EXHIBIT NO. 10.1
EXECUTION COPY
THIS GOVERNANCE AGREEMENT, dated as of February 10, 1998 (this
"Agreement"), is entered into by and among SPRINT CORPORATION, a Kansas
corporation ("Sprint"), SPRINT COMMUNICATIONS COMPANY L.P., a Delaware limited
partnership ("Sprint L.P."), DOLPHIN, INC., a Delaware corporation ("Newco"),
and EARTHLINK NETWORK, INC., a Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of Sprint and the Company
have determined to enter into a strategic relationship in the area of Internet
access and related services and Sprint will make investments in Newco and the
Company in connection with the Merger (as defined below) of Newco Sub, Inc., a
Delaware corporation ("Newco Sub"), and the Company in order to enhance the
capabilities for growth and financial and strategic success;
WHEREAS, pursuant to an Investment Agreement, dated as of February 10,
1998, among Sprint, Sprint L.P., the Company, Newco and Newco Sub (the
"Investment Agreement"), Sprint proposes to make a tender offer (as it may be
amended from time to time as permitted under the Investment Agreement, with the
Company's consent, if required under the Investment Agreement, the "Tender
Offer") to purchase 1,250,000 shares of Common Stock for an aggregate cash
consideration of $56,250,000 and at a price per share of Common Stock of $45 net
to each seller in cash (such price, as may hereafter be changed, the "Tender
Offer Price"), upon the terms and subject to the conditions set forth in the
Investment Agreement; and the Board of Directors of the Company has approved the
Tender Offer and the other transactions contemplated by the Investment Agreement
and is recommending that the Company's stockholders who wish to receive cash for
their shares of Common Stock accept the Tender Offer;
WHEREAS, immediately following the closing of the Tender Offer, Sprint
L.P. proposes to purchase 4,102,941 shares of Series A Convertible Preferred
Stock, par value $.01 per share of Newco (the "Series A Stock") in exchange for
(i) an aggregate cash consideration of $23,750,000, (ii) the assignment to Newco
of 100% of the Sprint Internet Passport Subscribers, and (iii) entering into a
network agreement whereby Newco and the Company will utilize Sprint L.P.'s long-
distance network under specified terms and conditions;
WHEREAS, Sprint L.P. will enter into a marketing agreement whereby
Newco and the Company will utilize the Sprint brand under specified terms and
conditions and will, inter alia, have the right to use Sprint L.P. distribution
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channels under specified terms and conditions and agree to sell certain Sprint
L.P. products;
WHEREAS, pursuant to the Investment Agreement certain stockholders of
the Company have (i) executed and delivered to Sprint and Sprint L.P. an
Agreement to Vote Stock, (ii) executed and delivered to Sprint and Sprint L.P.
an Agreement to Vote and Tender Stock, and (iii) entered into a Stockholders
Agreement with Sprint and Sprint L.P.;
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WHEREAS, Sprint shall provide Newco and the Company, as co-borrowers,
with up to $25 million of Convertible Senior Debt financing on or after the
Closing, with such amount to increase to up to $100 million over time (the
"Convertible Debt Financing"), such indebtedness to be evidenced by one or more
Convertible Senior Promissory Note(s) (the "Convertible Notes), and to be
subject to the terms and conditions of the Credit Agreement;
WHEREAS, the closing of the acquisition of the Series A Stock and the
other transactions referred to above other than the Tender Offer shall take
place concurrently with the merger of Newco Sub into the Company (the "Merger")
and the conversion of each share of the Company's outstanding Common Stock into
one share of Newco common stock, par value $.01 per share ("Newco Common
Stock"), pursuant to the Merger, in each case upon the terms and subject to the
conditions set forth in any applicable Ancillary Agreement;
WHEREAS, Sprint, Sprint L.P., the Company and Newco desire to make
certain representations, warranties, covenants and agreements and also to
prescribe various conditions in connection with the transactions contemplated by
this Agreement;
WHEREAS, Sprint, Sprint L.P., Newco and the Company desire to
establish in this Agreement certain terms and conditions concerning the
corporate governance of Newco, the acquisition and disposition of Equity
Securities by the Affiliated Equity Holders, the rights of Sprint to make offers
to purchase all of the outstanding securities of Newco not owned by Affiliated
Equity Holders and the rights of the Board of Directors of Newco to receive and
entertain offers to effect Business Combinations, all as more particularly
described herein; and
WHEREAS, Sprint and Sprint L.P. are prepared to ensure that the voting
agreements made by each of them pursuant to this Agreement are fulfilled by
giving the Company and Newco, or either of them, an Irrevocable Proxy (coupled
with an interest).
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
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SECTION 1.01. Definitions. As used in this Agreement, the following
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terms shall have the following meanings:
"Acquisition Proposal" means any proposal for a tender or exchange
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offer, a merger, consolidation, share exchange or other business combination, in
which Newco is a constituent party to the merger, consolidation, share exchange
or combination, or a sale of securities (other than Transaction Securities),
recapitalization, liquidation, dissolution or similar transaction involving
Newco or any proposal or offer to acquire in any manner, directly or indirectly,
a material equity interest in, or a material amount of voting securities (with
the
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acquisition of beneficial ownership of 20% or more of the Voting Equity
Securities of Newco being deemed to be material for this purpose) or assets of,
Newco, other than the transactions contemplated by this Agreement with respect
to Affiliated Equity Holders effected in accordance with this Agreement. A
Material Sale will constitute an Acquisition Proposal.
"Affiliate" has the meaning assigned to such term in the Investment
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Agreement.
"Affiliated Equity Holders" means Sprint, Sprint L.P. and any of
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their respective Affiliates (exclusive of the Company, Newco and Newco's
Subsidiaries) that, as of any relevant date of determination, are holders of
Equity Securities.
"Alternative Securities" means a new series of Preferred Stock having
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terms that are structured and priced in the same manner as the terms of the
Series A Stock (including, without limitation, date of allowable optional
redemption, dividend rate, liquidation value, redemption value, conversion
premium and conversion rate), provided, that, all of such terms are determined,
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if applicable, by reference to the Average Stock Price for the 30 trading days
prior to the date of issuance of such Alternative Securities.
"Ancillary Agreements" has the meaning assigned to such term in the
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Investment Agreement, but for purposes of this Agreement shall also include the
Investment Agreement.
"Associate" has the same meaning as in Rule 12b-2 promulgated under
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the Exchange Act.
"Available Top-Up Shares" means, in respect of any issuance of
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Transaction Securities, the number of shares of Common Stock underlying Equity
Securities that Sprint may purchase from Newco pursuant to Section 3.01(d)
hereof following an issuance of Transaction Securities, determined as follows:
Available Top-Up Shares = (x) (1/(1-SPI) - 1),
where x equals the number of Transaction Securities issued in such transaction
and SPI equals Sprint's Percentage Interest expressed as a decimal carried to
the third place. As permitted in Section 3.01(e) hereof, Available Top-Up
Shares may, at Sprint's discretion, to the extent indicated in such section, be
in the form of shares of Newco Common Stock or Alternative Securities
convertible into an equivalent number of shares of Newco Common Stock.
"Average Stock Price" means an average of the closing sales prices of
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a share of Newco Common Stock for a specified period as reported by the
principal securities market or exchange on which such stock is then traded.
"Beneficial Owner" shall be a Person who shall be deemed to
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"beneficially own" any securities:
(a) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire (whether such
right is exercisable
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immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (whether or not in writing) or upon the
exercise of conversion rights, exchange rights, rights, warrants, options
or otherwise;
(b) which such Person or any such Person's Affiliates or Associates,
directly or indirectly, has the right to vote or dispose of or has
"beneficial ownership" of (as determined pursuant to Rule 13d-3 under the
Exchange Act as such Rule is in effect on the date of this Agreement),
including pursuant to any agreement, arrangement or understanding, whether
or not in writing; provided, however, that a Person shall not be deemed the
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"Beneficial Owner" of, or to "beneficially own," any security under this
subparagraph (b) as a result of an agreement, arrangement or understanding
to vote such security if such agreement, arrangement or understanding
arises solely from a revocable proxy given in response to a public proxy or
consent solicitation made by Newco or the Company pursuant to, and in
accordance with, the applicable provisions of the General Rules and
Regulations under the Exchange Act; or
(c) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such Person
(or any of such Person's Affiliates or Associates) has an agreement,
arrangement or understanding (whether or not in writing), for the purpose
of acquiring, holding, voting (except pursuant to a revocable proxy as
described in the proviso to subparagraph (b)) or disposing of any voting
securities of Newco or the Company; provided, however, that nothing in this
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subparagraph (c) shall cause a person engaged in business as an underwriter
of securities to be the "Beneficial Owner" of, or to "beneficially own,"
any securities acquired through such person's participation in good faith
in a firm commitment underwriting under the Act until the expiration of 40
days after the date of such acquisition.
"Board" or "Board of Directors" means the Board of Directors of Newco
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except where the context requires otherwise.
"Business Combination" means a transaction, undertaken in any form
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whatsoever, involving (i) the purchase or acquisition of Equity Securities if
the consummation of such transaction would result in the purchaser beneficially
owning 35% or more of the Equity Securities outstanding, or (ii) a merger,
consolidation, combination, share exchange, reorganization or other
extraordinary transaction with respect to Newco in which, upon consummation
thereof, the shareholders or owners of the other entity that is a party thereto,
or the controlling Persons thereof, would acquire beneficial ownership of 50% or
more of the Equity Securities outstanding. A Significant Sale will constitute a
Business Combination. A Business Combination shall not include (A) transactions
contemplated by this Agreement with respect to Affiliated Equity Holders
effected in accordance with this Agreement or (B) any acquisition of beneficial
ownership of Equity Securities resulting from the formation of a "group," as
defined in Rule 13d-5(b) of the Exchange Act, without the occurrence of any
transaction that would otherwise constitute a Business Combination.
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"Certificate of Designation" means the Certificate of Designation of
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Rights, Preferences and Privileges for the Series A Stock.
"Closing" shall have the meaning given to such term in the Investment
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Agreement.
"Common Stock" means the common stock, $.01 par value, of the Company.
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"Company" means EarthLink Network, Inc., a Delaware corporation, and
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any successor thereto.
"Conversion Ratio" means, with respect to (i) the Series A Stock, the
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quotient of the "Liquidation Value" divided by the "Conversion Price," as those
terms are defined in the Certificate of Designation, assuming the acceleration
of the full amount of the Liquidation Accretion Dividends as contemplated by the
last sentence of Section 3(a)(i) of the Certificate of Designation, (ii) any
other class or series of Preferred Stock, the conversion ratio pertaining to
such class or series, as in effect on the date of determination, and (iii) the
Convertible Notes, the "Conversion Price" for each such note as defined in the
Credit Agreement, as in effect on the date of determination.
"Convertible Notes" shall have the meaning set forth in the Recitals
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to this Agreement.
"Dilution Factor" means, in respect of any issuance of Transaction
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Securities, a fraction expressed as a decimal carried to the third place, equal
to one minus the quotient of the number of Transaction Securities issued divided
by the total number of shares of Newco Common Stock outstanding on a Fully-
Diluted Basis, after giving effect to such issuance of Transaction Securities.
"Director" means a member of the Board of Directors.
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"Discriminatory Transaction" means any transaction or other corporate
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action (other than those specifically contemplated by the express terms of this
Agreement and other than those imposed, without the happening of a contingency,
on each other stockholder on an equal basis) which would (i) impose limitations
on the legal rights of any Affiliated Equity Holder as a stockholder of Newco,
including, without limitation, any action which would impose restrictions based
upon the size of security holding, the business in which a securityholder is
engaged or other considerations applicable to any Affiliated Equity Holder and
not to stockholders generally, (ii) deny any benefit to any Affiliated Equity
Holder, proportionately as a holder of any class of Voting Equity Securities,
that is made available to other holders of any class of Voting Equity
Securities, or (iii) otherwise materially adversely discriminate against any
such Affiliated Equity Holders as stockholders of Newco; provided, however, that
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(v) under no circumstances shall the adoption and implementation by Newco of a
Stockholders' Right Plan (commonly known as a "poison pill") be deemed to be a
Discriminatory Transaction if such plan would be permitted under Section 4.07
hereof; (w) subject to the proviso in the last sentence of Section 2.04 hereof,
the adoption and implementation of a classified Board of Directors through
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an amendment to Newco's Certificate of Incorporation and Bylaws shall not be
deemed to be a Discriminatory Transaction; (x) under no circumstances shall a
Business Combination be deemed to be a Discriminatory Transaction if in such
Business Combination (A) neither the Liquidation Value nor the Conversion Price
of the Series A Stock is changed, and (B) upon consummation of such Business
Combination, the automatic conversion of all outstanding shares of Series A
Stock into shares of Newco Common Stock thereupon and, if applicable, the
acceleration of the full amount of the Liquidation Accretion Dividends as
contemplated by the last sentence of Section 3(a)(i) of the Certificate of
Designation, the holders of Series A Stock shall be offered the right to receive
consideration at the same times (except for any differences in the times at
which such holders receive such consideration that occur because of the
application of the HSR Act (or any applicable waiting periods thereunder) to the
conversion of the Series A Stock into Newco Common Stock), and in the same
amount and the same form per share as all other holders of Newco Common Stock;
(y) it shall not be a Discriminatory Transaction for Newco to take action or
omit to take action having any of the consequences identified under (i), (ii)
and (iii) above to the extent that any such consequence occurs as a result of a
material breach or violation by any Affiliated Equity Holder of this Agreement;
and (z) the execution by Newco, the Company or any Significant Subsidiary of a
definitive agreement with respect to a Business Combination, which agreement is
consistent with the requirements of Section 4.03(c) hereof, shall not be a
Discriminatory Transaction.
"Effectiveness of this Agreement" means such time as this Agreement
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becomes effective, if ever, pursuant to Section 7.01 hereof.
"Equity Security" means (i) any Newco Common Stock, (ii) any debt or
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equity securities of Newco convertible into or exchangeable for Newco Common
Stock or other Voting Equity Securities, (iii) any options, rights or warrants
(or any other similar securities) issued by Newco to acquire Newco Common Stock
or other Voting Equity Securities or (iv) any security issuable in connection
with any stock split, stock dividend, recapitalization or other similar
transaction in which securities are issued on a proportionate basis to all
holders of a class of Equity Securities.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
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and the rules and regulations promulgated thereunder.
"Fair Private Market Value" means the aggregate private market equity
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value (including control premium) that an unrelated third party would pay if it
were to acquire all of Newco's outstanding Equity Securities (including Equity
Securities held by Affiliated Equity Holders) in an arm's-length transaction,
assuming (i) that all credible buyers are given an equal opportunity by Newco to
make and effectuate an Acquisition Proposal, (ii) the absence of any commercial
relations between Newco and the Company, on the one hand, and Sprint and its
Affiliates, on the other hand, and (iii) the absence of any ownership stake in
Newco by Affiliated Equity Holders. The Fair Private Market Value shall be
determined in accordance with Section 4.02 hereof.
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"Fully-Diluted Basis," with reference to the number of shares of Newco
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Common Stock outstanding at any time, means the number of shares of Newco Common
Stock outstanding at that time, plus the number of shares of Newco Common Stock
into which or for which all options (both vested and unvested), warrants, rights
and other Equity Securities convertible into or exchangeable for Newco Common
Stock may be exercised, converted or exchanged for shares of Newco Common Stock
at the appropriate Conversion Ratio.
"Higher Threshold" means 20% at Closing, and as thereafter adjusted
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following any issuance of Transaction Securities by multiplying the Higher
Threshold in effect prior to such issuance, expressed as a decimal carried to
the third place, by the Dilution Factor; provided, that, if following such
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issuance of Transaction Securities, a Primary Share Offer is made by Newco
pursuant to Section 3.01(d) hereof, the Higher Threshold shall immediately be
increased, but never above .200, to H\2,\ which is to be determined as
follows:
H\2\= ((x/y) (H\0\- H\1\)) + H\1\
where:
x = the number of shares offered to Sprint pursuant to a Primary Share
Offer;
y = the number of Available Top-Up Shares;
H\0\ = .200; and
H\1\ = the Higher Threshold in effect after the issuance of Transaction
Securities.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
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1976, as amended, and the regulations promulgated thereunder.
"Independent Director" means a Director of Newco (i) who is not and
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has never been an officer or employee of Newco, any Affiliate or Associate of
Newco or of an entity that derived 5% or more of its revenues or earnings in any
of its three most recent fiscal years from transactions involving Newco or any
Affiliate or Associate of Newco, (ii) who is not and has never been an officer,
employee or director of Sprint, any Affiliate or Associate of Sprint or an
entity that derived more than 5% of its revenues or earnings in any of its three
most recent fiscal years from transactions involving Sprint or any Affiliate or
Associate of Sprint and (iii) who has no affiliation, compensation, consulting
or contracting arrangement with Newco, Sprint or their respective Affiliates or
Associates or any other entity such that a reasonable person would regard such
Director as likely to be unduly influenced by management of Newco, the Company
or Sprint, respectively, or their respective Affiliates or Associates, but shall
not include any Investor Director or Management Director.
"Intervening Offer" means an Offer for aggregate consideration
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reasonably determined in good faith by the Board of Directors to be in excess of
the aggregate consideration proposed to be paid by Sprint in a Sprint Offer or a
Qualified Offer, as applicable. An Intervening Offer shall be reflected in a
form of definitive agreement which the offeror is
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prepared to execute. The conditions to consummation of an Intervening Offer and
the representations, warranties and covenants set forth in the Intervening Offer
shall be customary for a transaction of that type. In evaluating whether an
Offer shall qualify as an Intervening Offer, the Board of Directors shall, in
reliance upon the advice of its financial advisors, reasonably and in good faith
(i) value any securities or other non-cash property constituting all or a
portion of the aggregate consideration comprising such Intervening Offer and
(ii) take into consideration in its evaluation of such Intervening Offer the
effect of any financing contingency upon the likelihood of such Intervening
Offer being consummated.
"Investment Agreement" has the meaning set forth in the Recitals to
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this Agreement.
"Investor Director" means a Director who is designated for such
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position by Sprint in accordance with Section 2.01.
"Irrevocable Proxy" means the Irrevocable Proxy granted by each of
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Sprint and Sprint L.P. in the form attached hereto.
"Lower Threshold" means 10% at Closing, and as thereafter adjusted
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following any issuance of Transaction Securities by multiplying the Lower
Threshold in effect prior to such issuance, expressed as a decimal carried to
the third place, by the Dilution Factor; provided, that, if following such
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issuance of Transaction Securities, a Primary Share Offer is made by Newco
pursuant to Section 3.01(d) hereof, the Lower Threshold shall immediately be
increased, but never above .100, to L\2,\ which is to be determined as follows:
L\2\ = ((x/y) (L\0\- L\1\)) + L\1\
where:
x = the number of shares offered to Sprint pursuant to a Primary Share
Offer;
y = the number of Available Top-Up Shares;
L\0\ = .100; and
L\1\ = the Lower Threshold in effect after the issuance of Transaction
Securities.
"Management Director" means a Director who is also an employee of the
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Company or Newco or any other Director designated as such by the Board of
Directors (or any nominating committee thereof) in accordance with Section 2.01.
"Market Capitalization" shall mean, as of any given date, the total
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market value of Newco, determined by multiplying the number of shares of Newco
Common Stock outstanding on a Fully-Diluted Basis by the Market Price as of that
date.
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"Market Price" means the closing sale price of a share of Newco Common
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Stock on a given date as reported by the principal securities market or exchange
on which such stock is traded.
"Material Sale" means any proposal involving the sale of assets of
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Newco or any Subsidiary or the sale of capital stock of any Subsidiary by Newco,
in any such case, for which the consideration proposed to be paid in such
transaction represents 20% or more of the Market Capitalization on the date that
Newco receives such proposal.
"Newco" means Newco, Inc., a Delaware corporation and any successors
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thereto.
"Newco Common Stock" means the common stock, par value, .01 per share
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of Newco.
"Newco Outstanding Stock Report" means a report provided by Newco to
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Sprint pursuant to Section 6.02(a) hereof.
"New Security" means any Equity Security issued by Newco; provided,
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that, "New Security" shall not include (i) any Equity Securities issuable upon
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exercise or conversion of any exercisable or convertible Equity Security, (ii)
any Equity Securities issuable in connection with any stock split, stock
dividend, recapitalization or other similar transaction with respect to
outstanding Equity Securities in which such securities are issued to all
stockholders of Newco on a proportionate basis, (iii) the first 1,000,000 shares
of Newco Common Stock (primary shares, as adjusted for any stock splits effected
after the Closing), sold by Newco after the date hereof (exclusive of shares
issued pursuant to the Merger), which number shall be reduced on a share-for-
share basis for any shares of Common Stock of the Company issued after the date
hereof and prior to Closing (exclusive of shares of Common Stock issued by the
Company pursuant to the exercise of options, warrants or other rights or
convertible securities to purchase such Common Stock), (iv) any Equity
Securities issued or granted to employees or directors of, or consultants to,
Newco pursuant to any employee benefit plan or arrangement, and (v) any Equity
Securities issued to Affiliated Equity Holders.
"Non-Recommended Third-Party Offer" has the meaning given to such term
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in Section 4.03(a)(ii) hereof.
"Offer" means a bona fide, written offer from any Person other than an
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Affiliated Equity Holder to effect a Business Combination.
"Person" means an individual, a partnership, a joint venture, a
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corporation, a limited liability company, a business or other trust, an
incorporated or unincorporated organization, a government or any department or
agency thereof.
"Postponement Right" has the meaning given to such term in Section
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4.02(b) hereof.
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"Preferred Stock" means any shares of Preferred Stock issued by Newco,
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including without limitation, shares of Series A Stock.
"Primary Share Offer" means an offer made by Newco to Sprint pursuant
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to Section 3.01(d) hereof to purchase Available Top-Up Shares following an
issuance of Transaction Securities.
"Pro Rata Share" means a fraction, expressed as a decimal, carried to
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the third place, (i) the numerator of which shall be the sum of (A) the number
of shares of Newco Common Stock owned by Affiliated Equity Holders at Closing
and (B) the number of shares of Newco Common Stock into which Equity Securities
owned by Affiliated Equity Holders are convertible at the applicable Conversion
Ratio at Closing, and (ii) the denominator of which shall be the total number of
shares of Newco Common Stock outstanding at Closing on a Fully-Diluted Basis,
plus 1,000,000 less any Transaction Securities issued between the date of this
Agreement and Closing. The Pro Rata Share shall be held constant, except that
if indebtedness is incurred pursuant to the Credit Agreement, then both the
numerator and denominator used to recalculate Pro Rata Share shall increase by
the number of Equity Securities created by the incurrence of such indebtedness.
The Parties acknowledge that the Pro Rata Share, as of the date hereof, equals
.278, subject to adjustment as set forth above.
"Qualified Offer" means an offer made by an Affiliated Equity Holder
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to acquire all of the Equity Securities not already owned by Affiliated Equity
Holders at a price per share in excess of the equivalent per share price set
forth in a Third-Party Offer or an Intervening Offer, as the case may be. A
Qualified Offer shall be reflected in a form of definitive agreement which
Sprint is prepared to execute. The conditions to consummation of the Qualified
Offer and the representations, warranties and covenants set forth in the
Qualified Offer shall be customary for transactions in which a similarly
situated stockholder offers to purchase all of the equity securities (capital
stock and any securities that represent rights to purchase such stock) not held
by such stockholder and may not, in any event, in the reasonable judgment of the
Board of Directors exercised in good faith, be more onerous in any material
respect than those set forth in the Third-Party Offer or the Intervening Offer,
as the case may be. In the evaluating whether an offer shall qualify as a
Qualified Offer, the Board of Directors shall, in reliance upon the advice of
its financial advisors, reasonably and in good faith take into consideration in
its evaluation of such Qualified Offer the effect of any financing contingency
upon the likelihood of such Qualified Offer being consummated.
"Recommended Third-Party Offer" has the meaning given to such term in
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Section 4.03(a)(i) hereof.
"Registration Rights Agreement" means the Registration Rights
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Agreement dated as of the date hereof, by and among Sprint, Sprint L.P. and
Newco.
"Right to Offer Period" shall have the meaning given to such term in
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Section 4.02(a) hereof.
"SEC" means the Securities and Exchange Commission.
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"Securities Act" means the Securities Act of 1933, as amended, and the
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rules and regulations thereunder.
"Series A Stock" means the Series A Convertible Preferred Stock of
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Newco.
"Significant Sale" means the sale of assets of Newco or any Subsidiary
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or the sale of capital stock of any Subsidiary by Newco, in any such case, for
which the consideration proposed to be paid in such transaction represents 35%
or more of the Market Capitalization on the date that Newco agrees to such sale.
"Significant Subsidiary" means, with reference to any person, a
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"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X
promulgated by the SEC.
"Specified Number of Equity Securities," as it applies to the Voting
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Equity Securities owned by Affiliated Equity Holders and required pursuant to
Section 4.02(e) or Section 4.03(d) hereof to be sold by Affiliated Equity
Holders or voted by Affiliated Equity Holders, shall equal (i) in respect of a
tender offer, as of a date immediately prior to the closing of the tender offer,
the quotient of the number of shares of Voting Equity Securities owned by
Unaffiliated Equity Holders validly tendered into such transaction and accepted
for payment thereunder divided by the total number of shares of Voting Equity
Securities owned by Unaffiliated Equity Holders and (ii) in respect of a
stockholder vote, as of the date of such vote, the quotient of the number of
shares of Voting Equity Securities owned by Unaffiliated Equity Holders voted in
favor of the matter divided by the total number of shares of Voting Equity
Securities owned by Unaffiliated Equity Holders; in either case multiplied by
the number of shares of Voting Equity Securities owned by Affiliated Equity
Holders on the expiration date of the tender offer or on the record date for the
stockholders' meeting with respect to the stockholder vote, as applicable;
provided, that, the Affiliated Equity Holders shall have no obligation to effect
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a conversion on or before the expiration of the tender offer or the record date
in order to tender or vote such Equity Securities.
"Standstill Provisions" shall have the meaning given to such term in
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Section 7.01 hereof.
"Sprint Offer" has the meaning given to such term in Section 4.02(b)
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hereof.
"Sprint Ownership Report" means a report provided by Sprint to Newco
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pursuant to Section 6.02(b) hereof.
"Sprint's Percentage Interest" means the percentage of Equity
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Securities owned by Affiliated Equity Holders, determined by converting the
following fraction into a decimal carried to the third place, (i) the numerator
of which shall be the sum of (A) the number of shares of Newco Common Stock
owned by Affiliated Equity Holders and (B) the number of shares of Newco Common
Stock into which Equity Securities owned by Affiliated Equity Holders are
convertible at the applicable Conversion Ratio, and (ii) the denominator of
which shall be the total number of shares of Newco Common Stock outstanding on a
Fully-Diluted Basis plus that portion of the 1,000,000 shares of Newco Common
Stock discussed in the definition of "Pro
11
Rata Share" which has not yet been issued as of the date of calculation. In
determining the total number of shares of Newco Common Stock outstanding on a
Fully-Diluted Basis, Sprint shall be entitled to rely on capitalization
information to be provided by Newco in the most recent Newco Stock Ownership
Report. Notwithstanding any other provision of this Agreement to the contrary,
Sprint shall not be obligated under this Agreement to sell or otherwise dispose
of any Equity Securities to reduce Sprint's Percentage Interest below the Pro
Rata Share in the event that the Sprint's Percentage Interest exceeds the Pro
Rata Share due solely to a repurchase or redemption of Equity Securities by
Newco, the effectuation by Newco of a reverse stock split, recapitalization,
reclassification or other action reducing the number of Equity Securities.
"Subsidiary" has the same meaning as in Rule 12b-2 promulgated under
----------
the Exchange Act.
"Tender Offer" has the meaning set forth in the Recitals to this
------------
Agreement.
"Third-Party Offer" has the meaning given to such term in Section 4.03
-----------------
hereof.
"Top-Up Threshold" means a decimal, carried to the third place,
----------------
determined at Closing to be equal to the Pro Rata Share less .100, subject to
subsequent adjustment (i) for adjustments to the Pro Rata Share in accordance
with the penultimate sentence of the definition thereof and (ii) upon the
issuance of Transaction Securities, by multiplying the Top-Up Threshold in
effect prior to such issuance by the Dilution Factor; provided, that, if,
-------- ----
following such issuance of Transaction Securities, a Primary Share Offer is made
by Newco pursuant to Section 3.01(d) hereof, the Top-Up Threshold shall
immediately be increased to T\2,\ which is to be determined as follows:
T\2\ = ((x/y) (T\0\ - T\1\)) + T\1\
where:
x = the number of shares offered to Sprint pursuant to a Primary Share
Offer;
y = the number of Available Top-Up Shares;
T\0\ = the Pro Rata Share at Closing less .100; and
T\1\ = the Top-Up Threshold in effect after the issuance of a Transaction
Securities.
"Total Voting Power" means the aggregate number of votes entitled to
------------------
be voted generally in an election of Directors of Newco by all of the
outstanding Voting Equity Securities.
"Transaction Securities" means New Securities of Newco or Common Stock
----------------------
of the Company that are issued pursuant to or in connection with any joint
venture, strategic alliance, acquisition, tender or exchange offer, merger,
combination or purchase of all or substantially all of the assets of another
entity effected by Newco or the Company in which or in connection with which
securities of Newco or the Company are issued other than solely for cash. The
number of Transaction Securities issued in any such transaction shall be
determined based
12
on the number of shares of Newco Common Stock on a Fully-Diluted Basis
underlying such New Securities.
"Unaffiliated Equity Holders" means, as of any relevant date of
---------------------------
determination, all holders of Equity Securities other than Affiliated Equity
Holders.
"Underwriting Discount" means, with respect to a Primary Share Offer,
---------------------
an amount equal to the underwriting discount applied in the most recent
underwritten offering of Newco Common Stock (including an underwritten offering
simultaneous with such Primary Share Offer).
"Voting Equity Securities" means Equity Securities of Newco that, at
------------------------
the date of such determination, entitle the holders thereof to vote generally in
any election of Directors.
"Voting Power" means the ability to vote or to control, directly or
------------
indirectly, by proxy or otherwise, the vote of any Voting Equity Securities.
"Window Period" shall have the meaning given to such term in Section
-------------
3.01(d) hereof.
"13D Group" means any group of Persons formed for the purpose of
---------
acquiring, holding, voting or disposing of Voting Equity Securities which would
be required under Section 13(d) of the Exchange Act to file a statement on
Schedule 13D with the SEC as a "person" within the meaning of Section 13(d)(3)
of the Exchange Act, and Rule 13d-5 under the Exchange Act, if such group
beneficially owned Voting Equity Securities representing more than 5% of any
class of Voting Equity Securities then outstanding. The agreements contemplated
by this Agreement and the Ancillary Agreements shall be deemed not to result in
the formation of a 13D Group.
ARTICLE II
CORPORATE GOVERNANCE
--------------------
SECTION 2.01. Composition of the Board of Directors. The fundamental
-------------------------------------
policies and strategic direction of Newco, the Company and any Significant
Subsidiary shall be determined by their respective Boards of Directors. The
composition of each of the Board of Directors of Newco, the Company or any
Significant Subsidiary and manner of selecting members thereof shall be as
follows:
(a) At and after the Effectiveness of this Agreement, each of the
Board of Directors shall be comprised of not more than 11 Directors.
(b) Immediately following the Effectiveness of this Agreement, Newco
and the Company shall elect to their respective Boards of Directors, and shall
thereafter cause to be elected to the Board of Directors of any Significant
Subsidiaries of Newco, two individuals, each of whom shall be designated as an
Investor Director by Sprint. Following the Effectiveness of this Agreement, the
current Directors of the Company listed under the heading of
13
"Management Directors" in Schedule 2.01 shall be deemed to be Management
Directors of Newco and the current Directors of the Company listed under the
heading "Independent Directors" in Schedule 2.01 shall be deemed to be
Independent Directors of Newco, in each case until the expiration of the term of
their respective elections (or any earlier termination, resignation or removal).
If Newco, the Company or any Significant Subsidiary shall have a Strategic
and Business Planning Committee (or other committee responsible for strategic
and business planning) or a Finance Committee (or other committee responsible
for finance) during the time when Sprint shall have a right to designate one or
more Investor Directors hereunder, Sprint shall be entitled to appoint one
Investor Director to each such committee. If there is no such committee, Sprint
shall have a reasonable opportunity to review and discuss Newco's strategic and
business plans and financing plans with management of Newco prior to the
submission of any such plans to the Board of Newco, the Company or any
Significant Subsidiary. Sprint shall also have the right to appoint one Investor
Director to each of the other committees of the Board, except as otherwise
provided in this paragraph and except for appointments to any existing committee
of the Board if the scope of authority of such committee is not hereafter
expanded. Sprint shall receive copies of all information and materials provided
to the directors of Newco, the Company and any Significant Subsidiary or to
committee members, except for information and materials provided to a committee
that an Investor Director is prohibited from participating in as set forth in
this paragraph, at the time such information and materials are provided to such
directors. Notwithstanding the foregoing, nothing set forth herein shall entitle
any Investor Director to participate on any committee of the Board of Directors
of Newco, the Company or any Significant Subsidiary created for the purpose of
considering a Business Combination, an Acquisition Proposal, a Sprint Offer or a
Qualified Offer, or to participate in the Board's deliberations with respect to
any of the foregoing.
(c) Except as otherwise provided herein, and except at any time in
which the holders of Series A Stock are entitled to elect any directors of Newco
pursuant to Section 7(b) of the Certificate of Designation, in which case
paragraphs (b), (d) and (e) of this Section 2.01 will not be effective as to
Newco, from and after the Effectiveness of this Agreement, Sprint shall have the
right to designate two Investor Directors, each of whom shall be nominated by
the Board of Directors or any nominating committee thereof.
(d) Notwithstanding anything in the foregoing paragraph (c) to the
contrary, if at the end of any three consecutive months, (i) Sprint's Percentage
Interest shall be less than the Higher Threshold, Sprint shall promptly take
action to cause one of its Investor Directors to resign from the Boards of
Directors of Newco, the Company and any Significant Subsidiary, or (ii) Sprint's
Percentage Interest shall be less than the Lower Threshold, Sprint shall
promptly take action to cause any and all remaining Investor Directors elected
pursuant to Section 2.01(b) or Section 7(b) of the Certificate of Designation,
as the case may be, to resign from the Boards of Directors of Newco, the Company
or any Significant Subsidiary; and, upon the resignation of each respective
Investor Director, Sprint shall forever cease to have any rights to designate
any such Investor Director position pursuant to the terms of this Agreement or
the Certificate of Designation.
14
(e) Except as otherwise provided in paragraph (d) above, Sprint shall
have the right to designate any replacement for an Investor Director designated
for nomination or nominated in accordance with this Section 2.01 upon the death,
resignation, retirement, disqualification or removal from office for other cause
of such Director. The Boards of Directors of Newco, the Company and any
Significant Subsidiary shall elect each person so designated.
SECTION 2.02. Solicitation and Voting of Shares. (a) Newco shall use
---------------------------------
its best efforts to solicit from the stockholders of Newco eligible to vote for
the election of Directors proxies in favor of the nominees selected in
accordance with Section 2.01.
(b) In any election of Directors or any meeting of the stockholders
of Newco called expressly for the removal of Directors, so long as the Board of
Directors includes (and will include after any such removal) any number of
Investor Directors contemplated by Section 2.01, Affiliated Equity Holders shall
be present for purposes of establishing a quorum and shall vote all their shares
of Voting Equity Securities (i) in favor of any nominee or Director selected in
accordance with Section 2.01 (including any nominee designated as a "Management
Director" or an "Independent Director" and any successor thereto) and (ii)
otherwise against the removal of any Director selected in accordance with
Section 2.01 (including any nominee designated as a "Management Director" or an
"Independent Director" and any successor thereto). Subject to Section 4.02(e),
Section 4.03(d) and the terms of the Irrevocable Proxy, in any other matter
submitted to a vote of the stockholders of the Company, Sprint may vote any or
all of its Voting Equity Securities in accordance with the terms thereof.
(c) The Affiliated Equity Holders will, and will cause any of their
Affiliates (other than Newco, the Company and its Subsidiaries) who are
permitted transferees of the Affiliated Equity Holders' rights under this
Agreement to, take all action as stockholders of Newco as necessary to effect
the provisions of this Agreement.
SECTION 2.03. Enforcement of this Agreement. A majority of the
-----------------------------
Directors, excluding the Investor Directors, shall have full and complete
authority on behalf of Newco to enforce the terms of this Agreement.
SECTION 2.04. Certificate of Incorporation and By-laws. Newco and
----------------------------------------
Sprint shall take or cause to be taken all lawful action necessary to ensure at
all times that Newco's Certificate of Incorporation and By-laws are not at any
time inconsistent with the provisions of this Agreement. At Sprint's request,
the Board of Directors shall adopt (and if necessary submit and recommend for
approval by stockholders) other amendments to Newco's Certificate of
Incorporation or By-laws reasonably necessary to implement the provisions of
this Agreement. Nothing set forth herein shall preclude the Board of Directors
from proposing to the stockholders and, upon their approval of such proposal,
implementing, a classified Board of Directors, provided, that, each Investor
-------- ----
Director must be placed in a different class of Directors.
SECTION 2.05. Advisors. If appropriate under the circumstances of a
--------
given situation, the Independent Directors may retain, at the cost and expense
of Newco or the Company, services of an investment banking firm of national
reputation of their choice and one law firm of their choice to advise them in
their capacity as Independent Directors with respect to
15
any matter on which the Independent Directors, as a group, are required or
permitted to act hereunder.
SECTION 2.06. Investor Director Concurrence. From the Closing Date
-----------------------------
through the date this Agreement is terminated in accordance with Section 7.01
hereof, and for the duration of any period in which Sprint's Percentage Interest
is greater than the Lower Threshold, neither the Board of Directors of Newco nor
the Board of Directors of any Significant Subsidiary shall take, authorize or
permit any of the following actions without the concurrence of all Investor
Directors serving in such capacity at that time:
(a) The execution or performance of any Discriminatory Transaction;
(b) The issuance of any class or series of capital stock of Newco
that provides for voting rights in excess of one vote per share;
(c) The dissolution or liquidation (or adoption of a plan of
dissolution or liquidation) of Newco or any Subsidiary thereof; the commencement
by Newco or any Subsidiary thereof of any suit, case, proceeding or other action
(i) in bankruptcy under the federal bankruptcy or other laws relating to
bankruptcy, insolvency, reorganization or relief of debtors seeking to
adjudicate Newco or any Subsidiary thereof a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding up, liquidation, dissolution,
composition or relief with respect to Newco or any Subsidiary thereof; or (ii)
seeking appointment of a receiver, trustee, custodian or other similar official
for Newco or any Subsidiary thereof, or (iii) seeking to make a general
assignment for the benefit of creditors of Newco, provided, however, that to the
-------- -------
extent required by the fiduciary obligations of the Board of Directors,
exercised in good faith upon the advice of its outside counsel, Newco or any
Subsidiary thereof may undertake the actions set forth in this subsection (c)
without the concurrence of the Investor Directors;
(d) The conduct by Newco or any Significant Subsidiary of its
business substantially outside its current general field of enterprise; or
(e) The issuance of Transaction Securities representing (i) in any
twelve-month period, in one or more transactions, 50% or more of the number of
shares of Newco Common Stock outstanding on a Fully-Diluted Basis prior to
giving effect to such issuances, or (ii) in any one transaction, 35% or more of
the number of shares of Newco Common Stock outstanding on a Fully-Diluted Basis
prior to giving effect to such issuance.
ARTICLE III
EQUITY PURCHASES FROM THE COMPANY
---------------------------------
SECTION 3.01. Subscription Rights. (a) So long as Sprint's
-------------------
Percentage Interest is greater than the Top-Up Threshold, the Affiliated Equity
Holders, collectively, shall have the rights provided for in this Section 3.01.
16
(b) Notwithstanding any provision to the contrary contained herein,
Sprint may effect its rights pursuant to this Section 3.01 by making purchases
of Equity Securities at any time from any Person other than Newco so long as
after giving effect to such purchases, Sprint's Percentage Interest is less than
or equal to the Pro Rata Share.
(c) If the Board of Directors proposes to issue New Securities (other
than New Securities that are Transaction Securities) at such time as Sprint's
Percentage Interest is greater than the Top-Up Threshold, Newco shall provide
written notice to Sprint (the "Subscription Notice") of its intent to effect
such issuance at least five business days prior to the date on which the meeting
of the Board is held to authorize the issuance of such New Securities. The
Subscription Notice shall set forth (i) the number of New Securities proposed to
be issued and the terms of such New Securities, (ii) the consideration (or
manner of determining the consideration by reference to the market price), if
any, for which such New Securities are proposed to be issued and the terms of
payment, (iii) the number of New Securities Sprint shall be entitled to purchase
in compliance with the provisions of this Section 3.01 and the purchase price
(or manner of determining the consideration by reference to the market price)
and form of consideration therefor and (iv) the proposed date of issuance of
such New Securities. For a period of ten business days after the receipt by
Sprint of the Subscription Notice, Sprint shall have the right to purchase the
Pro Rata Share of such issuance and shall notify Newco in writing, within such
time period whether it elects to purchase all or any portion of the Equity
Securities offered to Sprint pursuant to the Subscription Notice. If Sprint
shall elect to purchase any such New Securities, such securities which it shall
have elected to purchase shall be issued and sold to Sprint by Newco at the same
times and on the same terms and conditions as the New Securities are issued and
sold to third parties (except that, if such New Securities are issued for
consideration other than cash, Sprint shall pay the lower of (x) the same
purchase price per share and other terms, including the same form of
consideration paid by the Purchaser for the New Securities or (y) the fair
market value per share thereof, determined by an independent appraiser mutually
selected by Newco and Sprint), in either case, times the number of shares Sprint
is entitled to purchase; provided, however, that if Sprint's purchase of such
-------- -------
Equity Securities would, in the opinion of its counsel, give rise to the
application of waiting periods under the HSR Act, Sprint shall be obligated to
consummate such purchase as soon as practicable after the applicable waiting
period has elapsed or terminated on an unconditional basis, and Sprint shall,
during such time, diligently and in good faith seek expiration or termination of
the applicable waiting period. If, for any reason, the issuance of New
Securities to third parties is not consummated, Sprint's right to purchase its
Pro Rata Share of such issuance shall lapse, subject to Sprint's ongoing
subscription right with respect to issuances of New Securities at later dates or
times.
(d) (i) At such time as Newco, acting in good faith on the basis of
the most recent Sprint Ownership Report provided pursuant to Section 6.02(b)
hereof, determines that Sprint's Percentage Interest has decreased by .05 or
more, after giving effect to any and all Primary Share Offers, solely as a
result of issuances of Transaction Securities, Newco shall promptly notify
Sprint of such event in writing, but in any event not later than the due date of
the next Newco Outstanding Stock Report.
17
(ii) Not later than the second anniversary of Sprint's receipt
of such notice (the "Window Period"), Newco shall be obligated to make written
offers for Sprint to purchase (each, a "Primary Share Offer"), in the aggregate
on the basis of all such Primary Share Offers made in the Window Period, not
less than the sum of the number of Available Top-Up Shares resulting from all
issuances of Transaction Securities that have collectively caused Sprint's
Percentage Interest to have decreased by .05 or more (the "Aggregate Number of
Top-Up Shares") at a purchase price equal to the Average Stock Price for the 10
trading days prior to the date of issuance, less the Underwriting Discount.
Sprint may accept a Primary Share Offer within five business days of its receipt
thereof by giving written notice to Newco of its desire to do so, specifying
(subject to Section 3.01(e) hereof) the number and form of shares of Equity
Securities of Newco Sprint is willing to purchase pursuant to such Primary Share
Offer, and such transaction shall be consummated in accordance with such notice
within three business days of Newco's receipt thereof. The Aggregate Number of
Top-Up Shares will be reduced by the number of shares offered to Sprint in the
Primary Share Offer.
(iii) If Newco, acting in good faith on the basis of the most
recent Sprint Ownership Report provided pursuant to Section 6.02(b) hereof,
determines that Sprint's Percentage Interest has decreased by .10 or more solely
as a result of the issuance of Transaction Securities, after giving effect to
any and all Primary Share Offers, Newco shall promptly notify Sprint of such
event in writing, but in any event not later than the due date of the next Newco
Outstanding Stock Report. In such event, the Window Period shall be accelerated
such that Newco shall be obligated to make one or more Primary Share Offers with
respect to not less than the Aggregate Number of Top-Up Shares, as then
calculated, at the earlier of (i) the expiration of the Window Period, as
determined above, or (ii) six months after the date Sprint receives the
foregoing notice from Newco.
(iv) Notwithstanding anything contained in this Agreement to the
contrary, in no event whatsoever shall Newco be obligated to make Sprint a
Primary Share Offer that, after giving effect to such transaction, would cause
Sprint's Percentage Interest to exceed the Pro Rata Share.
(e) In respect of a purchase of New Securities pursuant to Section
3.01(c) or 3.01(d) hereof, Sprint may, at its option, by notice given to Newco
at the time Sprint provides notice of its intention to purchase New Securities
pursuant to either of such sections, acquire such shares in the form of
Alternative Securities (to the extent set forth below) convertible into the
applicable number of shares of Newco Common Stock, assuming the acceleration of
the full amount of any liquidation accretion dividends with respect to such
Alternative Securities, consistent with the acceleration contemplated by the
last sentence of Section 3(a)(i) of the Certificate of Designation. Sprint's
purchase of New Securities in the form of Alternative Securities shall be
limited as follows:
(i) From the Closing to the second anniversary thereof, Sprint may
purchase not more than 75% of any issuance of New Securities in the
form of Alternative Securities;
18
(ii) After the second anniversary of the Closing until the third
anniversary thereof, Sprint may purchase not more than 66.67% of any
issuance of New Securities in the form of Alternative Securities; and
(iii) After the third anniversary of the Closing, Newco shall have no
obligation to issue New Securities in the form of Alternative
Securities.
SECTION 3.02. Issuance and Delivery of New Securities and Voting
--------------------------------------------------
Equity Securities. Newco represents, warrants and covenants to Sprint that (i)
-----------------
upon issuance, all of the shares of New Securities or Alternative Securities
sold to Sprint pursuant to this Article III shall be duly authorized, validly
issued, fully paid and nonassessable and will be approved (if outstanding
securities of Newco of the same type are at the time already approved) for
quotation on the Nasdaq National Market or for quotation or listing on the
principal trading market for the securities of Newco at the time of issuance and
(ii) upon delivery of such shares, such shares shall be free and clear of all
claims, liens, encumbrances, security interests and charges of any nature and
shall not be subject to any preemptive right of any stockholder of Newco or any
other rights to purchase or vote such shares or any power of attorney with
respect thereto, except as may be set forth in this Agreement and the Investment
Agreement. Each share issued or delivered by Newco hereunder shall bear the
legend set forth in Section 3.03 of the Investment Agreement.
ARTICLE IV
----------
PURCHASES OF ADDITIONAL EQUITY SECURITIES; BUSINESS COMBINATIONS
----------------------------------------------------------------
SECTION 4.01. General Standstill Obligations. Subject to the
------------------------------
following provisions and except for (i) purchases of shares made by Sprint
permitted under the provisions of Section 3.01, or (ii) offers, purchases and
other matters effected by Sprint in accordance with the provisions of Section
4.02 or Section 4.03 hereof, none of the Affiliated Equity Holders will, nor
will any Affiliated Equity Holders authorize any of their agents or
representatives to, without prior written consent of the Board of Directors of
Newco, directly or indirectly, acting alone or in concert with other Persons:
(a) acquire, offer to acquire, or agree to acquire, directly or
indirectly, by purchase or otherwise, any Equity Securities or direct or
indirect rights to acquire any Equity Securities, or any equity securities of
any Subsidiary of Newco, material assets of Newco or any Subsidiary or division
of Newco or of any successor or controlling Person of any of the foregoing,
except for its right to convert Series A Stock, Alternative Securities, the
Convertible Notes or other Equity Securities, and to receive stock dividends,
stock splits and other distributions of Equity Securities;
(b) make, or in any way participate, directly or indirectly, in any
"solicitation" of proxies to vote (as such terms are used in the rules of the
SEC), or seek to advise or influence any person or entity with respect to the
voting of any Voting Equity Securities of Newco, except for any solicitation of
proxies to vote or related communications made in response to a proxy
19
contest by a third party in connection with offers made by Sprint in accordance
with Section 4.02 or Section 4.03 hereof;
(c) make any public announcement with respect to, or submit a
proposal for, or offer to effect (with or without conditions) any purchase of a
significant portion of the assets of Newco or any Subsidiary or division of
Newco, any tender or exchange offer for any of the Equity Securities of Newco or
a merger, consolidation, combination, share exchange, reorganization or other
extraordinary transaction involving Newco or any of its Equity Securities or
assets or any Subsidiary of Newco or any of such Subsidiary's equity securities
or assets, or otherwise make any Acquisition Proposal, except for any
announcement required in connection with Section 4.02 or Section 4.03 hereof;
(d) form, join or in any way participate in a "group" as defined in
Rule 13d-5(b) under the Exchange Act in connection with any of the foregoing,
except as contemplated by any Ancillary Agreement; or
(e) request Newco or any of its representatives, directly or
indirectly, to amend or waive any provision of this Section 4.01.
Sprint will promptly advise Newco of any inquiry or proposal made to
it with respect to any of the foregoing and describe, in reasonable detail, the
terms and conditions thereof.
Notwithstanding any other provision of this Agreement to the contrary,
in the event that, following termination of this Agreement pursuant to Section
7.01 hereof, but at such time as Sprint shall still be subject to this Section
4.01, Newco receives either (i) a Recommended Third-Party Offer or (ii) a Non-
Recommended Third-Party Offer, which the Board of Directors of Sprint reasonably
determines in good faith upon consultation with independent legal counsel and
its outside financial advisors is reasonably likely to be consummated, Sprint
shall be temporarily released from its obligations under this Section 4.01
insofar as necessary to permit Sprint to present an offer directly to the Board
of Directors. Such release shall survive for so long as such Third-Party Offer
remains outstanding or is consummated or abandoned.
If any agent or representative of an Affiliated Equity Holder shall
violate any provision of this Section 4.01 by purchasing Equity Securities for
the account of any Affiliated Equity Holder or take any other action in
violation of this Section 4.01 for or on behalf of any Affiliated Equity Holder,
each Affiliated Equity Holder shall, within 14 days of becoming aware of such
violation, take such action as is necessary to remedy such violation, including
selling all Equity Securities purchased in violation of this Section 4.01, and,
upon effecting such remedy, such violation shall not be deemed to be a breach of
this Agreement.
SECTION 4.02. Sprint Right to Offer. (a) Following the 39-month
---------------------
anniversary of Closing and prior to the 63-month anniversary of Closing (such
period, the "Right to Offer Period"), Sprint shall have the right to offer to
purchase all, but not less than all, of the outstanding Equity Securities that
it does not already own at a per share price equal to the per share price
determined by dividing the Fair Private Market Value by the total number of
shares of Newco Common Stock outstanding on a Fully-Diluted Basis. The Fair
Private Market Value shall be determined in accordance with Section 4.02(b).
During any time in which Sprint shall be permitted to make an offer under this
Section 4.02(a), Newco shall make available to Sprint such information regarding
the business, properties, assets, condition (financial or otherwise) or results
of operations of Newco, the Company and their Significant Subsidiaries
reasonably requested by Sprint, subject to Sprint entering into a customary
confidentiality agreement with respect to all such information.
(b) (i) In the event Sprint wishes to exercise its right to offer
with respect to all, but not less than all, of the outstanding Equity Securities
that it does not already own, as set forth in Section 4.02(a) hereof, Sprint
shall approach the Board of Directors with an offer in
20
writing (the "Sprint Offer"), which shall include the price per share Sprint is
willing to pay based on the definition of Fair Private Market Value and describe
in reasonable detail such other terms and conditions of the Sprint Offer. A
Sprint Offer shall not be subject to any financing contingency. A Sprint Offer
shall be reflected in a form of definitive agreement which Sprint is prepared to
execute. The conditions to consummation of the Sprint Offer and the
representations and warranties set forth in the Sprint Offer shall be reasonable
and customary for transactions in which a similarly situated stockholder offers
to purchase all of the Equity Securities not held by such stockholder or its
Affiliates.
(ii) The Board of Directors of Newco shall have a one-time right,
exercisable by written notice to Sprint given within 14 days after the receipt
of the Sprint Offer, to postpone the making of that offer for nine months (the
"Postponement Right"); provided, that, the Board of Directors may not exercise
-------- ----
the Postponement Right in connection with a Sprint Offer made pursuant to
Section 4.03(b) or Section 4.04(b) hereof. Upon exercise of the Postponement
Right, Sprint shall withdraw the Sprint Offer, in which case it may not exercise
its right to offer under this Section 4.02 for a period of nine months following
the date of exercise of the Postponement Right; provided, however, that (A) in
--------- -------
that event, the Right to Offer Period shall be extended to the 72-month
anniversary of Closing and (B) the Postponement Right shall not limit Sprint's
right to respond to a Third-Party Offer as set forth in Section 4.03 hereof.
(iii) The Board of Directors of Newco and Sprint shall negotiate the
amount of the Fair Private Market Value to be paid pursuant to the Sprint Offer
in good faith and Sprint shall not make any public announcements relating to
this offer without the prior written consent of the Board unless required by law
or legal process. In the event the two parties are unable to agree on the
amount of the Fair Private Market Value within 30 days after submission of the
Sprint Offer to the Board, the parties shall agree to be bound to the valuation
arrived at pursuant to the following formula:
(A) Two appraisals shall be made by recognized investment
banks, one selected by each of Sprint and Newco (the "Initial
Values");
(B) If the lower of the Initial Values is more than 10% less
than the higher of the Initial Values, a third independent valuation
will be made by an investment bank selected jointly by Sprint and
Newco (the "Independent Valuation"). Otherwise, the Fair Private
Market Value shall be the average of the Initial Values; and
(C) If the Independent Valuation is greater than or less
than the average of the Initial Values by more than 5%, the Fair
Private Market Value shall be deemed to equal the average of the two
closest valuations. If the Independent Valuation does not differ by
such amount, the Independent Valuation shall be the Fair Private
Market Value.
(c) Upon the determination of the amount of the Fair Private Market
Value, Sprint shall be obligated to commence and effectuate the Sprint Offer,
provided, however, that Sprint shall have a one-time right ("Walk-Away Right"),
-------- -------
exercisable by written notice to Newco
21
given within 14 days after the receipt of the determination of Fair Private
Market Value, to determine not to proceed to make such Sprint Offer; provided,
--------
further, however, that Sprint may not exercise the Walk-Away Right in connection
-------
with a Sprint Offer made pursuant to Section 4.03(b) or Section 4.04(b) hereof.
If Sprint does not exercise such Walk-Away Right, the Board of Directors shall,
if an Intervening Offer is not then outstanding, (i) support the Sprint Offer by
approving and recommending it to Newco stockholders and (ii) cause Newco to take
all steps reasonable and necessary to facilitate consummation of such Sprint
Offer. If Sprint exercises such Walk-Away Right, all Affiliated Equity Holders,
Newco, the Company and all of their officers, directors, employees,
representatives and agents shall be obligated to protect and hold in strict
confidence the amount of the Fair Private Market Value determined as set forth
above unless disclosure thereof is required by law or legal process.
(d) [Reserved.]
(e) (i) At such time as a Third-Party Offer shall constitute an
Intervening Offer, (A) Sprint shall be released from its obligation to commence
and effectuate the Sprint Offer, and (B) Newco shall be released from its
obligation to support and facilitate consummation of the Sprint Offer.
Notwithstanding the foregoing, Sprint shall be entitled, at any time prior to
consummation of the Intervening Offer, to make a Qualified Offer. In such
event, the most recent Third-Party Offer shall cease to constitute an
Intervening Offer.
(ii) If an Intervening Offer is undertaken, in whole or in part, in
the form of a tender offer, at the consummation of such tender offer, the
offeror shall have an option, exercisable for a period of 20 days following the
consummation of such tender offer, to purchase from all Affiliated Equity
Holders, at the tender offer price, in the aggregate, the Specified Number of
Equity Securities less the number of Equity Securities that have already been
tendered by the Affiliated Equity Holders.
(iii) If, in the event of an Intervening Offer, such offer, a
Business Combination underlying such offer or any related matter that must be
approved by the stockholders of Newco in order for such offer to be effectuated
is brought before the stockholders of Newco for their consideration and
approval, Sprint and Sprint L.P. shall be obligated, in the event a Qualified
Offer has not been made within five days prior to the date of the stockholders'
meeting, to cast (or to cause to be cast by their Affiliated Equity Holders) in
favor of the Intervening Offer, the Business Combination or any such related
matter such number of votes as is equal to the Specified Number of Equity
Securities, provided, that, such Business Combination does not constitute a
-------- ----
Discriminatory Transaction.
(f) None of the Affiliated Equity Holders shall be entitled to
exercise rights of appraisal under Section 262 of the Delaware General
Corporation Law (or any successor thereto) as to any of the Equity Securities
owned by them in respect of any Business Combination effected in connection with
an Intervening Offer.
SECTION 4.03. Third-Party Offers. (a) Newco shall promptly provide
------------------
to Sprint written notice (the "Offer Notice") of its receipt of an Offer and, in
reasonable detail, the proposed terms thereof. Upon receipt of such Offer, the
Board of Directors shall determine that:
22
(i) such Offer is in the best interests of Newco's stockholders and
that it intends to recommend such Offer to the stockholders (a "Recommended
Third-Party Offer");
(ii) such Offer is not in the best interests of Newco's stockholders
and that it intends not to recommend such Offer to the stockholders or no
position is taken with respect thereto under Rule 14e-2 of the Exchange Act
within 10 business days of the Board's receipt thereof (a "Non-Recommended
Third-Party Offer" and, together with a Recommended Third-Party Offer, a "Third-
Party Offer"); or
(iii) insufficient information exists on which to base any such
recommendation, in which event the Board may take such action as it deems
necessary or advisable to develop such additional information; provided, that,
-------- ----
if upon developing such additional information, the Board decides to recommend
or not to recommend such Offer to the stockholders, then it shall promptly
notify Sprint of such decision and, at such time, the Offer shall be deemed a
Recommended Third-Party Offer or a Non-Recommended Third-Party Offer, as
appropriate.
(b) For a period of ten days following the giving of the Offer Notice,
Newco may not enter into a definitive agreement with respect to the Offer. Upon
receipt of such Offer Notice, Sprint shall be released from its obligations
under Section 4.01 insofar as necessary to permit Sprint, subject to the terms
and conditions of this Agreement and if an Intervening Offer is not then
outstanding, to make, pursue and consummate a Sprint Offer. However, Newco shall
not be obligated to deem a bona fide, written offer from any Person other than
an Affiliated Equity Holder to effect a Business Combination to be an Offer and
to provide the Offer Notice required by Section 4.03(a) until the earlier of (i)
the date on which Newco determines that such offer meets the requirements of an
Offer and that Newco intends to pursue such Offer with the objective of having
it become a Recommended Third-Party Offer, or (ii) ten days after the date Newco
receives such offer, unless previously rejected by Newco.
(c) In the case of an Offer that is a Recommended Third-Party Offer,
Sprint shall have the option to make a Qualified Offer, and Newco shall not
adopt any takeover defenses (unless amended or waived to permit Sprint to make a
Qualified Offer), enter into any agreement or take any other action if such
action would, in either case, materially impair Sprint's ability to make and
consummate a Qualified Offer or materially increase Sprint's costs of
consummating such Qualified Offer; provided, however, that, notwithstanding the
-------- -------
foregoing, Newco shall be permitted to enter into a definitive agreement with
respect to a Recommended Third-Party Offer that provides for a termination fee
not to exceed 3% of the consideration to be received per share of Newco Common
Stock multiplied by the number of shares of Newco Common Stock outstanding on a
Fully-Diluted Basis (less the number of shares beneficially owned by the
offering party), plus customary fees and expenses, except that the definitive
agreement with respect to such Recommended Third-Party Offer shall provide that
such fee shall not be payable by Sprint if it makes a Qualified Offer within 72
hours of the first public announcement of such Recommended Third-Party Offer
(provided, that, there are at least two business days within such period). In
--------- ----
the case of an Offer that is a Non-Recommended Third-Party Offer, Sprint shall
have the option to make a Qualified Offer, but only if the Board of Directors of
Sprint reasonably determines in good faith upon consultation with independent
legal
23
counsel and its outside financial advisors that the conditions to the Non-
Recommended Third-Party Offer are reasonably likely to be satisfied and the
offer consummated.
If Sprint has the option to make a Qualified Offer and does so more
than five days prior to the date of a stockholders meeting held to consider a
Third-Party Offer or an Intervening Offer, the Board of Directors shall, if an
Intervening Offer is not then outstanding, (i) support the Qualified Offer by
approving and recommending it to Newco's stockholders and (ii) cause Newco to
take all steps reasonable and necessary to facilitate the consummation of the
Qualified Offer.
(d) (i) At such time as a Third-Party Offer made subsequent to a
Qualified Offer shall constitute an Intervening Offer, Newco's obligations to
support and facilitate a Qualified Offer as set forth in Section 4.03(c) above
shall terminate and Newco shall be free to consider and act upon such
Intervening Offer. Notwithstanding the foregoing, Sprint shall be entitled, at
any time prior to consummation of the Intervening Offer, to make another
Qualified Offer. In the event Sprint makes such Qualified Offer, the most
recent Third-Party Offer shall cease to constitute an Intervening Offer.
(ii) If a Recommended Third-Party Offer or an Intervening Offer, as
the case may be, is undertaken, in whole or in part, in the form of a tender
offer, at the consummation of such tender offer, the offeror shall have an
option, exercisable for a period of 20 days following the consummation of such
tender offer, to purchase from any Affiliated Equity Holder, at the tender offer
price, the Specified Number of Equity Securities less the number of Equity
Securities that have already been tendered by the Affiliated Equity Holders.
(iii) If, in the event of a Recommended Third-Party Offer or an
Intervening Offer, as the case may be, such offer, a Business Combination
underlying the such offer or any related matter that must be approved by the
stockholders of Newco in order for the offer to be effectuated is brought before
the stockholders of Newco for their consideration and approval, Sprint and
Sprint L.P. shall be obligated, in the event a Qualified Offer has not been made
within five days prior to the date of the stockholders' meeting, to cast (or to
cause to be cast by their Affiliated Equity Holders) in favor of the Recommended
Third-Party Offer or the Intervening Offer, as applicable, the Business
Combination or any such related matter such number of votes as is equal to the
Specified Number of Equity Securities, provided, that, such Business Combination
-------- ----
does not constitute a Discriminatory Transaction.
(e) None of the Affiliated Equity Holders shall be entitled to
exercise rights of appraisal under Section 262 of the Delaware General
Corporation Law (or any successor thereto) as to any of the Equity Securities
owned by them in respect of any Business Combination effected in connection with
a Recommended Third-Party Offer or an Intervening Offer.
SECTION 4.04. Solicitation of Offers.
----------------------
(a) From the Closing Date until the earlier of the 27-month
anniversary of Closing or the termination of this Agreement in accordance with
its terms, Newco shall not and shall not authorize or permit any officer,
director or employee of, or any investment banker,
24
attorney or other advisor or representative of, Newco or its Affiliates, to, (i)
solicit or initiate, or encourage the submission of, any Acquisition Proposal,
or (ii) participate in any discussions or negotiations regarding, or furnish to
any person any information with respect to, or take any other action to expedite
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Acquisition Proposal; provided, however, that to the
-------- -------
extent required by the fiduciary obligations of the Board of Directors, as
determined in good faith by the Board based on the advice of outside counsel,
Newco may (A) in response to any unsolicited request therefor, furnish
information with respect to Newco or any Subsidiary to any person pursuant to a
customary confidentiality agreement and discuss such information with such
person, (B) upon receipt by Newco of an Acquisition Proposal, following delivery
to Sprint of the notice required pursuant to Section 4.05, participate in
negotiations regarding such Acquisition Proposal, and (C) enter into an
agreement respecting such Acquisition Proposal or enter into any related
agreements or take any other action ancillary thereto, which agreements or
actions are consistent with the requirements of Section 4.03(c) hereof.
(b) After the 27-month anniversary of Closing until the earlier of the
39-month anniversary of Closing or the termination of this Agreement in
accordance with its terms, Newco shall not, and shall not authorize or permit
any officer, director or employee of, or any attorney or other advisor or
representative of, Newco or its Affiliates, to take any of the actions limited
by Section 4.04(a) except through an investment banking firm formally engaged by
Newco (or actively working with Newco) for such purpose; provided, that, 30 days
-------- ----
prior to so engaging an investment banking firm for that purpose or to the
commencement of such work, Newco shall notify Sprint of its intention to effect
such engagement or commence such work, and Sprint shall be permitted to prepare
and make a Sprint Offer as defined in Section 4.02(b) hereof for so long as such
investment banking firm remains engaged by, or is working for, Newco for that
specific purpose; provided, that, subject to the terms and conditions of the
-------- ----
Sprint Offer and if an Intervening Offer is not then outstanding, Sprint will
pursue any Sprint Offer made pursuant hereto for so long as necessary to permit
such Sprint Offer to be consummated. Newco shall furnish Sprint with copies of
all information provided by Newco to such investment banking firm at the time
such information is provided to such investment banking firm, subject to Sprint
entering into a customary confidentiality agreement with respect to such
information.
(c) [Reserved.]
(d) Nothing contained in this Section 4.04 shall (i) prohibit Newco
from taking and disclosing to its stockholders a position contemplated by Rule
14e-2 under the Exchange Act or (ii) preclude Newco or the Board from giving due
consideration or responding to any Acquisition Proposal if the failure to so
respond would, in the judgment of the Board of Directors, exercised in good
faith upon the advice of Newco's outside legal counsel, cause the Board to be in
violation of its fiduciary duties to the holders of Equity Securities.
(e) Nothing contained in this Section 4.04 shall adversely affect
Sprint's right to respond to a Third-Party Offer under Section 4.03 hereof,
including Sprint's unwillingness to provide a Sprint Offer under Section 4.04(b)
above.
25
SECTION 4.05. Notice. The Board of Directors of Newco shall (i)
------
promptly notify Sprint in writing of (A) its receipt of an Acquisition Proposal,
(B) any inquiries or discussions that may reasonably be expected to lead to an
Acquisition Proposal, (C) the execution by Newco of a confidentiality agreement
with respect to an Acquisition Proposal, or (D) the furnishing of any
confidential information in contemplation of an Acquisition Proposal, whether or
not pursuant to a confidentiality agreement; (ii) describe the terms and
conditions of any Acquisition Proposal in reasonable detail; (iii) provide to
Sprint copies of any definitive agreements with respect to any Acquisition
Proposal and any confidentiality agreements with respect thereto; and (iv)
subject to Sprint's obligation to hold such information in strict confidence
(except as required by law or legal process), make available to Sprint all
information made available to the party making the Acquisition Proposal at the
same time it is provided to such party.
SECTION 4.06. Break-Up Fee. Upon consummation of an Intervening
------------
Offer, Newco shall be obligated to pay Sprint a termination fee equal to 3% of
the aggregate consideration to have been paid in the Sprint Offer or the
Qualified Offer to Unaffiliated Equity Holders plus reasonable fees and
expenses.
SECTION 4.07. Takeover Defenses. Newco shall not take any action or
-----------------
omit to take an action, and shall cause its Significant Subsidiaries or any of
its or their respective officers, directors, employees, representatives and
agents to take no action or omit to take action, that would result in (i) any
Affiliated Equity Holder being deemed an "acquiring person" or similar
designation under any Stockholders' Rights Plan (commonly known as a "poison
pill") or otherwise being adversely affected by such plan, (ii) any Affiliated
Equity Holder being prejudiced by Newco through its action or its failure to act
under any applicable state takeover statute, including Section 203 of the
Delaware General Corporation Law, or (iii) otherwise causing any takeover
defense to materially impair or obstruct, or prevent (either legally or
financially) the exercise by any Affiliated Equity Holder of rights granted
pursuant to this Article IV; provided, however, that (A) Newco may take action
-------- -------
or omit to take action having any such consequence to the extent that such
consequence occurs upon a material breach or violation by any Affiliated Equity
Holder of this Agreement and (B) the execution by Newco, the Company or any
Significant Subsidiary of a definitive agreement in respect of a Business
Combination that is consistent with the requirements of Section 4.03(c) hereof
shall not be deemed to have the effects described in this Section 4.07.
ARTICLE V
TRANSFER OF EQUITY SECURITIES
-----------------------------
SECTION 5.01. Transfer of Equity Securities. (a) None of the
-----------------------------
Affiliated Equity Holders shall, directly or indirectly, sell, transfer or
otherwise dispose of any Equity Securities except (i) pursuant to a registered
underwritten public offering in accordance with the Registration Rights
Agreement, (ii) in accordance with Rule 144 promulgated under the Securities
Act, (iii) to any direct or indirect Subsidiary of Sprint and (iv) in a
transaction effected in accordance with the so-called "Section 4(1 1/2)"
exemption under the Securities Act.
26
(b) Subject to the provisions of Section 4.02(e), 4.03(d) and 4.04(b)
hereof, and notwithstanding the permissive aspects of items (i) through (iv) of
Section 5.01(a) hereof, none of the Affiliated Equity Holders shall, directly or
indirectly, sell, transfer or otherwise dispose of any interest in any Equity
Securities to any purchaser or group (within the meaning of Rule 13d-5(b) under
the Exchange Act) of purchasers, if, after giving effect to such sale, such
purchaser or group of purchasers would, to Sprint's knowledge, own, or have the
right to acquire, 5% or more of the Equity Securities then outstanding, except
to any Person that is not obligated (or would not, by virtue of such purchase,
reasonably be anticipated to be obligated) to file a Schedule 13D with the SEC
pursuant to each of paragraphs (b) and (e) of Rule 13d-1 under the Exchange Act.
(c) None of the Affiliated Equity Holders shall sell, transfer or
otherwise dispose of any of the capital stock of any Subsidiary of such
Affiliated Equity Holder that owns Equity Securities, except to another
Subsidiary of Sprint, and then only if such Subsidiary complies with the
transfer and assignment provisions of Section 7.05 hereof.
(d) Purported transfers of Equity Securities that are not in
compliance with this Article V shall be of no force or effect.
(e) Notwithstanding the foregoing, sales, transfers and dispositions
among a group consisting only of Affiliated Equity Holders shall not constitute
a breach of this Section 5.01, provided that each of such Affiliated Equity
Holders complies with the transfer and assignment provisions of Section 7.05
hereof.
ARTICLE VI
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
SECTION 6.01. Representations and Warranties. Each of Sprint and
------------------------------
Sprint L.P. represents and warrants to the Company and Newco as follows:
(a) Sprint is a corporation, and Sprint L.P. is a partnership, that is
duly organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated or organized and has the power and
authority to execute, deliver and perform this Agreement and to grant the
Irrevocable Proxy.
(b) Each of this Agreement and the Irrevocable Proxy has been duly
executed and delivered by each of Sprint and Sprint L.P., and constitutes a
valid and binding agreement or irrevocable proxy (coupled with an interest),
respectively, and is enforceable in accordance with its respective terms, except
to the extent that the enforcement of this Agreement or the Irrevocable Proxy
may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights
generally, and (ii) general principles of equity regardless of whether
enforceability is considered in a proceeding in equity or at law.
(c) The execution and delivery of this Agreement and of the
Irrevocable Proxy did not, and the performance thereof, without obtaining the
consent of any third party will not,
27
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both) under (i) in the case of Sprint, the certificate of
incorporation or bylaws of Sprint, (ii) in the case of Sprint L.P., the
partnership agreement of Sprint L.P., (iii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit or
license applicable to either Sprint or Sprint L.P. or any of the Equity
Securities owned by either, or (iv) any federal, state, local, municipal,
foreign, international, multinational or other judicial or administrative order,
judgment, decree, constitution, law ordinance, common law of Delaware or Kansas,
regulation, statute or treaty applicable to either of Sprint or Sprint L.P. or
any of the Equity Securities owned by either. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity (as defined in the Investment Agreement) or any party to a contract is
required by or with respect to either Sprint or Sprint L.P. or in connection
with the execution and delivery of this Agreement or the applicable Irrevocable
Proxy.
(d) Except as set forth in this Agreement and the Ancillary
Agreements, none of the Equity Securities owned by either of Sprint or Sprint
L.P. is subject to (i) any preemptive rights, (ii) right of first refusal, (iii)
right to purchase, acquire or vote, (iv) power of attorney, or (v) any other
right.
(e) Each of Sprint and Sprint L.P. has the sole power, right and
authority to vote and to tender the Equity Securities beneficially owned by it
in accordance with the terms of this Agreement and the Irrevocable Proxy.
(f) Each of Sprint and Sprint L.P. will take all action necessary to
cause other Affiliated Equity Holders bound by the terms of this Agreement to
abide by the terms of this Agreement.
SECTION 6.02. Stock Ownership Reports. The following informational
-----------------------
reporting requirements shall apply during the term of this Agreement:
(a) Newco Stock Report. Newco shall provide to Sprint in writing a
------------------
monthly report (the "Newco Outstanding Stock Report") setting forth certain
information and data pertaining to Newco for each calendar month (a "Month"),
which shall be delivered to Sprint on or before the 15th day of the next
following month (a "Report Delivery Date"). The Newco Outstanding Stock Report
shall be reasonable in detail and shall clearly set forth all of the following
information:
(i) the number of New Securities issued by Newco during the
Month;
(ii) the number of New Securities issued by Newco as Transaction
Securities during the Month;
(iii) the total number of shares of Newco Common Stock
outstanding on the last day of the Month;
(iv) the total number of shares of Newco Common Stock, on a Fully-
Diluted Basis, outstanding on the last day of the Month; and
28
(v) the total number of Available Top-Up Shares issuable in respect of
Transaction Securities issued in the Month and Newco's calculation of the
Dilution Factor with respect to any such issuance of Transaction Securities.
(b) Sprint Ownership Report. Sprint shall provide to Newco in writing
-----------------------
a monthly report setting forth certain information and data pertaining to the
ownership of Equity Securities of Newco by Affiliated Equity Holders (the
"Sprint Ownership Report"), which shall be delivered to Newco on or before the
Report Delivery Date; provided, however, that Sprint's only obligation with
-------- -------
respect to furnishing a Sprint Ownership Report for a month in which no
ownership changes occurred shall be to notify Newco in writing of that fact.
The Sprint Ownership Report shall be reasonable in detail and shall clearly set
forth in reasonable detail all of the following information:
(i) the number of shares of Equity Securities of Newco bought
and sold in accordance with the terms of the Governance Agreement during such
Month;
(ii) Sprint's calculation of the number of Available Top-Up
shares with respect to issuances of Transactional Securities, as of the last day
of the Month; and
(iii) Sprint's calculation of Sprint's Percentage Interest as of
the last day of the Month.
(c) Each Newco Outstanding Stock Report and Sprint Ownership Report
(individually, a "Report" and together, the "Reports") shall state the month to
which it applies, and shall be signed by an authorized officer of the applicable
party. Newco represents and warrants that each Newco Outstanding Stock Report
shall be true and correct in all material respects on the Report Delivery Date.
Sprint represents and warrants that each Sprint Ownership Report shall be true
and correct in all material respects on the Report Delivery Date. If a Report
is determined to be incorrect in any respect at any time after delivery to the
other party, the submitting party must resubmit a true and accurate replacement
Report which identifies all such corrections; provided, however, that the
-------- -------
submission of any replacement Report or the failure of any Party to submit such
replacement Report shall not constitute a waiver by any other Party hereto of
any substantive rights otherwise existing under this Agreement.
ARTICLE VII
MISCELLANEOUS
-------------
SECTION 7.01. Effectiveness; Termination; Survival. (a) This
------------------------------------
Agreement shall become effective at the Closing. This Agreement shall terminate
at the earliest of the following to occur: (i) the termination of the
Investment Agreement in accordance with its terms; (ii) such time as Sprint's
Percentage Interest is greater than 90% or less than the Lower Threshold; (iii)
the expiration of the Sprint Right to Offer Period; (iv) the first date on which
any Person or 13D Group (other than Affiliated Equity Holders) is determined (A)
to beneficially own or control more than 35% of the Equity Securities
outstanding by virtue of the acquisition of such securities pursuant to a Third-
Party Offer if the rights granted and process contemplated by Article IV hereof
have been effected in accordance with the terms thereof or (B) to beneficially
29
own or control 50% or more of the Voting Equity Securities outstanding; (v) upon
the termination of the Marketing Agreement in accordance with Sections
24(b)(ii), 24(c), 24(d)(i), or 24(d)(ii) thereof; or (vi) upon the exercise by
any "Holder" of "Registrable Securities" under the Registration Rights Agreement
of registration rights (demand or incidental) held by Person thereunder.
(b) Notwithstanding the termination of this Agreement as set forth in
Section 7.01(a) above, until the sixth anniversary of the Closing Date and
thereafter for so long as Sprint's Percentage Interest is greater than the Lower
Threshold, then Sprint shall still be subject to the restrictions set forth in
Sections 4.01 and 5.01 hereof (the "Standstill Provisions") and, for so long as
Sprint's Percentage Interest remains greater than the Lower Threshold, Sprint
shall still have rights pursuant to this Agreement under Section 2.01 (subject
to termination of such rights by virtue of Section 2.01(d)) and Section 3.01(b).
In such event, the Standstill Provisions, Section 2.01, Section 3.01(b), Article
VII and any definition or definitional provision of any of the foregoing
provisions of this Agreement shall remain in full force and effect until such
time as Sprint's Percentage Interest is less than the Lower Threshold (provided,
--------
that, the use of any such definitions for such limited purpose shall not give
----
rise to any of the substantive rights or obligations that relate to such
definitions); provided, however, that during any period in which the Standstill
-------- -------
Provisions survive, Sprint and its Affiliates may directly approach the Board of
Directors of Newco in order to make an offer to effect a Business Combination.
SECTION 7.02. Notices. Unless otherwise provided herein, any notice,
-------
request, waiver, instruction, consent or document or other communication
required or permitted to be given by this Agreement shall be effective only if
it is in writing and (a) delivered by hand or sent by certified mail, return
receipt requested, (b) if sent by a nationally-recognized overnight delivery
service with delivery confirmed, or (c) if telexed or telescoped, with receipt
confirmed as follows:
The Company: 0000 Xxx Xxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attn.: President and CEO
Telecopy No.: 626/296-4161
With a copy to: Hunton & Xxxxxxxx
NationsBank Plaza, Suite 4100
000 Xxxxxxxxx Xxxxxx, X.X.
Xxxxxxx, Xxxxxxx 00000-0000
Attn: Xxxxx X. Hobby, Esq.
Telecopy No.: (000) 000-0000
Newco and Newco Sub: 0000 Xxx Xxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attn: President and CEO
Telecopy No.: 626/296-4161
30
with a copy to: Hunton & Xxxxxxxx
NationsBank Plaza, Suite 4100
000 Xxxxxxxxx Xxxxxx, X.X.
Xxxxxxx, Xxxxxxx 00000-0000
Attn: Xxxxx X. Hobby, Esq.
Telecopy No.: (000) 000-0000
Sprint: Sprint Corporation
0000 Xxxxxxx Xxxxxxx Xxxxxxx
Xxxxxxxx, Xxxxxx 00000
Attn: Chief Financial Officer
Telecopy No.: (000) 000-0000
with a copy to: Sprint Corporation
0000 Xxxxxxx Xxxxxxx Xxxxxxx
Xxxxxxxx, Xxxxxx 00000
Attn: Corporate Secretary
Telecopy No.: (000) 000-0000
with an additional
copy to: Xxxxxxx, Mag & Fizzell, P.C.
1201 Walnut, Suite 2800
P.O. Box 419251
Xxxxxx Xxxx, Xxxxxxxx 00000-0000
Attn: Xxxx X. Xxxxxx, Esq.
Telecopy No.: (000) 000-0000
The parties hereto ("Parties") shall promptly notify each other of any change in
their respective addresses or facsimile numbers or of the Person or office to
receive notices, requests or other communications under this Section 7.02.
Notice shall be deemed to have been given as of the date when so personally
delivered, when actually delivered by the U.S. Postal Service at the proper
address, the next day when delivered during business hours to an overnight
delivery service properly addressed or when receipt of a telex or telecopy is
confirmed, as the case may be, unless the sending party has actual Knowledge
that such notice was not received by the intended recipient.
SECTION 7.03. Entire Agreement. This Agreement and, upon execution
----------------
by all Parties thereto, the Investment Agreement and the Ancillary Agreements,
together with the respective Schedules and Exhibits hereto and thereto, embody
the entire agreement and understanding of the Parties in respect to the matters
contemplated hereby and thereby and supersedes and renders null and void all
other prior agreements and understandings, written and oral, with respect to the
subject matter hereof and thereof, provided, that, this provision shall not
-------- ----
abrogate any other written agreement between the Parties executed simultaneously
with this Agreement. No Party shall be liable or bound to any other Party in
any manner by any promises, conditions, representations, warranties, covenants,
agreements and understandings, except as specifically set forth herein or
therein.
31
SECTION 7.04. Waiver. Except as otherwise permitted in this
------
Agreement, the terms or conditions of this Agreement may not be waived unless
set forth in a writing signed by the Party entitled to the benefits thereof. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of such provision at any time in the future or a waiver of
any other provision hereof. The rights and remedies of the Parties are
cumulative and not alternative. Except as otherwise permitted in this
Agreement, neither the failure nor any delay by any Party in exercising any
right, power or privilege under this Agreement, any of the Ancillary Agreements
or the documents referred to in this Agreement or therein will operate as a
waiver of such right, power or privilege, and no single or partial exercise of
any such right, power or privilege will preclude any other or further exercise
of such right, power or privilege or the exercise of any other right, power or
privilege.
SECTION 7.05. Successors and Assigns. Neither this Agreement nor any
----------------------
of the rights, interests or obligations under this Agreement shall be assigned
or transferred, in whole or in part, by any of the Parties without the prior
written consent of the other Parties; provided, however, that such assignment or
-------- -------
transfer may be made by (i) by Sprint or Sprint L.P. to any of their respective
Affiliates who are "controlled" (as such term is defined in Rule 12b-2
promulgated pursuant to the Exchange Act) by Sprint or Sprint L.P., or (ii)
pursuant to any merger or sale of substantially all of the assets of Sprint or
such Affiliates (or any transaction having such effect) that is pursuant to an
agreement entered into after the Closing; provided, however, that, in either
-------- -------
such case, before such assignment may take effect, the proposed successor or
assignee agrees in writing to be bound by all of the provisions hereof and
executes an Irrevocable Proxy. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns. Any attempted
assignment in violation of this Section 7.05 shall be void.
SECTION 7.06. Governing Law. This Agreement shall be construed in
-------------
accordance with and governed by the laws of the State of Delaware, without
regard to conflict of laws principles.
SECTION 7.07. Severability. If any term or provision of this
------------
Agreement or the application thereof to either party or set of circumstances
shall, in any jurisdiction and to any extent, be finally held invalid or
unenforceable, such term or provision shall only be ineffective as to such
jurisdiction, and only to the extent of such invalidity or unenforceability,
without invalidating or rendering unenforceable any other terms or provisions of
this Agreement or under any other circumstances, and the Parties shall negotiate
in good faith a substitute provision which comes as close as possible to the
invalidated or unenforceable term or provision, and which puts each party in a
position as nearly comparable as possible to the position it would have been in
but for the finding of invalidity or unenforceability, while remaining valid and
enforceable.
SECTION 7.08. Counterparts. This Agreement may be executed in one or
------------
more counterparts each of which when so executed and delivered shall for all
purposes be deemed to be an original but all of which, when taken together,
shall constitute one and the same Agreement.
32
SECTION 7.09. Headings. The table of contents, captions and headings
--------
used in this Agreement are inserted for convenience only and shall not be deemed
to constitute part of this Agreement or to affect the construction or
interpretation hereof.
SECTION 7.10. No Third-Party Beneficiaries. Nothing in this
----------------------------
Agreement or any Ancillary Agreements, express or implied, shall create or
confer upon any Person (including but not limited to any employees), other than
the Parties or their respective successors and permitted assigns, any legal or
equitable rights, remedies, obligations, liabilities or claims under or with
respect to this Agreement except as expressly provided herein.
SECTION 7.11. Interpretation. (a) Unless specifically stated
--------------
otherwise, references to Articles, Sections, Exhibits and Schedules refer to
Articles, Sections, Exhibits and Schedules in this Agreement. References to
"includes" and "including" mean "includes without limitation" and "including
without limitation."
(b) Each Party is a sophisticated legal entity that was advised by
experienced counsel and, to the extent it deemed necessary, other advisors in
connection with this Agreement. Accordingly, each Party hereby acknowledges
that no Party has relied or will rely in respect of this Agreement or the
transactions contemplated hereby upon any document or written or oral
information previously furnished to or discovered by it or its representatives,
other than this Agreement or the documents and instruments delivered at the
Closing.
(c) No provision of this Agreement shall be interpreted in favor of,
or against, either of the Parties by reason of the extent to which either such
Party or its counsel participated in the drafting thereof or by reason of the
extent to which any such provision is inconsistent with any prior draft hereof
or thereof.
SECTION 7.12. Inclusion of Information in Schedules. The inclusion
-------------------------------------
of any information in any disclosure schedule (i) shall not be deemed an
admission that any such information is material for purposes of the
representation and warranty to which it relates or any other representation and
warranty or for any other purpose related to this Agreement or any Ancillary
Agreement or the transactions contemplated hereby or thereby, including, without
limitation, for purposes of any covenants, closing conditions or any other
remedies the Parties may have, and (ii) shall not be used or interpreted in any
manner to create a standard of materiality for any such purpose.
SECTION 7.13. Exclusive Jurisdiction and Consent to Service of
------------------------------------------------
Process. The Parties agree that any legal action arising out of or relating to
-------
this Agreement or the transactions contemplated hereby or thereby shall be
instituted by the Parties only in a Delaware state court or a federal court
sitting in that state, which shall be the exclusive venue of any such action.
Each Party waives any objection which such party may now or hereafter have to
the laying of venue of any such action, and irrevocably consents and submits to
the jurisdiction of any such court (and the appropriate appellate courts) in any
such action. Any and all service of process and any other notice in any such
action shall be effective against such Party when transmitted in accordance with
Section 7.02. Nothing contained herein shall be deemed to affect the right of
any Party to serve process in any manner permitted by applicable law.
33
SECTION 7.14. Amendment. No amendment, modification or alteration of
---------
the terms or provisions of this Agreement or any Ancillary Agreement, including
any Schedules and Exhibits hereto or thereto, shall be binding unless the same
shall be in writing and duly executed by the Party against whom such amendment,
modification or alteration is sought to be enforced.
SECTION 7.15. Survival. All of the representations, warranties,
--------
covenants and agreements set forth in this Agreement shall survive the Closing.
SECTION 7.16. WAIVER OF JURY TRIAL. THE COMPANY, NEWCO, SPRINT AND
--------------------
SPRINT L.P. HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT THAT IT MAY
HAVE TO A TRIAL BY JURY IN ANY ACTION INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT
OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY ANCILLARY AGREEMENT OR
THE RELATIONSHIP ESTABLISHED HEREUNDER OR THEREUNDER.
SECTION 7.17. Specific Performance. The Parties agree that immediate
--------------------
irreparable damages for which there is no adequate remedy at law would occur in
the event that any provision of this Agreement is not performed in accordance
with the specific terms hereof or is otherwise breached. It is accordingly
agreed that in the event of a failure by a party to perform its obligations
under this Agreement, the non-breaching Party shall be entitled to specific
performance through injunctive relief to prevent breaches of the provisions of
this Agreement and to enforce specifically the provisions of this Agreement in
any action instituted in any court having subject matter jurisdiction, in
addition to any other remedy to which such Party may be entitled, at law or in
equity.
SECTION 7.18. Voting Agreement; Proxy. (a) To the extent this
-----------------------
Agreement constitutes a voting agreement in accordance with Section 218(c) of
the Delaware General Corporation Law, it is intended to comply therewith and be
enforceable thereunder. The voting obligations of Sprint under this Agreement,
including without limitation, those set forth in Sections 2.02, 4.02 and 4.03
hereof, shall be irrevocable.
(b) In order to ensure that the voting agreements set forth in
Sections 2.02, 4.02 and 4.03 hereof will be fulfilled, each of Sprint and Sprint
L.P. agrees to grant, and concurrently with the execution of this Agreement
hereby grants, to the Company and Newco, or either of them, an Irrevocable
Proxy, coupled with an interest, with respect to (a) the matters contemplated by
Section 2.02 hereof, all of the Equity Securities owned by Affiliated Equity
Holders and (b) with respect to the matters contemplated by Section 4.02 or
Section 4.03 hereof, the Specified Number of Equity Securities covered by such
voting agreements which Sprint or Sprint L.P. beneficially owns, as determined
under Rule 13d-3 of the Exchange Act, in each such case, for and in the name,
place and stead of such stockholder or any of its Affiliated Equity Holders, at
any annual or special meeting of the holders of Newco Common Stock and at any
adjournment or postponement thereof, or pursuant to any consent in lieu of a
meeting. The Irrevocable Proxy granted by each of the Sprint and Sprint L.P.
constitutes the valid and effective
34
irrevocable proxy, coupled with an interest, of each of Sprint and Sprint L.P.
in respect of the Equity Securities beneficially owned by each of them, within
the meaning of Section 212(e) of the Delaware General Corporation Law; revokes
any proxy or proxies or powers of attorney heretofore given by either of them in
respect of such Equity Securities; shall remain in full force and effect and is
and shall be irrevocable until the termination of this Agreement and is coupled
with an interest and an integral part of the benefits and obligations of each of
Sprint and Sprint L.P. and the rights and benefits of the Company and Newco.
35
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SPRINT CORPORATION
By: /s/ Xxxxxxxx X. Xxxxxx
--------------------------------------
Name: Xxxxxxxx X. Xxxxxx
Title: Vice President - Strategic Planning
and Corporate Development
SPRINT COMMUNICATIONS COMPANY L.P.
By: U.S. Telecom, Inc., General Partner
By: /s/ Xxx X. Xxxxxx
--------------------------------------
Name: Xxx X. Xxxxxx
Title: Vice President and Secretary
EARTHLINK NETWORK, INC.
By: /s/ Xxxxxxx X. Xxxxx
--------------------------------------
Name: Xxxxxxx X. Xxxxx
Title: President and CEO
NEWCO, INC.
By: /s/ Xxxxxxx X. Xxxxx
--------------------------------------
Name: Xxxxxxx X. Xxxxx
Title: President and CEO
[SIGNATURE PAGE FOR GOVERNANCE AGREEMENT]
36
SCHEDULE 2.01 TO
THE GOVERNANCE AGREEMENT
Board of Directors
------------------
Management Directors
--------------------
Sky X. Xxxxxx
C. Xxxxx Xxxxx
Independent Directors
---------------------
Xxxxxx Xxxxx
Xxxxxx X. Xxxxxx
Xxxxxxx X. Xxxx, Xx.
Xxxx XxXxxxx
Xxxxx X. X'Xxxxxxx
Xxxx X. Xxxxxxxx
Xxxx X. Xxxxxxx
IRREVOCABLE PROXY COUPLED WITH AN INTEREST
The undersigned hereby irrevocably appoint(s) EarthLink Network, Inc., a
Delaware corporation ("EarthLink Network"), or Newco, Inc., a Delaware
corporation ("Newco"), or either of them, as the proxy of the undersigned and
hereby grant(s) to EarthLink Network or Newco this irrevocable proxy coupled
with an interest ("Irrevocable Proxy") with respect to the following Equity
Securities of the undersigned or any Affiliated Equity Holder of the undersigned
that the undersigned owns of record or otherwise has the right to vote, with all
power and authority to vote and to execute and deliver written consents, in each
case in accordance with the terms of Sections 2.02, 4.02 and 4.03 of the
Governance Agreement to the extent specified below:
(a) With respect to any matter contemplated by Section 2.02 of that
certain Governance Agreement dated February 10, 1998 (the "Governance
Agreement") by and among EarthLink Network, Newco, Sprint Corporation and
Sprint Communications Company L.P., as to all Equity Securities owned by
the undersigned or by any Affiliated Equity Holder of the undersigned;
(b) With respect to any matter contemplated by Section 4.02 or Section
4.03 of the Governance Agreement, as to the Specified Number of Equity
Securities owned by the undersigned or by any Affiliated Equity Holder of
the undersigned;
in each case, in the name, place and stead of the undersigned, and at any annual
or special meeting of stockholders of EarthLink Network or Newco or at any
adjournment or postponement thereof, or as to any action that can be taken by
written consent; and in each case to the same extent and with the same effect as
the undersigned might or could do under any applicable law or regulation
governing the rights and powers of stockholders of a Delaware corporation,
irrespective of whether the undersigned is present at such meeting.
This Irrevocable Proxy constitutes a valid and effective irrevocable
proxy coupled with an interest of EarthLink Network and Newco in the Equity
Securities, within the meaning of Section 212(e) of the Delaware General
Corporation Law, of the undersigned in respect of the foregoing Equity
Securities and revokes any proxy or proxies heretofore given by the undersigned
in respect of any such Equity Securities. This Irrevocable Proxy shall remain
in full force and effect and be irrevocable until termination of the Governance
Agreement. Unless otherwise defined herein, all capitalized terms shall have
the meanings ascribed to them in the Governance Agreement.
Until such time as the Governance Agreement is terminated, this Irrevocable
Proxy shall continue to cover all Equity Securities sold, transferred or
otherwise disposed of after the date hereof other than in accordance with the
terms and provisions of the Governance Agreement.
Dated: February , 1998 SPRINT CORPORATION
---
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
SPRINT COMMUNICATIONS COMPANY L.P.
By: U.S. Telecom, Inc.
By:
--------------------------------------
General Partner
STATE OF )
) ss.
COUNTY OF )
---------
Sworn to and subscribed before me this ___ day of February, 1998 and
acknowledged before me as being the free act and deed of the above
signatory(ies).
--------------------------------------
Notary Public
My Commission expires:
---------------------
[SIGNATURE PAGE FOR IRREVOCABLE PROXY WITH AN INTEREST]
