EXHIBIT 2
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of May 5, 1997, by and between BBN
Corporation, a Massachusetts corporation (the "COMPANY"), and GTE Corporation,
a New York corporation ("PARENT").
WHEREAS, as a condition to its willingness to enter into the Agreement and
Plan of Merger, dated as of May 5, 1997 (the "MERGER AGREEMENT"; capitalized
terms used herein without definition shall have the meanings set forth in the
Merger Agreement), among the Company, Parent and GTE Massachusetts
Incorporated, a Massachusetts corporation ("PURCHASER"), Parent has required
that the Company agree, and the Company has agreed, to grant Parent the option
as set forth herein to purchase up to 4,225,000 (subject to adjustment as set
forth herein) shares of Common Stock, $1.00 par value of the Company (the
"COMPANY COMMON STOCK").
NOW, THEREFORE, to induce Parent to enter into the Merger Agreement and in
consideration of the Merger Agreement and of the mutual covenants and
agreements set forth herein, the parties agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth herein,
the Company hereby grants to Parent an irrevocable option (the "OPTION") to
purchase up to 4,225,000 (subject to adjustment as set forth herein) shares of
Company Common Stock (the "OPTION SHARES") at a purchase price of $29 (subject
to adjustment as set forth herein) per Option Share (the "PURCHASE PRICE").
2. Exercise of Option. (a) Parent may exercise the Option, with respect to
all or any part of the Option Shares at any one time, subject to the
provisions of Section 2(c), after the occurrence of any event as a result of
which Parent is entitled to receive the Termination Fee pursuant to Section
8.2(b) of the Merger Agreement (a "PURCHASE EVENT"); provided, however, that
(i) except as provided in the last sentence of this Section 2(a), the Option
will terminate and be of no further force and effect upon the earliest to
occur of (A) the Effective Time, (B) 9 months after the first occurrence of a
Purchase Event described in clauses (i) or (ii) of Section 8.2(b) of the
Merger Agreement, (C) termination of the Merger Agreement in accordance with
its terms prior to the occurrence of a Purchase Event, unless, in the case of
clause (C), Parent has, or upon the occurrence of certain events would have,
the right to receive the Termination Fee under clause (iii) of Section 8.2(b)
following such termination, in which case the Option will not terminate until
the later of (x) six months following the time such Termination Fee becomes
payable and (y) the expiration of the period in which Parent has or may have
such right to receive the Termination Fee, and (D) when the aggregate amount
paid by the Company under Section 6 and in connection with the Termination Fee
equals or exceeds $21,231,000 and (ii) any purchase of Option Shares upon
exercise of the Option will be subject to compliance with the HSR Act and the
obtaining or making of any consents, approvals, orders, notifications or
authorizations, the failure of which to have obtained or made would have the
effect of making the issuance of Option Shares illegal (the "REGULATORY
APPROVALS"). Notwithstanding the termination of the Option, Parent will be
entitled to purchase the Option Shares if it has exercised the Option in
accordance with the terms hereof prior to the termination of the Option and
the termination of the Option will not affect any rights hereunder which by
their terms do not terminate or expire prior to or as of such termination.
(b) In the event that Parent wishes to exercise the Option, it will send to
the Company a written notice (an "EXERCISE NOTICE"; the date of which being
herein referred to as the "NOTICE DATE") to that effect, which Exercise Notice
also specifies the number of Option Shares, if any, Parent wishes to purchase
pursuant to this Section 2(b), the number of Option Shares, if any, with
respect to which Parent wishes to exercise its Cash-Out Right (as defined
herein) pursuant to Section 6(c), and a date not earlier than three business
days nor later than 20 business days from the Notice Date for the closing of
such purchase (an "OPTION CLOSING"; the date of which being referred to as the
"OPTION CLOSING DATE"). Any Option Closing will be at an agreed location and
time in New York, New York on
the applicable Option Closing Date or at such later date as may be necessary
so as to comply with clause (ii) of Section 2(a).
(c) Notwithstanding anything to the contrary contained herein, any exercise
of the Option and purchase of Option Shares shall be subject to compliance
with applicable laws and regulations, which may prohibit the purchase of all
the Option Shares specified in the Exercise Notice without first obtaining or
making certain Regulatory Approvals. Notwithstanding anything in Section 2(a)
hereof to the contrary, in such event, if the Option is otherwise exercisable
and Parent wishes to exercise the number of Option Shares specified in the
Exercise Notice that Parent is then permitted to acquire under the applicable
laws and regulations, and if Parent thereafter obtains the Regulatory
Approvals to acquire the remaining balance of the Option Shares specified in
the Exercise Notice, then Parent shall be entitled to acquire such remaining
balance. The Company agrees to use its reasonable best efforts to assist
Parent in seeking the Regulatory Approvals.
In the event (i) Parent receives official notice that a Regulatory Approval
required for the purchase of any Option Shares will not be issued or granted,
(ii) such Regulatory Approval has not been issued or granted within six months
of the date of the Exercise Notice, or (iii) Parent in its sole discretion
shall so elect, Parent shall have the right to exercise its Cash-Out Right
pursuant to Section 6(c) with respect to the Option Shares for which such
Regulatory Approval will not be issued or granted or has not been issued or
granted.
3. Payment and Delivery of Certificates. (a) At any Option Closing, Parent
will pay to the Company in immediately available funds by wire transfer to a
bank account designated in writing by the Company an amount equal to the
Purchase Price multiplied by the number of Option Shares to be purchased at
such Option Closing.
(b) At any Option Closing, simultaneously with the delivery of immediately
available funds as provided in Section 3(a), the Company will deliver to
Parent a certificate or certificates representing the Option Shares to be
purchased at such Option Closing, which Option Shares will be free and clear
of all Liens of any kind whatsoever except as may generally obtain under
applicable securities laws. If at the time of issuance of Option Shares
pursuant to an exercise of the Option hereunder, any rights shall be
outstanding under the Company's shareholder rights plan, then each Option
Share issued pursuant to such exercise will also represent such a
corresponding right with terms substantially the same as and at least as
favorable to Parent as are provided under any shareholders rights agreement or
similar agreement relating to the Company or Company Common Stock then in
effect.
(c) Certificates for the Option Shares delivered at an Option Closing will
have typed or printed thereon a restrictive legend which will read
substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE."
It is understood and agreed that the reference to restrictions arising under
the Securities Act of 1933, as amended, together with any regulations
promulgated thereunder (the "SECURITIES ACT") in the above legend will be
removed by delivery of substitute certificate(s) without such reference if
such Option Shares have been registered pursuant to the Securities Act, such
Option Shares have been sold in reliance on and in accordance with Rule 144
under the Securities Act or Parent has delivered to the Company a copy of a
letter from the staff of the SEC, or an opinion of counsel in form and
substance reasonably satisfactory to the Company, to the effect that such
legend is not required for purposes of the Securities Act.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to Parent as follows:
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(a) The Company has taken all necessary corporate and other action to
authorize and reserve and to permit it to issue, and, at all times from the
date hereof until the obligation to deliver Option Shares upon the exercise of
the Option terminates, shall have reserved for issuance, upon exercise of the
Option, shares of Company Common Stock necessary for Parent to exercise the
Option, and will take all necessary corporate action to authorize and reserve
for issuance all additional shares of Company Common Stock or other securities
which may be issued pursuant to Section 6 upon exercise of the Option. The
Option Shares have been duly authorized and all additional shares of Company
Common Stock or other securities which may be issuable pursuant to Section 6
upon exercise of the Option, upon issuance pursuant hereto, will be duly and
validly issued, fully paid and nonassessable, and will be delivered free and
clear of all Liens of any kind or nature whatsoever except as may generally
obtain under applicable securities laws, including without limitation any
preemptive rights of any stock holder of the Company.
(b) The Company is a corporation duly organized and validly existing in good
standing under the laws of the Commonwealth of Massachusetts. The Company has
all requisite corporate power and authority to enter into and perform all of
its obligations under this Agreement. The execution, delivery and performance
of this Agreement and all the transactions contemplated hereby have been duly
authorized by the Company's Board of Directors and no other corporate
proceedings on the part of the Company are necessary to authorize this
Agreement or any of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by a duly authorized officer of the Company,
and constitutes a legal, valid and binding agreement of the Company, and
assuming this Agreement is a legal, valid and binding obligation of Parent,
this Agreement is enforceable against it in accordance with its terms, except
as (i) such enforcement may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws, now or hereafter in effect,
affecting creditors' rights generally, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject
to equitable defenses and to the discretion of the courts before which any
proceedings thereafter may be brought.
(c) The Company has taken all necessary corporate action to authorize and
reserve for issuance upon exercise of the Option 4,225,000 authorized but
unissued shares of Company Common Stock.
(d) No consent of any court or governmental authority is necessary for the
execution, delivery and performance of this Agreement by the Company.
(e) The execution and delivery of this Agreement do not, and the performance
of this Agreement will not (i) violate the articles of organization or by-laws
of the Company, or (ii) conflict with or result in a breach of any terms or
provisions of, or constitute a default or give rise to a right of acceleration
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company under any Material
Contract or any existing applicable Law or any rule or regulation of any
national securities exchange having jurisdiction over the Company or any of
its property.
(f) The representations and warranties set forth in Section 4.2 of the
Merger Agreement are true and correct.
5. Representations and Warranties of Parent. Parent hereby represents and
warrants to the Company that the Option is being acquired for investment
purposes only, any Option Shares acquired by Parent upon exercise will be
acquired for investment purposes only, and the Options and any Option Shares
or other securities acquired by Parent upon exercise of the option will not be
transferred or otherwise disposed of except in a transaction registered, or
exempt from registration, under the Securities Act.
6. Adjustment upon Changes in Capitalization, Etc. (a) In the event of any
change in Company Common Stock by reason of a stock dividend, split-up,
merger, recapitalization, combination, exchange of shares, distribution of
assets or similar transaction, the type and number of shares or
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securities subject to the Option, and the Purchase Price thereof, will be
adjusted appropriately, and proper provision will be made in the agreements
governing such transaction, so that Parent will receive upon exercise of the
Option the number and class of shares or other securities or property that
Parent would have received in respect of Company Common Stock (after giving
effect to such event) if the Option had been exercised immediately prior to
such event or the record date therefor, as applicable. Subject to Section 1,
and without limiting the parties' relative rights and obligations under the
Merger Agreement, if any additional shares of Company Common Stock are issued
after the date of this Agreement (other than pursuant to an event described in
the first sentence of this Section 6(a)), the number of shares of Company
Common Stock subject to the Option will be adjusted so that, after such
issuance, it equals 19.9% of the number of shares of Company Common Stock then
issued and outstanding, without giving effect to any shares subject to or
issued pursuant to the Option, and the Purchase Price thereof will be adjusted
appropriately. The Company shall provide notice to Parent as soon as possible
of any event requiring an adjustment under this clause (a).
(b) Without limiting the parties' relative rights and obligations under the
Merger Agreement, in the event that the Company enters into an agreement (i)
to consolidate with or merge into any Person, other than Parent or one of its
Subsidiaries and the Company will not be the continuing or surviving
corporation in such consolidation or merger, (ii) to permit any Person, other
than Parent or one of its Subsidiaries, to merge into the Company and the
Company will be the continuing or surviving corporation, but in connection
with such merger, the shares of Company Common Stock outstanding immediately
prior to the consummation of such merger will be changed into or exchanged for
stock or other securities of the Company or any other Person or cash or any
other property, or the shares of Company Common Stock outstanding immediately
prior to the consummation of such merger will, after such merger, represent
less than 50% of the outstanding voting securities of the merged company, or
(iii) to sell or otherwise transfer all or substantially all of its assets to
any Person, other than Parent or one of its Subsidiaries, then, and in each
such case, notice of such transaction will be provided as soon as possible to
Parent by the Company, and the agreement governing such transaction will make
proper provision so that the Option will, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be converted
into, or exchanged for, an option with identical terms appropriately adjusted
to acquire the number and class of shares or other securities or property that
Parent would have received in respect of Company Common Stock in connection
with such transaction if the Option had been exercised immediately prior to
such consolidation, merger, sale or transfer, or the record date therefor, as
applicable and make any other necessary adjustments so that the holders of the
Option may benefit fully from such transaction.
(c) If, at any time during the period commencing on a Purchase Event and
ending on the termination of the Option in accordance with Section 2, Parent
sends to the Company an Exercise Notice indicating Parent's election to
exercise its right (the "CASH-OUT RIGHT") pursuant to this Section 6(c), then
the Company shall pay to Parent, on the Option Closing Date, in exchange for
the cancellation of the Option with respect to such number of Option Shares as
Parent specifies in the Exercise Notice, an amount in cash equal to such
number of Option Shares multiplied by the difference between (i) the average
closing price, for the 10 New York Stock Exchange ("NYSE") trading days
commencing on the 12th NYSE trading day immediately preceding the Notice Date
(or, at the election of Parent, the date of the Purchase Event in the event
the Option has become exercisable and is subject to termination under clause
(C) of Section 2(a)(i)), per share of Company Common Stock as reported on the
NYSE Composite Transaction Tape (or, if not listed on the NYSE, as reported on
any other national securities exchange or national securities quotation system
on which Company Common Stock is listed or quoted, as reported in The Wall
Street Journal (Northeast edition), or, if not reported thereby, any other
authoritative source) (the "CLOSING PRICE") and (ii) the Purchase Price. The
amount of cash that the Company will be obligated to pay under this Section 6,
when added to the Termination Fee, shall not exceed in the aggregate
$21,231,000. Notwithstanding the termination of the Option, Parent will be
entitled to exercise its rights under this Section 6(c) if it has exercised
such rights in accordance with the terms hereof prior to the termination of
the Option.
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7. Registration Rights. The Company will, if requested by Parent at any time
and from time to time within two years of the exercise of the Option, as
expeditiously as possible prepare and file up to two registration statements
under the Securities Act if such registration is necessary in order to permit
the sale or other disposition of any or all shares of securities that have
been acquired by or are issuable to Parent upon exercise of the Option in
accordance with the intended method of sale or other disposition stated by
Parent, including a "shelf" registration statement under Rule 415 under the
Securities Act or any successor provision, and the Company will use its best
efforts to qualify such shares or other securities under any applicable state
securities laws. The Company will use reasonable efforts to cause each such
registration statement to become effective, to obtain all consents or waivers
of other parties which are required therefor, and to keep such registration
statement effective for such period not in excess of 180 calendar days from
the day such registration statement first becomes effective as may be
reasonably necessary to effect such sale or other disposition. The obligations
of the Company hereunder to file a registration statement and to maintain its
effectiveness may be suspended for up to 60 calendar days in the aggregate if
the Board of Directors of the Company shall have determined that the filing of
such registration statement or the maintenance of its effectiveness would
require premature disclosure of material non-public information that would
materially and adversely affect the Company or otherwise interfere with or
adversely affect any pending or proposed offering of securities of the Company
or any other material transaction involving the Company. Any registration
statement prepared and filed under this Section 7, and any sale covered
thereby, will be at the Company's expense except for underwriting discounts or
commissions, brokers' fees and the fees and disbursements of Parent's counsel
related thereto. Parent will provide all information reasonably requested by
the Company for inclusion in any registration statement to be filed hereunder.
If, during the time periods referred to in the first sentence of this Section
7, the Company effects a registration under the Securities Act of Company
Common Stock for its own account or for any other stockholders of the Company
(other than on Form S-4 or Form S-8, or any successor form), it will allow
Parent the right to participate in such registration, and such participation
will not affect the obligation of the Company to effect demand registration
statements for Parent under this Section 7; provided that, if the managing
underwriters of such offering advise the Company in writing that in their
opinion the number of shares of Company Common Stock requested to be included
in such registration exceeds the number which can be sold in such offering,
the Company will include the shares requested to be included therein by Parent
pro rata with the shares intended to be included therein by the Company. In
connection with any registration pursuant to this Section 7, the Company and
Parent will provide each other and any underwriter of the offering with
customary representations, warranties, covenants, indemnification, and
contribution in connection with such registration.
8. Transfers. The Option Shares may not be sold, assigned, transferred, or
otherwise disposed of except (i) in an underwritten public offering as
provided in Section 7 or (ii) pursuant to an exemption from the registration
requirements under the Securities Act.
9. Listing. If Company Common Stock or any other securities to be acquired
upon exercise of the Option are then listed on the NYSE (or any other national
securities exchange or national securities quotation system), the Company,
upon the request of Parent, will promptly file an application to list the
Company Common Stock or other securities to be acquired upon exercise of the
Option on the NYSE (and any such other national securities exchange or
national securities quotation system) and will use reasonable efforts to
obtain approval of such listing as promptly as practicable.
10. Loss or Mutilation. Upon receipt by the Company 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, the Company will execute and deliver a new Agreement
of like tenor and the date. Any such new Agreement executed and delivered will
constitute an additional contractual obligation on the part of the Company,
whether or not the Agreement so lost, stolen, destroyed, or mutilated shall at
any time be enforceable by anyone.
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11. Miscellaneous. (a) Expenses. Except as otherwise expressly provided
herein, each of the parties hereto will bear and pay all costs and expenses
incurred by to 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.
(b) Amendment. This Agreement may not be amended, except by an instrument in
writing signed on behalf of the parties.
(c) Extension; Waiver. Any agreement on the part of a party to waive any
provision of this Agreement, or to extend the time for performance, will be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise will not constitute a waiver of such rights.
(d) Governing Law. This Agreement will be governed by, and construed in
accordance with, the laws of the State of New York regardless of the laws that
might otherwise govern under applicable principles of conflict of the laws
thereof.
(e) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given (and shall be deemed to
have been duly received if so given) if personally delivered or sent by
telegram, cable, or telex, or by registered or certified mail, postage
prepaid, addressed to the respective parties as set forth in Section 8.7 of
the Merger Agreement.
(f) Assignment. None of this Agreement, the Option or any of the rights,
interests, or obligations under this Agreement may be assigned or delegated,
in whole or in part, by operation of law or otherwise, by either party without
the prior written consent of the other party except that Parent may assign its
rights to any of its Subsidiaries. Any assignment or delegation in violation
of the preceding sentence will be void. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
(g) Further Assurances. In the event of any exercise of the Option by
Parent, the Company and Parent will execute and deliver all other documents
and instruments and take all other actions that may be reasonably necessary in
order to consummate the transactions provided for by such exercise.
(h) Enforcement. The parties agree that irreparable damage would occur and
that the parties would not have any adequate remedy at law in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the parties will be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and
provisions of this Agreement in any court of competent jurisdiction, the
foregoing being in addition to any other remedy to which they are entitled at
law or in equity.
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IN WITNESS WHEREOF, the Company and Parent caused this Agreement to be
signed by their respective officers thereunto authorized as of the date first
written above.
GTE CORPORATION
/s/ Xxxx X. Xxxxxx
By___________________________________
Name: Xxxx X. Xxxxxx
Title: President
/s/ Xxxxxxxx Xxxxx
By___________________________________
Name: Xxxxxxxx Xxxxx
Title: Secretary
BBN CORPORATION
/s/ Xxxx Xxxxxxx
By___________________________________
Name: Xxxx Xxxxxxx
Title: Senior Vice President
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