defined below) or (ii) a tender offer or exchange offer for 15%
or more of the outstanding shares of Company Common Stock is commenced (other
than by Acquisition Sub or an affiliate of Acquisition Sub) and the Board of
Directors of the Company recommends that the stockholders of the Company tender
their shares in such tender or exchange offer; PROVIDED that the Company shall
not be entitled to exercise any termination rights under clause (i) or (ii) of
this SECTION 9.01(E) unless (x) any action of the Board of Directors of the
Company referred to in either such clause is required to be taken by the Board
of Directors in order to properly
26
<PAGE>
discharge its fiduciary duties to its stockholders and (y) the Company has
complied with its obligations in SECTION 6.02; or
(f) by Acquisition Sub, if the Board of Directors of the Company shall
withdraw, modify or change its approval or recommendation of this Agreement, the
Merger or the Charter Amendment in a manner adverse to Acquisition Sub; or
(g) by either the Company or Acquisition Sub, if there has been a material
breach of any representation, warranty, covenant or agreement on the part of the
other set forth in this Agreement, which breach has not been cured within 30
days following receipt by the breaching party of written notice of such breach,
in any case such that the conditions set forth in SECTIONS 8.02 or 8.03, as the
case may be, would be incapable of being satisfied by February 28, 1998
(PROVIDED that the right to terminate this Agreement under this SECTION 9.01(G)
shall not be available to any party who is itself in material breach of any of
its representations, warranties, covenants or agreements set forth in this
Agreement, such that the conditions set forth in SECTIONS 8.02 or 8.03, as the
case may be, would be incapable of being satisfied by February 28, 1998).
As used herein, "Alternative Transaction" means (i) a transaction or series
of transactions pursuant to which any person (or group of persons) other than
Acquisition Sub or its Subsidiaries (a "THIRD PARTY") acquires or would acquire
more than 15% of the outstanding shares, whether from the Company or pursuant to
a tender offer or exchange offer or otherwise, (ii) any acquisition or proposed
acquisition of the Company or any of its Subsidiaries by a merger, consolidation
or other business combination (including any so-called "merger of equals" and
whether or not the Company or any of its Subsidiaries is the entity surviving
any such merger or business combination), (iii) any reorganization,
recapitalization, liquidation or dissolution of the Company or any of its
Subsidiaries (other than the liquidation or dissolution of a wholly-owned
subsidiary of the Company or any of its Subsidiaries) or (iv) any other
transaction pursuant to which any Third Party acquires or would acquire control
of assets (including for this purpose the outstanding equity securities of
Subsidiaries of the Company and any entity surviving any merger or business
combination with any Subsidiary) of the Company or any of its Subsidiaries
having a fair market value equal to more than 15% of the fair market value of
all the assets of the Company and its Subsidiaries, taken as a whole,
immediately prior to such transaction.
SECTION 9.02. EFFECT OF TERMINATION.
(a) Except as provided in SECTION 10.01, in the event of the termination of
this Agreement pursuant to SECTION 9.01, this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto or any of
its affiliates, directors, officers or stockholders, subject to the provisions
of SECTION 9.02(B), and nothing herein shall relieve any party from liability
for any breach hereof occurring prior to termination. The Confidentiality Letter
shall survive termination of this Agreement as set forth therein.
(b) Notwithstanding anything to the contrary contained in this Agreement, in
the event that this Agreement is terminated by either party for any reason, the
Company shall pay to Acquisition Sub, an amount equal to $7,500,000 (the "FEE")
plus all documented fees and expenses incurred by Acquisition Sub and its
stockholders in connection with or related to the authorization, preparation,
regulation, execution and performance of this Agreement, the Financing
Commitments, the transactions contemplated hereby and thereby (including,
without limitation, all fees and expenses of counsel, accountants, investment
bankers, experts, consultants, banks and other financial institutions) (the
"EXPENSES") up to a maximum of $2,000,000 in the aggregate. Notwithstanding the
foregoing:
(i) the Company shall not be obligated to pay the Fee or any Expenses if
this Agreement is terminated (A) pursuant to SECTION 9.01(A), (B) by the
Company due to a failure to satisfy the condition set forth in SECTION
8.03(A) or (B), or pursuant to SECTION 9.01(B) or SECTION 9.01(G), in either
such case as a result of Acquisition Sub's breach of a representation or
warranty herein or Acquisition Sub's failure to fulfill any of its material
obligations under this Agreement or (C) by
27
<PAGE>
Acquisition Sub solely due to a failure to satisfy any condition set forth
in SECTION 8.02(D), (G), (I), (J) or (K); and
(ii) the Company shall not be obligated to pay the Fee but shall only be
obligated to reimburse Acquisition Sub for the amount of Expenses incurred
by it up to a maximum of $2,000,000 if this Agreement is terminated by
Acquisition Sub due to the failure to satisfy (A) the condition set forth in
SECTION 8.02(C) other than as a result of the Company's breach of a
representation or warranty in the XSL Purchase Agreement or the Company's
failure to fulfill any of its material obligations in the XSL Purchase
Agreement or (B) the condition set forth in SECTION 8.02(H).
(c) Any payment required to be made pursuant to SECTION 9.02(B) shall be
made to Acquisition Sub or its designee not later than two business days after
delivery by Acquisition Sub or its designee to the Company of notice of demand
for payment and shall be made by wire transfer of immediately available funds to
an account designated by Acquisition Sub or its designee in the notice of demand
for payment delivered pursuant to this SECTION 9.02(C).
SECTION 9.03. FEES AND EXPENSES. All fees and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses, whether or not the Merger is
consummated, subject to the provisions of SECTION 9.02(B).
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS, ETC. Except as otherwise provided in this SECTION 10.01, the
representations, warranties and agreements of each party hereto shall remain
operative and in full force and effect regardless of any investigation made
by or on behalf of any other party hereto, any person controlling any such
party or any of their officers or directors, whether prior to or after the
execution of this Agreement. The representations, warranties and agreements
in this Agreement shall terminate at the Effective Time or upon the
termination of this Agreement pursuant to SECTION 9.01, as the case may be,
except that the agreements set forth in Article III and SECTION 7.06 shall
survive the Effective Time indefinitely and those set forth in SECTIONS
7.04, 9.02 AND 9.03 shall survive such termination indefinitely. Nothing in
this SECTION 10.01 shall relieve any party for any breach of any
representation, warranty or agreement in this Agreement occurring prior to
termination.
SECTION 10.02. NOTICES. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been
duly given or made if and when delivered personally or by overnight courier
to the parties at the following addresses or sent by electronic
transmission, with confirmation of receipt, to the telecopy numbers
specified below (or at such other address or telecopy number for a party as
shall be specified by like notice):
(a) If to Acquisition Sub:
UBS Partners LLC
299 Park Avenue
34th Floor
New York, NY 10171
Telecopier No.: (212) 821-6333
Telephone No.: (212) 821-6380
Attention: Michael Greene
and
28
<PAGE>
Fenway Partners, Inc.
152 West 57th Street
New York, NY 10019
Telecopier No.: (212) 581-1205
Telephone No.: (212) 698-9441
Attention: Russell W. Steenberg
With copies to:
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, NY 10022
Telecopier No.: (212) 836-8689
Telephone No.: (212) 836-8000
Attention: Nancy E. Fuchs, Esq.
and
Ropes & Gray
1 International Place
Boston, MA 02110
Telecopier No.: (617) 951-7050
Telephone No.: (617) 951-7000
Attention: John Ayer, Esq.
(b) If to the Company:
Xpedite Systems, Inc.
446 Highway 35
Eatontown, New Jersey 07724
Telecopier No.: (908) 544-1044
Telephone No.: (908) 389-3900
Attention: President
With a copy to:
Neil A. Torpey, Esq.
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022
Telecopier No.: (212) 319-4090
Telephone No.: (212) 318-6000
SECTION 10.03. CERTAIN DEFINITIONS. For purposes of this agreement, the
term:
(a) "affiliates" means a person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person;
(b) "beneficial owner" with respect to any shares of Company Common Stock
means a person who shall be deemed to be the beneficial owner of such shares (i)
which such person or any of its affiliates or associates (as such term is
defined in Rule 12b-2 of the Exchange Act) beneficially owns, directly or
indirectly, (ii) which such person or any of its affiliates or associates has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange
29
<PAGE>
rights, warrants or options, or otherwise, or (B) the right to vote pursuant to
any agreement, arrangement or understanding, or (iii) which are beneficially
owned, directly or indirectly, by any other persons with whom such person or any
of its affiliates or associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any shares;
(c) "business day" means any day other than a day on which banks in the
State of New York are required or authorized to be closed;
(d) "control" (including the terms "controlled by" and "under common control
with") means the possession, directly, or indirectly or as trustee or executor,
of the power to direct or cause the direction of the management or policies of a
person, whether through the ownership of stock, as trustee or executor, by
contract or credit arrangement or otherwise;
(e) "generally accepted accounting principles" shall mean United States
generally accepted accounting principles; and
(f) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in Section
13(d)(3) of the Exchange Act).
SECTION 10.04. AMENDMENT. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; PROVIDED that after approval of the
Merger by the stockholders of the Company, no amendment may be made which by law
required further approval by such stockholders without such further approval.
This Agreement may not be amended except by an instrument in writing signed by
the parties hereto.
SECTION 10.05. WAIVER. At any time prior to the Effective Time, any party
hereto may with respect to any other party hereto (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid only if
set forth in an instrument in writing signed by the party or parties to be bound
thereby.
SECTION 10.06. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.07. 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 hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereby shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
SECTION 10.08. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings (other than the
Confidentiality Letter), both written and oral, among the parties, or any of
them, with respect to the subject matter hereof.
SECTION 10.09. ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise, except that Acquisition Sub may assign all or any
of its rights hereunder to any direct wholly owned Subsidiary of Acquisition
Sub, PROVIDED that no such assignment shall relieve the assigning party of its
obligations hereunder.
SECTION 10.10. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, including, without limitation, by way of subrogation, other
than Section 7.06 (which is
30
<PAGE>
intended to be for the benefit of the Indemnified Parties and may be enforced by
such Indemnified Parties).
SECTION 10.11. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude any other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
SECTION 10.12. GOVERNING LAW. This agreement shall be governed by, and
construed in accordance with, the internal laws of the State of New York
applicable to contracts executed and fully performed within the State of New
York, without giving effect to principles of conflicts of laws.
SECTION 10.13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 10.14. CONSENT TO JURISDICTION. Each of the parties hereto:
(a) consents to submit itself to the personal jurisdiction of (i) the United
States District Court for the Southern District of New York in the event any
dispute arises out of this Agreement or any of the transactions contemplated by
this Agreement to the extent such court would have subject matter jurisdiction
with respect to such dispute and (ii) the Chancery or other Courts of the State
of Delaware otherwise;
(b) agrees that it will not attempt to deny or defeat such personal
jurisdiction or venue by motion or other request for leave from any such court;
(c) agrees that it will not bring any action relating to this Agreement or
any of the transactions contemplated by this Agreement in any Court other than
such courts;
(d) agrees that service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to a party to its address
set forth in SECTION 10.02 or at such other address of which a party shall have
been notified pursuant thereto; and
(e) agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law.
IN WITNESS WHEREOF, each of Acquisition Sub and the Company has executed
this Agreement, or has caused this Agreement to be executed on its behalf by a
representative duly authorized, all as of the day and year first above written.
<TABLE>
<S> <C> <C>
XPEDITE ACQUISITION CORP.
By: /s/ MICHAEL GREENE
-----------------------------------------
Name: Michael Greene
Title: PRESIDENT
XPEDITE SYSTEMS, INC.
By: /s/ PHILIP A. CAMBELL
-----------------------------------------
Name: Philip A. Cambell
Title: DIRECTOR
</TABLE>
31
<PAGE>
EXHIBIT A
CERTIFICATE OF MERGER
OF
XPEDITE ACQUISITION CORP.
INTO
XPEDITE SYSTEMS, INC.
PURSUANT TO SECTION 251(C) OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
************************************************************************
THE UNDERSIGNED CORPORATION, organized and existing under and by virtue of
the General Corporation Law of the State of Delaware, does hereby certify that:
1. The name and state of incorporation of each of the constituent
corporations of the merger are as follows:
<TABLE>
<CAPTION>
STATE OF
NAME INCORPORATION
- ------------------------------ ----------------------------
<S> <C>
Xpedite Acquisition Corp. Delaware
Xpedite Systems, Inc. Delaware
</TABLE>
2. An Agreement and Plan of Merger has been approved, adopted, certified,
executed and acknowledged by each of the aforesaid constituent corporations in
accordance with the requirements of subsection (c) of Section 251 of the General
Corporation Law of the State of Delaware.
3. The name of the surviving corporation of the merger is Xpedite Systems,
Inc., which will continue its existence as said surviving corporation under its
present name upon the effective date of said merger pursuant to the provisions
of the General Corporation Law of the State of Delaware.
4. The Certificate of Incorporation, as amended to read in its entirety as
set forth in ANNEX A hereto, of Xpedite Systems, Inc. a Delaware corporation,
shall be the Certificate of Incorporation of the surviving corporation.
5. The executed Agreement and Plan of Merger between the aforesaid
constituent corporations is on file at the principal place of business of the
surviving corporation, the address of which is as follows:
Xpedite Systems, Inc.
446 Highway 35
Eatontown, New Jersey 07724
6. A copy of the Agreement and Plan of Merger will be furnished by the
surviving corporation, on request and without cost, to any stockholder of any
constituent corporation.
<PAGE>
IN WITNESS WHEREOF, the undersigned has subscribed this certificate on the
date set forth below and hereby affirms that the statements contained herein are
true and correct.
<TABLE>
<S> <C> <C>
, 1997
XPEDITE SYSTEMS, INC
By:
-----------------------------------------
Name:
Title:
ATTESTED TO:
By:
-----------------------------------------
Name:
Title:
</TABLE>
2
<PAGE>
EXHIBIT B
FORM OF AFFILIATE LETTER
__________, 1997
Xpedite Systems, Inc.
446 Highway 35
Eatontown, NJ 07724
Attention: ____________________
Ladies and Gentlemen:
The undersigned has been advised that as of the date of this letter the
undersigned may be deemed to be an "affiliate" of Xpedite Systems, Inc., a
Delaware corporation (the "Company"), as the term "affiliate" is defined for
purposes of paragraphs (c) and (d) of Rule 145 of the rules and regulations (the
"Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"). Pursuant
to the terms of the Agreement and Plan of Merger dated as of August 8, 1997 (the
"Agreement"), between the Company and Xpedite Acquisition Corp. ("Acquisition
Sub"), a newly-formed Delaware corporation, Acquisition Sub will be merged with
and into the Company, which will be the surviving company (the "Merger").
In connection with the Merger, the undersigned may retain shares of common
stock, par value $0.01 per share, of the Company ("Company Common Stock")
currently owned by [him] [her] [it].
The undersigned represents, warrants and covenants to the Company that in
the event the undersigned retains any Company Common Stock as a result of the
Merger:
A. The undersigned shall not make any sale, transfer of other disposition of
the Company Common Stock in violation of the Act or the Rules and Regulations.
B. The undersigned has carefully read this letter and the Agreement and
discussed the requirements of such documents and other applicable limitations
upon [his] [her] [its] ability to sell, transfer or otherwise dispose of the
Company Common Stock to the extent the undersigned felt necessary, with [his]
[her] [its] counsel or counsel for the Company.
C. The undersigned has been advised that the issuance of the Company Common
Stock to [him] [her] [it] pursuant to the Merger has been registered with the
Commission under the Act on a Registration Statement on Form S-4. However, the
undersigned has also been advised that, since at the time the Merger was
submitted for a vote of stockholders of the Company, the undersigned may be
deemed to have been an affiliate of the Company and the distribution by [him]
[her] [it] of the Company Common Stock has not been registered under the Act,
the undersigned may not sell, transfer or otherwise dispose of the Company
Common Stock issued to [him] [her] [it] in the Merger unless (i) such sale,
transfer or other disposition has been registered under the Act, (ii) such sale,
transfer or other disposition is made in conformity with Rule 145 promulgated by
the Commission under the Act, or (iii) in the opinion of counsel reasonably
acceptable to the Company, or pursuant to a "no action" letter obtained by the
undersigned from the staff of the Commission, such sale, transfer or other
disposition is otherwise exempt from registration under the Act.
D. Except as may be provided in any registration rights agreement between
the Company and the undersigned, the undersigned understands that the Company is
under no obligation to register the sale, transfer or other disposition of the
Company Common Stock by [him] [her] [its] behalf under the Act or to take any
other action necessary in order to make compliance with an exemption from such
registration available.
<PAGE>
E. The undersigned also understands that stop transfer instructions will be
given to the Company's transfer agents with respect to the Company Common Stock
and that there will be placed on the certificates for the Company Common Stock
issued to [him] [her] [it], or any substitutions therefor, a legend stating in
substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT
OF 1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
ONLY BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT
DATED , BETWEEN THE REGISTERED HOLDER THEREOF AND , A
COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF
.
F. The undersigned also understands that unless the transfer by [him] [her]
[it] of [his] [her] [its] Company Common Stock has been registered under the Act
or is a sale made in conformity with the provisions of Rule 145, the Company
reserves the right to put the following legend on the certificates issued to
[his] [her] [its] transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM
A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE
145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE
SHARES HAVE BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR
RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE
MEANING OF THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED
OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933."
It is understood and agreed that the legends set forth in Paragraphs E and F
above will be removed by delivery of substitute certificates without such legend
if such legend is not required for purposes of the Act or this letter agreement.
It is understood and agreed that such legends and the stop orders referred to
above will be removed if (i) one year shall have elapsed from the date the
undersigned acquired the Company Common Stock received in the Merger and the
provisions of Rule 145(d)(2) are then available to the undersigned, (ii) two
years shall have elapsed from the date the undersigned acquired the Company
Common Stock received in the Merger and the provisions of Rule 145(d)(3) are
then available to the undersigned, or (iii) the Company has received either an
opinion of counsel, which opinion of counsel shall be reasonably satisfactory to
the Company, or a "no action" letter obtained by the undesigned from the staff
of the Commission, to the effect that the restrictions imposed by Rule 145 under
the Act no longer apply to the undersigned.
2
<PAGE>
Execution of this letter should not be considered an admission on the part
of the undersigned that the undersigned is an "affiliate" of the Company as
described in the first paragraph of this letter or as a waiver of any rights the
undersigned may have to object to any claim that the undersigned is such an
affiliate on or after the date of this letter.
Very truly yours,
--------------------------------------
Agreed to and Accepted this
______ day of ____________________, 1997
XPEDITE SYSTEMS, INC.
By: __________
3
<PAGE>
EXHIBIT C
SUMMARY OF PRINCIPAL TERMS
OF ROLLOVER INVESTORS
STOCKHOLDERS AGREEMENT
<TABLE>
<S> <C>
PARTIES The Company, UBS Partners LLC, together with its affiliates
("UBS"), Fenway Partners, Inc., together with its affiliates
("Fenway"), and the Principal Stockholders and other
shareholders who retain Non-Cash Election Shares ("Shares") in
the Merger (such Principal Stockholders and other shareholders
being the "Investors").
RESTRICTIONS The Investors will agree not to transfer Shares prior to the
ON TRANSFER first anniversary of the Closing Date. The Investors will grant
to the Company (or UBS and Fenway or an affiliate thereof) a
right of first refusal with respect to any proposed sales by
them of Shares thereafter. Reasonable and customary procedures
concerning this right of first refusal will be set forth in the
Stockholders Agreement. Each Investor which is an "affiliate"
of the Company will agree to the restrictions on transfer
contained in Exhibit B to the Merger Agreement.
RIGHT TO If UBS and Fenway decide to sell all of their remaining shares
CAUSE SALE of the Company received in the Merger (other than a sale to the
other or an affiliate), and collectively hold in the aggregate
at that time (prior to giving effect of the proposed sale) more
than 40% of the then-outstanding shares of the Company, then
UBS and Fenway shall have the right to require the Investors to
sell their remaining Shares as part of that sale on the same
price and terms (or to vote in favor of any merger or other
transaction which would effect such a sale).
RIGHT TO In the event that, during the period beginning immediately
PARTICIPATE after the closing of the Merger and ending upon a Public
IN SALE Offering, UBS and Fenway hold 40% or more of the
then-outstanding shares of the Company and propose to engage in
a sale of equity interests which would result in a transfer of
40% or more of the then-outstanding shares of the Company to an
unaffiliated purchaser, then the Investors shall have the right
to participate pro rata (together, if applicable, with other
stockholders, based on the percentage of their fully diluted
equity in the Company at the time of such transaction) in such
sale transaction on the same price and terms as UBS and Fenway.
(As used herein, "Public Offering" shall mean a registered
offering of equity securities of the Company or an
institutional private placement or 144A offering of such equity
securities with or without registration rights.)
REGISTRATION In the Stockholders Agreement (or by separate registration
RIGHTS rights agreement) the Company will grant to the Investors
unlimited "piggyback" registration rights in registrations in
which stockholders participate, at the Company's expense (other
than underwriting discounts and selling commissions), subject
to customary provisions and restrictions. Cutbacks will be pro
rata among all holders requesting registration (based on each
holder's percentage interest in the fully diluted equity of the
Company at the time of such registration).
</TABLE>
<PAGE>
<TABLE>
<S> <C>
The Investors will, if requested by the underwriters for an
underwritten public offering of equity securities of the
Company, agree not to sell or transfer any equity securities of
the Company (other than equity securities, if any, included in
such offering), without the consent of the underwriters, for a
period of not more than 180 days following effectiveness of the
registration statement relating to a Public Offering.
FINANCIAL The Stockholders Agreement will grant the Investors the right
INFORMATION to receive quarterly and annual financial statements of the
Company.
AFFILIATE The Stockholders Agreement will provide that agreements or
TRANSACTIONS transactions between the Company and UBS or Fenway or any of
their affiliates shall require the prior approval of the
holders of a majority of the then-outstanding voting common
stock of the Company (excluding shares held by the interested
person and its affiliates) other than agreements or
transactions which are on arms-length terms or consulting or
management agreements on terms (including with respect to fees)
that are customary as between UBS and/or Fenway, as applicable,
and their respective portfolio companies. Acquisition Sub
agrees that any preferred stock to be purchased by UBS and/or
Fenway or any of their affiliated entities or any financial
accomodation to be provided to them for their preferred equity
commitment in connection with the financing of the Merger will
be on market terms or terms approved by Roy B. Andersen, Jr.
and at least two of the following four indviduals: Robert
Vaters, Dennis Schmaltz, Max Slifer and Vincent DeVita. Except
as contemplated by the foregoing sentence, nothing in this
paragraph shall limit any other activity of UBS and/or Fenway
or any of their affiliated entities in connection with the
transactions contemplated by the Merger Agreement.
</TABLE>
2
<PAGE>
EXHIBIT D
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
XPEDITE SYSTEMS, INC.
* * * * *
XPEDITE SYSTEMS, INC., a corporation organized and existing under the laws
of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That Xpedite Systems, Inc. (the "Corporation") was originally
incorporated under the same name, and the original Certificate of Incorporation
of the Corporation was filed with the Secretary of State of the State of
Delaware on July 26, 1988.
SECOND: That this Amended and Restated Certificate of Incorporation restates
and integrates and amends the provisions of the Certificate of Incorporation of
the Corporation and has been duly adopted in accordance with the provisions of
Section 245 of the General Corporation Law of the State of Delaware.
THIRD: That the Certificate of Incorporation of the Corporation is hereby
amended and restated to read in its entirety as follows:
"1. NAME.
The name of the corporation is Xpedite Systems, Inc.
2. REGISTERED OFFICE AND REGISTERED AGENT.
The address of its registered office in the State of Delaware is The
Corporation Trust Company, 1209 Orange Street, in The City of Wilmington,
County of New Castle. The name of its registered agent at such address is
The Corporation Trust Company.
3. PURPOSE.
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. EXISTENCE.
The Corporation is to have perpetual existence.
5. CAPITALIZATION.
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Million ( ,000,000)
shares consisting of (i) Million ( ,000,000) shares of Preferred
Stock, par value $.01 per share (hereinafter, the "Preferred Stock"), (ii)
Million ( ,000,000) shares of Common Stock, par value $.01 per
share (hereinafter, the "Common Stock") and (iii) Million
( ,000,000) shares of Class B Common Stock, $.01 per share
(hereinafter, the "Class B Common Stock"). The Common Stock and Class B
Voting Common Stock shall be nonassessable and shall not have cumulative
voting rights or preemptive rights.
B. The shares of Preferred Stock may be issued from time to time in one
or more series. The Board of Directors of the Corporation is hereby
authorized, by adopting appropriate resolutions and
<PAGE>
causing one or more certificates of designation to be executed,
acknowledged, filed, recorded and to become effective in accordance with the
General Corporation Law of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights, dividend rights, dividend rate,
conversion rights, exchange rights, voting rights, rights and terms of
redemption (including sinking fund provisions), the redemption price or
prices, and the liquidation preferences of any wholly unissued series of
shares of Preferred Stock, or any of them; and to increase or decrease the
number of shares of any series subsequent to the issue of the shares of that
series, but not above the total number of authorized shares of Preferred
Stock and not below the number of shares of such series then outstanding. In
case the number of any shares of any series shall be so decreased, the
shares constituting such decrease shall resume the status that they had
prior to the adoption of the resolution originally fixing the number of
shares of such series. Except as may otherwise be required by law or this
Amended and Restated Certificate of Incorporation, the terms of any series
of Preferred Stock may be amended without the consent of the holders of any
other series of Preferred Stock or of Common Stock.
C. Section 1. RANKING. Except with respect to voting rights provided in
the proviso to Section 2, the Common Stock and the Class B Common Stock
shall in all respects have the same powers, preferences, rights and
qualifications and shall rank PARI PASSU with each other.
Section 2. VOTING RIGHTS OF COMMON STOCK. The holders of Class B Common
Stock shall be entitled to two votes per share in connection with the
election of directors of the Corporation, and otherwise on all matters with
respect to which they have the right to vote the holders of Common Stock and
Class B Common Stock shall be entitled to one vote per share.
6. LIMITATION OF LIABILITY OF DIRECTOR.
No Director shall have any personal liability to the Corporation or its
stockholders for any monetary damages for breach of fiduciary duty as a
Director, except that this Article shall not eliminate or limit the
liability of each Director: (i) for any breach of such Director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which such Director
derived an improper personal benefit.
7. AMENDMENTS TO CERTIFICATE OF INCORPORATION.
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in the Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by the statute, and
all rights conferred upon stockholders herein are granted subject to this
reservation."
2
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amended and Restated
Certificate of Incorporation on behalf of the Corporation and hereby affirm that
the statements made herein are true under the penalties of perjury, this
day of , 1997.
<TABLE>
<S> <C> <C>
XPEDITE SYSTEMS, INC.
-----------------------------------------
Roy B. Andersen, Jr., PRESIDENT
</TABLE>
<TABLE>
<S> <C> <C>
ATTEST:
- ---------------------------------------------
Robert S. Vaters, SECRETARY
</TABLE>
3
<PAGE>
APPENDIX B
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
XPEDITE SYSTEMS, INC.
* * * * *
XPEDITE SYSTEMS, INC., a corporation organized and existing under the laws
of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That Xpedite Systems, Inc. (the "Corporation") was originally
incorporated under the same name, and the original Certificate of Incorporation
of the Corporation was filed with the Secretary of State of the State of
Delaware on July 26, 1988.
SECOND: That this Amended and Restated Certificate of Incorporation restates
and integrates and amends the provisions of the Certificate of Incorporation of
the Corporation and has been duly adopted in accordance with the provisions of
Section 245 of the General Corporation Law of the State of Delaware.
THIRD: That the Certificate of Incorporation of the Corporation is hereby
amended and restated to read in its entirety as follows:
"1. NAME.
The name of the corporation is Xpedite Systems, Inc.
2. REGISTERED OFFICE AND REGISTERED AGENT.
The address of its registered office in the State of Delaware is The
Corporation Trust Company, 1209 Orange Street, in The City of Wilmington,
County of New Castle. The name of its registered agent at such address is
The Corporation Trust Company.
3. PURPOSE.
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. EXISTENCE.
The Corporation is to have perpetual existence.
5. CAPITALIZATION.
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Million ( ,000,000)
shares consisting of (i) Million ( ,000,000) shares of Preferred
Stock, par value $.01 per share (hereinafter, the "Preferred Stock"), (ii)
Million ( ,000,000) shares of Common Stock, par value $.01 per
share (hereinafter, the "Common Stock") and (iii) Million
( ,000,000) shares of Class B Common Stock, $.01 per share
(hereinafter, the "Class B Common Stock"). The Common Stock and Class B
Voting Common Stock shall be nonassessable and shall not have cumulative
voting rights or preemptive rights.
B. The shares of Preferred Stock may be issued from time to time in one
or more series. The Board of Directors of the Corporation is hereby
authorized, by adopting appropriate resolutions and
<PAGE>
causing one or more certificates of designation to be executed,
acknowledged, filed, recorded and to become effective in accordance with the
General Corporation Law of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights, dividend rights, dividend rate,
conversion rights, exchange rights, voting rights, rights and terms of
redemption (including sinking fund provisions), the redemption price or
prices, and the liquidation preferences of any wholly unissued series of
shares of Preferred Stock, or any of them; and to increase or decrease the
number of shares of any series subsequent to the issue of the shares of that
series, but not above the total number of authorized shares of Preferred
Stock and not below the number of shares of such series then outstanding. In
case the number of any shares of any series shall be so decreased, the
shares constituting such decrease shall resume the status that they had
prior to the adoption of the resolution originally fixing the number of
shares of such series. Except as may otherwise be required by law or this
Amended and Restated Certificate of Incorporation, the terms of any series
of Preferred Stock may be amended without the consent of the holders of any
other series of Preferred Stock or of Common Stock.
C. Section 1. RANKING. Except with respect to voting rights provided in
the proviso to Section 2, the Common Stock and the Class B Common Stock
shall in all respects have the same powers, preferences, rights and
qualifications and shall rank PARI PASSU with each other.
Section 2. VOTING RIGHTS OF COMMON STOCK. The holders of Class B Common
Stock shall be entitled to two votes per share in connection with the
election of directors of the Corporation, and otherwise on all matters with
respect to which they have the right to vote the holders of Common Stock and
Class B Common Stock shall be entitled to one vote per share.
6. LIMITATION OF LIABILITY OF DIRECTOR.
No Director shall have any personal liability to the Corporation or its
stockholders for any monetary damages for breach of fiduciary duty as a
Director, except that this Article shall not eliminate or limit the
liability of each Director: (i) for any breach of such Director's duty of
loyalty to the Corporation or its stockholders, (ii)for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which such Director
derived an improper personal benefit.
7. AMENDMENTS TO CERTIFICATE OF INCORPORATION.
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in the Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by the statute, and
all rights conferred upon stockholders herein are granted subject to this
reservation."
2
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amended and Restated
Certificate of Incorporation on behalf of the Corporation and hereby affirm that
the statements made herein are true under the penalties of perjury, this
day of , 1997.
<TABLE>
<S> <C> <C>
XPEDITE SYSTEMS, INC.
-----------------------------------------
Roy B. Andersen, Jr., PRESIDENT
</TABLE>
<TABLE>
<S> <C> <C>
ATTEST:
- ---------------------------------------------
Robert S. Vaters, SECRETARY
</TABLE>
3
<PAGE>
APPENDIX C
August 8, 1997
Board of Directors
Xpedite Systems, Inc.
446 Highway 35
Eatontown, New Jersey 07724
Members of the Board of Directors:
Xpedite Systems, Inc. (the "Company") and Xpedite Acquisition Corp., a newly
formed corporation owned by UBS Partners LLC and affiliates of Fenway Partners,
Inc. (the "Acquiror"), propose to enter into an Agreement and Plan of Merger
(the "Agreement"), pursuant to which the Acquiror will be merged with and into
the Company in a transaction (the "Merger") in which each outstanding share of
the Company's common stock, par value $.01 per share (the "Company Shares"),
other than the Roll-over Shares (as defined below), will be converted into the
right to receive $23.25 per share in cash (the "Cash Merger Consideration"). The
Merger is conditioned upon, among other things, (a) the satisfaction of all
conditions precedent to the closing of the Company's acquisition (the "U.K.
Acquisition") of Xpedite Systems Limited (the "U.K. Company") for aggregate
consideration of $87 million, subject to adjustment, and on terms as otherwise
reflected in the Agreement and (b) no adverse change occurring which would
materially and adversely affect the ability of the Company, as the surviving
corporation in the Merger, to account for the Merger as a recapitalization under
generally accepted accounting principles (the "Recapitalization Accounting
Condition"). In order to facilitate the satisfaction of the Recapitalization
Accounting Condition (1) certain members of management will agree to exchange
their Company Shares for shares of Class B Common Stock of the Company (the
"Class B Shares") which, pursuant to the Agreement, will be converted into
shares of the surviving corporation in the Merger and (2) to the extent that
there are less than a specified number of Roll-over Shares as a result of the
Roll-over Election referred to below, certain principal shareholders of the
Company have agreed to retain their Company Shares in the Merger. In the Merger,
each shareholder may elect (the "Roll-over Election") to retain all, but not
less than all, of its Company Shares, subject to proration, in lieu of receiving
the Cash Merger Consideration for such Company Shares. All Class B Shares and
all such Company Shares to be retained in the Merger by such principal
shareholders or by other shareholders making a Roll-over Election are
hereinafter referred to as the "Roll-over Shares".
You have asked us whether, in our opinion, the Cash Merger Consideration to
be received in the Merger in consideration for each Company Share other than the
Roll-over Shares is fair, from a financial point of view, to the holders of such
Company Shares. You have not asked us for, and we are not expressing, any
opinion with respect to the consideration to be received by the holders of the
Roll-over Shares in exchange for such Roll-over Shares. In rendering our opinion
we have evaluated the Company on a pro forma basis after giving effect to the
U.K. Acquisition. However, this opinion does not constitute an opinion on the
fairness or any other aspect of the U.K. Acquisition itself. Furthermore, in
rendering our opinion, due to the speculative nature of the existing put-call
arrangements relating to the U.K. Company, Xpedite Systems GmbH and Xpedite
Systems S.A. (the "European Put-Call Arrangements"), we have evaluated the
Company without regard to any aspect of the European Put-Call Arrangements. This
opinion is rendered as if the U.K. Acquisition had been consummated and the
European Put-Call Arrangements were not contemplated or consummated and does not
take into consideration the potential financial ramifications to the Company of
the European Put-Call Arrangements, including any element of value associated
therewith.
In arriving at the opinion set forth below, we have, among other things:
(1) reviewed certain publicly available business and financial
information relating to the Company which we deemed to be relevant;
C-1
<PAGE>
(2) reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and
prospects of the Company (including after giving effect to the U.K.
Acquisition), furnished to us by the Company;
(3) reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and
prospects of the U.K. Company, furnished to us by the Company and the U.K.
Company;
(4) conducted discussions with members of senior management and
representatives of the Company concerning the matters described in clauses
1, 2 and 3 above;
(5) conducted discussions with members of senior management and
representatives of the U.K. Company concerning the matters described in
clause 3 above;
(6) reviewed the market prices and valuation multiples for the Company
Shares and compared them with those of certain publicly traded companies
which we deemed to be relevant;
(7) reviewed the results of operations of the Company (including after
giving effect to the U.K. Acquisition) and compared them with those of
certain publicly traded companies which we deemed to be relevant;
(8) compared the proposed financial terms of the Merger with the
financial terms of certain other transactions which we deemed to be
relevant;
(9) participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their financial and
legal advisers;
(10) reviewed a recent draft of the Agreement; and
(11) reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information and we
have not undertaken an independent evaluation or appraisal of any of the assets
or liabilities of the Company (including after giving effect to the U.K.
Acquisition) or been furnished with any such evaluation or appraisal. In
addition, we have not assumed any obligation to conduct any physical inspection
of the properties or facilities of the Company (including after giving effect to
the U.K. Acquisition). With respect to the financial forecast information
furnished to or discussed with us by the Company or the U.K. Company, we have
assumed that they have been reasonably prepared and reflect the best currently
available estimates and judgment of the Company's or the U.K. Company's
management as to the expected future financial performance of the Company
(including after giving effect to the U.K. Acquisition). In rendering our
opinion, we have also relied upon the instruction of the Company's accountants
that the U.K. Company's financial data prepared in accordance with United
Kingdom generally accepted accounting principles does not require material
adjustments to conform to United States generally accepted accounting
principles. We have also assumed that the final form of the Agreement will be
substantially similar to the last draft reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof.
We are acting as financial advisor to the Company in connection with the
Merger and will receive a fee from the Company for our services, a significant
portion of which is contingent upon the consummation of the Merger. We are also
acting as financial advisor to the Company in connection with the U.K.
Acquisition and will receive a fee from the Company for our services, a
significant portion of which is
C-2
<PAGE>
contingent upon the consummation of the U.K. Acquisition. In addition, the
Company has agreed to indemnify us for certain liabilities arising out of our
engagement. We may provide financial advisory and financing services to the
surviving corporation in the Merger and/or its affiliates and may receive fees
for the rendering of such services. In addition, in the ordinary course of our
business, we may actively trade the Company Shares and other securities of the
Company, for our own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Merger or any related transaction and does not
constitute a recommendation to any shareholder as to how such shareholder should
vote on the proposed Merger or as to whether such shareholder should make a
Roll-over Election. We are not expressing any opinion herein as to the prices at
which the Company Shares or any other securities of the Company will trade
following the announcement or consummation of the Merger.
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Cash Merger Consideration to be received in the Merger
in consideration for each Company Share other than the Roll-over Shares is fair,
from a financial point of view, to the holders of such Company Shares.
<TABLE>
<S> <C>
Very truly yours,
/s/ MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
---------------------------------------------
</TABLE>
C-3
<PAGE>
APPENDIX D
- --------------------------------------------------------------------------------
STOCKHOLDERS AGREEMENT
AMONG
XPEDITE SYSTEMS, INC.,
UBS PARTNERS LLC,
FENWAY PARTNERS CAPITAL FUND, L.P.,
FPIP, LLC,
FPIP TRUST, LLC
AND
------------------------
DATED AS OF , 1997
- --------------------------------------------------------------------------------
D-1
<PAGE>
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (the "Agreement") is entered into as of this
day of , 1997 by and among Xpedite Systems, Inc., a Delaware
corporation (the "Corporation"), UBS Partners LLC, a Delaware limited liability
company ("UBS", and together with its Affiliates (as defined below), the "UBS
Holders"), Fenway Partners Capital Fund, L.P., a limited partnership
("Fenway"), FPIP, LLC, a limited liability company ("FPIP"), FPIP Trust,
LLC, a limited liability company ("FPIP Trust", and together with Fenway,
FPIP, and their Affiliates (as defined below), the "Fenway Holders"; the UBS
Holders and the Fenway Holders, collectively, the "XAC Group") and the
stockholders of the Corporation set forth on Schedule 1 (together with such
other persons who acquire shares from such stockholders and become a party to
this Agreement, each for so long as they hold Shares and together with their
successors and assigns, collectively, the "Stockholders").
WHEREAS, the Corporation and Xpedite Acquisition Corp., a Delaware
corporation ("XAC") have entered into an Agreement and Plan of Merger dated as
of August 8, 1997 (the "Merger Agreement"), pursuant to which XAC will merge
with and into the Corporation (the "Merger"), and the Corporation will be the
surviving corporation (the "Surviving Corporation");
WHEREAS, as a condition to the Merger, XAC has required that (i)
stockholders of the Corporation (other than certain members of management of the
Corporation), retain an aggregate of 205,000 shares of common stock, par value
$.01 per share, of the Corporation ("Corporation Common Stock"), which will be
converted into shares of common stock, par value of $.01 per share, of the
Surviving Corporation ("Common Stock") in the Merger, and (ii) any such
stockholder retaining shares of Common Stock in the Merger enter into this
Agreement; and
WHEREAS, as a condition to the Merger, XAC has required that, in the event
such stockholders do not elect to retain an aggregate of 205,000 shares of
Corporation Common Stock, the stockholders of the Corporation set forth on
Schedule 3.01(e) of the Merger Agreement (i) retain a specified portion of their
shares of Corporation Common Stock, which will be converted into shares of
Common Stock in the Merger, and (ii) enter into this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and obligations
hereinafter set forth, the parties hereto, intending to be legally bound, hereby
agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS: USAGE. (a) As used herein, each of the following
terms shall have the meaning set forth or referred to below:
"Affiliate" of any Person (hereinafter "first Person") shall mean (i) any
other Person who, directly or indirectly, is in Control of, is Controlled by or
is under common Control with such first Person; (ii) any Person who is a
director or executive officer (as defined in Rule 3b-7 of the Exchange Act) of
such first Person or any Person described in clause (i) above; or (iii) any
Person who is an immediate family member of any Person described in clause (ii)
above.
"Closing Date" shall mean the date of consummation of the transactions
contemplated by the Merger Agreement.
"Common Stock" shall have the meaning set forth in the third paragraph of
this Agreement.
"Control" of a Person shall mean the power, direct or indirect, to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "Controlling" and "Controlled" have meanings correlative to the foregoing.
"Corporation" shall have the meaning set forth in the first paragraph of
this Agreement.
D-2
<PAGE>
"Corporation Common Stock" shall have the meaning set forth in the third
paragraph of this Agreement.
"Drag-Along Notice" shall have the meaning set forth in Section 2.5 hereof.
"Drag-Along Right" shall have the meaning set forth in Section 2.5 hereof.
"Drag-Along Transaction" shall have the meaning set forth in Section 2.5
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Liens" shall mean all liens, claims, charges, assessments, options,
security interests and other legal and equitable encumbrances other than such of
the foregoing as may be imposed by applicable federal and state securities laws
or by the terms of this Agreement.
"Merger" shall have the meaning set forth in the second paragraph of this
Agreement.
"Merger Agreement" shall have the meaning set forth in the second paragraph
of this Agreement.
"NASD" shall mean the National Association of Securities Dealers, Inc., or
any successor thereof.
"Notice Period" shall have the meaning set forth in Section 2.2(a) hereof.
"Offered Shares" shall have the meaning set forth in Section 2.2(a) hereof.
"Participation Notice" shall have the meaning set forth in Section 2.4(b)
hereof.
"Person" shall mean any natural person, corporation, limited partnership,
limited liability company, general partnership, joint stock company, joint
venture, association, company, trust, bank, trust company, land trust, business
trust or other organization, whether or not a legal entity, and any government
or agency or political subdivision thereof.
"Piggyback Registration" shall have the meaning set forth in Section 5.1
hereof.
"Proposed Transfer" shall have the meaning set forth in Section 2.4 hereof.
"Proposed Transferee" shall have the meaning set forth in Section 2.4
hereof.
"Proposed Terms" shall have the meaning set forth in Section 2.2(a) hereof.
"Prospectus" means the prospectus included in any Registration Statement
(including a prospectus that discloses information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A under the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Registrable Shares covered by such Registration Statement and all other
amendments and supplements to such prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such prospectus.
"Public Offering" shall mean a registered offering and sale of equity
securities (as such term is defined in Rule 3a11-1 as promulgated under the
Exchange Act) of the Corporation or an institutional private placement or an
offering and sale of such equity securities pursuant to Rule 144A under the
Securities Act with or without registration rights.
"Registrable Shares" means Shares, if and so long as (i) such Shares have
not been sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction, (ii) such Shares have not been
sold in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(1) thereof so that all
transfer restrictions and restrictive legends with respect to such Shares are
removed upon the consummation of such sale and (iii) the holder of such Shares
is not able to use Rule 144(k) promulgated under the Securities Act(or any
successor provision) to transfer all of such holder's Shares.
D-3
<PAGE>
"Registration" means registration under the Securities Act of an offering of
Registrable Shares pursuant to a Piggyback Registration.
"Registration Statement" means any registration statement of the Corporation
under the Securities Act that covers any of the Registrable Shares pursuant to
the provisions of this Agreement, including the related Prospectus, all
amendments and supplements to such registration statement, including pre- and
post-effective amendments, all exhibits thereto and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
"Sales Notice" shall have the meaning set forth in Section 2.2(a) hereof.
"Sales Offer" shall have the meaning set forth in Section 2.2(a) hereof.
"Sales Price" shall have the meaning set forth in Section 2.2(a) hereof.
"SEC" means the Securities and Exchange Commission, or any successor
thereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shares" shall mean shares of Common Stock.
"Surviving Corporation" shall have the meaning set forth in the second
paragraph of this Agreement.
"Tag-Along Right" shall have the meaning set forth in Section 2.4.
"Third Party" shall have the meaning set forth in Section 2.2(a) hereof.
"Transferor(s)" shall have the meaning set forth in Section 2.4(b) hereof.
"underwritten registration or underwritten offering" means a registration
under the Securities Act in which securities of the Corporation are sold to an
underwriter for reoffering to the public.
"XAC" shall have the meaning set forth in the first paragraph of this
Agreement.
"XAC Group" shall have the meaning set forth in the second paragraph of this
Agreement.
(b) Words used herein, regardless of the number and gender specifically
used, shall be deemed and construed to include any other number, singular or
plural, and any other gender, masculine, feminine or neuter, as the context
requires. The word "or" is not exclusive and the word "including" means
"including without limitation." Unless otherwise specified, all accounting terms
used in this Agreement shall be interpreted in accordance with generally
accepted accounting principles as in effect from time to time, applied on a
consistent basis.
ARTICLE II
TRANSFERS OF SHARES
Section 2.1 RESTRICTIONS ON TRANSFER. At any time on or prior to the first
anniversary of the Closing Date, no Stockholder shall sell, assign, pledge,
encumber or otherwise transfer any Common Stock which it owns, except as
otherwise set forth in and permitted by this Agreement. At any time after the
first anniversary of the Closing Date, no Stockholder shall sell, assign,
pledge, encumber or otherwise transfer any Common Stock which it owns, except
pursuant to Rule 144 promulgated under the Securities Act or as otherwise set
forth in and permitted by this Agreement. Any attempted sale, assignment,
pledge, encumbrance or other transfer not permitted by, or effected in
accordance with, the terms of this Agreement shall be null and void and neither
the Corporation as the issuer of such Common Stock nor any transfer agent shall
give any effect to such attempted transaction. The Corporation shall, prior to
registering or directing the registration of any such attempted transfer by any
Stockholder on the books of the Corporation, require the provision of evidence
satisfactory to the Corporation that such transfer is permitted by, and has been
effected in accordance with, the terms of this Agreement.
D-4
<PAGE>
Section 2.2 RIGHTS OF FIRST REFUSAL. (a) No Stockholder shall sell,
assign, pledge, encumber or otherwise transfer any Common Stock which it owns at
any time on or prior to the first anniversary of the Closing Date. If, at any
time following the first anniversary of the Closing Date, any Stockholder has
received a bona fide offer from a third party (a "Third Party") to acquire any
or all of the Shares then owned by it for cash, other than in a sale to be
effected pursuant to Rule 144 promulgated under the Securities Act or pursuant
to Article V hereof, such Stockholder will give the Corporation notice (the
"Sales Notice") in writing stating, as to such proposed transfer, the number of
Shares proposed to be transferred (the "Offered Shares") and the price proposed
to be paid per Offered Share (the "Sales Price"), the identity of the Third
Party, including, such Third Party's name, place of business, occupation,
investment objective and whether such Third Party is acting as a principal or
agent (and, if acting as agent, such information with respect to any principal),
and any other terms and conditions pertaining to such offer, including, without
limitation, the proposed closing date for such transaction (the "Proposed
Terms"). The Corporation shall deliver a copy of the Sales Notice to each of UBS
and Fenway as promptly as practicable (but in any event within three business
days) following receipt thereof. The Sales Notice shall be deemed to constitute
an irrevocable offer (open to acceptance as described below for a period of 40
days from the date of receipt by the Corporation of the Sales Notice (the
"Notice Period")) to sell the Offered Shares to the Corporation, or in the event
the Corporation is unable to accept or otherwise rejects such offer, to each of
the members of the XAC Group on a pro rata basis (based on the number of shares
of Common Stock that are then owned or can then be acquired, regardless of
whether the right to acquire such shares is then exercisable, by all such
members divided by the number of shares of Common Stock that are owned or can be
so acquired by all such members in the aggregate) (hereinafter, a "pro rata
basis") at the Sales Price per Offered Share and otherwise pursuant to the
Proposed Terms (a "Sales Offer"), and such Stockholder shall not consummate any
transfer of the Offered Shares until the expiration of the Notice Period and as
permitted by this Section 2.2. Any of the Fenway Holders and any of the UBS
Holders may elect to purchase any or all of the Shares offered to the Fenway
Holders and to the UBS Holders, respectively. If either the Fenway Holders or
the UBS Holders decline to purchase all of the Shares offered to them, any of
the Fenway Holders or of the UBS Holders, as the case may be, may elect to
purchase the Shares offered to such declining party.
(b) The Corporation may elect to purchase all (but not less than all) of the
Offered Shares by delivering a written notice of such acceptance to such
Stockholder and each of the members of the XAC Group on or prior to the 20th day
of the Notice Period. If the Corporation is unable to accept or otherwise
rejects the offer, the Corporation shall deliver written notice of rejection of
such offer to such Stockholder and each of the members of the XAC Group on or
prior to the 20th day of the Notice Period. In such event, members of the XAC
Group may elect to purchase all (but not less than all) of the Offered Shares,
by delivering a written notice of such acceptance to such Stockholder on or
prior to the last day of the Notice Period (which notice shall indicate whether
the giver elects to purchase the Offered Shares allocated to the other members
of the XAC Group, if such Offered Shares are not purchased by such other
members). If any Offered Shares allocated to any member of the XAC Group are not
purchased by such member, all of such Offered Shares shall be allocated on a pro
rata basis, subject to the last sentence of Section 2.2(a), to, and may be
purchased by, any members who indicated in their notice that they would purchase
all such other Offered Shares. Unless the Corporation or the members of the XAC
Group agree to purchase all of the Offered Shares, the Corporation and the XAC
Group shall be deemed to have rejected the offer contained in the Sales Notice
and such Offered Shares may be transferred pursuant to Section 2.2(d).
(c) (i) The closing of the purchase of the Offered Shares by the Corporation
or the members of the XAC Group shall take place at the principal executive
offices of the Corporation on the latest of the 15th business day after the
notice of acceptance is given or, the closing date on which the closing would
have occurred under the Proposed Terms or such date on which all waiting periods
under the Hart Scott Rodino Antitrust Improvements Act of 1976, as amended, or
any successor act, have expired or terminated and any legal requirements of any
other jurisdiction have been satisfied. At such closing, each purchaser of
Shares
D-5
<PAGE>
shall deliver to the selling Stockholder a bank check in an amount equal to the
aggregate Sales Price for the Offered Shares being purchased by such purchaser,
against delivery of certificates representing the Offered Shares so purchased,
which shall be duly endorsed in blank or accompanied by stock powers duly
executed in blank, with the signatures thereon guaranteed, and free and clear of
all Liens.
(ii) Notwithstanding anything to the contrary contained herein, if there
shall occur a material adverse change in the Corporation's business, assets,
liabilities, condition (financial or other), results of operations or prospects
at any time prior to the closing provided for in this paragraph (c) and after
the giving of the Sales Notice, then the Corporation and/or any member(s) of the
XAC Group may abandon the purchase and sale of the Offered Shares pursuant to
this Section 2.2 by giving notice to the Stockholder that gave the Sales Notice
and, in the case of a member of the XAC Group, to the other members of the XAC
Group within two (2) days of the date on which the Corporation or such member
learned of the facts giving rise to its determination that a material adverse
change has occurred, which notice shall specify such facts and the reason for
the Corporation's or such member's conclusion that a material adverse change has
occurred in reasonable detail. Notwithstanding anything to the contrary
contained herein, none of the Corporation or any member of the XAC Group shall
be obligated to purchase any Offered Shares at the closing provided for in this
Section 2.2(c) if the Corporation or any such member is legally barred from
consummating such purchase (whether as the result of the absence of a necessary
consent, the presence of an injunction or restraining order or otherwise). In
case of any abandonment of purchase pursuant to this paragraph by the
Corporation or by less than all of the members of the XAC Group, the other
members of the XAC Group shall have three business days to determine whether to
purchase the Offered Shares allocated to such abandoning members and to so
notify such selling Stockholder, and any closing of such purchase and sale
scheduled to occur prior to such third business day shall be postponed until the
business day after the day on which such notice is due.
(d) Upon the expiration of the Notice Period, if the Corporation or the
members of the XAC Group have not elected to purchase all of the Offered Shares
specified in the Sales Notice, or thereafter, if any election to purchase has
been abandoned by the Corporation or any member of the XAC Group pursuant to
Section 2.2(c)(ii) and no other member of the XAC Group has elected to purchase
the Offered Shares to have been purchased by such abandoning party, the
Stockholder that gave the Sales Notice will be free to transfer all but not less
than all of the Offered Shares specified in the Sales Notice during the 180 day
period following the expiration of the Notice Period or such abandonment, as the
case may be, to the specified Third Party, at the Sales Price per Offered Share
and on other terms no more favorable to such Third Party than specified in the
Proposed Terms; PROVIDED, that prior to the consummation of such sale such Third
Party shall become a party to, agree to be bound by, and shall be entitled to
the benefits of, the terms of, and be deemed a "Stockholder" for purposes of,
this Agreement. If all such Offered Shares have not been transferred at the
expiration of such 180 day period, then all such Offered Shares shall once again
be subject to all of the terms of this Section 2.2 and must be offered to the
Corporation and members of the XAC Group prior to any attempted transfer thereof
(other than pursuant to Section 2.4).
Section 2.3 COMPLIANCE WITH LAW; LEGEND. (a) No party hereto shall
transfer any Shares pursuant to this Article II unless such transfer is made (i)
pursuant to an effective registration statement under the Securities Act and is
qualified under applicable state securities or blue sky laws or (ii) without
registration under the Securities Act and qualification under applicable state
securities or blue sky laws, as a result of the availability of an exemption
from registration and qualification under such laws. The Corporation may, at its
option, request a legal opinion as to the availability of an exemption from
registration and qualification under the Securities Act and applicable state
securities or blue sky laws for any transfer requested pursuant to clause (ii)
above.
(b) Upon initial issuance and thereafter until transferred pursuant to an
effective registration statement under the Securities Act and qualified under
applicable state securities or blue sky laws, the certificate or certificates
representing any Shares shall bear a legend reading substantially as follows:
D-6
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS
AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
THEREUNDER.
(c) Each Stockholder hereby agrees that, until the expiration or termination
of this Agreement, each outstanding certificate representing any Shares held by
such Stockholder shall also bear a legend reading substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS AND OBLIGATIONS, INCLUDING RESTRICTIONS ON TRANSFER PURSUANT TO
A STOCKHOLDERS AGREEMENT DATED AS OF , 1997. A COPY OF SUCH
STOCKHOLDERS AGREEMENT MAY BE OBTAINED WITHOUT CHARGE FROM THE SECRETARY OF
THE ISSUER. NO TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS ACCOMPANIED BY EVIDENCE OF
COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT.
Section 2.4 TAG-ALONG RIGHTS. (a) So long as the members of the XAC Group
hold at least 40% of the then-outstanding Common Stock, if, at any time prior to
the closing of a Public Offering, one or more members of the XAC Group
propose(s) to transfer for value Shares (a "Proposed Transfer") to any Person
(other than another member of the XAC Group or an Affiliate of any such member)
(the "Proposed Transferee") in a transaction or series of related transactions
which would result in a transfer of at least 40% of the then-outstanding Common
Stock to any Person who is not a member of the XAC Group or an Affiliate of any
such member, then such member(s) must permit each Stockholder, or cause each
Stockholder to be permitted, to sell that percentage of the Shares proposed to
be transferred equal to the percentage of the then-outstanding Shares of Common
Stock held by such Stockholder (calculated on a fully-diluted basis)(a
"Tag-Along Right"), for the same consideration per Share and otherwise on the
same terms and conditions obtained by such member(s) in such transfer.
(b) In the event of a Proposed Transfer giving rise to a Tag-Along Right,
the member(s) of the XAC Group proposing to make such transfer (the
"Transferor(s)") shall deliver a written notice (a "Participation Notice") to
each Stockholder at least fifteen (15) days prior to the consummation of such
Proposed Transfer stating that the Proposed Transfer is subject to the
provisions of this Section 2.4 and including the principal terms of the Proposed
Transfer, including the number of shares of Common Stock proposed to be
purchased, the maximum and minimum per share purchase price and the name and
address of the Proposed Transferee. Each Stockholder may elect to participate in
the contemplated transfer by delivering a written notice to the Transferor(s) of
such Stockholder's election to participate within ten (10) days after delivery
of the Participation Notice. The Transferor(s) shall seek to obtain the
agreement of the Proposed Transferee to the participation of such Stockholders
in the Proposed Transfer and will not transfer any Shares to the Proposed
Transferee if the Proposed Transferee declines to allow the participation of
such Stockholders electing to participate. Each Stockholder who does not elect
to participate in the Proposed Transfer shall be deemed to have waived all of
his rights with respect to such Proposed Transfer, and the Transferor(s) shall
thereafter be entitled to effect the Proposed Transfer on the terms set forth in
the Participation Notice for a period of 180 days following delivery of the
Participation Notice, without any obligation to such non-accepting Stockholders;
provided, however, that in the event that at the time of delivery of the
Participation Notice, there are more than ten Stockholders who are parties to
this Agreement, the Transferor shall thereafter be free to transfer to the
Proposed Transferee, at a per share price no greater than 110% of the per share
price set forth in the Participation Notice and on other principal terms which
are not materially more favorable to the Transferors than those set forth in the
Participation Notice, without any further obligation to such non-accepting
Stockholders.
D-7
<PAGE>
(c) The election of any Stockholder to participate in the Proposed Transfer
shall be irrevocable, and each such Stockholder shall be bound and obligated to
transfer in the Proposed Transfer on the same terms and conditions, with respect
to each such Share sold, as the Transferor(s); PROVIDED, HOWEVER, that (a) if
the principal terms of the Proposed Transfer change with the result that the
minimum per share price to be paid in the Proposed Transfer shall be less than
the per share price set forth in the Participation Notice (or, in the event that
at the time of delivery of the Participation Notice, there are more than ten
Stockholders who are parties to this Agreement, the per share price to be paid
in the Proposed Transfer shall be less than 90% of the minimum per share price
set forth in the Participation Notice) or the other principal terms shall be
materially less favorable to the Transferors and participating Stockholders than
those set forth in the Participation Notice, each participating Stockholder
shall be permitted to withdraw and shall be released from his obligations
thereunder and (b) if, at the end of the 180th day following the date of the
Participation Notice, the Transferor(s) have not completed the Proposed
Transfer, each participating Stockholder shall be released from his obligations
under this Section, the Participation Notice shall be null and void, and it
shall be necessary for a separate Participation Notice to be furnished, and the
terms and provisions of this Section 2.4 separately complied with, in order to
consummate such Proposed Transfer pursuant to this Section 2.4, unless the
failure to complete such sale resulted from any failure by any participating
Stockholder to comply with the terms of this Section 2.4.
(d) If, prior to consummation, the terms of the Proposed Transfer shall
change with the result that the per share price to be paid in such Proposed
Transfer shall be greater than 105% of the maximum per share price set forth in
the Participation Notice or the other principal terms of such Proposed Transfer
shall be materially more favorable to the participating Stockholders than those
set forth in the Participation Notice, the Participation Notice shall be null
and void, and it shall be necessary for a separate Participation Notice to be
furnished, and the terms and provisions of this Section 2.4 separately complied
with, in order to consummate such Proposed Transfer pursuant to this Section
2.4; PROVIDED, HOWEVER, that in the case of such a separate Participation
Notice, the applicable period to which reference is made in Section 2.4(b) shall
be five business days.
(e) Notwithstanding the foregoing, no Stockholder shall have any right of
participation pursuant to the provisions of this Section 2.4 with respect to any
transfer:
(i) to any director, officer or employee of, or consultant or adviser to,
the Corporation or its subsidiaries;
(ii) in a Public Offering or to the public under Rule 144; or
(iii) with respect to which the XAC Group exercise their "drag along"
rights under Section 2.5 of this Agreement.
Section 2.5 DRAG-ALONG RIGHTS. (a) So long as the members of the XAC Group
hold at least 40% of the then-outstanding Common Stock, if at any time, the
members of the XAC Group propose to sell, in any transaction or a series of
related transactions, (x) all of their Shares to any Person other than an
Affiliate of any member of the XAC Group or (y) at least 80% of their Shares,
provided that in the case of clause (y) the acquiring party or parties are
acquiring at least 80% of the outstanding Common Stock, such members shall have
the right (a "Drag-Along Right") to require all of the Stockholders to sell, or
cause to be sold, all of their Shares or such lesser percentage as is being sold
by the members of the XAC Group in such sale transaction(s) (a "Drag-Along
Transaction") for the same price and form of consideration per Share and
otherwise on the same terms and conditions as are applicable to the members of
the XAC Group.
(b) If the members of the XAC Group desire to exercise a Drag-Along Right
pursuant to Section 2.5(a), they must give written notice to each Stockholder of
the proposed Drag-Along Transaction giving rise to the Drag-Along Right at least
twenty (20) days prior to the consummation thereof (a "Drag-Along Notice"). The
Drag-Along Notice shall set forth the principal terms of such proposed
transaction including
D-8
<PAGE>
the per share price to be paid and the name and address of the prospective
buyer. If the XAC Group consummates the proposed transaction to which reference
is made in the Drag-Along Notice, each other Stockholder shall be bound and
obligated to sell his Shares in the proposed transaction on the same terms and
conditions with respect to each share sold as shares sold by the XAC Group. If,
at the end of the 180th day following the date of the Drag-Along Notice, the XAC
Group has not completed the proposed transaction, each Stockholder shall be
released from his obligation under the Drag-Along Notice, the Drag-Along Notice
shall be null and void, and it shall be necessary for a separate Drag-Along
Notice to be furnished, and the terms and provisions of this Section 2.5
separately complied with, in order to consummate such proposed transaction
pursuant to this Section 2.5.
(c) Each Stockholder agrees to vote his Shares, and hereby grants to the
Corporation an irrevocable proxy to vote such Shares, in the same proportion as
shares are voted by the XAC Group in connection with any Drag-Along Transaction
or any merger which would have a similar effect to that of a Drag-Along
Transaction. The Corporation agrees not to give effect to any action by any
Stockholder or any other Person which is in contravention of this Section
2.5(c). The foregoing provisions shall expire on the last date permitted by law.
Section 2.6 MISCELLANEOUS PROVISIONS. The following provisions shall be
applied to any transaction to which Section 2.4 or 2.5 applies:
(a) In the event the consideration to be paid in exchange for Shares in a
transaction pursuant to Section 2.4 or Section 2.5 includes any securities, and
the receipt thereof by a participating Stockholder would require under
applicable law (i) the registration or qualification of such securities or of
any person as a broker or dealer or agent with respect to such securities or
(ii) the provision to any participating Stockholder of any information other
than such information as would be required in an offering made pursuant to
Regulation D under the Securities Act solely to "accredited investors" as
defined in Regulation D, the participating members of the XAC Group shall be
obligated only to use their reasonable efforts to cause the requirements of
Regulation D to be complied with to the extent necessary to permit such
participating Stockholder to receive such securities, it being understood and
agreed that the participating members of the XAC Group shall not be under any
obligation to effect a registration of such securities under the Securities Act
or similar statutes. Notwithstanding any provisions of this Section 2.6, if use
of reasonable efforts does not result in the requirements under Regulation D
being complied with to the extent necessary to permit such participating
Stockholder to receive such securities, the participating members of the XAC
Group shall cause to be paid to such participating Stockholder in lieu thereof,
against surrender of the Shares which would otherwise have been sold by such
participating Stockholder, an amount in cash equal to the fair market value of
the securities which such participating Stockholder would otherwise receive as
of the date of the issuance of such securities in exchange for Shares. The
obligation of the participating members of the XAC Group to use reasonable
efforts to cause such requirements to have been complied with to the extent
necessary to permit a participating Stockholder to receive such securities shall
be conditioned on such participating Stockholder executing such documents and
instruments, and taking such other actions (including, without limitation, if
required by the participating members of the XAC Group, agreeing to be
represented during the course of such transaction by a "purchaser
representative" (as defined in Regulation D) in connection with evaluating the
merits and risks of the prospective investment and acknowledging that he was so
represented), as the participating members of the XAC Group shall reasonably
request in order to permit such requirements to be complied with. Unless he
shall have taken all actions reasonably requested by the participating members
of the XAC Group in order to comply with the requirements under Regulation D, no
participating Stockholder shall have the right to require that he receive cash
in lieu of securities under this Section 2.6.
(b) Each participating Stockholder, whether in his capacity as a
participating Stockholder, stockholder, officer or director of the Corporation,
or otherwise, shall take or cause to be taken all such actions as may be
necessary or reasonably desirable in order expeditiously to consummate each
transaction pursuant to Section 2.4 or Section 2.5 and any related transactions,
including, without limitation, executing,
D-9
<PAGE>
acknowledging and delivering consents, assignments, waivers and other documents
or instruments; furnishing information and copies of documents; filing
applications, reports, returns, filings and other documents or instruments with
governmental authorities; and otherwise cooperating with the XAC Group and the
prospective buyer. Without limiting the generality of the foregoing, each
participating Stockholder agrees to execute and deliver such agreements as may
be reasonably specified by the participating members of the XAC Group to which
such members will also be party; provided, however, that no such Stockholder
shall be required to give any representations to the Proposed Transferee, other
than with respect to such Stockholder's organization and authority to enter into
such agreement, the enforceability of such agreement against such Stockholder
and title to Shares proposed to be sold by such Stockholder; PROVIDED, FURTHER,
however, that, notwithstanding the foregoing, any indemnity or holdback
contained in any such agreement other than with respect to any representations
solely made severally by parties participating in such transaction shall apply
on a pro rata basis to all parties (including the Stockholders).
(c) The closing of a transaction pursuant to Section 2.4 or 2.5 shall take
place at such time and place as the participating members of the XAC Group shall
specify by notice to each participating Stockholder. At any such closing, each
participating Stockholder shall deliver certificates representing the Shares
being purchased, duly endorsed in blank or accompanied by stock powers duly
executed in blank with the signatures thereon guaranteed, and free and clear of
Liens, against delivery of a bank check and/or other consideration representing
the aggregate purchase price therefor.
Section 2.7 RESTRICTIONS ON TRANSFER BY AFFILIATES. Each Stockholder which
is an "affiliate" of the Corporation, as such term is defined for purposes of
paragraphs (c) and (d) of Rule 145 promulgated under the Securities Act, hereby
agrees to, concurrently with the execution hereof, execute and deliver to the
Corporation, a letter in the form of Exhibit A hereto, pursuant to which such
Stockholder agrees to be bound by the restrictions on transfer contained
therein.
ARTICLE III
TRANSACTIONS BETWEEN THE CORPORATION
AND MEMBERS OF THE XAC GROUP
TRANSACTIONS WITH MEMBERS OF THE XAC GROUP. The Corporation shall not enter
into any agreement or transaction with any member of the XAC Group without the
prior approval of the holders of a majority of the then-outstanding Common Stock
(excluding shares held by such member of the XAC Group and its Affiliates)
unless either (i) such agreement or transaction is on arm's-length terms or (ii)
such agreement is a consulting or management agreement on terms (including with
respect to fees) that are customary as between such member of the XAC Group and
its portfolio companies. Nothing in this Section shall limit any activity of any
member of the XAC Group or any of their Affiliates in connection with the
transactions contemplated by the Merger Agreement.
ARTICLE IV
FINANCIAL AND BUSINESS INFORMATION
For so long as a Stockholder is a party to this Agreement, the Corporation
will deliver to such Stockholder:
(a) As soon as practicable and in any event within 90 days after the close
of each fiscal year of the Corporation, beginning with the current fiscal year,
a consolidated balance sheet of the Corporation and its subsidiaries as of the
close of such fiscal year and consolidated statements of operations,
shareholders' equity and cash flows for the Corporation and its subsidiaries for
the fiscal year then ended; and
(b) As soon as practicable and in any event within 45 days after the end of
each of the first three fiscal quarters of each fiscal year, a consolidated
balance sheet of the Corporation and its subsidiaries as at the end of such
fiscal quarter and consolidated statements of operations, shareholders' equity
and cash flows
D-10
<PAGE>
of the Corporation and its subsidiaries for such fiscal quarter and for the
period from the beginning of the current fiscal year to the end of such fiscal
quarter.
ARTICLE V
REGISTRATION RIGHTS
Section 5.1 PIGGYBACK REGISTRATION. (a) If at any time the Corporation
proposes to file a registration statement under the Securities Act with respect
to a public offering of Shares for the account of any holder of Shares (other
than a registration statement (i) on Form S-8 or any successor form thereto,
(ii) filed solely in connection with a dividend reinvestment plan or employee
benefit plan covering officers or directors of the Corporation or its Affiliates
or (iii) on Form S-4 or any successor form thereto, in connection with a merger,
acquisition, exchange offer or similar corporate transaction), then the
Corporation shall give written notice of such proposed filing to the
Stockholders. Such notice shall offer the Stockholders the opportunity to
register such amount of Registrable Shares as they may request (a "Piggyback
Registration"). Subject to Section 5.1(b) hereof, the Corporation shall include
in each such Piggyback Registration all Registrable Shares with respect to which
the Corporation has received written requests for inclusion therein within 10
days after such notice has been given to the Stockholders.
(b) The Corporation shall permit the Stockholders to include all such
Registrable Shares on the same terms and conditions as any similar securities,
if any, of the Corporation included therein. Notwithstanding the foregoing, if
the Corporation or the managing underwriter or underwriters participating in
such offering advise the Stockholders requesting registration in writing that
the total amount of securities requested to be included in such Piggyback
Registration exceeds the amount which can be sold in (or during the time of)
such offering without delaying or affecting the offering (including the price
per share of the securities to be sold), then the amount of securities to be
offered for the account of any holder of Common Stock (including the
Stockholders) shall be reduced (to zero if necessary) pro rata on the basis of
the number or amount of Shares held by each such holder participating in such
offering.
(c) Nothing in this Agreement shall create any liability on the part of the
Corporation to the Stockholders if the Corporation in its sole discretion should
decide not to file a Registration Statement proposed to be filed pursuant to
Section 5.1(a) hereof or to withdraw such Registration Statement subsequent to
its filing or to suspend sales thereunder, regardless of any action whatsoever
that a Stockholder may have taken, whether as a result of the issuance by the
Corporation of any notice hereunder or otherwise.
Section 5.2 HOLDBACK AGREEMENT. If (i) the Corporation shall file a
Registration Statement (other than in connection with the registration of
securities issuable pursuant to an employee stock option, stock purchase or
similar plan or pursuant to a merger, exchange offer or a transaction of the
type specified in Rule 145(a) under the Securities Act) with respect to the
Common Stock or similar securities or securities convertible into, or
exchangeable or exercisable for, such securities and (ii) the Corporation (in
the case of a non-underwritten public offering by the Corporation pursuant to
such registration statement) or the managing underwriter or underwriters (in the
case of an underwritten public offering by the Corporation pursuant to such
registration statement) so request(s), then no Stockholder shall, directly or
indirectly, sell, offer, contract or grant any option to sell (including without
limitation in connection with any short sale), pledge, transfer, establish an
open "put equivalent position" within the meaning of Rule 16a-1(h) under the
Exchange Act, or otherwise dispose of any Shares during the period beginning ten
(10) days prior to the effective date of such registration statement and
continuing until the earlier of (A) the abandonment of such offering and (B) 90
days (or such longer period as may be required by the underwriters) after the
effective date of such registration statement.
Section 5.3 REGISTRATION PROCEDURES. In connection with the registration
obligations of the Corporation pursuant to and in accordance with Section 5.1
hereof (and subject to Section 5.1 hereof), the Corporation shall use
commercially reasonable efforts to effect such registration to permit the sale
of such
D-11
<PAGE>
Registrable Shares in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Corporation shall as expeditiously
as possible (but subject to Section 5.1 hereof and only so long as and to the
extent that the Corporation is obligated to take such actions for holders of
Shares other than the Stockholders):
(a) prepare and file with the SEC a Registration Statement for the sale of
the Registrable Shares on any form for which the Corporation then qualifies or
which counsel for the Corporation shall deem appropriate, and use commercially
reasonable efforts to cause such Registration Statement to become effective and
remain effective as provided herein;
(b) prepare and file with the SEC such amendments to such Registration
Statement, and such supplements to the related Prospectus, as may be required by
the applicable rules, regulations or instructions under the Securities Act
during the applicable period, make generally available earnings statements
satisfying the provisions of Section 11(a) of the Securities Act (provided that
the Corporation shall be deemed to have complied with this clause if it has
complied with Rule 158 under the Securities Act), and cause the related
Prospectus as so supplemented to be filed pursuant to Rule 424 under the
Securities Act;
(c) notify the holders of any Registrable Shares covered by such
Registration Statement promptly and (if requested) confirm such notice in
writing, (i) of the issuance by the SEC of any stop order suspending the
effectiveness of such Registration Statement or the initiation of any
proceedings for that purpose, (ii) of the receipt by the Corporation of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Shares for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose, and (iii)
of the happening of any event that requires the making of any changes in such
Registration Statement, Prospectus or documents incorporated or deemed to be
incorporated therein by reference so that they will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading;
(d) use commercially reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of such Registration Statement, or the
lifting of any suspension of the qualification or exemption from qualification
of any Registrable Shares for sale in any jurisdiction in the United States;
(e) furnish to the holder of any Registrable Shares covered by such
Registration Statement, each counsel for such holders and each managing
underwriter, if any, without charge, one conformed copy of such Registration
Statement, as declared effective by the SEC, and of each post-effective
amendment thereto, in each case including financial statements and schedules and
all exhibits and reports incorporated or deemed to be incorporated therein by
reference; and deliver, without charge, such number of copies of the preliminary
prospectus, any amended preliminary prospectus, each final Prospectus and any
post-effective amendment or supplement thereto, as such holder may reasonably
request in order to facilitate the disposition of the Registrable Shares of such
holder covered by such Registration Statement in conformity with the
requirements of the Securities Act;
(f) prior to any public offering of Registrable Shares covered by such
Registration Statement, use commercially reasonable efforts to register or
qualify such Registrable Shares for offer and sale under the securities or Blue
Sky laws of such jurisdictions as the holders of such Registrable Shares shall
reasonably request in writing; provided, however, that the Corporation shall in
no event be required to qualify generally to do business as a foreign
corporation or as a dealer in any jurisdiction where it is not at the time so
qualified or to execute or file a general consent to service of process in any
such jurisdiction where it has not theretofore done so or to take any action
that would subject it to general service of process or taxation in any such
jurisdiction where it is not then subject;
(g) upon the occurrence of any event contemplated by Section 5.3(c)(iii)
above, prepare a supplement or post-effective amendment to such Registration
Statement or the related Prospectus or any document
D-12
<PAGE>
incorporated or deemed to be incorporated therein by reference and file any
other required document so that, as thereafter delivered to the purchaser of the
Registrable Shares being sold thereunder, such Prospectus will not contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
(h) use commercially reasonable efforts to cause all Registrable Shares
covered by such Registration Statement to be listed on each securities exchange,
if any, on which similar securities issued by the Corporation are then listed or
quoted and, if no such securities are so listed, to be listed on the Nasdaq
Stock Market;
(i) on or before the effective date of such Registration Statement, provide
the transfer agent of the Corporation for the Registrable Shares with printed
certificates for the Registrable Shares covered by such Registration Statement,
which are in a form eligible for deposit with The Depository Trust Company;
(j) make available (during the Corporation's normal business hours and upon
reasonable prior notice) for inspection by any holder of Registrable Shares
included in such Registration Statement, and any attorney, accountant or other
agent retained by any such holder (collectively, the "Inspectors"), all
financial and other records and other information, pertinent corporate documents
and properties of any of the Corporation and its subsidiaries and affiliates
(collectively, the "Records"), as shall be reasonably necessary to enable them
to exercise their due diligence responsibilities; provided, however, that the
Records that the Corporation determines, in good faith, to be confidential and
which it notifies the Inspectors in writing are confidential shall not be
disclosed to any Inspector unless such Inspector signs a confidentiality
agreement reasonably satisfactory to the Corporation, which confidentiality
agreement shall permit (i) the disclosure of such Records in such Registration
Statement or the related Prospectus if necessary to avoid or correct a material
misstatement in or material omission from such Registration Statement or
Prospectus or (ii) the release of such Records, if such release is ordered
pursuant to a subpoena or other order from a court of competent jurisdiction;
provided further, however, that (A) any decision regarding the disclosure of
information pursuant to subclause (i) shall be made only after consultation with
counsel for the applicable Inspectors and the Corporation and (B) with respect
to any release of Records pursuant to subclause (ii), each holder of Registrable
Shares agrees that it shall, promptly after learning that disclosure of such
Records is sought in a court having jurisdiction, give notice to the Corporation
so that the Corporation, at the Corporation's expense, may undertake appropriate
action to prevent disclosure of such Records; and
(k) if such offering is an underwritten offering, enter into such agreements
(including an underwriting agreement in form, scope and substance as is
customary in underwritten offerings) and take all such other appropriate and
reasonable actions reasonably requested by the managing underwriters) in order
to expedite or facilitate the disposition of such Registrable Shares. The
Corporation may require each holder of Registrable Shares covered by a
Registration Statement to furnish such information regarding such holder and
such holder's intended method of disposition of such Registrable Shares as it
may from time to time reasonably request in writing. If any such information is
not furnished within a reasonable period of time after receipt of such request,
the Corporation may exclude such holder's Registrable Shares from such
Registration Statement. Each holder of Registrable Shares covered by a
Registration Statement agrees that, upon receipt of any notice from the
Corporation of the happening of any event of the kind described in Section
5.3(c) hereof, that such holder shall forthwith discontinue disposition of any
Registrable Shares covered by such Registration Statement or the related
Prospectus until receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 5.3(g) hereof, or until such holder is advised in
writing by the Corporation that the use of the applicable Prospectus may be
resumed, and has received copies of any amended or supplemented Prospectus or
any additional or supplemental filings which are incorporated, or deemed to be
incorporated, by reference in such Prospectus and, if requested by the
Corporation, the holder shall deliver to the Corporation (at the expense of the
Corporation) all copies then in its possession, other than permanent file copies
then in such holder's possession, of the
D-13
<PAGE>
Prospectus covering such Registrable Shares at the time of receipt of such
request. Each holder of Registrable Shares covered by a Registration Statement
further agrees not to utilize any material other than the applicable current
preliminary prospectus or Prospectus in connection with the offering and/or sale
of such Registrable Shares.
Section 5.4 OBLIGATIONS OF STOCKHOLDERS. Holders of Registrable Securities
participating in any Public Offering pursuant to Section 5.1 shall take all such
actions and execute all such documents and instruments that are reasonably
requested by the Corporation to effect the sale of their Registrable Securities
in such Public Offering, including, without limitation, being parties to the
underwriting agreement entered into by the other holders of Shares participating
in such Public Offering.
Section 5.5 REGISTRATION EXPENSES. Whether or not any Registration
Statement is filed or becomes effective, the Corporation shall pay all costs,
fees and expenses incident to the Corporation's performance of or compliance
with this Agreement, including (i) all registration and filing fees, including
NASD filing fees, (ii) all fees and expenses of compliance with securities or
Blue Sky laws, including reasonable fees and disbursements of counsel in
connection therewith, (iii) printing expenses (including expenses of printing
certificates for Registrable Shares and of printing prospectuses if the printing
of prospectuses is requested by the managing underwriter, if any), (iv)
messenger, telephone and delivery expenses, (v) fees and disbursements of
counsel for the Corporation, (vi) fees and disbursements of all independent
certified public accountants of the Corporation and all other persons retained
by the Corporation in connection with such Registration Statement, (vii) fees
and disbursements of one counsel, other than the Corporation's counsel, selected
by holders of a majority of the Registrable Shares being registered, to
represent all such holders, (viii) fees and disbursements of underwriters
engaged by the Corporation customarily paid by the issuers or sellers of
securities and (ix) all other costs, fees and expenses incident to the
Corporation's performance or compliance with this Agreement. Notwithstanding the
foregoing, any discounts, commissions or brokers' fees or fees of similar
securities industry professionals and any transfer taxes relating to the
disposition of the Registrable Shares by a Stockholder, will be payable by such
Stockholder and the Corporation will have no obligation to pay any such amounts.
Section 5.6 INDEMNIFICATION. (a) Indemnification by the Corporation. The
Corporation shall, without limitation as to time, indemnify and hold harmless,
to the full extent permitted by law, each holder of Registrable Shares whose
Registrable Shares are covered by a Registration Statement or Prospectus, the
officers, directors and agents and employees of each of them, each Person who
controls each such holder (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent lawful, from
and against any and all losses, claims, damages, liabilities, judgments, costs
(including costs of investigation, preparation and reasonable attorneys' fees)
and expenses (collectively, "Losses"), as incurred, arising out of or based upon
any untrue or alleged untrue statement of a material fact contained in such
Registration Statement or Prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or based upon any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are based upon information furnished in writing to the Corporation by or on
behalf of such holder for use therein.
(b) INDEMNIFICATION BY STOCKHOLDERS. In connection with any Registration
Statement in which a Stockholder is participating, such Stockholder shall
indemnify and hold harmless, to the full extent permitted by law, the
Corporation, the members of the XAC Group, and their respective shareholders,
members, partners, directors, officers, agents and employees, each Person who
controls the Corporation or any member of the XAC Group (within the meaning of
Section 15 of the Securities Act and Section 20 of the Exchange Act) and the
shareholders, members, partners, directors, officers, agents or employees of
such controlling Persons, from and against all Losses arising out of or based
upon any untrue or alleged untrue statement of a material fact contained in such
Registration Statement or the related Prospectus or any amendment or supplement
thereto, or any preliminary prospectus, or arising out of or based upon any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the
D-14
<PAGE>
statements therein not misleading, to the extent, but only to the extent, that
such untrue or alleged untrue statement or omission or alleged omission is based
upon any information furnished in writing by or on behalf of such Stockholder to
the Corporation for use in such Registration Statement or Prospectus. Each
Stockholder's indemnity obligations under this Section 5.6 shall be limited to
the total sales proceeds (net of all underwriting discounts and commissions)
actually received by such Stockholder in connection with the applicable
offering.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Person shall be entitled
to indemnity hereunder (an "indemnified party"), such indemnified party shall
give prompt notice to the party from which such indemnity is sought (the
"indemnifying party") of any claim or of the commencement of any proceeding with
respect to which such indemnified party seeks indemnification or contribution
pursuant hereto; provided, however, that the delay or failure to so notify the
indemnifying party shall not relieve the indemnifying party from any obligation
or liability except to the extent that the indemnifying party has been
prejudiced by such delay or failure. The indemnifying party shall have the
right, exercisable by giving written notice to an indemnified party promptly
after the receipt of written notice from such indemnified party of such claim or
proceeding, to assume, at the indemnifying party's expense, the defense of any
such claim or proceeding, with counsel reasonably satisfactory to such
indemnified party; provided, however, that (i) an indemnified party shall have
the right to employ separate counsel in any such claim or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless: (1) the indemnifying
party agrees to pay such fees and expenses; (2) the indemnifying party fails
promptly to assume the defense of such claim or proceeding; or (3) the named
parties to any proceeding (including impleaded parties) include both such
indemnified party and the indemnifying party, and such indemnified party shall
have been advised by counsel that there may be one or more legal defenses
available to it that are inconsistent with those available to the indemnifying
party or that a conflict of interest is likely to exist among such indemnified
party and any other indemnified parties (in which case the indemnifying party
shall not have the right to assume the defense of such action on behalf of such
indemnified party); and (ii) subject to clause (3) above, the indemnifying party
shall not, in connection with any one such claim or proceeding or separate but
substantially similar or related claims or proceedings in the same jurisdiction,
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one firm of attorneys (together with appropriate
local counsel) at any time for all of the indemnified parties, or for fees and
expenses that are not reasonable. Whether or not such defense is assumed by the
indemnifying party, such indemnified party shall not be subject to any liability
for any settlement made without its consent. The indemnifying party shall not
consent to entry of any judgment or enter into any settlement unless (i) there
is no finding or admission of any violation of any rights of any person and no
effect on any other claims that may be made against the indemnified party, (ii)
the sole relief provided is monetary damages that are paid in full by the
indemnifying party and (iii) such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release, in form and substance reasonably satisfactory to
the indemnified party, from all liability in respect of such claim or litigation
for which such indemnified party would be entitled to indemnification hereunder.
(d) CONTRIBUTION. If the indemnification provided for in this Section 5.6 is
unavailable to an indemnified party in respect of any Losses (other than in
accordance with its terms), then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such Losses, in such proportion
as is appropriate to reflect the relative fault of the indemnifying party, on
the one hand, and such indemnified party, on the other hand, in connection with
the actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such indemnifying
party, on the one hand, and indemnified party, on the other hand, shall be
determined by reference to, among other things, whether any action in question,
including any untrue statement of a material fact or omission or alleged
omission to state a material fact, has been taken by, or relates to information
supplied by, such indemnifying party or indemnified party, and the parties'
relative intent, knowledge, access to information
D-15
<PAGE>
and opportunity to correct or prevent any such action, statement or omission.
The amount paid or payable by a party as a result of any Losses shall be deemed
to include any legal or other fees or expenses incurred by such party in
connection with any investigation or proceeding. The parties hereto agree that
it would not be just and equitable if contribution pursuant to this Section
5.6(d) were determined by pro rata allocation or by any other method of
allocation that does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this Section 5.6(d), an indemnifying
party that is a Stockholder shall not be required to contribute any amount which
is in excess of the amount by which the total proceeds (net of all underwriting
discounts and commissions) received by such Stockholder from the sale of the
Registrable Shares sold by such Stockholder in the applicable offering exceeds
the amount of any damages that such indemnifying party has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
ARTICLE VI
GENERAL PROVISIONS
Section 6.1 TERM. This Agreement shall take effect immediately following
the Merger and shall terminate (a) as to any Stockholder, at such time as such
Stockholder no longer holds any Shares and (b) as to the members of the XAC
Group, at such time as all of the Stockholders no longer hold any Shares.
Section 6.2 REMEDIES. (a) It is acknowledged that a breach of the
provisions of this Agreement could not be compensated adequately by money
damages. Accordingly, any party hereto shall be entitled, in addition to any
other right or remedy available to it, to an injunction restraining such breach
or threatened breach and to specific performance of any provisions of this
Agreement, and in either case no bond or other security shall be required in
connection therewith. If any action shall be brought in equity to enforce any of
the provisions of this Agreement, none of the Corporation, any member of the XAC
Group or any Stockholder shall raise the defense that there is an adequate
remedy at law.
(b) Any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby or
by law or equity on such party, and the exercise of any one remedy will not
preclude the exercise of any other.
Section 6.3 SEVERABILITY. The parties agree that (a) the provisions of
this Agreement shall be severable in the event that any of the provisions hereof
is held by a court of competent jurisdiction to be invalid, void or otherwise
unenforceable, (b) such invalid, void or otherwise unenforceable provisions
shall be automatically replaced by other provisions which are as similar as
possible in terms to such invalid, void or otherwise unenforceable provisions
but are valid and enforceable and (c) the remaining provisions shall remain
enforceable to the fullest extent permitted by law.
Section 6.4 GOVERNING LAW; JURISDICTION. (a) This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
Delaware, without regard to principles of conflicts of law.
(b) Each party hereby irrevocably submits to the exclusive jurisdiction of
the courts of the city of New York, State of New York in any action, suit or
proceeding arising in connection with this Agreement, and agrees that any such
action, suit or proceeding shall be brought only in such court (and waives any
objection based on FORUM NON CONVENIENS or any other objection to venue
therein).
Section 6.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the Corporation, each member of the XAC Group and
each Stockholder; this Agreement does not create, and shall not be construed as
creating, any rights enforceable by any other Person. If any involuntary
transferee acquires Shares in any manner, whether by operation of law or
otherwise, such Shares shall be held subject to all of the terms of this
Agreement, and by taking and holding such Shares,
D-16
<PAGE>
such Person shall be conclusively deemed to have agreed to be bound by and to
perform all of the terms and provisions of this Agreement.
Section 6.6 NOTICES. All notices and communications to be given or
otherwise made to any party to this Agreement shall be in writing and addressed
as follows:
(a) If to the Corporation:
Xpedite Systems, Inc.
One Industrial Way West
Eatontown, New Jersey 07724
Attention: President
(b) If to any member of the XAC Group, to such member's address as it
appears on the stock books of the Corporation;
(c) if to any Stockholder, to such Stockholder's address as it appears on
the stock books of the Corporation;
(d) or to such other address as may be designated in a notice given pursuant
to the terms of this Section 6.6 to the addressor. All such notices and
communications shall be deemed to have been received: (i) in the case of
personal delivery, when delivered; (ii) if delivered by registered or certified
mail, postage prepaid and return receipt requested, on the fifth business day
following such mailing; (iii) if delivered by a nationally recognized private
courier service providing documented overnight delivery, with overnight delivery
specified, on the next business day after delivery to such courier service; and
(iv) in all other cases, upon actual receipt.
Section 6.7 TENDERED SHARES DEEMED CANCELLED. The parties hereto
acknowledge and agree that Shares shall for all purposes be deemed to be
retired, cancelled and no longer outstanding as of the date when the certificate
(or certificates) evidencing such Shares are delivered to the Corporation at its
principal place of business, duly endorsed for transfer to the Corporation
(including without limitation an endorsement in blank) by the registered holder
(or holders) thereof, or accompanied by stock transfer powers duly executed in
the favor of the Corporation or in blank by the holder (or holders) thereof.
Shares shall be deemed to have been delivered for the purposes of this Section
6.7 in the same manner as notices and communications are deemed delivered
pursuant to Section 6.6.
Section 6.8 ENTIRE AGREEMENT; AMENDMENT. This Agreement contains the
entire agreement among the parties hereto with respect to the matters
contemplated herein, supersedes all prior written agreements and negotiations
and oral understandings, if any, and may not be amended, supplemented or
discharged except by an instrument in writing signed (a) in any such case by the
Corporation and the holders of at least a majority of the Shares and (b) if such
amendment, supplement or discharge treats any holder of Shares differently from
all other holders of Shares party to this Agreement as a group, by such holder.
In the event that any Stockholder, any member of the XAC Group or the
Corporation shall be required, as a result of the enactment, amendment or
modification, subsequent to the date hereof, of any applicable law or
regulation, or by the order of any governmental authority, to take any action
that is inconsistent with or would constitute a violation or breach of any terms
of this Agreement, then the Stockholders, the members of the XAC Group and the
Corporation shall use their best efforts to negotiate an appropriate amendment
or modification of, or waiver of compliance with, such terms.
Section 6.9 WAIVER. Any waiver by any party of a breach of any provisions
of this Agreement shall not operate as or be construed to be a waiver of any
other breach of that provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be evidenced by a
writing signed by the party against whom the waiver is sought to be enforced.
D-17
<PAGE>
Section 6.10 INTERPRETATION. Section headings and captions herein are
inserted for convenience only and shall not define, limit, extend or describe
the scope of this Agreement or affect the construction hereof. References to
Sections are, unless otherwise specified, references to Sections of this
Agreement. The language of this Agreement shall be deemed to be the language
jointly chosen by the parties hereto to express their mutual intent, and no rule
of strict construction shall be applied or enforced against any party hereto.
Section 6.11 INSPECTION. So long as this Agreement is in effect, this
Agreement shall be made available for inspection by any holder of Shares at the
Corporation's principal offices. The Corporation shall send a copy of this
Agreement to any legitimately interested party without charge upon receipt of a
written request therefor.
Section 6.12 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement, and shall become binding
when one or more counterparts have been signed by each of the parties and
delivered to each of the other parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the day and year first above written.
XPEDITE SYSTEMS, INC.
By:
--------------------------------------
Name:
Title:
UBS PARTNERS LLC
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
FENWAY PARTNERS CAPITAL FUND, L.P.
By:
--------------------------------------
Name:
Title:
FPIP, LLC
By:
--------------------------------------
Name:
Title:
D-18
<PAGE>
FPIP TRUST, LLC
By:
--------------------------------------
Name:
Title:
[STOCKHOLDERS]
D-19
<PAGE>
APPENDIX E
APPENDIX E
SECTION 262 OF THE DELAWARE GENERAL CORPORATION
LAW RELATING TO APPRAISAL RIGHTS
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 Section228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of 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 Section251 (other than a merger effected pursuant to
section 251(g) of this title), Section252, Section254, Section257, Section258,
Section263 or Section264 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 stockholders to act upon the agreement of merger or
consolidation, were either (i) 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 (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 Section251 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
SectionSection 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
E-1
<PAGE>
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.
(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 parent 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 Section228
or Section253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within 10 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 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
E-2
<PAGE>
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 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
E-3
<PAGE>
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 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.
E-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware permits
a Delaware corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
In the case of an action by or in the right of the corporation, Section 145
permits the corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation. No indemnification may be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in the preceding two paragraphs, Section 145 requires
that he be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
Section 145 provides that expenses (including attorneys' fees) incurred by
an officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in Section 145.
Article 6 of the Registrant's Amended and Restated Certificate of
Incorporation eliminates the personal liability of the directors of the
Registrant to the Registrant or its stockholders for monetary damages for breach
of fiduciary duty as directors, with certain exceptions. Article VII, Section 7
of the Registrant's By-laws requires indemnification of directors and officers
of the Registrant to the fullest extent permitted by Section 145 of the Delaware
General Corporation Law.
See Item 22 below.
II-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of August 8, 1997 by and between Acquisition Corp. and Registrant
(included as Appendix A to the Proxy Statement/Prospectus filed as part of this Registration Statement).
2.2 Stockholders Agreement, dated as of August 8, 1997, by and among the Registrant, Acquisition Corp. and
Roy B. Andersen, Jr.*
3.1 Form of Amended and Restated Certificate of Incorporation of Registrant (to become effective in
connection with the Merger (included as Appendix B to the Proxy Statement/ Prospectus filed as part of
this Registration Statement).
3.2 Amended and Restated Bylaws of the Registrant.**
4.1 Form of Stockholders Agreement (included as Appendix D to the Proxy Statement/Prospectus filed as part of
this Registration Statement).
5.1 Opinion of Paul, Hastings, Janofsky & Walker LLP.**
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Price Waterhouse.
23.3 Consent of Paul, Hastings, Janofsky & Walker LLP (included in Exhibit 5.1).
24.1 Power of Attorney (See Page II-4).
99.1 Fairness opinion of Merrill Lynch (included as Appendix C to the Proxy Statement/Prospectus filed as part
of this Registration Statement).
99.2 Form of Proxy Card for Special Meeting of Stockholders.
99.3 Form of Non-Cash Election Form to be used in connection with the Merger.**
99.4 Form of Letter of Transmittal to be used in connection with the Merger.**
</TABLE>
- ------------------------
* Incorporated by Reference to the Report on Form 8-K filed by the Registrant
on August 12, 1997.
** To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULE
None.
(C) FAIRNESS OPINIONS
The Fairness opinion of Merrill Lynch with respect to the Merger is set
forth as Appendix C to the Proxy Statement/Prospectus forming a part of this
Registration Statement.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on September 18, 1997.
<TABLE>
<S> <C> <C>
XPEDITE SYSTEMS, INC.
By: /s/ ROY B. ANDERSEN, JR.
-----------------------------------------
Roy B. Andersen, Jr.
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Roy B. Andersen, Jr. and Robert S. Vaters,
and each of them, his true and lawful attorney-or attorneys-in-fact and agent or
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including pre-or post-effective amendments) to this Registration Statement, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission and any other regulatory
authority, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- ------------------------------ -------------------------- -------------------
/s/ ROY B. ANDERSEN, JR. President, Chief Executive September 18, 1997
-------------------------- Officer and Director
Roy B. Andersen, Jr. (Principal Executive
Officer)
/s/ ROBERT S. VATERS Executive Vice President September 18, 1997
-------------------------- and Chief Financial
Robert S. Vaters Officer (Principal
Accounting and Financial
Officer)
/s/ JOHN C. BAKER Director September 18, 1997
--------------------------
John C. Baker
Director September , 1997
--------------------------
David Epstein
/s/ ROBERT CHEFITZ Director September 18, 1997
--------------------------
Robert Chefitz
/s/ PHILIP A. CAMPBELL Director September 18, 1997
--------------------------
Philip A. Campbell
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of August 8, 1997 by and between Acquisition Corp. and Registrant
(included as Appendix A to the Proxy Statement/Prospectus filed as part of this Registration Statement).
2.2 Stockholders Agreement, dated as of August 8, 1997, by and among the Registrant, Acquisition Corp. and
Roy B. Andersen, Jr.*
3.1 Form of Amended Restated Certificate of Incorporation of Registrant (to become effective in connection
with the Merger (included as Appendix B to the Proxy Statement/Prospectus filed as part of this
Registration Statement).
3.2 Amended and Restated Bylaws of the Registrant.**
4.1 Form of Stockholders Agreement (included as Appendix D to the Proxy Statement/Prospectus filed as part of
this Registration Statement).
5.1 Opinion of Paul, Hastings, Janofsky & Walker LLP.**
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Price Waterhouse.
23.3 Consent of Paul, Hastings, Janofsky & Walker LLP (included in Exhibit 5.1).
24.1 Power of Attorney (See Page II-4).
99.1 Fairness opinion of Merrill Lynch (included as Appendix C to the Proxy Statement/Prospectus filed as part
of this Registration Statement).
99.2 Form of Proxy Card for Special Meeting of Stockholders.
99.3 Form of Non-Cash Election Form to be used in connection with the Merger.**
99.4 Form of Letter of Transmittal to be used in connection with the Merger.**
</TABLE>
- ------------------------
* Incorporated by Reference to the Report on Form 8-K filed by the Registrant
on August 12, 1997.
** To be filed by amendment.
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Proxy Statement of Xpedite Systems, Inc. that is made a part of the
Registration Statement (Form S-4 No. 333-00000) and related Prospectus of
Xpedite Systems, Inc. for the registration of 205,000 shares of its
common stock and to the incorporation by reference therein of our reports
dated February 27, 1997, with respect to the consolidated financial
statements and schedule of Xpedite Systems, Inc. included in its Annual
Report (Form 10-K) for the year ended December 31, 1996, filed with the
Securities and Exchange Commission.
MetroPark, New Jersey
September 15, 1997
<PAGE>
Exhibit 23.2
XPEDITE SYSTEMS LIMITED
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Xpedite Systems Inc. of our report
dated 16 September 1997 relating to the financial statements of Xpedite
Systems Limited, which appears in such Prospectus.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ PRICE WATERHOUSE
PRICE WATERHOUSE
Leeds, England
16 September 1997
<PAGE>
XPEDITE SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
, 1997
Roy B. Andersen, Jr. and Robert S. Vaters and each of them, with full power
of substitution, are hereby authorized to represent and to vote as directed on
this proxy the shares of Common Stock of Xpedite Systems, Inc. held of record by
the undersigned on , 1997 at the Special Meeting of Stockholders to
be held on , 1997, and at any adjournments, as if the undersigned
were present and voting at the meeting.
The shares represented by this proxy will be voted as directed by the
stockholder. WHERE NO DIRECTION IS GIVEN WHEN THE DULY EXECUTED PROXY IS
RETURNED, SUCH SHARES WILL BE VOTED FOR EACH OF THE PROPOSALS SET FORTH ON THIS
PROXY.
Whether or not you expect to attend the meeting, you are urged to execute
and return this proxy, which may be revoked at any time prior to its use.
<PAGE>
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE. VOTES MUST BE INDICATED (X) IN BLACK OR BLUE INK.
1. APPROVAL AND ADOPTION OF AGREEMENT AND PLAN OF MERGER DATED AS OF AUGUST 8,
1997 BETWEEN XPEDITE ACQUISITION CORP. AND XPEDITE SYSTEMS, INC.
FOR / / AGAINST / / ABSTAIN / /
2. APPROVAL AND ADOPTION OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
FOR / / AGAINST / / ABSTAIN / /
NOTE: Signatures should agree with the
names stencilled hereon. When signing
as executor, administrator, trustee,
guardian or attorney, please give the
title as such. For joint accounts or
co-fiduciaries, all joint owners or
co-managers should sign.
Dated: __________________________, 1997
_______________________________________
_______________________________________
