Exhibit 10.35
SUBSCRIPTION AND RECAPITALIZATION AGREEMENT
This SUBSCRIPTION AND RECAPITALIZATION AGREEMENT (this "AGREEMENT") is
entered into as of June 22, 2000 among Genuity Inc., a Delaware corporation
("GENUITY"), GTE Corporation, a New York corporation ("GTE"), and Contel Federal
Systems, Inc., a Delaware corporation and wholly owned subsidiary of GTE
("CFS").
R E C I T A L S :
WHEREAS, GTE and CFS collectively own all of the outstanding shares of
common stock, par value $1.00 per share (the "OUTSTANDING SHARES"), of Genuity;
WHEREAS, Genuity has filed with the Securities and Exchange Commission
a Registration Statement on Form S-1 (as amended and at the time it becomes
effective under the Securities Act of 1933, the "REGISTRATION STATEMENT")
pursuant to which it intends to offer shares of Class A Common Stock, par value
$0.01 per share (the "CLASS A COMMON STOCK"), to the public (the "INITIAL PUBLIC
OFFERING");
WHEREAS, prior to the consummation of the Initial Public Offering, GTE
and CFS desire to reconstitute the capital structure of Genuity by (i) causing
Genuity to amend and restate its certificate of incorporation (as so amended and
restated, the "AMENDED AND RESTATED CERTIFICATE OF INCORPORATION") to authorize
three classes of common stock, (1) Class A Common Stock, (2) Class B Common
Stock, par value $0.01 per share (the "CLASS B COMMON STOCK"), and (3) Class C
Common Stock, par value $0.01 per share (the "CLASS C COMMON STOCK", and
collectively with the Class A Common Stock and the Class B Common Stock, the
"COMMON STOCK") and (ii) exchanging all of the Outstanding Shares for an
aggregate of 18,256,000 shares of Class B Common Stock (the "INITIALLY
OUTSTANDING B SHARES");
WHEREAS, the parties intend the exchange of the Outstanding Shares for
the Initially Outstanding B Shares pursuant to this Agreement to constitute a
tax-free reorganization within the meaning of Section 368(a)(1)(E) of the
Internal Revenue Code of 1986, as amended (the "CODE"); and
WHEREAS, the parties desire to make the other agreements set forth
herein.
NOW THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants, agreements and conditions herein
contained, and intending to be legally bound, the parties hereto agree as
follows:
ARTICLE I
STOCK ISSUANCE
SECTION 1.1 RECAPITALIZATION. Simultaneously with the effectiveness of the
Amended and Restated Certificate of Incorporation, GTE and CFS shall exchange
the Outstanding Shares for the Initially Outstanding B Shares.
SECTION 1.2 CLOSING. The closing of the issuance of the Initially Outstanding
Shares shall occur upon the effectiveness of the Amended and Restated
Certificate of Incorporation (the "CLOSING DATE").
SECTION 1.3 REPRESENTATIONS AND WARRANTIES OF GENUITY. Genuity represents and
warrants to GTE and CFS that each of the representations and warranties made by
Genuity in Article II hereof will be true and correct on the Closing Date.
SECTION 1.4 REPRESENTATIONS AND WARRANTIES OF GTE AND CFS. GTE represents and
warrants to Genuity that each of the representations and warranties made by GTE
in Article II hereof will be true and correct on the Closing Date. CFS
represents and warrants to Genuity that each of the representations and
warranties made by CFS in Article II hereof will be true and correct on the
Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1 REPRESENTATIONS AND WARRANTIES OF GENUITY. Genuity represents,
warrants and agrees as follows:
(a) Organization and Related Matters. Genuity is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its organization. Genuity has the necessary corporate power and authority
to execute, deliver and perform this Agreement.
(b) Authorization; No Conflict. The execution, delivery and performance of
this Agreement by Genuity has been duly and validly authorized by all
necessary corporate action on the part of Genuity. This Agreement
constitutes the legally valid and binding obligation of Genuity,
enforceable against Genuity in accordance with its terms except as may be
limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws and equitable principles relating to or limiting creditors'
rights generally. The execution, delivery and performance of this
Agreement by Genuity will not violate or conflict with any judgment,
decree, order, statute, rule or regulation applicable to Genuity or result
in any violation of the certificate of incorporation or bylaws of Genuity.
(c) Validity. On the Closing Date, the Initially Outstanding B Shares will
have been duly authorized by all necessary corporate action on the part of
Genuity and will be validly issued, fully paid and non-assessable.
(d) Securities Act Matters. The offer and sale of the Initially Outstanding B
Shares hereunder is exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended, and the rules and
regulations thereunder (the "SECURITIES ACT"). Each Initially Outstanding
B Share shall have a legend setting forth the restrictions on
transferability and sale set forth in Section 6.3 hereof for at least so
long as such restrictions apply. The representations of Genuity in this
Section 2.1(d) are based upon and subject to the accuracy of GTE's
representations contained in Section 2.2(c) hereof and CFS's
representations contained in Section 2.3(c) hereof.
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SECTION 2.2 REPRESENTATIONS AND WARRANTIES OF GTE. GTE represents, warrants
and agrees as follows:
(a) Organization and Related Matters. GTE is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its organization. GTE has the necessary corporate power and authority to
execute, deliver and perform this Agreement.
(b) Authorization; No Conflict. The execution, delivery and performance of
this Agreement by GTE has been duly and validly authorized by all necessary
corporate action on the part of GTE. This Agreement constitutes the
legally valid and binding obligation of GTE, enforceable against GTE in
accordance with its terms except as may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws and equitable
principles relating to or limiting creditors' rights generally. The
execution, delivery and performance of this Agreement by GTE will not
violate or conflict with any judgment, decree, order, statute, rule or
regulation applicable to GTE or result in any violation of the certificate
of incorporation or bylaws of GTE.
(c) Investment Representation. GTE acknowledges that the Initially Outstanding
B Shares will not be registered under the Securities Act. GTE is an
"accredited investor" as defined under the Securities Act and possesses
such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the Initially Outstanding B
Shares. GTE is acquiring the Initially Outstanding B Shares from Genuity
for its own account, for investment purposes only and not with a view to
the distribution thereof. GTE agrees that the Initially Outstanding B
Shares will not be sold, transferred, offered for sale, pledged,
hypothecated or otherwise disposed of without registration under the
Securities Act, except pursuant to a valid exemption from registration
under the Securities Act.
(d) Nature or Scope of Business. GTE acknowledges and agrees that, for the
purposes of paragraph D.4(a)(v) of the Fourth Article of the Amended and
Restated Certificate of Incorporation, the phrase "nature or scope of the
business of the Corporation" means any business or business plan described
in the Registration Statement.
SECTION 2.3 REPRESENTATIONS AND WARRANTIES OF CFS. CFS represents, warrants
and agrees as follows:
(a) Organization and Related Matters. CFS is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its organization. CFS has the necessary corporate power and authority to
execute, deliver and perform this Agreement.
(b) Authorization; No Conflict. The execution, delivery and performance of
this Agreement by CFS has been duly and validly authorized by all necessary
corporate action on the part of CFS. This Agreement constitutes the
legally valid and binding obligation of CFS, enforceable against CFS in
accordance with its terms except as may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws and equitable
principles relating to or limiting creditors' rights generally. The
execution, delivery and performance of this Agreement by CFS will not
violate or conflict with any judgment, decree, order, statute, rule or
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regulation applicable to CFS or result in any violation of the certificate
of incorporation or bylaws of CFS.
(c) Investment Representation. CFS acknowledges that the Initially Outstanding
B Shares will not be registered under the Securities Act. CFS is an
"accredited investor" as defined under the Securities Act and possesses
such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the Initially Outstanding B
Shares. CFS is acquiring the Initially Outstanding B Shares from Genuity
for its own account, for investment purposes only and not with a view to
the distribution thereof. CFS agrees that the Initially Outstanding B
Shares will not be sold, transferred, offered for sale, pledged,
hypothecated or otherwise disposed of without registration under the
Securities Act, except pursuant to a valid exemption from registration
under the Securities Act.
(d) Nature or Scope of Business. CFS acknowledges and agrees that, for the
purposes of paragraph D.4(a)(v) of the Fourth Article of the Amended and
Restated Certificate of Incorporation, the phrase "nature or scope of the
business of the Corporation" means any business or business plan described
in the Registration Statement.
ARTICLE III
CONSENT RIGHTS
SECTION 3.1 CLASS B COMMON STOCK CONSENT RIGHTS.
(a) In addition to any other rights provided by law and subject to Section 3.2
below, from and after the effectiveness of the Amended and Restated
Certificate of Incorporation under the DGCL, the consent of GTE or its
assignee pursuant to Section 3.3 below shall be required before Genuity:
(i) Makes any acquisition (or series of related acquisitions) for
consideration that exceeds 20% of Genuity's market capitalization
(determined by multiplying the closing price of the Class A Common Stock on
the date of determination by the number of then outstanding shares of
Common Stock on an As Converted Basis (as defined in Section 6.15 hereof))
at the time of such acquisition or, if earlier, of Genuity's entering into
an acquisition agreement relating thereto (or, in the case of a series of
related acquisitions, at either such time with respect to the first
acquisition in such series), it being understood that if consent is
obtained by Genuity upon entering into an acquisition agreement no further
consent shall be required for the consummation of such acquisition
substantially on the terms of the acquisition agreement as in effect on the
date consented to;
(ii) Makes an acquisition for consideration that exceeds $100 million or
enters into a joint venture in which Genuity's investment exceeds $100
million, in each case that is not closely related to Genuity's business;
(iii) Makes any disposition (or series of related dispositions) for
consideration that exceeds 20% of Genuity's market capitalization
(determined by multiplying the closing price of the Class A Common Stock on
the date of determination by the number of then outstanding shares of
Common Stock on an As Converted Basis) at the time of such disposition or,
if earlier, of Genuity's entering into a disposition agreement relating
thereto (or,
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in the case of a series of related dispositions, at either such time with
respect to the first disposition in such series), it being understood that
if consent is obtained upon entering into a disposition agreement no
further consent shall be required for the consummation of such disposition
substantially on the terms of the disposition agreement as in effect on the
date consented to;
(iv) Incurs indebtedness (including capital leases, guarantees of
indebtedness of others, letters of credit and indebtedness acquired in
connection with any acquisition, but excluding trade accounts payable) (1)
in any calendar year that exceeds $3.85 billion, net of any indebtedness
that is repaid during the same calendar year or (2) at any time, if
immediately after the incurrence thereof, Genuity's indebtedness would
exceed $11 billion;
(v) Enters into any agreement or arrangement that (1) binds or purports to
bind, or following conversion, would bind or purport to bind, GTE or any of
its Affiliates (as defined in Section 6.15 hereof) or (2) contains
provisions that trigger a default or require a material payment when GTE
exercises its rights as set forth in the Amended and Restated Certificate
of Incorporation to convert the Class B Common Stock;
(vi) Declares extraordinary dividends or makes other extraordinary
distributions to the holders of shares of its capital stock;
(vii) Issues any equity securities or securities convertible or exercisable
into equity securities ("SHARES") except for: (1) Shares issued in
connection with acquisitions, provided that the aggregate number of Shares
issued in connection with any such acquisitions does not exceed 30% of the
shares of Common Stock outstanding upon the consummation of the Initial
Public Offering (including shares of Common Stock outstanding immediately
after the exercise of the underwriters over-allotment option, if any); (2)
Shares issued to fund operating needs (including capital expenditures),
provided that the aggregate number of Shares issued to fund such operating
needs does not exceed 5% of the shares of Common Stock outstanding upon the
consummation of the Initial Public Offering (including shares of Common
Stock outstanding immediately after the exercise of the underwriters over-
allotment option, if any); (3) Shares issued or granted to employees of
Genuity; provided that (u) the number of Shares issued or granted to
individuals who were employees of Genuity on April 6, 2000 does not exceed
in the aggregate 5% of the shares of Common Stock outstanding upon the
consummation of the Initial Public Offering (including shares of Common
Stock outstanding immediately after the exercise of the underwriters over-
allotment option, if any); (v) the number of Shares issued or granted to
individuals who first become employees of Genuity within nine months of
April 6, 2000, other than individuals who become employees of Genuity as a
result of their former employer being acquired by Genuity, does not exceed
in the aggregate 1% of the shares of Common Stock outstanding upon the
consummation of the Initial Public Offering (including shares of Common
Stock outstanding immediately after the exercise of the underwriters over-
allotment option, if any); (w) the number of Shares issued or granted to
individuals who become employees of Genuity beginning on or after January
6, 2001, other than individuals who become employees of Genuity as a result
of their former employer being acquired by Genuity, does not exceed in the
aggregate 2.95% of the shares of Common Stock outstanding upon the
consummation of the Initial Public Offering (including shares of Common
Stock outstanding immediately after the
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exercise of the underwriters over-allotment option, if any); (x) the number
of Shares issued or granted to non-employee directors of Genuity does not
exceed in the aggregate 0.05% of the shares of Common Stock outstanding
upon the consummation of the Initial Public Offering (including shares of
Common Stock outstanding immediately after the exercise of the underwriters
over-allotment option, if any); (y) the number of Shares issued to a
trustee or other fiduciary, or granted or reserved for issuance to the
employees of Genuity described in the previous clauses (u), (v), and (w) in
connection with Genuity's 401(k) or any similar plan, does not exceed 0.5%
of the shares of Common Stock outstanding upon the consummation of the
Initial Public Offering (including shares of Common Stock outstanding
immediately after the exercise of the underwriters over-allotment option,
if any); and (z) the number of Shares issued or granted to individuals who
become employees of Genuity as a result of their former employer being
acquired by Genuity, including Shares issued, granted or reserved for
issuance to a trustee or other fiduciary or to Genuity's employees
described in clause (y) in connection with Genuity's 401(k) or any similar
plan, does not exceed 6% multiplied by the total of (i) the number of
shares of Common Stock outstanding upon the consummation of the Initial
Public Offering (including shares of Common Stock outstanding immediately
after the exercise of the underwriters over-allotment option, if any) plus
(ii) the number of Shares issued in connection with the acquisitions
completed by Genuity, minus (iii) the aggregate number of Shares that may
be issued under clauses (u), (v), (w), (x) and (y) above. In the event that
options to purchase shares of Common Stock granted pursuant to Section
3.1(a)(vii)(3) shall expire or terminate, those Shares shall become
available for any of the purposes stated in subsections (1), (2) or (3) of
this Section 3.1(a)(vii). For the purpose of calculating in this Section
3.1(a)(vii) the percentage of the shares of Common Stock outstanding upon
the consummation of the Initial Public Offering, all shares of Class B
Common Stock shall have been deemed to have been converted into shares of
Class A Common Stock pursuant to paragraph D.7(a)(ii) of the Fourth Article
of the Amended and Restated Certificate of Incorporation.
(b) Genuity shall notify GTE in writing at the address set forth in Section
6.5 hereof no less than ten business days prior to entering into (i) an
acquisition agreement or disposition agreement (including a binding letter
of intent) for consideration, including the assumption of indebtedness, in
excess of $100 million or (ii) a joint venture agreement (including a
binding letter of intent) in which Genuity's investment shall exceed $100
million.
SECTION 3.2 CONSENT RIGHTS NOT APPLICABLE. Genuity shall not be required to
obtain the consent of GTE to take the actions set forth in Section 3.1, and
shall not be required to provide the notice called for in Section 3.1(b), if at
any time:
(a) GTE and its Affiliates collectively do not have the right to vote more
than 50% of the then outstanding shares of Class B Common Stock; or
(b) The number of shares of Common Stock Owned (as defined in Section 6.15)
by GTE and its Affiliates collectively would not constitute more than 10%
of the then outstanding shares of Common Stock on an As Converted Basis; or
(c) Any Person (as defined in Section 6.15) and its Affiliates (other than
GTE and its Affiliates) collectively Own more than 50% of the then
outstanding shares of Class B Common Stock.
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SECTION 3.3 ASSIGNABILITY. The consent rights set forth in Section 3.1 may be
assigned by GTE, in whole or in part, to a Person that is not an Affiliate of
GTE that may exercise them so long as such Person directly or indirectly:
(a) Owns and has the right to vote more than 50% of the then outstanding
shares of Class B Common Stock; and
(b) Owns or has the right to acquire more than 50% of the then outstanding
shares of Common Stock on an As Converted Basis.
ARTICLE IV
RIGHT TO PURCHASE ADDITIONAL SHARES
SECTION 4.1 RIGHT TO ACQUIRE ADDITIONAL SHARES. If at any time during the one
year following the conversion by GTE or its Affiliates of any shares of Class B
Common Stock, GTE and its Affiliates Own a number of shares of Class A Common
Stock and Class C Common Stock that together equal or exceed 70% of the total
number of shares of Common Stock outstanding on an As Converted Basis, then GTE
shall have the right during the one year following such conversion to acquire
from Genuity a number of shares of Class A Common Stock (the "ADDITIONAL A
SHARES") such that, immediately after such acquisition, GTE and its Affiliates
shall Own 80% of the total number of shares of Common Stock outstanding
(including the Additional A Shares) on an As Converted Basis.
SECTION 4.2 ACQUISITION PRICE. The acquisition price for each Additional A
Share shall be equal to the average of the closing prices on the Nasdaq National
Market for the Class A Common Stock for the 30 trading days immediately
preceding the date of the Acquisition Notice (as defined below). The aggregate
acquisition price (the "AGGREGATE ACQUISITION PRICE") for the Additional A
Shares may be paid, in the sole discretion of GTE (except as provided in the
last sentence of this Section 4.2), in cash, stock or in other property
reasonably usable in Genuity's business with a fair market value equal to or in
excess of the Aggregate Acquisition Price. The fair market value of any such
property will be established by an appraisal conducted by a nationally
recognized appraiser chosen by Genuity's independent directors. GTE shall not
be permitted to pay the purchase price in property if Genuity's independent
directors determine that (1) Genuity's ownership of such property will violate
the law (including without limitation any federal or state regulations
applicable to Genuity); or (2) the property is not reasonably useful to Genuity
in light of its then existing business plan.
SECTION 4.3 DELIVERY OF ACQUISITION NOTICE; DOCUMENTATION. In the event that
GTE wishes to exercise the right to purchase the Additional A Shares set forth
in Section 4.1 hereof, GTE shall deliver a notice (the "ACQUISITION NOTICE") to
Genuity at the address set forth in Section 6.5 hereof specifying the date that
it or its Affiliates converted any shares of Class B Common Stock and the number
of shares of Class A Common Stock and Class C Common Stock Owned by GTE and its
Affiliates as of the date of the Acquisition Notice. GTE and Genuity shall
enter into a purchase agreement for the sale of the Additional A Shares
containing customary terms and conditions, including customary representations
and warranties with respect to the Additional A Shares. The closing date of the
sale of the Additional A Shares shall occur no later than ten business days
after the date of the Acquisition Notice (or, in the event that GTE
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pays the Aggregate Acquisition Price in property, ten business days after the
receipt by Genuity of the appraisal described in Section 4.2).
SECTION 4.4 NUMBER OF EXERCISES. Notwithstanding anything herein to the
contrary, GTE may exercise the right to purchase Additional A Shares set forth
in Section 4.1 only one time.
ARTICLE V
RIGHT OF FIRST OFFER; PAYMENT TO GENUITY UPON CONVERSION
SECTION 5.1 RIGHT OF FIRST OFFER.
(a) Pursuant to the order of the Federal Communications Commission (the "FCC")
issued on June 16, 2000 in connection with the merger of GTE and Xxxx
Atlantic Corporation (the "FCC ORDER"), GTE and its Affiliates have agreed,
in the circumstances therein described, and subject to the terms and
conditions thereof and to any modification made by the FCC thereto or any
waivers granted by the FCC with respect thereto, to offer shares of Class B
Common Stock to Genuity prior to offering to sell such shares (or any
shares into which they have been converted) to any other Person. In the
event GTE and its Affiliates are required to offer shares of Class B Common
Stock to Genuity under the FCC Order, GTE and its Affiliates shall so offer
such shares, and Genuity may accept such offer and purchase such shares, in
accordance with the procedures, for the price, and upon payment of the
consideration as set forth in this Section 5.1.
(b) In the event GTE and its Affiliates are required to offer shares of Class B
Common Stock to Genuity, they shall notify Genuity in writing at the
address set forth in Section 6.5 hereof (a "FIRST OFFER NOTICE") of the
number of shares of Class B Common Stock being offered and of the offer
price (determined as hereinafter set forth as of a date reasonably
proximate to the date of the First Offer Notice). The First Offer Notice
shall set forth in reasonable detail the calculation of the offer price as
of such reasonably proximate date. Genuity shall have 90 days from the date
that it receives the First Offer Notice to notify GTE and its Affiliates at
the addresses set forth in Section 6.5 of its intention to accept the offer
as to all the shares of Class B Common Stock covered thereby or to reject
the offer (without prejudice to Genuity's right to offer a lower price or
to offer to purchase fewer shares). In the event Genuity does not accept
the offer as to all the shares of Class B Common Stock covered thereby, GTE
and its Affiliates shall thereafter be free to dispose of such shares in
such manner as they choose (subject to compliance with applicable law,
including the FCC Order) without interference or objection from Genuity. In
the event that Genuity elects to so exercise its rights, Genuity shall have
180 days from the date that it received the First Offer Notice to make any
financial or other arrangements and to consummate the purchase of all of
the offered shares of Class B Common Stock pursuant to the First Offer
Notice at the offer price, recalculated as of a date (the "PRICING DATE")
that is five business days prior to the closing date of the purchase and
sale of the shares as hereinafter set forth. Such offer price shall be
payable, at Genuity's option, (i) in cash, (ii) by delivery by Genuity of
an unsubordinated, marketable debt instrument of Genuity (which shall be
guaranteed or co-executed by Genuity's principal operating subsidiaries)
with a fair market value equal to its face amount (which shall be equal to
such offer price) and which shall bear interest at a commercially
reasonable rate, comparable to rates under similar instruments issued
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by companies with debt ratings comparable to Genuity, with a commercially
reasonable term for repayment, or (iii) part in cash and part by delivery
of such a debt instrument. In the event that Genuity fails to consummate
the purchase as set forth in the previous sentence, GTE and its Affiliates
shall thereafter be free to dispose of such shares in such manner as they
choose (subject to compliance with applicable law, including the FCC Order)
without interference or objection from Genuity.
(c) The price payable by Genuity upon consummation of a purchase and sale under
this Section 5.1 shall be the lesser of:
(i) the fair market value of the shares on an As Converted Basis as of the
Pricing Date, as determined by a nationally recognized independent
investment banker selected jointly by Genuity and GTE, based upon the
Average Closing Price of the Class A Common Stock; and
(ii) (1) for any shares of Class B Common Stock in excess of the Ten
Percent Amount, the S&P Amount with respect thereto as of the Pricing Date,
and (2) for any shares of Class B Common Stock constituting a part of the
Ten Percent Amount, the Market Value thereof as of the Pricing Date.
SECTION 5.2 PAYMENT TO GENUITY UPON CONVERSION.
(a) Pursuant to the FCC Order, GTE and its Affiliates have agreed, in the
circumstances therein described, and subject to the terms and conditions
thereof and to any modification made by the FCC thereto or any waivers
granted by the FCC with respect thereto, to forego and pay or otherwise
deliver to Genuity a portion of the appreciation on the Class B Common
Stock that they would otherwise realize upon conversion or certain sales
thereof. In the event GTE and its Affiliates are so required under the FCC
Order to forego a portion of such appreciation, GTE and its Affiliates
shall forego such portion, and Genuity shall distribute the same, in
accordance with this Section 5.2.
(b) In the event that, upon a conversion or sale of their shares of Class B
Common Stock, GTE and its Affiliates are required to forego a portion of
the appreciation in such shares of Class B Common Stock, they shall elect,
in their sole discretion, to either (a) make a cash payment to Genuity
equal to the Cash Payment Amount (as defined below) or (b) adjust the then
outstanding Conversion Ratio (as defined in the Amended and Restated
Certificate of Incorporation) such that they (or, in the case of a sale of
the Class B Common Stock, their transferees) would not receive the Foregone
Shares (as defined below) which they (or such transferees) otherwise would
be entitled to receive upon conversion of the Class B Common Stock under
the Amended and Restated Certificate of Incorporation. In the event that,
in connection with a sale of their shares of Class B Common Stock, GTE and
its Affiliates elected to adjust the conversion ratio as described above,
such adjustment shall be reflected in binding documentation executed by
them, their transferee and Genuity.
(c) Subject to compliance with applicable law, Genuity shall distribute the
Cash Payment Amount or Foregone Shares, as the case may be, to the holders
of the Class A Common Stock as of a record date that is one business day
prior to the date of its receipt of the
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Cash Payment Amount or one business day prior to the date on which the
number of Foregone Shares is determined, on a pro rata basis. Genuity and
GTE and its Affiliates shall take reasonable steps to ensure that GTE and
its Affiliates do not receive any such distribution on any shares of Class
A Common Stock acquired by GTE and its Affiliates upon conversion of shares
of Class B Common Stock or Class C Common Stock.
SECTION 5.3 ARTICLE V DEFINITIONS. As used in this Article V:
"AGGREGATE APPRECIATION AMOUNT" shall mean, with respect to any shares of
Class B Common Stock, (a) the Fair Value less (b) the Investment Amount.
"AVERAGE CLOSING PRICE" shall mean, at any date of determination, the
average of the closing prices of the Class A Common Stock on the Nasdaq
National Market System on the thirty trading days immediately prior to the
date of determination.
"AVERAGE PERCENTAGE" shall mean, at any date of determination, the
percentage of the Relevant Appreciation Amount required to be foregone by
GTE and its Affiliates pursuant to the FCC Order (as the same may be
modified or waived by the FCC).
"CASH PAYMENT AMOUNT" shall mean the product of (a) the Relevant
Appreciation Amount, (b) the Average Percentage and (c) one minus the
combined state and federal tax rate that is or would be applicable to a
sale by GTE of shares of Class B Common Stock.
"FAIR VALUE" shall mean, with respect to any shares of Class B Common
Stock, at any date of determination, the fair market value of such shares
on an As Converted Basis. If GTE or its Affiliates are converting shares of
Class B Common Stock, the Fair Value thereof shall be determined by a
nationally recognized independent investment banker chosen by GTE and shall
be based upon the Average Closing Price of the Class A Common Stock,
adjusted by subtracting therefrom the value attributable to Genuity's
rights to receive and distribute cash or shares under Section 5.2 hereof.
If GTE or its Affiliates are selling shares of Class B Common Stock, the
Fair Value thereof shall be the price at which such shares are being sold.
"FOREGONE SHARES" shall mean a number of shares of Class A Common Stock
equal to the quotient obtained by dividing (a) the Cash Payment Amount by
(b) the Average Closing Price adjusted by subtracting therefrom the value
attributable to Genuity's rights to receive and distribute cash or shares
under Section 5.2 hereof. In the event such an adjustment was made by an
investment banker for purposes of determining the Fair Value, the same
adjustment shall be used for purposes of this definition. In the event the
Fair Value was determined based on the price at which shares of Class B
Common Stock were sold, GTE shall retain an investment banker to determine
the adjustment required for purposes of this definition.
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"INVESTMENT AMOUNT" with respect to any shares of Class B Common Stock
shall be equal to the product of (a) the number of shares of Class A Common
Stock into which such shares of Class B Common convertible under paragraph
D.7(a)(ii) of Article Fourth of the Amended and Restated Certificate of
Incorporation and (b) the price per share at which the Class A Common Stock
was sold in the Initial Public Offering.
"MARKET VALUE" shall mean, with respect to any shares of Class B Common
Stock, at any date of determination, the Average Closing Price as of such
date of the shares of Class A Common Stock into which such shares of Class
B Common Stock could be converted.
"RELEVANT APPRECIATION AMOUNT" shall mean, at any date of determination,
(a) the Aggregate Appreciation Amount less (b) the Ten Percent Appreciation
Amount.
"S&P AMOUNT" shall mean, with respect to any shares of Class B Common
Stock, at any date of determination, an amount equal to pretax amount that
a hypothetical investor would have available at such date if such investor
had invested in the Standard & Poors 500 Index on the closing date of the
Initial Public Offering a sum equal to GTE's Investment Amount with respect
to such shares of Class B Common Stock.
Shares of Class B Common Stock shall be deemed to constitute a part of the
"TEN PERCENT AMOUNT" at any date of determination, if such shares, together
with all other shares of Class B Common Stock constituting a part of the
Ten Percent Amount, are convertible into a number of shares of Class A
Common Stock not greater than the quotient obtained by dividing (a) the
total number of shares of Common Stock then outstanding on an As Converted
Basis by (b) ten. For purposes of determining whether any shares of Class B
Common Stock constitute a part of the Ten Percent Amount or are in excess
of the Ten Percent Amount, GTE and its affiliates shall in all instances be
deemed to have sold or converted or be selling or converting first shares
in excess of the Ten Percent Amount and only thereafter shares constituting
a part of the Ten Percent Amount.
"TEN PERCENT APPRECIATION AMOUNT" shall mean the portion of the Aggregate
Appreciation Amount allocable to the Ten Percent Amount.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 ENFORCEMENT OF VOTING LIMITATION. Genuity covenants to enforce the
limitation on the voting rights of the Class A Common Stock set forth in
paragraph C.2 of the Fourth Article of the Amended and Restated Certificate of
Incorporation. In furtherance thereof, Genuity shall, not less than ten business
days prior to any vote of the holders of the Class A Common Stock, certify to
GTE in writing (the "GENUITY CERTIFICATION") at the address set forth in Section
6.5 hereof that it has (1) notified the board of directors of Genuity in
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writing of any Schedule 13Ds or Schedule 13Gs (or any successor schedules or
forms under the Securities Exchange Act of 1934, as amended) on file with the
Securities and Exchange Commission with respect to Genuity and (2) specifically
identified to the board of directors any holder that has reported in such a
filing a beneficial ownership interest in Class A Common Stock in excess of 20%
(whether or not such beneficial ownership is disclaimed by the holder). In the
event that the board of directors has required, pursuant to paragraph C.2(e) of
the Fourth Article of the Amended and Restated Certificate of Incorporation, any
holder to certify the number of shares of Class A Common Stock owned of record
or beneficially owned by such holder, the Genuity Certification shall so state
and shall state whether or not such holder has complied with such requirement.
SECTION 6.2 CERTAIN TRANSFERS OF CLASS B COMMON STOCK. In the event that GTE
or CFS transfers shares of Class B Common Stock that, under the FCC Order
(including any amendment, modification or clarification thereof), are
convertible by such transferee into Class A Common Stock only in a Percentage
Driven Conversion (as defined in the Amended and Restated Certificate of
Incorporation) and not in a Ratio Driven Conversion (as defined in the Amended
and Restated Certificate of Incorporation), then (a) GTE or CFS, as the case may
be, shall include in a written transfer agreement relating to the transfer of
such shares of Class B Common Stock an agreement by such transferee, for itself
and any subsequent transferees, that such shares of Class B Common Stock shall
be convertible into Class A Common Stock only in a Percentage Driven Conversion
and not in a Ratio Driven Conversion and (b) such shares of Class B Common
Shares shall be legended prior to such transfer to indicate that they may be
converted only in a Percentage Driven Conversion.
SECTION 6.3 INITIALLY OUTSTANDING B SHARES. The certificates representing the
Initially Outstanding B Shares will initially bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND
MAY NOT BE TRANSFERRED, SOLD OR DISPOSED OF IN THE ABSENCE OF REGISTRATION
OR AN EXEMPTION THEREFROM UNDER THE ACT.
SECTION 6.4 ASSIGNMENT; BINDING EFFECT. Other than as specified herein, this
Agreement shall not be assignable. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, legal representatives, successors and assigns.
SECTION 6.5 NOTICES. All notices and other communications provided for herein
shall be in writing and shall be deemed to have been duly given when delivered
personally or sent by telecopy or three (3) business days after being mailed by
registered or certified mail, return receipt requested, postage prepaid, to the
party to whom it is directed:
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(i) If to Genuity, to: Genuity Inc.
0 Xxx xx Xxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxx X. Xxxxxx, Esq.
Facsimile: (000) 000-0000
with a copy to:
Ropes & Xxxx
Xxx Xxxxxxxxxxxxx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000-0000
Attention: Xxxxx X. Xxxxxxx, Esq.
Facsimile: (000) 000-0000
(ii) If to GTE, to: GTE Corporation
0000 Xxxxxxxxx Xxxxx
Xxxxxx, Xxxxx 00000
Attention: General Counsel
Facsimile: (000) 000-0000
with copies to:
Xxxx Atlantic Corporation
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Associate General Counsel -
Mergers and Acquisitions
Facsimile: (000) 000-0000
and
O'Melveny & Xxxxx LLP
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxx, Esq.
Facsimile: (000) 000-0000
or to such other address or facsimile number as the addressee may have specified
in a notice duly given to the sender as provided in this Section 6.5.
SECTION 6.6 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but such
counterparts together shall constitute one and the same instrument.
SECTION 6.7 SECTION HEADINGS. The section headings of this Agreement are for
convenience of reference only and shall not be deemed to limit or affect any of
the provisions hereof.
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SECTION 6.8 AMENDMENTS; NO WAIVERS. Any provision of this Agreement may be
waived or amended if, and only if, such amendment or waiver is in writing and
signed by all of the parties hereto. No failure by any party to insist upon the
strict performance of any covenant, duty, agreement or condition of this
Agreement, or to exercise any right or remedy consequent upon a breach hereof,
shall constitute a waiver of any such breach or any other covenant, duty,
agreement or condition hereof.
SECTION 6.9 ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement
and understandings of the parties and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof.
SECTION 6.10 SEVERABILITY. If it is determined by a court of competent
jurisdiction that any provision of this Agreement is invalid under applicable
law, such provision shall be ineffective only to the extent of such invalidity,
without invalidating the remainder of this Agreement.
SECTION 6.11 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York (without regard to the
choice of law provisions thereof).
SECTION 6.12 JURISDICTION. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO AND
ACCEPTS FOR ITSELF AND ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NON-
EXCLUSIVE JURISDICTION OF AND SERVICE OF PROCESS PURSUANT TO THE LAWS OF THE
STATE OF NEW YORK AND THE RULES OF ITS COURTS, WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS AND AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY ARISING UNDER
OR OUT OF OR IN RESPECT OF OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY
FURTHER IRREVOCABLY DESIGNATES AND APPOINTS THE INDIVIDUAL IDENTIFIED IN OR
PURSUANT TO SECTION 6.5 HEREOF TO RECEIVE NOTICES ON ITS BEHALF. A COPY OF ANY
SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO EACH PARTY AT ITS
ADDRESS PROVIDED IN SECTION 6.5; PROVIDED THAT, UNLESS OTHERWISE PROVIDED BY
APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF
THE SERVICE OF SUCH PROCESS. IF ANY AGENT SO APPOINTED REFUSES TO ACCEPT
SERVICE, THE DESIGNATING PARTY HEREBY AGREES THAT SERVICE OF PROCESS SUFFICIENT
FOR PERSONAL JURISDICTION IN ANY ACTION AGAINST IT IN THE APPLICABLE
JURISDICTION MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO ITS ADDRESS PROVIDED IN SECTION 6.5. EACH PARTY HEREBY
ACKNOWLEDGES THAT SUCH SERVICE SHALL BE EFFECTIVE AND BINDING IN EVERY RESPECT.
NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF ANY PARTY TO BRING ANY ACTION OR
PROCEEDING AGAINST THE OTHER PARTY IN ANY OTHER JURISDICTION.
SECTION 6.13 INTERPRETATION. As used in this Agreement (including all
exhibits, schedules and amendments hereto), the masculine, feminine or neuter
gender and the singular or
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plural number shall be deemed to include the others whenever the context so
requires. References to Sections and Articles refer to sections and articles of
this Agreement, unless the context otherwise requires. Words such as "herein,"
"hereinafter," "hereof," "hereto," "hereby" and "hereunder," and words of like
import, unless the context requires otherwise, refer to this Agreement. The word
"person" shall mean a natural person or a corporation, partnership, limited
liability company or other entity. The captions contained herein are for
convenience only and shall not control or affect the meaning or construction of
any provision of this Agreement.
SECTION 6.14 PLAN OF REORGANIZATION. The parties hereby agree to adopt this
Agreement as a "plan of reorganization" within the meaning of Section 368 of the
Code.
SECTION 6.15 CERTAIN DEFINITIONS. As used herein:
(a) "AFFILIATE" shall have the meaning set forth in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as
amended, as in effect on the date of effectiveness of the Amended and
Restated Certificate of Incorporation.
(b) "AS CONVERTED BASIS" means, with respect to any calculation, that all
shares of Class B Common Stock outstanding at the time of such calculation
shall be deemed converted into shares of Class A Common Stock pursuant to
paragraph D.7(a)(ii) of Article Fourth of the Amended and Restated
Certificate of Incorporation except (i) shares of Class B Common Stock
Owned by GTE or its Affiliates as to which Genuity requests that GTE
furnish a certificate to the effect that, under the FCC Order, there is a
reasonable probability that such shares may in the future be convertible
under such paragraph D.7(a)(ii) of Article Fourth of the Amended and
Restated Certificate of Incorporation, and GTE fails to furnish such
certificate and (ii) shares of Class B Common Stock Owned by Persons other
than GTE or its Affiliates which, when originally transferred by GTE or its
Affiliates, were required to be transferred pursuant to an agreement to
which Genuity is a party limiting the transferee's (and its successors' and
assigns') rights to convert such shares to conversion under paragraph
D.7(a)(i) of Article Fourth of the Amended and Restated Certificate of
Incorporation. For such purposes, shares of Class B Common Stock described
in clauses (i) and (ii) of the preceding sentence shall be deemed converted
into shares of Class A Common Stock pursuant to paragraph D.7(a)(i) of
Article Fourth of the Amended and Restated Certificate of Incorporation.
(c) "OWN," "OWNS" or "OWNED" shall mean, with respect to any shares of Common
Stock, the possession of the economic benefits and burdens thereof.
(d) "PERSON" means an individual, partnership, limited liability company,
corporation, trust, association, or any other entity.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
GTE CORPORATION
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
CONTEL FEDERAL SYSTEMS, INC.
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
GENUITY INC.
By:
------------------------------
Name:
Title:
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