SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
August 24, 1999
Date of Report (Date of earliest event reported)
PERIPHONICS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 0-25592 11-2699509
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification Number)
4000 Veterans Memorial Highway
Bohemia, NY 11716
(516) 468-9000
(Registrant's telephone number, including area code)
Page 1 of 4 Pages
Exhibit Index Appears at Page 4
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Item 5. Other Events
On August 24, 1999, Periphonics Corporation, a Delaware corporation
("Periphonics"), and Nortel Networks Corporation, a corporation organized under
the laws of Canada ("Nortel"), entered into a definitive agreement and plan of
merger (the "Merger Agreement"), pursuant to which Nortel, through its
wholly-owned subsidiary North Subsidiary, Inc. ("North"), will acquire 100% of
the voting securities of Periphonics for an estimated US$436 million common
shares of Nortel. The Merger Agreement provides that Nortel can elect between
two alternative means of effecting the merger, either (i) a reverse merger
whereby North will merge with and into Periphonics so that Periphonics is the
surviving corporation, wholly-owned by Nortel; or (ii) a forward merger whereby
Periphonics will merge with and into North, so that North is the surviving
corporation, wholly-owned by Nortel.
In connection with the execution of the Merger Agreement, the parties
entered into a Stock Option Agreement, dated as of August 24, 1999 (the "Stock
Option Agreement") pursuant to which and subject to the terms and conditions set
forth therein, Periphonics granted to Nortel an option to purchase up to
approximately 19.9% of the outstanding voting shares of Periphonics in the event
that the merger contemplated in the Merger Agreement is not consummated.
Additionally, Nortel and certain executives of Periphonics, who are also
shareholders of Periphonics, have entered into a Stockholders Agreement, dated
as of August 24, 1999 (the "Stockholders Agreement") whereby, and subject to the
terms and conditions set forth therein, the executives have provided Nortel a
proxy, representing approximately 13.5% of the total outstanding shares of
Periphonics on an undiluted basis, to vote for all matters in connection with
the transaction contemplated by the Merger Agreement presented at the
Periphonics' shareholders meeting.
Pursuant to the Merger Agreement and subject to the terms and conditions
set forth therein, each share of Periphonics will be converted into a fraction
of a Nortel share at a exchange ratio equal to US$29.23 divided by the average
price of a Nortel share during a specified period prior to closing. In this
specified period, if the average price of a Nortel share is above US$47.15, the
exchange ratio will be fixed at 0.62 and if the average share price is below
US$38.46, the exchange ratio will be fixed at 0.76. The boards of directors of
the two companies have approved the transaction.
The closing of the transaction is subject to a number of customary
conditions, including approval of the shareholders of Periphonics, approval
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
certain other regulatory filings and approvals. The transaction is intended to
be tax-free to the shareholders of Periphonics.
Copies of the Merger Agreement, Stock Option Agreement, Stockholders
Agreement and the joint press release are attached hereto as Exhibits 2.1, 99.1,
99.2 and 99.3 respectively. The foregoing description of the Merger Agreement,
Stock Option Agreement and Stockholders Agreement are qualified in their
entirety by reference to the full text of such exhibits. The Merger Agreement,
Stock Option Agreement, Stockholders Agreement and the press release are hereby
incorporated by reference.
Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits
(c) Exhibits:
Exhibit No. Description
2.1 Agreement and Plan of Merger by
and among Nortel Networks Corporation,
North Subsidiary, Inc. and Periphonics
Corporation dated as of August 24, 1999.
99.1 Stock Option Agreement dated as of August
24, 1999 between Nortel Networks Corporation
and Periphonics Corporation.
99.2 Stockholders Agreement dated as of August
24, 1999 among Peter J. Cohen, George W.
Cole, Richard A. Daniels, Kevin J. O'Brien,
Jayandra Patel and Nortel Networks Corporation.
99.3 Joint Press Release issued by Nortel Networks
Corporation and Periphonics
Corporation on August 24, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PERIPHONICS CORPORATION
Date: August 26, 1999
By: /s/
-------------------------
Name: Peter J. Cohen
Title: President and Chief Executive Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
2.1 Agreement and Plan of Merger by
and among Nortel Networks Corporation,
North Subsidiary, Inc. and Periphonics
Corporation dated as of August 24, 1999.
99.1 Stock Option Agreement dated as of August
24, 1999 between Nortel Networks Corporation
and Periphonics Corporation.
99.2 Stockholders Agreement dated as of August
24, 1999 among Peter J. Cohen, George W.
Cole, Richard A. Daniels, Kevin J. O'Brien,
Jayandra Patel and Nortel Networks Corporation.
99.3 Joint Press Release issued by Nortel Networks
Corporation and Periphonics
Corporation on August 24, 1999.
AGREEMENT AND PLAN OF MERGER
by and among
NORTEL NETWORKS CORPORATION,
NORTH SUBSIDIARY, INC.
and
PERIPHONICS CORPORATION
Dated as of August 24, 1999
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
ARTICLE I CERTAIN DEFINITIONS...............................................................................1
1.01. Certain Definitions.....................................................................................1
ARTICLE II THE MERGER; EFFECTS OF THE MERGER................................................................8
2.01. The Merger..............................................................................................8
2.02. Effective Date and Effective Time.......................................................................9
2.03. Tax Consequences........................................................................................9
ARTICLE III CONVERSION OF SHARES; EXCHANGE PROCEDURES.......................................................9
3.01. Conversion of Shares....................................................................................9
3.02. Issuance of Shares of the Surviving Corporation........................................................10
3.03. Rights as Stockholders; Stock Transfers................................................................10
3.04. Fractional Shares......................................................................................10
3.05. Exchange Procedures....................................................................................10
3.06. Anti-Dilution Provisions...............................................................................11
3.07. Stock Options and Other Stock Plans.....................................................................12
ARTICLE IV ACTIONS PENDING MERGER..........................................................................13
4.01. Forbearances of the Company............................................................................13
4.02. Forbearances of Parent.................................................................................16
ARTICLE V REPRESENTATIONS AND WARRANTIES...................................................................16
5.01. Representations and Warranties of the Company.........................................................16
5.02. Representations and Warranties of Parent and Sub......................................................29
ARTICLE VI COVENANTS.......................................................................................33
6.01. Reasonable Best Efforts................................................................................33
6.02. Stockholder Approvals..................................................................................34
6.03. Registration Statement.................................................................................34
6.04. Press Releases.........................................................................................35
6.05. Access; Information....................................................................................35
6.06. Acquisition Proposals..................................................................................36
6.07. Affiliate Agreements...................................................................................37
6.08. Takeover Laws..........................................................................................37
6.09. The Company Rights Agreement...........................................................................37
6.10. Shares Listed..........................................................................................38
6.11. Regulatory Applications................................................................................38
6.12. Indemnification........................................................................................39
6.13. Certain Employee Benefit Matters.......................................................................40
6.14. Accountants'Letters....................................................................................41
6.15. Notification of Certain Matters........................................................................41
6.16. Certain Tax Matters.....................................................................................41
6.17. Agreements with Respect to Assumption of Company Stock Options..........................................42
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE MERGER.......................................................42
7.01. Conditions to Each Party's Obligation to Effect the Merger.............................................42
7.02. Conditions to Obligation of the Company................................................................43
7.03. Conditions to Obligation of Parent and Sub.............................................................44
ARTICLE VIII TERMINATION...................................................................................45
8.01. Termination............................................................................................45
8.02. Effect of Termination and Abandonment..................................................................47
ARTICLE IX MISCELLANEOUS...................................................................................49
9.01. Survival...............................................................................................49
9.02. Amendment; Extension; Waiver...........................................................................49
9.03. Counterparts...........................................................................................49
9.04. Governing Law..........................................................................................49
9.05. Expenses...............................................................................................49
9.06. Notices................................................................................................49
9.07. Entire Understanding...................................................................................51
9.08. Assignment; No Third Party Beneficiaries...............................................................51
9.09. Interpretation.........................................................................................51
9.10. Severability...........................................................................................51
9.11. Pre-Termination Equitable Remedies......................................................................51
Exhibit A ...Form of Affiliate Letter
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of August 24, 1999 (this
"Agreement"), by and among NORTEL NETWORKS CORPORATION, a corporation organized
under the laws of Canada ("Nortel"), NORTH SUBSIDIARY, INC., a corporation
organized under the laws of Delaware ("Sub"), and PERIPHONICS CORPORATION, a
corporation organized under the laws of Delaware (the "Company").
WITNESSETH:
WHEREAS, the Boards of Directors of each of Nortel, Sub and the Company
have determined that it is advisable and in the best interests of their
respective companies and their stockholders to consummate the strategic business
combination transaction provided for herein in which, subject to the terms and
conditions set forth herein, (x) Sub will merge (the "Reverse Merger") with and
into the Company, so that the Company is the surviving corporation in the Merger
or (y) if Nortel so elects, the Company will merge (the "Forward Merger") with
and into Sub, so that Sub is the surviving corporation in the Merger;
WHEREAS, the parties intend that for U.S. federal income tax purposes, the
Reverse Merger or the Forward Merger (either, the "Merger") qualify as a
"reorganization";
WHEREAS, as a condition and an inducement to Nortel's willingness to enter
into this Agreement, Nortel and the Company are simultaneously entering into a
Stock Option Agreement (the "Option Agreement"), pursuant to which the Company
is granting Nortel an option exercisable upon the occurrence of certain events;
WHEREAS, as a condition and as an inducement to Nortel's willingness to
enter into this Agreement, Nortel is entering into an agreement (the
"Stockholders' Agreement") with certain substantial Company stockholders (the
"Specified Stockholders"); and
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and also to prescribe certain
conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.01. Certain Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Acquisition Proposal" shall mean (a) a merger or consolidation, or any
similar transaction, involving the Company (other than mergers, consolidations
or similar transactions involving solely the Company and/or one or more
wholly-owned Subsidiaries of the Company), (b) a purchase or other acquisition
(including by way of merger, consolidation, share exchange, tender or exchange
offer involving any Subsidiary of the Company or securities issued by any
Subsidiary of the Company, as the case may be) of greater than 20% of the
consolidated assets of the Company and its Subsidiaries (other than transactions
involving the sale of inventory in the ordinary course of business, consistent
with past practice), (c) a purchase or other acquisition (including by way of
merger, consolidation, share exchange, tender or exchange offer or otherwise) of
beneficial ownership of securities representing more than 20% of the voting
power of the Company, (d) any substantially similar transaction, or (e) any
inquiry or indication of interest with respect to any of the foregoing; in each
case other than the transactions contemplated by this Agreement and the Option
Agreement.
"Agreement" shall have the meaning set forth in the first paragraph of this
Agreement.
"Average Nortel Trading Price" shall mean the average of the last sales
prices per share of Nortel Common Shares on the NYSE Composite Tape for the 10
consecutive trading days ending on the trading day which is two trading days
prior to the Effective Date.
"Business Day" shall mean each day on which banking institutions in both of
Toronto, Canada and New York, New York are not authorized or required to close.
"Canadian GAAP" shall mean Canadian generally accepted accounting
principles.
"Canadian Stock Exchanges" shall mean the Toronto and Montreal stock
exchanges.
"Capitalization Date" shall have the meaning set forth in Section
5.01(b)(i).
"Code" shall mean the U.S. Internal Revenue Code of 1986, as amended.
"Company" shall have the meaning set forth in the first paragraph of this
Agreement.
"Company Affiliate" shall have the meaning set forth in Section 6.07(a).
"Company Board" shall mean the Board of Directors of the Company.
"Company Certificate" shall mean the Restated Certificate of Incorporation
of the Company, as amended.
"Company Common Stock" shall have the meaning set forth in Section 3.01(b).
"Company Disclosure Schedule" shall have the meaning set forth in the
opening paragraph of Section 5.01.
"Company Employee" shall have the meaning set forth in Section 6.13(a).
"Company Equity Interests" shall have the meaning set forth in Section
5.01(b).
"Company Filed SEC Documents" shall have the meaning set forth in Section
5.01(g).
"Company Financial Advisor" shall have the meaning set forth in Section
5.01(k).
"Company Intellectual Property Rights" shall have the meaning set forth in
Section 5.01(p).
"Company Meeting" shall have the meaning set forth in Section 6.02.
"Company Plan" shall mean any Plan entered into or currently maintained,
sponsored, or contributed to by the Company or any of its Subsidiaries or to
which the Company or any such Subsidiary has any obligation to contribute or
with respect to which the Company or any of its Subsidiaries may have any
material liability.
"Company Preferred Stock" shall have the meaning set forth in Section
5.01(b).
"Company Proxy Statement" shall have the meaning set forth in Section
6.03(a).
"Company Rights Agreement" shall have the meaning set forth in Section
5.01(b).
"Company SEC Documents" shall have the meaning set forth in Section
5.01(g).
"Company Series A Preferred Stock" shall have the meaning set forth in
Section 5.01(g).
"Company Stock Option Plans" shall have the meaning set forth in Section
3.07(a).
"Company Stock Options" shall have the meaning set forth in Section
3.07(a).
"Company Stock Purchase Plan" shall have the meaning set forth in Section
3.07(d).
"Company Stockholder Protection Rights" shall have the meaning set forth in
Section 5.01(b).
"Confidentiality Agreement" shall mean that certain confidentiality
agreement, dated October 27, 1998, by and between the Company and an affiliate
of Nortel, as amended by a letter agreement dated June 24, 1999.
"Copyrights" shall have the meaning set forth in the definition of
Intellectual Property Rights.
"Costs" shall have the meaning set forth in Section 6.12(a).
"DGCL" shall mean the General Corporation Law of the State of Delaware.
"Draft 1999 10-K" shall have the meaning set forth in Section 5.01(g)(iv).
"Effective Date" shall have the meaning set forth in Section 2.02.
"Effective Time" shall have the meaning set forth in Section 2.02.
"Environmental Laws" shall have the meaning set forth in Section 5.01(o).
"ERISA" shall mean the U.S. Employee Retirement Income Security Act of
1974, as amended, and the regulations promulgated thereunder and published
interpretations of any Governmental Authority with respect thereto.
"Exchange Act" shall mean the U.S. Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exchange Agent" shall have the meaning set forth in Section 3.05(a).
"Exchange Fund" shall have the meaning set forth in Section 3.05(a).
"Exchange Ratio" shall mean the fraction obtained by dividing $29.23 by the
Average Nortel Trading Price and rounding the result to the nearest hundredth;
provided, however, that if such fraction is less than 0.62 then the Exchange
Ratio shall be 0.62, and if such fraction is more than 0.76 then the Exchange
Ratio shall be 0.76; and provided, further, that the Exchange Ratio shall in any
case be subject to adjustment as set forth in Section 3.06.
"Exon-Florio" shall have the meaning set forth in Section 5.01(r).
"Forward Merger" shall have the meaning set forth in the recitals to this
Agreement.
"Governmental Authority" means any court, administrative agency or
commission or other foreign or domestic federal, state, provincial or local
governmental authority or instrumentality.
"HSR Act" shall have the meaning set forth in Section 5.01(r).
"Indemnified Party" shall have the meaning set forth in Section 6.12(a).
"Insurance Amount" shall have the meaning set forth in Section 6.12(b).
"Intellectual Property Rights" shall mean all proprietary, license and
other rights in and to: (A) trademarks, service marks, brand names, trade dress,
trade names, words, symbols, color schemes and other indications of origin
("Trademarks"); (B) patents, patent applications (together, "Patents"),
inventors' certificates and invention disclosures; (C) trade secrets and other
confidential or non-public business information, including ideas, formulas,
compositions, discoveries and improvements, know-how, manufacturing and
production processes and techniques, and research and development information;
drawings, specifications, plans, proposals and technical data; analytical
models, investment and lending strategies and records, financial and other
products; financial, marketing and business data, pricing and cost information;
business and marketing plans and customer and supplier lists and information; in
each case whether patentable, copyrightable or not ("Trade Secrets"); (D)
computer programs and databases, in each case whether patentable, copyrightable
or not (collectively, "Software"), and all documentation therefor; (E) writings
and other works of authorship, including marketing materials, brochures,
training materials, including all copyrights and moral rights related to each of
the foregoing ("Copyrights"); (F) mask works; (G) rights to limit the use or
disclosure of confidential information by any Person; (H) registrations of, and
applications to register, any of the foregoing with any Governmental Authority
and any renewals or extensions thereof; (I) the goodwill associated with each of
the foregoing; and (J) any claims or causes of action arising out of or related
to any infringement or misappropriation of any of the foregoing; in each case in
any jurisdiction.
"Knowledge" with respect to a party shall mean to the knowledge of its
senior executive officers after reasonable inquiry.
"Liens" shall mean any charge, mortgage, pledge, security interest,
restriction, claim, lien, or encumbrance.
"Material Adverse Effect" shall mean with respect to any party, any change,
circumstance or effect that (i) is or is reasonably likely to be materially
adverse to the business, condition (financial or otherwise) or results of
operations of such party and its Subsidiaries taken as a whole, other than any
change, circumstance or effect that results from or arises out of (a) changes in
the economy in general or (b) changes or circumstances affecting the industries
in which such party operates, which change, circumstance or effect (in the case
of clause (b)) does not affect the Company or Nortel, as the case may be,
disproportionately relative to other entities operating in such industry;
provided, that any change, circumstance or effect that arises directly out of or
results directly from the announcement of this Agreement shall not by itself be
deemed to constitute a Material Adverse Effect; or (ii) would materially impair
the ability of either Nortel or the Company, respectively, to perform its
obligations under this Agreement.
"Material Suppliers" shall have the meaning set forth in Section
5.01(t)(ii).
"Material Systems" shall mean, with respect to any person, all internal
computer systems, communications systems, embedded manufacturing systems and
facilities infrastructure systems that are material to the business, finances
and operations of such person.
"Merger" shall have the meaning set forth in the recitals to this
Agreement.
"Merger Consideration" shall have the meaning set forth in Section 2.01(a).
"NASD" shall mean the National Association of Securities Dealers, Inc. or,
if the context so requires, the Nasdaq Stock Market, Inc.
"New Certificates" shall have the meaning set forth in Section 3.05(a).
"Nortel" shall have the meaning set forth in the first paragraph of this
Agreement.
"Nortel Board" shall mean the Board of Directors of Nortel.
"Nortel Certificate" shall mean the Certificate and Articles of
Amalgamation of Nortel dated January 4, 1982, as amended from time to time by
the Certificates and Articles of Amendment of Nortel.
"Nortel Common Shares" shall have the meaning set forth in Section 3.01(a).
"Nortel Disclosure Schedule" shall have the meaning set forth in the
opening paragraph of Section 5.02.
"Nortel SEC Documents" shall have the meaning set forth in Section 5.02(f).
"NYSE" shall mean the New York Stock Exchange, Inc.
"Old Certificates" shall have the meaning set forth in Section 3.05(a).
"Option Agreement" shall have the meaning set forth in the recitals hereof.
"Patents" shall have the meaning set forth in the definition of
Intellectual Property Rights.
"Person" or "person" shall mean any individual, bank, corporation, limited
liability company, partnership, association, joint-stock company, business trust
or unincorporated organization.
"Plan" shall mean any "employee benefit plan", within the meaning of
Section 3(3) of ERISA, whether or not subject to ERISA, and any employment,
consulting, termination, severance, retention, change in control, deferred or
incentive compensation, stock option or other equity based, vacation or other
fringe benefit plan, program, policy, arrangement, agreement or commitment.
"Previously Disclosed" by a party shall mean information disclosed in its
SEC Documents filed prior to the date of this Agreement or set forth in the
related section of its Disclosure Schedule or (with respect to the Company) set
forth in the Draft 1999 10-K.
"Registration Statement" shall have the meaning set forth in Section
6.03(a).
"Regulatory Law" shall mean the Sherman Act, as amended, the Clayton Act,
as amended, the HSR Act, the Federal Trade Commission Act, as amended, and all
other federal, state and foreign, if any, statutes, rules, regulations, orders,
decrees, administrative and judicial doctrines and other laws that are designed
or intended to prohibit, restrict or regulate actions having the purpose or
effect of monopolization or restraint of trade or lessening of competition
through merger or acquisition.
"Rights" shall mean, with respect to any person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any person any
right to subscribe for or acquire, or any options, calls or commitments relating
to, or any stock appreciation right or other instrument the value of which is
determined in whole or in part by reference to the market price or value of,
shares of capital stock of such person.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Severance Plan" shall have the meaning set forth in Section 6.13(a).
"Software" shall have the meaning set forth in the definition of
Intellectual Property Rights.
"Specified Stockholders" shall have the meaning set forth in the recitals
to this Agreement.
"Stockholders' Agreement" shall have the meaning set forth in the recitals
to this Agreement.
"Sub" shall have the meaning set forth in the first paragraph of this
Agreement.
"Sub Common Stock" shall have the meaning set forth in Section 3.01(a).
"Subsidiary" and "Significant Subsidiary" shall have the meanings ascribed
to them in Rule 1-02 of Regulation S-X of the SEC.
"Superior Proposal" shall have the meaning set forth in Section 6.06(a).
"Surviving Corporation" shall mean (i) in the case of the Reverse Merger,
the Company as the surviving corporation, or (ii) in the case of the Forward
Merger, Sub as the surviving corporation.
"Takeover Laws" shall have the meaning set forth in Section 5.01(m).
"Tax Returns" shall have the meaning set forth in Section 5.01(q).
"Taxes" shall mean all taxes, charges, fees, levies or other assessments,
however denominated, including, without limitation, all net income, gross
income, gross receipts, sales, use, ad valorem, goods and services, capital,
transfer, franchise, profits, license, withholding, payroll, employment,
employer health, excise, estimated, severance, stamp, occupation, property or
other taxes, custom duties, fees, assessments or charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts imposed by any taxing authority whether arising before, on or after the
Effective Date.
"Termination Fee" shall have the meaning set forth in Section 8.02(b).
"Trade Secrets" shall have the meaning set forth in the definition of
Intellectual Property Rights.
"Trademarks" shall have the meaning set forth in the definition of
Intellectual Property Rights.
"Treasury Shares" shall mean shares of the Company Common Stock held by the
Company or any of its Subsidiaries.
"U.S. GAAP" shall mean United States generally accepted accounting
principles.
"Year 2000 Compliant" shall have the meaning set forth in Section 5.01(t).
"$" shall mean United States Dollar.
ARTICLE II
THE MERGER; EFFECTS OF THE MERGER
2.01. The Merger. (a) The Reverse Merger. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the DGCL, at the
Effective Time Sub will merge with and into the Company pursuant to the Reverse
Merger. Following the Effective Time of the Reverse Merger, the separate
corporate existence of Sub shall cease and the Company shall survive and
continue to exist as a Delaware corporation.
(b) The Forward Merger. Notwithstanding paragraph (a) of this Section, if
Nortel so elects pursuant to notice to the Company at least three business days
prior to the Effective Time, upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the DGCL, at the Effective Time
the Company will merge with and into Sub pursuant to the Forward Merger;
provided, however, that Nortel may not so elect if such election would be
reasonably likely to cause non-satisfaction of any material condition to the
Merger that would have been reasonably likely to be satisfied in the absence of
such election. Following the Effective Time of the Forward Merger, the separate
corporate existence of the Company shall cease and Sub shall survive and
continue to exist as a Delaware corporation.
(c) Effectiveness and Effects of the Merger. Subject to the satisfaction or
waiver of the conditions set forth in Article VII in accordance with this
Agreement, the Merger shall become effective upon the occurrence of the filing
in the office of the Secretary of State of the State of Delaware of a
certificate of merger in accordance with Section 251 of the DGCL, or such later
date and time as may be set forth in such certificate. The Merger shall have the
effects prescribed in the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of the Company and Sub shall be vested in the
Surviving Corporation, and all debt, liabilities and duties of the Company and
Sub shall become the debt, liabilities and duties of the Surviving Corporation.
(d) Certificate of Incorporation and By-Laws. The certificate of
incorporation and by-laws of Sub, as in effect immediately prior to the
Effective Time, but with Article 1 of the certificate of incorporation amended
to read: "The name of the Corporation is Periphonics Corporation," shall be
those of the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
(e) Name. The name of the Surviving Corporation shall remain (in the case
of the Reverse Merger) or be changed to (in the case of the Forward Merger)
"Periphonics Corporation."
(f) Officers and Directors of Surviving Corporation. The officers of the
Company as of the Effective Time shall be the officers of the Surviving
Corporation, until the earlier of their resignation or removal or otherwise
ceasing to be an officer or until their respective successors are duly elected
and qualified, as the case may be. The directors of Sub as of the Effective Time
shall be the directors of the Surviving Corporation until the earlier of their
resignation or removal or otherwise ceasing to be a director or until their
respective successors are duly elected and qualified, as the case may be.
2.02. Effective Date and Effective Time. Subject to the satisfaction or
waiver (subject to applicable law) of the conditions as set forth in Article VII
in accordance with this Agreement, the parties shall cause the effective date of
the Merger (the "Effective Date") to occur on (i) the third Business Day to
occur after the last of the conditions set forth in Section 7.01 shall have been
satisfied or waived in accordance with the terms of this Agreement or (ii) such
other date to which the parties may agree in writing. The time on the Effective
Date when the Merger shall become effective is referred to as the "Effective
Time."
2.03. Tax Consequences. It is intended that the Merger shall qualify as a
reorganization under Section 368(a) of the Code.
ARTICLE III
CONVERSION OF SHARES; EXCHANGE PROCEDURES
3.01. Conversion of Shares. Subject to the provisions of this Agreement, at
the Effective Time, automatically by virtue of the Merger and without any action
on the part of any party or stockholder:
(a) Conversion of Sub Common Stock. Each share of common stock of Sub, par
value $0.01 per share (the "Sub Common Stock"), issued and outstanding
immediately prior to the Effective Time, shall be converted into one newly
issued, fully-paid and non-assessable share of preferred stock, $0.01 par value,
of the Surviving Corporation, pursuant to a Certificate of Designations proposed
by Nortel and approved by the Company, such approval not to be unreasonably
withheld or delayed.
(b) Conversion of Company Common Stock. Subject to Section 3.04, each share
of common stock, par value $0.01 per share, of the Company (the "Company Common
Stock") issued and outstanding immediately prior to the Effective Time (other
than shares of Company Common Stock to be canceled pursuant to Section 3.01(c))
shall become and be converted into the right to receive a fraction of a common
share, without par value, of Nortel ("Nortel Common Shares"), equal to the
Exchange Ratio. All of the shares of Company Common Stock converted into the
right to receive Nortel Common Shares (or cash pursuant to Section 3.04)
pursuant to this Article III shall no longer be outstanding and shall
automatically be canceled and shall cease to exist as of the Effective Time.
(c) Treasury Shares. Each share of Company Common Stock held by the Company
or any wholly owned Subsidiary of the Company as Treasury Shares immediately
prior to the Effective Time or owned by Nortel or any Subsidiary thereof shall
no longer be outstanding and shall automatically be canceled and retired at the
Effective Time and no consideration shall be issued in exchange therefor.
3.02. Issuance of Shares of the Surviving Corporation. At the Effective
Time, in consideration of the issuance by Nortel of Nortel Common Shares to the
holders of Company Common Stock in accordance with Section 3.01(b), the
Surviving Corporation shall issue to Nortel a number of shares of newly issued,
fully-paid and non-assessable common stock, $0.01 par value, of the Surviving
Corporation, which number shall be equal to the number of shares of Company
Common Stock outstanding as of immediately prior to the Effective Time.
3.03. Rights as Stockholders; Stock Transfers. At the Effective Time,
holders of Company Common Stock shall cease to be, and shall have no rights as,
stockholders of the Company, other than the right to receive any dividend or
other distribution with respect to such Company Common Stock with a record date
occurring prior to the Effective Time and the consideration provided under this
Article III. After the Effective Time, there shall be no transfers on the stock
transfer books of the Company or the Surviving Corporation of shares of Company
Common Stock.
3.04. Fractional Shares. Notwithstanding any other provision hereof, no
fractional Nortel Common Shares and no certificates or scrip therefor, or other
evidence of ownership thereof, will be issued in the Merger; instead, Nortel
shall pay to each holder of Company Common Stock who would otherwise be entitled
to a fractional share of Nortel Common Shares (after taking into account all Old
Certificates delivered by such holder) an amount (in U.S. dollars) in cash
(without interest) determined by multiplying such fraction by the Average Nortel
Trading Price. As promptly as practicable after the determination of the amount
of cash, if any, to be paid to holders of fractional interests, Nortel shall so
notify the Exchange Agent, and Nortel shall cause the Surviving Corporation to
deposit such amount with the Exchange Agent and shall cause the Exchange Agent
to forward payments to such holders of fractional interests subject to and in
accordance with the terms hereof.
3.05. Exchange Procedures. (a) At or prior to the Effective Time, Nortel
shall deposit, or shall cause to be deposited, with a bank or trust company
having (or whose parent has) net capital of not less than $10,000,000 (the
"Exchange Agent"), for the benefit of the holders of certificates formerly
representing shares of Company Common Stock ("Old Certificates"), for exchange
in accordance with this Article III, certificates representing the Nortel Common
Shares ("New Certificates") and an estimated amount of cash pursuant to Section
3.04 (such cash and New Certificates (without any interest on any such cash),
being hereinafter referred to as the "Exchange Fund") to be paid pursuant to
this Article III in exchange for outstanding shares of Company Common Stock.
(b) As promptly as practicable after the Effective Date, Nortel shall send
or cause the Exchange Agent to send or cause to be sent to each former holder of
record of shares (other than Treasury Shares) of Company Common Stock
immediately prior to the Effective Time transmittal materials for use in
exchanging such stockholder's Old Certificates for the consideration set forth
in this Article III. Nortel shall cause the New Certificates representing Nortel
Common Shares into which shares of a stockholder's Company Common Stock are
converted at the Effective Time and/or any check in respect of any fractional
share interests or dividends or distributions which such person shall be
entitled to receive pursuant to this Article III to be delivered to such
stockholder upon delivery to the Exchange Agent of Old Certificates representing
such shares of Company Common Stock (or, pursuant to Section 3.05(f), a surety
bond reasonably satisfactory to Nortel and the Exchange Agent, if any of such
certificates are lost, stolen or destroyed) owned by such stockholder. No
interest will be paid on any such cash to be paid in lieu of fractional share
interests or in respect of dividends or distributions which any such person
shall be entitled to receive pursuant to this Article III upon such delivery.
(c) Notwithstanding the foregoing, neither the Exchange Agent nor any party
hereto shall be liable to any former holder of Company Common Stock for any
amount properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(d) No dividends or other distributions with respect to Nortel Common
Shares with a record date occurring after the Effective Time shall be paid to
the holder of any unsurrendered Old Certificate representing shares of Company
Common Stock converted in the Merger into the right to receive shares of such
Nortel Common Shares and cash in lieu of fractional Nortel Common Shares
pursuant to Section 3.04, until the holder thereof shall be entitled to receive
New Certificates and such amount of cash in exchange therefor in accordance with
this Article III. After becoming so entitled in accordance with this Article
III, the record holder thereof also shall be entitled to receive any such
dividends or other distributions, without any interest thereon, which
theretofore had become payable with respect to Nortel Common Shares such holder
had the right to receive upon surrender of the Old Certificate, and payment
thereof shall be made promptly following the later of (i) the date on which such
holder shall become entitled to receive New Certificates and (ii) the payment
date with respect to such dividend or other distribution.
(e) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of the Company for one year after the Effective Time shall, upon
demand by Nortel, be paid or delivered to Nortel. Any stockholders of the
Company who have not theretofore complied with this Article III shall thereafter
look only to Nortel for payment of the Nortel Common Shares, cash in lieu of any
fractional shares and unpaid dividends and distributions on the Nortel Common
Shares deliverable in respect of each share of Company Common Stock such
stockholder holds as determined pursuant to this Agreement, in each case,
without any interest thereon.
(f) If any Old Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such Old
Certificate to be lost, stolen or destroyed and the posting by such person of a
bond in such reasonable amount as Nortel may direct as indemnity against any
claim that may be made against it or the Surviving Corporation with respect to
such Old Certificate, Nortel shall, in exchange for such lost, stolen or
destroyed Old Certificate, deliver or cause the Exchange Agent to deliver a New
Certificate in respect thereof pursuant to this Article III.
3.06. Anti-Dilution Provisions. In the event Nortel changes (or establishes
a record date for changing) the number of Nortel Common Shares issued and
outstanding prior to the Effective Time as a result of a stock split, stock
dividend, recapitalization, subdivision, reclassification, combination, exchange
of shares or similar transaction with respect to the outstanding Nortel Common
Shares then (a) if the record and payment dates therefor shall be prior to the
Effective Time, the Exchange Ratio shall be proportionately adjusted to reflect
such stock split, stock dividend, recapitalization, subdivision,
reclassification, combination, exchange of shares or similar transaction; and
(b) if the record date therefor shall be prior to the Effective Time but the
payment date therefor shall be subsequent to the Effective Time, Nortel shall
take such action as shall be required so that on such payment date any former
holder of Old Certificates who shall have received or become entitled to receive
New Certificates pursuant to this Article III shall be entitled to receive such
additional Nortel Common Shares as such holder would have received as a result
of such event if the record date therefor had been immediately after the
Effective Time.
3.07. Stock Options and Other Stock Plans. (a) Subject to Section 6.17:
Effective at the Effective Time, each option to purchase shares of Company
Common Stock (collectively, the "Company Stock Options") granted to employees or
directors of, or consultants or advisors to, the Company or any Subsidiary
thereof pursuant to the terms of the Periphonics Corporation 1995 Stock Option
Plan, the Periphonics Corporation 1995 Non-Employee Director Stock Option Plan
or the Periphonics Corporation 1986 Incentive Stock Option Plan (collectively,
the "Company Stock Option Plans") that is outstanding immediately prior to the
Effective Time shall be assumed by Nortel and deemed to constitute an option to
acquire, on the same terms and conditions (including adjustments for any stock
dividend, subdivision, reclassification, recapitalization, split, combination,
exchange of shares or similar transaction following such and the terms and
conditions approved by resolution of the Company Board adopted on April 15,
1999) as were applicable under such Company Stock Option immediately prior to
the Effective Time, the number of Nortel Common Shares (rounded down to the
greatest number of whole Nortel Common Shares) that is equal to the product of
(i) the number of shares of Company Common Stock covered by such Company Stock
Option immediately prior to the Effective Time multiplied by (ii) the Exchange
Ratio, at an option exercise price per share of Nortel Common Shares equal to
the quotient of (iii) the option exercise price per share of Company Common
Stock covered by such Company Stock Option immediately prior to the Effective
Time divided by (iv) the Exchange Ratio. The date of grant of each such Company
Stock Option shall be the date on which such Company Stock Option was originally
granted. Any Company Stock Option, the terms and conditions of which were
amended pursuant to the resolutions adopted by the Company Board on April 15,
1999 to provide for the acceleration of the vesting of such stock option as a
result of the Merger, shall become vested in accordance with such terms and
conditions as so amended. Within three Business Days following the Effective
Date, Nortel shall cause to be delivered to each holder of a Company Stock
Option that has been assumed by Nortel pursuant to this Section 3.07 a notice
stating that (x) such Company Stock Option has been converted into an option to
purchase Nortel Common Shares, (y) such Company Stock Option has been assumed by
Nortel and shall continue in effect subject to all of the terms and conditions
applicable thereto immediately prior to the Effective Time and (z) setting forth
the number of Nortel Common Shares covered by such Company Stock Option and the
per share option exercise price for such Nortel Common Shares. From and after
the Effective Time, Nortel and the Surviving Corporation shall comply with the
terms of each Company Stock Option Plan pursuant to which the Company Stock
Options were granted; provided, that the board of directors of Nortel or an
authorized committee thereof shall succeed to the authorities and
responsibilities of the Company Board or any committee thereof under the Company
Stock Option Plans. The adjustments provided herein with respect to any Company
Stock Options that are "incentive stock options" (as defined in Section 422 of
the Code) shall be effected in a manner consistent with Section 424(a) of the
Code.
(b) Prior to the Effective Date, the Company shall take all necessary or
appropriate action (including amending any of the Company Stock Option Plans or
making adjustments as permitted thereby) to (i) use its reasonable best efforts
to obtain as promptly as possible following the mailing of the Company Proxy
Statement, the written consent of each holder of a Company Stock Option (in a
form reasonably satisfactory to counsel to Nortel) to the assumption and
conversion of such individual's Company Stock Options as contemplated in Section
3.07(a), (ii) effectuate the assumption and conversion of the Company Stock
Options by Nortel and the assignment to Nortel of the authorities and
responsibilities of the Company Board or any committee thereof under the Company
Stock Option Plans and (iii) other than as expressly permitted pursuant to
Section 4.01(b), preclude the grant of any additional Company Stock Options
under any of the Company Stock Option Plans or otherwise.
(c) Nortel shall cause to be taken all corporate action necessary to
reserve for issuance a sufficient number of Nortel Common Shares for delivery
upon exercise of Company Stock Options in accordance with this Section 3.07.
Within five business days after the Effective Date, Nortel shall use its
reasonable best efforts to cause the Nortel Common Shares subject to Company
Stock Options to be registered under the Securities Act pursuant to a
registration statement on Form S-8 (or any successor or other appropriate forms)
and shall use its reasonable best efforts to cause the effectiveness of such
registration statement (and current status of the prospectus or prospectuses
contained therein) to be maintained for so long as Company Stock Options remain
outstanding.
(d) The Company shall take such action as is necessary to cause a "new
exercise date," within the meaning of the Periphonics Corporation 1995 Employee
Stock Purchase Plan (the "Company Stock Purchase Plan"), to be established that
will cause the offering period under such Company Stock Purchase Plan in effect
immediately prior to the Effective Date to terminate as of a date that is no
later than three Business Days prior to the Effective Date; provided that such
change in the offering period shall be conditioned upon the consummation of the
Merger. On such new exercise date, the Company shall apply the funds credited as
of such date under the Company Stock Purchase Plan within each participant's
payroll withholding account to the purchase of whole shares of Company Common
Stock in accordance with the terms of the Company Stock Purchase Plan.
Immediately prior to and effective as of the Effective Time and subject to the
consummation of the Merger, the Company shall terminate the Company Stock
Purchase Plan.
ARTICLE IV
ACTIONS PENDING MERGER
4.01. Forbearances of the Company. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement, as required by a
Governmental Authority of competent jurisdiction or as set forth in Section 4.01
of the Company's Disclosure Schedule, without the prior written consent of
Nortel, the Company will not, and will cause each of its Subsidiaries not to:
(a) Ordinary Course. Conduct its business and the business of its
Subsidiaries other than in the ordinary and usual course in all material
respects and in material compliance with applicable laws and regulations or, to
the extent consistent therewith, fail to use reasonable best efforts to preserve
intact their business organizations and assets and maintain their rights,
franchises and existing relations with customers, suppliers, employees and
business associates, or take any action that would adversely affect its ability
to perform any of its material obligations under this Agreement in any material
respect; provided, however, that no action by the Company or its Subsidiaries
with respect to matters specifically addressed by any other provision of this
Section 4.01 shall be deemed a breach of this Section 4.01(a) unless such action
would constitute a breach of one or more of such other provisions.
(b) Capital Stock. (i) Issue, sell, pledge, dispose of or encumber, or
authorize or propose the issuance, sale, pledge, disposition or encumbrance of,
any shares of its capital stock or any Rights, (ii) enter into any agreement
with respect to the foregoing or (iii) permit any additional shares of capital
stock to become subject to new grants of employee or director stock options,
other Rights or similar stock-based employee rights, other than (v) automatic
grants, if any, of stock options to purchase Company Common Stock in accordance
with the terms of the Company 1995 Non-Employee Director Stock Option Plan as in
effect on the date hereof, (w) grants of stock options to purchase up to an
aggregate of 50,000 shares of the Company Common Stock in accordance with the
terms of the Company 1995 Stock Option Plan, as amended and in effect on the
date hereof, to new employees hired after the date hereof and/or to current
employees (other than current officers or other executives) in connection with
the promotion or retention of any such current employee, in any such case, in
the ordinary course of business, (x) the issuance of the Company Common Stock
upon the exercise of stock options outstanding as of the date hereof issued in
the ordinary course of business in accordance with the terms of any Company
Stock Option Plan as in effect on the date of this Agreement or granted as
permitted under clause (v) above, (y) issuances by a wholly owned Subsidiary of
the Company of capital stock to such Subsidiary's parent and (z) issuances to
comply with the Company's obligations under the Company Stock Purchase Plan.
(c) Dividends, Etc. (i) Make, declare, pay or set aside for payment any
dividend (other than dividends from the Company's Subsidiaries to the Company or
another Subsidiary of the Company) on or in respect of, or declare or make any
distribution on any shares of its capital stock or (ii) except for any such
transaction by a wholly owned Subsidiary of the Company which remains a wholly
owned Subsidiary after consummation of such transaction, directly or indirectly
adjust, split, combine, redeem, reclassify, purchase, repurchase or otherwise
acquire, any shares of the capital stock of the Company or any of its
Subsidiaries.
(d) Compensation; Employment Agreements; Etc. Enter into or amend any
employment, consulting, severance, retention, change in control or similar
agreements or arrangements with any of its or its Subsidiaries' directors,
officers, employees or consultants or former directors, officers, employees or
consultants, or grant any salary, wage or other compensation increase, make any
award or grant under any Plan or increase or modify any employee benefit
(including any incentive or bonus payments), except (i) for increases in annual
salary or hourly wage rates granted to current employees (other than officers)
in the ordinary course of business, consistent with past practice, (ii) for
changes required to be implemented in accordance with the current terms of any
Company Plan set forth in Section 4.01(d) of the Company's Disclosure Schedule
and (iii) grants of stock options permitted under Section 4.01(b).
(e) Benefit Plans. Enter into, adopt, implement or amend in any material
respect (except to the extent required to comply with applicable law) any Plan.
(f) Acquisitions and Dispositions. Except in the ordinary course of
business, consistent with past practice, acquire all or any portion of the
assets, business or properties of any other entity or sell, transfer, mortgage,
encumber or otherwise dispose of or discontinue any portion of its assets,
business or properties.
(g) Amendments. Amend the Company Certificate or the Company's by-laws.
(h) Accounting Methods. Implement or adopt any change in its accounting
principles, practices or methods, other than as may be required by U.S. GAAP or
SEC regulation.
(i) Contracts. Except in the ordinary course of business, (i) enter into or
terminate (x) any customer contract or agreement in excess of $3,000,000, (y)
any contract or agreement with a supplier that does not conform in size and
scope to similar contracts entered into by the Company or its Subsidiaries prior
to the date hereof or (z) any material lease or other agreement or (ii) amend or
modify in a material respect any of its existing material contracts, agreements
or leases (including any material licensing agreement).
(j) Claims. Except in the ordinary course of business, settle any claim,
action or proceeding involving money damages in excess of $100,000 in the
aggregate or involving any restrictions or limitations on the Company or the
Company's business.
(k) Adverse Actions. (i) Take any action with the Knowledge that such
action would, or is reasonably likely to, prevent or impede the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the Code;
or (ii) knowingly take any action that is intended or is reasonably likely to
result in (A) any of its representations and warranties set forth in this
Agreement being or becoming untrue at any time at or prior to the Effective
Time, (B) except as otherwise permitted by Section 6.06, any of the conditions
to the Merger set forth in Article VII not being satisfied or satisfaction of
any such condition being materially delayed or (C) a violation of any provision
of this Agreement except, in each case, as may be required by applicable law.
(l) Incurrence of Indebtedness. Other than (i) short-term indebtedness
incurred in the ordinary course of business consistent with past practice but in
no event to exceed an aggregate of $1,000,000 of short-term debt and (ii)
indebtedness of the Company or any of its Subsidiaries to the Company or any of
its Subsidiaries, incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise as an accommodation become responsible for the obligations
of any other individual, corporation or other entity, or make any loan or
advance.
(m) Capital Expenditures. Make any capital expenditures in excess of
$2,000,000 in the aggregate in any quarter of the year.
(n) Tax Elections. Make any new or different material Tax election, or
revoke any material Tax election.
(o) Confidentiality Agreements. Waive any confidentiality or "standstill"
provisions entered into with any third party in connection with its
consideration of an Acquisition Proposal.
(p) Agreements. Agree or commit to do anything prohibited by the above
paragraphs (a) through (o).
4.02. Forbearances of Nortel. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement or as set forth in
Section 4.02 of Nortel's Disclosure Schedule, without the prior written consent
of the Company, Nortel will not, and will cause each of its Subsidiaries not to:
(a) Dividends, Etc. (i) Make, declare, pay or set aside for payment any
extraordinary cash dividend on or in respect of the Nortel Common Shares.
(b) Adverse Actions. (i) Take any action with the Knowledge that such
action would, or is reasonably likely to, prevent or impede the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the Code;
or (ii) knowingly take any action that is intended or is reasonably likely to
result in (A) any of its representations and warranties set forth in this
Agreement being or becoming untrue at any time at or prior to the Effective
Time, (B) subject to Section 6.11(d), any of the conditions to the Merger set
forth in Article VII not being satisfied or satisfaction of any such condition
being materially delayed or (C) a violation of any provision of this Agreement
except, in each case, as may be required by applicable law.
(c) Agreements. Agree or commit to do anything prohibited by the above
paragraphs (a) and (b).
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01. Representations and Warranties of the Company. Except as set forth in
the disclosure schedule delivered by the Company to Nortel prior to the
execution of this Agreement (the "Company Disclosure Schedule") (each section of
which qualifies the correspondingly numbered representation and warranty or
covenant to the extent specified therein), the Company hereby represents and
warrants to each of Nortel and Sub as follows:
(a) Organization, Standing and Authority. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. It is duly qualified to do business and is in
good standing in the states of the United States and foreign jurisdictions where
its ownership or leasing of property or assets or the conduct of its business
requires it to be so qualified and it has in effect all federal, state, local
and foreign governmental authorizations necessary for it to own or lease its
properties and assets and to carry on its business as it is now conducted,
except where the failure to be so duly qualified and in good standing or to have
in effect all federal, state, local, and foreign governmental authorizations
does not have, and would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company. The Company has made
available to Nortel a complete and correct copy of its certificate of
incorporation and by-laws, each as amended and in full force and effect as of
the date of this Agreement, and the Company is not in violation of any provision
thereof.
(b) Shares.
(i) The authorized capital stock of the Company consists of (A) 30,000,000
shares of Company Common Stock, par value $0.01 of which 13,236,840 shares were
outstanding as of August 20, 1999 (the "Capitalization Date") and (B) 1,000,000
shares of preferred stock, par value $0.01 per share ("Company Preferred
Stock"), of which no shares were issued or outstanding as of the Capitalization
Date and 750,000 shares of which have been designated Series A Junior
Participating Preferred Stock ("Company Series A Preferred Stock") and reserved
for issuance upon exercise of the rights (the "Company Stockholder Protection
Rights") distributed to the holders of Company Common Stock pursuant to a Rights
Agreement dated as of July 31, 1996, between the Company and the American Stock
Transfer & Trust Company, as Rights Agent, as amended (the "Company Rights
Agreement"). Since the Capitalization Date, there have been no issuances of
shares of the capital stock of the Company or any other securities of the
Company other than issuances of shares pursuant to Company Stock Options
outstanding on the Capitalization Date as set forth in clause (iii) below.
(ii) All issued and outstanding shares of Company Common Stock have been
duly authorized and validly issued, and are fully paid and nonassessable, and no
class of capital stock of the Company is entitled to preemptive rights.
(iii) There were outstanding at the Capitalization Date no Rights to
acquire capital stock from the Company other than (A) the Company Stockholder
Protection Rights, (B) Company Stock Options and (C) rights under the Company
Stock Purchase Plan, the Rights referred to in clauses (B) and (C) representing
in the aggregate the right to purchase 1,729,200 shares of Company Common Stock.
Section 5.01(b)(iii) of the Company's Disclosure Schedule sets forth for all
Company Stock Options outstanding at the Capitalization Date a true and complete
list of the following: their holders, their date of grant, the number of shares
of Company Common Stock for which they are exercisable, their exercise price as
currently in effect, their date of vesting and the conditions, if any, under
which such vesting may accelerate. Other than in connection with the Option
Agreement and other than the associated Company Stockholder Protection Rights
issued with the shares of Company Common Stock issued as described in clause (i)
above, no Rights to acquire capital stock from the Company have been issued or
granted since the Capitalization Date.
(c) Subsidiaries.
(i) Section 5.01(c)(i) of the Company Disclosure Schedule sets forth a list
as of the date hereof of all of the Company's Subsidiaries, together with their
jurisdiction of organization. Unless otherwise described therein, the Company
owns, directly or indirectly, beneficially and of record 100% of the issued and
outstanding voting securities of each such Subsidiary (other than directors'
qualifying shares, if any). No equity securities of any of the Company's
Subsidiaries are or may become required to be issued (other than to the Company
or its wholly owned Subsidiaries) by reason of any Rights and there are no
contracts, commitments, understandings or arrangements by which any of such
Subsidiaries is bound to sell or otherwise transfer any shares of capital stock
of any such Subsidiaries (other than to the Company or its wholly owned
Subsidiaries). In addition, Section 5.01(c)(i) of the Company Disclosure
Schedule lists as of the date of this Agreement each corporation, partnership,
limited liability company or similar entity with respect to which, as of the
date of this Agreement, the Company or any Subsidiary of the Company owns more
than 5% but less than a majority of the voting equity or similar voting interest
or any interest convertible into, or exchangeable or exercisable for, more than
5% but less than a majority of the voting equity or similar voting interest and
which interest is carried on the Company's most recent financial statements (or
if not held as of the date thereof, would be carried on the Company's financial
statements if prepared as of the date hereof) at a value in excess of $500,000
(collectively, the "Company Equity Interests"). All of the shares of capital
stock of each of the Significant Subsidiaries of the Company and all the Company
Equity Interests held by the Company and each Subsidiary of the Company are
fully paid and nonassessable and are owned by the Company or such Subsidiary
free and clear of any Liens. There are no material outstanding contractual
obligations of the Company or any of its Subsidiaries to provide funds to, or
make any investment (in the form of a loan, capital contribution or otherwise)
in any entity in which the Company or any Subsidiary of the Company owns a
Company Equity Interest.
(ii) Each of the Company's Subsidiaries has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization. Each of such Subsidiaries is duly qualified to do business and in
good standing in the jurisdictions where its ownership or leasing of property or
the conduct of its business requires it to be so qualified and each has in
effect all federal, state, local and foreign governmental authorizations
necessary for it to own or lease its properties and assets and to carry on its
business as it is now conducted, except where the failure to be so duly
qualified and in good standing or to have in effect all federal, state, local,
and foreign governmental authorizations does not have, and would not reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
on the Company.
(d) Corporate Power. The Company and each of its Subsidiaries has the
corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets; and it has the corporate
power and authority to execute, deliver and perform its obligations under this
Agreement and the Option Agreement and to consummate the transactions
contemplated hereby and thereby.
(e) Corporate Authority.
(i) Subject, in the case of the consummation of the Merger, to receipt of
the requisite approval and adoption of the "agreement of merger" (as such term
is used in Section 251 of the DGCL) contained in this Agreement and the Merger
by the holders of a majority of the outstanding shares of Company Common Stock
entitled to vote thereon, the Company Board having unanimously adopted a
resolution approving such "agreement of merger" and declaring its advisability,
this Agreement, the Option Agreement and the transactions contemplated hereby
and thereby have been authorized by all necessary corporate action of the
Company and the Company Board (assuming that neither Nortel or Sub is an
"interested stockholder" of the Company under Section 203 of the DGCL
immediately before the execution and delivery of this Agreement, the Option
Agreement, and the Stockholders' Agreement).
(ii) This Agreement and the Option Agreement are legal, valid and binding
agreements of the Company, enforceable in accordance with their terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general equity
principles, whether considered at law or in equity).
(f) No Defaults. Subject to receipt of the regulatory approvals, and
expiration of the waiting periods, referred to in Section 5.01(r) and required
filings under federal and state securities or other laws, the execution,
delivery and performance of this Agreement and the Option Agreement and the
consummation of the transactions contemplated hereby and thereby by the Company
do not and will not (i) constitute a breach or violation of, or a default under,
any law, rule or regulation or any judgment, decree, order, governmental permit
or license, or agreement, indenture or instrument of the Company or of any of
its Subsidiaries or to which the Company or any of its Subsidiaries or any of
their respective properties or assets are subject or bound, (ii) constitute a
breach or violation of, or a default under, the articles or certificate of
incorporation or by-laws of the Company or any of its Subsidiaries or (iii)
require any consent or approval under any such law, rule, regulation, judgment,
decree, order, governmental permit or license, agreement, indenture or
instrument, except in the case of (i) and (iii), where such breach, violation or
default or the failure to obtain such consents or approvals would not in the
aggregate have a Material Adverse Effect on the Company, the Surviving
Corporation or Nortel and would not prevent or materially impair the Company's
ability to consummate the transactions contemplated by this Agreement. Section
5.01(f) of the Company Disclosure Schedule contains a list of all consents of
third parties required under any material agreement to be obtained by it or its
subsidiaries prior to, or as a result of, the consummation of the Merger.
(g) Financial Reports and SEC Documents.
(i) With respect to the periods since May 31, 1996, the Company and its
Subsidiaries have filed all reports and statements, together with any amendments
required to be made thereto, that were required to be filed with the SEC.
(ii) The Company's Annual Reports on Form 10-K for the fiscal years ended
May 31, 1996, 1997, and 1998, its Quarterly Reports on Form 10-Q for the periods
ended August 31, 1998, November 30, 1998 and February 28, 1999, and all other
reports, registration statements, definitive proxy statements or information
statements filed or to be filed by it or any of its Subsidiaries subsequent to
May 31, 1996 under the Securities Act, or under Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act, in the form filed, or to be filed (collectively, the
"Company SEC Documents"), with the SEC, as of the date filed (or, with respect
to a document filed prior to the date of this Agreement and amended or
superseded by a subsequent filing prior to the date of this Agreement, then on
the date of such filing as so amended or superseded) (A) complied or will comply
in all material respects as to form with the applicable requirements under the
Securities Act or the Exchange Act, as the case may be; and (B) did not and will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; and
each of the balance sheets contained in or incorporated by reference into any
such Company SEC Document (including the related notes and schedules thereto)
fairly presents and will fairly present the financial position of the entity or
entities to which it relates as of its date, and each of the statements of
income and changes in stockholders' equity and cash flows or equivalent
statements in such Company SEC Documents (including any related notes and
schedules thereto) fairly presents and will fairly present the results of
operations, changes in stockholders' equity and changes in cash flows, as the
case may be, of the entity or entities to which it relates for the periods to
which they relate, in each case in accordance with U.S. GAAP consistently
applied during the periods involved and Regulation S-X of the SEC, except in
each case as may be noted therein, subject to normal year-end audit adjustments
in the case of unaudited statements.
(iii) Since February 28, 1999, the Company has not incurred any liabilities
(whether absolute, accrued, contingent or otherwise) that are of a nature that
would be required to be disclosed on a balance sheet of the Company or the
footnotes related thereto prepared in conformity with U.S. GAAP, except (x)
liabilities as set forth in the Company SEC Documents filed prior to the date of
this Agreement (the "Company Filed SEC Documents") and (y) other liabilities
incurred in the ordinary course of business consistent with past practice, which
do not have, and would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company.
(iv) The Company has furnished to Nortel a draft (dated August 17, 1999) of
its Annual Report on Form 10-K for the fiscal year ended May 31, 1999 (including
a draft of the consolidated financial statements to be included therein, with
accompanying footnote disclosure) (the "Draft 1999 10-K"). The Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1999 shall be filed with
the SEC on or before August 30, 1999 and shall not differ in any material
respect from the Draft 1999 10-K, except for the inclusion of disclosure
relating to this Agreement and the transactions contemplated hereby. The
consolidated balance sheet contained in the Draft 1999 10-K fairly presents the
financial position of the Company as of May 31, 1999, and the statement of
income and changes in stockholders' equity and cash flows for the fiscal year
ended May 31, 1999 contained in the Draft 1999 10-K fairly present the Company's
consolidated results of operations, changes in stockholders' equity and changes
in cash flows for such periods, in each case in accordance with U.S. GAAP
applied consistently with past periods and Regulation S-X of the SEC.
(h) Litigation. Except as disclosed on Section 5.01(h) of the Company
Disclosure Schedule, in the Company Filed SEC Documents or the Draft 1999 10-K,
(i) no litigation, claim or other proceeding before any court or governmental
agency that is pending or, to the Company's Knowledge, threatened against the
Company or any of its Subsidiaries would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company and
(ii) no litigation, claim or other proceeding before any court or governmental
agency is pending or, to the Company's Knowledge, threatened against the Company
or any of its Subsidiaries which, if determined adversely to the Company or any
such Subsidiary, would reasonably be expected to result in a loss of more than
$100,000 or the imposition of any material restrictions on the business of the
Company or any such Subsidiary.
(i) Compliance with Laws. The Company and each of its Subsidiaries:
(i) is in compliance with all applicable federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders or decrees
applicable thereto or to the employees conducting such businesses, except where
failure to so comply does not have, and would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company;
(ii) has all permits, licenses, authorizations, orders and approvals of,
and has made all filings, applications and registrations with, all Governmental
Authorities that are required in order to permit them to conduct their
businesses substantially as presently conducted, and all such permits, licenses,
certificates of authority, orders and approvals are in full force and effect
and, to its Knowledge, no suspension or cancellation of any of them is
threatened, except for (x) failures to hold such permits, licenses,
authorizations, orders and approvals and (y) failures to make such filings,
applications, and registrations, which do not have, and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company; and
(iii) has received since May 31, 1998 no written notification or
communication from any Governmental Authority (A) asserting that the Company or
any of its Subsidiaries is not in compliance with any of the statutes,
regulations or ordinances which such Governmental Authority enforces or (B)
threatening to revoke any license, franchise, permit or governmental
authorization.
(j) Material Contracts; Defaults. Except for this Agreement, the Option
Agreement, and those agreements and other documents filed as exhibits to the
Company Filed SEC Documents, as of the date of this Agreement, neither the
Company nor any of its Subsidiaries is a party to or bound by (i) any "material
contract" within the meaning of Item 601(b)(10) of the SEC's Regulation S-K or
(ii) any non-competition agreement or other agreement or arrangement that
materially restricts it or any of its Subsidiaries from competing in any line of
business. Neither it nor any of its Subsidiaries is in default under any
material contract, agreement, commitment, arrangement, lease, insurance policy
or other instrument to which it is a party, by which its respective assets,
business, or operations may be bound or affected, and there has not occurred any
event that, with the lapse of time or the giving of notice or both, would
constitute such a default, except for such defaults that, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
the Company.
(k) No Brokers. No action has been taken by the Company, its officers,
directors or employees that would give rise to any valid claim against any party
hereto for a brokerage commission, finder's fee or other like payment with
respect to the transactions contemplated by this Agreement, excluding fees to be
paid to William Blair & Company (the "Company Financial Advisor") and to Blum &
Co., Inc. pursuant to the Company's written agreements with such firms, true and
complete copies of which agreements have been furnished to Nortel prior to the
date of this Agreement.
(l) Employee Benefits; Employee Relations.
(i) Section 5.01(l) of the Company Disclosure Schedule contains a complete
and correct list of each Company Plan. With respect to each Company Plan, true
and complete copies have been provided to Nortel of: (i) the plan document or
agreement or, with respect to any Company Plan that is not in writing, a written
description of the terms thereof; (ii) the trust agreement, insurance contract
or other documentation of any related funding arrangement; (iii) the summary
plan description; (iv) the most recent required Internal Revenue Service Form
5500, including all schedules thereto; (v) any material communication to or from
any Governmental Authority, including a written description of any oral
communication; and (vi) all amendments or modifications to any such document.
(ii) Neither the Company nor any Subsidiary thereof has disseminated in
writing or otherwise broadly or generally notified employees of any intent or
commitment (whether or not legally binding) to create or implement any
additional Plan or to amend, modify or terminate any Company Plan, except for
immaterial amendments to any Company Plan that will not result in an increase in
the annual costs in respect of such plan incurred or to be incurred by the
Company or any of its Subsidiaries.
(iii) Except for any failures that would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company, each Company Plan has been operated and administered, and is, in
compliance with its terms and all applicable laws, rules and regulations
(including ERISA and the Code and any regulations thereunder). There are no
actions, suits, claims or governmental audits (other than routine claims for
benefits in the ordinary course) pending or, to the Knowledge of the Company,
threatened with respect to any Company Plan that would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company.
(iv) No Company Plan is, and neither the Company nor any Subsidiary thereof
contributes to or has any material liability or obligation with respect to any
Plan that is, (A) a multiemployer plan within the meaning of Section 4001(a)(3)
of ERISA, (B) any single employer plan or other pension plan subject to Title IV
or Section 302 of ERISA or Section 412 of the Code or (C) a multiple employer
plan within the meaning of Section 4063 or 4064 of ERISA. Neither the Company
nor any Subsidiary thereof is a party to any collective bargaining or other
collective labor agreement or understanding.
(v) There is no pending or, to the Knowledge of the Company, threatened
labor dispute, strike, work stoppage or other concerted labor activity against
the Company or any Subsidiary thereof or involving any of their respective
employees. To the Knowledge of the Company, neither the Company nor any
Subsidiary thereof, nor their respective businesses, has committed any unfair
labor practices or violated in any material respect any applicable employment
laws in connection with the operation of the respective businesses of the
Company or any Subsidiary thereof, and there is no pending or, to the Knowledge
of the Company, threatened charge or complaint against the Company or any of its
Subsidiaries by the National Labor Relations Board or any comparable state
agency, or by any employee or class of employees or governmental agency relating
to a purported violation of any applicable employment laws.
(vi) Each Company Plan that is intended to qualify under Section 401(a)
and/or 401(k) of the Code so qualifies and its trust is exempt from taxation
under Section 501(a) of the Code. The Company and its Subsidiaries have timely
paid all contributions, premiums and expenses payable to or in respect of each
Company Plan under the terms thereof and in accordance with applicable law,
including ERISA and the Code, and, to the extent any such contributions,
premiums or expenses are not yet due, the liability therefor has been properly
and adequately accrued on the Company's financial statements included in its
Quarterly Report on Form 10-Q for the period ended February 28, 1999.
(vii) Neither the Company nor any of its Subsidiaries has incurred or will
incur, either directly or indirectly (including as a result of an
indemnification obligation), any material liability under or pursuant to any
provision of Title I or IV of ERISA or the penalty, excise tax or joint and
several liability provisions of the Code relating to employee benefit plans, and
to the Knowledge of the Company, no event, transaction or condition has
occurred, exists or is expected to occur which could reasonably be expected to
result in any such material liability to the Company, any of its Subsidiaries
or, after the Effective Time , Nortel or any of its Affiliates.
(viii) Except as set forth in Section 5.01(l)(viii) of the Disclosure
Schedule, neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, either alone or in
combination with another event (whether contingent or otherwise) will (A)
entitle any current or former employee, consultant or director of the Company or
any of its Subsidiaries to any increased or modified benefit or payment; (B)
increase the amount of compensation due to any such employee, consultant or
director; (C) accelerate the vesting, payment or funding of any compensation,
stock-based benefit, incentive or other benefit; (D) result in any "parachute
payment" under Section 280G of the Code (whether or not such payment is
considered to be reasonable compensation for services rendered); or (E) cause
any compensation to fail to be deductible under Section 162(m), or any other
provision of the Code or any similar foreign Law.
(m) Takeover Laws. The Company Board (i) has validly approved this
Agreement, the Option Agreement and the Stockholders' Agreement and the
transactions contemplated hereby and thereby (including the Merger) for purposes
of Section 203 of the DGCL and (ii) has taken all steps necessary to render
Article Ninth of the Company Certificate inapplicable to the transactions
contemplated by this Agreement. Except for Section 203 of the DGCL (which has
been rendered inapplicable), to the Company's Knowledge, no "moratorium",
"control share", "fair price" or other antitakeover laws and regulations of any
state (collectively, "Takeover Laws") are applicable to the Merger or the other
transactions contemplated by this Agreement, the Option Agreement and the
Stockholders' Agreement.
(n) Rights Agreement. The Company Board, by a duly enacted resolution, has
determined in good faith that each of Nortel and Sub shall be an "Excluded
Person" for all purposes of the Company Rights Agreement (as contemplated by
Section 1(h) of such Agreement) and, in connection therewith, has approved an
amendment (in the form provided to Nortel prior to the date hereof) to the
Company Rights Agreement to the effect that none of Nortel, Sub or any of their
respective affiliates shall become an "Acquiring Person" and that no "Shares
Acquisition Date" or "Distribution Date" (as such terms are defined in the
Company Rights Agreement) will occur as a result of the approval, execution or
delivery of this Agreement, the Option Agreement, or the Stockholders' Agreement
or the consummation of the transactions contemplated hereby or thereby. The
Company Rights Agreement shall terminate and be of no further effect upon the
Effective Time, without any consideration being payable with respect to
outstanding Company Stockholder Protection Rights thereunder.
(o) Environmental Matters.
(i) As used in this Agreement, "Environmental Laws" means all applicable
local, state, provincial and federal environmental, health and safety laws
(including common law) and regulations in effect on the date of this Agreement,
relating to the protection of human health and safety as affected by exposure to
pollutants, contaminants, or hazardous or toxic wastes, substances or materials
and to the protection of the environment including, without limitation, the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation, and Liability Act, the Clean Water Act, the Federal
Clean Air Act, and the Occupational Safety and Health Act, each as amended,
regulations promulgated thereunder, and state counterparts.
(ii) (x) Neither the conduct or operations of the Company or its
Subsidiaries nor any condition of any property presently or previously owned,
leased or operated by any of them violates or, within the applicable statute or
limitations period, violated Environmental Laws, except for violations that are
not material and (y) no condition has existed or event has occurred with respect
to any of them or any such property that is reasonably likely to result in a
Material Adverse Effect on the Company. Neither the Company nor any of its
Subsidiaries has received any written notice from any Governmental Authority
that it or its Subsidiaries or the operation or condition of any property ever
owned, leased, operated, held as collateral or held as a fiduciary by any of
them are or were in material violation of or otherwise are alleged to have
material liability under any Environmental Law, including, but not limited to,
responsibility (or potential responsibility) for the cleanup or other
remediation of any pollutants, contaminants, or hazardous or toxic wastes,
substances or materials at, on, beneath, or originating from any such property.
(iii) To the Company's Knowledge, none of the property currently owned,
leased or operated by the Company or by its Subsidiaries is subject to, or as a
result of this transaction would be subject to, (i) the New Jersey Site Recovery
Act or any other state or local Environmental Laws which would impose
restrictions, such as notice, disclosure or obtaining advance approval prior to
this transaction, or (ii) any liens under any Environmental Laws.
(p) Intellectual Property.
(i) Except as set forth in Section 5.01(p)(i) of the Company Disclosure
Schedule, the Company and its Subsidiaries own or are licensed to use all
Intellectual Property Rights currently used in the business of the Company or
its Subsidiaries or necessary to conduct the business of the Company and its
Subsidiaries as currently conducted or currently anticipated to be conducted
(the "Company Intellectual Property Rights").
(ii) Section 5.01(p)(ii) of the Company Disclosure Schedule contains an
accurate and complete list as of the date of this Agreement of the following
categories of Company Intellectual Property Rights: (A) Trademarks that are
registered or for which an application for registration is pending; (B) Patents;
(C) Software; (D) Copyrights that are registered or for which an application for
registration is pending; and (E) mask works. Where listed Intellectual Property
Rights are registered with a governmental authority or an application for
registration is pending, the jurisdiction, registration or application number,
date of registration or application, named owner and/or assignee, and
international classes of registration are indicated, as applicable.
(iii) Section 5.01(p)(iii) of the Company Disclosure Schedule contains an
accurate and complete list as of the date of this Agreement of (A) all licenses
and agreements under which the Company and its Subsidiaries are licensed to use
third party Intellectual Property Rights and (B) all licenses and sublicenses
under which the Company and its Subsidiaries have granted rights to third
parties to use the Company Intellectual Property Rights. Except as set forth in
Section 5.01(p)(iii) of the Company Disclosure Schedule, the Company and its
Subsidiaries are not required to pay any royalties, fees or other amounts to any
Person in connection with the use of the Company Intellectual Property Rights.
(iv) The Company and its Subsidiaries have good and valid title to all
Company Intellectual Property Rights owned by any of them and valid and
enforceable license rights to all Company Intellectual Property Rights used
under license, free and clear, to the Company's Knowledge, of all Liens, and
other than as set forth in Section 5.01(p)(iv) of the Company Disclosure
Schedule, to the Company's Knowledge, all Company Intellectual Property Rights
are in full force and effect and will remain in full force and effect
immediately following the Effective Time.
(v) The Company and its Subsidiaries have a practice to secure, and have
secured, from all consultants and contractors who contribute or have contributed
to the creation or development of Company Intellectual Property Rights valid
written assignments by such persons to the Company and its Subsidiaries of the
rights to such contributions the Company and its Subsidiaries do not already own
by operation of law. The Company and its Subsidiaries have taken reasonable and
appropriate steps to protect and preserve the confidentiality of all of their
Trade Secrets, and to the Company's Knowledge there are no unauthorized uses,
disclosures or infringements of any Company Intellectual Property Rights, and
all use by, and disclosure to, any Person of Trade Secrets that comprise any
part of the Company Intellectual Property Rights has been pursuant to the terms
of a written agreement with such Person, and all use by the Company and its
Subsidiaries of Trade Secrets owned by another Person has been pursuant to the
terms of a written agreement with such Person or is otherwise lawful. Neither
the Company Intellectual Property Rights nor the use or other exploitation
thereof by the Company and its Subsidiaries (or any consultant, contractor or
employee of the Company and its Subsidiaries who contributes to or has
contributed to or participated in the creation or development of Company
Intellectual Property Rights ) in the conduct of their business, nor any product
or service provided by the Company and its Subsidiaries, infringes on,
misappropriates, breaches or violates any third party Intellectual Property
Rights.
(vi) Neither the Company nor any of its Subsidiaries: (A) has been notified
or is otherwise aware of any actual or threatened adverse proceeding of any
Person pertaining to any challenge to the scope, validity or enforceability of,
or the Company's ownership of, any of the Company Intellectual Property Rights;
(B) is the subject of any claim of infringement or misappropriation by the
Company or any of its Subsidiaries of any third party Intellectual Property
Rights; or (C) has any claim for infringement or misappropriation of, or breach
of any license or agreement involving, any of the Company Intellectual Property
Rights.
(q) Tax Matters.
(i)(A) All returns, declarations, reports, estimates, information returns
and statements required to be filed on or before the Effective Date under
federal, state, local or any foreign tax laws ("Tax Returns") with respect to it
or any of its Subsidiaries, have been or will be timely filed, or requests for
extensions have been timely filed and have not expired, except where a failure
or failures to so timely file would not, individually or in the aggregate, be
expected to be material; (B) all material Tax Returns filed by it are complete
and accurate in all material respects; (C) all Taxes shown to be due and payable
(without regard to whether such Taxes have been assessed) on such Tax Returns
have been paid or adequate reserves have been established for the payment of
such Taxes; (D) the proper and accurate amounts have been withheld from all
employees (and timely paid to the appropriate Governmental Authority or set
aside in an account for such purposes) for all periods through the Closing date
in compliance in all material respects with all Tax withholding provisions of
applicable federal, state, local and foreign laws (including, without
limitation, income, social security, and employment tax withholding for all
types of compensation); (E) neither it nor any of its subsidiaries is a party to
any tax sharing or similar agreement or any agreement pursuant to which it or
any of its subsidiaries has an obligation to indemnify any party (other than it
or one of its subsidiaries) with respect to Taxes; (F) all Taxes due with
respect to completed and settled examinations or concluded litigation relating
to it or any of its subsidiaries have been paid in full or adequate reserves
have been established for the payment thereof; and (G) no material audit or
examination or refund litigation with respect to any Tax Return is pending.
(ii) The Company has no reason to believe that any conditions exist that
might prevent or impede the Merger from qualifying as a reorganization within
the meaning of Section 368(a) of the Code.
(r) Regulatory Approvals. No consents or approvals of, or filings or
registrations with, any Governmental Authority or instrumentality are necessary
to consummate the Merger except (i) as may be required under, and other
applicable requirements of, the Hart-Scott Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), the Competition Act (Canada) and antitrust or
other competition laws of other jurisdictions; (ii) as may be required by the
by-laws, rules, regulations or policies of the Canadian Stock Exchanges in
respect of the assumption by Nortel, and the exercisability by the holders, of
the Company Stock Options and of the NYSE and the Canadian Stock Exchanges in
respect of the Nortel Common Shares to be issued in the Merger and upon exercise
of the Company Stock Options to be assumed by Nortel by reason of the Merger and
the listing of such Nortel Common Shares on such stock exchanges; (iii) the
filing with the SEC of the Company Proxy Statement and the filing and
declaration of effectiveness of the Registration Statement; (iv) the filing of a
certificate of merger with the Secretary of State of the State of Delaware
pursuant to the DGCL; (v) such filings as are required to be made or approvals
as are required to be obtained under the securities or "Blue Sky" laws of
various states in connection with the issuance of Nortel Common Shares in the
Merger; (vi) such filings as are required to be made and exemption rulings or
orders as are required to be obtained under the Canada Business Corporations Act
and Canadian securities laws; and (vii) as may be required under Section 721 of
the U.S. Defense Production Act of 1950, as amended, and the rules promulgated
thereunder ("Exon-Florio") and the rules and regulations promulgated by the U.S.
Department of Defense.
(s) Fairness Opinion. On or before the date hereof, the Company Financial
Advisor has delivered its opinion to the Company Board that the Exchange Ratio
is fair, from a financial point of view, to the holders of Company Common Stock
and such opinion has not been withdrawn.
(t) Year 2000 Compliance.
(i) Except as set forth in Section 5.01(t)(i) of the Company Disclosure
Schedule, all Material Systems of the Company and its Subsidiaries have been
remediated through modification, upgrade or replacement so that they are (A)
able to receive, record, store, process, calculate, manipulate and output dates
from and after January 1, 2000, time periods that include January 1, 2000 and
information that is dependent on or relates to such dates or time periods, in
the same manner and with the same accuracy, functionality, data integrity and
performance as when dates or time periods prior to January 1, 2000 are involved
and (B) able to store and output date information in a manner that is
unambiguous as to century ("Year 2000 Compliant").
(ii) To the Company's Knowledge, the material suppliers and vendors of
goods and services to the Company and its Subsidiaries ("Material Suppliers")
are taking, or will in a timely manner take, such steps as are necessary to make
their respective Material Systems Year 2000 Compliant by December 31, 1999,
except to the extent that the failure of any such Material Systems of Material
Suppliers to be Year 2000 Compliant would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on the
Company.
(iii) All Company application products shipped to customers since August 1,
1998, and all other Company products shipped to customers since September 1,
1998, are Year 2000 Compliant in all material respects and have been tested by
the Company (including custom testing of all third-party manufactured content of
such Company products) to confirm such status. With respect to Company products
shipped prior to such dates, the Company and its Subsidiaries have undertaken
reasonable efforts to notify all end-users of such products of the need to
upgrade such products to be Year 2000 Compliant and of the need to audit any
custom application products to identify any respects in which they are not Year
2000 Compliant.
(iv) The Company has furnished to Nortel copies of, or copies of all
documents relating to, (A) all complaints, investigations or audits of any
Governmental Authority, (B) all unresolved customer complaints, demands or
claims (excluding routine requests for information regarding matters relating to
the year 2000 turnover), (C) all attorney letters or demands and (D) all
litigation, arbitrations or similar proceedings, in each case insofar as they
relate to the Year 2000 Compliant status of Company products, the cost of
upgrading Company products to a Year 2000 Compliant status or injuries and
damages suffered as a result of the non-Year 2000 Compliant condition of Company
products.
(v) The Company has provided to Nortel copies of its written contingency
plan relating to interruptions to its business or the functioning of Company
products caused by the year 2000 turnover, and the Company has no other
contingency plans relating thereto. (u) No Material Adverse Effect. Since May
31, 1999, and until the date hereof, the Company and its Subsidiaries have
conducted their respective businesses in the ordinary course (excluding the
incurrence of reasonable and customary liabilities related to this Agreement and
the transactions contemplated hereby). Since May 31, 1999, and until the date
hereof, no event has occurred or circumstance arisen that, individually or taken
together with all other facts, circumstances and events (described in any
paragraph of Section 5.01 or otherwise), has had or is reasonably likely to have
a Material Adverse Effect with respect to the Company.
5.02. Representations and Warranties of Nortel and Sub. Except as set forth
in the disclosure schedule delivered by Nortel to the Company prior to the
execution of this Agreement (the "Nortel Disclosure Schedule") (each section of
which qualifies the correspondingly numbered representation and warranty or
covenant to the extent specified therein), Nortel and Sub hereby represent and
warrant to the Company as follows:
(a) Organization, Standing and Authority. Each of Nortel and Sub (x) is a
corporation duly organized, validly existing and, in the case of Sub, in good
standing under the laws of the jurisdiction of its organization and (y) is duly
qualified to do business and, as applicable, is in good standing in the
provinces of Canada and in the states of the United States and foreign
jurisdictions where its ownership or leasing of property or assets or the
conduct of its business requires it to be so qualified, except where the failure
to be duly organized, validly existing, in good standing, or duly qualified does
not have and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Nortel. Each of Nortel and Sub has in
effect all federal, provincial, state, local and foreign governmental
authorizations necessary for it to own or lease its properties and assets and to
carry on its business as it is now conducted, except where failure to have in
effect such authorizations does not have and would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on Nortel.
Each of Nortel and Sub has made available to the Company a complete and correct
copy of its constitutive documents, each as amended to date and in full force
and effect.
(b) Shares.
(i) As of the date hereof, the authorized capital stock of Nortel consists
solely of (A) an unlimited number of Nortel Common Shares, of which
1,358,418,380 shares were outstanding as of August 17, 1999 (giving effect to
the one-for-one stock dividend effected by Nortel as of such date); (B) an
unlimited number of Class A Preferred Shares issuable in series, without nominal
or par value, of which 200 Cumulative Redeemable Class A Preferred Shares Series
4 (which are exchangeable at certain times, and subject to certain conditions,
into Nortel Common Shares), 16,000,000 Cumulative Redeemable Class A Preferred
Shares Series 5 (which are convertible at certain times, and subject to certain
conditions, into an equal number of Cumulative Redeemable Class A Preferred
Shares Series 6) and 14,000,000 Non-cumulative Redeemable Class A Preferred
Shares Series 7 (which are convertible at certain times, and subject to certain
conditions, into an equal number of Non-cumulative Redeemable Class A Preferred
Shares Series 8) were outstanding as of August 17, 1999; and (C) an unlimited
number of Class B Preferred Shares, issuable in series, without nominal or par
value, of which no shares were outstanding as of August 17, 1999. As of the date
hereof, there are no outstanding Rights to acquire capital stock from Nortel
other than pursuant to Nortel's stock option and other employee compensation
plans, Nortel's shareholder dividend reinvestment and stock purchase plan and
the exchange rights associated with Nortel's Series 4 Preferred Shares that have
been Previously Disclosed.
(ii) The authorized capital stock of Sub consists of one share of common
stock, $0.01 per share, which one share is outstanding and is owned directly by
Nortel. Sub has not conducted any business prior to the date hereof and has no
Subsidiaries and no assets, liabilities or obligations of any nature other than
incident to its formation and incident to this Agreement.
(iii) The outstanding shares of Nortel's and Sub's capital stock have been
duly authorized and are validly issued and outstanding, fully paid and
nonassessable, and subject to no preemptive rights (and were not issued in
violation of any preemptive rights). As of the date hereof, there are no shares
of capital stock of Sub authorized and reserved for issuance and Sub does not
have any Rights issued or outstanding with respect to its capital stock or any
commitment to authorize, issue or sell any such shares or Rights, except
pursuant to this Agreement.
(iv) The Nortel Common Shares to be issued in exchange for shares of
Company Common Stock in the Merger or upon exercise of Company Stock Options to
be assumed by Nortel by reason of the Merger, when issued will be duly
authorized, validly issued, fully paid and nonassessable and will not have been
issued in violation of any subscriptive or preemptive rights.
(c) Corporate Power. Each of Nortel and Sub has the corporate power and
authority to carry on its business as it is now being conducted and to own all
its properties and assets; and each of Nortel and Sub has the corporate power
and authority to execute, deliver and perform its obligations under this
Agreement and, in the case of Nortel, the Option Agreement and to consummate the
transactions contemplated hereby and, in the case of Nortel, thereby.
(d) Corporate Authority. (i) This Agreement and the transactions
contemplated hereby, including the issuance of Nortel Common Shares in the
Merger or upon the exercise of Company Stock Options to be assumed by Nortel by
reason of the Merger, and the Option Agreement and the transactions contemplated
thereby, as applicable, have been authorized and approved by all necessary
corporate action of Nortel (no shareholder approvals being required), Sub, the
Nortel Board and the Board of Directors of Sub prior to the date hereof (which
action has not been rescinded or modified in any way) and (ii) each of this
Agreement and, in the case of Nortel, the Option Agreement, is a legal, valid
and binding agreement of each of Nortel and Sub, enforceable in accordance with
its terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws of general applicability relating to or affecting creditors' rights
or by general equity principles, whether considered at law or in equity).
(e) No Defaults. Subject to receipt of the regulatory approvals, and
expiration of the waiting periods, referred to in Section 5.02(i) and any
required filings under federal, state and provincial securities laws and the
Canada Business Corporations Act, the execution, delivery and performance of
this Agreement and, as applicable, the Option Agreement and the consummation of
the transactions contemplated hereby and, as applicable, thereby by Nortel and
Sub do not and will not (i) constitute a material breach or violation of, or a
material default under, any law, rule or regulation or any judgment, decree,
order, governmental permit or license, or agreement, indenture or instrument of
Nortel or of any of Nortel's Subsidiaries or to which it or any of its
Subsidiaries or any of their respective properties or assets are subject or
bound, (ii) constitute a breach or violation of, or a default under, the
articles or certificate of incorporation or by-laws of either Nortel or Sub, or
(iii) require any consent or approval under any such material law, rule,
regulation, judgment, decree, order, governmental permit or license, agreement,
indenture or instrument, except in the case of (i) and (iii), where such breach,
violation or default or the failure to obtain such consents or approvals would
not in the aggregate have a Material Adverse Effect on the Company, the
Surviving Corporation or Nortel and would not prevent or materially impair
Nortel's ability to consummate the transactions contemplated by this Agreement.
(f) Financial Reports and SEC Documents. Nortel's Annual Reports on Form
10-K for the fiscal years ended December 31, 1996, 1997 and 1998, its Quarterly
Reports on Form 10-Q for the periods ended March 31, 1999 and June 30, 1999, and
all other reports or registration statements, filed or to be filed by it or any
of its Subsidiaries subsequent to December 31, 1996 under the Securities Act, or
under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the form filed,
or to be filed (collectively, the "Nortel SEC Documents"), with the SEC, as of
the date filed (A) complied or will comply in all material respects as to form
with the applicable requirements under the Securities Act or the Exchange Act,
as the case may be; and (B) did not and will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; and each of the balance sheets contained
in or incorporated by reference into any such Nortel SEC Document (including the
related notes and schedules thereto) fairly presents and will fairly present the
financial position of the entity or entities to which it relates as of its date,
and each of the statements of income and changes in stockholders' equity and
cash flows or equivalent statements in such Nortel SEC Documents (including any
related notes and schedules thereto) fairly presents and will fairly present the
results of operations, changes in stockholders' equity and changes in cash
flows, as the case may be, of the entity or entities to which it relates for the
periods to which they relate, in each case in accordance with Canadian GAAP
consistently applied during the periods involved and Regulation S-X of the SEC,
except in each case as may be noted therein, subject to normal year-end audit
adjustments in the case of unaudited statements. The books and records of Nortel
and its Subsidiaries have been, and are being, maintained in all material
respects in accordance with Canadian GAAP and any other applicable legal and
accounting requirements and reflect only actual transactions.
(g) Litigation. Except as Previously Disclosed, no litigation, claim or
other proceeding before any court or governmental agency that is pending or, to
Nortel's Knowledge, threatened against Nortel or any of its Subsidiaries would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Nortel.
(h) No Brokers. No action has been taken by it that would give rise to any
valid claim against any party hereto for a brokerage commission, finder's fee or
other like payment with respect to the transactions contemplated by this
Agreement, excluding fees to be paid to Credit Suisse First Boston.
(i) Regulatory Approvals. No consents or approvals of, or filings or
registrations with, any Governmental Authority or with any third party are
necessary to consummate the Merger except for (i) as may be required under, and
other applicable requirements of, the HSR Act and the Competition Act (Canada);
(ii) as may be required by the by-laws, rules, regulations or policies of the
Canadian Stock Exchanges in respect of the assumption by Nortel, and the
exercisability by the holders, of the Company Stock Options and of the NYSE and
the Canadian Stock Exchanges in respect of the Nortel Common Shares to be issued
in the Merger and upon the exercise of the Company Stock Options to be assumed
by Nortel by reason of the Merger and the listing of such Nortel Common Shares
on such stock exchanges; (iii) the filing with the SEC of the Company Proxy
Statement in definitive form and the filing and declaration of effectiveness of
the Registration Statement; (iv) the filing of a certificate of merger with the
Secretary of State of the State of Delaware pursuant to the DGCL; (v) such
filings as are required to be made or approvals as are required to be obtained
under the securities or "Blue Sky" laws of various states in connection with the
issuance of Nortel Common Shares in the Merger; (vi) such filings as are
required to be made and exemption rulings or orders as are required to be
obtained under the Canada Business Corporations Act and Canadian securities
laws; and (vii) as may be required under Exon-Florio and the rules and
regulations promulgated by the U.S. Department of Defense.
(j) No Material Adverse Effect. Since December 31, 1998, until the date
hereof, no event has occurred or circumstance arisen that, individually or taken
together with all other facts, circumstances and events (described in any
paragraph of Section 5.02 or otherwise), has had or is reasonably likely to have
a Material Adverse Effect with respect to Nortel.
(k) Taxes. Nortel has not taken or agreed to take any action with the
Knowledge that such action would, or failed to take any action with the
Knowledge that the omission of such action would, prevent or impede the Merger
from qualifying as a reorganization within the meaning of Section 368(a) of the
Code. Nortel has no Knowledge of any facts or circumstances that would, with
respect to the Merger, prevent Nortel from being treated as a corporation
pursuant to Section 367 of the Code or the Treasury regulations promulgated
thereunder.
ARTICLE VI
COVENANTS
The Company hereby covenants to and agrees with Nortel, and
each of Nortel and Sub hereby covenants to and agrees with the Company, that:
6.01. Reasonable Best Efforts. Subject to the terms and conditions of this
Agreement, it shall use its reasonable best efforts in good faith to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or desirable (including obtaining any consents of third
parties required under any agreement to be obtained by it or its subsidiaries
prior to, or as a result of, the consummation of the Merger so that such
agreement is not terminable as a result of the Merger), or advisable under
applicable laws, so as to permit consummation of the Merger as promptly as
practicable and otherwise to enable consummation of the transactions
contemplated hereby and shall cooperate fully with the other party hereto to
that end. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purpose of this Agreement or to vest the
Surviving Corporation with full title to all properties, assets, rights,
approvals, immunities and franchises of any of the parties to the Merger, the
proper officers and directors of each party to this Agreement and their
respective Subsidiaries shall take all such necessary action as may be
reasonably requested by, and at the sole expense of, Nortel.
6.02. Stockholder Approvals. The Company shall take, in accordance with
this Agreement, applicable law, applicable NASD rules and its certificate of
incorporation and by-laws, all action necessary to convene an appropriate
meeting of stockholders of the Company to consider and vote upon the approval
and adoption of the "agreement of merger" (as such term is used in Section 251
of the DGCL) contained in this Agreement and the Merger and any other matters
required to be approved by the Company's stockholders for consummation of the
Merger (including any adjournment or postponement, the "Company Meeting") as
promptly as practicable. The Company Board, subject to Section 6.06, shall at
all times recommend such approval and shall take all reasonable lawful action to
solicit such approval by its stockholders.
6.03. Registration Statement. (a) Each of Nortel and the Company agrees to
cooperate in the preparation of a registration statement on Form S-4 (the
"Registration Statement") to be filed by Nortel with the SEC in connection with
the issuance of Nortel Common Shares in the Merger (including the proxy
statement and prospectus and other proxy solicitation materials of the Company
constituting a part thereof (the "Company Proxy Statement") and all related
documents). The Registration Statement and the Company Proxy Statement shall
comply as to form in all material respects with the applicable provisions of the
Securities Act and the Exchange Act and the rules and regulations thereunder.
Provided the other party has cooperated as required above, the Company agrees to
file the Company Proxy Statement in preliminary form with the SEC as promptly as
practicable, and Nortel agrees to file the Registration Statement with the SEC
as promptly as practicable after any SEC comments with respect to the
preliminary Proxy Statement are resolved or at such earlier time as Nortel may
elect. Each of Nortel and the Company shall, as promptly as practicable after
receipt thereof, provide copies of any written comments received from the SEC
with respect to the Registration Statement and the Company Proxy Statement, as
the case may be, to the other party, and advise the other party of any oral
comments with respect to the Registration Statement or the Company Proxy
Statement received from the SEC. Each of Nortel and the Company agrees to use
reasonable best efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as practicable after filing
thereof, and the Company agrees to mail the Company Proxy Statement to its
shareholders as promptly as practicable after the Registration Statement is
declared effective. Nortel also agrees to use reasonable best efforts to obtain
all necessary state securities law or "Blue Sky" permits and approvals required
to carry out the transactions contemplated by this Agreement. The Company agrees
to furnish to Nortel all information concerning the Company, its Subsidiaries,
officers, directors and stockholders as may be reasonably requested in
connection with the foregoing.
(b) Each of Nortel and the Company agrees, as to itself and its
Subsidiaries, that none of the information supplied or to be supplied by it for
inclusion or incorporation by reference in (i) the Registration Statement will,
at the time the Registration Statement and each amendment or supplement thereto,
if any, becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and (ii) the
Company Proxy Statement and any amendment or supplement thereto will, at the
date of mailing to stockholders and at the time of the Company Meeting, 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, in
light of the circumstances in which they were made, not misleading.
(c) Nortel agrees to advise the Company, promptly after Nortel receives
notice thereof, of the time when the Registration Statement has become effective
or any supplement or amendment has been filed, of the issuance of any stop order
or the suspension of the qualification of the Nortel Common Shares for offering
or sale in any jurisdiction, of the initiation or threat of any proceeding for
any such purpose, or of any request by the SEC for the amendment or supplement
of the Registration Statement or for additional information.
(d) Nortel will use its reasonable best efforts to obtain, and will provide
evidence reasonably satisfactory to the Company, of all necessary rulings or
orders of Canadian securities regulatory authorities exempting the distribution
by Nortel of the Nortel Common Shares and options to purchase Nortel Common
Shares under the Merger and the resale of Nortel Common Shares issued under the
Merger in Canada as contemplated by this Agreement from the registration and
prospectus requirements under applicable Canadian securities laws on terms
reasonably satisfactory to Nortel and the Company.
6.04. Press Releases. Nortel and the Company shall jointly agree on an
initial press release with respect to the transactions contemplated hereby and
in compliance with applicable law. The Company will not, without the prior
approval of Nortel, issue any other press release or written statement for
general circulation (including any written statement circulated to employees,
customers or other third parties) relating to the transactions contemplated
hereby, except, based on the advice of counsel, as otherwise required by
applicable law or regulation or NASD rules and only after consulting, or using
its reasonable best efforts to consult, with Nortel.
6.05. Access; Information. (a) Upon reasonable notice and subject to
applicable laws relating to the exchange of information, the Company shall
afford to the officers, employees, counsel, accountants and other authorized
representatives of Nortel, reasonable access, during normal business hours
throughout the period prior to the Effective Date, to all of its properties,
books, contracts, commitments and records and, during such period, it shall
furnish promptly to Nortel (i) a copy of each material report, schedule and
other document filed by it pursuant to the requirements of federal or state
securities laws, and (ii) all other information concerning the business,
properties and personnel of it as Nortel may reasonably request; provided that
such information may not be used for any purpose unrelated to the consummation
of the transactions contemplated by this Agreement. The Company shall promptly
inform Nortel of any material litigation, claim or other proceeding before any
court or other governmental authority that arises following the date of this
Agreement and any material development in any such existing material litigation,
claim or other proceeding. The Company and its Subsidiaries shall not be
required to provide access to or to disclose information where such access or
disclosure would contravene any law, rule, regulation, order, judgment, decree
or agreement. Nortel and the Company shall make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply.
(b) Subject to the requirements of applicable law, pending consummation of
the Merger, all non-public information provided by the Company to Nortel and
Nortel to the Company pursuant to this Agreement or otherwise will remain
subject to the obligations of Nortel and the Company under the Confidentiality
Agreement.
(c) No investigation by a party, pursuant to this Section 6.05 or
otherwise, shall affect or be deemed to modify any representation or warranty of
the other party contained herein.
6.06. Acquisition Proposals. (a) The Company shall not, and shall cause its
Subsidiaries and the officers, directors, agents and advisors of the Company and
its Subsidiaries not to, initiate, solicit or encourage inquiries or proposals
with respect to, or engage in any negotiations concerning, or provide any
confidential information to, or have any discussions with, any person relating
to, any Acquisition Proposal. Notwithstanding the foregoing, the Company shall
be permitted to engage in any discussions or negotiations with, or provide any
information to, any Person in response to a bona fide written Acquisition
Proposal by any such Person, if and only to the extent that in each such case
such proposal was not solicited or encouraged in violation of this Agreement and
(i) the Company Meeting shall not have occurred; (ii) the Company Board
determines in good faith that such Acquisition Proposal would, if consummated,
constitute a Superior Proposal and is reasonably likely to be consummated; (iii)
the Company Board determines, in good faith after consultation with outside
counsel, that such action is legally required as a matter of the fiduciary
duties of the directors under applicable law; and (iv) prior to providing any
information or data to any Person or entering into discussions or negotiations
with any Person, the Company receives from such Person an executed
confidentiality agreement containing terms no less restrictive with respect to
such Person than the terms of the Confidentiality Agreement with respect to
Nortel. The Company shall notify Nortel promptly, but in any event within 24
hours, of any such inquiries, proposals, or offers received by, any such
information requested from, or any such discussions or negotiations sought to be
initiated or continued with, any of its representatives indicating, in
connection with such notice, the name of such Person and the material terms and
conditions of any proposals or offers. For the purposes of this Agreement,
"Superior Proposal" shall mean any bona fide Acquisition Proposal made by a
third party that was not solicited or encouraged in violation of this Agreement
and which the Company Board determines in its good faith judgment (based on the
written opinion to such effect by a financial advisor of nationally recognized
reputation) to be materially more favorable to the stockholders of the Company
than the transactions contemplated by this Agreement. the Company shall
immediately cease and cause to be terminated any activities, discussions or
negotiations conducted prior to the date of this Agreement with any parties
other than Nortel with respect to any Acquisition Proposal. The Company shall
advise Nortel of any material developments with respect to any proposal as to
which the Company is exercising its rights pursuant to the second sentence of
this Section 6.06 promptly upon the occurrence thereof.
(b) Subject to Section 8.01 (e)(ii), neither the Company Board nor any
committee thereof shall (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Nortel, the approval and declaration of
advisability by the Company Board of the "agreement of merger" (as such term is
used in Section 251 of the DGCL) contained in this Agreement notwithstanding any
withdrawal by the Company Board of its recommendation of such "agreement of
merger" (whether or not permitted by subsection (c) below), (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal, (iii)
cause the Company or any of its Subsidiaries to enter into any letter of intent,
agreement in principle, acquisition agreement, merger agreement or other similar
agreement with respect to any Acquisition Proposal or (iv) other than in
accordance with subsection (c) below, withdraw or modify, in a manner adverse to
Nortel, or fail to make, the recommendation to Company stockholders of such
"agreement of merger."
(c) Notwithstanding subsection (b)(iv) above, but subject to subsections
(b)(i)-(iii) above in the event (but only in the event) that the Company Board
determines in good faith, after consultation with outside counsel, that, having
received a Superior Proposal, such action is legally required as a matter of the
fiduciary duties of the directors under applicable law, the Company Board may
withdraw or modify its recommendation to Company stockholders of the "agreement
of merger" contained in this Agreement (or not recommend it in the Company Proxy
Statement), but only at a time that is after the third Business Day following
Nortel's receipt of written notice advising Nortel that the Company Board has
received a proposal which may be a Superior Proposal, specifying the material
terms and conditions of such proposal and identifying the Person making such
proposal.
(d) Nothing in this Section 6.06 shall (i) prohibit the Company from
complying, to the extent applicable, with Rules 14d-9 and 14e-2(a) promulgated
under the Exchange Act with respect to an Acquisition Proposal or (ii) permit
the Company to violate its obligations under the first sentence of Section 6.02.
6.07. Affiliate Agreements. (a) Not later than the mailing of the Company
Proxy Statement, the Company shall deliver to Nortel a schedule of each person
that, to the best of its knowledge, is or is reasonably likely to be, as of the
date of the Company Meeting, deemed to be an "affiliate" of it (each, a "Company
Affiliate") as that term is used in Rule 145 under the Securities Act.
Thereafter, the Company shall promptly notify Nortel upon becoming aware of any
other person that is or is reasonably likely to be, as of the date of the
Company Meeting, deemed to be a Company Affiliate.
(b) The Company shall use its reasonable best efforts to cause each person
who may be deemed to be a Company Affiliate to execute and deliver to Nortel on
or before the date of mailing of the Company Proxy Statement (or, in the case of
any person identified as a possible Company Affiliate after such date, as
promptly thereafter as possible) an agreement in the form attached hereto as
Exhibit A.
6.08. Takeover Laws. Subject to Section 6.06, no party shall take any
action that would cause the transactions contemplated by this Agreement, the
Option Agreement, and the Stockholders' Agreement to be subject to requirements
imposed by any Takeover Law and each of them shall take all necessary steps
within its control to exempt (or ensure the continued exemption of), or minimize
the effect on, the transactions contemplated by this Agreement and the Option
Agreement from, or if necessary challenge the validity or applicability of, any
applicable Takeover Law, as now or hereafter in effect, including, without
limitation, Section 203 of the DGCL or any other Takeover Laws that purport to
apply to this Agreement or the Option Agreement or the transactions contemplated
hereby or thereby.
6.09. The Company Rights Agreement. The Company Board shall take all
further action (in addition to that referred to in Section 5.01(n)) necessary
(including redeeming the Company Stockholder Protection Rights immediately prior
to the Effective Time or amending the Company Rights Agreement) in order to
render the Company Stockholder Protection Rights inapplicable to the Merger and
the other transactions contemplated by this Agreement, the Option Agreement, and
the Stockholders' Agreement. The Company Board shall take no action (including
redeeming the Company Stockholder Protection Rights or amending the Company
Rights Agreement) in order to render the Company Stockholder Protection Rights
inapplicable in connection with any Acquisition Proposal.
6.10. Shares Listed. Nortel shall use its reasonable best efforts to list,
prior to the Effective Date, on the NYSE and the Canadian Stock Exchanges,
subject to official notice of issuance, the Nortel Common Shares to be issued to
the holders of Company Common Stock in the Merger and upon exercise of Company
Stock Options to be assumed by Nortel by reason of the Merger.
6.11. Regulatory Applications. (a) Nortel and the Company and their
respective Subsidiaries shall cooperate and use their respective reasonable best
efforts (i) to prepare all documentation, to effect all filings (including,
without limitation, filings under the HSR Act and the Competition Act (Canada))
and to obtain all permits, consents, approvals and authorizations of all third
parties and Governmental Authorities necessary to consummate the transactions
contemplated by this Agreement and (ii) to cause the Merger to be consummated as
expeditiously as reasonably practicable. Each of Nortel and the Company shall
have the right to review in advance, and to the extent practicable each will
consult with the other, in each case subject to applicable laws relating to the
exchange of information, with respect to, all material written information
submitted to any third party or any Governmental Authority in connection with
the transactions contemplated by this Agreement. In exercising the foregoing
right, each of the parties hereto agrees to act reasonably and as promptly as
practicable. Each party hereto agrees that it will consult with the other party
hereto with respect to the obtaining of all material permits, consents,
approvals and authorizations of all third parties and Governmental Authorities
necessary or advisable to consummate the transactions contemplated by this
Agreement and each party will keep the other party apprised of the status of
material matters relating to completion of the transactions contemplated hereby.
(b) Each party agrees, upon request, to furnish the other party with all
information concerning itself, its Subsidiaries, directors, officers and
stockholders and such other matters as may be reasonably necessary or advisable
in connection with any filing, notice or application made by or on behalf of
such other party or any of its Subsidiaries to any third party or Governmental
Authority.
(c) In furtherance and not in limitation of the covenants of the parties
contained in Sections 6.11(a) and (b), if any objections are asserted with
respect to the transactions contemplated hereby under any Regulatory Law or if
any suit is instituted or threatened by any Governmental Authority or any
private party challenging any of the transactions contemplated hereby as
violative of any Regulatory Law, each of Nortel and the Company shall use its
reasonable best efforts to resolve any such objections or challenge as such
Governmental Authority or private party may have to such transactions under such
Regulatory Law so as to permit consummation of the transactions contemplated by
this Agreement, and if any administrative or judicial action or proceeding,
including any proceeding by a private party, is instituted (or threatened to be
instituted) challenging any transaction contemplated by this Agreement as
violative of any Regulatory Law, each of Nortel and the Company shall cooperate
in all respects with each other and use its respective reasonable best efforts
to contest and resist any such action or proceeding and to have vacated, lifted,
reversed or overturned any decree, judgment, injunction or other order, whether
temporary, preliminary or permanent, that is in effect and prohibits, prevents
or restricts consummation of the transactions contemplated by this Agreement.
Notwithstanding the foregoing or any other provision of this Agreement, nothing
in this Section 6.11 shall limit a party's right to terminate this Agreement
pursuant to Section 7.01(b) or 8.01(d) so long as such party has theretofore
complied in all respects with its obligations under this Section 6.11.
(d) Nothing contained in this Agreement shall require Nortel or any of its
Subsidiaries to sell or otherwise dispose of, or to hold separately, or permit
the sale or other disposition of, any assets of Nortel, the Company or their
respective Subsidiaries, or require Nortel to refrain from exercising full
authority over the Company and its Subsidiaries after the Effective Time,
whether as a condition to obtaining any approval from a Governmental Authority
or any other Person or for any other reason. 6.12. Indemnification. (a)
Following the Effective Date and until the expiration of any applicable
statutory limitations period, the Surviving Corporation shall indemnify, defend
and hold harmless the present and former directors and officers of the Company
and its Subsidiaries (each, an "Indemnified Party") against all costs or
expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages or liabilities (collectively, "Costs") incurred in connection
with any claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of actions or omissions
occurring at or prior to the Effective Time (including, without limitation, the
transactions contemplated by this Agreement and the Option Agreement) to the
fullest extent that the Company is permitted to indemnify its directors and
officers under the laws of the State of Delaware, the Company Certificate and
the Company's by-laws as in effect on the date hereof (and the Surviving
Corporation shall also advance expenses as incurred to the fullest extent
permitted under applicable law).
(b) For a period of six years from the Effective Time, Nortel shall provide
a "runoff" policy with respect to that portion of director's and officer's
liability insurance that serves to cover the present and former officers and
directors of the Company and its Subsidiaries (determined as of the Effective
Time) with respect to claims against such directors and officers arising from
facts or events which occurred at or before the Effective Time, which "runoff"
insurance shall contain at least the same maximum coverage and amounts to such
officers and directors, and contain terms and conditions no less advantageous,
as that coverage currently provided by the Company; provided, however, that in
no event shall Nortel be required to expend to maintain or obtain the insurance
called for by this Section 6.12(b) more than 200 percent of the current annual
amount expended by the Company to maintain or procure such directors and
officers insurance coverage for the current year (the "Insurance Amount");
provided, further, that if Nortel is unable to maintain or obtain the insurance
called for by this Section 6.12(b), Nortel shall use its reasonable best efforts
to obtain as much comparable insurance as is available for the Insurance Amount;
provided, further, that officers and directors of the Company or any Subsidiary
of the Company may be required to make application and provide customary
representations and warranties to Nortel's insurance carrier for the purpose of
obtaining such insurance.
(c) Any Indemnified Party wishing to claim indemnification under Section
6.12(a), upon learning of any claim, action, suit, proceeding or investigation
described above, shall promptly notify Nortel thereof; provided, that the
failure so to notify shall not affect the obligations of Nortel under Section
6.12(a) unless and to the extent such failure materially increases Nortel's
liability under such subsection (a).
(d) If Nortel or any of its successors or assigns shall consolidate with or
merge into any other entity and shall not be the continuing or surviving entity
of such consolidation or merger or shall transfer all or substantially all of
its assets to any entity, then and in each case, proper provision shall be made
so that the successors and assigns of Nortel shall assume the obligations set
forth in this Section 6.12.
6.13. Certain Employee Benefit Matters. (a) For the one year period ending
on the first anniversary of the Effective Date (the "Continuation Period"), the
Surviving Corporation shall, or shall cause its Subsidiaries to, (i) pay to each
of their respective employees, during any portion of the Continuation Period
that such employee is employed by the Surviving Corporation or any such
Subsidiary, an annual salary or hourly wage rate, as applicable, that is no less
than the annual salary or hourly wage rate payable to such employee immediately
prior to the Effective Time and (ii) provide such employee in the aggregate with
employee benefits, during any portion of the Continuation Period that such
employees are employed by the Surviving Corporation or any such Subsidiary, that
are substantially similar in the aggregate to the employee benefits provided to
such employees pursuant to the Company Plans (other than equity based benefits)
immediately prior to the Effective Time. Without limiting the foregoing, during
the Continuation Period, the Surviving Corporation and its Subsidiaries shall
continue to maintain without modification those Company Plans that provide
severance benefits and that are listed on Section 6.13(a) of the Company
Disclosure Schedule. Notwithstanding any other provision herein, none of the
Surviving Corporation, any of its Subsidiaries or Nortel will have any
obligation to continue the employment of any such employee for any period
following the Effective Time.
(b) With respect to the Plans, if any, of Nortel in which employees of the
Company or its Subsidiaries ("Company Employees") become eligible to participate
after the Effective Time (the "Nortel Plans"), Nortel shall, or shall cause the
Surviving Corporation to: (i) with respect to each Nortel Plan that is a medical
or health plan, (x) waive any exclusions for pre-existing conditions under such
Nortel Plan that would result in a lack of coverage for any condition for which
the applicable Company Employee would have been entitled to coverage under the
corresponding Company Plan in which such Company Employee was an active
participant immediately prior to his or her transfer to the Nortel Plan; (y)
waive any waiting period under such Nortel Plan to the extent that such period
exceeds the corresponding waiting period under the corresponding Company Plan in
which such Company Employee was an active participant immediately prior to his
or her transfer to the Nortel Plan (after taking into account the service credit
provided for herein for purposes of satisfying such waiting period); and (z)
provide each Company Employee with credit for any co-payments and deductibles
paid by such Company Employee prior to his or her transfer to the Nortel Plan
(to the same extent such credit was given under the analogous Company Plan prior
to such transfer) in satisfying any applicable deductible or out-of-pocket
requirements under such Nortel Plan for the plan year that includes such
transfer; and (ii) recognize all service of the Company Employees with the
Company or any of its Subsidiaries for purposes of eligibility to participate,
vesting credit, entitlement to benefits, and, solely with respect to vacation
and severance benefits, benefit accrual in any Nortel Plan in which the Company
Employees are eligible to participate after the Effective Time; provided that
the foregoing shall not apply to the extent it would result in duplication of
benefits. Nothing in this paragraph shall be interpreted to require Nortel to
provide for the participation of any Company Employee in any Nortel Plan.
(c) To the extent applicable, Nortel and the Company shall each take such
reasonable steps as are required to cause the disposition and acquisition of
equity securities (including derivative securities) pursuant to Article III of
this Agreement in connection with the consummation of the Merger by each
individual who is an officer or director of the Company to qualify for exemption
from Section 16(b) of the Exchange Act pursuant to Rule 16b-3(e) promulgated
under the Exchange Act.
6.14. Accountants' Letters. Each of the Company and Nortel shall use its
reasonable best efforts to cause to be delivered to the other party a letter of
Deloitte & Touche LLP ("Deloitte"), respectively, independent auditors, dated a
date within two Business Days of the date on which the Registration Statement
shall become effective and addressed to such other party, and in form and
substance customary for "comfort" letters delivered by independent accountants
(x) in the case of Deloitte in its capacity as independent auditors to the
Company, in accordance with Statement of Accounting Standards No. 72 and (y) in
the case of Deloitte in its capacity as independent auditors to Nortel, in
accordance with the Handbook of The Canadian Institute of Chartered Accountants.
6.15. Notification of Certain Matters. (a) Each of the Company and Nortel
shall give prompt notice to the other of any fact, event or circumstance known
to it that would cause or constitute a material breach of any of its
representations, warranties, covenants or agreements contained herein.
(b) Nortel shall promptly notify the Company, and the Company shall
promptly notify Nortel, in writing, of any notice or other communication from
any regulatory authority or self-regulatory organization in connection with the
transactions contemplated by this Agreement or the Option Agreement.
(c) Each of Nortel and the Company shall promptly notify the other of any
fact, event or circumstance known to it that could reasonably be expected to,
individually or taken together with all other facts, events and circumstances
known to it, cause the Merger to fail to qualify as a "reorganization" within
the meaning of Section 368(a) of the Code.
6.16. Certain Tax Matters. Each of Nortel and the Company will use its
reasonable best efforts to cause the Merger to constitute a reorganization
within the meaning of Section 368(a) of the Code, and to timely satisfy, or
cause to be timely satisfied, all applicable tax reporting and filing
requirements contained in the U.S. Code and Treasury Regulations with respect to
the Merger, including the reporting requirements contained in U.S. Treasury
Regulation Section 1.367(a)-3(c)(6).
6.17. Agreements with Respect to Assumption of Company Stock Options.
Nortel will use its reasonable best efforts to obtain any requisite approval of
the Canadian Stock Exchanges of Nortel's assumption of the Company Stock Options
and the exercisability thereof by the holders thereof to acquire Nortel Common
Shares. If the Canadian Stock Exchanges require, as a condition to granting any
such approval, that the holders of Nortel Common Shares approve such assumption
and exercisability, Nortel will, subject to the second succeeding sentence,
take, in accordance with this Agreement, applicable law, applicable rules of the
Canadian Stock Exchanges and its articles of incorporation and by-laws, all
action necessary to convene an appropriate meeting of its shareholders to
consider and vote upon the approval of such assumption and exercisability, such
meeting to be held no later than five business days after the Company Meeting.
Nortel shall at all times recommend such approval and shall take all reasonable
lawful action to solicit such approval by its shareholders. In lieu of seeking
such approval, Nortel may elect to permit the following (and, if such approval
of Nortel's shareholders is not obtained, the following shall apply): the
Company shall be permitted to take all necessary or appropriate actions to cause
the acceleration of the vesting of the Company Stock Options so that they may be
exercised by the holders thereof beginning three business days prior to the
Effective Time and the Company shall take all necessary or appropriate actions
so that any Company Stock Options remaining unexercised at the Effective Time
shall, without the necessity of any further action by the holders thereof, be
canceled and converted into the right of the holder thereof to receive, in lieu
of shares of Company Common Stock and subject to applicable income tax
withholding and employer taxes, for each share of Company Common Stock covered
thereby, an amount in cash equal to the difference obtained by subtracting the
exercise price per share of such Company Stock Option from $29.23. In the event
that Nortel makes the described election, or such Nortel shareholder approval
has not been obtained, from and after the Effective Time, all Company Stock
Options shall represent only the right of the holders thereof to receive payment
of the amount described above upon surrender thereof and all Company Stock
Option Plans shall terminate as of the Effective Time. In such event, the
Company shall take all permitted actions necessary to ensure that, following the
Effective Time, no participant in any Company Stock Option Plan shall have any
right thereunder to acquire equity securities or other ownership interests of
Nortel, the Company, the Surviving Corporation or any Subsidiary thereof and to
terminate all Company Stock Option Plans.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.01. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each of Nortel, Sub and the Company to consummate the
Merger is subject to the fulfillment or written waiver by Nortel, Sub and the
Company prior to the Effective Time of each of the following conditions:
(a) Stockholder Approvals. This "agreement of merger" (as that term is used
in Section 251 of the DGCL) and the Merger shall have been duly adopted by the
requisite vote of the stockholders of the Company.
(b) Regulatory Approvals. All regulatory approvals required to consummate
the transactions contemplated hereby shall have been obtained and shall remain
in full force and effect and all statutory waiting periods in respect thereof
shall have expired and (in the case of Nortel's obligation to consummate the
Merger) no such approvals shall contain any conditions, restrictions or
requirements which would reasonably be expected to (i) following the Effective
Time, have a Material Adverse Effect on Nortel and its Subsidiaries taken as a
whole or on the Surviving Corporation or (ii) require Nortel to take any action
that it is not required to take under Section 6.11(d) hereof.
(c) No Injunction. No Governmental Authority of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, judgment, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and enjoins or prohibits
consummation of the Merger.
(d) Registration Statement. The Registration Statement shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and be in
effect and no proceedings for that purpose shall have been initiated or
threatened by the SEC and not concluded or withdrawn.
(e) Listing. The Nortel Common Shares to be issued in the Merger and upon
exercise of Company Stock Options to be assumed by Nortel by reason of the
Merger shall have received conditional approval for listing on the NYSE and the
Canadian Stock Exchanges, subject to official notice of issuance.
7.02. Conditions to Obligation of the Company. The obligation of the
Company to consummate the Merger is also subject to the fulfillment or written
waiver by the Company prior to the Effective Time of each of the following
conditions:
(a) Representations and Warranties. All representations and warranties of
Nortel set forth in this Agreement (without giving effect to any standard,
qualification or exception contained therein with respect to materiality or
Material Adverse Effect) shall be true and correct, as of the date of this
Agreement and as of the Effective Date as though made on and as of the Effective
Date (except that representations and warranties that by their terms speak as of
the date of this Agreement or some other date shall be true and correct as of
such date), except as would not have or reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Nortel; and the
Company shall have received a certificate, dated the Effective Date, signed on
behalf of Nortel by the Chief Executive Officer or the Chief Financial Officer
of Nortel to such effect.
(b) Performance of Obligations. Nortel shall have performed in all material
respects all obligations required to be performed by it under this Agreement at
or prior to the Effective Time, and the Company shall have received a
certificate, dated the Effective Date, signed on behalf of Nortel by the Chief
Executive Officer or the Chief Financial Officer of Nortel to such effect.
(c) Opinion of the Company's Counsel. The Company shall have received an
opinion of Fried, Frank, Harris, Shriver & Jacobson, counsel to the Company,
dated the Effective Date, to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion, (a) the Merger
constitutes a reorganization within the meaning of Section 368 (a) of the Code,
(b) Nortel shall be treated as a corporation under Section 367(a)(1) of the Code
with respect to each transfer of property thereto pursuant to the Merger, and
(c) that, accordingly, (i) no gain or loss will be recognized by the Company as
a result of the Merger and (ii) no gain or loss will be recognized by a
stockholder of the Company who receives Nortel Common Shares in exchange for
shares of Company Common Stock, except with respect to cash received in lieu of
fractional share interests. In rendering its opinion, such counsel may require
and rely upon representations contained in letters from the Company, Nortel, Sub
and stockholders of the Company. Counsel's opinion shall not address the tax
consequences applicable to any stockholder of the Company who, immediately after
the Merger, will be a "five percent transferee shareholder" with respect to
Nortel within the meaning of U.S. Treasury Regulation Section 1.367(a)-3(c)(5).
(d) No Material Adverse Effect. From the date of this Agreement, no event
shall have occurred or circumstance arisen or been discovered that, individually
or taken together with all other such events and circumstances, has had or would
reasonably be expected to have a Material Adverse Effect on Nortel.
7.03. Conditions to Obligation of Nortel and Sub. The obligations of Nortel
and Sub to consummate the Merger are also subject to the fulfillment or written
waiver by Nortel and Sub prior to the Effective Time of each of the following
conditions:
(a) Representations and Warranties. All representations and warranties of
the Company set forth in this Agreement (without giving effect to any standard,
qualification or exception contained therein with respect to materiality or
Material Adverse Effect) shall be true and correct, as of the date of this
Agreement and as of the Effective Date as though made on and as of the Effective
Date (except that representations and warranties that by their terms speak as of
the date of this Agreement or some other date shall be true and correct as of
such date), except as would not have or reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company; and
Nortel and Sub shall have received a certificate, dated the Effective Date,
signed on behalf of the Company by the Chief Executive Officer and the Chief
Financial Officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Effective Time, and Nortel and Sub
shall have received a certificate, dated the Effective Date, signed on behalf of
the Company by the Chief Executive Officer and the Chief Financial Officer of
the Company to such effect.
(c) Material Adverse Effect. From the date of this Agreement, no event
shall have occurred or circumstance arisen or been discovered that, individually
or taken together with all other such events and circumstances has had or would
reasonably be expected to have a Material Adverse Effect on the Company.
(d) Opinion of Nortel and Sub's Counsel. Nortel shall have received an
opinion of Cleary, Gottlieb, Steen & Hamilton, special counsel to Nortel and Sub
dated the Effective Date, to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion, (a) the Merger
constitutes a reorganization under Section 368(a) of the Code, (b) Nortel shall
be treated as a corporation under Section 367(a)(1) of the Code with respect to
each transfer of property thereto pursuant to the Merger and (c) that,
accordingly, (i) no gain or loss will be recognized by the Company as a result
of the Merger and (ii) no gain or loss will be recognized by a stockholder of
the Company who receives Nortel Common Shares in exchange for shares of the
Company Common Stock, except with respect to cash received in lieu of fractional
share interests. In rendering its opinion, such counsel may require and rely
upon representations contained in letters from the Company, Nortel, Sub and
stockholders of the Company. Counsel's opinion shall not address the tax
consequences applicable to any stockholder of the Company who, immediately after
the Merger, will be a "five percent transferee shareholder" with respect to
Nortel within the meaning of U.S. Treasury Regulation Section 1.367(a)-3(c)(5).
(e) No Action Seeking Injunction. No Governmental Authority of competent
jurisdiction shall have brought an action or proceeding seeking to enjoin or
prohibit consummation, or require the unwinding, of the Merger, or to impose
substantial penalties as a result of the Merger, which action or proceeding is
reasonably likely to succeed.
ARTICLE VIII
TERMINATION
8.01. Termination. This Agreement may be terminated, and the
Merger may be abandoned:
(a) Mutual Consent. At any time prior to the Effective Time, by the mutual
consent of Nortel and the Company by action taken by their respective Boards of
Directors.
(b) Breach. At any time prior to the Effective Time, by Nortel or the
Company, in the event of either: (i) a breach by the other party of any
representation or warranty contained herein which would result in the
non-satisfaction of the conditions set forth in Sections 7.02(a) and 7.03(a), as
the case may be, which breach is not capable of being cured or has not been
cured within 10 calendar days after the giving of written notice to the
breaching party of such breach; or (ii) a material breach by the other party of
any of the covenants or agreements contained herein, which breach is not capable
of being cured or has not been cured within 10 calendar days after the giving of
written notice to the breaching party of such breach. Without limiting the
foregoing, for all purposes of this Agreement, any breach of the agreements
contained in Section 6.06 or in the first sentence of Section 6.02 shall
constitute a breach which is not capable of being cured.
(c) Delay. At any time prior to the Effective Time, by Nortel or the
Company, if its Board of Directors so determines, in the event that the Merger
is not consummated by March 31, 2000, or, in the event that an approval of any
Governmental Authority required to be obtained for the consummation of the
transactions contemplated by this Agreement has not been obtained, June 30,
2000, except to the extent that the failure of the Merger then to be consummated
arises out of or results from the knowing action or inaction of the party
seeking to terminate pursuant to this Section 8.01(c) which action or inaction
is in violation of its obligations under this Agreement.
(d) No Approval.
(i) By the Company or Nortel, by action taken by its Board of Directors, in
the event the approval of any Governmental Authority required for consummation
of the Merger and the other transactions contemplated by this Agreement shall
have been denied by final nonappealable action of such Governmental Authority.
(ii) By Nortel, by action taken by its Board of Directors, in the event any
required approval of a Governmental Authority contains any final, nonappealable
conditions, restrictions or requirements which would reasonably be expected to
(A) following the Effective Time, have a Material Adverse Effect on Nortel and
its Subsidiaries taken as a whole or on the Surviving Corporation or (B) require
Nortel to take any action that it is not required to take under Section 6.11(d)
hereof.
(iii) By the Company, by action taken by its Board of Directors, in the
event any required approval of a Governmental Authority contains any final,
nonappealable conditions, restrictions or requirements which would reasonably be
expected to (A) following the Effective Time, have a Material Adverse Effect on
Nortel and its Subsidiaries taken as a whole or (B) require Nortel to take any
action that it is not required to take under Section 6.11(d) hereof, unless (in
either case) within 30 days following receipt by Nortel of written notice of the
Company's intent to terminate this Agreement under this clause (iii) Nortel
notifies the Company that it waives its right to terminate this Agreement under
clause (ii) above.
(iv) By Nortel or the Company, if its Board of Directors so determines, in
the event the approval of the Company's stockholders required by Section 7.01(a)
herein is not obtained at the Company Meeting by reason of the failure to obtain
the requisite vote required by Section 7.01(a) at a duly held meeting or an
adjournment thereof.
(e) Board Action.
(i) By Nortel if the Board of Directors of the Company, prior to the
Company Meeting (A) shall withdraw or modify in any adverse manner its
recommendation of the "agreement of merger" (as such term is used in Section 251
of the DGCL) contained in this Agreement (whether or not such withdrawal or
modification is permitted by Section 6.06(c)), or (B) shall resolve to do so.
(ii) By the Company if the Board of Directors of the Company, prior to the
Company Meeting shall elect to terminate this Agreement, in order to recommend
or approve a Superior Proposal; provided that (x) the Company has notified
Nortel in writing that it intends to recommend or approve a Superior Proposal,
attaching the most current version of such proposal to such notice, and (y) at
any time after the third Business Day following written notification by the
Company to Nortel of the Company's intention to enter into a binding agreement
with respect to such proposal, after taking into account any modifications to
the transactions contemplated by the Agreement that Nortel has then proposed in
writing and not withdrawn, the Company Board has determined that such proposal
is and continues to be a Superior Proposal, and (z) concurrently with the giving
of notice of such termination, pays to Nortel the Termination Fee due under
Section 8.02(b) (unless Nortel has previously notified the Company of its
election to defer such payment pursuant to Section 8.02(c)).
8.02. Effect of Termination and Abandonment. (a) In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article VIII, no party to this Agreement shall have any liability or further
obligation to any other party hereunder except as set forth in subsections (b),
(c) and (d) below and in Section 9.01.
(b) Nortel and the Company agree that the Company shall pay to Nortel the
sums described below (the "Termination Fee") solely as follows:
(i) the sum of $15,000,000 either if (x) the Company shall terminate this
Agreement pursuant to Section 8.01(c) (unless the failure to consummate the
Merger by the relevant date results primarily from the action or inaction of
Nortel or from Nortel's or Sub's inability to obtain consent or approval of, or
make any filing or registration with, any Governmental Authority), (y) at any
time after the date of this Agreement and at or before the time of the event
giving rise to such termination there shall exist an Acquisition Proposal and
(z) within 12 months of the termination of this Agreement, the Company enters
into a definitive agreement with any third party with respect to an Acquisition
Proposal or an Acquisition Proposal is consummated, or if (A) the Company or
Nortel shall terminate this Agreement pursuant to Section 8.01(d)(iv) due to the
failure of the Company's stockholders to approve and adopt this Agreement, (B)
at any time after the date of this Agreement and at or before the time of the
event giving rise to such termination there shall exist an Acquisition Proposal
which has been publicly announced or the existence of which is a matter of
public knowledge and (C) within 12 months of the termination of this Agreement,
the Company enters into a definitive agreement with any third party with respect
to an Acquisition Proposal or an Acquisition Proposal is consummated;
(ii) the sum of $4,000,000 if Nortel shall terminate this Agreement
pursuant to Section 8.01(b)(i) or Section 8.01(b)(ii) following a willful breach
of any of the representations, covenants or agreements contained herein, and an
additional sum of $11,000,000 if (x) at any time after the date of this
Agreement and at or before the time of the event giving rise to such termination
there shall exist an Acquisition Proposal and (y) within 12 months of the
termination of this Agreement, the Company enters into a definitive agreement
with any third party with respect to an Acquisition Proposal or an Acquisition
Proposal is consummated;
(iii) the sum of $15,000,000 if Nortel shall terminate this Agreement
pursuant to Section 8.01(e)(i); or
(iv) the sum of $15,000,000 if the Company shall terminate this Agreement
pursuant to Section 8.01(e)(ii).
(c) Any Termination Fee required to be paid pursuant to subsection (b)(i)
above shall be payable by the Company to Nortel not later than two Business Days
after the date the Company enters into a definitive agreement with respect to,
or the date of consummation of, an Acquisition Proposal, whichever is earlier.
The sum of $4,000,000 required to be paid upon termination pursuant to
subsection (b)(ii) above shall be payable by the Company to Nortel not later
than two Business Days after the termination referred to therein, and any
additional sum of $11,000,000 required to be paid thereafter pursuant to
subsection (b)(ii) above shall be payable by the Company to Nortel not later
than two Business Days after the date the Company enters into a definitive
agreement with respect to, or the date of consummation of, an Acquisition
Proposal, whichever is earlier. Any Termination Fee required to be paid pursuant
to subsection (b)(iii) above shall be payable by the Company to Nortel not later
than two Business Days after the termination referred to therein. Any
Termination Fee required to be paid pursuant to subsection (b)(iv) shall be
payable as set forth in clause (z) of Section 8.01(e)(ii). In no event shall
more than $15,000,000 be payable in respect of the Termination Fee.
Notwithstanding the foregoing, (i) Nortel may elect, by notice to the Company,
to defer the payment of the Termination Fee from time to time for a period or
periods of up to an aggregate of twelve months after the date such fee would
otherwise be payable and (ii) the Termination Fee (including any portion thereof
pursuant to Section 8.02(b)(ii)) shall cease to be payable immediately following
any exercise by Nortel of the Option under the Option Agreement. All payments
under this Section 8.02 shall be made by wire transfer of immediately available
funds to an account designated by the party entitled to receive payment.
(d) If the Company shall terminate this Agreement pursuant to Section
8.01(b)(i) or Section 8.01(b)(ii) following a willful breach of any of the
representations, covenants or agreements contained herein, Nortel shall pay to
the Company the sum of $4,000,000 (the "Company Termination Fee"). The Company
Termination Fee shall be payable by Nortel to the Company not later than two
Business Days after the termination by the Company pursuant to Section
8.01(b)(i) or Section 8.01(b)(ii); provided that in no event shall more than one
Company Termination Fee be payable. All payments under this Section 8.02(d)
shall be made by wire transfer of immediately available funds to an account
designated by the Company.
ARTICLE IX
MISCELLANEOUS
9.01. Survival. All representations, warranties, agreements and covenants
contained in this Agreement shall not survive the Effective Time or termination
of this Agreement if this Agreement is terminated prior to the Effective Time;
provided, however, if the Effective Time occurs, the agreements of the parties
in Sections 6.01, 6.03, 6.10, 6.12, 6.13 and 6.16 and this Article IX shall
survive the Effective Time, and if this Agreement is terminated prior to the
Effective Time, the agreements of the parties in the proviso to Section 6.05(a),
Sections 6.05(b) and 8.02 and Article IX and in the Confidentiality Agreement
shall survive such termination and the Option Agreement shall survive to the
extent provided therein.
9.02. Amendment; Extension; Waiver. (a) Subject to compliance with
applicable law, this Agreement may be amended by the parties hereto, by action
taken or authorized by their respective Boards of Directors, at any time before
or after approval of the matters presented in connection with the Merger by the
stockholders of the Company; provided, however, that after any approval of the
transactions contemplated by this Agreement by the stockholders of the Company,
there may not be, without further approval of such stockholders, any amendment
of this Agreement which by law requires further approval by such stockholders
without such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
(b) Prior to the Effective Time, the parties hereto, by action taken or
authorized by their respective Boards of Directors, may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party, but such extension or waiver or
failure to insist on strict compliance with an obligation, covenant, agreement
or condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
9.03. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
9.04. Governing Law. This Agreement shall be governed by, and interpreted
in accordance with, the laws of the State of New York (except insofar as
mandatory provisions of Delaware law are applicable), without regard to the
conflict of law principles thereof.
9.05. Expenses. Subject to Section 8.02(b), each party hereto will bear all
expenses incurred by it in connection with this Agreement and the transactions
contemplated hereby, except that printing and mailing expenses and SEC
registration and filing fees shall be shared equally between the Company and
Nortel.
9.06. Notices. All notices, requests and other communications hereunder to
a party shall be in writing and shall be deemed given if personally delivered,
telecopied (with confirmation) or three Business Days after being mailed by
registered or certified mail (return receipt requested) or one Business Day
after being delivered by overnight courier to such party at its address set
forth below or such other address as such party may specify by notice to the
parties hereto.
If to Nortel or to Sub, to:
Nortel Networks Corporation
8200 Dixie Road, Suite 100
Brampton, Ontario
Canada L6T 5P6
Attention: Corporate Secretary
Fax: (905) 863-8386
Phone: (905) 863-0000
With a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Victor I. Lewkow, Esq.
Fax: (212) 225-3999
Phone: (212) 225-2000
If to the Company, to:
Periphonics Corporation
4000 Veterans Memorial Highway
Bohemia, NY 11716
Attention: Peter J. Cohen
Fax: (516) 467-1755
Phone: (516) 468-9000
With a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Avenue
Suite 800
Washington, DC 20004
Attention: Stephen I. Glover, Esq.
Fax: (202) 639-7008
Phone: (202) 639-7000
and another copy to:
Ruskin, Moscou, Evans & Faltischek, P.C.
170 Old Country Road
Mineola, New York 11501
Attention: Norman Friedland, Esq.
Fax: (516) 663-6601
Phone: (516) 663-6600
9.07. Entire Understanding. This Agreement (including the Disclosure
Schedules), the Option Agreement and the Confidentiality Agreement represent the
entire understanding of the parties hereto with reference to the transactions
contemplated hereby and thereby and this Agreement supersedes any and all other
oral or written agreements (other than the Option Agreement and the
Confidentiality Agreement) heretofore made.
9.08. Assignment; No Third Party Beneficiaries. Neither this Agreement, nor
any of the rights, interests or obligations shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns. Except for Section
6.12, nothing in this Agreement expressed or implied, is intended to confer upon
any person, other than the parties hereto or their respective successors, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
9.09. Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Disclosure Schedules, such reference shall be to a Section
of, or Exhibit or Disclosure Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and are not part of this Agreement. Whenever the
words "include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation". Any reference
to "herein" or "hereof" or similar terms shall refer to the agreement as a whole
rather than to the individual paragraph, section or article.
9.10. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as it is enforceable.
9.11. Pre-Termination Equitable Remedies. Prior to any termination of this
Agreement, each party hereto shall retain all rights to equitable remedies to
which it is entitled under applicable law.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
NORTEL NETWORKS CORPORATION
By: /s/
--------------------------
Name:
Title:
By: /s/
--------------------------
Name:
Title:
NORTH SUBSIDIARY, INC.
By: /s/
--------------------------
Name:
Title: President
PERIPHONICS CORPORATION
By: /s/
--------------------------
Name:
Title:
<PAGE>
Exhibit A
Form of Affiliate Letter
Nortel Networks Corporation
8200 Dixie Road, Suite 100
Brampton, Ontario, Canada
L6T 5P6
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed to
be an "affiliate" of Periphonics Corporation, 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 23, 1999 (the "Agreement"), by
and between Nortel Networks Corporation, a Canadian corporation ("Nortel"),
North Subsidiary, Inc., a Delaware corporation and wholly owned subsidiary of
Nortel ("Sub") and the Company, Sub will merge into the Company or the Company
will merge with and into Sub (the "Merger").
As a result of the Merger, I may receive common shares, without par value,
of Nortel (the "Nortel Common Shares") in exchange for shares owned by me of
common stock, par value $0.01 per share, of the Company.
I represent, warrant and covenant to Nortel that in the event I receive any
Nortel Common Shares as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of Nortel
Common Shares in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Agreement and discussed the
requirements of such documents and other applicable limitations upon my ability
to sell, transfer or otherwise dispose of the Nortel Common Shares, to the
extent I felt necessary, with my counsel or counsel for Nortel.
C. I have been advised that the issuance of Nortel Common Shares to me
pursuant to the Merger has been registered with the Commission under the Act on
a Registration Statement on Form S-4. However, I have also been advised that,
since at the time the Merger was submitted for a vote of the stockholders of the
Company, I may be deemed to have been an affiliate of the Company and the
distribution by me of the Nortel Common Shares has not been registered under the
Act, I may not sell, transfer or otherwise dispose of the Nortel Common Shares
issued to me 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 Nortel, 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. I understand that, except as may be provided in any registration rights
agreement entered into by Nortel and the undersigned, Nortel is under no
obligation to register the sale, transfer or other disposition of the Nortel
Common Shares by me or on my behalf under the Act or to take any other action
necessary in order to make compliance with an exemption from such registration
available.
Execution of this letter should not be considered an admission on my part
that I am an "affiliate" of the Company as described in the first paragraph of
this letter or as a waiver of any rights I may have to object to any claim that
I am such an affiliate on or after the date of this letter.
Very truly yours,
-----------------
Agreed to and Accepted this
____ day of _________, 1999
NORTEL NETWORKS CORPORATION
By: /s/
-----------------------
Name:
Title:
By: /s/
-----------------------
Name:
Title:
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of August 24, 1999 (the "Agreement"),
between NORTEL NETWORKS CORPORATION, a Canadian corporation ("Grantee"), and
PERIPHONICS CORPORATION, a Delaware corporation ("Issuer").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Grantee and Issuer are entering into an
Agreement and Plan of Merger (the "Merger Agreement");
WHEREAS, as a condition and inducement to Grantee's execution of the Merger
Agreement and in furtherance of the transactions contemplated thereby and in
consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined); and
WHEREAS, the Board of Directors of Issuer has approved the grant of the
Option and the Merger Agreement prior to the execution hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. The Option. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
to an aggregate of 2,634,131 fully paid and nonassessable shares of the common
stock, $0.01 par value per share, of Issuer ("Common Stock") at a price per
share equal to $29.23 (such price, as adjusted if applicable, the "Option
Price"); provided, however, that in the event Issuer issues or agrees to issue
any shares of Common Stock (other than as permitted under the Merger Agreement)
at a price less than the Option Price (as adjusted pursuant to Section 5), the
Option Price shall be equal to such lesser price; provided, further, that in no
event shall the number of shares for which this Option is exercisable exceed
19.9% of the issued and outstanding shares of Common Stock at the time of
exercise without giving effect to the shares of Common Stock issued or issuable
under the Option. The number of shares of Common Stock that may be received upon
the exercise of the Option and the Option Price are subject to adjustment as
herein set forth.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement and other than pursuant to an event described in
Section 5(a) hereof), the number of shares of Common Stock subject to the Option
shall be increased so that, after such issuance, such number together with any
shares of Common Stock previously issued pursuant hereto, equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing contained
in this Section 1(b) or elsewhere in this Agreement shall be deemed to authorize
Issuer to breach any provision of the Merger Agreement.
2. Exercise; Closing. (a) Grantee and/or any other person that shall become
a holder of all or part of the Option in accordance with the terms of this
Agreement (each such person being referred to herein as the "Holder") may
exercise the Option, in whole or part, if, but only if, both an Initial
Triggering Event (as defined below) and a Subsequent Triggering Event (as
defined below) shall have occurred prior to the occurrence of an Exercise
Termination Event (as defined below), provided that the Holder shall have sent
written notice of such exercise (as provided in subsection (f) of this Section
2) within 180 days following such Subsequent Triggering Event (or such later
period as provided in Section 10).
(b) Each of the following shall be an "Exercise Termination Event":
(i) the Effective Time (as defined in the Merger Agreement);
(ii) termination of the Merger Agreement in accordance with the provisions
thereof if such termination occurs prior to the occurrence of an Initial
Triggering Event, except a termination by Grantee pursuant to Section 8.01(b) of
the Merger Agreement as a result of a breach of a covenant by Issuer or a breach
of a representation by Issuer;
(iii) the passage of 12 months after termination of the Merger Agreement
(or such later period as provided in Section 10) if such termination (A) follows
or is concurrent with the occurrence of an Initial Triggering Event or (B) is a
termination by Grantee pursuant to Section 8.01(b) of the Merger Agreement as a
result of a breach of a covenant by Issuer or a breach of a representation by
Issuer; or
(iv) the receipt by Grantee (pursuant to its request) of the sum of $15
million in respect of the Termination Fee.
(c) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (as defined in Rule 1-02 of
Regulation S-X promulgated by the Securities and Exchange Commission (the
"SEC")) (each an "Issuer Subsidiary"), without having received Grantee's prior
written consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as defined below) with any person (the term "person"
for purposes of this Agreement having the meaning assigned thereto in Sections
3(a)(9) and 13(d)(3) of the Exchange Act) other than Grantee or any of its
Subsidiaries (each a "Grantee Subsidiary") or the Board of Directors of Issuer
shall have recommended that the stockholders of Issuer approve or accept any
Acquisition Transaction (other than the Merger referred to in the Merger
Agreement). For purposes of this Agreement, "Acquisition Transaction" shall mean
(w) a merger or consolidation, or any similar transaction, involving Issuer, (x)
a purchase, lease or other acquisition or assumption of all or more than 20% of
the consolidated assets of Issuer (including by way of merger, consolidation,
share exchange or otherwise involving any Subsidiary of Issuer), (y) a purchase
or other acquisition (including by way of merger, consolidation, share exchange
or otherwise) of beneficial ownership (the term "beneficial ownership" for
purposes of this Agreement having the meaning assigned thereto in Section 13(d)
of the Exchange Act, and the rules and regulations thereunder) of securities
representing 20% or more of the voting power of Issuer, or (z) any substantially
similar transaction; provided, however, that in no event shall any merger,
consolidation, purchase or similar transaction involving only the Issuer and one
or more of its wholly-owned Subsidiaries or involving only any two or more of
such wholly-owned Subsidiaries, be deemed to be an Acquisition Transaction, if
such transaction is not entered into in violation of the terms of the Merger
Agreement;
(ii) Issuer or any Issuer Subsidiary, without having received Grantee's
prior written consent, shall have authorized, recommended, proposed or publicly
announced its intention to authorize, recommend or propose, to engage in an
Acquisition Transaction with any person other than Grantee or a Grantee
Subsidiary or shall have authorized or engaged in, or announced its intention to
authorize or engage in, any negotiations regarding an Acquisition Transaction
with any person other than the Grantee or a Grantee Subsidiary, or the Board of
Directors of Issuer shall have failed to recommend or shall have publicly
withdrawn or modified, or publicly announced its intention to withdraw or
modify, in any manner adverse to Grantee, its recommendation that the
stockholders of Issuer approve the Merger;
(iii) The shareholders of Issuer shall have voted and failed to approve the
Merger at a meeting which has been held for that purpose or any adjournment or
postponement thereof, or such meeting shall not have been held in violation of
the Merger Agreement or shall have been canceled prior to termination of the
Merger Agreement if, prior to such meeting (or if such meeting shall not have
been held or shall have been canceled, prior to such termination), any person
(other than the Grantee or a Grantee Subsidiary) shall have made a proposal to
Issuer or its stockholders by public announcement or written communication that
is or becomes the subject of public disclosure to engage in an Acquisition
Transaction;
(iv) (a) Any person other than Grantee, any Grantee Subsidiary or any party
to the Stockholders Agreement dated as of August 24, 1999, by and among Grantee
and the Stockholders named therein (the "Stockholders Agreement") shall have
acquired beneficial ownership or the right to acquire beneficial ownership of
20% or more of the then outstanding shares of Common Stock or (b) any group (the
term "group" having the meaning assigned in Section 13(d)(3) of the Exchange
Act), other than a group of which the Grantee or any Grantee Subsidiary is a
member, shall have been formed that beneficially owns 20% or more of the shares
of Common Stock then outstanding;
(v) Any person other than Grantee or any Grantee Subsidiary shall have made
a bona fide proposal to Issuer or its stockholders to engage in an Acquisition
Transaction and such proposal shall have become publicly known;
(vi) Issuer shall have breached any covenant or obligation contained in the
Merger Agreement in anticipation of engaging in an Acquisition Transaction and
such breach (x) would entitle Grantee to terminate the Merger Agreement and (y)
shall not have been cured prior to the Notice Date (as defined below); or
(vii) Any person other than Grantee or any Grantee Subsidiary, other than
in connection with a transaction to which Grantee has given its prior written
consent, shall have filed with any federal or state regulatory or governmental
authority an application for approval or notice of intention to engage in an
Acquisition Transaction.
(d) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person or by a group other than Grantee or any
Grantee Subsidiary or persons party to the Stockholders Agreement (provided that
the Stockholders Agreement remains in full force and effect and such persons are
not claiming that such Agreement is not in full force and effect) of beneficial
ownership of 25% or more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in paragraph
(i) of subsection (c) of this Section 2, except that the references to 20% in
clause (x) and clause (y) shall each be deemed to be a reference to 25%.
(e) Issuer shall notify Grantee promptly in writing of the occurrence of
any Initial Triggering Event or Subsequent Triggering Event (together, a
"Triggering Event"), it being understood that the giving of such notice by
Issuer shall not be a condition to the right of the Holder to exercise the
Option.
(f) In the event the Holder is entitled to and wishes to exercise the
Option (or any portion thereof), it shall send to Issuer a written notice (the
date of which being herein referred to as the "Notice Date") specifying (i) the
total number of shares it will purchase pursuant to such exercise and (ii) a
place and date not earlier than three business days nor later than 60 business
days from the Notice Date for the closing of such purchase (the "Closing Date");
provided, that if the closing of such purchase cannot be consummated by reason
of any applicable judgment, injunction, decree, order, law or regulation, the
period of time that would otherwise run pursuant to this sentence shall run
instead from the date on which such restriction on consummation has expired or
been terminated; and provided, further, that if prior notification to or
approval of any regulatory or antitrust agency is required in connection with
such purchase, the Holder shall promptly file the required notice or application
for approval and shall expeditiously process the same and the period of time
that otherwise would run pursuant to this sentence shall run instead from the
date on which any required notification periods have expired or been terminated
or such approvals have been obtained and any requisite waiting period or periods
shall have passed. Any exercise of the Option shall be deemed to occur on the
Notice Date relating thereto.
(g) At the closing referred to in subsection (f) of this Section 2, the
Holder shall (i) pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated by Issuer,
provided that failure or refusal of Issuer to designate such a bank account
shall not preclude the Holder from exercising the Option.
(h) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (g) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder.
(i) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement between the registered holder hereof and
Issuer and to resale restrictions arising under applicable securities laws
(including the Securities Act of 1933, as amended). A copy of such agreement is
on file at the principal office of Issuer and will be provided to the holder
hereof without charge upon receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions arising under applicable securities laws, including the Securities
Act of 1933, as amended (the "Securities Act"), in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if the
Holder shall have delivered to Issuer a copy of a letter from the staff of the
SEC, or an opinion of counsel, in form and substance reasonably satisfactory to
Issuer, to the effect that such legend is not required for purposes of the
Securities Act or other applicable securities laws; (ii) the reference to the
provisions of this Agreement in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference in the opinion
of counsel to the Holder, in form and substance reasonably satisfactory to
Issuer; and (iii) the legend shall be removed in its entirety if the conditions
in the preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
The Holder understands and agrees that the Option is being issued to the
Holder pursuant to the registration and prospectus exceptions in paragraph 35(1)
and clause 72(1)(b) of the Securities Act (Ontario) (the "Ontario Act") and that
the resale of the Option or Common Stock issued upon exercise of the Option is
restricted by the provisions of the Ontario Act and other applicable Canadian
securities legislation.
(j) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (f) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. Issuer shall
pay all expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates under this Section 2 in the name of the
Holder or its assignee, transferee or designee.
3. Covenants of Issuer. In addition to its other agreements and covenants
herein, Issuer agrees:
(a) that it shall at all times maintain, free from any subscriptive or
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights of third parties to purchase
Common Stock from Issuer or to cause Issuer to issue shares of Common Stock;
(b) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
Issuer; and
(c) promptly to take all action (i) as may from time to time be required
(including complying with all applicable notification, filing reporting and
waiting period requirements under HSR or otherwise, and cooperating fully with
the Holder in preparing any applications or notices and providing such
information to any regulatory authority as it may require) in order to permit
the Holder to exercise the Option and Issuer duly and effectively to issue
shares of Common Stock pursuant hereto, and (ii) as may from time to time be
required to protect the rights of the Holder against dilution
4. Exchange; Replacement. This Agreement (and the Option granted hereby)
are exchangeable, without expense, at the option of the Holder, upon
presentation and surrender of this Agreement at the principal office of Issuer,
for other Agreements providing for Options of different denominations entitling
the holder thereof to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of shares
of Common Stock purchasable hereunder. The terms "Agreement" and "Option" as
used herein include any Agreements and related Options for which this Agreement
(and the Option granted hereby) may be exchanged. Upon receipt by Issuer of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Agreement, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Agreement, if mutilated, Issuer will execute and deliver a new Agreement of
like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed or mutilated shall at any time
be enforceable by any person other than the holder of the new Agreement.
5. Adjustments. In addition to the adjustment in the number of shares of
Common Stock that are purchasable upon exercise of the Option pursuant to
Section 1 hereof, the number of shares of Common Stock purchasable upon the
exercise of the Option and the Option Price shall be subject to adjustment from
time to time as provided in this Section 5.
(a) In the event of any change in, or distributions in respect of, the
Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of shares
or the like, the type and number of shares of Common Stock purchasable upon
exercise hereof shall be appropriately adjusted and proper provision shall be
made so that, in the event that any additional shares of Common Stock are to be
issued or otherwise become outstanding as a result of any such change (other
than pursuant to an exercise of the Option), the number of shares of Common
Stock that remain subject to the Option shall be increased so that, after such
issuance and together with shares of Common Stock previously issued pursuant to
the exercise of the Option (as adjusted on account of any of the foregoing
changes in the Common Stock), it equals 19.9% of the number of shares of Common
Stock then issued and outstanding.
(b) Whenever the number of shares of Common Stock purchasable upon exercise
hereof is adjusted as provided in this Section 5, the Option Price shall be
adjusted by multiplying the Option Price by a fraction, the numerator of which
shall be equal to the number of shares of Common Stock purchasable prior to the
adjustment and the denominator of which shall be equal to the number of shares
of Common Stock purchasable after the adjustment.
6. Registration. (a) Upon the occurrence of any Subsequent Triggering Event
that occurs prior to an Exercise Termination Event, Issuer shall, subject to
Section 6(d) hereof, at the request of Grantee delivered within twelve (12)
months (or such later period as provided in Section 10 hereof) of such
Subsequent Triggering Event (whether on its own behalf or on behalf of any
subsequent holder of this Option (or part thereof) or any of the shares of
Common Stock issued pursuant hereto), promptly prepare, file and keep current a
shelf registration statement under the Securities Act covering this Option and
any shares issued and issuable pursuant to this Option and shall use its
reasonable best efforts to cause such registration statement to become effective
and remain current in order to permit the sale or other disposition of this
Option and any shares of Common Stock issued upon total or partial exercise of
this Option ("Option Shares") in accordance with any plan of disposition
requested by Grantee. Issuer will use its reasonable best efforts to cause such
registration statement promptly to become effective and then to remain effective
for a period not in excess of 180 days from the day such registration statement
first becomes effective or such shorter time as may be reasonably necessary, in
the judgment of the Grantee or the Holder, to effect such sales or other
dispositions. Grantee shall have the right to demand two such registrations. The
Issuer shall bear the costs of such registrations (including, but not limited
to, Issuer's attorneys' fees, printing costs and filing fees, except for
underwriting discounts or commissions, brokers' fees and the fees and
disbursements of Grantee's counsel related thereto). The foregoing
notwithstanding, if, at the time of any request by Grantee for registration of
the Option or Option Shares as provided above, Issuer is in registration with
respect to an underwritten public offering by Issuer of shares of Common Stock,
and if in the good faith judgment of the managing underwriter or managing
underwriters, or, if none, the sole underwriter or underwriters, of such
offering the inclusion of the Option or Option Shares would interfere with the
successful marketing of the shares of Common Stock offered by Issuer, the number
of Option Shares otherwise to be covered in the registration statement
contemplated hereby may be reduced to the extent necessary to eliminate such
condition; provided, however, that if such reduction occurs (including a
reduction to zero), then Issuer shall file a registration statement for the
balance as promptly as practicable thereafter as to which no reduction pursuant
to this Section 6 shall be permitted or occur and the Holder shall be deemed not
to have made an additional registration demand and the twelve (12) month period
referred to in the first sentence of this section shall be increased to
twenty-four (24) months. Each such Holder shall provide all information
reasonably requested by Issuer for inclusion in any registration statement to be
filed hereunder. If requested by any such Holder in connection with such
registration, Issuer shall become a party to any underwriting agreement relating
to the sale of such shares, but only to the extent of obligating itself in
respect of representations, warranties, indemnities and other agreements
customarily included in such underwriting agreements for Issuer. Upon receiving
any request under this Section 6 from any Holder, Issuer agrees to send a copy
thereof to any other person known to Issuer to be entitled to registration
rights under this Section 6, in each case by promptly mailing the same, postage
prepaid, to the address of record of the persons entitled to receive such
copies. Notwithstanding anything to the contrary contained herein, in no event
shall the number of registrations that Issuer is obligated to effect be
increased by reason of the fact that there shall be more than one Holder as a
result of any assignment or division of this Agreement.
(b) In the event that Grantee so requests, the closing of the sale or other
disposition of the Common Stock or other securities pursuant to a registration
statement filed pursuant to Section 6(a) hereof shall occur substantially
simultaneously with the exercise of the Option.
(c) If the Common Stock or the class of any other securities to be acquired
upon exercise of the Option are then listed on the Nasdaq National Market of The
Nasdaq Stock Market, Inc. ("Nasdaq") or any national securities exchange,
Issuer, upon the request of the Holder, shall promptly file an application to
list the Common Stock or other securities to be acquired upon exercise of the
Option on Nasdaq or such exchange and will use its reasonable best efforts to
obtain approval of such listing as soon as practicable.
(d) Issuer may delay any registration of the Option or Option Shares
required pursuant to Section 6(a) hereof for a period not in excess of 90 days
if, in the reasonable good faith judgment of Issuer, such registration would
materially and adversely affect a proposed merger, consolidation or similar
transaction (including through the premature disclosure thereof) or offering or
contemplated offering of other securities by Issuer.
7. Repurchase of Option and/or Option Shares. (a) At any time commencing
upon the occurrence of a Repurchase Event (as defined in Section 7(d) hereof)
and ending twelve (12) months thereafter, (i) at the request of the Holder,
delivered in writing prior to an Exercise Termination Event (or such later
period as provided in Section 10), Issuer (or any successor thereto) shall
repurchase the Option from the Holder at a price (the "Option Repurchase Price")
equal to the amount by which (A) the market/offer price (as defined below)
exceeds (B) the Option Price, multiplied by the number of shares for which this
Option may then be exercised, and (ii) at the request of the owner of Option
Shares from time to time (the "Owner"), delivered in writing prior to an
Exercise Termination Event (or such later period as provided in Section 10),
Issuer (or any successor thereto) shall repurchase such number of the Option
Shares from the Owner as the Owner shall designate at a price (the "Option Share
Repurchase Price") equal to the market/offer price multiplied by the number of
Option Shares so designated. The term "market/offer price" shall mean the
highest of (i) the price per share of Common Stock at which a tender or exchange
offer therefor has been made and has been consummated or remains outstanding,
(ii) the price per share of Common Stock to be paid by any third party pursuant
to an agreement with Issuer, (iii) the highest average closing price for shares
of Common Stock for any 20 trading day period within the three-month period
immediately preceding the date the Holder gives notice of the required
repurchase of this Option or the Owner gives notice of the required repurchase
of Option Shares, as the case may be, or (iv) in the event of a sale of all or a
majority of the consolidated assets of Issuer, the sum of the net price paid in
such sale for such assets and the current market value of the remaining net
assets of Issuer as determined by a nationally recognized investment banking
firm selected by the Holder or the Owner, as the case may be, and reasonably
acceptable to Issuer, divided by the number of shares of Common Stock
outstanding at the time of such sale, which determination, absent manifest
error, shall be conclusive for all purposes of this Agreement. In determining
the market/offer price, the value of consideration other than cash shall be
determined by a nationally recognized investment banking firm selected by the
Holder or Owner, as the case may be, and reasonably acceptable to Issuer, which
determination, absent manifest error, shall be conclusive for all purposes of
this Agreement.
(b) The Holder and the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and any Option Shares pursuant to this
Section 7 by surrendering for such purpose to Issuer, at its principal office, a
copy of this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder or the Owner,
as the case may be, elects to require Issuer to repurchase this Option and/or
the Option Shares in accordance with the provisions of this Section 7. Prior to
the later of (x) the date that is five business days after the surrender of the
Option and/or certificates representing Option Shares and the receipt of such
notice or notices relating thereto and (y) the day on which a Repurchase Event
occurs, Issuer shall deliver or cause to be delivered to the Holder the Option
Repurchase Price and/or to the Owner the Option Share Repurchase Price or the
portion thereof that Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full, Issuer
shall promptly so notify the Holder and/or the Owner and thereafter deliver or
cause to be delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after delivery of a
notice of repurchase pursuant to paragraph (b) of this Section 7 is prohibited
under applicable law or regulation from delivering to the Holder and/or the
Owner, as appropriate, the Option Repurchase Price and the Option Share
Repurchase Price, respectively, in full (and Issuer hereby undertakes to use its
reasonable best efforts to obtain all required regulatory and legal approvals
and to file any required notices as promptly as practicable in order to
accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option and/or the Option Shares whether in whole or to the
extent of the prohibition, whereupon, in the latter case, Issuer shall promptly
(i) deliver to the Holder and/or the Owner, as appropriate, that portion of the
Option Repurchase Price and/or the Option Share Repurchase Price that Issuer is
not prohibited from delivering; and (ii) deliver, as appropriate, either (A) to
the Holder, a new Agreement evidencing the right of the Holder to purchase that
number of shares of Common Stock obtained by multiplying the number of shares of
Common Stock for which the surrendered Agreement was exercisable at the time of
delivery of the notice of repurchase by a fraction, the numerator of which is
the Option Repurchase Price less the portion thereof theretofore delivered to
the Holder and the denominator of which is the Option Repurchase Price, and/or
(B) to the Owner, a certificate for the Option Shares it is then so prohibited
from repurchasing. If an Exercise Termination Event shall have occurred less
than 30 days prior to the date of the notice by Issuer described in the first
sentence of this subsection (c), or shall be scheduled to occur at any time
before the expiration of a period ending on the thirtieth day after such date,
the Holder shall nonetheless have the right to exercise the Option until the
expiration of such 30-day period after the date of the Exercise Termination
Event or the notice date, respectively.
(d) For purposes of this Section 7, a Repurchase Event shall be deemed to
have occurred (i) upon the consummation of any merger, consolidation or similar
transaction involving Issuer or any purchase, lease or other acquisition of all
or a majority of the assets of Issuer on a consolidated basis, other than any
such transaction which would not constitute an Acquisition Transaction pursuant
to the proviso to Section 2(b)(i) hereof or (ii) upon the acquisition by any
person of beneficial ownership of 50% or more of the then outstanding shares of
Common Stock; provided that no such event shall constitute a Repurchase Event
unless a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event. The parties hereto agree that Issuer's obligations to
repurchase the Option or Option Shares under this Section 7 shall not terminate
upon the occurrence of an Exercise Termination Event unless no Subsequent
Triggering Event shall have occurred prior to the occurrence of an Exercise
Termination Event.
8. Substitute Option. (a) In the event that prior to an Exercise
Termination Event, Issuer shall enter into an agreement (i) to consolidate with
or merge into any person, other than Grantee or any of its Subsidiaries
(collectively, "Excluded Persons") and Issuer shall not be the continuing or
surviving corporation of such consolidation or merger, (ii) to permit any
person, other than an Excluded Person, to merge into Issuer and Issuer shall be
the continuing or surviving or acquiring corporation, but, in connection with
such merger, the then outstanding shares of Common Stock shall be changed into
or exchanged for stock or other securities of any other person or cash or any
other property or the then outstanding shares of Common Stock shall after such
merger represent less than 50% of the outstanding voting shares and voting share
equivalents of the merged or acquiring company, or (iii) to sell or otherwise
transfer all or substantially all of its assets to any person, other than an
Excluded Person, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Holder, of either (x) the Acquiring Corporation
(as hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or surviving
person of a consolidation or merger with Issuer (if other than Issuer), (ii)
Issuer in a merger in which Issuer is the continuing or surviving or acquiring
person, and (iii) the transferee of all or substantially all of Issuer's assets.
(ii) "Substitute Shares" shall mean the shares of capital stock (or similar
equity interest) with the greatest voting power in respect of the election of
directors (or other persons similarly responsible for direction of the business
and affairs) of the issuer of the Substitute Option.
(iii) "Assigned Value" shall mean the market/offer price as defined in
Section 7.
(iv) "Average Price" shall mean the average closing price per Substitute
Share, on the principal trading market on which such shares are traded as
reported by a recognized source, for the 20 trading day period immediately
preceding the consolidation, merger or sale in question, but in no event higher
than the closing price of the Substitute Shares on such market on the day
preceding such consolidation, merger or sale; provided that if Issuer is the
issuer of the Substitute Option, the Average Price shall be computed with
respect to a share of common stock issued by the person merging into Issuer or
by any company which controls or is controlled by such person, as the Holder may
elect.
(c) The Substitute Option shall have the same terms as the Option, provided
that if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option, such terms shall be as similar as possible to the terms of
the Option and (to the extent permitted by applicable law) in no event less
advantageous to the Holder. The issuer of the Substitute Option shall also enter
into an agreement with the then Holder or Holders of the Substitute Option in
substantially the same form as this Agreement (after giving effect for such
purpose to the provisions of Section 9 hereof), which agreement shall be
applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of
Substitute Shares as is equal to the Assigned Value multiplied by the number of
shares of Common Stock for which the Option was exercisable immediately prior to
the event described in the first sentence of Section 8(a) hereof, divided by the
Average Price. The exercise price of the Substitute Option per Substitute Share
shall then be equal to the Option Price multiplied by a fraction, the numerator
of which shall be the number of shares of Common Stock for which the Option was
exercisable immediately prior to the event described in the first sentence of
Section 8(a) hereof and the denominator of which shall be the number of
Substitute Shares for which the Substitute Option is exercisable. (e) In no
event, pursuant to any of the foregoing paragraphs, shall the number of shares
purchasable upon exercise of the Substitute Option exceed 19.9% of the
Substitute Shares then issued and outstanding at the time of exercise (without
giving effect to Substitute Shares issued or issuable under the Substitute
Option). In the event that the Substitute Option would be exercisable for more
than 19.9% of the Substitute Shares then issued and outstanding prior to
exercise but for this clause (e), the issuer of the Substitute Option (the
"Substitute Option Issuer") shall make a cash payment to Holder equal to the
excess of (i) the value of the Substitute Option without giving effect to the
limitation in this clause (e) over (ii) the value of the Substitute Option after
giving effect to the limitation in this clause (e). This difference in value
shall be determined by a nationally recognized investment banking firm selected
by Grantee (or, if Grantee is not then the Holder owning Options with respect to
the largest number of Shares, the largest Holder) and reasonably acceptable to
Issuer, which determination, absent manifest error, shall be conclusive for all
purposes of this Agreement.
(f) In addition to any other restrictions or covenants, Issuer agrees that
it shall not enter or agree to enter into any transaction described in Section
8(a) hereof unless (i) the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder and (ii) the Substitute Option Issuer agrees to comply with this
Section 8 and agrees to take all action necessary to prevent the exercise of any
rights of any holder of Substitute Shares or shares of capital stock of any
successor to the Substitute Option Issuer that any holder of the Substitute
Option (each such person being referred to herein as a "Substitute Option
Holder") or any holder of Substitute Shares (each such person being referred to
herein as a "Substitute Share Owner") purchased upon exercise of the Substitute
Option by a Substitute Option Holder would be prohibited or precluded from
exercising or the exercise of which would adversely affect the rights of any
Substitute Option Holder under the agreement for such Substitute Option or the
transactions contemplated by the Merger Agreement.
9. Repurchase of Substitute Option. (a) At the written request of a
Substitute Option Holder, the Substitute Option Issuer shall repurchase the
Substitute Option from the Substitute Option Holder at a price (the "Substitute
Option Repurchase Price") equal to the amount by which (i) the Highest Closing
Price (as hereinafter defined) exceeds (ii) the exercise price of the Substitute
Option multiplied by the number of Substitute Shares for which the Substitute
Option may then be exercised, and at the request of the Substitute Share Owner,
the Substitute Option Issuer shall repurchase the Substitute Shares at a price
(the "Substitute Share Repurchase Price") equal to the Highest Closing Price
multiplied by the number of Substitute Shares so designated. The term "Highest
Closing Price" shall mean the highest average closing price for Substitute
Shares for any 20 trading day period within the three-month period immediately
preceding the date the Substitute Option Holder gives notice of the required
repurchase of the Substitute Option or the Substitute Share Owner gives notice
of the required repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the
case may be, may exercise its respective rights to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
at its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Agreement) and/or certificates for
Substitute Shares accompanied by a written notice or notices stating that the
Substitute Option Holder or the Substitute Share Owner, as the case may be,
elects to require the Substitute Option Issuer to repurchase the Substitute
Option and/or the Substitute Shares in accordance with the provisions of this
Section 9. As promptly as practicable and in any event within five business days
after the surrender of the Substitute Option and/or certificates representing
Substitute Shares and the receipt of such notice or notices relating thereto,
the Substitute Option Issuer shall deliver or cause to be delivered to the
Substitute Option Holder the Substitute Option Repurchase Price and/or to the
Substitute Share Owner the Substitute Share Repurchase Price therefor or the
portion thereof which the Substitute Option Issuer is not then prohibited under
applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation from repurchasing the Substitute Option and/or the
Substitute Shares in part or in full, the Substitute Option Issuer shall
promptly so notify the Substitute Option Holder and/or the Substitute Share
Owner and thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
portion of the Substitute Option Repurchase Price and/or the Substitute Share
Repurchase Price, respectively, which it is no longer prohibited from
delivering, within five (5) business days after the date on which the Substitute
Option Issuer is no longer so prohibited; provided, however, that if the
Substitute Option Issuer is at any time after delivery of a notice of repurchase
pursuant to subsection (b) of this Section 9 is prohibited under applicable law
or regulation from delivering to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the Substitute Option Repurchase Price
and the Substitute Share Repurchase Price, respectively, in full (and the
Substitute Option Issuer shall use its best efforts to receive all required
regulatory and legal approvals as promptly as practicable in order to accomplish
such repurchase), the Substitute Option Holder and/or Substitute Share Owner may
revoke its notice of repurchase of the Substitute Option or the Substitute
Shares either in whole or to the extent of the prohibition, whereupon, in the
latter case, the Substitute Option Issuer shall promptly (i) deliver to the
Substitute Option Holder or Substitute Share Owner, as appropriate, that portion
of the Substitute Option Repurchase Price or the Substitute Share Repurchase
Price that the Substitute Option Issuer is not prohibited from delivering; and
(ii) deliver, as appropriate, either (A) to the Substitute Option Holder, a new
Substitute Option evidencing the right of the Substitute Option Holder to
purchase that number of Substitute Shares obtained by multiplying the number of
Substitute Shares for which the surrendered Substitute Option was exercisable at
the time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, and/or (B) to the Substitute
Share Owner, a certificate for the Substitute Option Shares it is then so
prohibited from repurchasing. If an Exercise Termination Event shall have
occurred less than 30 days prior to the date of the notice by the Substitute
Option Issuer described in the first sentence of this subsection (c), or shall
be scheduled to occur at any time before the expiration of a period ending on
the thirtieth day after such date, the Substitute Option Holder shall
nevertheless have the right to exercise the Substitute Option until the
expiration of such 30-day period after the date of the Exercise Termination
Event or the notice date, respectively.
10. Extension. The period for exercise of certain rights under Sections 2,
6, 7, 9 and 12 hereof shall be extended: (i) to the extent necessary to obtain
all governmental and regulatory approvals for the exercise of such rights (for
so long as the Holder, Substitute Option Holder or Substitute Share Owner, as
the case may be, is using its reasonable best efforts to obtain such regulatory
approvals), and for the expiration of all statutory waiting periods; (ii) during
any period for which an injunction or similar legal prohibition on exercise
shall be in effect; (iii) to the extent necessary to avoid liability under
Section 16(b) of the Exchange Act by reason of such exercise; and (iv) by the
number of days by which Issuer shall have delayed any registration pursuant to
Section 6(d) hereof.
11. Representations and Warranties. (a) Issuer hereby represents and
warrants to Grantee as follows:
(i) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer and constitutes a valid and legally binding obligation
of Issuer enforceable in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general equity
principles, whether such principles are considered at law or in equity).
(ii) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant to the Option, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrances and security interests and not subject to any preemptive rights.
(iii) The execution, delivery and performance of this Agreement does not or
will not, and the consummation by Issuer of any of the transactions contemplated
hereby will not, constitute or result in (i) a breach or violation of or a
default under, its articles or certificate of incorporation or by-laws, or the
comparable governing instruments of any of its subsidiaries, or (ii) a breach or
violation of or a default under, any agreement, lease, contract, note, mortgage,
indenture, arrangement or other obligation of it or any of its subsidiaries
(with or without the giving of notice, the lapse of time or both) or under any
law, rule, ordinance or regulation or judgment, decree, order, award or
governmental or non-governmental permit or license to which it or any of its
subsidiaries is subject, except where such breach, violation or default would
not in the aggregate have a Material Adverse Effect (as defined in the Merger
Agreement) and would not materially impair Issuer's ability to consummate the
transactions contemplated by this Agreement.
(b) Grantee hereby represents and warrants to Issuer that Grantee has full
corporate power and authority to enter into this Agreement and, subject to
obtaining the approvals referred to in this Agreement, to consummate the
transactions contemplated by this Agreement; the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Grantee; and
this Agreement has been duly executed and delivered by Grantee and constitutes a
valid and legally binding obligation of Grantee enforceable in accordance with
its terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws of general applicability relating to or affecting creditors' rights
or by general equity principles, whether such principles are considered at law
or in equity).
12. Assignment. Neither of the parties hereto may assign any of its rights
or obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event, Grantee, subject to the express provisions hereof, may assign
in whole or in part its rights and obligations hereunder within twelve (12)
months following such Subsequent Triggering Event (or such later period as
provided in Section 10 hereof) provided that the assignee executes a supplement
to this Agreement agreeing to be bound by this Agreement's terms.
13. Filings; Other Actions. Each of Grantee and Issuer will use its
reasonable best efforts to make all filings with, and to obtain consents of, all
third parties and regulatory and governmental authorities necessary to the
consummation of the transactions contemplated by this Agreement, including,
without limitation, notices and filings under HSR.
14. Best Efforts. Each of Grantee and Issuer will use its reasonable best
efforts to make all filings with, and to obtain consents of, all third parties
and governmental authorities necessary for the consummation of the transactions
contemplated by this Agreement, including without limitation making application
to list the shares of Common Stock issuable hereunder on Nasdaq upon official
notice of issuance.
15. Specific Performance. The parties hereto acknowledge that damages would
be an inadequate remedy for a breach of this Agreement by either party hereto
and that the obligations of the parties hereto shall be enforceable by either
party hereto through injunctive or other equitable relief.
16. Severability. If any term, provision, covenant or restriction contained
in this Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer or Substitute Option
Issuer, as applicable, is not permitted to repurchase pursuant to Section 7 or 9
hereof, as applicable, the full number of shares of Common Stock provided in
Section 1(a) hereof (as adjusted pursuant to Section 1(b) or Section 5 hereof),
it is the express intention of Issuer to allow the Holder to acquire or to
require Issuer to repurchase such lesser number of shares as may be permissible,
without any amendment or modification hereof.
17. Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by fax, telecopy, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement or such other address as shall be provided in
writing.
18. Governing Law. This Agreement shall be governed by, and interpreted in
accordance with, the laws of the State of New York, without regard to the
conflicts of laws principles thereof.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
20. Expenses. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
21. Entire Agreement. Except as otherwise expressly provided herein or in
the Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assignees. Nothing in this Agreement, expressed or implied, is intended to
confer upon any party, other than the parties hereto, and their respective
successors except as assignees, any rights, remedies, obligations or liabilities
under or by reason of this Agreement, except as expressly provided herein.
22. Limitation on Profit. (a) Notwithstanding any other provision of this
Agreement, in no event shall the Grantee's Total Profit (as hereinafter defined)
exceed $16.5 million and, if it otherwise would exceed this amount, the Grantee,
at its sole election, shall either (i) reduce the number of shares of Common
Stock subject to this Option (or the number of shares of common stock of the
Substitute Option Issuer subject to this Substitute Option, as the case may be),
(ii) deliver to the Issuer (or Substitute Option Issuer) for cancellation Option
Shares (or Substitute Shares) previously purchased by Grantee, (iii) pay cash to
the Issuer (or Substitute Option Issuer), or (iv) any combination thereof, so
that Grantee's realized Total Profit shall not exceed $16.5 million after taking
into account the foregoing actions; provided, that the amounts referred to in
this Section 22(a) shall be reduced by any amount received by Grantee in respect
of the Termination Fee pursuant to Section 8.02(b)(ii) of the Merger Agreement.
(b) Notwithstanding any other provision of this Agreement, this Option (or
Substitute Option) may not be exercised for a number of shares as would, as of
the date of exercise, result in a Notional Total Profit (as defined below) which
would exceed $16.5 million; provided, that nothing in this sentence shall
restrict any exercise of the Option (or Substitute Option) permitted hereby on
any subsequent date; and provided further that the amount referred to in this
Section 22(b) shall be reduced by any amount received by Grantee in respect of
the Termination Fee pursuant to Section 8.02(b)(ii) of the Merger Agreement.
(c) As used in this Agreement, the term "Total Profit" shall mean the
aggregate amount (before taxes) of the following: (i) (x) the amount received by
Grantee and any other Holder or Substitute Option Holder pursuant to Issuer's
repurchase of the Option (or any portion thereof) or any Option Shares in
accordance with Section 7, or pursuant to Substitute Option Issuer's repurchase
of the Substitute Option (or any portion thereof) or any Substitute Shares in
accordance with Section 9, less, in the case of any repurchase of Option Shares
or Substitute Shares, (y) the Grantee's and any other Holder's or Substitute
Option Holder's purchase price for such Option Shares or Substitute Shares, as
the case may be, (ii) (x) the net cash amounts (and the fair market value of any
other consideration) received by Grantee and any other Holder or Substitute
Option Holder pursuant to the sale of Option Shares or Substitute Shares (or any
other securities into which such Option Shares or Substitute Shares are
converted or exchanged) to any unaffiliated party, less (y) the Grantee's (or
any other Holder's or Substitute Option Holder's) purchase price of the Option
Shares or Substitute Shares, and (iii) the net cash amounts (and the fair market
value of any other consideration) received by Grantee (or any other Holder or
Substitute Option Holder) on the transfer of the Option or Substitute Option (or
any portion thereof) to any unaffiliated party. In the case of clauses (ii) (x)
and (iii) above, the Grantee and any Holder or Substitute Option Holder agree to
furnish as promptly as reasonably practicable after any disposition of all or a
portion of the Option or Option Shares or of the Substitute Option or Substitute
Shares a complete and correct statement, certified by a responsible executive
officer or partner of the Grantee or Holder or Substitute Option Holder, of the
net cash amounts (and the fair market value of any other consideration) received
in connection with any sale or transfer of the Option or Option Shares or of the
Substitute Option or Substitute Shares.
(d) As used in this Agreement, the term "Notional Total Profit" with
respect to any number of shares as to which Grantee and any other Holder or
Substitute Option Holder may propose to exercise this Option or Substitute
Option shall be the Total Profit determined as of the date of this proposal
assuming that this Option or Substitute Option were exercised on such date for
this number of shares and assuming that such shares, together with all other
Option Shares or Substitute Shares held by Grantee and any other Holders or
Substitute Option Holders and their respective affiliates as of such date, were
sold for cash at the closing market price for the Common Stock (or the common
stock of the Substitute Option Issuer, as the case may be) as of the close of
business on the preceding trading day (less customary brokerage commissions).
23. Captions; Capitalized Terms. The section and paragraph captions herein
are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
NORTEL NETWORKS CORPORATION
By: /s/
------------------------------
Name:
Title:
By: /s/
------------------------------
Name:
Title:
PERIPHONICS CORPORATION
By: /s/
------------------------------
Name:
Title:
STOCKHOLDERS AGREEMENT
This STOCKHOLDERS AGREEMENT (this "Agreement"), dated as of August 24,
1999, is entered into by and among Peter J. Cohen, George W. Cole, Richard A.
Daniels, Kevin J. O'Brien and Jayandra Patel (each a "Stockholder Party") and
Nortel Networks Corporation, a corporation organized under the laws of Canada
("Nortel").
WHEREAS, simultaneously with the execution of this Agreement, Nortel, North
Subsidiary, Inc., a wholly owned subsidiary of Nortel ("Sub"), and Periphonics
Corporation, a corporation organized under the laws of Delaware (the "Company"),
are entering into an Agreement and Plan of Merger, dated as of the date hereof
(as the same may be amended or supplemented, the "Merger Agreement") providing,
among other things, for either the Merger of Sub with and into the Company or
the Merger of the Company with and into Sub (the "Merger"); and
WHEREAS, as of the date hereof, each Stockholder Party is the Beneficial
Owner (as defined below) of, and has the sole right to vote and dispose of, the
shares of common stock, par value $0.01 per share of the Company ("Common
Stock"), set forth in Schedule A (the "Owned Shares"); and
WHEREAS, as an inducement and a condition to their entering into the Merger
Agreement and incurring the obligations set forth therein, Nortel has required
that each Stockholder Party enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein and in
the Merger Agreement, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. Certain Definitions. Capitalized terms used but not defined in this
Agreement are used in this Agreement with the meanings given to such terms in
the Merger Agreement. In addition, for purposes of this Agreement:
"Affiliate" means, with respect to any specified Person, any Person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Person specified. For
purposes of this Agreement, with respect to any Stockholder Party, "Affiliate"
shall not include the Company and the Persons that directly, or indirectly
through one or more intermediaries, are controlled by the Company.
"Alternative Transaction" has the meaning set forth in Section 2(b) hereof.
"Beneficially Owned" or "Beneficial Ownership" with respect to any
securities means having beneficial ownership of such securities (as determined
pursuant to Rule 13d-3 under the Exchange Act, disregarding the phrase "within
60 days" in paragraph (d)(1)(i) thereof), including pursuant to any agreement,
arrangement or understanding, whether or not in writing. Without duplicative
counting of the same securities by the same holder, securities Beneficially
Owned by a Person shall include securities Beneficially Owned by all Affiliates
of such Person and all other Persons with whom such Person would constitute a
"Group" within the meaning of Section 13(d) of the Exchange Act and the rules
promulgated thereunder.
"Beneficial Owner" with respect to any securities means a Person who has
Beneficial Ownership of such securities.
"Company Meeting" has the meaning set forth in Section 3 hereof.
"Proposed Business Combination" means the transactions contemplated by the
Merger Agreement.
"Transfer" means, with respect to a security, the sale, transfer, pledge,
hypothecation, encumbrance, assignment or disposition of such security or the
Beneficial Ownership thereof, the offer to make such a sale, transfer or other
disposition, and each option, agreement, arrangement or understanding, whether
or not in writing, to effect any of the foregoing. As a verb, "Transfer" shall
have a correlative meaning.
2. No Disposition or Solicitation.
(a) Each Stockholder Party agrees that from and after the date hereof,
except as contemplated by this Agreement, he will not Transfer or agree to
Transfer any Common Stock Beneficially Owned by him other than with Nortel's
prior written consent, or grant any proxy or power-of-attorney with respect to
any such Common Stock other than pursuant to this Agreement; provided, that
nothing in this Section 2(a) shall prohibit any Stockholder Party from effecting
any Transfer of Common Stock Beneficially Owned by him (i) by will or applicable
laws of descent and distribution or (ii) to any member of the immediate family
of such Stockholder Party, or any trust, limited partnership or other similar
entity the Beneficial Ownership of which is held by the Stockholder Party or
such family members (each a "Permitted Transferee"), so long as such Permitted
Transferee agrees in writing, in form and substance reasonably satisfactory to
Nortel, to be bound by the terms of this Agreement to the same extent as such
Stockholder Party is bound.
(b) Each Stockholder Party agrees that from and after the date hereof,
except as contemplated by this Agreement or, solely in his capacity as an
officer or director of the Company, as permitted by the Merger Agreement, he and
his Affiliates and representatives, will not directly or indirectly solicit,
initiate, or encourage any inquiries or proposals from, discuss or negotiate
with, or provide any non-public information to, any Person relating to, or
otherwise facilitate any tender or exchange offer, proposal for a merger,
consolidation or other business combination involving the Company or any of its
subsidiaries or any proposal or offer to acquire in any manner a substantial
equity interest in, or a substantial portion of the assets of, the Company or
any of its subsidiaries other than the Proposed Business Combination (an
"Alternative Transaction").
(c) Each Stockholder Party agrees that unless required by applicable law,
neither he nor any of his Affiliates shall make any press release, public
announcement or other communication with respect to Nortel or the business or
affairs of the Company, including this Agreement and the Merger Agreement and
the transactions contemplated hereby and thereby, without the prior written
consent of Nortel.
3. Stockholder Vote; Offer. Each Stockholder Party agrees that (i) at such
time as the Company conducts a meeting of or otherwise seeks a vote or consent
of its stockholders for the purpose of approving the Merger Agreement and the
Merger (such meeting or any adjournment thereof, or such consent process, the
"Company Meeting"), he will vote, or provide a consent with respect to, all
Common Stock (including the Owned Shares) then Beneficially Owned by him over
which he has voting power ("Voting Shares") in favor of the Merger Agreement and
the Merger, provided that he shall not be required to vote for, or provide a
consent with respect to, any action that would reduce the number of Nortel
Common Shares to be received by him in respect of his Common Stock in the
Merger, and (ii) he will (at any meeting of stockholders) vote his Voting Shares
against, and he will not consent to, any Alternative Transaction or any action
that would delay, prevent or frustrate the transactions contemplated by the
Merger Agreement.
Without limiting the foregoing, it is understood that the obligations under
clause (i) above shall remain applicable in respect of each meeting of
stockholders of the Company duly called for the purpose of approving the Merger
Agreement and the Merger regardless of the position of the Company Board as to
the Merger at the time of such meeting, and that the obligations under clause
(ii) above shall continue to the extent set forth in Section 10.
4. Reasonable Efforts to Cooperate. Each Stockholder Party will (a) use all
reasonable efforts to cooperate with the Company, Nortel and Sub in connection
with the transactions contemplated by the Merger Agreement, (b) promptly take
such actions as are necessary or appropriate to consummate such transactions and
(c) provide any information reasonably requested by the Company, Nortel or Sub
for any regulatory application or filing made or approval sought for such
transactions (including filings with the SEC).
5. Additional Stock. Each Stockholder Party agrees that any additional
shares of Common Stock acquired by him or over which he acquires Beneficial
Ownership, whether pursuant to existing stock option agreements, warrants or
otherwise, shall be subject to the provisions of this Agreement.
6. Irrevocable Proxy. (i) In furtherance of the agreements contained in
Section 3 of this Agreement, each Stockholder Party hereby irrevocably grants
to, and appoints, Nortel and J.A. Roth, Vice Chairman and Chief Executive
Officer of Nortel, F.A. Dunn, Senior Vice President and Chief Financial Officer
of Nortel, and W.R. Kerr, Senior Vice President, Finance and Business
Development, of Nortel, in their respective capacities as officers of Nortel,
and any individual who shall hereafter succeed to any such office of Nortel, and
each of them individually, such Stockholder Party's proxy and attorney-if-fact
(with full power of substitution), for and in the name, place and stead of such
Stockholder Party, to vote all Voting Shares Beneficially Owned by such
Stockholder Party, or grant a consent or approval in respect of such Voting
Shares, or execute and deliver a proxy to vote such Voting Shares, (x) subject
to the proviso set forth in clause (i) of the first paragraph of Section 3, in
favor of the Merger and the Merger Agreement and approval of the terms thereof
and each of the other transactions contemplated by the Merger Agreement and (y)
against any Alternative Transaction or any other matter referred to in clause
(ii) of the first sentence of Section 3 hereof.
(ii) Each Stockholder Party represents and warrants to Nortel that any
proxies heretofore given in respect of his Voting Shares are not irrevocable,
and hereby revokes any such proxies.
(iii) Each Stockholder Party hereby affirms that the irrevocable proxy set
forth in this Section 6 is given in connection with, and in consideration of,
the execution of the Merger Agreement by Nortel and Sub, and that such
irrevocable proxy is given to secure the performance of the duties of such
Stockholder Party under this Agreement. Each Stockholder Party hereby further
affirms that the irrevocable proxy is coupled with an interest and may under no
circumstances be revoked. Such Stockholder Party hereby ratifies and confirms
all that such irrevocable proxy may lawfully do or cause to be done by virtue
hereof. Such irrevocable proxy is executed and intended to be irrevocable in
accordance with the provisions of Section 218 of the Delaware General
Corporation Law. The proxy granted in this Section 6 shall remain valid until
terminated pursuant to Section 10 hereof or until earlier terminated with
respect to shares of Common Stock that are Transferred in accordance with this
Agreement.
7. Covenant of Stockholder Parties. Each Stockholder Party agrees that he
will take all action necessary to (i) permit (a) his Owned Shares to be acquired
in the Merger and (b) the voting of his Voting Shares in accordance with the
terms of this Agreement and (ii) prevent creditors in respect of any pledge of
his Owned Shares from exercising their rights under such pledge.
8. Representations, Warranties and Covenants of Stockholder Parties. Each
Stockholder Party hereby represents and warrants to, and agrees with, Nortel as
follows:
(a) Such Stockholder Party has all necessary power and authority and legal
capacity to execute and deliver this Agreement and perform his obligations
hereunder.
(b) This Agreement has been duly and validly executed and delivered by such
Stockholder Party and constitutes the valid and binding agreement of such
Stockholder Party, enforceable against such Stockholder Party in accordance with
its terms except to the extent limited by (i) applicable bankruptcy, insolvency
or similar laws affecting creditors' rights or (ii) general equity principles,
whether considered at law or in equity.
(c) Each Stockholder Party is the sole Beneficial Owner of his Owned
Shares. Each Stockholder Party has good and marketable title (which may include
holding in nominee or "street" name) to all of his Owned Shares, free and clear
of all liens, claims, options, proxies, voting agreements and security interests
(other than as created by this Agreement and restrictions on Transfer under
applicable securities laws). Except as set forth in Schedule A, the Owned Shares
constitute all of the capital stock of the Company Beneficially Owned by such
Stockholder Party and neither such Stockholder Party nor his Affiliates is the
Beneficial Owner of, or has any right to acquire (whether currently upon lapse
of time, following the satisfaction of any conditions, upon the occurrence of
any event or any combination of the foregoing) any Common Stock or any
securities convertible into or exchangeable or exercisable for Common Stock.
(d) Neither the execution and delivery of this Agreement by each
Stockholder Party nor the consummation of the transactions contemplated hereby
will (i) conflict with, result in any violation of, require any consent under or
constitute a default (whether with notice or lapse of time or both) by such
Stockholder Party under any mortgage, bond, indenture, agreement, instrument or
obligation to which such Stockholder Party is a party or by which such
Stockholder Party or any of the Voting Shares is bound; (ii) violate any
judgment, order, injunction, decree or award of any court, administrative agency
or governmental body that is binding on such Stockholder Party; or (iii)
constitute a violation by such Stockholder Party of any law or regulation of any
jurisdiction.
(e) Each Stockholder Party understands and acknowledges that Nortel and Sub
are entering into the Merger Agreement in reliance upon such Stockholder Party's
execution, delivery and performance of this Agreement. Each Stockholder Party
acknowledges that his irrevocable proxy set forth in Section 6 is granted in
consideration of the execution and delivery of the Merger Agreement by Nortel.
9. Representations and Warranties of Nortel. Nortel represents and warrants
to the Stockholder Parties that Nortel has full corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder. The
execution, delivery and performance of this Agreement by Nortel will not
constitute a violation of, conflict with or result in a default under, (i) any
contract, understanding or arrangement to which Nortel is a party or by which it
is bound or requires the consent of any other Person or any party pursuant
thereto, (ii) any judgment, decree or order applicable to Nortel, or (iii) any
law, rule or regulation of any governmental body, in each case except for
violations, conflicts or defaults that would not have a material adverse effect
on the ability of the Nortel to perform its obligations under this Agreement;
and this Agreement constitutes a legal, valid and binding agreement on the part
of Nortel, enforceable against Nortel in accordance with its terms, except as
such enforceability may be limited by principles applicable to creditors' rights
generally or governing the availability of equitable relief. The execution and
delivery by Nortel of this Agreement and the consummation by Nortel of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Nortel and no other corporate proceedings on the part of
Nortel are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Nortel.
10. Termination. This Agreement, and all rights and obligations of the
parties hereunder, shall terminate on the earlier of (a) the Effective Time; (b)
the date upon which the Merger Agreement is terminated by the Company pursuant
to Section 8.01(b) thereof (unless at such time Nortel would be entitled to
terminate, or following the giving of notice and lapse of time would be entitled
to terminate, the Merger Agreement); and (c) 30 days following the termination
of the Merger Agreement other than as set forth in (b) above; provided, however,
that the term of this Agreement shall be extended by a period of days equal to
the duration of any temporary or permanent order, writ or injuction issued by a
court of competent jurisdiction that invalidates, impedes or enjoins the
operation or enforcement of this Agreement, the Merger Agreement or any
agreement contemplated hereby or thereby or entered into in connection herewith
or therewith.
11. Miscellaneous.
(a) This Agreement represents the entire understanding of the parties
hereto with reference to the subject matter hereof and supersedes any and all
other oral or written agreements and understandings among the parties heretofore
made.
(b) Each Stockholder Party agrees that this Agreement and the respective
rights and obligations of such Stockholder Party hereunder shall attach to any
Common Stock, and any securities convertible into such shares, that may become
Beneficially Owned by such Stockholder Party.
(c) Except as otherwise provided in this Agreement, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses.
(d) This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties and their respective successors,
personal or legal representatives, executors, administrators, heirs,
distributees, devisees, legatees and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any party (whether by operation of law or otherwise) without the
prior written consent of the other parties; provided, that Nortel may assign any
or all rights under this Agreement to Sub or any other Subsidiary. Nothing in
this Agreement, express or implied, is intended to or shall confer upon any
other Person any rights, benefits or remedies of any nature whatsoever under or
by reason of this Agreement.
(e) This Agreement may not be amended, changed, supplemented, or otherwise
modified or terminated, except upon the execution and delivery of a written
agreement executed by the parties hereto; provided, that Nortel may waive
compliance by any other party with any representation, agreement or condition
otherwise required to be complied with by any other party under this Agreement
or release any other party from its obligations under this Agreement, but any
such waiver or release shall be effective only if in writing executed by Nortel.
(f) All notices and other communications hereunder shall be in writing and
shall be deemed given upon (a) transmitter's confirmation of a receipt of a
facsimile transmission, (b) confirmed delivery by a standard overnight carrier
or when delivered by hand or (c) the expiration of five business days after the
day when mailed by certified or registered mail, postage prepaid, addressed at
the address for such party set forth below.
(i) If to a Stockholder Party, to such Stockholder Party at the address set
forth beside its name on Schedule A hereto with a copy to:
<PAGE>
Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Avenue
Suite 800
Washington, DC 20004
Attention: Stephen I. Glover, Esq.
Fax: (202) 639-7008
Phone: (202) 639-7000
and another copy to:
Ruskin, Moscou, Evans & Faltischek, P.C.
170 Old Country Road
Mineola, New York 11501
Attention: Norman Friedland, Esq.
Fax: (516) 663-6601
Phone: (516) 663-6600
If to Nortel, to:
Nortel Networks Corporation
8200 Dixie Road, Suite 100
Brampton, Ontario
Canada L6T 5P6
Attention: Corporate Secretary
Fax: (905) 863-8386
Phone: (905) 863-0000
With a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Victor I. Lewkow, Esq.
Fax: (212) 225-3999
Phone: (212) 225-2370
or to such other address or facsimile number as the Person to whom notice is
given shall have previously furnished to the others in writing in the manner set
forth above.
(g) If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated.
(h) Each Stockholder Party acknowledges and agrees that in the event of any
breach of this Agreement, Nortel would be irreparably and immediately harmed and
could not be made whole by monetary damages. It is accordingly agreed that (a)
each Stockholder Party will waive, in any action for specific performance, the
defense of adequacy of a remedy at law, and (b) Nortel shall be entitled, in
addition to any other remedy to which it may be entitled at law or in equity, to
compel specific performance of this Agreement.
(i) All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise of any thereof by any party shall not
preclude the simultaneous or later exercise of any other such right, power or
remedy by such party. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(j) This Agreement shall be governed by, and interpreted in accordance
with, the laws of the State of New York.
(k) The section and paragraph captions herein are for convenience of
reference only, do not constitute part of this Agreement and shall not be deemed
to limit or otherwise affect any of the provisions hereof.
(l) This Agreement may be executed in one or more counterparts, each of
which shall be deemed to constitute an original.
12. Stockholder Capacity. No Stockholder Party executing this Agreement who
is or becomes during the term hereof a director or officer of the Company makes
any agreement or understanding herein in his capacity as such director or
officer. Each Stockholder Party signs solely in his capacity as the record
holder and/or beneficial owner of the Owned Shares and Voting Shares, and
nothing herein shall limit or affect any actions taken or omitted to be taken by
a Stockholder Party in his capacity as an officer of director of the Company to
the extent specifically permitted by the Merger Agreement.
13. Further Assurances. From time to time, at Nortel's reasonable request
and without further consideration, each Stockholder Party shall execute and
deliver such additional documents and take all such further lawful action as may
be necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
Peter J. Cohen
/s/
--------------------------
George W. Cole
/s/
--------------------------
Richard A. Daniels
/s/
--------------------------
Kevin J. O'Brien
/s/
--------------------------
Jayandra Patel
/s/
--------------------------
<PAGE>
NORTEL NETWORKS CORPORATION
By: /s/
----------------------------
Name:
Title:
By: /s/
----------------------------
Name:
Title:
<PAGE>
Schedule A
STOCKHOLDER PARTIES
<TABLE>
<CAPTION>
NAME SHARES ADDRESS
<S> <C> <C>
Peter J. Cohen Owned Shares: 394,9861 c/o Periphonics Corporation
Other Voting Shares: 0 4000 Veterans Memorial Highway
Total: 394,986 Bohemia, NY 11756
Fax: (516) 467-1755
George W. Cole Owned Shares: 345,528 c/o Periphonics Corporation
Other Voting Shares: 0 4000 Veterans Memorial Highway
Total: 345,528 Bohemia, NY 11756
Fax: (516) 467-1755
Richard A. Daniels Owned Shares: 0 c/o Periphonics Corporation
Other Voting Shares: 399,4982 4000 Veterans Memorial Highway
Total: 399,498 Bohemia, NY 11756
Fax: (516) 467-1755
Kevin J. O'Brien Owned Shares: 230,352 c/o Periphonics Corporation
Other Voting Shares: 0 4000 Veterans Memorial Highway
Total: 230, 352 Bohemia, NY 11756
Fax: (516) 467-1755
Jayandra Patel Owned Shares: 421,444 c/o Periphonics Corporation
Other Voting Shares: 0 4000 Veterans Memorial Highway
Total: 421,444 Bohemia, NY 11756
Fax: (516) 467-1755
Aggregate Owned Shares: 1,392,310
Aggregate Other Voting Shares: 399,498
Aggregate Total: 1,791,808
<FN>
- --------
1 130,160 shares owned jointly with wife.
2 66,500 shares held in grant for brother.
332,998 shares held in grant for
children.
</FN>
</TABLE>
News Release
www.nortelnetworks.com
FOR IMMEDIATE RELEASE August 24, 1999
Nortel Networks to Acquire Periphonics for US$436 Million
Companies to Unify Internet & Call Centers for New Generation of eServices
BRAMPTON, Ontario and NEW YORK -- Nortel Networks* [NYSE/TSE: NT] and
Periphonics Corporation [NASDAQ: PERI] announced today a definitive merger
agreement whereby Nortel Networks will acquire Periphonics, a leading global
provider of interactive voice solutions used in call centers and other voice and
data network applications. Nortel Networks will pay an estimated US$436 million
in its common shares for Periphonics.
The acquisition will mark another milestone in Nortel Networks' strategy to
deliver a new generation of networks that unify voice, data and the Internet.
Periphonics' market-leading self service capabilities will further Nortel
Networks' leadership in unifying call centers with the Internet to create a new
generation of eServices that re-define customer care. "As we come together at
the heart of the Internet Revolution, Nortel Networks and Periphonics will
create new opportunities for commerce and communication," said Wayne Fothergill,
president of Enterprise Applications Solutions at Nortel Networks. "Together,
our solutions will be even more attractive to businesses that want to use the
Internet and voice activation to deliver more powerful, versatile, and
responsive customer care than ever before."
"Combining Periphonics' technology with Nortel Networks' full portfolio of
solutions, global reach and Enterprise applications leadership will create
strong value for our customers, shareholders, and our employees," said Peter
Cohen, chairman, CEO and president of Periphonics. "By uniting the power of live
customer service professionals with the power of the Web, we will create a new
generation of eServices in the call center and beyond."
Periphonics has more than 900 highly skilled employees in the Americas,
Europe, and Asia. Revenues for the fiscal year ended in May 1999 were US$142
million. The company designs and supplies self-service voice response and
web-enabled systems for call centers and other network applications that allow
customers to interact directly with a company's databases and customer care
professionals. This enables Periphonics' customers, which include well-known
global financial, telecommunications and other companies, to deliver service
faster, more effectively, and more profitably.
Upon completion of the transaction, Periphonics will become a wholly owned
subsidiary of Nortel Networks. Periphonics will continue to be headquartered in
Bohemia, New York and chairman, CEO and president Peter Cohen will continue to
lead the business.
Under the terms of the agreement, each share of Periphonics will be
converted into a fraction of a Nortel Networks share at an exchange ratio equal
to US$29.23 divided by the average price of a Nortel Networks share during a
specified period prior to closing. In this specified period, if the average
price of a Nortel Networks share is above US$47.15, the exchange ratio will be
fixed at 0.62 and if the average share price is below US$38.46, the exchange
ratio will be fixed at 0.76. For example, based on the closing price of
US$43.625 per share of Nortel Networks on August 23, 1999, the exchange ratio
would be 0.67 and would result in Nortel Networks issuing approximately 10
million common shares for all of the shares of Periphonics on a fully diluted
basis.
The transaction, which is expected to close in the fourth quarter of 1999,
will be tax-free to Periphonics' United States shareholders. The transaction is
expected to be slightly accretive to Nortel Networks' earnings per share in
calendar year 2000 (excluding acquisition-related charges).
The boards of directors of both companies have approved the transaction.
Certain shareholders, representing approximately 13.5 percent of Periphonics'
outstanding common shares, have agreed to vote in favor of the transaction. In
addition, Periphonics has agreed to grant Nortel Networks an option to purchase
up to 19.9 percent of the outstanding shares of Periphonics under certain
circumstances.
The completion of the transaction is subject to customary regulatory
approvals and the approval of Periphonics' shareholders.
Credit Suisse First Boston Technology Group acted as financial advisor to
Nortel Networks for this transaction and William Blair and Company represented
Periphonics.
Periphonics Corporation is a global leader in the development, marketing
and support of products and professional services for Computer Telephony
Integration (CTI) and Telecom Enhanced Network Services. The Company's products
and services utilize such technologies as Interactive Voice Response (IVR),
advanced speech processing with large vocabulary recognition, natural language
processing and text-to-speech, as well as interactive processing via Web
browsers, messaging, and fax. The Company's products and professional services
help its customers enhance their customer service offerings, increase caller
satisfaction, reduce operating costs and create new revenue opportunities.
Periphonics is an ISO 9001/TickIT registered company with systems installed in
more than 50 countries.
Nortel Networks delivers value to customers around the world through
Unified Networks* solutions, spanning mission-critical telephony and
IP-optimized networks. Customers include public and private enterprises and
institutions; Internet service providers; local, long-distance, cellular and PCS
communications companies, cable television carriers, and utilities.
Nortel Networks' common shares are listed on the New York, Toronto,
Montreal and London stock exchanges. Nortel Networks had 1998 revenues of
US$17.6 billion and has approximately 76,000 employees worldwide.
Certain information included in this press release is forward-looking and
is subject to important risks and uncertainties. The results or events predicted
in these statements may differ materially from actual results or events. Factors
which could cause results or events to differ from current expectations include,
among other things: the impact of rapid technology change and voice and data
convergence; price and product competition; international growth, foreign
exchange, and interest rates; general industry and market conditions and growth
rates; unanticipated impact of Year 2000 issues; and the impact of
consolidations in the telecommunications industry. For additional information
with respect to certain of these and other factors, see the reports filed by
Nortel Networks and Periphonics Corporation with the United States Securities
and Exchange Commission, specifically the most recent reports on Form 10-K.
Nortel Networks and Periphonics Corporation disclaim any intention or obligation
to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
* Nortel Networks, the Nortel Networks logo, the Globemark, Unified
Networks, and How the world shares ideas are trademarks of Nortel Networks.
For more information:
Jeff Ferry Joseph D. Pititto
Nortel Networks Periphonics Corporation
(703) 712-8339 (516) 468-9212
[email protected] [email protected]
Or visit Nortel Networks' website at www.nortelnetworks.com 99539 and
Periphonics' website at www.peri.com.
