STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of August 24, 1999 (the "Agreement"),
between NORTEL NETWORKS CORPORATION, a Canadian corporation ("Grantee"), and
PERIPHONICS CORPORATION, a Delaware corporation ("Issuer").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Grantee and Issuer are entering into an
Agreement and Plan of Merger (the "Merger Agreement");
WHEREAS, as a condition and inducement to Grantee's execution of the Merger
Agreement and in furtherance of the transactions contemplated thereby and in
consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined); and
WHEREAS, the Board of Directors of Issuer has approved the grant of the
Option and the Merger Agreement prior to the execution hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. The Option. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
to an aggregate of 2,634,131 fully paid and nonassessable shares of the common
stock, $0.01 par value per share, of Issuer ("Common Stock") at a price per
share equal to $29.23 (such price, as adjusted if applicable, the "Option
Price"); provided, however, that in the event Issuer issues or agrees to issue
any shares of Common Stock (other than as permitted under the Merger Agreement)
at a price less than the Option Price (as adjusted pursuant to Section 5), the
Option Price shall be equal to such lesser price; provided, further, that in no
event shall the number of shares for which this Option is exercisable exceed
19.9% of the issued and outstanding shares of Common Stock at the time of
exercise without giving effect to the shares of Common Stock issued or issuable
under the Option. The number of shares of Common Stock that may be received upon
the exercise of the Option and the Option Price are subject to adjustment as
herein set forth.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement and other than pursuant to an event described in
Section 5(a) hereof), the number of shares of Common Stock subject to the Option
shall be increased so that, after such issuance, such number together with any
shares of Common Stock previously issued pursuant hereto, equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing contained
in this Section 1(b) or elsewhere in this Agreement shall be deemed to authorize
Issuer to breach any provision of the Merger Agreement.
2. Exercise; Closing. (a) Grantee and/or any other person that shall become
a holder of all or part of the Option in accordance with the terms of this
Agreement (each such person being referred to herein as the "Holder") may
exercise the Option, in whole or part, if, but only if, both an Initial
Triggering Event (as defined below) and a Subsequent Triggering Event (as
defined below) shall have occurred prior to the occurrence of an Exercise
Termination Event (as defined below), provided that the Holder shall have sent
written notice of such exercise (as provided in subsection (f) of this Section
2) within 180 days following such Subsequent Triggering Event (or such later
period as provided in Section 10).
(b) Each of the following shall be an "Exercise Termination Event":
(i) the Effective Time (as defined in the Merger Agreement);
(ii) termination of the Merger Agreement in accordance with the provisions
thereof if such termination occurs prior to the occurrence of an Initial
Triggering Event, except a termination by Grantee pursuant to Section 8.01(b) of
the Merger Agreement as a result of a breach of a covenant by Issuer or a breach
of a representation by Issuer;
(iii) the passage of 12 months after termination of the Merger Agreement
(or such later period as provided in Section 10) if such termination (A) follows
or is concurrent with the occurrence of an Initial Triggering Event or (B) is a
termination by Grantee pursuant to Section 8.01(b) of the Merger Agreement as a
result of a breach of a covenant by Issuer or a breach of a representation by
Issuer; or
(iv) the receipt by Grantee (pursuant to its request) of the sum of $15
million in respect of the Termination Fee.
(c) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (as defined in Rule 1-02 of
Regulation S-X promulgated by the Securities and Exchange Commission (the
"SEC")) (each an "Issuer Subsidiary"), without having received Grantee's prior
written consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as defined below) with any person (the term "person"
for purposes of this Agreement having the meaning assigned thereto in Sections
3(a)(9) and 13(d)(3) of the Exchange Act) other than Grantee or any of its
Subsidiaries (each a "Grantee Subsidiary") or the Board of Directors of Issuer
shall have recommended that the stockholders of Issuer approve or accept any
Acquisition Transaction (other than the Merger referred to in the Merger
Agreement). For purposes of this Agreement, "Acquisition Transaction" shall mean
(w) a merger or consolidation, or any similar transaction, involving Issuer, (x)
a purchase, lease or other acquisition or assumption of all or more than 20% of
the consolidated assets of Issuer (including by way of merger, consolidation,
share exchange or otherwise involving any Subsidiary of Issuer), (y) a purchase
or other acquisition (including by way of merger, consolidation, share exchange
or otherwise) of beneficial ownership (the term "beneficial ownership" for
purposes of this Agreement having the meaning assigned thereto in Section 13(d)
of the Exchange Act, and the rules and regulations thereunder) of securities
representing 20% or more of the voting power of Issuer, or (z) any substantially
similar transaction; provided, however, that in no event shall any merger,
consolidation, purchase or similar transaction involving only the Issuer and one
or more of its wholly-owned Subsidiaries or involving only any two or more of
such wholly-owned Subsidiaries, be deemed to be an Acquisition Transaction, if
such transaction is not entered into in violation of the terms of the Merger
Agreement;
(ii) Issuer or any Issuer Subsidiary, without having received Grantee's
prior written consent, shall have authorized, recommended, proposed or publicly
announced its intention to authorize, recommend or propose, to engage in an
Acquisition Transaction with any person other than Grantee or a Grantee
Subsidiary or shall have authorized or engaged in, or announced its intention to
authorize or engage in, any negotiations regarding an Acquisition Transaction
with any person other than the Grantee or a Grantee Subsidiary, or the Board of
Directors of Issuer shall have failed to recommend or shall have publicly
withdrawn or modified, or publicly announced its intention to withdraw or
modify, in any manner adverse to Grantee, its recommendation that the
stockholders of Issuer approve the Merger;
(iii) The shareholders of Issuer shall have voted and failed to approve the
Merger at a meeting which has been held for that purpose or any adjournment or
postponement thereof, or such meeting shall not have been held in violation of
the Merger Agreement or shall have been canceled prior to termination of the
Merger Agreement if, prior to such meeting (or if such meeting shall not have
been held or shall have been canceled, prior to such termination), any person
(other than the Grantee or a Grantee Subsidiary) shall have made a proposal to
Issuer or its stockholders by public announcement or written communication that
is or becomes the subject of public disclosure to engage in an Acquisition
Transaction;
(iv) (a) Any person other than Grantee, any Grantee Subsidiary or any party
to the Stockholders Agreement dated as of August 24, 1999, by and among Grantee
and the Stockholders named therein (the "Stockholders Agreement") shall have
acquired beneficial ownership or the right to acquire beneficial ownership of
20% or more of the then outstanding shares of Common Stock or (b) any group (the
term "group" having the meaning assigned in Section 13(d)(3) of the Exchange
Act), other than a group of which the Grantee or any Grantee Subsidiary is a
member, shall have been formed that beneficially owns 20% or more of the shares
of Common Stock then outstanding;
(v) Any person other than Grantee or any Grantee Subsidiary shall have made
a bona fide proposal to Issuer or its stockholders to engage in an Acquisition
Transaction and such proposal shall have become publicly known;
(vi) Issuer shall have breached any covenant or obligation contained in the
Merger Agreement in anticipation of engaging in an Acquisition Transaction and
such breach (x) would entitle Grantee to terminate the Merger Agreement and (y)
shall not have been cured prior to the Notice Date (as defined below); or
(vii) Any person other than Grantee or any Grantee Subsidiary, other than
in connection with a transaction to which Grantee has given its prior written
consent, shall have filed with any federal or state regulatory or governmental
authority an application for approval or notice of intention to engage in an
Acquisition Transaction.
(d) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person or by a group other than Grantee or any
Grantee Subsidiary or persons party to the Stockholders Agreement (provided that
the Stockholders Agreement remains in full force and effect and such persons are
not claiming that such Agreement is not in full force and effect) of beneficial
ownership of 25% or more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in paragraph
(i) of subsection (c) of this Section 2, except that the references to 20% in
clause (x) and clause (y) shall each be deemed to be a reference to 25%.
(e) Issuer shall notify Grantee promptly in writing of the occurrence of
any Initial Triggering Event or Subsequent Triggering Event (together, a
"Triggering Event"), it being understood that the giving of such notice by
Issuer shall not be a condition to the right of the Holder to exercise the
Option.
(f) In the event the Holder is entitled to and wishes to exercise the
Option (or any portion thereof), it shall send to Issuer a written notice (the
date of which being herein referred to as the "Notice Date") specifying (i) the
total number of shares it will purchase pursuant to such exercise and (ii) a
place and date not earlier than three business days nor later than 60 business
days from the Notice Date for the closing of such purchase (the "Closing Date");
provided, that if the closing of such purchase cannot be consummated by reason
of any applicable judgment, injunction, decree, order, law or regulation, the
period of time that would otherwise run pursuant to this sentence shall run
instead from the date on which such restriction on consummation has expired or
been terminated; and provided, further, that if prior notification to or
approval of any regulatory or antitrust agency is required in connection with
such purchase, the Holder shall promptly file the required notice or application
for approval and shall expeditiously process the same and the period of time
that otherwise would run pursuant to this sentence shall run instead from the
date on which any required notification periods have expired or been terminated
or such approvals have been obtained and any requisite waiting period or periods
shall have passed. Any exercise of the Option shall be deemed to occur on the
Notice Date relating thereto.
(g) At the closing referred to in subsection (f) of this Section 2, the
Holder shall (i) pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated by Issuer,
provided that failure or refusal of Issuer to designate such a bank account
shall not preclude the Holder from exercising the Option.
(h) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (g) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder.
(i) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement between the registered holder hereof and
Issuer and to resale restrictions arising under applicable securities laws
(including the Securities Act of 1933, as amended). A copy of such agreement is
on file at the principal office of Issuer and will be provided to the holder
hereof without charge upon receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions arising under applicable securities laws, including the Securities
Act of 1933, as amended (the "Securities Act"), in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if the
Holder shall have delivered to Issuer a copy of a letter from the staff of the
SEC, or an opinion of counsel, in form and substance reasonably satisfactory to
Issuer, to the effect that such legend is not required for purposes of the
Securities Act or other applicable securities laws; (ii) the reference to the
provisions of this Agreement in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference in the opinion
of counsel to the Holder, in form and substance reasonably satisfactory to
Issuer; and (iii) the legend shall be removed in its entirety if the conditions
in the preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
The Holder understands and agrees that the Option is being issued to the
Holder pursuant to the registration and prospectus exceptions in paragraph 35(1)
and clause 72(1)(b) of the Securities Act (Ontario) (the "Ontario Act") and that
the resale of the Option or Common Stock issued upon exercise of the Option is
restricted by the provisions of the Ontario Act and other applicable Canadian
securities legislation.
(j) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (f) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. Issuer shall
pay all expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates under this Section 2 in the name of the
Holder or its assignee, transferee or designee.
3. Covenants of Issuer. In addition to its other agreements and covenants
herein, Issuer agrees:
(a) that it shall at all times maintain, free from any subscriptive or
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights of third parties to purchase
Common Stock from Issuer or to cause Issuer to issue shares of Common Stock;
(b) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
Issuer; and
(c) promptly to take all action (i) as may from time to time be required
(including complying with all applicable notification, filing reporting and
waiting period requirements under HSR or otherwise, and cooperating fully with
the Holder in preparing any applications or notices and providing such
information to any regulatory authority as it may require) in order to permit
the Holder to exercise the Option and Issuer duly and effectively to issue
shares of Common Stock pursuant hereto, and (ii) as may from time to time be
required to protect the rights of the Holder against dilution
4. Exchange; Replacement. This Agreement (and the Option granted hereby)
are exchangeable, without expense, at the option of the Holder, upon
presentation and surrender of this Agreement at the principal office of Issuer,
for other Agreements providing for Options of different denominations entitling
the holder thereof to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of shares
of Common Stock purchasable hereunder. The terms "Agreement" and "Option" as
used herein include any Agreements and related Options for which this Agreement
(and the Option granted hereby) may be exchanged. Upon receipt by Issuer of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Agreement, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Agreement, if mutilated, Issuer will execute and deliver a new Agreement of
like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed or mutilated shall at any time
be enforceable by any person other than the holder of the new Agreement.
5. Adjustments. In addition to the adjustment in the number of shares of
Common Stock that are purchasable upon exercise of the Option pursuant to
Section 1 hereof, the number of shares of Common Stock purchasable upon the
exercise of the Option and the Option Price shall be subject to adjustment from
time to time as provided in this Section 5.
(a) In the event of any change in, or distributions in respect of, the
Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of shares
or the like, the type and number of shares of Common Stock purchasable upon
exercise hereof shall be appropriately adjusted and proper provision shall be
made so that, in the event that any additional shares of Common Stock are to be
issued or otherwise become outstanding as a result of any such change (other
than pursuant to an exercise of the Option), the number of shares of Common
Stock that remain subject to the Option shall be increased so that, after such
issuance and together with shares of Common Stock previously issued pursuant to
the exercise of the Option (as adjusted on account of any of the foregoing
changes in the Common Stock), it equals 19.9% of the number of shares of Common
Stock then issued and outstanding.
(b) Whenever the number of shares of Common Stock purchasable upon exercise
hereof is adjusted as provided in this Section 5, the Option Price shall be
adjusted by multiplying the Option Price by a fraction, the numerator of which
shall be equal to the number of shares of Common Stock purchasable prior to the
adjustment and the denominator of which shall be equal to the number of shares
of Common Stock purchasable after the adjustment.
6. Registration. (a) Upon the occurrence of any Subsequent Triggering Event
that occurs prior to an Exercise Termination Event, Issuer shall, subject to
Section 6(d) hereof, at the request of Grantee delivered within twelve (12)
months (or such later period as provided in Section 10 hereof) of such
Subsequent Triggering Event (whether on its own behalf or on behalf of any
subsequent holder of this Option (or part thereof) or any of the shares of
Common Stock issued pursuant hereto), promptly prepare, file and keep current a
shelf registration statement under the Securities Act covering this Option and
any shares issued and issuable pursuant to this Option and shall use its
reasonable best efforts to cause such registration statement to become effective
and remain current in order to permit the sale or other disposition of this
Option and any shares of Common Stock issued upon total or partial exercise of
this Option ("Option Shares") in accordance with any plan of disposition
requested by Grantee. Issuer will use its reasonable best efforts to cause such
registration statement promptly to become effective and then to remain effective
for a period not in excess of 180 days from the day such registration statement
first becomes effective or such shorter time as may be reasonably necessary, in
the judgment of the Grantee or the Holder, to effect such sales or other
dispositions. Grantee shall have the right to demand two such registrations. The
Issuer shall bear the costs of such registrations (including, but not limited
to, Issuer's attorneys' fees, printing costs and filing fees, except for
underwriting discounts or commissions, brokers' fees and the fees and
disbursements of Grantee's counsel related thereto). The foregoing
notwithstanding, if, at the time of any request by Grantee for registration of
the Option or Option Shares as provided above, Issuer is in registration with
respect to an underwritten public offering by Issuer of shares of Common Stock,
and if in the good faith judgment of the managing underwriter or managing
underwriters, or, if none, the sole underwriter or underwriters, of such
offering the inclusion of the Option or Option Shares would interfere with the
successful marketing of the shares of Common Stock offered by Issuer, the number
of Option Shares otherwise to be covered in the registration statement
contemplated hereby may be reduced to the extent necessary to eliminate such
condition; provided, however, that if such reduction occurs (including a
reduction to zero), then Issuer shall file a registration statement for the
balance as promptly as practicable thereafter as to which no reduction pursuant
to this Section 6 shall be permitted or occur and the Holder shall be deemed not
to have made an additional registration demand and the twelve (12) month period
referred to in the first sentence of this section shall be increased to
twenty-four (24) months. Each such Holder shall provide all information
reasonably requested by Issuer for inclusion in any registration statement to be
filed hereunder. If requested by any such Holder in connection with such
registration, Issuer shall become a party to any underwriting agreement relating
to the sale of such shares, but only to the extent of obligating itself in
respect of representations, warranties, indemnities and other agreements
customarily included in such underwriting agreements for Issuer. Upon receiving
any request under this Section 6 from any Holder, Issuer agrees to send a copy
thereof to any other person known to Issuer to be entitled to registration
rights under this Section 6, in each case by promptly mailing the same, postage
prepaid, to the address of record of the persons entitled to receive such
copies. Notwithstanding anything to the contrary contained herein, in no event
shall the number of registrations that Issuer is obligated to effect be
increased by reason of the fact that there shall be more than one Holder as a
result of any assignment or division of this Agreement.
(b) In the event that Grantee so requests, the closing of the sale or other
disposition of the Common Stock or other securities pursuant to a registration
statement filed pursuant to Section 6(a) hereof shall occur substantially
simultaneously with the exercise of the Option.
(c) If the Common Stock or the class of any other securities to be acquired
upon exercise of the Option are then listed on the Nasdaq National Market of The
Nasdaq Stock Market, Inc. ("Nasdaq") or any national securities exchange,
Issuer, upon the request of the Holder, shall promptly file an application to
list the Common Stock or other securities to be acquired upon exercise of the
Option on Nasdaq or such exchange and will use its reasonable best efforts to
obtain approval of such listing as soon as practicable.
(d) Issuer may delay any registration of the Option or Option Shares
required pursuant to Section 6(a) hereof for a period not in excess of 90 days
if, in the reasonable good faith judgment of Issuer, such registration would
materially and adversely affect a proposed merger, consolidation or similar
transaction (including through the premature disclosure thereof) or offering or
contemplated offering of other securities by Issuer.
7. Repurchase of Option and/or Option Shares. (a) At any time commencing
upon the occurrence of a Repurchase Event (as defined in Section 7(d) hereof)
and ending twelve (12) months thereafter, (i) at the request of the Holder,
delivered in writing prior to an Exercise Termination Event (or such later
period as provided in Section 10), Issuer (or any successor thereto) shall
repurchase the Option from the Holder at a price (the "Option Repurchase Price")
equal to the amount by which (A) the market/offer price (as defined below)
exceeds (B) the Option Price, multiplied by the number of shares for which this
Option may then be exercised, and (ii) at the request of the owner of Option
Shares from time to time (the "Owner"), delivered in writing prior to an
Exercise Termination Event (or such later period as provided in Section 10),
Issuer (or any successor thereto) shall repurchase such number of the Option
Shares from the Owner as the Owner shall designate at a price (the "Option Share
Repurchase Price") equal to the market/offer price multiplied by the number of
Option Shares so designated. The term "market/offer price" shall mean the
highest of (i) the price per share of Common Stock at which a tender or exchange
offer therefor has been made and has been consummated or remains outstanding,
(ii) the price per share of Common Stock to be paid by any third party pursuant
to an agreement with Issuer, (iii) the highest average closing price for shares
of Common Stock for any 20 trading day period within the three-month period
immediately preceding the date the Holder gives notice of the required
repurchase of this Option or the Owner gives notice of the required repurchase
of Option Shares, as the case may be, or (iv) in the event of a sale of all or a
majority of the consolidated assets of Issuer, the sum of the net price paid in
such sale for such assets and the current market value of the remaining net
assets of Issuer as determined by a nationally recognized investment banking
firm selected by the Holder or the Owner, as the case may be, and reasonably
acceptable to Issuer, divided by the number of shares of Common Stock
outstanding at the time of such sale, which determination, absent manifest
error, shall be conclusive for all purposes of this Agreement. In determining
the market/offer price, the value of consideration other than cash shall be
determined by a nationally recognized investment banking firm selected by the
Holder or Owner, as the case may be, and reasonably acceptable to Issuer, which
determination, absent manifest error, shall be conclusive for all purposes of
this Agreement.
(b) The Holder and the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and any Option Shares pursuant to this
Section 7 by surrendering for such purpose to Issuer, at its principal office, a
copy of this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder or the Owner,
as the case may be, elects to require Issuer to repurchase this Option and/or
the Option Shares in accordance with the provisions of this Section 7. Prior to
the later of (x) the date that is five business days after the surrender of the
Option and/or certificates representing Option Shares and the receipt of such
notice or notices relating thereto and (y) the day on which a Repurchase Event
occurs, Issuer shall deliver or cause to be delivered to the Holder the Option
Repurchase Price and/or to the Owner the Option Share Repurchase Price or the
portion thereof that Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full, Issuer
shall promptly so notify the Holder and/or the Owner and thereafter deliver or
cause to be delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after delivery of a
notice of repurchase pursuant to paragraph (b) of this Section 7 is prohibited
under applicable law or regulation from delivering to the Holder and/or the
Owner, as appropriate, the Option Repurchase Price and the Option Share
Repurchase Price, respectively, in full (and Issuer hereby undertakes to use its
reasonable best efforts to obtain all required regulatory and legal approvals
and to file any required notices as promptly as practicable in order to
accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option and/or the Option Shares whether in whole or to the
extent of the prohibition, whereupon, in the latter case, Issuer shall promptly
(i) deliver to the Holder and/or the Owner, as appropriate, that portion of the
Option Repurchase Price and/or the Option Share Repurchase Price that Issuer is
not prohibited from delivering; and (ii) deliver, as appropriate, either (A) to
the Holder, a new Agreement evidencing the right of the Holder to purchase that
number of shares of Common Stock obtained by multiplying the number of shares of
Common Stock for which the surrendered Agreement was exercisable at the time of
delivery of the notice of repurchase by a fraction, the numerator of which is
the Option Repurchase Price less the portion thereof theretofore delivered to
the Holder and the denominator of which is the Option Repurchase Price, and/or
(B) to the Owner, a certificate for the Option Shares it is then so prohibited
from repurchasing. If an Exercise Termination Event shall have occurred less
than 30 days prior to the date of the notice by Issuer described in the first
sentence of this subsection (c), or shall be scheduled to occur at any time
before the expiration of a period ending on the thirtieth day after such date,
the Holder shall nonetheless have the right to exercise the Option until the
expiration of such 30-day period after the date of the Exercise Termination
Event or the notice date, respectively.
(d) For purposes of this Section 7, a Repurchase Event shall be deemed to
have occurred (i) upon the consummation of any merger, consolidation or similar
transaction involving Issuer or any purchase, lease or other acquisition of all
or a majority of the assets of Issuer on a consolidated basis, other than any
such transaction which would not constitute an Acquisition Transaction pursuant
to the proviso to Section 2(b)(i) hereof or (ii) upon the acquisition by any
person of beneficial ownership of 50% or more of the then outstanding shares of
Common Stock; provided that no such event shall constitute a Repurchase Event
unless a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event. The parties hereto agree that Issuer's obligations to
repurchase the Option or Option Shares under this Section 7 shall not terminate
upon the occurrence of an Exercise Termination Event unless no Subsequent
Triggering Event shall have occurred prior to the occurrence of an Exercise
Termination Event.
8. Substitute Option. (a) In the event that prior to an Exercise
Termination Event, Issuer shall enter into an agreement (i) to consolidate with
or merge into any person, other than Grantee or any of its Subsidiaries
(collectively, "Excluded Persons") and Issuer shall not be the continuing or
surviving corporation of such consolidation or merger, (ii) to permit any
person, other than an Excluded Person, to merge into Issuer and Issuer shall be
the continuing or surviving or acquiring corporation, but, in connection with
such merger, the then outstanding shares of Common Stock shall be changed into
or exchanged for stock or other securities of any other person or cash or any
other property or the then outstanding shares of Common Stock shall after such
merger represent less than 50% of the outstanding voting shares and voting share
equivalents of the merged or acquiring company, or (iii) to sell or otherwise
transfer all or substantially all of its assets to any person, other than an
Excluded Person, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Holder, of either (x) the Acquiring Corporation
(as hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or surviving
person of a consolidation or merger with Issuer (if other than Issuer), (ii)
Issuer in a merger in which Issuer is the continuing or surviving or acquiring
person, and (iii) the transferee of all or substantially all of Issuer's assets.
(ii) "Substitute Shares" shall mean the shares of capital stock (or similar
equity interest) with the greatest voting power in respect of the election of
directors (or other persons similarly responsible for direction of the business
and affairs) of the issuer of the Substitute Option.
(iii) "Assigned Value" shall mean the market/offer price as defined in
Section 7.
(iv) "Average Price" shall mean the average closing price per Substitute
Share, on the principal trading market on which such shares are traded as
reported by a recognized source, for the 20 trading day period immediately
preceding the consolidation, merger or sale in question, but in no event higher
than the closing price of the Substitute Shares on such market on the day
preceding such consolidation, merger or sale; provided that if Issuer is the
issuer of the Substitute Option, the Average Price shall be computed with
respect to a share of common stock issued by the person merging into Issuer or
by any company which controls or is controlled by such person, as the Holder may
elect.
(c) The Substitute Option shall have the same terms as the Option, provided
that if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option, such terms shall be as similar as possible to the terms of
the Option and (to the extent permitted by applicable law) in no event less
advantageous to the Holder. The issuer of the Substitute Option shall also enter
into an agreement with the then Holder or Holders of the Substitute Option in
substantially the same form as this Agreement (after giving effect for such
purpose to the provisions of Section 9 hereof), which agreement shall be
applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of
Substitute Shares as is equal to the Assigned Value multiplied by the number of
shares of Common Stock for which the Option was exercisable immediately prior to
the event described in the first sentence of Section 8(a) hereof, divided by the
Average Price. The exercise price of the Substitute Option per Substitute Share
shall then be equal to the Option Price multiplied by a fraction, the numerator
of which shall be the number of shares of Common Stock for which the Option was
exercisable immediately prior to the event described in the first sentence of
Section 8(a) hereof and the denominator of which shall be the number of
Substitute Shares for which the Substitute Option is exercisable. (e) In no
event, pursuant to any of the foregoing paragraphs, shall the number of shares
purchasable upon exercise of the Substitute Option exceed 19.9% of the
Substitute Shares then issued and outstanding at the time of exercise (without
giving effect to Substitute Shares issued or issuable under the Substitute
Option). In the event that the Substitute Option would be exercisable for more
than 19.9% of the Substitute Shares then issued and outstanding prior to
exercise but for this clause (e), the issuer of the Substitute Option (the
"Substitute Option Issuer") shall make a cash payment to Holder equal to the
excess of (i) the value of the Substitute Option without giving effect to the
limitation in this clause (e) over (ii) the value of the Substitute Option after
giving effect to the limitation in this clause (e). This difference in value
shall be determined by a nationally recognized investment banking firm selected
by Grantee (or, if Grantee is not then the Holder owning Options with respect to
the largest number of Shares, the largest Holder) and reasonably acceptable to
Issuer, which determination, absent manifest error, shall be conclusive for all
purposes of this Agreement.
(f) In addition to any other restrictions or covenants, Issuer agrees that
it shall not enter or agree to enter into any transaction described in Section
8(a) hereof unless (i) the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder and (ii) the Substitute Option Issuer agrees to comply with this
Section 8 and agrees to take all action necessary to prevent the exercise of any
rights of any holder of Substitute Shares or shares of capital stock of any
successor to the Substitute Option Issuer that any holder of the Substitute
Option (each such person being referred to herein as a "Substitute Option
Holder") or any holder of Substitute Shares (each such person being referred to
herein as a "Substitute Share Owner") purchased upon exercise of the Substitute
Option by a Substitute Option Holder would be prohibited or precluded from
exercising or the exercise of which would adversely affect the rights of any
Substitute Option Holder under the agreement for such Substitute Option or the
transactions contemplated by the Merger Agreement.
9. Repurchase of Substitute Option. (a) At the written request of a
Substitute Option Holder, the Substitute Option Issuer shall repurchase the
Substitute Option from the Substitute Option Holder at a price (the "Substitute
Option Repurchase Price") equal to the amount by which (i) the Highest Closing
Price (as hereinafter defined) exceeds (ii) the exercise price of the Substitute
Option multiplied by the number of Substitute Shares for which the Substitute
Option may then be exercised, and at the request of the Substitute Share Owner,
the Substitute Option Issuer shall repurchase the Substitute Shares at a price
(the "Substitute Share Repurchase Price") equal to the Highest Closing Price
multiplied by the number of Substitute Shares so designated. The term "Highest
Closing Price" shall mean the highest average closing price for Substitute
Shares for any 20 trading day period within the three-month period immediately
preceding the date the Substitute Option Holder gives notice of the required
repurchase of the Substitute Option or the Substitute Share Owner gives notice
of the required repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the
case may be, may exercise its respective rights to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
at its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Agreement) and/or certificates for
Substitute Shares accompanied by a written notice or notices stating that the
Substitute Option Holder or the Substitute Share Owner, as the case may be,
elects to require the Substitute Option Issuer to repurchase the Substitute
Option and/or the Substitute Shares in accordance with the provisions of this
Section 9. As promptly as practicable and in any event within five business days
after the surrender of the Substitute Option and/or certificates representing
Substitute Shares and the receipt of such notice or notices relating thereto,
the Substitute Option Issuer shall deliver or cause to be delivered to the
Substitute Option Holder the Substitute Option Repurchase Price and/or to the
Substitute Share Owner the Substitute Share Repurchase Price therefor or the
portion thereof which the Substitute Option Issuer is not then prohibited under
applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation from repurchasing the Substitute Option and/or the
Substitute Shares in part or in full, the Substitute Option Issuer shall
promptly so notify the Substitute Option Holder and/or the Substitute Share
Owner and thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
portion of the Substitute Option Repurchase Price and/or the Substitute Share
Repurchase Price, respectively, which it is no longer prohibited from
delivering, within five (5) business days after the date on which the Substitute
Option Issuer is no longer so prohibited; provided, however, that if the
Substitute Option Issuer is at any time after delivery of a notice of repurchase
pursuant to subsection (b) of this Section 9 is prohibited under applicable law
or regulation from delivering to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the Substitute Option Repurchase Price
and the Substitute Share Repurchase Price, respectively, in full (and the
Substitute Option Issuer shall use its best efforts to receive all required
regulatory and legal approvals as promptly as practicable in order to accomplish
such repurchase), the Substitute Option Holder and/or Substitute Share Owner may
revoke its notice of repurchase of the Substitute Option or the Substitute
Shares either in whole or to the extent of the prohibition, whereupon, in the
latter case, the Substitute Option Issuer shall promptly (i) deliver to the
Substitute Option Holder or Substitute Share Owner, as appropriate, that portion
of the Substitute Option Repurchase Price or the Substitute Share Repurchase
Price that the Substitute Option Issuer is not prohibited from delivering; and
(ii) deliver, as appropriate, either (A) to the Substitute Option Holder, a new
Substitute Option evidencing the right of the Substitute Option Holder to
purchase that number of Substitute Shares obtained by multiplying the number of
Substitute Shares for which the surrendered Substitute Option was exercisable at
the time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, and/or (B) to the Substitute
Share Owner, a certificate for the Substitute Option Shares it is then so
prohibited from repurchasing. If an Exercise Termination Event shall have
occurred less than 30 days prior to the date of the notice by the Substitute
Option Issuer described in the first sentence of this subsection (c), or shall
be scheduled to occur at any time before the expiration of a period ending on
the thirtieth day after such date, the Substitute Option Holder shall
nevertheless have the right to exercise the Substitute Option until the
expiration of such 30-day period after the date of the Exercise Termination
Event or the notice date, respectively.
10. Extension. The period for exercise of certain rights under Sections 2,
6, 7, 9 and 12 hereof shall be extended: (i) to the extent necessary to obtain
all governmental and regulatory approvals for the exercise of such rights (for
so long as the Holder, Substitute Option Holder or Substitute Share Owner, as
the case may be, is using its reasonable best efforts to obtain such regulatory
approvals), and for the expiration of all statutory waiting periods; (ii) during
any period for which an injunction or similar legal prohibition on exercise
shall be in effect; (iii) to the extent necessary to avoid liability under
Section 16(b) of the Exchange Act by reason of such exercise; and (iv) by the
number of days by which Issuer shall have delayed any registration pursuant to
Section 6(d) hereof.
11. Representations and Warranties. (a) Issuer hereby represents and
warrants to Grantee as follows:
(i) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer and constitutes a valid and legally binding obligation
of Issuer enforceable in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general equity
principles, whether such principles are considered at law or in equity).
(ii) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant to the Option, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrances and security interests and not subject to any preemptive rights.
(iii) The execution, delivery and performance of this Agreement does not or
will not, and the consummation by Issuer of any of the transactions contemplated
hereby will not, constitute or result in (i) a breach or violation of or a
default under, its articles or certificate of incorporation or by-laws, or the
comparable governing instruments of any of its subsidiaries, or (ii) a breach or
violation of or a default under, any agreement, lease, contract, note, mortgage,
indenture, arrangement or other obligation of it or any of its subsidiaries
(with or without the giving of notice, the lapse of time or both) or under any
law, rule, ordinance or regulation or judgment, decree, order, award or
governmental or non-governmental permit or license to which it or any of its
subsidiaries is subject, except where such breach, violation or default would
not in the aggregate have a Material Adverse Effect (as defined in the Merger
Agreement) and would not materially impair Issuer's ability to consummate the
transactions contemplated by this Agreement.
(b) Grantee hereby represents and warrants to Issuer that Grantee has full
corporate power and authority to enter into this Agreement and, subject to
obtaining the approvals referred to in this Agreement, to consummate the
transactions contemplated by this Agreement; the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Grantee; and
this Agreement has been duly executed and delivered by Grantee and constitutes a
valid and legally binding obligation of Grantee enforceable in accordance with
its terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws of general applicability relating to or affecting creditors' rights
or by general equity principles, whether such principles are considered at law
or in equity).
12. Assignment. Neither of the parties hereto may assign any of its rights
or obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event, Grantee, subject to the express provisions hereof, may assign
in whole or in part its rights and obligations hereunder within twelve (12)
months following such Subsequent Triggering Event (or such later period as
provided in Section 10 hereof) provided that the assignee executes a supplement
to this Agreement agreeing to be bound by this Agreement's terms.
13. Filings; Other Actions. Each of Grantee and Issuer will use its
reasonable best efforts to make all filings with, and to obtain consents of, all
third parties and regulatory and governmental authorities necessary to the
consummation of the transactions contemplated by this Agreement, including,
without limitation, notices and filings under HSR.
14. Best Efforts. Each of Grantee and Issuer will use its reasonable best
efforts to make all filings with, and to obtain consents of, all third parties
and governmental authorities necessary for the consummation of the transactions
contemplated by this Agreement, including without limitation making application
to list the shares of Common Stock issuable hereunder on Nasdaq upon official
notice of issuance.
15. Specific Performance. The parties hereto acknowledge that damages would
be an inadequate remedy for a breach of this Agreement by either party hereto
and that the obligations of the parties hereto shall be enforceable by either
party hereto through injunctive or other equitable relief.
16. Severability. If any term, provision, covenant or restriction contained
in this Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer or Substitute Option
Issuer, as applicable, is not permitted to repurchase pursuant to Section 7 or 9
hereof, as applicable, the full number of shares of Common Stock provided in
Section 1(a) hereof (as adjusted pursuant to Section 1(b) or Section 5 hereof),
it is the express intention of Issuer to allow the Holder to acquire or to
require Issuer to repurchase such lesser number of shares as may be permissible,
without any amendment or modification hereof.
17. Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by fax, telecopy, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement or such other address as shall be provided in
writing.
18. Governing Law. This Agreement shall be governed by, and interpreted in
accordance with, the laws of the State of New York, without regard to the
conflicts of laws principles thereof.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
20. Expenses. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
21. Entire Agreement. Except as otherwise expressly provided herein or in
the Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assignees. Nothing in this Agreement, expressed or implied, is intended to
confer upon any party, other than the parties hereto, and their respective
successors except as assignees, any rights, remedies, obligations or liabilities
under or by reason of this Agreement, except as expressly provided herein.
22. Limitation on Profit. (a) Notwithstanding any other provision of this
Agreement, in no event shall the Grantee's Total Profit (as hereinafter defined)
exceed $16.5 million and, if it otherwise would exceed this amount, the Grantee,
at its sole election, shall either (i) reduce the number of shares of Common
Stock subject to this Option (or the number of shares of common stock of the
Substitute Option Issuer subject to this Substitute Option, as the case may be),
(ii) deliver to the Issuer (or Substitute Option Issuer) for cancellation Option
Shares (or Substitute Shares) previously purchased by Grantee, (iii) pay cash to
the Issuer (or Substitute Option Issuer), or (iv) any combination thereof, so
that Grantee's realized Total Profit shall not exceed $16.5 million after taking
into account the foregoing actions; provided, that the amounts referred to in
this Section 22(a) shall be reduced by any amount received by Grantee in respect
of the Termination Fee pursuant to Section 8.02(b)(ii) of the Merger Agreement.
(b) Notwithstanding any other provision of this Agreement, this Option (or
Substitute Option) may not be exercised for a number of shares as would, as of
the date of exercise, result in a Notional Total Profit (as defined below) which
would exceed $16.5 million; provided, that nothing in this sentence shall
restrict any exercise of the Option (or Substitute Option) permitted hereby on
any subsequent date; and provided further that the amount referred to in this
Section 22(b) shall be reduced by any amount received by Grantee in respect of
the Termination Fee pursuant to Section 8.02(b)(ii) of the Merger Agreement.
(c) As used in this Agreement, the term "Total Profit" shall mean the
aggregate amount (before taxes) of the following: (i) (x) the amount received by
Grantee and any other Holder or Substitute Option Holder pursuant to Issuer's
repurchase of the Option (or any portion thereof) or any Option Shares in
accordance with Section 7, or pursuant to Substitute Option Issuer's repurchase
of the Substitute Option (or any portion thereof) or any Substitute Shares in
accordance with Section 9, less, in the case of any repurchase of Option Shares
or Substitute Shares, (y) the Grantee's and any other Holder's or Substitute
Option Holder's purchase price for such Option Shares or Substitute Shares, as
the case may be, (ii) (x) the net cash amounts (and the fair market value of any
other consideration) received by Grantee and any other Holder or Substitute
Option Holder pursuant to the sale of Option Shares or Substitute Shares (or any
other securities into which such Option Shares or Substitute Shares are
converted or exchanged) to any unaffiliated party, less (y) the Grantee's (or
any other Holder's or Substitute Option Holder's) purchase price of the Option
Shares or Substitute Shares, and (iii) the net cash amounts (and the fair market
value of any other consideration) received by Grantee (or any other Holder or
Substitute Option Holder) on the transfer of the Option or Substitute Option (or
any portion thereof) to any unaffiliated party. In the case of clauses (ii) (x)
and (iii) above, the Grantee and any Holder or Substitute Option Holder agree to
furnish as promptly as reasonably practicable after any disposition of all or a
portion of the Option or Option Shares or of the Substitute Option or Substitute
Shares a complete and correct statement, certified by a responsible executive
officer or partner of the Grantee or Holder or Substitute Option Holder, of the
net cash amounts (and the fair market value of any other consideration) received
in connection with any sale or transfer of the Option or Option Shares or of the
Substitute Option or Substitute Shares.
(d) As used in this Agreement, the term "Notional Total Profit" with
respect to any number of shares as to which Grantee and any other Holder or
Substitute Option Holder may propose to exercise this Option or Substitute
Option shall be the Total Profit determined as of the date of this proposal
assuming that this Option or Substitute Option were exercised on such date for
this number of shares and assuming that such shares, together with all other
Option Shares or Substitute Shares held by Grantee and any other Holders or
Substitute Option Holders and their respective affiliates as of such date, were
sold for cash at the closing market price for the Common Stock (or the common
stock of the Substitute Option Issuer, as the case may be) as of the close of
business on the preceding trading day (less customary brokerage commissions).
23. Captions; Capitalized Terms. The section and paragraph captions herein
are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
NORTEL NETWORKS CORPORATION
By: /s/
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Name:
Title:
By: /s/
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Name:
Title:
PERIPHONICS CORPORATION
By: /s/
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Name:
Title:
