RNS Number:8714I
Verizon Communications
21 February 2005
PART 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: FEBRUARY 14, 2005
(DATE OF EARLIEST EVENT REPORTED)
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VERIZON COMMUNICATIONS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 1-8606 23-2259884
(STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
1095 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 395-2121
NOT APPLICABLE
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
(X) Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
( ) Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
( ) Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
( ) Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
On February 14, 2005, Verizon Communications Inc., a Delaware corporation
("Verizon"), and its wholly owned subsidiary, ELI Acquisition, LLC ("Merger
Sub"), entered into an Agreement and Plan of Merger (the "Merger Agreement")
with MCI, Inc. ("MCI"), pursuant to which Verizon will acquire MCI in a stock
and cash transaction.
Subject to the terms and conditions of the Merger Agreement, at the
effective time of the merger, MCI will be merged with and into Merger Sub (the
"Merger"), and Merger Sub, which will be renamed MCI, LLC, will continue as a
wholly owned subsidiary of Verizon (or in certain situations, as provided in the
Merger Agreement, a wholly owned corporate subsidiary of Verizon will merge with
and into MCI, with MCI continuing as the surviving corporation.) Pursuant to
the Merger Agreement, Verizon has agreed to issue 0.4062 (the "Exchange Ratio")
shares of its common stock and $1.50 in cash (the "Per Share Cash Amount") in
exchange for each outstanding share of common stock of MCI. The Per Share Cash
Amount is subject to downward adjustment for certain remaining MCI bankruptcy
claims, including state tax claims, and certain international tax liabilities,
which exceed $1,725,000,000. In the event any downward adjustment exceeds $1.50
per share, the Per Share Cash Amount will be reduced to zero and the Exchange
Ratio will be adjusted downward.
In addition to the Verizon shares and cash to be issued in exchange for
MCI common stock, and the $0.40 per share cash dividend approved by the MCI
Board of Directors on February 11, 2005, MCI will declare and pay a special
dividend of $4.10 per share (less the amount of any dividends declared by MCI
during the period from February 14, 2005 to the consummation of the Merger.)
This special dividend is expected to be declared as soon as practicable
following approval of the Merger Agreement by shareholders of MCI.
Consummation of the Merger is subject to customary conditions, including
(i) approval of the holders of MCI common stock, (ii) expiration or termination
of the applicable Hart-Scott-Rodino waiting period and receipt of certain other
regulatory approvals, (iii) absence of any law or order prohibiting the closing,
(iv) subject to certain exceptions, the accuracy of representations and
warranties and (v) the absence of any Material Adverse Effect (as defined in the
Merger Agreement) with respect to Verizon's or MCI's businesses. In addition,
Verizon's obligation to close is subject to other conditions, including (i)
absence of any pending U.S. governmental litigation with a reasonable likelihood
of success seeking to prohibit the closing or to impose certain limitations,
(ii) receipt of a bankruptcy order issued by the United States Bankruptcy Court
for the Southern District allowing for the substitution of shares of Verizon
common stock for shares of MCI common stock to satisfy certain
bankruptcy-related claims and (iii) receipt of an order issued by the United
States District Court for the Southern District of New York relating to MCI's
corporate monitor.
The Merger Agreement contains certain termination rights for both Verizon
and MCI and further provides that, upon termination of the Merger Agreement
under specified circumstances, MCI may be required to pay Verizon a termination
fee of $200,000,000.
The foregoing description of the Merger and the Merger Agreement does not
purport to be complete and is qualified in its entirety by reference to the
Merger Agreement, which is filed as Exhibit 2.1 hereto, and is incorporated into
this report by reference.
ITEM 8.01 OTHER EVENTS
On February 14, 2005, Verizon and MCI issued a joint press release
announcing the execution of the Merger Agreement.
The press release is attached as Exhibit 99.1 and is incorporated herein
by reference.
####
This Form 8-K contains statements about expected future events and
financial results that are forward-looking and subject to risks and
uncertainties. For those statements, we claim the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995. The following important factors could affect future results
and could cause those results to differ materially from those expressed in the
forward-looking statements: a significant change in the timing of, or the
imposition of any government conditions to, the closing of the transaction;
actual and contingent liabilities; and the extent and timing of our ability to
obtain revenue enhancements and cost savings following the transaction.
Additional factors that may affect the future results of Verizon and MCI are set
forth in their respective filings with the Securities and Exchange Commission,
which are available at investor.verizon.com/SEC/ and
www.mci.com/about/investor_relations/sec/.
Verizon intends to file a registration statement, including a proxy
statement of MCI, and other materials with the Securities and Exchange
Commission ("SEC") in connection with the proposed transaction. We urge
investors to read these documents when they become available because they will
contain important information. Investors will be able to obtain free copies of
the registration statement and proxy statement, as well as other filed documents
containing information about Verizon and MCI, at www.sec.gov, the SEC's website.
Investors may also obtain free copies of these documents at
www.verizon.com/investor, or by request to Verizon Communications Inc., Investor
Relations, 1095 Avenue of the Americas, 36th Floor, New York, NY 10036. Free
copies of MCI's filings are available at www.mci.com/about/investor_relations,
or by request to MCI, Inc., Investor Relations, 22001 Loudoun County Parkway,
Ashburn, VA 20147.
Verizon, MCI, and their respective directors, executive officers, and
other employees may be deemed to be participants in the solicitation of proxies
from MCI shareowners with respect to the proposed transaction. Information about
Verizon's directors and executive officers is available in Verizon's proxy
statement for its 2004 annual meeting of shareholders, dated March 15, 2004.
Information about MCI's directors and executive officers is available in MCI's
annual report on Form 10-K for the year ended December 31, 2003. Additional
information about the interests of potential participants will be included in
the registration statement and proxy statement and other materials filed with
the SEC.
####
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(C) EXHIBITS
Exhibit No. Description
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2.1 Agreement and Plan of Merger dated as of February 14, 2005
among Verizon, Eli Acquisition, LLC and MCI (the schedules and
exhibits have been omitted pursuant to Item 601(b)(2) of
Regulation S-K).
99.1 Press Release issued jointly by MCI and Verizon, dated
February 14, 2005.
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.
Verizon Communications Inc.
Date: February 17, 2005 By: /s/ Marianne Drost
------------------------------------
Name: Marianne Drost
Title: Senior Vice President, Deputy
General Counsel and Corporate
Secretary
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 14, 2005
AMONG
VERIZON COMMUNICATIONS INC.,
ELI ACQUISITION, LLC
AND
MCI, INC.
LIST OF EXHIBITS
Exhibit Title
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A Form of Affiliate Agreement
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of February 14, 2005 (this
"Agreement"), is among VERIZON COMMUNICATIONS INC., a Delaware corporation
("Parent"), ELI ACQUISITION, LLC, a Delaware limited liability company and a
direct, wholly owned subsidiary of Parent ("Merger Sub"), and MCI, INC., a
Delaware corporation (the "Company" and, collectively with Parent and Merger
Sub, the "parties").
RECITALS
WHEREAS, the respective Boards of Directors of the Company, Parent and
Merger Sub have deemed it advisable and in the best interests of their
respective companies and stockholders that the Company and Parent engage in a
business combination;
WHEREAS, in furtherance thereof, the respective Boards of Directors of the
Company, Parent and Merger Sub have approved and declared advisable this
Agreement and the merger of the Company with and into Merger Sub (the "Merger")
in accordance with the applicable provisions of the Delaware General Corporation
Law (the "DGCL"), and the Delaware Limited Liability Company Act (the "LLC Act")
and upon the terms and subject to the conditions set forth in this Agreement;
and
WHEREAS, it is intended that, for U.S. federal income tax purposes, the
Merger (to the extent effected as a merger of the Company with and into Merger
Sub and not pursuant to the alternative merger structure set forth in Section
1.9) shall qualify as a reorganization under Section 368(a) of the Code;
NOW, THEREFORE, in consideration of the foregoing and their respective
representations, warranties, covenants and agreements set forth in this
Agreement, and intending to be legally bound hereby, the parties agree as
follows:
ARTICLE I
THE MERGER; CERTAIN RELATED MATTERS
Section 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, at the Effective Time, the Company shall be merged with
and into Merger Sub and the separate corporate existence of the Company shall
thereupon cease. Merger Sub shall be the surviving entity in the Merger (with
respect to all post-Closing periods, the "Surviving Entity"). At the Effective
Time, the effect of the Merger shall be as provided in this Agreement, the
Certificate of Merger and the applicable provisions of the DGCL and the LLC Act.
Without limiting the generality of the foregoing, and
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subject thereto, at the Effective Time, all the property, rights, privileges,
powers and franchises of the Company and Merger Sub shall vest in the Surviving
Entity, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Entity.
Section 1.2 Closing. The closing of the Merger (the "Closing") shall,
subject to the fulfillment or waiver of the conditions set forth in Article VII,
take place at the offices of Debevoise & Plimpton LLP, 919 Third Avenue, New
York, New York, at 9:00 a.m., New York City time, on the third Business Day
after all of the conditions set forth in Article VII have been fulfilled or
waived (other than those conditions that by their nature are to be satisfied at
the Closing) in accordance with this Agreement or at such other place and time
and/or on such other date as the Company and Parent may agree in writing (the
"Closing Date").
Section 1.3 Effective Time. Subject to the provisions of this Agreement,
as soon as practicable on the Closing Date, the parties hereto shall file a
certificate of merger as contemplated by the DGCL and the LLC Act (the
"Certificate of Merger"), together with any required related certificates, with
the Secretary of State of the State of Delaware, in such form as required by,
and executed in accordance with, the DGCL and the LLC Act. The Merger shall
become effective at such time as the Certificate of Merger is duly filed with
such Secretary of State on the Closing Date, or at such later time as Parent and
the Company shall agree and specify in the Certificate of Merger. As used
herein, the "Effective Time" shall mean the time at which the Merger shall
become effective.
Section 1.4 Certificate of Formation. The certificate of formation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
certificate of formation of the Surviving Entity until thereafter changed or
amended as provided therein or by the LLC Act or applicable Law (the
"Certificate of Formation"), except that the Certificate of Formation shall be
amended to provide that the name of the Surviving Entity shall become MCI, LLC.
Section 1.5 By-Laws. The by-laws (if any) of Merger Sub in effect
immediately prior to the Effective Time shall be the by-laws of the Surviving
Entity (the "By-Laws") until thereafter amended as provided therein or by
applicable Law.
Section 1.6 Directors. The directors of Merger Sub immediately prior to
the Effective Time shall, from and after the Effective Time, be the directors of
the Surviving Entity until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or removal in accordance
with the Certificate of Incorporation and the By-Laws.
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Section 1.7 Officers. The officers of the Company immediately prior to the
Effective Time shall, from and after the Effective Time, be the officers of the
Surviving Entity until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Certificate of Incorporation and the By-Laws.
Section 1.8 Effect on Capital Stock.
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of the holder thereof, each share of Company Common Stock
issued and outstanding immediately prior to the Effective Time (excluding any
Company Restricted Shares and Excluded Shares) shall be converted into the right
to receive (i) 0.4062 (the "Exchange Ratio") validly issued, fully paid and
non-assessable shares of Parent Common Stock (the "Stock Consideration") and
(ii) $1.50 in cash (the "Per Share Cash Amount"), without interest, together
with any cash in lieu of fractional shares of Parent Common Stock to be paid
pursuant to Section 2.5 (such shares and cash, the "Base Merger Consideration").
The Exchange Ratio and Base Merger Consideration shall be subject to adjustment
pursuant to Section 1.10 (as so adjusted, the "Merger Consideration").
(b) As a result of the Merger and without any action on the part of
the holders thereof, at the Effective Time, all shares of Company Common Stock
(other than Company Restricted Shares and Excluded Shares) shall cease to be
outstanding and shall be canceled and retired, and each certificate that
immediately prior to the Effective Time represented any such shares of Company
Common Stock (the "Certificates") shall thereafter represent only the right to
receive the Merger Consideration with respect to the shares of Company Common
Stock (other than Company Restricted Shares and Excluded Shares) formerly
represented thereby, and any dividends or other distributions to which the
holders thereof are entitled pursuant to Section 2.3.
(c) Each Excluded Share at the Effective Time shall, by virtue of
the Merger and without any action on the part of the holder thereof, cease to be
outstanding and shall be canceled and retired and no stock of Parent or other
consideration shall be delivered in exchange therefor.
(d) At the Effective Time, each limited liability company interest
of Merger Sub issued and outstanding immediately prior to the Effective Time
shall continue to be issued and outstanding and shall constitute the only issued
and outstanding interests of the Surviving Entity.
Section 1.9 Alternative Merger Structure. Notwithstanding any other
provision of this Agreement, if (i) either of the conditions specified in
Section 7.4 fails to be duly satisfied or waived or (ii) at any time prior to
the Effective Time, Parent
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reasonably determines in good faith that effecting the Merger as a merger of the
Company into Merger Sub with Merger Sub surviving would result in a material
risk of materially adverse regulatory or other materially adverse consequences,
the transactions contemplated herein shall be effected (subject to other
conditions contained herein) by merging the Company with a Delaware corporation
wholly owned by Parent, with the Company as the surviving corporation (the
"Alternative Merger"). In such event, the conversion of the outstanding Company
securities will occur as provided in this Article, and following the Effective
Time all outstanding stock of the surviving corporation will be owned by Parent.
The other provisions of this Agreement will continue to apply in the event of
the Alternative Merger, mutatis mutandis.
Section 1.10 Adjustment for Specified Included Liabilities at Closing.
(a) Determination of Remaining Specified Included Liabilities
Amount. At such time as either Company or Parent reasonably believes in good
faith that the Closing Date will occur within 120 days, such party may deliver
notice (a "Trigger Notice") to the other party requesting commencement of the
procedure set forth in this Section 1.10 to determine the best estimate of the
amount of cash in U.S. dollars (the "Remaining Specified Included Liabilities
Amount") that will actually be required, from and after the Closing Date, to
satisfy in full all remaining Specified Included Liabilities. Promptly after
delivery of the Trigger Notice, (i) the Company shall deliver to Parent a
schedule setting forth all Specified Included Liabilities and the status thereof
and (ii) the parties will agree on and jointly engage an independent valuation
firm reasonably satisfactory to Parent and the Company to act as arbitrator with
respect to the Bankruptcy Claims (other than any claims relating to Taxes) (the
"Bankruptcy Claims Valuation Firm"), and PricewaterhouseCoopers LLP to act as
arbitrator with respect to any claims related to Taxes (the "Specified Tax
Liabilities Valuation Firm" and, together with the Bankruptcy Claims Valuation
Firm, the "Neutral Valuation Firms"), pursuant to Section 1.10(c) and 1.10(d) in
the event the parties are unable to agree on the Remaining Specified Included
Liabilities Amount; provided that if the parties are unable to agree on a
Bankruptcy Claims Valuation Firm within 30 days of delivery of the Trigger
Notice, then either party may request that the American Arbitration Association
select an independent valuation firm to act as arbitrator and the firm so
selected shall be the Bankruptcy Claims Valuation Firm. If
PricewaterhouseCoopers LLP is unavailable or declines to serve as the Specified
Tax Liabilities Valuation Firm, then either party may request the American
Arbitration Association to select an independent accounting firm to serve as the
Specified Tax Liabilities Valuation Firm, and the firm so selected shall be the
Specified Tax Liabilities Valuation Firm.
(b) Best Efforts. Parent and the Company shall, during the period
following the delivery of the Trigger Notice until such date as all conditions
to Closing under Article VII (other than Section 7.1(f)) are satisfied or
waived, use their best efforts to reach agreement on the Remaining Specified
Included Liabilities Amount, including
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giving full access to all relevant information, with due consideration being
given to privilege issues and techniques for resolving them. If Parent and the
Company agree on the calculation of the Remaining Specified Included Liabilities
Amount, then such Remaining Specified Included Liabilities Amount shall become
final and binding on the parties.
(c) Submission to Neutral Valuation Firms. If Parent and the Company
are unable to agree on the calculation of the Remaining Specified Included
Liabilities Amount within 60 days of the date of the Trigger Notice, the parties
will refer the matter to the Neutral Valuation Firms and will make submissions
to the Neutral Valuation Firms so that the Neutral Valuation Firms are in a
position to make a final determination of the Remaining Specified Included
Liabilities Amount within the period set forth in Section 1.10(d). Parent and
Company shall cooperate and assist the Neutral Valuation Firms in their review
of the Remaining Specified Included Liabilities and the calculation of the
Remaining Specified Included Liabilities Amount, including giving full access to
all relevant information, with due consideration being given to privilege issues
and techniques for resolving them.
(d) Determination by Neutral Valuation Firms. If Parent and the
Company are unable to agree on the calculation of the Remaining Specified
Included Liabilities Amount by such date as all conditions to Closing under
Article VII (other than Section 7.1(f)) are satisfied or waived, each of Parent
and the Company will, at a mutually agreed time within three Business Days
following such date, simultaneously submit to the Neutral Valuation Firms its
final proposal (which proposal shall specify the items as to which the parties
have been able to agree pursuant to Section 1.10(b) and such party's proposal as
to the items in dispute) as to (i) the Remaining Specified Included Liabilities
Amount (to the extent relating to non-Tax Bankruptcy Claims) (the "Bankruptcy
Claims Proposals") and (ii) the Remaining Specified Included Liabilities Amount
(to the extent relating to Tax claims) (the "Specified Tax Liabilities
Proposals"), provided, however, that the Specified Tax Liabilities Proposals
shall not be translated into U.S. dollars. Within 10 Business Days of such final
submissions, (x) the Bankruptcy Claims Valuation Firm will select one of the two
Bankruptcy Claims Proposals as being most representative of the Remaining
Specified Included Liabilities Amount (to the extent relating to Bankruptcy
Claims) and (y) the Specified Tax Liabilities Valuation Firm will select one of
the two Specified Tax Liabilities Proposals as being most representative of the
Remaining Specified Included Liabilities Amount (to the extent relating to Tax
claims), and the amounts so selected shall be final and binding on the parties.
In making such determination, the Neutral Valuation Firms shall consider only
those items or amounts as to which the parties have been unable to agree
pursuant to Section 1.10(b).
(e) Paid Specified Included Liabilities Amount. Five days prior to
the anticipated Closing Date, the Company shall provide to Parent a schedule of
the Paid
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Specified Included Liabilities Amount and detailing each item comprising the
Paid Specified Included Liabilities Amount, together with reasonable supporting
documentation.
(f) Postponement of Closing. If applicable, the Closing Date shall
be postponed to the Business Day following the final determination of the
Remaining Specified Included Liabilities Amount pursuant to the procedures set
forth in Section 1.10(d). In addition, if the Closing Date does not occur within
a period of 90 days from the date on which the Final Remaining Specified
Included Liabilities Amount was determined, the Specified Included Liabilities
Amount shall be redetermined pursuant to the procedures set forth in this
Section 1.10.
(g) Adjustments to the Merger Consideration. Upon determination of
the Specified Included Liabilities Amount, the Base Merger Consideration shall
be adjusted as follows: If the Specified Included Liabilities Amount is greater
than $1,725,000,000, then the Per Share Cash Amount shall be reduced by an
amount equal to the quotient obtained by dividing (x) the difference between the
Specified Included Liabilities Amount and $1,725,000,000 by (y) the sum of (A)
the number of shares of Company Common Stock issued and outstanding immediately
prior to the Effective Time (excluding any Excluded Shares other than Dissenting
Shares) and (B) the number of shares reserved for issuance pursuant to the
Chapter 11 Plan that are unissued immediately prior to the Effective Time (which
number shall not exceed 5,375,000 minus the number of shares so issued after the
date hereof) provided that if, pursuant to the foregoing adjustment, the Per
Share Cash Amount would otherwise be less than zero (the amount by which the Per
Share Cash Amount would otherwise be less than zero, the "Incremental Amount"),
the Per Share Cash Amount shall be reduced to zero, and there shall be a further
adjustment made to the Exchange Ratio such that the Exchange Ratio shall be
equal to the product of (x) 0.4062 and (y) the quotient obtained by dividing (1)
the Aggregate Base Merger Consideration minus the Aggregate Incremental Amount
by (2) the Aggregate Base Merger Consideration. For the avoidance of doubt, if
the Specified Included Liabilities Amount is $1,725,000,000 or less, there shall
be no adjustment made to the Base Merger Consideration.
For the purposes hereof, the "Aggregate Base Merger Consideration" shall
equal $14.75 multiplied by the sum of (x) the number of shares of Company Common
Stock issued and outstanding immediately prior to the Effective Time (excluding
any Excluded Shares other than Dissenting Shares) and (y) the number of shares
reserved for issuance pursuant to the Chapter 11 Plan that are unissued
immediately prior to the Effective Time (which number shall not exceed 5,375,000
minus the number of shares so issued after the date hereof).
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Section 1.11 Treatment of Company Restricted Shares and Other Equity-Based
Awards.
(a) Restricted Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof, each then
outstanding Company Restricted Share shall be converted into (i) that number of
restricted shares of Parent Common Stock ("Parent Restricted Shares") equal to
the Exchange Ratio, as adjusted pursuant to Section 1.10(g), plus (ii) a cash
payment to the holder of any Company Restricted Share of an amount equal to the
Per Share Cash Amount. Notwithstanding the fact that part of each holder's
Company Restricted Shares will be settled in cash as provided in the immediately
preceding sentence, each Parent Restricted Share issued pursuant to this Section
1.11(a) will have, and be subject to, the same terms and conditions as in effect
immediately prior to the Effective Time with respect to the corresponding
Company Restricted Shares (and shall bear a legend containing the same
restrictions on transferability).
(b) Other Equity-Based Awards. As of the Effective Time, by virtue
of the Merger and without any action on the part of the holder thereof, each
then outstanding equity-based award (other than Company Restricted Shares or
rights under the ESPP) providing for a cash or stock payment measured by the
value of Company Common Stock (an "Other Company Equity-Based Award") shall be
deemed to refer to (or be measured by) (i) the number of shares of Parent Common
Stock equal to the result determined by multiplying such number of shares of
Company Common Stock covered by the Other Company Equity-Based Award by the
Exchange Ratio as adjusted pursuant to Section 1.10(g), plus (ii) a cash payment
to the holder of any Other Company Equity-Based Award in an amount equal to the
product of the Per Share Cash Amount and the number of shares of Company Common
Stock covered by such Other Company Equity-Based Award. Notwithstanding the fact
that part of each holder's Other Company Equity-Based Award will be settled in
cash as provided in the immediately preceding sentence, the rights of any person
with respect to Parent Common Stock under each Other Company Equity-Based Award
shall be on the same terms, conditions and restrictions, if any, as were
applicable to such Other Company Equity-Based Award immediately prior to the
Effective Time.
(c) ESPP. The Company shall establish a date on or before December
31, 2005 as the final purchase date under the terms of the Company's Employee
Stock Purchase Plan (the "ESPP"), and shall cause all accumulated cash balances
standing to the credit of each participant under the ESPP on such final purchase
date to be applied to purchase the number of shares of Company Common Stock that
could be purchased with such amounts on such date pursuant to the ESPP. The
Company shall take any and all actions necessary or appropriate to cause the
ESPP to terminate on such final purchase date, after giving effect to the
purchases of Company Common Stock contemplated by this Section 1.11(c), and
shall not thereafter offer any plan, program or arrangement for
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the purchase of shares of Company Common Stock. Each participant who would
otherwise have been entitled to receive a fractional share of Company Common
Stock, after giving effect to the purchase of Company Common Stock contemplated
by this Section 1.11(c), shall receive, in lieu thereof, a cash disbursement
(without interest) of such participant's contributions credited to his or her
account and not applied to such purchase.
Section 1.12 Certain Adjustments. If, between the date of this Agreement
and the Effective Time, the outstanding Parent Common Stock or Company Common
Stock shall have been changed into a different number of shares or different
class by reason of any reclassification, recapitalization, stock split,
split-up, combination or exchange of shares, or a stock dividend or dividend
payable in any other securities shall be declared with a record date within such
period, or any similar event shall have occurred, the Exchange Ratio and the Per
Share Cash Amount shall be appropriately adjusted to provide to the holders of
Company Common Stock the same economic effect as contemplated by this Agreement
prior to such event.
Section 1.13 Appraisal Rights. No holder of Dissenting Shares (a
"Dissenting Stockholder") shall be entitled to any Merger Consideration or
dividends or other distributions pursuant to Section 2.3 in respect of such
Dissenting Shares unless and until such holder shall have failed to perfect or
shall have effectively withdrawn or lost such holder's right to seek appraisal
of its Dissenting Shares under the DGCL, and any Dissenting Stockholder shall be
entitled to receive only the payment provided by Section 262 of the DGCL with
respect to the Dissenting Shares owned by such Dissenting Stockholder. If any
Person who otherwise would be deemed a Dissenting Stockholder shall have failed
properly to perfect or shall have effectively withdrawn or lost the right to
seek appraisal with respect to any Dissenting Shares, such Dissenting Shares
shall thereupon be treated as though such Dissenting Shares had been converted
into the Merger Consideration pursuant to Section 1.8. The Company shall give
Parent (i) prompt notice of any written demands for appraisal, attempted
withdrawals of such demands, and any other instruments served pursuant to
applicable Law received by the Company relating to stockholders' rights of
appraisal and (ii) the opportunity to direct all negotiations and proceedings
with respect to demand for appraisal under the DGCL. The Company shall not,
except with the prior written consent of Parent, voluntarily make any payment
with respect to any demands for appraisals of Dissenting Shares, offer to settle
or settle any such demands or approve any withdrawal of any such demands.
Section 1.14 Associated Rights. References in Article I and Article II of
this Agreement to Company Common Stock shall include, unless the context
requires otherwise, the associated Company Rights.
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ARTICLE II
EXCHANGE OF CERTIFICATES
Section 2.1 Exchange Fund. Prior to the Effective Time, Parent shall
appoint a commercial bank or trust company reasonably acceptable to the Company
to act as exchange agent hereunder for the purpose of exchanging Certificates
for the Merger Consideration (the "Exchange Agent"). At or prior to the
Effective Time, Parent shall deposit with the Exchange Agent, in trust for the
benefit of holders of shares of Company Common Stock, certificates representing
the Parent Common Stock issuable pursuant to Section 1.8 in exchange for
outstanding shares of Company Common Stock and an amount of cash representing
the aggregate cash consideration payable pursuant to Section 1.8. Parent agrees
to make available, or to cause the Surviving Entity to make available, to the
Exchange Agent from time to time as needed, cash sufficient to make cash
payments for the cash consideration pursuant to Section 1.8, in lieu of
fractional shares pursuant to Section 2.5 and any dividends and other
distributions pursuant to Section 2.3. Any cash and certificates of Parent
Common Stock deposited with the Exchange Agent shall hereinafter be referred to
as the "Exchange Fund."
Section 2.2 Exchange Procedures. Promptly after the Effective Time, the
Surviving Entity shall cause the Exchange Agent to mail to each holder of record
of one or more Certificates (a) a letter of transmittal that shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the Exchange Agent, which
letter shall be in customary form and have such other provisions as Parent may
reasonably specify and which letter shall be reasonably acceptable to the
Company prior to the Effective Time and (b) instructions for effecting the
surrender of such Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate to the Exchange Agent together with such letter of
transmittal, duly executed and completed in accordance with the instructions
thereto, and such other documents as may reasonably be required by the Exchange
Agent, the holder of such Certificate shall be entitled to receive in exchange
therefor (i) one or more shares of Parent Common Stock which shall be in
uncertificated book-entry form unless a physical certificate is requested and
which shall represent, in the aggregate, the whole number of shares that such
holder has the right to receive pursuant to Section 1.8 (after taking into
account all shares of Company Common Stock then held by such holder) and (ii) a
check in the amount equal to any cash that such holder has the right to receive
pursuant to the provisions of Section 1.8 and this Article II, consisting of the
cash consideration pursuant to Section 1.8, cash in lieu of any fractional
shares of Parent Common Stock, as the case may be, pursuant to Section 2.5 and
dividends and other distributions pursuant to Section 2.3. No interest will be
paid or will accrue on any cash payable pursuant to Section 1.8, Section 2.3 or
Section 2.5. In the event of a transfer of ownership of Company Common Stock
that is not registered in the transfer records of the Company, one or more
shares of Parent Common Stock evidencing, in the aggregate, the
9
proper number of shares of Parent Common Stock and a check in the proper amount
of any cash consideration pursuant to Section 1.8, cash in lieu of any
fractional shares of Parent Common Stock pursuant to Section 2.5 and any
dividends or other distributions to which such holder is entitled pursuant to
Section 2.3, may be issued with respect to such Company Common Stock, as the
case may be, to such a transferee if the Certificate representing such shares of
Company Common Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid.
Section 2.3 Distributions with Respect to Unexchanged Shares. All shares
of Parent Common Stock to be issued pursuant to the Merger (which shall exclude
shares issued pursuant to the Bankruptcy Court Order) shall be deemed issued and
outstanding as of the Effective Time. No dividends or other distributions
declared or made in respect of the Parent Common Stock shall be paid to the
holder of any Certificate until the holder of such Certificate shall surrender
such Certificate in accordance with this Article II. Subject to applicable Law,
following surrender of any such Certificate, there shall be paid to such holder
of shares of Parent Common Stock issuable in exchange therefor, without
interest, (a) promptly after the time of surrender the number of whole shares of
Parent Common Stock issuable in exchange therefor pursuant to this Article II,
together with the cash consideration payable pursuant to Section 1.8, cash in
lieu of a fractional share of Parent Common Stock to which such holder is
entitled pursuant to Section 2.5 and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of Parent Common Stock and (b) at the appropriate
payment date the amount of dividends or other distributions with a record date
after the Effective Time but prior to such surrender and a payment date
subsequent to such surrender payable with respect to such shares of Parent
Common Stock.
Section 2.4 No Further Ownership Rights in Company Common Stock. All
shares of Parent Common Stock issued and cash paid upon conversion of shares of
Company Common Stock in accordance with the terms of this Article II (including
any cash paid pursuant to Section 2.3 or Section 2.5) shall be deemed to have
been issued or paid in full satisfaction of all rights pertaining to the shares
of Company Common Stock previously represented by such Certificates.
Section 2.5 No Fractional Shares of Parent Common Stock.
(a) No certificates or scrip or shares of Parent Common Stock
representing fractional shares of Parent Common Stock or book-entry credit of
the same shall be issued upon the surrender for exchange of Certificates and
such fractional share interests will not entitle the owner thereof to vote or to
have any rights of a stockholder of Parent.
10
(b) Notwithstanding any other provision of this Agreement, each
holder of shares of Company Common Stock exchanged pursuant to the Merger who
would otherwise have been entitled to receive a fractional share of Parent
Common Stock (after taking into account all Certificates delivered by such
holder) shall receive, in lieu thereof, cash (without interest) in an amount
equal to the product of (i) such fractional part of a share of Parent Common
Stock multiplied by (ii) the closing price for a share of Parent Common Stock on
the New York Stock Exchange, Inc. ("NYSE") Composite Transactions Tape on the
Closing Date.
(c) As promptly as practicable after the determination of the amount
of cash, if any, to be paid to holders of fractional interests, the Exchange
Agent shall so notify Parent, and Parent shall deposit or cause the Surviving
Entity 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.
Section 2.6 Termination of Exchange Fund. Any portion of the Exchange Fund
that remains undistributed to the holders of Certificates for six months after
the Effective Time shall be delivered to Parent or otherwise on the instruction
of Parent, and any holders of the Certificates who have not theretofore complied
with this Article II shall thereafter look only to Parent for the Merger
Consideration with respect to the shares of Company Common Stock formerly
represented thereby to which such holders are entitled pursuant to Section 1.8
and Section 2.3, cash in lieu of fractional shares of Parent Common Stock to
which such holders are entitled pursuant to Section 2.5 and any dividends or
distributions with respect to shares of Parent Common Stock to which such
holders are entitled pursuant to Section 2.3, the cash consideration to which
such holders are entitled pursuant to Section 1.8. Any such portion of the
Exchange Fund remaining unclaimed by holders of shares of Company Common Stock
five years after the Effective Time (or such earlier date immediately prior to
such time as such amounts would otherwise escheat to or become property of any
Governmental Entity) shall, to the extent permitted by applicable Law, become
the property of the Surviving Entity free and clear of any claims or interest of
any Person previously entitled thereto.
Section 2.7 No Liability. None of Parent, Merger Sub, the Company, the
Surviving Entity or the Exchange Agent shall be liable to any Person in respect
of any Merger Consideration from the Exchange Fund delivered to a public
official or Governmental Entity pursuant to any applicable abandoned property,
escheat or similar Law.
Section 2.8 Investment of the Exchange Fund. The Exchange Agent shall
invest any cash included in the Exchange Fund as directed by Parent on a daily
basis; provided that no such gain or loss thereon shall affect the amounts
payable to the
11
stockholders of the Company pursuant to Article I or this Article II. Any
interest and other income resulting from such investments shall promptly be paid
to Parent.
Section 2.9 Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Entity, the posting by such Person of a bond in such reasonable
amount as the Surviving Entity may direct as indemnity against any claim that
may be made against it with respect to such Certificate, the Exchange Agent
shall deliver in exchange for such lost, stolen or destroyed Certificate the
applicable Merger Consideration with respect to the shares of Company Common
Stock formerly represented thereby, any cash in lieu of fractional shares of
Parent Common Stock to which such holders are entitled pursuant to Section 2.5
and any dividends and distributions with respect to shares of Parent Common
Stock to which such holders are entitled pursuant to Section 2.3.
Section 2.10 Withholding Rights. Each of the Surviving Entity and Parent
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Common
Stock, Company Restricted Shares or any other equity rights in the Company such
amounts as it is required to deduct and withhold with respect to the making of
such payment under the Code and the rules and regulations promulgated
thereunder, or any provision of state, local or non-U.S. Law and shall further
be entitled to sell Parent Common Stock otherwise payable pursuant to this
Agreement to satisfy any such withholding requirement. To the extent that
amounts are so withheld by the Surviving Entity or Parent, as the case may be,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Company Common Stock in respect
of which such deduction and withholding was made by the Surviving Entity or
Parent, as the case may be.
Section 2.11 Further Assurances. After the Effective Time, the officers
and directors of the Surviving Entity will be authorized to execute and deliver,
in the name and on behalf of the Company or Merger Sub, any deeds, bills of
sale, assignments or assurances and to take and do, in the name and on behalf of
the Company or Merger Sub, any other actions and things to vest, perfect or
confirm of record or otherwise in the Surviving Entity any and all right, title
and interest in, to and under any of the rights, properties or assets acquired
or to be acquired by the Surviving Entity as a result of, or in connection with,
the Merger.
Section 2.12 Stock Transfer Books. The stock transfer books of the Company
shall be closed immediately upon the Effective Time and there shall be no
further registration of transfers of shares of Company Common Stock thereafter
on the records of the Company. At or after the Effective Time, any Certificates
presented to the Exchange Agent or Parent for any reason shall be converted into
the right to receive the Merger Consideration with respect to the shares of
Company Common Stock formerly
12
represented thereby (including any cash in lieu of fractional shares of Parent
Common Stock to which the holders thereof are entitled to pursuant to Section
2.5 and any dividends or other distributions to which the holders thereof are
entitled pursuant to Section 2.3).
Section 2.13 Affiliates. Notwithstanding anything to the contrary herein,
to the fullest extent permitted by Law, no certificates representing shares of
Parent Common Stock or cash shall be delivered to a Person who may be deemed an
"affiliate" of the Company in accordance with Section 6.13 hereof for purposes
of Rule 145 under the Securities Act, until such Person has executed and
delivered an Affiliate Agreement to Parent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as otherwise disclosed to Parent in a letter (the "Company
Disclosure Letter") delivered to it by the Company prior to the execution of
this Agreement (with specific reference to the representations and warranties in
this Article III to which the information in such letter relates, subject to
Section 9.3(b)) or as set forth in the Company SEC Documents filed prior to the
date hereof (excluding any disclosures included in any such Company SEC Document
that are predictive or forward-looking in nature), the Company represents and
warrants to Parent and Merger Sub as follows:
Section 3.1 Organization. The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to own, lease and operate
its properties and assets and to carry on its business as now being conducted.
The Company delivered or has made available to Parent and Merger Sub true,
correct and complete copies of its certificate of incorporation and by-laws, as
amended and in effect on the date of this Agreement.
Section 3.2 Subsidiaries.
(a) Exhibit 21.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2003 includes all the Subsidiaries of the Company
(individually, a "Company Subsidiary" and collectively, the "Company
Subsidiaries"), which as of the date thereof were "Significant Subsidiaries" (as
defined in Rule 1-02 of Regulation S-X of the SEC). Each Company Subsidiary is a
corporation, limited liability company or partnership, as the case may be, duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, as the case may be, and has
all requisite corporate, limited liability company or partnership power and
authority, as the case may be, to own, lease and operate its properties and
assets and
13
to carry on its business as now being conducted, except where the failure to be
so organized, validly existing, qualified or in good standing, or to have such
power or authority, would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect. The Company has made
available to Parent true, correct and complete copies of the certificate of
incorporation, the by-laws, and all other organizational documents of each
Company Subsidiary, as amended and in effect on the date of this Agreement.
(b) Except as set forth in Section 3.2(b) of the Company Disclosure
Letter or in Exhibit 21.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2003, the Company is, directly or indirectly, the record
and beneficial owner of all of the outstanding shares of capital stock or other
equity interests of each of the Significant Subsidiaries, free and clear of any
Liens. All of such shares and other equity interests so owned by the Company are
validly issued, fully paid and nonassessable (and no such shares have been
issued in violation of any preemptive or similar rights).
Section 3.3 Capitalization.
(a) As of the date of this Agreement, the authorized capital stock
of the Company consists of 3,000,000,000 shares of Company Common Stock.
(b) At the close of business on February 11, 2005, (i) 321,422,248
shares of Company Common Stock were issued and outstanding and (ii) no shares of
Company Common Stock were held in treasury by the Company.
(c) The Company has delivered or made available to Parent a complete
and correct copy of the Rights Agreement as in effect on the date hereof.
(d) Section 3.3(d) of the Company Disclosure Letter contains a
schedule as of February 9, 2005 setting forth the aggregate number of shares of
Company Common Stock relating to outstanding awards of Company Restricted Shares
and Other Company Equity-Based Awards. As soon as practicable (but not later
than 20 Business Days) after the date hereof, the Company shall provide Parent
with a copy of the form of agreement related to each such award. Each of the
Company's equity compensation plans (the "Company Stock Plans"), are set forth
in Section 3.3(d) of the Company Disclosure Letter. As of February 11, 2005,
5,005,144 shares of Company Common Stock were reserved for issuance pursuant to
the Chapter 11 Plan. Except as set forth above, at the close of business on
February 11, 2005 no shares of capital stock of the Company were issued,
reserved for issuance or outstanding. All issued and outstanding shares of
Company Common Stock are duly authorized, validly issued, fully paid and
nonassessable.
14
(e) There are no preemptive or similar rights on the part of any
holder of any class of securities of the Company or any Company Subsidiary.
Neither the Company nor any Company Subsidiary has outstanding any bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or which are convertible into or exercisable for securities having the
right to vote) with the stockholders of the Company or any such Company
Subsidiary on any matter submitted to shareholders or a separate class of
holders of capital stock. Except as set forth in Sections 3.3(d) or 3.3(e) of
the Company Disclosure Letter and other than the rights to purchase Company
Common Stock outstanding under the terms of the ESPP, as of the date of this
Agreement, there are no options, warrants, calls, rights, convertible or
exchangeable securities, "phantom" stock rights, stock appreciation rights,
stock-based performance units, commitments, contracts, arrangements or
undertakings of any kind to which the Company or any of the Company Subsidiaries
is a party or by which any of them is bound (i) obligating the Company or any of
the Company Subsidiaries to issue, deliver, sell or transfer or repurchase,
redeem or otherwise acquire, or cause to be issued, delivered, sold or
transferred or repurchased, redeemed or otherwise acquired, any shares of
capital stock of the Company or any Company Subsidiary, any additional shares of
capital stock of, or other equity interests in, or any security convertible or
exercisable for or exchangeable into any capital stock of, or other equity
interest in, the Company or any Company Subsidiary, (ii) obligating the Company
or any Company Subsidiary to issue, grant, extend or enter into any such option,
warrant, call, right, security, commitment, contract, arrangement or undertaking
or (iii) that give any Person the right to receive any economic benefit or right
similar to or derived from the economic benefits and rights accruing to holders
of capital stock of, or other equity interests in, the Company or any Company
Subsidiary. As of the date of this Agreement, there are no outstanding
contractual obligations of the Company or any of the Company Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of, or other
equity interests in, the Company or any of the Company Subsidiaries. There are
no proxies, voting trusts or other agreements or understandings to which the
Company is a party or is bound with respect to the voting of the capital stock
of, or other equity interests in, the Company.
Section 3.4 Authorization.
(a) The Company has all requisite corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and,
subject to receipt of approval by the holders of a majority of the outstanding
shares of Common Stock entitled to vote in accordance with the DGCL and the
Company's Constituent Documents (the "Company Stockholder Approval"), to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the Merger and the other
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action, and no other corporate proceedings on the part of
the Company are necessary for it to authorize this Agreement
15
or to consummate the transactions contemplated hereby, except for the adoption
of this Agreement and the transactions contemplated hereby by Company
Stockholder Approval. This Agreement has been duly and validly executed and
delivered by the Company and, assuming due authorization, execution and delivery
by Parent and Merger Sub, is a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
(b) The Board of Directors of the Company, at a meeting duly called
and held, duly and unanimously adopted resolutions (i) approving this Agreement,
the Merger and the other transactions contemplated by this Agreement, (ii)
determining that the terms of the Merger and the other transactions contemplated
by this Agreement are fair to and in the best interests of the Company and its
stockholders, (iii) recommending that the Company's stockholders adopt this
Agreement and (iv) declaring that this Agreement is advisable.
Section 3.5 Takeover Statute, No Restrictions on the Merger.
(a) Except as set forth in Section 3.5(a) of the Company Disclosure
Letter, no state "fair price," "moratorium," "control share acquisition" or
similar anti-takeover statute is applicable to the Merger or the other
transactions contemplated by this Agreement.
(b) The Board of Directors has taken all necessary action to render
the restrictions on business combinations contained in Section 203 of the DGCL
hereby inapplicable to this Agreement and the transactions contemplated by this
Agreement.
Section 3.6 Rights Agreement. The Board of Directors of the Company has
taken all necessary action to render the Rights Agreement inapplicable to the
Merger and the transactions contemplated hereby, and neither the execution and
delivery of this Agreement nor the consummation of any of the transactions
contemplated hereby will result in the occurrence of a Distribution Date, as
defined in the Rights Agreement, or otherwise cause the Company Rights to become
exercisable by the holders thereof.
Section 3.7 Consents and Approvals; No Violations.
(a) The execution and delivery of this Agreement by the Company does
not and the consummation by the Company of the transactions contemplated hereby
will not (i) conflict with any provisions of the Company's Constituent Documents
or, except as, individually or in the aggregate, would not reasonably be
expected to have a Company Material Adverse Effect, the certificate of
incorporation or by-laws or any other organizational documents of any Company
Subsidiary; (ii) violate any Law or
16
Order (assuming compliance with the matters set forth in Section 3.7(b)); (iii)
result in any violation or default or loss of a benefit under, or permit the
acceleration or termination of any obligation under, any mortgage, indenture,
lease, agreement or other instrument, permit, concession, grant, franchise or
license; (iv) result in the creation or imposition of any Lien upon any
properties or assets of the Company or any Company Subsidiary; or (v) cause the
suspension or revocation of any permit, license, governmental authorization,
consent or approval necessary for the Company or any Company Subsidiary to
conduct its business as currently conducted, except, in the case of clauses
(ii), (iii) (iv) and (v), as, individually or in the aggregate, has not had and
would not reasonably be expected to result in a Company Material Adverse Effect
and as would not reasonably be expected to materially delay or impair the
consummation of the Merger.
(b) No consent, approval, order or authorization of, or declaration,
registration or filing with, or notice to any Governmental Entity is required to
be made or obtained by the Company or any Company Subsidiary in connection with
the execution or delivery of this Agreement by the Company or the consummation
by the Company of the transactions contemplated hereby, except for (i)
compliance by the Company with the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended ("HSR Act"), and such foreign antitrust and competition law
requirements described in Section 3.7(b)(i) of the Company Disclosure Letter;
(ii) the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware in accordance with the DGCL, (iii) the filings with the
Securities and Exchange Commission ("SEC") of (A) the Proxy Statement and
Prospectus in accordance with Regulation 14A promulgated under the Exchange Act,
(B) the registration statement on Form S-4 promulgated under the Securities Act
and (C) such reports under and such other compliance with the Exchange Act and
the Securities Act and the rules and regulations thereunder as may be required
in connection with this Agreement and the transactions contemplated hereby, (iv)
with or to the Federal Communications Commission (the "FCC"), (v) with or to
those State public service or public utility commissions or similar State
regulatory bodies set forth in Section 3.7(b)(v) of the Company Disclosure
Letter ("State Commissions"); (vi) with or to those foreign Governmental
Entities regulating competition and telecommunications businesses or the use of
radio spectrum or regulating or limiting investment set forth in Section
3.7(b)(vi) of the Company Disclosure Letter; (vii) with or to those State
agencies or departments or local governments that have issued competitive access
provider or other telecommunications franchises or any other similar
authorizations; and (viii) any consent, approval, order or authorization of, or
declaration, registration or filing with, or notice to any Governmental Entity
(other than any of the foregoing addressed in clauses (i) through (vii) above),
the failure to make or obtain would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect.
17
(c) The representations contained in Section 3.7(a) and 3.7(b) are
true without taking into account the possibility of effecting the transactions
under this Agreement in the form of the Alternative Merger.
(d) Effecting the transactions contemplated hereby in the form of
the Merger will not be materially more burdensome to Parent and its Subsidiaries
taken as a whole, or the Company and its Subsidiaries taken as a whole as
compared to effecting such transactions in the form of the Alternative Merger.
Section 3.8 SEC Reports; Company Financial Statements.
(a) The Company and each Company Subsidiary has filed or furnished
all reports, schedules, forms, statements and other documents required to be
filed or furnished by it with or to the SEC since April 20, 2004 (the "Company
SEC Documents"). As of its respective date, each of the Company SEC Documents,
including any financial statements or schedules included or incorporated by
reference therein, complied when filed or furnished and as amended in all
material respects with the requirements of the Exchange Act or the Securities
Act and the rules and regulations of the SEC promulgated thereunder applicable
to such Company SEC Documents, and did not, and any Company SEC Documents filed
with the SEC subsequent to the date hereof will not, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or incorporated by reference therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(b) The Company Financial Statements have been derived from the
accounting books and records of the Company and the Company Subsidiaries and
have been prepared in accordance with United States generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods presented, except as otherwise noted therein and subject, in the case of
the unaudited interim financial statements, to the absence of notes. The
consolidated balance sheets (including the related notes) included in the
Company Financial Statements present fairly in all material respects the
financial position of the Company and the Company Subsidiaries as at the
respective dates thereof, and the consolidated statements of income,
consolidated statements of shareholders' equity and consolidated statements of
cash flows (in each case including the related notes) included in such Company
Financial Statements present fairly in all material respects the results of
operations, shareholders' equity and cash flows of the Company and the Company
Subsidiaries for the respective periods indicated, in each case subject to
normal year-end adjustments that have not been and are not expected to be
material in amount.
Section 3.9 Absence of Undisclosed Liabilities. The Company and the
Company Subsidiaries do not have any liabilities or obligations, known or
unknown,
18
contingent or otherwise, except (a) Specified Included Liabilities, (b)
liabilities and obligations in the respective amounts reflected on or reserved
against in the consolidated balance sheet of the Company and the Company
Subsidiaries included in the Company Financial Statements (or readily apparent
in the notes thereto), (c) liabilities and obligations incurred in a
commercially reasonable manner consistent with industry practice since the date
of such balance sheet, and (d) liabilities and obligations that would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect.
Section 3.10 Form S-4; Proxy Statement/Prospectus. None of the information
supplied or to be supplied by the Company for inclusion or incorporation by
reference in (i) the registration statement on Form S-4 to be filed with the SEC
by Parent in connection with the issuance of shares of Parent Common Stock in
the Merger (the "Form S-4") will, at the time the Form S-4 is filed with the SEC
or at any time it is supplemented or amended or at the time it 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, in light of the circumstances under which they are
made, not misleading, or (ii) the Proxy Statement/Prospectus will, at the date
mailed to stockholders of the Company and at the time of the Company Stockholder
Meeting to be held in connection with the Merger, contain any untrue statement
of a fact or omit to state any fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not misleading.
Section 3.11 Absence of Certain Changes. Except for liabilities incurred
in connection with this Agreement or the transactions contemplated hereby, for
the period beginning September 30, 2004 until the date hereof, (i) the Company
and the Company Subsidiaries have conducted their respective businesses only in
a commercially reasonable manner consistent with industry practice; (ii) there
has not been any declaration, setting aside or payment of any dividend or other
distribution in cash, stock or property in respect of the Company's capital
stock, other than regular quarterly dividends and the $0.40 per share dividend
declared on February 11, 2005; (iii) there has not been any action taken by the
Company or any of the Company Subsidiaries that, if taken during the period from
the date of this Agreement through the Effective Time, would constitute a
material breach of Section 5.1; and (iv) except as required by GAAP, there has
not been any change by the Company in its accounting principles, practices or
methods. Since September 30, 2004 until the date hereof, there have not been any
changes, circumstances or events that, individually and in the aggregate, have
had or would reasonably be expected to result in a Company Material Adverse
Effect.
Section 3.12 Litigation. Except as set forth in Section 3.12 of the
Company Disclosure Letter, there is no suit, action, proceeding, claim, review
or investigation (whether at law or in equity, before or by any Governmental
Entity or before any
19
arbitrator) pending, affecting or, to the knowledge of the Company, threatened
in writing against the Company or any of the Company Subsidiaries, or their
respective properties or rights that, individually and in the aggregate for any
such matters premised on common legal theories and similar facts, would
reasonably be expected to result in a Company Material Adverse Effect. Except as
set forth in Section 3.12 of the Company Disclosure Letter, there is no Order of
any Governmental Entity or arbitrator outstanding against the Company or any of
the Company Subsidiaries which would, individually or in the aggregate,
reasonably be expected to result in a Company Material Adverse Effect.
Section 3.13 Compliance with Laws.
(a) Each of the Company and the Company Subsidiaries is, and since
April 20, 2004, has been in compliance in all material respects with applicable
Laws and, to the knowledge of the Company, is not under investigation with
respect to, and has not been threatened to be charged with or given notice of,
any material violation of any Law, in each case except for such failures to be
in compliance, such investigations or such violations as would not, individually
or in the aggregate, reasonably be expected to result in a Company Material
Adverse Effect.
(b) Since December 31, 2003 (or such later date, if the Company only
became subject to the applicable provisions, rules and regulations subsequent to
December 31, 2003), the principal executive officer and the principal financial
officer of the Company have complied in all material respects with (i) the
applicable provisions of the Sarbanes-Oxley Act of 2002 and the related rules
and regulations promulgated under such Act (the "Sarbanes-Oxley Act") and under
the Exchange Act and (ii) the applicable listing and corporate governance rules
and regulations of Nasdaq. The principal executive officer and the principal
financial officer of the Company have made all certifications required by
Sections 302 and 906 of the Sarbanes-Oxley Act with respect to each Company SEC
Document filed by the Company. For purposes of the preceding sentence,
"principal executive officer" and "principal financial officer" shall have the
meanings given to such terms in the Sarbanes-Oxley Act. Except as permitted by
the Exchange Act, including Sections 13(k)(2) and (3), since the enactment of
the Sarbanes-Oxley Act, neither the Company nor any of its Affiliates has
directly or indirectly extended or maintained credit, arranged for the extension
of credit, renewed an extension of credit or materially modified an extension of
credit in the form of personal loans to any executive officer or director (or
equivalent thereof) of the Company or any Company Subsidiaries.
(c) The Company has (i) implemented disclosure controls and
procedures (as defined in Rule 13a-15(e) of the Exchange Act) to ensure that
material information relating to the Company is made known to the management of
the Company by others within those entities, and (ii) has disclosed, based on
its most recent evaluation, to the Company's outside auditors and the audit
committee of the Board of Directors of
20
the Company (A) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting (as defined in
Rule 13a-15(f) of the Exchange Act) that are reasonably likely to adversely
affect the Company's ability to record, process, summarize and report financial
data and (B) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's internal control
over financial reporting.
(d) The Company has prepared a plan to comply with the requirements
of Section 404 of the Sarbanes-Oxley Act on the date by which they must comply
with such requirements. The Company is not aware of any reason it will not
comply with the requirements of Section 404 of the Sarbanes-Oxley Act on the
applicable compliance date.
(e) The Company has delivered to Parent copies of any written
notifications it has received to date since December 31, 2003 of a (i)
"significant deficiency" or (ii) "material weakness" in the Company's internal
controls. For purposes of this Agreement, the terms "significant deficiency" and
"material weakness" shall have the meanings assigned to them in the Statements
of Auditing Standards No. 60, as in effect on the date hereof.
Section 3.14 Taxes.
(a) The Company and each Company Subsidiary have (i) duly and timely
filed with the appropriate Governmental Entities all Tax Returns required to be
filed by it in respect of any material Taxes, which Tax Returns were true,
correct and complete in all material respects, (ii) duly and timely paid in full
all Taxes shown as due on such Tax Returns, (iii) duly and timely paid in full
or withheld, or established adequate reserves in accordance with GAAP for, all
material Taxes that are due and payable by it, (iv) established reserves in
accordance with GAAP that are adequate for the payment of all material Taxes not
yet due and payable with respect to the results of operations of the Company and
each Company Subsidiary through the date of this Agreement and (v) complied in
all material respects with all laws applicable to the withholding and payment
over of Taxes and has timely withheld and paid over to, or, where amounts have
not been so withheld, established an adequate reserve under GAAP for the payment
to, the respective proper Governmental Entities all material amounts required to
be so withheld and paid over.
(b) There (i) is no deficiency, claim, audit, suit, proceeding,
request for information or investigation now pending, outstanding or threatened
against or with respect to the Company or any Company Subsidiary in respect of
any material Taxes or material Tax Returns, and (ii) are no requests for rulings
or determinations in respect of any material Taxes or material Tax Returns
pending between the Company or any Company Subsidiary and any authority
responsible for such Taxes or Tax Returns.
21
(c) The federal income Tax Returns of the Company and the Company
Subsidiaries have been examined by the Internal Revenue Service (or the
applicable statutes of limitation for the assessment of federal income Taxes for
such periods have expired) for all periods through and including December 31,
1991, and no material deficiencies were asserted as a result of such
examinations that have not been resolved and fully paid.
(d) Neither the Company nor any Company Subsidiary has any material
liability as a result of being a party to any material tax sharing, tax
indemnity or other agreement or arrangement with any entity not included in the
most recent Company Financial Statements.
(e) None of the Company or any of the Company Subsidiaries has any
liability for material Taxes as a result of having been a member of any
affiliated group within the meaning of Section 1504(a) of the Code, or any
similar affiliated or consolidated group for tax purposes under state, local or
foreign law (other than a group the common parent of which is the Company), or
has any liability for the Taxes of any Person (other than the Company and the
Company Subsidiaries) under Treasury Regulations Section 1.1502-6 or any similar
provision of state, local or foreign law, or as a transferee or successor, by
contract or otherwise.
(f) There are no material adjustments under Section 481 of the Code
(or similar or analogous provision of state, local or foreign law) for income
tax purposes applicable to or required to be made by the Company or any of the
Company Subsidiaries as a result of changes in methods of accounting or other
events occurring on or before the date hereof.
(g) There are no Liens on any of the assets or properties of the
Company or any Company Subsidiary that arose in connection with any failure (or
alleged failure) to pay any material Tax.
(h) Neither the Company nor any Company Subsidiary has participated
in a "listed transaction" within the meaning of Treasury Regulations
Section1.6011-4(b)(2) that has not been properly disclosed pursuant to such
Regulation on a Tax Return previously made available to Parent.
Section 3.15 ESPP. No officer, employee, director, consultant, or other
service provider to the Company or any of the Company Subsidiaries has any
outstanding options to purchase any capital stock of the Company or any of the
Company Subsidiaries, other than the rights to purchase Company Common Stock
outstanding under the terms of the Company's ESPP.
22
Section 3.16 Sufficiency of Real Property, etc. The Owned Real Property
and the Leased Real Property (collectively, the "Real Property") constitute all
the fee and leasehold interests in real property required for the conduct of the
Business as currently conducted. Except in any such case as would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect, all buildings, structures, fixtures and improvements
included within the Real Property (the "Improvements") are in good repair and
operating condition, subject only to ordinary wear and tear, and are adequate
and suitable for the purposes for which they are presently being used or held
for use, and to the knowledge of the Company, there are no facts or conditions
affecting any of the Improvements that, in the aggregate, would reasonably be
expected to interfere with the current use, occupancy or operation thereof.
Section 3.17 Right-of-Way Agreements and Network Facilities.
(a) Except in any such case as would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect, (i)
each right-of-way agreement, license agreement or other agreement permitting or
requiring the Company or any of its Subsidiaries to lay, build, operate,
maintain or place cable, wires, conduits or other equipment and facilities over
land, underwater or underground (each, a "Right-of-Way Agreement") is valid,
legally binding, enforceable and in full force and effect, and none of the
Company or any of its Subsidiaries is in breach of or default under any
Right-of-Way Agreement, (ii) no event has occurred which, with notice or lapse
of time, would constitute a breach or default by any of the Company or its
Subsidiaries or permit termination, modification or acceleration by any third
party thereunder and (iii) no third party has repudiated or has the right to
terminate or repudiate any Right-of-Way Agreement.
(b) To the knowledge of the Company, the Company is not in violation
of any Laws which, individually or in combination with any others, would
materially and adversely affect the ability of the Company or any of its
Subsidiaries to use any of the rights associated with the Right-of-Way
Agreements, taken as a whole, in the manner and scope in which such rights are
now being used.
(c) Except in any such case as would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect:
(i) All Owned Network Facilities and Leased Network Facilities: (x)
are in good working order and condition ("Good Condition") individually
and in combination; (y) are, individually and in combination, operated,
installed, and maintained by the Company, the Company Subsidiaries, or
their contractors in a manner that is in compliance with (a) generally
accepted industry standards for the United States telecommunications and
foreign telecommunications industries (the latter with respect to Owned
Network Facilities and Leased Network
23
Facilities outside the United States) (together "Industry Standards"), (b)
performance requirements in service agreements with customers of Company
and its Subsidiaries ("Customer Requirements"), and (c) all Laws, and (z)
comply, individually and in combination, with applicable performance
standards. The Company and the Company Subsidiaries will maintain or cause
Owned Network Facilities and Leased Network Facilities, individually and
in combination, to be maintained in Good Condition and in compliance with
Performance Standards, Industry Standards, Customer Requirements, and all
Laws through the Closing Date.
(ii) The Company owns, free of liens and other encumbrances, other
than Permitted Liens, all right, title, and interest in Owned Network
Facilities and will maintain the same through the Closing Date. No third
Person can revoke or otherwise encumber or interfere with such right,
title, and interest.
(iii) (x) Each Network Facility Agreement is valid, legally binding,
enforceable and in full force and effect, and none of the Company or any
of the Company Subsidiaries is in breach of or default under any Network
Facility Agreement, (y) no event has occurred which, with notice or lapse
of time, would constitute a breach or default by any of the Company or the
Company Subsidiaries or permit termination, revocation, other interference
with performance of, modification or acceleration by any third party of
any Network Facility Agreement, and (z) no third Person has repudiated,
revoked, terminated, or otherwise interfered with performance of or has
the right to terminate, repudiate, revoke, or otherwise interfere with the
performance of any Network Facility Agreement.
Section 3.18 Brokers. No Persons other than Greenhill & Co., LLC
("Greenhill"), Lazard, Freres & Co. LLC ("Lazard") and J. P. Morgan Securities
Inc. ("JPMorgan," and collectively with Greenhill and Lazard, the "Company
Financial Advisors") are entitled to any brokerage, financial advisory, finder's
or similar fee or commission payable by any party hereto in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company or any Company Subsidiary. The Company has furnished to
Parent and Merger Sub a true, correct and complete copy of each agreement
between the Company, any Company Subsidiary and each Company Financial Advisor
relating to the Merger and the other transactions contemplated by this
Agreement.
Section 3.19 Employee Benefit Plans and Related Matters; ERISA.
(a) As soon as practicable (but not later than 20 Business Days)
after the date hereof, the Company shall provide Parent with a schedule that
sets forth a complete and correct list of the Company Benefit Plans. With
respect to each such
24
Company Benefit Plan, on or before the date such schedule is provided, the
Company shall provide to Parent a complete and correct copy of such Company
Benefit Plan, if written, or a description of such Company Benefit Plan if not
written, and to the extent applicable, (i) all trust agreements, insurance
contracts or other funding arrangements, (ii) the most recent actuarial and
trust report for both ERISA funding and financial statement purposes, (iii) the
most recent Form 5500 with all attachments required to have been filed with the
IRS or the Department of Labor or any similar report filed with any comparable
governmental authority in any non-U.S. jurisdiction having jurisdiction over any
Company Benefit Plan and all schedules thereto, (iv) the most recent IRS
determination letter, (v) all current summary plan descriptions, (vi) all
material communications received from or sent to the IRS, the Pension Benefit
Guaranty Corporation or the Department of Labor, (vii) the most recent actuarial
study of any pension, disability, post-employment life or medical benefits
provided under any such Company Benefit Plan, (viii) all current employee
handbooks and manuals, (ix) statements or other communications regarding
withdrawal or other multiemployer plan liabilities (or similar liabilities
pertaining to any non-U.S. employee benefit plan sponsored by the Company or any
Company Subsidiary, if any), (x) all amendments and modifications to any such
Company Benefit Plan or related document and (xi) in the case of any such
Company Benefit Plan that is maintained primarily for the benefit of employees
whose employment is principally outside the United States, information that is
substantially comparable (taking into account differences arising from
differences in applicable law and practices) to the information required to be
provided in the foregoing subclauses of this Section 3.19(a).
(b) Qualification. Each Company Benefit Plan intended to be
qualified under section 401(a) of the Code, and the trust (if any) forming a
part thereof, has received a favorable determination letter from the IRS, and no
event has occurred or circumstance exists since the date of such determination
that would adversely affect such qualification. To the knowledge of the Company,
each Company Benefit Plan that is maintained outside of the United States meets
the conditions to qualify for tax exempt status, if applicable, or for such
other favorable classification available in respect of such Company Benefit Plan
under applicable Law. All amendments and actions required to bring each Company
Benefit Plan into material conformity with the applicable provisions of ERISA,
the Code and other applicable Law have been made or taken, except to the extent
such amendments or actions are not required by Law to be made or taken until
after the Closing Date. Each Company Benefit Plan has been operated in all
material respects in accordance with applicable Law.
(c) Liability. There has been no event or circumstance that has
resulted in any material liability to the Company or any of the Company
Subsidiaries under or pursuant to Title I or IV of ERISA, the penalty, excise
Tax or joint and several liability provisions of the Code relating to employee
benefit plans or any applicable provision of Law in any jurisdiction outside of
the United States. There has not been any
25
event or circumstance that could reasonably be expected to result in any
material liability (other than for the payment of benefits in a commercially
reasonable manner consistent with industry practice) in respect of the Company
Benefit Plans. Except as is otherwise reflected in the Financial Statements,
there are no "unfunded benefits liabilities" in respect of any Company Benefit
Plan that is a defined benefit or similar type plan.
(d) Acceleration or Increases in Compensation. There is no contract,
agreement, plan or arrangement to which the Company or any of the Company
Subsidiaries is a party covering any employee, former employee, officer,
director, shareholder or contract worker of the Company or any of the Company
Subsidiaries, which, individually or collectively, could give rise to the
payment of any material amount that would not be deductible pursuant to Section
280G of the Code or would otherwise result in the acceleration of payment of any
benefits or a material increase in the amount of benefits (including, without
limitation, any indemnity or redundancy pay) payable, whether pursuant to the
terms of any such Company Benefit Plan, at Law, by contract or otherwise, the
entering into, or the consummation of the transactions contemplated by, this
Agreement.
(e) Independent Contractors. The Company and each of the Company
Subsidiaries has properly classified all individuals (including but not limited
to independent contractors and leased employees) under applicable Law, except
where failure to properly classify such person would not result in material
employment or benefit liability to the Company or the Company Subsidiaries. Any
person (other than the non-employee members of the Company's board of directors)
providing services to the Company or any of the Company Subsidiaries who has not
been classified as an employee is not eligible to participate in any Company
Benefit Plan and is not entitled to receive any benefits or other compensation
under or pursuant to any such Company Benefit Plan in respect of such
non-employee service.
Section 3.20 Employees, Labor Matters. As soon as practicable (but not
later than 20 Business Days) after the date hereof, the Company shall provide
Parent with a schedule that sets forth a complete and correct list of each
collective bargaining agreement to which any of the Company or any of the
Company Subsidiaries is party or by which any such entity may be bound. Since
April 20, 2004, there has not occurred nor, to the knowledge of the Company has
there been threatened, any material strike, slowdown, picketing, work stoppage,
concerted refusal to work overtime or other similar labor activity or organizing
campaign with respect to any employees of the Company or any of the Company
Subsidiaries. There are no material labor disputes currently subject to any
grievance procedure, arbitration or litigation and there is no representation
petition pending or, to the knowledge of the Company, threatened with respect to
any employee of the Company or any of the Company Subsidiaries.
26
Section 3.21 Intellectual Property Rights. Except as would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect:
(a) The Company and the Company Subsidiaries are the exclusive
owners of all Owned Intellectual Property that is issued as a patent, the
subject of a patent application, registered or subject to an application for
registration, free and clear of any Liens other than Permitted Liens. The Owned
Intellectual Property, together with the Intellectual Property used pursuant to
the Intellectual Property Licenses, constitutes all of the Intellectual Property
necessary to the conduct of the Business as currently conducted. Immediately
after the Effective Time, the Company and the Company Subsidiaries shall own or
have licensed to them all the Company Intellectual Property, in each case free
from Liens other than Permitted Liens, on the same terms and conditions as in
effect prior to the Effective Time. "Owned Intellectual Property" means all
material Intellectual Property owned by the Company or any of the Company
Subsidiaries.
(b) To the knowledge of the Company, the conduct of the Business
does not infringe or otherwise conflict with the rights of any Person in respect
of any Intellectual Property. To the knowledge of the Company, none of the
Company Intellectual Property is being infringed or otherwise used or being made
available for use by any Person without a license or permission from the
Company. None of the Company Intellectual Property is subject to any outstanding
Order by or with any court, tribunal, arbitrator or other Governmental Entity.
(c) The Company or one of the Company Subsidiaries has taken all
actions reasonably necessary to ensure full ownership (including by assignment
from employees and from other Persons performing services for the Company or any
Company Subsidiary), protection and enforceability of the Owned Intellectual
Property under any applicable Law (including making and maintaining in full
force and effect all necessary filings, registrations and issuances). Each of
the Company and each Company Subsidiary has taken all actions reasonably
necessary to maintain the secrecy of all non-public Intellectual Property,
including Trade Secrets, used in the Business (including requiring the execution
of valid and enforceable confidentiality agreements by employees or any other
Person to whom such non-public Intellectual Property is made available). To the
knowledge of the Company, none of the Company or any Company Subsidiary is using
or enforcing any Owned Intellectual Property in a manner that would reasonably
be expected to result in the cancellation or unenforceability of such Owned
Intellectual Property or Trade Secret.
Section 3.22 Contracts.
(a) Except as listed in Section 3.22(a) of the Company Disclosure
Letter, and except for Company Benefit Plans, neither the Company nor any
Company Subsidiary is a party to or bound by, as of the date hereof:
27
(i) any agreement relating to Indebtedness (other than agreements
among direct or indirect wholly owned Company Subsidiaries) in excess of
$10,000,000;
(ii) any joint venture, partnership, limited liability company or
other similar agreements or arrangements relating to the formation,
creation, operation, management or control of any partnership or joint
venture material to the Company or any of its Subsidiaries in which the
Company or any Company Subsidiary owns any interest valued at more than
$10,000,000 without regard to percentage voting or economic interest
(unless pursuant to such agreement or arrangement the Company and/or the
Company Subsidiaries, as the case may be, do not have a future funding
obligation likely to require funding of more than $10,000,000 in the
aggregate);
(iii) any agreement or series of related agreements, including any
option agreement, relating to the acquisition or disposition of any
material business or material real property (whether by merger, sale of
stock, sale of assets or otherwise);
(iv) any material agreement other than an agreement with respect to
compensation or similar arrangements not involving a director of the
Company or one of the officers of the Company for purposes of Section 16
of the Exchange Act and any agreement entered into in a commercially
reasonable manner consistent with industry practice with (A) any Person
directly or indirectly owning, controlling or holding with power to vote,
5% or more of the outstanding voting securities of the Company or any
Company Subsidiary, (B) any Person 5% or more of the outstanding voting
securities of which are directly or indirectly owned, controlled or held
with power to vote by the Company or any Company Subsidiary or (C) any
current or former director or officer of the Company or any Company
Subsidiary;
(v) any agreement (including any exclusivity agreement) that
purports to limit or restrict in any material respect either the type of
business in which the Company or the Company Subsidiaries (or, after the
Effective Time, Parent or its Subsidiaries) may engage or the manner or
locations in which any of them may so engage in any business including any
covenant not to compete or could require the disposition of any material
assets or line of business of the Company or the Company Subsidiaries;
(vi) any sales, distribution, agency or other similar agreement
providing for the sale by the Company or any Company Subsidiary of
materials, supplies, goods, services, equipment or other assets that are
material to the
28
Company and the Company Subsidiaries taken as a whole and involving
payments to the Company in excess of $17,500,000 annually;
(vii) any agreement relating to any material interest rate, currency
or commodity derivatives or hedging transaction;
(viii) any agreement (including keepwell agreement) under which (A)
any Person (other than the Company or a Company Subsidiary) has directly
or indirectly guaranteed any liabilities or obligations of the Company or
any Company Subsidiary or (B) the Company or any Company Subsidiary has
directly or indirectly guaranteed liabilities or obligations of any other
Person (other than the Company or a Company Subsidiary) (in each case
other than endorsements for the purpose of collection in a commercially
reasonable manner consistent with industry practice), unless such
guarantor obligation is less than $10,000,000;
(ix) any material "take-or-pay" agreements; or
(x) any agreement the termination or breach of which or the failure
to obtain consent in respect of is likely to have a Company Material
Adverse Effect.
(b) The agreements, commitments, arrangements and plans listed or
required to be listed in Section 3.22(a) of the Company Disclosure Letter are
referred to herein as the "Company Contracts." Each Company Contract is a valid
and binding agreement of the Company or a Company Subsidiary, as the case may
be, and is in full force and effect, and none of the Company, any Company
Subsidiary or, to the knowledge of the Company, any other party thereto is in
default or breach in any material respect under the terms of any such Company
Contract. True, correct and complete copies of (i) each such Company Contract
(including all modifications and amendments thereto and waivers thereunder) and
(ii) all form contracts, agreements or instruments used in and material to the
Business have been made available to Parent.
Section 3.23 Environmental Laws and Regulations. Except as disclosed in
Section 3.23 of the Company Disclosure Letter or as would not, individually or
in the aggregate, reasonably be expected to have a Company Material Adverse
Effect:
(a) The Company and each Company Subsidiary has complied and is in
compliance in all material respects with all applicable Environmental Laws and
has obtained and is in compliance in all material respects with all
Environmental Permits.
(b) No notice of violation, notification of liability, demand,
request for information, citation, summons or order has been received by the
Company or any Company Subsidiary, no complaint has been filed, no penalty or
fine has been assessed, and no investigation, action, claim, suit or proceeding
is pending or, to the knowledge of
29
the Company, threatened by any Person involving the Company or any Company
Subsidiary relating to or arising out of any Environmental Law.
(c) No Hazardous Substances are or were located and no disposal or
Releases of Hazardous Substances have occurred at, on, above, under or from any
properties currently or, to the knowledge of the Company at the time of the
cessation of such ownership, lease, operation or use, formerly owned, leased,
operated or used by the Company, any Company Subsidiary or any predecessors in
interest that, in each case, has resulted in or would reasonably be expected to
result in any material cost, liability or obligation of the Company or any
Company Subsidiary under any Environmental Law.
(d) Neither the Company nor any Company Subsidiary, nor, to the
knowledge of the Company, any other Person, has caused or taken any action that
could reasonably be expected to result in any material liability or obligation
relating to (i) the environmental conditions at, on, above, under, or about any
properties or assets currently or formerly owned, leased, operated or used by
the Company or any Company Subsidiary or any of their respective predecessors in
interest, or (ii) the past or present use, management, handling, transport,
treatment, generation, storage, disposal, Release or threatened Release of
Hazardous Substances.
(e) The Company has provided to Parent all material environmental
site assessments, audits, investigations and studies in the possession, custody
or control of the Company or any Company Subsidiary relating to properties or
assets currently or formerly owned, leased, operated or used by the Company or
any Company Subsidiary.
(f) Neither the Company nor any Company Subsidiary has been in
businesses other than those related to the provision of telecommunication
services that would reasonably be expected to present environmental issues of a
materially different scope or magnitude than those presented in the provision of
telecommunication services. Without limiting the generality of the foregoing,
neither the Company nor any Company Subsidiary has operated or currently
operates: (i) any manufacturing facilities; (ii) any facilities that are or have
been permitted under the Resource Conservation and Recovery Act; or (iii) any
business that manages the hazardous wastes of any unrelated party. The
representations contained in this Section 3.23(f) shall not deemed to be
breached unless the operation or ownership of such other business or businesses
has resulted in any material cost, liability or obligation of the Company or any
Company Subsidiary under any Environmental Law.
Section 3.24 Insurance Coverage. The Company and the Company Subsidiaries
maintain policies of insurance in such amounts and against such risks as are
customary in the industries in which the Company and the Company Subsidiaries
operate. Except as would not reasonably be expected to have a Company Material
Adverse Effect, all such insurance policies are in full force and effect and
will not in any way be affected by, or
30
terminate or lapse by reason of, this Agreement or the consummation of any of
the transactions contemplated hereby.
Section 3.25 Consent Decrees. Section 3.25 of the Company Disclosure
Letter sets forth a list of all material consent decrees to which the Company
and the Company Subsidiaries are subject and any material voluntary agreements
with any state or federal agency that impose any continuing duties on the
Company, including any additional reporting or monitoring requirements.
Section 3.26 Foreign Corrupt Practices and International Trade Sanctions.
Neither the Company, nor any Company Subsidiaries, nor any of their respective
directors, officers, agents, employees or any other Persons acting on their
behalf has, in connection with the operation of their respective businesses, (i)
used any corporate or other funds for unlawful contributions, payments, gifts or
entertainment, or made any unlawful expenditures relating to political activity
to government officials, candidates or members of political parties or
organizations, or established or maintained any unlawful or unrecorded funds in
violation of Section 104 of the Foreign Corrupt Practices Act of 1977, as
amended, or any other similar applicable foreign, Federal or state Law, (ii)
paid, accepted or received any unlawful contributions, payments, expenditures or
gifts, or (iii) violated or operated in noncompliance with any export
restrictions, anti-boycott regulations, embargo regulations or other applicable
domestic or foreign Laws, in each case, except as is not, individually or in the
aggregate, reasonably likely to have a Company Material Adverse Effect.
Section 3.27 Compliance with Governance Requirements. The Company is in
compliance in all material respects with the permanent injunction entered by the
United States District Court for the Southern District of New York against the
Company's predecessor company on November 26, 2002 and such court's related June
11, 2003 and December 17, 2003 orders.
Section 3.28 Opinions of Financial Advisors. The Company has received
opinions from Greenhill, Lazard and JPMorgan, dated as of February 13, 2005, to
the effect that, as of the date of such opinions and subject to the procedures
followed, and the qualifications and limitations set forth therein, the Merger
Consideration (without giving effect to any adjustment pursuant to Section
1.10), the Special Cash Dividend and the $0.40 per share cash dividend declared
by the Board of Directors of the Company on February 11, 2005, taken together,
are fair, from a financial point of view to the holders of shares of Company
Common Stock.
31
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as otherwise disclosed to the Company in a letter (the "Parent
Disclosure Letter") delivered to it by Parent and Merger Sub prior to the
execution of this Agreement (with specific reference to the representations and
warranties in this Article IV to which the information in such letter relates)
or as set forth in the Parent SEC Documents filed prior to the date hereof
(excluding any disclosures included in any such Parent SEC Document that are
predictive or forward-looking in nature), Parent and Merger Sub represent and
warrant to the Company as follows:
Section 4.1 Organization. Each of Parent and Merger Sub is duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Each of Parent and Merger Sub have all requisite corporate power and authority
to own, lease and operate its properties and assets and to carry on its business
as currently conducted.
Section 4.2 Capitalization.
(a) Parent owns all right, title and interest in and to all the
outstanding membership interests of Merger Sub free and clear of any Liens.
(b) As of the date of this Agreement, the authorized capital stock
of Parent consists of 4,250,000,000 shares of Parent Common Stock and
250,000,000 shares of preferred stock, par value $ 0.10 per share ("Parent
Preferred Stock"). At the close of business on February 11, 2005, (i)
2,774,865,381 shares of Parent Common Stock were issued and outstanding, (ii) no
shares of Parent Preferred Stock were issued and outstanding, (iii) 5,623,033
shares of Parent Common Stock were held in treasury by Parent, and (iv)
200,000,000 shares of Parent Common Stock were reserved for issuance pursuant to
Parent's stock option plans. Except as set forth above, as of February 11, 2005,
no shares of capital stock of Parent were issued, reserved for issuance or
outstanding. All issued and outstanding shares of Parent Common Stock and Parent
Preferred Stock are, and all shares of Parent Common Stock that may be issued
pursuant to the exercise of outstanding options will be, when issued in
accordance with the terms thereof, duly authorized, validly issued, fully paid
and nonassessable and subject to no preemptive or similar rights.
(c) There are no preemptive or similar rights on the part of any
holder of any class of securities of the Parent or any of its Significant
Subsidiaries. Neither the Parent nor any of its Significant Subsidiaries has
outstanding any bonds, debentures, notes or other obligations the holders of
which have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of the Parent or any
such Significant Subsidiary on any matter submitted to
32
shareholders or a separate class of holders of capital stock. Except as set
forth in Section 4.2(c) of the Parent Disclosure Letter, as of the date of this
Agreement, there are no options, warrants, calls, rights, convertible or
exchangeable securities, "phantom" stock rights, stock appreciation rights,
stock-based performance units, commitments, contracts, arrangements or
undertakings of any kind to which the Parent or any of the Significant
Subsidiaries is a party or by which any of them is bound (i) obligating the
Parent or any of the Significant Subsidiaries to issue, deliver, sell or
transfer or repurchase, redeem or otherwise acquire, or cause to be issued,
delivered, sold or transferred or repurchased, redeemed or otherwise acquired,
any shares of the capital stock of the Parent or any Significant Subsidiary, any
additional shares of capital stock of, or other equity interests in, or any
security convertible or exercisable for or exchangeable into any capital stock
of, or other equity interest in, the Parent or any Significant Subsidiary, (ii)
obligating the Parent or any Significant Subsidiary to issue, grant, extend or
enter into any such option, warrant, call, right, security, commitment,
contract, arrangement or undertaking or (iii) that give any Person the right to
receive any economic benefit or right similar to or derived from the economic
benefits and rights accruing to holders of capital stock of, or other equity
interests in, the Parent or any Significant Subsidiary. As of the date of this
Agreement, there are no outstanding contractual obligations of the Parent or any
of the Significant Subsidiaries to repurchase, redeem or otherwise acquire any
shares of capital stock of, or other equity interests in, the Parent or any of
the Significant Subsidiaries.
Section 4.3 Authorization. Parent and Merger Sub have all requisite
corporate and limited liability company power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and, to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the Merger and the other
transactions contemplated hereby have been duly and validly authorized by all
necessary actions of Parent and Merger Sub, and no other corporate or limited
liability company proceedings on the part of Parent or Merger Sub, as the case
may be, are necessary for Parent or Merger Sub to authorize this Agreement and
to consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by each of Parent and Merger Sub and,
assuming due authorization, execution and delivery by the Company, is a legal,
valid and binding obligation of each of Parent and Merger Sub, enforceable
against each of Parent and Merger Sub in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
Section 4.4 Consents and Approvals; No Violations.
(a) The execution and delivery of this Agreement by Parent and
Merger Sub do not and the consummation by Parent and Merger Sub of the
transactions contemplated hereby will not (i) conflict with any provision of the
certificate of
33
incorporation or by-laws or any other organizational documents of Parent or
Merger Sub, (ii) violate any Law or Order (assuming compliance with the matters
set forth in Section 4.4(b)); (iii) result in any violation of or default or
loss of a benefit under, or permit the acceleration or termination of any
obligation under, any mortgage, indenture, lease, agreement or other instrument,
permit, concession, grant, franchise, license or result in the creation or
imposition of any Lien upon any properties or assets of the Parent or any Parent
Subsidiary; or (iv) cause the suspension or revocation of any permit, license,
governmental authorization, consent or approval necessary for each of Parent and
Merger Sub to conduct its business as currently conducted, except, in the case
of clauses (ii) or (iii), for such violations that, in the aggregate, have not
had and would not reasonably be expected to result in a Parent Material Adverse
Effect and as would not reasonably be expected to materially delay or impair the
consummation of the Merger.
(b) No consent, approval, order or authorization of, or declaration,
registration or filing with, or notice to any Governmental Entity is required to
be made or obtained by Parent or Merger Sub in connection with the execution and
delivery of this Agreement by Parent and Merger Sub or the consummation by
Parent of Merger Sub of the transactions contemplated hereby, except for (i)
compliance by Parent and Merger Sub with the HSR Act and such foreign antitrust
and competition law requirements set forth in Section 4.4(b)(i) of the Parent
Disclosure Letter, (ii) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware in accordance with the DGCL, (iii)
the filing with the SEC of (A) the Proxy Statement and Prospectus in accordance
with Regulation 14A promulgated under the Exchange Act, (B) the registration
statement on Form S-4 promulgated under the Securities Act and (C) such reports
under and such other compliance with the Exchange Act and the Securities Act and
the rules and regulations thereunder as may be required in connection with this
Agreement and the transactions contemplated hereby, (iv) the reports, filings,
registrations, consents, approvals, permits, authorizations and/or notices with
or to the FCC, (v) the reports, filings, registrations, consents, approvals,
permits, authorizations and/or notices with or to the State Commissions set
forth in Section 4.4(b)(v) of the Parent Disclosure Letter; and (vi) the
reports, filings, registrations, consents, approvals, permits, authorizations
and/or notices with or to those foreign Governmental Entities regulating
competition and telecommunications businesses or the use of radio spectrum or
regulating or limiting investment set forth in Section 4.4(b)(vi) of the Parent
Disclosure Letter.
Section 4.5 SEC Reports; Financial Statements.
(a) Parent has filed or furnished, as applicable, all reports,
schedules, forms, statements and other documents required to be filed or
furnished with or by it to the SEC since December 31, 2003 (the "Parent SEC
Documents"). As of its respective date, each of the Parent SEC Documents,
complied when filed or furnished and as amended in all material respects with
the requirements of the Exchange Act or the
34
Securities Act and the rules and regulations of the SEC promulgated thereunder
applicable to such Parent SEC Documents, and did not, and any Parent SEC
Documents filed with the SEC subsequent to the date hereof will not, contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
(b) The consolidated financial statements of Parent and its
consolidated Subsidiaries included in the Parent SEC Documents have been derived
from the accounting books and records of Parent and its consolidated
Subsidiaries and have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto). The consolidated balance sheets included in such consolidated
financial statements present fairly in all material respects the consolidated
financial position of Parent and its consolidated Subsidiaries as at the
respective dates thereof and the consolidated statements of income and
consolidated statements of cash flows included in such consolidated financial
statements present fairly in all material respects the results of operations and
cash flows of Parent and its consolidated Subsidiaries for the respective
periods indicated.
Section 4.6 Absence of Undisclosed Liabilities. Parent and its
Subsidiaries do not have any liabilities or obligations, known or unknown,
contingent or otherwise, except (a) liabilities and obligations in the
respective amounts reflected on or reserved against in the consolidated balance
sheet of the Parent and its Subsidiaries included in the Parent Financial
Statements (or readily apparent in the notes thereto), (b) liabilities and
obligations incurred in the ordinary course of business, consistent with past
practice, since the date of such balance sheet, and (c) liabilities and
obligations that would not, individually or in the aggregate, reasonably be
expected to have a Parent Material Adverse Effect.
Section 4.7 Form S-4; Proxy Statement/Prospectus. None of the information
supplied or to be supplied by Parent or Merger Sub for inclusion or
incorporation by reference in the Proxy Statement/Prospectus, at the date such
Proxy Statement is first mailed to stockholders of the Company, and at the time
of the Company Stockholders Meeting, will contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. None of the information
contained or incorporated by reference in the Form S-4, at the time the Form S-4
is filed with the SEC, at any time it is amended or supplemented and at the time
the Form S-4 becomes effective under the Securities Act, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading, except that no
representation is made by Parent or Merger Sub with respect to statements made
in the Form S-4 based on information
35
supplied by the Company in writing for inclusion in the Form S-4. The Form S-4
will comply as to form in all material respects with all Laws.
Section 4.8 Absence of Certain Changes. Except for liabilities incurred in
connection with this Agreement or the transactions contemplated hereby and
except as set forth in Schedule 4.8 of the Parent Disclosure Letter, for the
period beginning September 30, 2004 until the date hereof, the Parent and its
Subsidiaries have conducted their respective businesses only in the ordinary
course consistent with past practice. Except as disclosed in the Parent SEC
Documents filed prior to the date of this Agreement, since December 31, 2003,
there have not been any changes, circumstances or events that, individually and
in the aggregate, have had or would reasonably be expected to result in a Parent
Material Adverse Effect.
Section 4.9 Litigation. Except as set forth in Section 4.9 of the Parent
Disclosure Letter, there is no suit, action, proceeding, claim, review or
investigation (whether at law or in equity, before or by any Governmental Entity
or before any arbitrator) pending, affecting or, to the knowledge of the Parent,
threatened against the Parent or any of its Subsidiaries, or their respective
properties or rights that, individually and in the aggregate for any such
matters premised on common legal theories and similar facts, would reasonably be
expected to result in a Parent Material Adverse Effect. Except as set forth in
Section 4.9 of the Parent Disclosure Letter, there is no Order of any
Governmental Entity or arbitrator outstanding against Parent or any of its
Subsidiaries which would, individually or in the aggregate, reasonably be
expected to result in a Parent Material Adverse Effect.
Section 4.10 Compliance with Laws. Each of the Parent and its Subsidiaries
is, and since December 31, 2003, has been in compliance with all applicable Laws
and, to the knowledge of the Parent, is not under investigation with respect to,
and has not been threatened to be charged with or given notice of, any violation
of any Law, in each case except for such failures to be in compliance, such
investigations or such violations as would not, individually or in the
aggregate, reasonably be expected to result in a Parent Material Adverse Effect.
Section 4.11 Brokers. No Person other than Bear, Stearns & Co. Inc. (the
"Parent Financial Advisor") is entitled to any brokerage, financial advisory,
finder's or similar fee or commission payable by Parent or Merger Sub in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Merger Sub.
36
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