1
CONFORMED COPY
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AGREEMENT AND PLAN OF MERGER
DATED AS OF NOVEMBER 3, 1996
AMONG
BRITISH TELECOMMUNICATIONS PLC,
MCI COMMUNICATIONS CORPORATION
AND
TADWORTH CORPORATION
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TABLE OF CONTENTS
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ARTICLE I
THE MERGER
1.1. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3. Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4. Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5. Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6. By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.7. Officers of Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8. Effect on Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Cancellation of Treasury Stock and BT-Owned Stock . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) Conversion of MCI Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(c) Allotment of BT Ordinary Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II
EXCHANGE OF CERTIFICATES
2.1. Exchange Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2. Exchange Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3. Distributions with Respect to Unexchanged Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4. No Further Ownership Rights in MCI Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.5. No Fractional BT ADSs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.6. Termination of Exchange Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.7. No Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.8. Investment of Exchange Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.9. Lost Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.10. Withholding Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.11. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.12. Stock Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.13. Restricted BT ADRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.14. Shares of Dissenting Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of MCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Organization, Standing and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
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(c) Authority; No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(d) Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(e) Information Supplied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(f) Compliance with Applicable Laws; Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . 13
(g) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(h) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(i) Subsidiaries and Equity Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(j) Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(k) Section 203 of the DGCL Not Applicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(l) Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(m) MCI Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(n) Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(o) Employee Benefit Plans; Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(p) Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(q) Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(r) Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.2. Representations and Warranties of BT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(a) Organization, Standing and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(b) Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(c) Authority; No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(d) Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(e) Information Supplied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(f) Compliance with Applicable Laws; Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . 25
(g) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(h) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(i) Subsidiaries and Equity Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(j) Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(k) Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(l) Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(m) Employee Benefit Plans; Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(n) Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(o) Ownership of MCI Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(p) Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.3. Representations and Warranties of BT and Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(a) Organization and Corporate Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(b) Corporate Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(c) Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(d) No Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1. Covenants of MCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
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(a) Ordinary Course . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(b) Dividends; Changes in Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(c) Issuance of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(d) Governing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(e) No Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(f) No Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(g) Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(h) Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(i) Other Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(j) Accounting Methods; Income Tax Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(k) Tax-Free Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(l) Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.2. Covenants of BT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(a) Ordinary Course . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(b) Dividends; Changes in Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(c) Issuance of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(d) Governing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(e) No Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(f) No Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(g) Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(h) Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(i) Other Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(j) Accounting Methods; Income Tax Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(k) Tax-Free Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(l) Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(m) Certain Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.3. Advice of Changes; Government Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.4. Transition Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.5. Control of Other Party's Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE V
ADDITIONAL AGREEMENTS
5.1. Preparation of Disclosure Documents; MCI Stockholder and BT Shareholder Meetings . . . . . . . . . . . . . 39
5.2. BT Board of Directors; Officers; Headquarters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.3. Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.4. Approvals and Consents; Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.5. Affiliates' and Auditors' Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.6. Stock Exchange Listings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.7. Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.8. Stock Options and Other Stock Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.9. Employment Agreements; Employee Benefits Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
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5.10. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
5.11. Indemnification; Directors' and Officers' Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
5.12. Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
5.13. Interim Cooperative Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
5.14. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
5.15. Investment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
5.16. Repurchase Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
5.17. Holding Company Structure; Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
5.18. Global Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE VI
CONDITIONS PRECEDENT
6.1. Conditions to Each Party's Obligation to Effect the Merger . . . . . . . . . . . . . . . . . . . . . . . . 51
(a) Stockholder Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(b) Stock Exchange Listings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(c) HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(d) FCC Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(e) Exon-▇▇▇▇▇▇ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(f) Securities Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(g) No Injunctions or Restraints, Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(h) No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(i) EU Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(j) United Kingdom Treasury Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.2. Additional Conditions to Obligations of BT and Merger Sub. . . . . . . . . . . . . . . . . . . . . . . . . 53
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
(b) Performance of Obligations of MCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
(c) Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(d) Inland Revenue Ruling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(e) Required Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(f) Burdensome Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
6.3. Additional Conditions to Obligations of MCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(b) Performance of Obligations of BT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(c) Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(d) Required Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
(e) Burdensome Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE VII
TERMINATION AND AMENDMENT
7.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
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7.2. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.3. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.4. Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE VIII
GENERAL PROVISIONS
8.1. Non-Survival of Representations, Warranties and Agreements . . . . . . . . . . . . . . . . . . . . . . . . 60
8.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.3. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
8.4. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
8.5. Entire Agreement; No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
8.6. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
8.7. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
8.8. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
8.9. Restrictive Trade Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
8.10. Submission to Jurisdiction; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
8.11. Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
8.12. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
8.13. Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.14. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
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LIST OF EXHIBITS
Exhibit Title
5.2(a) Reconstitution of the Board of Directors of BT
LIST OF ANNEXES
Annex Title
A Employee Benefits Matters
B Summary of Terms and Conditions of Senior Retention ISUs, 1997 ISUs and Converted ISUs to Be Granted
Pursuant to the Agreement and Annex A Thereto
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GLOSSARY OF DEFINED TERMS
Location of
Defined Term Definition
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Acquisition Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.7(a)
ADR Depositary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Alternative Transaction Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.2(b)
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 8.12(a)
BT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
BT ADRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
BT ADSs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
BT Burdensome Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.3(d)
BT Disclosure Document . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(e)(ii)
BT Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.2
BT Equity Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.2(i)
BT Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.2(l)(i)
BT Ordinary Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
BT Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.2(f)
BT Schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.2(m)(ii)
BT SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.2(d)(i)
BT Shareholder Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.1(c)
BT Voting Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.2(b)(ii)
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 8.12(b)
Cash Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.8(b)
Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exh. B to
Annex A
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.2
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Combined Company Burdensome Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.2(e)
Communications Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(c)(iii)
Companies Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.2(b)(i)
Confidentiality Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.3
Constructive Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exh. B to
Annex A
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.2
Conversion Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.8(b)
Converted ISU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.8(d)
Covered Executives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex A
9
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Delaware Certificate of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.3
DGCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Disclosure Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.4(b)
Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.14
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.3
Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.9(a)
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(o)(i)
ESPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex A
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(c)(iii)
Exchange Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1
Exchange Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1
Executive Retention Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex A
Executive Severance Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex A
Exon-▇▇▇▇▇▇ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(c)(iii)
Expense Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.2(b)
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.10
FCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(c)(iii)
FCC Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 8.12(c)
Form F-4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(e)(i)
Form F-6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.1(a)
FSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(e)(ii)
Governmental Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(c)(iii)
HM Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.2(b)(i)
HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(c)(iii)
Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(r)(vii)
Investment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.2(o)
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(o)(i)
Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(i)
LSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.3
Management Employee Bonus Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex A
Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 8.12(d)
MCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
MCI Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.8(f)
MCI Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(o)(i)
MCI Burdensome Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.2(e)
MCI Class A Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.8
MCI Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
MCI Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1
MCI Equity Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(i)
10
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MCI ISUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.8(e)
MCI Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(l)(i)
MCI Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(f)
MCI Restricted Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.8(d)
MCI SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(d)(i)
MCI Stockholders Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.1(b)
MCI Stock Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.8(b)
MCI Stock Option Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(b)(i)
MCI Voting Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(b)(ii)
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.8(b)
Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
NASDAQ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(c)(iii)
1996 Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex A
1997 ISUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex A
1997 Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex A
NYSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.5(b)
Other Employee Bonus Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex A
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 8.12(f)
Proxy Statement/Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(e)(i)
Purchase Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex A
Regulation 4064/89 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(c)(iii)
Regulatory Approvals Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.3(d)
Restricted BT ADRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.13
Required BT Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.2(k)
Required Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(c)(iii)
Required MCI Votes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(l)
Required Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.2(e)
Retention Bonus Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex A
Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(b)(i)
Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(b)(i)
Rule 145 Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.13
Schedule 13E-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.1(a)
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.13
Second Dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.8(c)
Senior Retention ISUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annex A
Special Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.2(b)(i)
Stock Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.8(b)
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 8.12(g)
11
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Location of
Defined Term Definition
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Superior Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.7(a)
Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.1
Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 8.12(h)
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 8.12(h)
Tax Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 8.12(h)
Terminating BT Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.1(h)
Terminating MCI Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.1(g)
Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.1(b)
Termination Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.2(b)
the other party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 8.12(e)
U.K. GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.2(d)(i)
U.S. GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(d)(i)
Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(c)(ii)
12
AGREEMENT AND PLAN OF MERGER, dated as of November 3, 1996
(this "Agreement"), among BRITISH TELECOMMUNICATIONS plc, a public limited
company incorporated under the laws of England and Wales ("BT"), MCI
COMMUNICATIONS CORPORATION, a Delaware corporation ("MCI"), and TADWORTH
CORPORATION, a Delaware corporation and a wholly owned subsidiary of BT
("Merger Sub").
W I T N E S S E T H :
WHEREAS, the respective Boards of Directors of BT, MCI and
Merger Sub have each determined that the Merger is in the best interests of
their respective shareholders and have approved the Merger upon the terms and
subject to the conditions set forth in this Agreement, whereby each issued and
outstanding share of common stock, par value $.10 per share, of MCI ("MCI Common
Stock"), other than shares owned directly or indirectly by BT or by MCI, will be
converted into the right to receive ordinary shares of BT represented by
American Depositary Shares of BT ("BT ADSs"), each representing ten ordinary
shares of 25 ▇▇▇▇▇ each of BT ("BT Ordinary Shares") and evidenced by American
Depositary Receipts ("BT ADRs") and cash;
WHEREAS, in order to effectuate the foregoing, MCI, upon the
terms and subject to the conditions of this Agreement and in accordance with
the General Corporation Law of the State of Delaware (the "DGCL"), will merge
with and into Merger Sub (the "Merger");
WHEREAS, BT, MCI and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger; and
WHEREAS, for United States Federal income tax purposes, it is
intended that the Merger shall qualify as a reorganization under the provisions
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code")
and that this Agreement constitute a plan of reorganization within the meaning
of Section 1.368-2(g) of the income tax regulations promulgated under the Code.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein, and intending to be legally bound hereby, the parties hereto agree as
follows:
13
2
ARTICLE I
THE MERGER
1.1. The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the DGCL, MCI
shall be merged with and into Merger Sub at the Effective Time. Following the
Merger, the separate corporate existence of MCI shall cease and Merger Sub
shall continue as the surviving corporation (the "Surviving Corporation").
1.2. Closing. The closing of the Merger (the "Closing")
will take place on the fifth Business Day after satisfaction or waiver (subject
to applicable law) of the conditions (excluding conditions that, by their
terms, cannot be satisfied until the Closing Date) set forth in Article VI (the
"Closing Date"), unless another time or date is agreed to in writing by the
parties hereto. The Closing shall be held at the offices of Shearman &
Sterling, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, unless another place
is agreed to in writing by the parties hereto.
1.3. Effective Time. As soon as practicable following the
Closing, the parties shall (i) take all steps to obtain admission to the
official list of the London Stock Exchange (the "LSE") of the BT Ordinary
Shares to be issued in connection with the Merger and (if possible)
simultaneously with such admission file a certificate of merger (the "Delaware
Certificate of Merger") in such form as is required by and executed in
accordance with the relevant provisions of the DGCL and (ii) make all other
filings or recordings required under the DGCL. The Merger shall become
effective at such time as the Delaware Certificate of Merger is duly filed with
the Delaware Secretary of State or at such other time as BT and MCI shall agree
in writing should be specified in the Delaware Certificate of Merger (the date
and time the Merger becomes effective being the "Effective Time").
1.4. Effects of the Merger. At and after the Effective
Time, the Merger will have the effects set forth in the DGCL. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time all
the property, rights, privileges, powers and franchises of MCI and Merger Sub
shall be vested in the Surviving Corporation, and all debts, liabilities and
duties of MCI and Merger Sub shall become the debts, liabilities and duties of
the Surviving Corporation.
1.5. Certificate of Incorporation. The certificate of
incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the certificate of incorporation of the Surviving Corporation
(except that Article I of the Certificate of Incorporation shall be amended as
of the Effective Time to read as follows: "The name of the Corporation is MCI
Communications Corporation"), until thereafter changed or amended as provided
therein or by applicable law.
14
3
1.6. By-Laws. The by-laws of Merger Sub as in effect at
the Effective Time shall be the by-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
1.7. Officers of Surviving Corporation. The officers of
MCI as of the Effective Time shall be the officers of the Surviving
Corporation, until the earlier of their resignation or removal or otherwise
ceasing to be an officer or until their respective successors are duly elected
and qualified, as the case may be, and BT and the Surviving Corporation shall
use all reasonable efforts to cause such officers to be elected as of the
Effective Time.
1.8. Effect on Capital Stock. As of the Effective Time,
by virtue of the Merger and without any action on the part of the holders of
(i) any shares of MCI Common Stock, (ii) any shares of Class A Common Stock,
par value $.10 per share, of MCI ("MCI Class A Common Stock") or (iii) any
shares of common stock, par value $.01 per share, of Merger Sub:
(a) Cancellation of Treasury Stock and BT-Owned Stock.
Each share of MCI Common Stock that is owned by MCI as treasury stock
and each share of MCI Common Stock and each share of MCI Class A
Common Stock that are owned by BT or any wholly owned Subsidiary of BT
(together, in each case, with the associated Right) shall
automatically be cancelled and retired and shall cease to exist and no
stock of BT or (subject to Section 1.8(c)) other consideration shall
be delivered in exchange therefor.
(b) Conversion of MCI Common Stock. Subject to Section
2.5 and Section 2.14, each issued and outstanding share of MCI Common
Stock (other than shares to be cancelled in accordance with Section
1.8(a)) together with the associated Right shall be converted into the
right to receive 0.54 BT ADSs (the "Stock Consideration") and $6.00
in cash (the "Cash Consideration" and, collectively with the Stock
Consideration, the "Merger Consideration"). As of the Effective Time,
all such shares of MCI Common Stock (and the associated Rights) shall
no longer be outstanding and shall automatically be cancelled and
retired and shall cease to exist, and each holder of a certificate
representing any such shares of MCI Common Stock (and the associated
Rights) shall cease to have any rights with respect thereto, except
the right to receive, upon surrender of such certificate in accordance
with Section 2.2, the Merger Consideration with respect to the shares
of MCI Common Stock formerly represented thereby to which such holder
is entitled pursuant to this Section 1.8 and a check in the amount of
any cash in lieu of fractional BT ADSs to which such holder is
entitled pursuant to Section 2.5(b), without interest.
(c) Allotment of BT Ordinary Shares. In consideration of
and in exchange for the issuance to BT by the Surviving Corporation of
such number of shares of common stock of the Surviving Corporation as
BT shall specify, BT shall (i) allot and
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issue the number of BT Ordinary Shares represented by BT ADSs to be
issued in the Merger to the ADR Depositary on behalf of the holders of
MCI Common Stock entitled thereto for the purposes of giving effect to
the conversion and exchange referred to in this Article I, (ii) cause
the Surviving Corporation to pay cash in the amount required to be
exchanged for shares of MCI Common Stock in the Merger pursuant to
this Section 1.8 and any cash in lieu of fractional BT ADSs and (iii)
agree to the cancellation of the MCI Class A Common Stock. Holders of
BT ADSs to be issued in the Merger shall not be entitled to receive
the forecast dividend, whether paid as an interim or final dividend,
of 11.95 ▇▇▇▇▇ per BT Ordinary Share (the "Second Dividend") to be
recommended for payment in respect of its financial year ending March
31, 1997 and BT shall in respect of the Second Dividend notify the LSE
to ▇▇▇▇ the BT Ordinary Shares "ex-dividend" in the Stock Exchange
Daily Official List on a date prior to the Effective Time. If the
Effective Time shall be prior to March 31, 1998, such holders shall be
entitled to receive the interim dividend payable by BT on the BT
Ordinary Shares for the year ending March 31, 1998 (normally paid in
February of each year) which shall be payable on the later of (i) the
payment date for such dividend or (ii) at the Effective Time to the
ADR Depositary concurrently with payment of the Merger Consideration
pursuant to Section 2.1. Holders of BT ADSs to be issued in the
Merger shall not be entitled to receive the special dividend or
dividends payable on each BT Ordinary Share referred to in Section
4.2(b)(i)(C).
ARTICLE II
EXCHANGE OF CERTIFICATES
2.1. Exchange Fund. At the Effective Time, (a) BT shall
issue to and deposit with BT's United States depositary (the "ADR Depositary"),
for the benefit of the holders of shares of MCI Common Stock converted in
accordance with Article I, BT Ordinary Shares in an amount sufficient to permit
the ADR Depositary to issue BT ADRs representing the number of BT ADSs issuable
pursuant to Section 1.8 and (b) the Surviving Corporation shall deposit with
such bank or trust company as may be designated by BT and be reasonably
acceptable to MCI (the "Exchange Agent") cash in the amount required to be
exchanged for shares of MCI Common Stock in the Merger pursuant to Section 1.8
and any cash in lieu of fractional BT ADSs. BT shall cause the ADR Depositary
to issue upon the instructions of the Exchange Agent, for the benefit of the
holders of shares of MCI Common Stock converted in accordance with Article I,
through the Exchange Agent, BT ADRs representing the number of BT ADSs issuable
pursuant to Section 1.8, as soon as practicable after the Effective Time, and
the Exchange Agent shall deliver cash contemplated to be paid pursuant to
Section 1.8 and, from time to time as required to make payments in lieu of
fractional BT ADSs pursuant to Section 2.5(b) (such cash and BT ADRs
representing BT ADSs, together with any dividends or distributions with respect
thereto, being hereinafter
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referred to as the "Exchange Fund") in exchange for outstanding shares of MCI
Common Stock.
2.2. Exchange Procedures. As soon as reasonably
practicable after the Effective Time, the Exchange Agent shall mail to each
holder of record of a certificate or certificates which immediately prior to
the Effective Time represented outstanding shares of MCI Common Stock (and the
associated Rights) (the "Certificates") that were converted into the right to
receive BT ADSs pursuant to Section 1.8(b), (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to
the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent, and which shall be in such form and have such other provisions
as BT may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for BT ADRs. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with such letter of
transmittal, duly executed and completed in accordance with the instructions
thereto, and such other documents as may reasonably be required by the Exchange
Agent, the holder of such Certificate shall be entitled to receive in exchange
therefor (A) one or more BT ADRs representing, in the aggregate, the whole
number of BT ADSs that such holder has the right to receive pursuant to the
provisions of Article I (after taking into account all shares of MCI Common
Stock then held by such holder) and (B) a check in the amount equal to the cash
that such holder has the right to receive pursuant to the provisions of Article
I and this Article II, including cash in lieu of any fractional BT ADSs
pursuant to Section 2.5, and the Certificate so surrendered shall forthwith be
cancelled. In the event of a transfer of ownership of MCI Common Stock that is
not registered in the transfer records of MCI, one or more BT ADRs evidencing,
in the aggregate, the proper number of BT ADSs may be issued, a check in the
proper amount of cash may be paid pursuant to Section 1.8 and cash in lieu of
any fractional BT ADSs and any dividends or other distributions to which such
holder is entitled pursuant to Section 2.3 may be paid to a Person other than
the Person in whose name the Certificate so surrendered is registered if the
Certificate representing such MCI Common Stock is presented to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and evidence that any applicable stock transfer taxes have been paid.
Until surrendered as contemplated by this Article II, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon surrender the Merger Consideration with respect to the shares of
MCI Common Stock formerly represented thereby to which such holder is entitled
pursuant to Section 1.8(b), cash in lieu of any fractional BT ADSs to which
such holder is entitled pursuant to Section 2.5 and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.3. No
interest will be paid or will accrue on any cash payable in lieu of any
fractional BT ADSs payable pursuant to Section 2.5 or any dividends or other
distributions payable pursuant to Section 2.3.
2.3. Distributions with Respect to Unexchanged Shares. No
dividends or other distributions declared or made with respect to BT Ordinary
Shares with a record date after the Effective Time shall be paid to the holder
of any unsurrendered Certificate with respect to the BT ADSs that such holder
would be entitled to receive upon surrender of such
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Certificate and no cash payment in lieu of fractional BT ADSs shall be paid to
any such holder pursuant to Section 2.5 until such holder shall surrender such
Certificate in accordance with Section 2.2. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid to the holder of BT ADSs issued in exchange therefor, without interest,
(a) promptly after the time of such surrender, the amount of any cash payable
in lieu of fractional BT ADSs to which such holder is entitled pursuant to
Section 2.5 and the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to such whole BT
ADSs, and (b) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to such
surrender and a payment date subsequent to such surrender payable with respect
to such BT ADSs.
2.4. No Further Ownership Rights in MCI Common Stock. All
BT ADRs (and the BT ADSs represented by such BT ADRs) issued and cash paid upon
conversion of shares of MCI Common Stock in accordance with the terms of
Article I and this Article II (including any cash paid pursuant to Sections 2.3
or 2.5) shall be deemed to have been issued or paid in full satisfaction of all
rights pertaining to the shares of MCI Common Stock (and the Rights associated
therewith).
2.5. No Fractional BT ADSs. (a) No certificates or scrip
or BT ADRs representing fractional BT ADSs shall be issued upon the surrender
for exchange of Certificates and such fractional share interests will not
entitle the owner thereof to vote or to have any rights of a shareholder of BT
or a holder of BT ADRs or BT ADSs.
(b) Notwithstanding any other provision of this
Agreement, each holder of shares of MCI Common Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a BT ADS
(after taking into account all Certificates delivered by such holder) shall
receive, in lieu thereof, cash (without interest) in an amount equal to the
product of (i) such fractional part of a BT ADS multiplied by (ii) the last
sales price per BT ADS on the New York Stock Exchange, Inc. (the "NYSE")
Composite Transaction Tape for the Closing Date. As promptly as practicable
after the determination of the amount of cash, if any, to be paid to holders of
fractional interests, the Exchange Agent shall so notify BT, and BT shall cause
the Surviving Corporation to deposit such amount with the Exchange Agent and
shall cause the Exchange Agent to forward payments to such holders of
fractional interests subject to and in accordance with the terms hereof.
2.6. Termination of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed to the holders of Certificates for
twelve months after the Effective Time shall be delivered to the Surviving
Corporation or otherwise on the instruction of the Surviving Corporation, and
any holders of the Certificates who have not theretofore complied with this
Article II shall thereafter look only to the Surviving Corporation or BT for
the Merger Consideration with respect to the shares of MCI Common Stock
formerly represented thereby to which such holders are entitled pursuant to
Section 2.2, any cash in lieu of fractional BT ADSs to which such holders are
entitled
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pursuant to Section 2.5 and any dividends or distributions with respect to BT
ADSs to which such holders are entitled pursuant to Section 2.3. Any such
former portion of the Exchange Fund remaining unclaimed by holders of shares of
MCI Common Stock five years after the Effective Time (or such earlier date
immediately prior to such time as such amounts would otherwise escheat to or
become property of any Governmental Entity) shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation free and clear
of any claims or interest of any Person previously entitled thereto.
2.7. No Liability. None of BT, Merger Sub, MCI, the ADR
Depositary, the Surviving Corporation or the Exchange Agent shall be liable to
any Person in respect of any BT ADRs (or dividends or distributions with
respect to BT ADSs) or cash from the Exchange Fund delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
2.8. Investment of Exchange Fund. The Exchange Agent
shall invest any cash included in the Exchange Fund as directed by the
Surviving Corporation on a daily basis. Any interest and other income
resulting from such investments shall promptly be paid to the Surviving
Corporation.
2.9. Lost Certificates. If any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the Person claiming such Certificate to be lost, stolen or destroyed and, if
required by BT, the posting by such Person of a bond in such reasonable amount
as BT may direct as indemnity against any claim that may be made against it
with respect to such Certificate, the Exchange Agent will deliver in exchange
for such lost, stolen or destroyed Certificate the applicable Merger
Consideration with respect to the shares of MCI Common Stock formerly
represented thereby, any cash in lieu of fractional BT ADSs, and unpaid
dividends and distributions on BT ADSs deliverable in respect thereof, pursuant
to this Agreement.
2.10. Withholding Rights. Each of the Surviving
Corporation and BT shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
shares of MCI Common Stock such amounts as it is required to deduct and
withhold with respect to the making of such payment under the Code, or any
provision of state, local or foreign tax law, including the tax laws of the
United Kingdom. To the extent that amounts are so withheld by the Surviving
Corporation or BT, as the case may be, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of the
shares of MCI Common Stock in respect of which such deduction and withholding
was made by the Surviving Corporation or BT, as the case may be.
2.11. Further Assurances. At and after the Effective Time,
the officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of MCI or Merger Sub, any deeds,
bills of sale, assignments or assurances and to take and do, in the name and on
behalf of MCI or Merger Sub, any other actions and
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things to vest, perfect or confirm of record or otherwise in the Surviving
Corporation any and all right, title and interest in, to and under any of the
rights, properties or assets acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger.
2.12. Stock Transfer Books. At the close of business, New
York City time, on the day the Effective Time occurs, the stock transfer books
of MCI shall be closed and there shall be no further registration of transfers
of shares of MCI Common Stock thereafter on the records of MCI. From and after
the Effective Time, the holders of Certificates shall cease to have any rights
with respect to such shares of MCI Common Stock formerly represented thereby,
except as otherwise provided herein or by law. On or after the Effective Time,
any Certificates presented to the Exchange Agent or BT for any reason shall be
converted into the Merger Consideration with respect to the shares of MCI
Common Stock formerly represented thereby, any cash in lieu of fractional BT
ADSs to which the holders thereof are entitled pursuant to Section 2.5 and any
dividends or other distributions to which the holders thereof are entitled
pursuant to Section 2.3.
2.13. Restricted BT ADRs. Notwithstanding anything
contained in Article I or this Article II, stockholders of MCI who are
affiliates ("Rule 145 Affiliates") of MCI as of the Effective Time within the
meaning of Rule 145 under the Securities Act of 1933, as amended (the
"Securities Act"), will receive restricted BT ADRs ("Restricted BT ADRs")
pursuant to this Section 2.13 and all references to BT ADRs to be received
pursuant to Articles I and II by Rule 145 Affiliates shall be deemed to be
references to Restricted BT ADRs.
2.14. Shares of Dissenting Stockholders. Notwithstanding
anything in this Agreement to the contrary, any shares of MCI Common Stock that
are outstanding immediately prior to the Effective Time and that are held by
stockholders who shall not have voted in favor of the Merger or consented
thereto in writing and who shall have demanded properly in writing appraisal
for such shares in accordance with Section 262 of the DGCL (collectively, the
"Dissenting Shares") shall not be converted into or represent the right to
receive the Merger Consideration. Such stockholders shall be entitled to
receive payment of the appraised value of such shares of MCI Common Stock held
by them in accordance with the provisions of Section 262 of the DGCL, except
that all Dissenting Shares held by stockholders who shall have failed to
perfect or who effectively shall have withdrawn or lost their rights to
appraisal of such shares of MCI Common Stock under such Section 262 shall
thereupon be deemed to have been converted into and to have become
exchangeable, as of the Effective Time, for the right to receive, without any
interest thereon, the Merger Consideration. MCI shall give BT (i) prompt
notice of any notice or demands for appraisal or payment for shares of MCI
Common Stock received by MCI and (ii) the opportunity to participate in and
direct all negotiations and proceedings with respect to any such demands or
notices. MCI shall not, without the prior written consent of BT, make any
payment with respect to, or settle, offer to settle or otherwise negotiate, any
such demands.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of MCI. Except as set
forth in the MCI Disclosure Schedule delivered by MCI to BT at or prior to the
execution of this Agreement (the "MCI Disclosure Schedule") (each section of
which qualifies the correspondingly numbered representation and warranty or
covenant to the extent specified therein), MCI represents and warrants to BT as
follows:
(a) Organization, Standing and Power. Each of MCI and
each of its Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization, has all requisite power and authority
to own, lease and operate its properties and to carry on its business
as now being conducted and is duly qualified and in good standing to
do business in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes such qualification
necessary other than in such jurisdictions where the failure so to
qualify would not, either individually or in the aggregate, have a
Material Adverse Effect on MCI. The copies of the certificate of
incorporation and by-laws of MCI which were previously furnished to BT
are true, complete and correct copies of such documents as in effect
on the date of this Agreement.
(b) Capital Structure.
(i) As of September 30, 1996, the authorized
capital stock of MCI consists of (A) 2,000,000,000 shares of
MCI Common Stock, of which 548,903,285 shares are outstanding,
(B) 500,000,000 shares of MCI Class A Common Stock, of which
135,998,932 shares are outstanding and (C) 50,000,000 shares
of designated preferred stock, of which 10,000,000 shares of
Series E Junior Participating Preferred Stock have been
designated and reserved for issuance upon exercise of the
rights (the "Rights") distributed to the holders of MCI Common
Stock pursuant to the Rights Agreement dated as of September
30, 1994 between MCI and Mellon Bank, N.A., as rights agent
(the "Rights Agreement"). Since September 30, 1996 to the
date of this Agreement, there have been no issuances of shares
of the capital stock of MCI or any other securities of MCI
other than issuances of shares pursuant to options or rights
outstanding as of September 30, 1996 under the MCI Benefit
Plans. All issued and outstanding shares of the capital stock
of MCI are duly authorized, validly issued, fully paid and
nonassessable, and no class of capital stock (other than MCI
Class A Common Stock) is entitled to preemptive rights. There
were outstanding as of September 30, 1996 no options, warrants
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or other rights to acquire capital stock from MCI other than
(x) options representing in the aggregate the right to
purchase 78,036,440 shares of MCI Common Stock under the 1989
MCI Stock Option Plan, the MCI 1988 Directors' Stock Option
Plan and the MCI 1979 Stock Option Plan (collectively, the
"MCI Stock Option Plans") and (y) rights to purchase an
aggregate of 19,068,621 shares of MCI Common Stock under the
ESPP. No options or warrants or other rights to acquire
capital stock from MCI have been issued or granted since
September 30, 1996 to the date of this Agreement.
(ii) As of the date of this Agreement, no bonds,
debentures, notes or other indebtedness of MCI having the
right to vote on any matters on which stockholders may vote
("MCI Voting Debt") are issued or outstanding.
(iii) Except as otherwise set forth in this Section
3.1(b), as of the date of this Agreement, there are no
securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which
MCI or any of its Subsidiaries is a party or by which any of
them is bound obligating MCI or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock or other voting
securities of MCI or any of its Subsidiaries or obligating MCI
or any of its Subsidiaries to issue, grant, extend or enter
into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. As of the
date of this Agreement, there are no outstanding obligations
of MCI or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of MCI or any of
its Subsidiaries.
(c) Authority; No Conflicts.
(i) MCI has all requisite corporate power and
authority to enter into this Agreement and, subject to the
adoption of this Agreement by the requisite vote of the
holders of MCI Common Stock and the requisite vote of the
holders of MCI Class A Common Stock, voting separately as a
class, to consummate the transactions contemplated hereby.
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 MCI, subject in the case of the consummation of the Merger
to the adoption of this Agreement by the stockholders of MCI.
This Agreement has been duly executed and delivered by MCI and
constitutes a valid and binding agreement of MCI, enforceable
against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws relating to or
affecting creditors generally, by general equity principles
(regardless of whether such enforceability is
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considered in a proceeding in equity or at law) or by an
implied covenant of good faith and fair dealing.
(ii) The execution and delivery of this Agreement
does not or will not, as the case may be, and the consummation
of the transactions contemplated hereby will not, conflict
with, or result in any violation of, or constitute a default
(with or without notice or lapse of time, or both) under, or
give rise to a right of termination, amendment, cancellation
or acceleration of any obligation or the loss of a material
benefit under, or the creation of a lien, pledge, security
interest, charge or other encumbrance on any assets (any such
conflict, violation, default, right of termination, amendment,
cancellation or acceleration, loss or creation, a "Violation")
pursuant to: (A) any provision of the certificate of
incorporation or by-laws of MCI or any Subsidiary of MCI or
(B) except as would not have a Material Adverse Effect on MCI
and, subject to obtaining or making the consents, approvals,
orders, authorizations, registrations, declarations and
filings referred to in paragraph (iii) below, any loan or
credit agreement, note, mortgage, bond, indenture, lease,
benefit plan or other agreement, obligation, instrument,
permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable
to MCI or any Subsidiary of MCI or their respective properties
or assets.
(iii) No consent, approval, order or authorization
of, or registration, declaration or filing with, any supra-
national, national, state, municipal or local government, any
instrumentality, subdivision, court, administrative agency or
commission or other authority thereof, or any
quasi-governmental or private body exercising any regulatory,
taxing, importing or other governmental or quasi-governmental
authority, including the European Union (a "Governmental
Entity"), is required by or with respect to MCI or any
Subsidiary of MCI in connection with the execution and
delivery of this Agreement by MCI or the consummation by MCI
of the transactions contemplated hereby, except for those
required under or in relation to (A) the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
Antitrust Improvements Act of 1976, as amended (the "HSR Act")
and Council Regulation (EEC) No. 4064/89 ("Regulation
4064/89"), (B) the Communications Act of 1934, as amended (the
"Communications Act"), and any rules and regulations
promulgated by the Federal Communications Commission ("FCC"),
(C) state securities or "blue sky" laws, (D) the Securities
Act, (E) the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (F) the DGCL with respect to the filing and
recordation of appropriate merger or other documents, (G)
rules and regulations of any state or foreign public service
commissions or similar state or foreign regulatory bodies, (H)
Section 721 of the Defense Production Act of 1950, as amended,
and the rules promulgated thereunder ("Exon-▇▇▇▇▇▇") and the
rules and regulations promulgated by the Department of
Defense, (I) rules and
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regulations of the Nasdaq National Market ("NASDAQ"), (J) the
Fair Trading Act of 1973, (K) the Restrictive Trade Practices
▇▇▇ ▇▇▇▇, (L) antitrust or other competition laws of other
jurisdictions, and (M) such consents, approvals, orders,
authorizations, registrations, declarations and filings the
failure of which to make or obtain would not have a Material
Adverse Effect on MCI. Consents, approvals, orders,
authorizations, registrations, declarations and filings
required under or in relation to any of the foregoing clauses
(A) through (L) are hereinafter referred to as "Required
Consents."
(d) Reports and Financial Statements.
(i) MCI has filed all required reports,
schedules, forms, statements and other documents required to
be filed by it with the SEC since January 1, 1995
(collectively, including all exhibits thereto, the "MCI SEC
Reports"). No Subsidiary of MCI is required to file any form,
report or other document with the SEC. None of the MCI SEC
Reports, as of their respective dates (and, if amended or
superseded by a filing prior to the date of this Agreement or
of the Closing Date, then on the date of such filing),
contained or will contain any untrue statement of a material
fact or omitted or will omit to state a material fact required
to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading. Each of the financial statements
(including the related notes) included in the MCI SEC Reports
presents fairly, in all material respects, the consolidated
financial position and consolidated results of operations and
cash flows of MCI and its Subsidiaries as of the respective
dates or for the respective periods set forth therein, all in
conformity with United States generally accepted accounting
principles ("U.S. GAAP") consistently applied during the
periods involved except as otherwise noted therein, and
subject, in the case of the unaudited interim financial
statements, to normal and recurring year-end adjustments that
have not been and are not expected to be material in amount.
All of such MCI SEC Reports, as of their respective dates (and
as of the date of any amendment to the respective MCI SEC
Report), complied as to form in all material respects with the
applicable requirements of the Securities Act and the Exchange
Act and the rules and regulations promulgated thereunder.
(ii) Except as set forth in the MCI SEC Reports
filed prior to the date of this Agreement, and except for
liabilities and obligations incurred in the ordinary course of
business consistent with past practice since December 31,
1995, neither MCI nor any of its Subsidiaries has any
liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) which, individually or in
the aggregate, would have a Material Adverse Effect on MCI or
would prevent or materially delay the performance of this
Agreement by MCI.
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(e) Information Supplied.
(i) None of the information supplied or to be
supplied by MCI for inclusion or incorporation by reference in
(A) the registration statement on Form F-4 to be filed with
the SEC by BT in connection with the issuance of BT ADSs in
the Merger (the "Form F-4") will, at the time the Form F-4 is
filed with the SEC, at any time it is amended or supplemented
or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading and
(B) the proxy statement/prospectus included in the Form F-4
related to the MCI Stockholders Meeting) (the "Proxy
Statement/Prospectus") and, if applicable, the Schedule 13E-3
will, on the date it is first mailed to MCI stockholders or at
the time of the MCI Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances
under which they were made, not misleading. The Proxy
Statement/Prospectus will comply as to form in all material
respects with the requirements of the Exchange Act and the
Securities Act and the rules and regulations of the SEC
thereunder.
(ii) The information supplied or to be supplied by
MCI for inclusion in the Super Class 1 Shareholder Circular
(comprising listing particulars under Part IV of the Financial
Services ▇▇▇ ▇▇▇▇ of the United Kingdom, as amended (the
"FSA")) (the "BT Disclosure Document") will, on the date the
BT Disclosure Document is first mailed to shareholders of BT
and at the time of the BT Shareholder Meeting, include all
such information within the knowledge of each of the directors
of MCI (or which it would be reasonable for them to obtain by
making enquiries) as investors and their professional advisers
reasonably require and expect to find, for the purpose of
making an informed assessment of the assets and liabilities,
financial position, profits and losses and prospects of BT and
of the rights attaching to the securities to which the BT
Disclosure Document relates.
(iii) Notwithstanding the foregoing provisions of
this Section 3.1(e), no representation or warranty is made by
MCI with respect to statements made or incorporated by
reference in the F-4, the Proxy Statement/Prospectus, the
Schedule 13E-3 (if applicable) or the BT Disclosure Document
based on information supplied by BT for inclusion or
incorporation by reference therein.
(f) Compliance with Applicable Laws; Regulatory Matters.
MCI and its Subsidiaries hold all permits, licenses, certificates,
franchises, registrations, variances, exemptions, orders and approvals
of all Governmental Entities which are material to the operation of
the businesses of MCI and its Subsidiaries, taken as a whole (the
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"MCI Permits"). MCI and its Subsidiaries are in compliance with the
terms of the MCI Permits, except where the failure so to comply,
individually or in the aggregate, would not have a Material Adverse
Effect on MCI. Except as disclosed in the MCI SEC Reports filed prior
to the date of this Agreement, the businesses of MCI and its
Subsidiaries are not being and have not been conducted in violation of
any law, ordinance, regulation, judgment, decree, injunction, rule or
order of any Governmental Entity, except for violations which,
individually or in the aggregate, would not have a Material Adverse
Effect on MCI. As of the date of this Agreement, no investigation
(other than with respect to Taxes) by any Governmental Entity with
respect to MCI or any of its Subsidiaries is pending or, to the best
knowledge of MCI, threatened, other than investigations which,
individually or in the aggregate, would not have a Material Adverse
Effect on MCI. Since December 31, 1994, MCI and each of its
Subsidiaries required to make filings under all applicable laws
regulating the telephone, mobile cellular, paging or other
telecommunications business has filed with all applicable Governmental
Entities (including the applicable public utilities commissions or the
FCC, as the case may be) all material forms, statements, reports and
documents (including exhibits, annexes and any amendments thereto)
required to be filed by them, and each such filing complied with all
applicable laws, rules and regulations, except for such noncompliance
which would not, individually or in the aggregate, have a Material
Adverse Effect on MCI or prevent or materially delay the performance
of this Agreement by MCI.
(g) Litigation. Except as disclosed in the MCI SEC
Reports filed prior to the date of this Agreement, there is no
litigation, arbitration, claim, suit, action, investigation or
proceeding pending or, to the knowledge of MCI, threatened, against or
affecting MCI or any Subsidiary of MCI which, individually or in the
aggregate, has had or would have a Material Adverse Effect on MCI, nor
is there any judgment, award, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against MCI or any
Subsidiary of MCI which, individually or in the aggregate, has had or
would have a Material Adverse Effect on MCI.
(h) Taxes. (i) MCI and each of its Subsidiaries have
prepared in good faith and duly and timely filed (taking into account
any extension of time within which to file) all material Tax Returns
required to be filed by any of them and all such filed Tax Returns are
complete and accurate in all material respects; (ii) MCI and each of
its Subsidiaries have paid all Taxes that are shown as due on such
filed Tax Returns or that MCI or any of its Subsidiaries is obligated
to withhold from amounts owing to any employee, creditor or third
party, except with respect to matters contested in good faith or for
such amounts that, individually or in the aggregate, would not have a
Material Adverse Effect on MCI; (iii) as of the date of this
Agreement, there are no pending or, to the best knowledge of MCI,
threatened in writing material audits, examinations, investigations or
other proceedings in respect of Taxes or Tax matters relating to MCI
or any of its Subsidiaries; (iv) there are not, to the best knowledge
of MCI, any unresolved questions or claims concerning its or any
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15
of its Subsidiaries' Tax liability that, individually or in the
aggregate, would have a Material Adverse Effect on MCI and there are
no deficiencies or claims for any Taxes that have been proposed,
asserted or assessed against MCI or any of its Subsidiaries which, if
such deficiencies or claims were finally resolved against MCI or any
of its Subsidiaries would, individually or in the aggregate, have a
Material Adverse Effect on MCI; (v) neither MCI nor any of its
Subsidiaries has any liability with respect to Taxes in excess of the
amounts accrued in respect thereof that are reflected in the financial
statements included in the MCI SEC Reports, except such excess
liabilities as would not, individually or in the aggregate, have a
Material Adverse Effect on MCI; (vi) there are no material Liens for
Taxes upon the assets of MCI or any of its Subsidiaries, other than
Liens for current Taxes not yet due and payable and Liens for Taxes
that are being contested in good faith by appropriate proceedings;
(vii) neither MCI nor any of its Subsidiaries has agreed to or is
required to make any adjustment under Section 481(a) of the Code; and
(viii) neither MCI nor any of its Subsidiaries has made an election
under Section 341(f) of the Code.
(i) Subsidiaries and Equity Interests. Exhibit 21 to
MCI's Annual Report on Form 10-K for the fiscal year ended December
31, 1995 includes all the Subsidiaries of MCI as of the date of this
Agreement required to be included on such exhibit by the rules and
regulations of the SEC, were it to be filed as of the date of this
Agreement. Unless otherwise described therein, MCI owns, directly or
indirectly, beneficially and of record 100% of the issued and
outstanding voting securities of each such Subsidiary (other than
directors' qualifying shares, if any). Section 3.1(i) of the MCI
Disclosure Schedule lists each corporation, partnership, limited
liability company or similar entity with respect to which, as of the
date of this Agreement, MCI or any Subsidiary of MCI owns more than 5%
but less than a majority of the voting equity or similar voting
interest or any interest convertible into, or exchangeable or
exercisable for, more than 5% but less than a majority of the voting
equity or similar voting interest and which interest is carried on
MCI's most recent financial statements (or if not held as of the date
thereof, would be carried on MCI's financial statements if prepared as
of the date hereof) at a value in excess of $10,000,000 (collectively,
the "MCI Equity Interests"). There are no plans to restructure in any
material respect any of the MCI Equity Interests. All of the shares
of capital stock of each of the Subsidiaries and all the MCI Equity
Interests held by MCI and each Subsidiary of MCI are fully paid and
nonassessable and are owned by MCI or such Subsidiary free and clear
of any security interest, pledge, option, right of first refusal,
limitation on MCI's or such Subsidiary's voting rights, charge, claim,
lien or other encumbrance of any nature whatsoever (collectively,
"Liens"). There are no material outstanding contractual obligations
of MCI or any of its Subsidiaries to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise)
in, any Subsidiary of MCI, any entity in which MCI or any Subsidiary
of MCI owns an MCI Equity Interest, or any other Person, except such
obligations as would not require any investment or provision of funds
or assets in an
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16
amount or having a fair market value in excess of $10,000,000 for any
such investment or $50,000,000 in the aggregate for all such
investments.
(j) Absence of Certain Changes or Events.
(i) Except as disclosed in the MCI SEC Reports
filed prior to the date of this Agreement: (A) since December
31, 1995, MCI and its Subsidiaries have conducted their
respective businesses in the ordinary course consistent with
their past practices and have not incurred any material
liability, except in the ordinary course of their respective
businesses consistent with their past practices; (B) since
December 31, 1995 to the date of this Agreement, there has not
been any change in or effect on, or any event or circumstance
involving a prospective change in or effect on, the business,
financial condition or results of operations of MCI or any of
its Subsidiaries, that has had, or would have, a Material
Adverse Effect on MCI; and (C) since December 31, 1995, there
has not been any change in or effect on, or any event or
circumstance involving a prospective change in or effect on,
the business, financial condition or results of operations of
MCI or any of its Subsidiaries that has had, or is reasonably
likely to have, a material adverse effect on the business,
operations, assets, liabilities (including, without
limitation, contingent liabilities), financial condition or
results of operations of MCI and its Subsidiaries, taken as a
whole, other than as a result of (1) changes after the date of
this Agreement in general economic conditions or the
securities markets, and (2) legal or regulatory changes
effective after the date of this Agreement affecting the
telecommunications industry generally.
(ii) As of the date of this Agreement, no plans or
proposals are under consideration by MCI to announce or
implement any restructuring or other similar actions by MCI or
any of its Subsidiaries which would be reasonably likely to
result in material charges or write-offs to the consolidated
financial statements of MCI or material reductions in the
anticipated consolidated revenues or operating income of MCI.
(k) Section 203 of the DGCL Not Applicable. The Board of
Directors of MCI has approved the Merger and this Agreement, and such
approval is sufficient to render inapplicable to the Merger and this
Agreement and the transactions contemplated by this Agreement the
provisions of Section 203 of the DGCL. To the best knowledge of MCI,
no other state takeover statute or similar statute or regulation
applies or purports to apply to the Merger, this Agreement or any of
the transactions contemplated by this Agreement.
(l) Vote Required. The affirmative vote of the holders
of a majority of the outstanding shares of MCI Common Stock and the
affirmative vote of the holders of a majority of the outstanding
shares of MCI Class A Common Stock, each voting as a
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17
separate class (the "Required MCI Votes"), are the only votes of the
holders of any class or series of MCI capital stock necessary to
approve this Agreement and the transactions contemplated hereby
(assuming for purposes of this representation the accuracy of the
representations contained in Section 3.2(o), without giving effect to
the knowledge qualification thereto).
(m) MCI Rights Agreement. The MCI Rights Agreement has
been amended so as to provide that neither BT nor Merger Sub will
become an "Acquiring Person" and that no "Stock Acquisition Date" or
"Distribution Date" (as such terms are defined in the MCI Rights
Agreement) will occur as a result of the approval, execution or
delivery of this Agreement or the consummation of the Merger.
(n) Certain Agreements.
(i) All contracts listed or which would be
required to be listed as an exhibit to MCI's Annual Report on
Form 10-K under the rules and regulations of the SEC relating
to the business of MCI and its Subsidiaries and any contracts
that would be required to be so listed but for the exception
with respect to listing contracts made in the ordinary course
of business (the "MCI Material Contracts") are valid and in
full force and effect except to the extent they have
previously expired in accordance with their terms, and neither
MCI nor any of its Subsidiaries has violated any provision of,
or committed or failed to perform any act which, with or
without notice, lapse of time, or both, would constitute a
default under the provisions of, any such MCI Material
Contract, except for defaults which, individually or in the
aggregate, would not have a Material Adverse Effect on MCI.
To the best knowledge of MCI, no counterparty to any such MCI
Material Contract has violated any provision of, or committed
or failed to perform any act which, with or without notice,
lapse of time, or both, would constitute a default or other
breach under the provisions of, such MCI Material Contract,
except for defaults or breaches which, individually or in the
aggregate, would not have a Material Adverse Effect on MCI.
(ii) Except for existing agreements between MCI
and BT, as of the date of this Agreement neither MCI nor any
of its Subsidiaries nor any of their respective affiliates has
entered into any agreement or arrangement limiting or
otherwise restricting MCI or any of its Subsidiaries or any of
their respective affiliates or successors from engaging or
competing in any line of business or in any geographic area.
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18
(o) Employee Benefit Plans; Labor Matters.
(i) With respect to each employee benefit plan,
program, arrangement and contract (including, without
limitation, any "employee benefit plan," as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") and any bonus, deferred compensation,
stock bonus, stock purchase, restricted stock, stock option,
employment, termination, change in control and severance plan,
program, arrangement and contract), to which MCI or any of its
Subsidiaries is a party, which is maintained or contributed to
by MCI or any of its Subsidiaries, or with respect to which
MCI or any of its Subsidiaries could incur material liability
under Section 4069, 4201 or 4212(c) of ERISA (the "MCI Benefit
Plans"), MCI has made available to BT a true and complete copy
of (A) such MCI Benefit Plan, (B) the most recent annual
report (Form 5500) filed with the Internal Revenue Service
(the "IRS"), (C) each trust or other funding arrangement
relating to such MCI Benefit Plan, (D) the most recent summary
plan description related to each MCI Benefit Plan for which a
summary plan description is required, (E) the most recent
actuarial report (if applicable) relating to an MCI Benefit
Plan and (F) the most recent determination letter, if any,
issued by the IRS with respect to any MCI Benefit Plan
qualified under Section 401(a) of the Code.
(ii) Each of the MCI Benefit Plans that is an
"employee pension benefit plan" within the meaning of Section
3(2) of ERISA and that is intended to be qualified under
Section 401(a) of the Code has received a favorable
determination letter from the IRS, and MCI is not aware of any
circumstances likely to result in the revocation of any such
favorable determination letter that would have a Material
Adverse Effect on MCI.
(iii) With respect to the MCI Benefit Plans, no
event has occurred and, to the knowledge of MCI, there exists
no condition or set of circumstances, in connection with which
MCI or any of its Subsidiaries could be subject to any
liability under the terms of such MCI Benefit Plans, ERISA,
the Code or any other applicable law which, individually or in
the aggregate, would have a Material Adverse Effect on MCI.
(iv) MCI has made available to BT all collective
bargaining or other labor union contracts to which MCI or any
of its Subsidiaries is a party applicable to persons employed
by MCI or any of its Subsidiaries and no collective bargaining
agreement is being negotiated by MCI or any of its
Subsidiaries. There is no pending or threatened in writing
labor dispute, strike or work stoppage against MCI or any of
its Subsidiaries which may interfere with the respective
business activities of MCI or any of its Subsidiaries, except
where such dispute, strike or work stoppage would not have a
Material
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Adverse Effect on MCI. To the knowledge of MCI, neither MCI
nor any of its Subsidiaries, nor their respective
representatives or employees, has committed any unfair labor
practices in connection with the operation of the respective
businesses of MCI or any of its Subsidiaries, and there is no
pending or threatened in writing charge or complaint against
MCI or any of its Subsidiaries by the National Labor Relations
Board or any comparable state agency, except where such unfair
labor practice, charge or complaint would not have a Material
Adverse Effect on MCI.
(p) Brokers or Finders. No agent, broker, investment
banker, financial advisor or other firm or Person is or will be
entitled to any broker's or finder's fee or any other similar
commission or fee in connection with any of the transactions
contemplated by this Agreement, except Lazard Freres & Co. LLC, whose
fees and expenses will be paid by MCI in accordance with MCI's
agreement with such firm, based upon arrangements made by or on behalf
of MCI.
(q) Opinion of Financial Advisor. MCI has received the
opinion of Lazard Freres & Co. LLC, dated the date of this Agreement,
to the effect that, as of such date, the Merger Consideration is fair
to the holders of MCI Common Stock (other than BT), a copy of which
opinion has been made available to BT.
(r) Intellectual Property Rights.
(i) Neither MCI nor any of its Subsidiaries (a)
has licensed Intellectual Property Rights owned by them (or
licensed to them by a third party) to any Person in a manner
that would have a Material Adverse Effect on MCI; or (b) is in
breach of any agreements related to licenses from MCI or its
Subsidiaries of Intellectual Property Rights owned by them (or
licensed to them by a third party) which breach would have a
Material Adverse Effect on MCI, and the transactions
contemplated by this Agreement will not constitute such a
breach or otherwise reduce or impair, in any material respect,
the rights of MCI and its Subsidiaries under such license
agreements.
(ii) The terms of licenses of Intellectual
Property Rights by third parties to MCI and its Subsidiaries
are sufficient to allow MCI and its Subsidiaries to conduct,
and to continue to conduct, their businesses in all material
respects as currently conducted. Neither MCI nor any of its
Subsidiaries is in breach of any of the agreements relating to
such licenses which breach would have a Material Adverse
Effect on MCI, and the transactions contemplated by this
Agreement will not constitute such a breach or otherwise
impair, in any material respect, the rights of MCI and its
Subsidiaries under such license agreements. For purposes of
this clause (ii), joint ownership of Intellectual Property
Rights between MCI and its
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Subsidiaries, on the one hand, and any other Person, on the
other hand, shall be deemed to be a license from such Person
to MCI and its Subsidiaries.
(iii) Neither MCI nor any of its Subsidiaries has
received any written notice from any Person regarding any
actual or potential infringements by MCI or any of its
Subsidiaries of any Intellectual Property Rights of any other
Person which infringements, individually or in the aggregate,
would if proven have a Material Adverse Effect on MCI. For
purposes of this paragraph (iii), a challenge by a Person to
the ownership of Intellectual Property Rights of MCI and its
Subsidiaries shall be deemed to be an allegation by the Person
so challenging of actual or potential infringement by MCI and
its Subsidiaries.
(iv) No claims are pending or, to the best
knowledge of MCI, threatened by any Person with respect to the
ownership, validity or enforceability of any Intellectual
Property Rights or challenging or questioning the right of MCI
or any of its Subsidiaries to use any Intellectual Property
Rights, except as would not, individually or in the aggregate,
have a Material Adverse Effect on MCI.
(v) Neither MCI nor any of its Subsidiaries has,
as of the date of this Agreement, any outstanding claim
against it of an infringement, the loss of which would have a
Material Adverse Effect on MCI; and neither MCI nor any of its
Subsidiaries has made any still outstanding claim against a
Person of a violation or infringement, the loss of which would
have a Material Adverse Effect on MCI.
(vi) The ownership of Intellectual Property Rights
and the right to secure such rights (including the right to
apply for patents) currently enjoyed by MCI and its
Subsidiaries will not be affected by the transactions
contemplated by this Agreement in any manner that would have a
Material Adverse Effect on MCI.
(vii) "Intellectual Property Rights" means:
trademarks, trade names, and service marks whether registered
or not and applications to register them; patents (including
▇▇▇▇▇ patents) and applications therefor; industrial models
(including U.S. design patents and registered designs) and
applications therefor; copyrights; unregistered design rights
(in the United Kingdom and like countries); sui generis rights
in databases, semiconductor topographies and mask works; and
rights in confidential information and trade secrets.
3.2. Representations and Warranties of BT. Except as set
forth in the BT Disclosure Schedule delivered by BT to MCI at or prior to the
execution of this Agreement (the "BT Disclosure Schedule") (each section of
which qualifies the correspondingly
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numbered representation and warranty or covenant to the extent specified
therein), BT represents and warrants to MCI as follows:
(a) Organization, Standing and Power. Each of BT and
each of its Subsidiaries is a corporation duly organized and validly
existing under the laws of its jurisdiction of incorporation or
organization and each of its Subsidiaries incorporated outside the
United Kingdom is in good standing (with respect to jurisdictions
which recognize the concept of good standing) under the laws of its
jurisdiction of incorporation or organization, has all requisite power
and authority to own, lease and operate its properties and to carry on
its business as now being conducted and is duly qualified and in good
standing (with respect to jurisdictions which recognize the concept of
good standing) to do business in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties makes
such qualification necessary other than in such jurisdictions where
the failure so to qualify would not, either individually or in the
aggregate, have a Material Adverse Effect on BT. The copies of the
memorandum and articles of association of BT which were previously
furnished to MCI are true, complete and correct copies of such
documents as in effect on the date of this Agreement.
(b) Capital Structure.
(i) As of September 30, 1996, the authorized
share capital of BT consists of (A) 10,500,000,000 BT Ordinary
Shares, of which 6,347,488,575 shares have been issued and (B)
one Special Rights Redeemable Preference Share of L.1 (the
"Special Share"), which has been issued and is held by Her
Majesty's Government of the United Kingdom ("HM Government").
Since September 30, 1996 to the date of this Agreement, there
have been no issuances of shares of BT or any other securities
of BT other than issuances of shares pursuant to options or
rights outstanding as of such date to subscribe or purchase BT
Ordinary Shares. All issued shares of BT are duly authorized,
validly issued and fully paid, and no class of share is
entitled to preemptive rights, save as provided by Section 89
Companies ▇▇▇ ▇▇▇▇ of the United Kingdom (the "Companies
Act"). There were outstanding as of September 30, 1996 no
options, warrants or other rights to acquire share capital
from BT other than options representing, in the aggregate, the
right to subscribe or purchase 277,400,188 BT Ordinary Shares.
No options or warrants or other rights to acquire share
capital from BT have been issued or granted since September
30, 1996 to the date of this Agreement.
(ii) As of the date of this Agreement, no bonds,
debentures, notes or other indebtedness of BT having the right
to vote on any matters on which shareholders may vote ("BT
Voting Debt") are issued or outstanding.
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(iii) Except as otherwise set forth in this Section
3.2(b), as of the date of this Agreement, there are no
securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which
BT or any of its Subsidiaries is a party or by which any of
them is bound obligating BT or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares or other voting securities of BT or
any of its Subsidiaries or obligating BT or any of its
Subsidiaries to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. As of the date of this Agreement,
there are no outstanding obligations of BT or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any
shares of BT or any of its Subsidiaries, except such
obligations of BT with respect to shares of its wholly owned
Subsidiaries or of wholly owned Subsidiaries of BT with
respect to shares of other wholly owned Subsidiaries of BT.
(c) Authority; No Conflicts.
(i) BT has all requisite corporate power and
authority to enter into this Agreement and, subject to
approval of the Merger by the Required BT Vote, to consummate
the transactions contemplated hereby. 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 BT, subject to
the approval by the shareholders of BT of the Merger and this
Agreement and the matters referred to in Section 5.16 and the
creation and issue of a sufficient amount of authorized
ordinary share capital of BT, the granting of authority
pursuant to Section 80 Companies Act and the issuance upon
conversion of MCI Common Stock, of BT ADSs, appropriate
alterations to the Articles of Association of BT and the
change of name referred to in Section 5.17. This Agreement
has been duly executed and delivered by BT and constitutes a
valid and binding agreement of BT, enforceable against it in
accordance with its terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting
creditors generally, by general equity principles (regardless
of whether such enforceability is considered in a proceeding
in equity or at law) or by an implied covenant of good faith
and fair dealing.
(ii) The execution and delivery of this Agreement
does not or will not, as the case may be, and the consummation
of the transactions contemplated hereby will not, result in
any Violation of: (A) any provision of the memorandum or
articles of association of BT or comparable charter or
organizational documents of any Subsidiary of BT or (B) except
as would not have a Material Adverse Effect on BT and subject
to obtaining or making the consents, approvals, orders,
authorizations, registrations, declarations and
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filings referred to in paragraph (iii) below, any loan or
credit agreement, note, mortgage, bond, indenture, lease,
benefit plan or other agreement, obligation, instrument,
permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable
to BT or any Subsidiary of BT or their respective properties
or assets.
(iii) No consent, approval, order or authorization
of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to BT or
any Subsidiary of BT in connection with the execution and
delivery of this Agreement by BT or the consummation by BT of
the transactions contemplated hereby, except for (A) the
Required Consents, (B) the appropriate applications, filings
and notices to, and approval of, the LSE and the NYSE, (C)
those required under the Companies Act and the FSA, (D) the
consent of H.M. Treasury pursuant to Section 765(1)(c) of the
Income and Corporation Taxes Act 1988 and (E) such consents,
approvals, orders, authorizations, registrations, declarations
and filings the failure of which to make or obtain would not
have a Material Adverse Effect on BT.
(d) Reports and Financial Statements.
(i) BT has filed all required reports, schedules,
forms, statements and other documents required to be filed by
it with the SEC since April 1, 1995 (collectively, including
all exhibits thereto, the "BT SEC Reports"). No Subsidiary of
BT is required to file any form, report or other document with
the SEC. None of the BT SEC Reports, as of their respective
dates (and, if amended or superseded by a filing prior to the
date of this Agreement or of the Closing Date, then on the
date of such filing), contained or will contain any untrue
statement of a material fact or omitted or will omit to state
a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading. Each of the
financial statements (including the related notes) included in
the BT SEC Reports presents fairly, in all material respects,
the consolidated financial position and consolidated results
of operations and cash flows of BT and its Subsidiaries as of
the respective dates or for the respective periods set forth
therein, all in conformity with accounting principles and
practices generally accepted in the United Kingdom ("UK GAAP")
consistently applied during the periods involved, except as
otherwise noted therein. The financial information contained
in the unaudited interim financial statements for the three
months ended June 30, 1996 has been prepared with all due care
and attention and in accordance with UK GAAP (on a basis
consistent with the financial statements included in the BT
SEC Reports) insofar as appropriate in the preparation of an
unaudited interim statement and all statements of fact
contained in such statement relating to BT and its
Subsidiaries are, in the context of such statement, true and
accurate in all material respects and not
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misleading in any material respect and all expressions of
opinion, intention and expectation contained therein are fair
and honestly held and have been made after due and careful
enquiry and consideration. All of the BT SEC Reports, as of
their respective dates (and as of the date of any amendment to
the respective BT SEC Report), complied as to form in all
material respects with the applicable requirements of the
Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder.
(ii) Except as set forth in the BT SEC Reports
filed prior to the date of this Agreement, and except for
liabilities and obligations incurred in the ordinary course of
business consistent with past practice since March 31, 1996,
neither BT nor any of its Subsidiaries has any liabilities or
obligations of any nature (whether accrued, absolute,
contingent or otherwise) which, individually or in the
aggregate, would have a Material Adverse Effect on BT or would
prevent or materially delay the performance of this Agreement
by BT.
(e) Information Supplied.
(i) None of the information supplied or to be
supplied by BT for inclusion or incorporation by reference in
(A) the Form F-4 will, at the time the Form F-4 is filed with
the SEC, at any time it is amended or supplemented or at the
time it becomes effective under the Securities Act, contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading and (B) the Proxy
Statement/Prospectus and, if applicable, the Schedule 13E-3
will, at the date it is first mailed to MCI stockholders or at
the time of the MCI Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances
under which they were made, not misleading. The BT Disclosure
Document and any supplements thereto and any other circulars
or documents issued to shareholders, employees or
debentureholders of BT will contain all particulars relating
to BT and MCI required to comply in all material respects with
all United Kingdom statutory and other legal provisions
(including, without limitation, the Companies Act, the FSA and
the rules and regulations made thereunder and the rules and
requirements of the LSE) and all such information contained in
such documents will be substantially in accordance with the
facts and will not omit anything material likely to affect the
import of such information. The Form F-4 and the Proxy
Statement/Prospectus will comply as to form in all material
respects with the requirements of the Exchange Act and the
Securities Act and the rules and regulations of the SEC
thereunder.
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(ii) The information supplied or to be supplied by
BT for inclusion in the BT Disclosure Document will, on the
date the BT Disclosure Document is first mailed to
shareholders of BT, and at the time of the BT Shareholder
Meeting, comply with the provisions of section 146 of the FSA.
(iii) Notwithstanding the foregoing provisions of
this Section 3.2(e), no representation or warranty is made by
BT with respect to statements made or incorporated by
reference in the Form F-4, the Proxy Statement/Prospectus, the
Schedule 13E-3 (if applicable) or the BT Disclosure Document
based on information supplied by MCI for inclusion or
incorporation by reference therein.
(f) Compliance with Applicable Laws; Regulatory Matters.
BT and its Subsidiaries hold all permits, licenses, certificates,
franchises, registrations, variances, exemptions, orders and approvals
of all Governmental Entities which are material to the operation of
the businesses of BT and its Subsidiaries, taken as a whole (the "BT
Permits"). BT and its Subsidiaries are in compliance with the terms
of the BT Permits, except where the failure so to comply, individually
or in the aggregate, would not have a Material Adverse Effect on BT.
Except as disclosed in the BT SEC Reports filed prior to the date of
this Agreement, the businesses of BT and its Subsidiaries are not
being and have not been conducted in violation of any law, ordinance,
regulation, judgment, decree, injunction, rule or order of any
Governmental Entity, except for violations which, individually or in
the aggregate, would not have a Material Adverse Effect on BT. As of
the date of this Agreement, no investigation (other than with respect
to Taxes) by any Governmental Entity with respect to BT or any of its
Subsidiaries is pending or, to the best knowledge of BT, threatened,
other than investigations which, individually or in the aggregate,
would not have a Material Adverse Effect on BT. Since December 31,
1994, BT and each of its Subsidiaries required to make filings under
all applicable laws regulating the telephone, mobile cellular, paging
or other telecommunications business has filed with all applicable
Governmental Entities all material forms, statements, reports and
documents (including exhibits, annexes and any amendments thereto)
required to be filed by them, and each such filing complied with all
applicable laws, rules and regulations, except for such noncompliance
which would not, individually or in the aggregate, have a Material
Adverse Effect on BT or prevent or materially delay the performance of
this Agreement by BT.
(g) Litigation. Except as disclosed in the BT SEC
Reports filed prior to the date of this Agreement, there is no
litigation, arbitration, claim, suit, action, investigation or
proceeding pending or, to the knowledge of BT, threatened, against or
affecting BT or any Subsidiary of BT which, individually or in the
aggregate, has had or would have a Material Adverse Effect on BT, nor
is there any judgment, award, decree, injunction, rule or order of any
Governmental Entity or arbitrator
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outstanding against BT or any Subsidiary of BT which, individually or
in the aggregate, has had or would have a Material Adverse Effect on
BT.
(h) Taxes. (i) BT and each of its Subsidiaries have
prepared in good faith and duly and timely filed (taking into account
any extension of time within which to file) all material Tax Returns
required to be filed by any of them and all such filed Tax Returns are
complete and accurate in all material respects; (ii) BT and each of
its Subsidiaries have paid all Taxes that are shown as due on such
filed Tax Returns or that BT or any of its Subsidiaries is obligated
to withhold from amounts owing to any employee, creditor or third
party, except with respect to matters contested in good faith or for
such amounts that, individually or in the aggregate, would not have a
Material Adverse Effect on BT; (iii) as of the date of this Agreement,
there are no pending or, to the best knowledge of BT, threatened in
writing material audits, examinations, investigations or other
proceedings in respect of Taxes or Tax matters relating to BT or any
of its Subsidiaries; (iv) there are not, to the best knowledge of BT,
any unresolved questions or claims concerning its or any of its
Subsidiaries' Tax liability that would, individually or in the
aggregate, have a Material Adverse Effect on BT and there are no
deficiencies or claims for any Taxes that have been proposed, asserted
or assessed against BT or any of its Subsidiaries which, if such
deficiencies or claims were finally resolved against BT or any of its
Subsidiaries, would, individually or in the aggregate, have a Material
Adverse Effect on BT; (v) neither BT nor any of its Subsidiaries has
any liability with respect to Taxes in excess of the amounts accrued
in respect thereof that are reflected in the financial statements
included in the BT SEC Reports, except such excess liabilities as
would not, individually or in the aggregate, have a Material Adverse
Effect on BT; and (vi) there are no material Liens for Taxes upon the
assets of BT or any of its Subsidiaries, other than Liens for current
Taxes not yet due and payable and Liens for Taxes that are being
contested in good faith by appropriate proceedings.
(i) Subsidiaries and Equity Interests. Note 31 of the
Consolidated Financial Statements of BT filed as part of BT's Annual
Report on Form 20-F for the fiscal year ended March 31, 1996 includes
all the Subsidiaries of BT as of the date of this Agreement required
to be included on such exhibit by the rules and regulations of the
SEC, were it to be filed on the date of this Agreement. Unless
otherwise described therein, BT owns, directly or indirectly,
beneficially and of record 100% of the issued and outstanding voting
securities of each such Subsidiary (other than directors' qualifying
shares, if any). Section 3.2(i) of the BT Disclosure Schedule lists
each corporation, partnership, limited liability company or similar
entity with respect to which, as of the date of this Agreement, BT or
any Subsidiary of BT owns more than 5% but less than a majority of the
voting equity or similar voting interest or any interest convertible
into, or exchangeable or exercisable for, more than 5% but less than a
majority of the voting equity or similar voting interest and which
interest is carried on BT's most recent financial statements (or if
not held as of the date thereof, would be carried on BT's financial
statements if prepared as of the date
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hereof) at a value in excess of Pounds Sterling 10,000,000
(collectively, the "BT Equity Interests"). There are no plans to
restructure in any material respect any of the BT Equity Interests.
All of the shares of capital stock of each of the Subsidiaries and all
of the BT Equity Interests held by BT and each Subsidiary of BT are
fully paid and nonassessable (with respect to jurisdictions that
recognize the concept of nonassessability) and are owned by BT or such
Subsidiary free and clear of any Lien. There are no outstanding
contractual obligations of BT or any of its Subsidiaries to provide
funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any Subsidiary of BT (other than wholly
owned Subsidiaries of BT), any entity in which BT or any Subsidiary of
BT owns a BT Equity Interest, or any other Person, except such
obligations as would not require any investment or provision of funds
or assets in an amount or having a fair market value in excess of
Pounds Sterling 10,000,000 for any such investment or Pounds
Sterling 50,000,000 in the aggregate for all such investments.
(j) Absence of Certain Changes or Events.
(i) Except as disclosed in the BT SEC Reports
filed and publicly available prior to the date of this
Agreement or disclosed in LSE announcements prior to the date
of this Agreement: (A) since March 31, 1996, BT and its
Subsidiaries have conducted their respective businesses in the
ordinary course consistent with their past practices and have
not incurred any material liability, except in the ordinary
course of their respective businesses consistent with their
past practices; (B) since March 31, 1996 to the date of this
Agreement, there has not been any change in or effect on, or
any event or circumstance involving a prospective change in or
effect on, the business, financial condition or results of
operations of BT or any of its Subsidiaries, that has had, or
would have, a Material Adverse Effect on BT; and (C) since
March 31, 1996, there has not been any change in or effect on,
or any event or circumstance involving a prospective change in
or effect on, the business, financial condition or results of
operations of BT or any of its Subsidiaries that has had, or
is reasonably likely to have, a material adverse effect on the
business, operations, assets, liabilities (including, without
limitation, contingent liabilities), financial condition or
results of operations of BT and its Subsidiaries, taken as a
whole, other than as a result of (1) changes after the date of
this Agreement in general economic conditions or the
securities markets, and (2) legal or regulatory changes
effective after the date of this Agreement affecting the
telecommunications industry generally.
(ii) As of the date of this Agreement, no plans or
proposals are under consideration by BT to announce or
implement any restructuring or other similar actions by BT or
any of its Subsidiaries which would be reasonably likely to
result in material charges or write-offs to the consolidated
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financial statements of BT or material reductions in the
anticipated consolidated revenues or operating income of BT.
(k) Vote Required. The affirmative vote of not less than
three-fourths of such members of BT as (being entitled to do so) vote
at the BT Shareholder Meeting (the "Required BT Vote") is the only
vote or approval of the holders of any class of BT shares necessary to
approve this Agreement and the transactions contemplated hereby.
(l) Certain Agreements.
(i) All contracts listed or which would be
required to be listed as an exhibit to BT's most recent Annual
Report on Form 20-F under the rules and regulations of the SEC
relating to the business of BT and its Subsidiaries and any
contracts that would be required to be so listed but for the
exception with respect to listing contracts made in the
ordinary course of business (the "BT Material Contracts") are
valid and in full force and effect except to the extent they
have previously expired in accordance with their terms, and
neither BT nor any of its Subsidiaries has violated any
provision of, or committed or failed to perform any act which,
with or without notice, lapse of time, or both, would
constitute a default under the provisions of, any BT Material
Contract, except for defaults which, individually or in the
aggregate, would not have a Material Adverse Effect on BT. To
the best knowledge of BT, no counterparty to any such BT
Material Contract has violated any provision of, or committed
or failed to perform any act which, with or without notice,
lapse of time, or both, would constitute a default or other
breach under the provisions of, such BT Material Contract,
except for defaults or breaches which, individually or in the
aggregate, would not have a Material Adverse Effect on BT.
(ii) Except for existing agreements between MCI
and BT, as of the date of this Agreement neither BT nor any of
its Subsidiaries nor any of their respective affiliates has
entered into any agreement or arrangement limiting or
otherwise restricting BT or any of its Subsidiaries or any of
their respective affiliates or successors from engaging or
competing in any line of business or in any geographic area.
(m) Employee Benefit Plans; Labor Matters.
(i) Trade Disputes. Neither BT nor any of its
Subsidiaries is involved in, and, to the knowledge of BT,
there are no circumstances likely to give rise to, any
industrial or trade dispute or any dispute or negotiation
regarding a claim of material importance with any trade union
or other body which has had or would have a Material Adverse
Effect on BT.
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(ii) Pensions. BT has made available to MCI
copies, as of the date of this Agreement, of: (A) the current
trust deeds and rules of each of the material schemes to which
BT and its Subsidiaries make or could become liable to make
payments for providing retirement, death, disability or life
assurance benefits (the "BT Schemes") (including any draft
amendments); (B) the most recently prepared explanatory
booklets and announcements relating to each of the BT Schemes;
and (C) a copy of the actuary's report on the latest actuarial
valuation of the BT Schemes, if applicable. With respect to
the BT Schemes, no event has occurred and, to the knowledge of
BT, there exists no condition or set of circumstances, in
connection with which BT or any of its Subsidiaries could be
subject to any liability under the terms of such BT Schemes,
the Pension Schemes Act of 1993 or any other applicable law
which, individually or in the aggregate, would have a Material
Adverse Effect on BT.
(n) Brokers or Finders. No agent, broker, investment
banker, financial advisor or other firm or Person is or will be
entitled to any broker's or finder's fee or any other similar
commission or fee in connection with any of the transactions
contemplated by this Agreement, except N M Rothschild & Sons Limited,
Rothschild Inc., ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. Limited and Cazenove & Co.,
whose fees and expenses will be paid by BT in accordance with BT's
agreements with such firms, based upon arrangements made by or on
behalf of BT.
(o) Ownership of MCI Common Stock. As of the date of
this Agreement, except as contemplated by that certain Amended and
Restated Investment Agreement dated as of January 31, 1994 (the
"Investment Agreement") between BT and MCI, neither BT nor, to the
best of its knowledge, any of its affiliates or associates (as such
terms are defined under the Exchange Act) (i) beneficially owns,
directly or indirectly or (ii) is party to any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting or
disposing of, in case of either clause (i) or (ii), shares of capital
stock of MCI.
(p) Intellectual Property Rights.
(i) Neither BT nor any of its Subsidiaries (a)
has licensed Intellectual Property Rights owned by them (or
licensed to them by a third party) to any Person in a manner
that would have a Material Adverse Effect on BT; or (b) is in
breach of any agreements related to licenses from BT or its
Subsidiaries of Intellectual Property Rights owned by them (or
licensed to them by a third party) which breach would have a
Material Adverse Effect on BT, and the transactions
contemplated by this Agreement will not constitute such a
breach or otherwise reduce or impair, in any material respect,
the rights of BT and its Subsidiaries under such license
agreements.
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(ii) The terms of licenses of Intellectual
Property Rights by third parties to BT and its Subsidiaries
are sufficient to allow BT and its Subsidiaries to conduct,
and to continue to conduct, their businesses in all material
respects as currently conducted. Neither BT nor any of its
Subsidiaries is in breach of any of the agreements relating to
such licenses which breach would have a Material Adverse
Effect on BT, and the transactions contemplated by this
Agreement will not constitute such a breach or otherwise
impair, in any material respect, the rights of BT and its
Subsidiaries under such license agreements. For purposes of
this clause (ii), joint ownership of Intellectual Property
Rights between BT and its Subsidiaries, on the one hand, and
any other Person, on the other hand, shall be deemed to be a
license from such Person to BT and its Subsidiaries.
(iii) Neither BT nor any of its Subsidiaries has
received any written notice from any Person regarding any
actual or potential infringements by BT or any of its
Subsidiaries of any Intellectual Property Rights of any other
Person which infringements, individually or in the aggregate,
would if proven have a Material Adverse Effect on BT. For
purposes of this paragraph (iii), a challenge by a Person to
the ownership of Intellectual Property Rights of BT and its
Subsidiaries shall be deemed to be an allegation by the Person
so challenging of actual or potential infringement by BT and
its Subsidiaries.
(iv) No claims are pending or, to the best
knowledge of BT, threatened by any Person with respect to the
ownership, validity or enforceability of any Intellectual
Property Rights or challenging or questioning the right of BT
or any of its Subsidiaries to use any Intellectual Property
Rights, except as would not, individually or in the aggregate,
have a Material Adverse Effect on BT.
(v) Neither BT nor any of its Subsidiaries has,
as of the date of this Agreement, any outstanding claim
against it of an infringement, the loss of which would have a
Material Adverse Effect on BT; and neither BT nor any of its
Subsidiaries has made any still outstanding claim against a
Person of a violation or infringement, the loss of which would
have a Material Adverse Effect on BT.
(vi) The ownership of Intellectual Property Rights
and the right to secure such rights (including the right to
apply for patents) currently enjoyed by BT and its
Subsidiaries will not be affected by the transactions
contemplated by this Agreement in any manner that would have a
Material Adverse Effect on BT.
3.3. Representations and Warranties of BT and Merger Sub.
BT and Merger Sub represent and warrant to MCI as follows:
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(a) Organization and Corporate Power. Merger Sub is a
corporation duly incorporated, validly existing and in good standing
under the laws of Delaware.
(b) Corporate Authorization. Merger Sub has all
requisite corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby. The
execution, delivery and performance by Merger Sub of this Agreement
and the consummation by Merger Sub of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on
the part of Merger Sub. This Agreement has been duly executed and
delivered by Merger Sub and constitutes a valid and binding agreement
of Merger Sub, enforceable against it in accordance with its terms,
except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating
to or affecting creditors generally, by general equity principles
(regardless of whether such enforceability is considered in a
proceeding in equity or at law) or by an implied covenant of good
faith and fair dealing.
(c) Non-Contravention. The execution, delivery and
performance by Merger Sub of this Agreement and the consummation by
Merger Sub of the transactions contemplated hereby do not and will not
contravene or conflict with the certificate of incorporation or
by-laws of Merger Sub.
(d) No Business Activities. Merger Sub has not conducted
any activities other than in connection with the organization of
Merger Sub, the negotiation and execution of this Agreement and the
consummation of the transactions contemplated hereby. Merger Sub has
no Subsidiaries.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1. Covenants of MCI. During the period from the date of
this Agreement and continuing until the Effective Time, MCI agrees as to itself
and its Subsidiaries that (except as expressly contemplated or permitted by
this Agreement or as otherwise indicated on the MCI Disclosure Schedule or to
the extent that BT shall otherwise consent in writing):
(a) Ordinary Course.
(i) MCI and its Subsidiaries shall carry on their
respective businesses in the usual, regular and ordinary
course in all material respects, in substantially the same
manner as heretofore conducted, and shall use all reasonable
efforts to preserve intact their present lines of business,
maintain their rights and franchises and preserve their
relationships with customers,
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suppliers and others having business dealings with them to the
end that their ongoing businesses shall not be impaired in any
material respect at the Effective Time; provided, however,
that no action by MCI or its Subsidiaries with respect to
matters specifically addressed by any other provision of this
Section 4.1 shall be deemed a breach of this Section 4.1(a)(i)
unless such action would constitute a breach of one or more of
such other provisions.
(ii) MCI shall not, and shall not permit any of
its Subsidiaries to, (A) enter into any new material line of
business or (B) incur or commit to any capital expenditures
other than capital expenditures incurred or committed to in
the ordinary course of business consistent with past practice
and which, together with all such expenditures incurred or
committed to during any fiscal year, are not in excess of 115%
of the aggregate amounts set forth in Section 4.1(a) of the
MCI Disclosure Schedule.
(b) Dividends; Changes in Share Capital. MCI shall not,
and shall not permit any of its Subsidiaries to, and shall not propose
to, (i) declare or pay any dividends on or make other distributions in
respect of any of its capital stock, except (A) MCI may continue the
declaration and payment of regular semiannual cash dividends not in
excess of $0.025 per share of MCI Common Stock, in each case with
usual record and payment dates for such dividends in accordance with
MCI's past practice and (B) dividends by wholly owned Subsidiaries of
MCI, (ii) split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for, shares of its capital
stock, except for any such transaction by a wholly owned Subsidiary of
MCI which remains a wholly owned Subsidiary after consummation of such
transaction, or (iii) repurchase, redeem or otherwise acquire any
shares of its capital stock or any securities convertible into or
exercisable for any shares of its capital stock except for the
purchase from time to time by MCI of MCI Common Stock in the ordinary
course of business consistent with past practice in connection with
the MCI Benefit Plans.
(c) Issuance of Securities. Except as set forth in
Sections 5.8 and 5.9(b), MCI shall not and shall not permit any of its
Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock of any
class, any MCI Voting Debt or any securities convertible into or
exercisable for, or any rights, warrants or options to acquire, any
such shares or MCI Voting Debt, or enter into any agreement with
respect to any of the foregoing and shall not amend any equity-
related awards issued pursuant to the MCI Benefit Plans, other than
(i) the issuance of MCI Common Stock (and the associated Rights) upon
the exercise of stock options issued in the ordinary course of
business and consistent with past practice in accordance with the
terms of the MCI Stock Option Plans as in effect on the date of this
Agreement, (ii) issuances by a wholly owned Subsidiary of MCI of
capital stock to such Subsidiary's parent and (iii) issuances of
options, rights or other awards, and amendments to equity-related
awards, in the ordinary course of business
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and consistent with past practice pursuant to the MCI Stock Option
Plans as in effect on the date of this Agreement.
(d) Governing Documents. Except to the extent required
to comply with their respective obligations hereunder, required by law
or required by the rules and regulations of NASDAQ, MCI and its
Subsidiaries shall not amend or propose to amend their respective
certificates of incorporation, by-laws or other governing documents.
(e) No Acquisitions. Other than acquisitions in existing
or related lines of business of MCI the fair market value of the total
consideration (including the value of indebtedness or other liability
acquired or assumed) for which does not exceed $50,000,000
individually or $200,000,000 in the aggregate, MCI shall not, and
shall not permit any of its Subsidiaries to, acquire or agree to
acquire by merging or consolidating with, or by purchasing a
substantial equity interest in or a substantial portion of the assets
of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof or otherwise acquire or agree to acquire any assets (other
than the acquisition of assets used in the operations of the business
of MCI and its Subsidiaries in the ordinary course); provided,
however, that the foregoing shall not prohibit (x) internal
reorganizations or consolidations involving existing Subsidiaries of
MCI or (y) the creation of new Subsidiaries of MCI organized to
conduct or continue activities otherwise permitted by this Agreement.
(f) No Dispositions. Other than (i) internal
reorganizations or consolidations involving existing Subsidiaries of
MCI, (ii) dispositions referred to in MCI SEC Reports filed prior to
the date of this Agreement and (iii) as may be required by law in
order to permit the consummation of the transactions contemplated
hereby, MCI shall not, and shall not permit any Subsidiary of MCI to,
sell, lease, encumber or otherwise dispose of, or agree to sell,
lease, encumber or otherwise dispose of, any of its assets (including
capital stock of Subsidiaries of MCI) which are material, individually
or in the aggregate, to MCI.
(g) Indebtedness. MCI shall not, and shall not permit
any of its Subsidiaries to, (i) incur or suffer to exist any
indebtedness for borrowed money or guarantee any such indebtedness or
issue or sell any debt securities or warrants or rights to acquire any
debt securities of MCI or any of its Subsidiaries or guarantee any
debt securities of other Persons other than indebtedness of MCI or any
Subsidiary of MCI to MCI or any wholly owned Subsidiary of MCI and
other than as permitted pursuant to Section 4.1(g) of the MCI
Disclosure Schedule, (ii) make any loans, advances or capital
contributions to, or investments in, any other Person, other than by
MCI or a Subsidiary of MCI to or in MCI or any Subsidiary of MCI or
(iii) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise),
other than in the case of clauses (ii) and (iii),
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loans, advances, capital contributions, investments, payments,
discharges or satisfactions incurred or committed to in the ordinary
course of business consistent with past practice.
(h) Benefit Plans. Subject to Sections 5.8 and 5.9(b),
MCI shall not, and shall not permit any of its Subsidiaries to, (i)
increase the compensation payable or to become payable to any of its
executive officers or employees or (ii) take any action with respect
to the grant of any severance or termination pay, or stay, bonus or
other incentive arrangement (other than pursuant to benefit plans and
policies in effect on the date of this Agreement), except any such
increases or grants made in the ordinary course of business and in
accordance with past practice.
(i) Other Actions. MCI shall not, and shall not permit
any of its Subsidiaries to, take any action that would, or that could
reasonably be expected to, result in (i) any of the representations or
warranties of MCI set forth in this Agreement that are qualified as to
materiality becoming untrue, (ii) any of such representations or
warranties that are not so qualified becoming untrue in any material
respect or (iii) except as otherwise permitted by Section 5.7, any of
the conditions to the Merger set forth in Article VI not being
satisfied.
(j) Accounting Methods; Income Tax Elections. Except as
disclosed in MCI SEC Reports filed prior to the date of this
Agreement, or as required by a Governmental Entity, MCI shall not
change its methods of accounting in effect at December 31, 1995,
except as required by changes in US GAAP as concurred in by MCI's
independent auditors. MCI shall not (i) change its fiscal year or
(ii) make any material Tax election, other than in the ordinary course
of business consistent with past practice, without consultation with
BT.
(k) Tax-Free Qualification. MCI shall not, and shall not
permit any of its Subsidiaries to, take any action that would prevent
or impede (i) the Merger from qualifying as a tax-free reorganization
under Section 368 of the Code or (ii) either party from obtaining the
Required Consents.
(l) Certain Agreements. MCI shall not, and shall not
permit any of its Subsidiaries to, enter into any agreement or
arrangement that limits or otherwise restricts MCI or any of its
Subsidiaries or any of their respective affiliates or any successor
thereto or that could, after the Closing, limit or restrict BT or any
of its affiliates or any successor thereto from engaging or competing
in any line of business or in any geographic area.
4.2. Covenants of BT. During the period from the date of
this Agreement and continuing until the Effective Time, BT agrees as to itself
and its Subsidiaries that (except as expressly contemplated or permitted by
this Agreement or as otherwise indicated on the BT Disclosure Schedule or to
the extent that MCI shall otherwise consent in writing):
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(a) Ordinary Course.
(i) BT and its Subsidiaries shall carry on their
respective businesses in the usual, regular and ordinary
course in all material respects, in substantially the same
manner as heretofore conducted, and shall use all reasonable
efforts to preserve intact their present lines of business,
maintain their rights and franchises and preserve their
relationships with customers, suppliers and others having
business dealings with them to the end that their ongoing
businesses shall not be impaired in any material respect at
the Effective Time; provided, however, that no action by BT or
its Subsidiaries with respect to matters specifically
addressed by any other provision of this Section 4.2 shall be
deemed a breach of this Section 4.2(a) unless such action
would constitute a breach of one or more of such other
provisions.
(ii) BT shall not, and shall not permit any of its
Subsidiaries to, (A) enter into any new material line of
business or (B) incur or commit to any capital expenditures
other than capital expenditures incurred or committed to in
the ordinary course of business consistent with past practice
and which, together with all such expenditures incurred or
committed to during any fiscal year, are not in excess of 115%
of the aggregate amount of capital expenditures reflected in
BT's capital expenditure budget for the applicable fiscal
year.
(b) Dividends; Changes in Stock. BT shall not, and shall
not permit any of its Subsidiaries to, and shall not propose to, (i)
declare or pay any dividends on or make other distributions in respect
of any of its share capital, except (A) BT may continue the declaration
and payment of regular semiannual cash dividends in amounts consistent
with past practice (including increases in such amounts in accordance
with past practice), in each case with usual record and payment dates
for such dividends in accordance with BT's past dividend practice,
provided that, notwithstanding the exception in Section 4.2(b)(i)(A),
BT shall in respect of the Second Dividend notify the LSE to ▇▇▇▇ the
BT Ordinary Shares "ex-dividend" in the Stock Exchange Daily Official
List on a date prior to the Effective Time, (B) dividends by wholly
owned Subsidiaries of BT and (C) BT may declare and pay one or more
special dividends in an aggregate amount not to exceed 35 ▇▇▇▇▇ per BT
Ordinary Share (net), (ii) split, combine or reclassify any of its
share capital or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for
shares, except for any such transaction by a wholly owned Subsidiary of
BT which remains a wholly owned Subsidiary after consummation of such
transaction, or (iii) repurchase, redeem or otherwise acquire, or
permit any Subsidiary of BT to purchase or otherwise acquire, any
shares of its capital stock or any securities convertible into or
exercisable for any shares of its capital stock except the purchase
from time to time by BT of BT Ordinary Shares in the ordinary course of
business consistent with past practice in
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connection with share options, share incentive schemes or profit
sharing schemes of BT.
(c) Issuance of Securities. BT shall not, and shall not
permit any of its Subsidiaries to, issue, deliver or sell, or
authorize or propose the issuance, delivery or sale of, any shares of
any class, any BT Voting Debt or any securities convertible into or
exercisable for, or any rights, warrants or options to acquire, any
such shares or BT Voting Debt, or enter into any agreement with
respect to any of the foregoing, other than (i) the issuance of BT
Ordinary Shares upon the exercise of stock options, (ii) issuances by
a wholly owned Subsidiary of BT of share capital to such Subsidiary's
parent or to another wholly owned Subsidiary of BT and (iii) issuances
of options, rights or other awards pursuant to the BT benefit plans as
in effect from time to time.
(d) Governing Documents. Except to the extent required
to comply with their respective obligations hereunder, required by law
or required by the rules and regulations of the LSE or the NYSE, BT
and its Subsidiaries shall not amend or propose to amend their
respective memoranda and articles of association or other governing
documents in any manner which would be adverse (i) to the interests of
MCI or the stockholders of MCI, unless such amendment is equally
adverse to the shareholders of BT or (ii) to MCI's ability to
consummate the transactions contemplated hereby.
(e) No Acquisitions. Other than acquisitions in existing
or related lines of business of BT the fair market value of the total
consideration (including the value of indebtedness or other liability
acquired or assumed) for which does not exceed Pounds Sterling
50,000,000 individually or Pounds Sterling 200,000,000 in the
aggregate, BT shall not, and shall not permit any of its Subsidiaries
to, acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof or otherwise acquire or agree to acquire any assets (other than
the acquisition of assets used in the operations of the business of BT
and its Subsidiaries in the ordinary course); provided, however, that
the foregoing shall not prohibit (x) internal reorganizations or
consolidations involving existing Subsidiaries of BT or (y) the
creation of new Subsidiaries of BT organized to conduct or continue
activities otherwise permitted by this Agreement.
(f) No Dispositions. Other than (i) internal
reorganizations or consolidations involving existing Subsidiaries of
BT, (ii) dispositions referred to in BT SEC Reports filed prior to the
date of this Agreement and (iii) as may be required by law in order to
permit the consummation of the transactions contemplated hereby, BT
shall not, and shall not permit any Subsidiary of BT to, sell, lease,
encumber or otherwise dispose of, or agree to sell, lease, encumber or
otherwise dispose of, any of
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its assets (including capital stock of Subsidiaries of BT) which are
material, individually or in the aggregate, to BT.
(g) Indebtedness. BT shall not, and shall not permit any
of its Subsidiaries to, (i) incur or suffer to exist any indebtedness
for borrowed money or guarantee any such indebtedness or issue or sell
any debt securities or warrants or rights to acquire any debt
securities of BT or any of its Subsidiaries or guarantee any debt
securities of other Persons other than indebtedness of BT or any
Subsidiary of BT to BT or any wholly owned Subsidiary of BT and other
than as permitted pursuant to Section 4.2(g) of the BT Disclosure
Schedule, (ii) make any loans, advances or capital contributions to,
or investments in, any other Person, other than by BT or a Subsidiary
of BT to or in BT or any Subsidiary of BT or (iii) pay, discharge or
satisfy any claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than in the
case of clauses (ii) and (iii), loans, advances, capital
contributions, investments, payments, discharges or satisfactions
incurred or committed to in the ordinary course of business consistent
with past practice.
(h) Benefit Plans. BT shall, to the extent permitted by
law or regulations or any applicable confidentiality agreement,
consult with MCI in advance with respect to any proposed material
changes in BT's benefits plans, and shall consider in good faith MCI's
views with respect to the foregoing.
(i) Other Actions. BT shall not, and shall not permit
any of its Subsidiaries to, take any action that would, or that could
reasonably be expected to, result in (i) any of the representations or
warranties of BT set forth in this Agreement that are qualified as to
materiality becoming untrue, (ii) any of such representations or
warranties that are not so qualified becoming untrue in any material
respect or (iii) except as otherwise permitted by Section 5.7, any of
the conditions to the Merger set forth in Article VI not being
satisfied.
(j) Accounting Methods; Income Tax Elections. Except as
disclosed in BT SEC Reports filed prior to the date of this Agreement,
or as required by a Governmental Entity, BT shall not change its
accounting policies in effect at March 31, 1996, except as required or
permitted by changes in UK GAAP as concurred in by BT's independent
auditors. BT shall not (i) change its fiscal year (unless otherwise
required by law) or (ii) make any material Tax elections, other than
in the ordinary course of business consistent with past practice,
without consultation with MCI.
(k) Tax-Free Qualification. BT shall not, and shall not
permit any of its Subsidiaries to, take any action that would prevent
or impede (i) the Merger from qualifying as a tax-free reorganization
under Section 368 of the Code or (ii) either party from obtaining the
Required Consents.
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(l) Certain Agreements. BT shall not, and shall not
permit any of its Subsidiaries to, enter into any agreement or
arrangement that limits or otherwise restricts BT or any of its
Subsidiaries or any successor thereto from engaging or competing in
any line of business or in any geographic area which would have a
Material Adverse Effect on BT.
(m) Certain Arrangements. BT shall take reasonable steps
to implement and maintain arrangements under which holders of BT ADSs
who satisfy the conditions for the application of such arrangements
will receive a Tax Treaty Payment to which they are entitled directly
from BT rather than from the Inland Revenue at the same time as and
together with the payment of the associated cash dividend. For the
purposes of this Section 4.2(m) the Tax Treaty Payment is that part of
the tax credit attaching to the relevant dividend that would, but for
these arrangements, be reclaimed by the holder of BT ADSs from the
United Kingdom Inland Revenue under the income tax convention between
the United States and the United Kingdom.
4.3. Advice of Changes; Government Filings. Each party
shall (a) confer on a regular and frequent basis with the other, (b) report (to
the extent permitted by law or regulation or any applicable confidentiality
agreement) on operational matters and (c) promptly advise the other orally and
in writing of (i) any representation or warranty made by it contained in this
Agreement that is qualified as to materiality becoming untrue or inaccurate in
any respect or any such representation or warranty that is not so qualified
becoming untrue or inaccurate in any material respect, (ii) the failure by it
(A) to comply with or satisfy in any respect any covenant, condition or
agreement required to be complied with or satisfied by it under this Agreement
that is qualified as to materiality or (B) to comply with or satisfy in any
material respect any covenant, condition or agreement required to be complied
with or satisfied by it under this Agreement that is not so qualified as to
materiality or (iii) any change, event or circumstance that has had or would
have a Material Adverse Effect on such party; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement. MCI and BT shall file all reports required to be filed
by each of them with the SEC (and all other Governmental Entities) and shall
announce or publish all information required to be announced or published by
the LSE (including pursuant to the Listing Rules of the LSE) between the date
of this Agreement and the Effective Time and shall (to the extent permitted by
law or regulation or any applicable confidentiality agreement) deliver to the
other party copies of all such reports, announcements and publications promptly
after the same are filed, announced or published. Subject to applicable laws
relating to the exchange of information, each of MCI and BT shall have the
right to review in advance, and to the extent practicable each will consult
with the other, with respect to all the information relating to the other party
and each of their respective Subsidiaries, which appears in any filings,
announcements or publications made with, or written materials submitted to, any
third party or any Governmental Entity in connection with the transactions
contemplated by this Agreement. In exercising the foregoing right, each of the
parties hereto agrees to act reasonably and as promptly as
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practicable. Each party agrees that, to the extent practicable, it will
consult with the other party with respect to the obtaining of all permits,
consents, approvals and authorizations of all third parties and Governmental
Entities necessary or advisable to consummate the transactions contemplated by
this Agreement and each party will keep the other party apprised of the status
of matters relating to completion of the transactions contemplated hereby.
4.4. Transition Planning. ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, as Chief
Executive Officer of BT, and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, as President of MCI, jointly
shall be responsible for coordinating all aspects of transition planning and
implementation relating to the Merger and the other transactions contemplated
hereby. If either such person ceases to be Chief Executive Officer or
President, respectively, of his company for any reason, such person's successor
shall assume his predecessor's responsibilities under this Section 4.4. During
the period between the date of this Agreement and the Effective Time, Messrs.
▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ jointly shall (i) examine various alternatives regarding
the manner in which to best organize and manage the businesses of BT and MCI
after the Effective Time and (ii) coordinate policies and strategies with
respect to regulatory authorities and bodies, in all cases subject to
applicable law.
4.5. Control of Other Party's Business. Nothing contained
in this Agreement shall give MCI, directly or indirectly, the right to control
or direct BT's operations prior to the Effective Time. Nothing contained in
this Agreement shall give BT, directly or indirectly, the right to control or
direct MCI's operations prior to the Effective Time. Prior to the Effective
Time, each of MCI and BT shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision over its
respective operations.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1. Preparation of Disclosure Documents; MCI Stockholder
and BT Shareholder Meetings.
(a) As soon as practicable following the date of this
Agreement, MCI and BT shall prepare the Proxy Statement/Prospectus.
MCI shall, in cooperation with BT, file the Proxy Statement/Prospectus
with the SEC as its preliminary Proxy Statement and BT shall, in
cooperation with MCI, prepare and file with the SEC the Form F-4, in
which the Proxy Statement/Prospectus will be included as BT's
prospectus. If required under the Exchange Act, BT, Merger Sub and
MCI shall together prepare and file a Transaction Statement on
Schedule 13E-3 (the "Schedule 13E-3") under the Exchange Act at the
time of the filing of the preliminary Proxy
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Statement. At the time of the filing of any amended preliminary Proxy
Statement and at the time of the filing of the Form F-4 and any
amendment to the Form F-4, the parties shall file with the SEC an
appropriate amendment to the Schedule 13E-3 which includes as an
exhibit thereto and incorporates by reference such amended preliminary
Proxy Statement or such Proxy Statement/Prospectus, or any amendment
or supplement thereto. Each of MCI and BT shall use all reasonable
efforts to have the Form F-4 declared effective under the Securities
Act as promptly as practicable after such filing and to keep the Form
F-4 effective as long as is necessary to consummate the Merger. BT
shall also, as promptly as practicable, use all reasonable efforts to
cause the ADR Depositary to file with the SEC a registration statement
on Form F-6 (the "Form F-6") with respect to the BT ADRs to be issued
in connection with the Merger under the Securities Act and use all
reasonable efforts to have the Form F-6 declared effective as soon as
practicable after such filing. MCI shall mail the Proxy
Statement/Prospectus to MCI's stockholders as promptly as practicable
after the Form F-4 is declared effective under the Securities Act and,
if necessary, after the Proxy Statement/Prospectus shall have been so
mailed, promptly circulate amended, supplemental or supplemented proxy
material, and, if required in connection therewith, resolicit proxies,
it being understood that MCI shall not be required to hold more than
one meeting of stockholders. BT shall also take any action (other
than qualifying to do business in any jurisdiction in which BT is not
now so qualified) required to be taken under any applicable United
States state securities laws in connection with the issuance of BT
ADSs and BT ADRs in connection with the Merger and under the MCI
Benefit Plans and MCI shall furnish all information concerning MCI and
the holders of MCI Common Stock as may be reasonably requested in
connection with any such action.
(b) Unless otherwise required pursuant to the applicable
fiduciary duties of the Board of Directors of MCI to the stockholders
of MCI (as determined in good faith by the Board of Directors of MCI
based upon the advice of outside counsel) (i) MCI shall, as soon as
practicable following the date of this Agreement and the effectiveness
of the Form F-4, duly call, give notice of, convene and hold a meeting
of its stockholders (the "MCI Stockholders Meeting") for the purpose
of obtaining the Required MCI Votes with respect to this Agreement,
(ii) the Board of Directors of MCI shall recommend adoption of this
Agreement by the Stockholders of MCI and (iii) MCI shall take all
lawful action to solicit such adoption.
(c) Unless otherwise required pursuant to the applicable
fiduciary duties of the Board of Directors of BT to the shareholders
of BT (as determined in good faith by the Board of Directors of BT
based upon the advice of counsel), (i) BT shall, as soon as
practicable following the date of this Agreement, convene and hold a
meeting of the holders of BT Ordinary Shares (the "BT Shareholder
Meeting") for the purpose of obtaining the Required BT Vote with
respect to the Merger, the share repurchase authorization referred to
in Section 5.16 and the other transactions contemplated hereby and
(ii) the Board of Directors of BT shall recommend approval of the
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Merger, the share repurchase authorization and the other transactions
contemplated hereby.
(d) In connection with the BT Shareholder Meeting, to the
extent required by applicable law, (i) BT shall, as soon as
practicable after the date of this Agreement and in accordance with
the listing rules of the LSE, prepare and submit to the LSE for
approval the BT Disclosure Document, and shall use all reasonable
efforts to have such document formally approved by the LSE and shall
thereafter publish the BT Disclosure Document and mail the same to its
shareholders in compliance with all legal requirements applicable to
the BT Shareholder Meeting and the listing rules of the LSE and (ii)
if necessary, after the BT Disclosure Document has been so posted,
promptly circulate amended, supplemental or supplemented materials
and, if required in connection therewith, resolicit votes, it being
understood that BT shall not be required to hold more than one meeting
of shareholders.
(e) Except as required by law, no amendment or supplement
to the Proxy Statement/Prospectus or the Form F-4 or, if applicable,
the Schedule 13E-3 shall be made by BT or MCI without the approval of
the other party (which shall not be unreasonably withheld). Each
party shall advise the other party, promptly after it receives notice
thereof, of the time when the Form F-4 has become effective or any
supplement or amendment has been filed, of the issuance of any stop
order, of the suspension of the qualification of BT ADSs or BT ADRs
issuable in connection with the Merger for offering or sale in any
jurisdiction, or of any request by the SEC or the LSE for amendment of
the Proxy Statement/Prospectus or the Form F-4 or comments thereon and
responses thereto or requests by the SEC or the LSE for additional
information.
5.2. BT Board of Directors; Officers; Headquarters.
(a) BT shall take all necessary action to reconstitute
the Board of Directors of BT as of the Effective Time in accordance
with Exhibit 5.2(a).
(b) BT shall take all necessary action to cause ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇. to be appointed Co-Chairmen of BT as
of the Effective Time and to amend the Articles of Association of BT
to provide for Co-Chairmen.
(c) BT will have, after the Closing, United Kingdom and
United States headquarters.
(d) BT shall take all reasonable steps to ensure that,
after the Effective Time, five out of the first ten meetings of the
Board of Directors of BT each year will be held in the United Kingdom
with ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ (or his successor) acting as the Chairman and
presiding at such five meetings and the remaining five meetings will
be held in the United States with ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇. (or his
successor) acting as the
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Chairman and presiding at such five meetings, and any additional
meetings of the Board of Directors of BT each year will be held in the
United Kingdom with ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ (or his successor) acting as the
Chairman and presiding at such additional meetings.
(e) BT shall take reasonable steps after the Effective
Time to enable United States holders of BT ADSs to attend and, at the
invitation of the Chairman, speak (but not vote) by means of video
conference, conference telephone or other similar communications
equipment, at any shareholder meeting of BT held in the United
Kingdom; provided, however, that (i) in no event will the failure to
so provide such United States holders with such opportunity or any
mechanical failure of the video conference, conference telephone or
other similar communication equipment during the course of a
shareholder meeting affect the validity of such shareholder meeting or
any action taken pursuant thereto and (ii) under no circumstances will
the provision of such opportunity for such attendance by any United
States holder of BT ADSs (in his capacity as a holder of BT ADSs or in
any other capacity) be taken to constitute an additional place for the
holding of any General Meeting with the meaning of Article 62(c)(ii)
of BT's Articles of Association.
5.3. Access to Information. Upon reasonable notice, MCI
and BT shall each (and shall cause each of their respective Subsidiaries to)
afford to the officers, employees, accountants, counsel, financial advisors and
other representatives of the other reasonable access during normal business
hours, during the period prior to the Effective Time, to all its properties,
books, contracts, commitments and records and, during such period, each of MCI
and BT shall (and shall cause each of their respective Subsidiaries to) furnish
promptly to the other (a) a copy of each report, schedule, registration
statement and other document filed, published, announced or received by it
during such period pursuant to the requirements of Federal or state securities
laws, the LSE or the FSA, as applicable (other than reports or documents which
such party is not permitted to disclose under applicable law) and (b)
consistent with its legal obligations, all other information concerning its
business, properties and personnel as such other party may reasonably request;
provided, however, that BT or MCI may restrict the foregoing access to the
extent that (i) a Governmental Entity requires such party or any of its
Subsidiaries to restrict access to any properties or information reasonably
related to any such contract on the basis of applicable laws and regulations
with respect to national security matters or (ii) any law, treaty, rule or
regulation of any Governmental Entity applicable to such party requires such
party or its Subsidiaries to restrict access to any properties or information.
The parties will hold any such information which is non-public in confidence to
the extent required by, and in accordance with, the provisions of the letter
dated October 4, 1996 between MCI and BT (the "Confidentiality Agreement").
Any investigation by either BT or MCI shall not affect the representations and
warranties of the other.
5.4. Approvals and Consents; Cooperation. (a) MCI and BT
shall cooperate with each other and use (and shall cause their respective
Subsidiaries to use) all
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reasonable best efforts to take or cause to be taken all actions, and do or
cause to be done all things, necessary, proper or advisable on their part under
this Agreement and applicable laws to consummate and make effective the Merger
and the other transactions contemplated by this Agreement as soon as
practicable, including (i) preparing and filing as promptly as practicable all
documentation to effect all necessary applications, notices, petitions,
filings, tax ruling requests and other documents and to obtain as promptly as
practicable all consents, waivers, licenses, orders, registrations, approvals,
permits, tax rulings and authorizations necessary or advisable to be obtained
from any third party and/or any Governmental Entity in order to consummate the
Merger or any of the other transactions contemplated by this Agreement and (ii)
taking all reasonable steps as may be necessary to obtain all such consents,
waivers, licenses, registrations, permits, authorizations, tax rulings, orders
and approvals. Without limiting the generality of the foregoing, MCI and BT
agree to make all necessary filings in connection with the Required Regulatory
Approvals as promptly as practicable after the date of this Agreement, and to
use all reasonable best efforts to furnish or cause to be furnished, as
promptly as practicable, all information and documents requested with respect
to such Required Regulatory Approvals and shall otherwise cooperate with the
applicable Governmental Entity in order to obtain any Required Regulatory
Approvals in as expeditious a manner as possible. Each of MCI and BT shall use
all reasonable best efforts to resolve such objections, if any, as any
Governmental Entity may assert with respect to this Agreement and the
transactions contemplated hereby in connection with the Required Regulatory
Approvals. In the event that a suit is instituted by a Person or Governmental
Entity challenging this Agreement and the transactions contemplated hereby as
violative of applicable antitrust or competition laws or the Communications
Act, each of MCI and BT shall use its reasonable best efforts to resist or
resolve such suit. Notwithstanding anything to the contrary in this Section
5.4(a), (i) neither MCI nor BT shall be required to agree to the imposition of
a Combined Company Burdensome Condition, (ii) MCI shall not agree to the
imposition of an MCI Burdensome Condition without BT's prior written consent
and (iii) BT shall not agree to the imposition of a BT Burdensome Condition
without MCI's prior written consent.
(b) MCI and BT each shall, upon request by the other,
furnish the other with all information concerning itself, its Subsidiaries,
directors, officers and stockholders and such other matters as may reasonably
be necessary or advisable in connection with the BT Disclosure Document, the
Form F-4, the Form F-6 and the Proxy Statement/Prospectus and, if applicable,
the Schedule 13E-3 (collectively, the "Disclosure Documents") or any other
statement, filing, tax ruling request, notice or application made by or on
behalf of MCI, BT or any of their respective Subsidiaries to any third party
and/or any Governmental Entity in connection with the Merger or the other
transactions contemplated by this Agreement.
5.5. Affiliates' and Auditors' Letters. (a) Prior to the
Closing Date, MCI shall deliver to BT a letter identifying all Persons who are,
immediately prior to the Effective Time, Rule 145 Affiliates of MCI. MCI shall
use all reasonable efforts to cause each such
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Person to deliver to BT on or prior to the Closing Date a written agreement in
the form customarily obtained from such affiliates for purposes of Rule 145.
(b) MCI and BT each shall use all reasonable efforts to
cause to be delivered to the other party and such other party's directors a
letter of its independent auditors, dated the date on which the Form F-4 shall
become effective, and addressed to the other party and such other party's
directors, in form and substance customary for "comfort" letters delivered by
independent public accountants in connection with registration statements
similar to the Form F-4.
5.6. Stock Exchange Listings. (a) BT shall, as promptly
as practicable, prepare and submit to the LSE a listing application covering
the BT Ordinary Shares to be represented by the BT ADSs to be issued in the
Merger, and shall use all reasonable efforts to obtain, prior to the Effective
Time, agreement by the LSE for the admission of such BT Ordinary Shares to the
Official List of the London Stock Exchange, and MCI shall cooperate with BT
with respect to such listing.
(b) BT shall, if necessary, promptly prepare and submit
to the NYSE or NASDAQ (as shall be agreed between the parties prior to the
Closing) a listing application covering the BT ADSs to be issued in the Merger,
and shall use all reasonable efforts to obtain, prior to the Effective Time,
approval for the listing of such BT ADSs, subject to official notice of
issuance, and MCI shall cooperate with BT with respect to such listing.
5.7. Acquisition Proposals. (a) MCI and BT each agrees
that neither it nor any of its Subsidiaries nor any of the officers and
directors of it or its Subsidiaries shall, and that it shall direct and use its
best efforts to cause its and its Subsidiaries' employees, agents and
representatives (including any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) not to, directly or indirectly,
initiate, solicit, encourage or otherwise facilitate (including by way of
furnishing information) any inquiries or the making of any proposal, or offer
with respect to a merger, reorganization, share exchange, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving, or any purchase or sale of all or any significant
portion of the assets or 10% or more of the equity securities of, it or any of
its Subsidiaries that, in any such case, could reasonably be expected to
interfere with the completion of the Merger or the other transactions
contemplated by this Agreement (any such proposal or offer being hereinafter
referred to as an "Acquisition Proposal"). MCI and BT each further agrees that
neither it nor any of its Subsidiaries nor any of the officers and directors of
it or its Subsidiaries shall, and that it shall direct and use its best efforts
to cause its and its Subsidiaries' employees, agents and representatives
(including any investment banker, attorney or accountant retained by it or any
of its Subsidiaries) not to, directly or indirectly, have any discussion with
or provide any confidential information or data to any Person relating to an
Acquisition Proposal or engage in any negotiations concerning an Acquisition
Proposal, or otherwise facilitate any effort or attempt to make or implement an
Acquisition Proposal or accept an Acquisition Proposal; provided, however, that
nothing contained in this Agreement shall
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prevent either MCI or BT or its Board of Directors from (A) complying with Rule
14e-2 promulgated under the Exchange Act or complying with the City Code, as
applicable, with regard to an Acquisition Proposal; (B) engaging in any
discussions or negotiations with, or providing any information to, any Person
in response to an unsolicited bona fide written Acquisition Proposal by any
such Person; or (C) recommending such an unsolicited bona fide written
Acquisition Proposal to the stockholders of MCI or BT, as the case may be, if
and only to the extent that, in any such case as is referred to in clause (B)
or (C), (i) the Board of Directors of MCI or BT, as the case may be, concludes
in good faith (after consultation with its financial advisors) that such
Acquisition Proposal is reasonably capable of being completed, taking into
account all legal, financial, regulatory and other aspects of the proposal and
the Person making the proposal, and would, if consummated, result in a
transaction more favorable to MCI's or BT's stockholders, as the case may be,
from a financial and strategic point of view than the transaction contemplated
by this Agreement (any such more favorable Acquisition Proposal being referred
to in this Agreement as a "Superior Proposal"), (ii) the Board of Directors of
MCI or BT, as the case may be, determines in good faith after consultation with
legal counsel that such action is necessary for its Board of Directors to act
in a manner consistent with its fiduciary duties under applicable law, (iii)
prior to providing any information or data to any Person in connection with an
Acquisition Proposal by any such Person, such Board of Directors receives from
such Person an executed confidentiality agreement on terms substantially
similar to those contained in the confidentiality agreement previously entered
into between BT and MCI in connection with their consideration of the Merger
and (iv) prior to providing any information or data to any Person or entering
into discussions or negotiations with any Person, the Board of Directors of MCI
or BT, as the case may be, notifies the other party, immediately of such
inquiries, proposals or offers received by, any such information requested
from, or any such discussions or negotiations sought to be initiated or
continued with, any of its representatives indicating, in connection with such
notice, the name of such Person and the terms and conditions of any proposals
or offers. MCI and BT each agrees that it will immediately cease and cause to
be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any Acquisition Proposal. MCI and
BT each agrees that it will take the necessary steps to promptly inform the
individuals or entities referred to in the first sentence hereof of the
obligations undertaken in this Section 5.7. MCI and BT each agrees that it
shall keep the other informed, on a current basis, of the status and terms of
any such proposals or offers and the status of any such discussions or
negotiations.
(b) Except in connection with any potential change in the
terms of this Agreement in response to any Acquisition Proposal as contemplated
by Section 5.7(a) and Section 7.1(f), neither MCI nor BT will take any
initiatives involving the other party that would otherwise require such other
party to make a public announcement, make any public comment or proposal with
respect to any Acquisition Proposal with respect to such other party, become a
member of a "group" within the meaning of Section 13(d) of the Exchange Act,
enter into any discussions, negotiations, arrangements or understanding with
any third party with respect to any of the foregoing or otherwise seek to
control or influence the other party, in all cases except as expressly
contemplated by this Agreement or, in the case of BT,
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the Investment Agreement. MCI and BT agree that each will notify the other
immediately if any inquiries or proposals are received by, any information is
requested from, or any negotiations or discussions are sought to be initiated
or continued with, either MCI or BT or any of their respective affiliates or
representatives regarding any Acquisition Proposal with respect to such other
party.
(c) BT agrees that, while this Agreement remains in
effect, neither it nor any of its Subsidiaries nor any of the officers and
directors of it or its Subsidiaries shall, and that it shall direct and use its
best efforts to cause its and its Subsidiaries' employees, agents and
representatives (including any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) not to, (i) directly or indirectly,
initiate, solicit, encourage or otherwise facilitate any inquiries or the
making of any proposal or offer with respect to the purchase or sale of any
shares of MCI Class A Common Stock owned by BT or any of its Subsidiaries or
(ii) sell, transfer, pledge or assign, or grant any proxy with respect to, any
shares of MCI Class A Common Stock owned by BT or any of its Subsidiaries.
(d) BT agrees that, while this Agreement remains in
effect, at any meeting of the holders of shares of MCI Common Stock at which BT
shall have the right to vote its shares of MCI Class A Common Stock or at any
meeting of the holders of shares of MCI Class A Common Stock, however called,
or in connection with any written consent of the holders of shares of MCI
Common Stock or MCI Class A Common Stock, BT shall vote (or cause to be voted)
the shares of MCI Class A Common Stock held by it, to the extent voting rights
exist with respect to the proposals to be acted upon, in favor of adoption of
this Agreement and approval of the other transactions contemplated by this
Agreement.
5.8. Stock Options and Other Stock Plans. (a) During the
period from the date of this Agreement to the Effective Time, MCI may grant to
certain of its employees, pursuant to the MCI 1989 Stock Option Plan, Senior
Retention ISUs, 1997 ISUs and 1997 Options (as each such term is defined in
Annex A hereto) substantially on the terms and conditions described in Annexes
A and B hereto. MCI and BT will discuss any equity-related award to be issued
by MCI during the period from the date of this Agreement to the Effective Time
that affects employees at the level of vice president and above and is
significant in the context of such employee's compensation.
(b) On or prior to the Effective Time, MCI shall take all
action necessary to cause each option to purchase shares of MCI Common Stock
(each, an "MCI Stock Option") that was granted pursuant to the MCI Stock Option
Plans prior to the date of this Agreement and which remains outstanding
immediately prior to the Effective Time to be immediately vested and fully
exercisable immediately prior to the Effective Time (it being understood that
MCI and BT will develop a mechanism to permit any such accelerated option to be
exercised immediately prior to the Effective Time so as to enable the holder to
receive the Merger Consideration with respect to the underlying option shares).
Each MCI Stock Option (including each 1997 Option) which is outstanding at the
Effective Time shall be converted, at the Effective Time, into an option to
acquire, on the same terms and conditions
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as were applicable under the MCI Stock Option Plans (as modified by this
Section 5.8 and Annex A hereto), that number of BT ADSs determined by
multiplying the number of shares of MCI Common Stock subject to such MCI Stock
Option by the Conversion Ratio, rounded, if necessary, up to the nearest whole
BT ADS, at a price per share equal to (y) the aggregate exercise price for the
shares of MCI Common Stock subject to such MCI Stock Option divided by (z) the
number of BT ADSs deemed to be subject to such MCI Stock Option; provided,
however, that in the case of any MCI Stock Option to which section 421 of the
Code applies by reason of its qualification under section 422 of the Code, the
option price, the number of shares subject to such option and the terms and
conditions of exercise of such option shall be determined in a manner
consistent with the requirements of section 424(a) of the Code. For purposes
of this Section 5.8, the "Conversion Ratio" means the sum of (i) 0.54 and (ii)
the quotient determined by dividing the amount of the Cash Consideration by the
average of the last sales prices on the NYSE Composite Transaction Tape of the
BT ADSs on each of the five consecutive trading days ending on the last trading
day immediately prior to the day on which the Effective Time occurs.
(c) Each option to acquire a BT ADS which has been
converted from an MCI Stock Option pursuant to the terms of Section 5.8(b)
shall be amended as of the Effective Time to provide for the payment (or, in
certain cases, elective deferral) of dividend equivalents equal to the amount
of any dividends that would have been paid to the holder thereof following the
Effective Time had the BT ADSs underlying such options been delivered and
outstanding on the applicable dividend record date; provided, however, that any
such dividend equivalents shall be credited to a bookkeeping account in the
name of the option holder and shall be paid to such option holder (with
interest at the prime rate as published by Chase Manhattan Bank, N.A.) when the
related option is exercised (or, if elected by such option holder, further
deferred under the terms of MCI's deferred compensation program); provided
further, however, that any such dividend equivalents that are credited to such
a bookkeeping account in respect of any option that is not subsequently
exercised shall be forfeited upon the expiration or forfeiture of such option
in accordance with its terms.
(d) Each holder of a restricted share of MCI Common Stock
(an "MCI Restricted Share") issued pursuant to the MCI Stock Option Plans shall
be offered, prior to the Effective Time, the opportunity to convert such MCI
Restricted Share into an incentive stock unit (a "Converted ISU") that
represents a contractual right to receive one share of MCI Common Stock on the
terms and conditions specified in Annex B hereto, subject to the same terms and
conditions as were applicable to the MCI Restricted Share immediately prior to
the Effective Time (as modified by this Section 5.8 and Annex B hereto). Each
holder of an MCI Restricted Share that has not been converted in accordance
with the terms of the previous sentence shall be entitled to receive, as of the
Effective Time, for each Restricted Share held by such holder immediately prior
to the Effective Time, (i) 0.54 restricted BT ADSs on the same terms and
conditions applicable to the MCI Restricted Shares immediately prior to the
Effective Time (as modified by this Section 5.8) and (ii) the Cash
Consideration which shall be paid promptly after the Effective Time.
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(e) Effective as of the Effective Time, each Converted
ISU, Senior Retention ISU and 1997 ISU outstanding immediately prior to the
Effective Time (collectively, the "MCI ISUs") shall be converted into (i) an
incentive stock unit to receive 0.54 BT ADSs, on the same terms and conditions
applicable to the MCI ISUs immediately prior to the Effective Time (as modified
by this Section 5.8 and Annex B hereto) and (ii) the Cash Consideration which
shall be paid promptly after the Effective Time.
(f) As soon as practicable after the Effective Time, BT
shall deliver to the holders of MCI Stock Options, MCI Restricted Shares and
MCI ISUs (collectively, the "MCI Awards") appropriate notices setting forth
such holders' rights pursuant to the applicable MCI Benefit Plans and the
agreements pursuant to which such MCI Awards were issued and the agreements
evidencing the grants of such MCI Awards shall continue in effect on the same
terms and conditions as specified with respect to such MCI Awards as of the
Effective Time in the applicable MCI Benefit Plan governing such MCI Awards
(subject to the adjustments and amendments required by this Section 5.8 and
Annexes A and B hereto, and after giving effect to the Merger and the
conversion as set forth above). It is the intention of the parties that,
subject to applicable law, each MCI Stock Option which qualified as an
incentive stock option under section 422 of the Code prior to the Effective
Time continue to qualify as an incentive stock option of BT after the Effective
Time.
(g) BT shall take all corporate action necessary to have
available for delivery a sufficient number of BT Ordinary Shares represented by
BT ADSs to be delivered upon exercise, vesting or payment, as applicable, of
the MCI Awards converted in accordance with this Section 5.8. As soon as
practicable after the Effective Time, BT shall file a registration statement on
Form S-8 (or any successor or other appropriate form) with respect to the
delivery of such BT ADSs and shall use its best efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained
therein) for so long as such MCI Awards remain outstanding.
(h) Prior to the Effective Time, BT and MCI shall
cooperate to take all such other action as may be necessary to carry out the
terms of this Section 5.8.
5.9. Employment Agreements; Employee Benefits Matters.
(a) MCI has entered into employment agreements (the "Employment Agreements")
with the eight senior executives whose names have been provided to BT prior to
the date of this Agreement, and in the forms provided to BT prior to the date
of this Agreement. Promptly after the date of this Agreement, BT and MCI shall
cooperate in good faith to resolve any tax issues that may arise with regard to
the identity of the employer for purposes of the Employment Agreements. MCI
shall use its reasonable efforts in good faith to amend the Employment
Agreements to reflect the foregoing resolution.
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(b) Annexes A and B hereto set forth certain additional
agreements among the parties hereto with respect to employee benefits matters
and are hereby incorporated herein by reference.
5.10. Fees and Expenses. Whether or not the Merger is
consummated, all Expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
Expenses, except (a) if the Merger is consummated, the Surviving Corporation
shall pay, or cause to be paid, any and all property or transfer taxes imposed
on MCI or its Subsidiaries and any real property transfer tax imposed on any
holder of shares of capital stock of MCI resulting from the Merger, (b)
Expenses incurred in connection with filing, printing and mailing the
Disclosure Documents and with listing on the NYSE the BT ADSs into which MCI
Common Stock shall be converted shall be shared equally by BT and MCI and (c)
as provided in Section 7.2. As used in this Agreement, "Expenses" includes all
out-of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) incurred by a party or on its behalf in connection
with or related to the authorization, preparation, negotiation, execution and
performance of this Agreement and the transactions contemplated hereby,
including the preparation, printing, filing and mailing of the Disclosure
Documents and the solicitation of stockholder approvals and all other matters
related to the transactions contemplated hereby.
5.11. Indemnification; Directors' and Officers' Insurance.
The Surviving Corporation shall cause to be maintained in effect (i) for a
period of six years after the Effective Time, the current provisions regarding
indemnification of officers and directors contained in the certificate of
incorporation and by-laws of MCI and (ii) for a period of six years, the
current policies of directors' and officers' liability insurance and fiduciary
liability insurance maintained by MCI (provided that the Surviving Corporation
may substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are, in the aggregate, no less
advantageous to the insured) with respect to claims arising from facts or
events that occurred on or before the Effective Time; provided, however, that
in no event shall the Surviving Corporation be required to expend in any one
year an amount in excess of 200% of the annual premiums currently paid by MCI
for such insurance; and, provided, further, that if the annual premiums of such
insurance coverage exceed such amount, the Surviving Corporation shall be
obligated to obtain a policy with the greatest coverage available for a cost
not exceeding such amount.
5.12. Rights Agreement. The Board of Directors of MCI
shall take all further action (in addition to that referred to in Section
3.1(m)) necessary (including redeeming the Rights immediately prior to the
Effective Time or amending the Rights Agreement) in order to render the Rights
inapplicable to the Merger and the other transactions contemplated by this
Agreement.
5.13. Interim Cooperative Arrangements. BT and MCI agree
to use all reasonable efforts to negotiate and implement such interim
cooperative arrangements as may
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be appropriate to enable the parties, prior to Closing, to realize to the
extent practicable the benefits anticipated from the Merger.
5.14. Public Announcements. MCI and BT shall use all
reasonable efforts to develop a joint communications plan and each party shall
use all reasonable efforts (i) to ensure that all press releases and other
public statements with respect to the transactions contemplated hereby shall be
consistent with such joint communications plan, and (ii) unless otherwise
required by applicable law or by obligations pursuant to any listing agreement
with or rules of any securities exchange, to consult with each other before
issuing any press release or otherwise making any public statement with respect
to this Agreement or the transactions contemplated hereby.
5.15. Investment Agreement. MCI hereby waives compliance
by BT with the provisions of Section 7 of the Investment Agreement as required
in order to permit the consummation of the transactions contemplated by this
Agreement. Immediately prior to the Effective Time, the Investment Agreement
shall be deemed to have been amended to delete Section 7 thereof in its
entirety. BT hereby waives compliance by MCI with the provisions of Sections
9.4(a) and 9.5(d) of the Investment Agreement (i) from the date of this
Agreement until termination of this Agreement in accordance with its terms and
(ii) for such period of time after a termination of this Agreement by MCI in
accordance with the terms of Section 7.1(f) as would be required in order to
permit the consummation of the Superior Transaction proposed at the time of
such termination; provided, however, that the waiver of compliance contained in
this sentence shall not be effective if MCI is in breach of this Agreement.
Except as provided in this Section 5.15, the Investment Agreement shall remain
in full force and effect, and the parties shall continue to abide by their
respective covenants and other obligations thereunder.
5.16. Repurchase Authorization. BT shall seek shareholder
approval at the BT Shareholder Meeting of a resolution empowering BT to
purchase from time to time up to approximately 990,000,000 BT Ordinary Shares
following the Effective Time in accordance with Section 166 Companies Act. BT
will consider favourably making such purchases following the Effective Time, as
market conditions warrant.
5.17. Holding Company Structure; Name. The parties' intent
is to create to the extent practicable at or following the Effective Time a
holding company structure for the combined businesses of BT and MCI. In
furtherance thereof:
(a) As of the Effective Time, BT's name will be changed
to Concert plc;
(b) As of the Effective Time, BT will form a wholly owned
subsidiary to be named British Telecommunications plc; and
(c) Pending the Effective Time, the parties shall use all
reasonable efforts to cause the respective local and long distance
businesses of BT and MCI to be
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operated or managed following the Effective Time or as soon thereafter
as practicable through wholly owned United Kingdom and United States
subsidiaries; provided that, with respect to the United Kingdom
business, BT is satisfied in its reasonable judgment, after
consultation with MCI, that there are no adverse tax or regulatory
consequences (except for immaterial consequences).
5.18. Global Activities. MCI and BT hereby agree that,
effective as of the date of this Agreement and pending the Closing, MCI's
Chairman of the Board of Directors, on behalf of the boards of directors of MCI
and BT, will assume management and oversight of the integration planning of the
two companies' global activities to the extent permissible under antitrust and
regulatory laws.
ARTICLE VI
CONDITIONS PRECEDENT
6.1. Conditions to Each Party's Obligation to Effect the
Merger. The obligations of MCI, BT and Merger Sub to effect the Merger are
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Stockholder Approvals. (i) MCI shall have obtained
all approvals of holders of shares of capital stock of MCI necessary
to approve this Agreement and all the transactions contemplated hereby
(including the Merger) and (ii) BT shall have obtained all approvals
of holders of share capital of BT necessary to approve this Agreement
and all the transactions contemplated hereby (including the Merger and
the share repurchase authorization referred to in Section 5.16).
(b) Stock Exchange Listings. The LSE shall have agreed
to admit to the Official List (subject to allotment) the new BT
Ordinary Shares to be issued in connection with the Merger and such
agreement shall not have been withdrawn, and the BT ADSs to be issued
in the Merger shall have been authorized for listing on the NYSE,
subject to official notice of issuance.
(c) HSR Act. The waiting period (and any extension
thereof) applicable to the Merger under the HSR Act shall have been
terminated or shall have expired.
(d) FCC Order. If then legally required, an FCC Order
shall have been obtained, which has not been revoked or stayed as of
the Closing Date.
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(e) Exon-▇▇▇▇▇▇. Review and investigation under
Exon-▇▇▇▇▇▇ shall have been terminated and the President shall have
taken no action authorized under Exon-▇▇▇▇▇▇.
(f) Securities Law. The Form F-4 filed by BT and the
Form F-6 filed by the ADR Depositary shall have become effective under
the Securities Act and no stop order suspending the effectiveness of
such registration statements shall have been issued by the SEC and no
proceeding for that purpose shall then be threatened by the SEC or
shall have been initiated by the SEC and not concluded or withdrawn,
and all state securities or "blue sky" authorizations necessary to
carry out the transactions contemplated hereby shall have been
obtained and be in full force and effect.
(g) No Injunctions or Restraints, Illegality. No
temporary restraining order, preliminary or permanent injunction or
other order issued by a court or other Governmental Entity of
competent jurisdiction shall be in effect and have the effect of
making the Merger illegal or otherwise prohibiting consummation of the
Merger; provided, however, that the provisions of this Section 6.1(g)
shall not be available to any party whose failure to fulfill its
obligations pursuant to Section 5.4 shall have been the cause of, or
shall have resulted in, such order or injunction.
(h) No Litigation. There shall not be pending or overtly
threatened any suit, action, investigation or proceeding to which a
Governmental Entity is a party (i) seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions
contemplated by this Agreement or seeking to obtain from MCI or BT or
any of their respective Subsidiaries any damages that are material in
relation to MCI and its Subsidiaries taken as a whole or BT and its
Subsidiaries, taken as a whole, as applicable, (ii) seeking to
prohibit or limit the ownership or operation by MCI or BT or any of
their respective Subsidiaries of any material portion of the business
or assets of MCI and its Subsidiaries taken as a whole, or BT and its
Subsidiaries taken as a whole, or seeking to require MCI or BT or any
of their respective Subsidiaries to dispose of or hold separate any
material portion of the business or assets of MCI and its Subsidiaries
taken as a whole or BT and its Subsidiaries taken as a whole, as a
result of the Merger or any of the other transactions contemplated by
this Agreement, (iii) seeking to prohibit BT or any of its
Subsidiaries from effectively controlling in any material respect the
business or operations of MCI and its Subsidiaries taken as a whole,
or BT and its Subsidiaries taken as a whole, or (iv) which otherwise
would have a Material Adverse Effect on either MCI or BT; provided,
however, that the provisions of this Section 6.1(h) shall not be
available to any party whose failure to fulfill its obligations
pursuant to Section 5.4 shall have been the cause of, or shall have
resulted in, such suit, action, investigation or proceeding.
(i) EU Antitrust. BT and MCI shall have received in
respect of the Merger and any matters arising therefrom: (i)
confirmation by way of a decision from the Commission of the European
Communities under Regulation 4064/89 (with
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or without the initiation of proceedings under Article 6(1)(c)
thereof) that the Merger and any matters arising therefrom are
compatible with the common market; or (ii) confirmation either:
(A) in writing from the office of Fair Trading that it is not
the intention of the Secretary of State for Trade and Industry to
refer the Merger and any matters arising therefrom to the Monopolies
and Mergers Commission pursuant to part V of the Fair Trading ▇▇▇
▇▇▇▇; or (B) following such a reference, that the Secretary of State
for Trade and Industry has permitted the merger and any matters
arising therefrom to take place; such confirmation being subject in
each of Sections 6.1(i)(i) and 6.1(i)(ii)(A) and (B) above to the
imposition of no conditions or undertakings or obligations or to the
imposition only of conditions or undertakings or obligations which:
(1) unless BT agrees otherwise, do not constitute a MCI Burdensome
Condition; (2) unless MCI agrees otherwise, do not constitute a BT
Burdensome Condition; (3) unless both BT and MCI agree otherwise, do
not constitute a Combined Company Burdensome Condition.
(j) United Kingdom Treasury Consent. H.M. Treasury shall
have consented pursuant to section 765(1)(c) of the Income and
Corporation Taxes ▇▇▇ ▇▇▇▇, or H.M. Treasury or the Inland Revenue
shall have confirmed that no such consent is required, to the issue of
Common Stock of the Surviving Corporation contemplated by Section 1.8.
6.2. Additional Conditions to Obligations of BT and Merger
Sub. The obligations of BT and Merger Sub to effect the Merger are subject to
the satisfaction of, or waiver by BT, on or prior to the Closing Date of the
following additional conditions:
(a) Representations and Warranties. Each of the
representations and warranties of MCI set forth in this Agreement that
is qualified as to materiality shall have been true and correct when
made and shall be true and correct on and as of the Closing Date as if
made on and as of such date (other than representations and warranties
which address matters only as of a certain date which shall be true
and correct as of such certain date), and each of the representations
and warranties of MCI that is not so qualified shall have been true
and correct in all material respects when made and shall be true and
correct in all material respects on and as of the Closing Date as if
made on and as of such date (other than representations and warranties
which address matters only as of a certain date which shall be true
and correct in all material respects as of such certain date), and BT
shall have received a certificate of the chief executive officer and
the chief financial officer of MCI to such effect.
(b) Performance of Obligations of MCI. MCI shall have
performed or complied with all agreements and covenants required to be
performed by it under this Agreement at or prior to the Closing Date
that are qualified as to materiality and shall have performed or
complied in all material respects with all other agreements and
covenants required to be performed by it under this Agreement at or
prior to the
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Closing Date that are not so qualified as to materiality, and BT shall
have received a certificate of the chief executive officer and the
chief financial officer of MCI to such effect.
(c) Tax Opinion. BT shall have received the opinion of
Shearman & Sterling, counsel to BT, to the effect that, on the basis
of the facts, representations and assumptions set forth in such
opinion (i) the Merger will be treated for United States Federal
income tax purposes as a reorganization within the meaning of Section
368(a) of the Code, (ii) each of MCI, BT and Merger Sub will be a
party to that reorganization within the meaning of Section 368(b) of
the Code and (iii) no gain or loss will be recognized on the exchange
of shares of MCI Common Stock for the Merger Consideration, except
that gain, if any, shall be recognized to the extent of the Cash
Consideration received, which opinion shall be dated on or about the
date that is two Business Days prior to the date the Proxy
Statement/Prospectus is first mailed to stockholders of MCI and which
shall not have been withdrawn or modified in any material respect as
of the Closing Date. The issuance of such opinion shall be
conditioned on receipt of representation letters from each of MCI and
BT. The specific provisions of each such representation letter shall
be in form and substance satisfactory to Shearman & Sterling and
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, and each such representation letter shall
be dated on or before the date of such opinion and shall not have been
withdrawn or modified in any material respect as of the Closing Date.
(d) Inland Revenue Ruling. BT shall have received a
ruling from the Inland Revenue confirming that no stamp duty reserve
tax will be payable in respect of the issuance of BT Ordinary Shares
to the ADR Depositary for the benefit of holders of MCI Common Stock.
(e) Required Regulatory Approvals. All Required Consents
and all other authorizations, consents, orders and approvals of, and
declarations and filings with, and all expirations of waiting periods
imposed by, any Governmental Entity which, if not obtained in
connection with the consummation of the transactions contemplated
hereby, would have a Material Adverse Effect on MCI or BT (with or
without including MCI as a Subsidiary after the Merger) (collectively,
"Required Regulatory Approvals") shall have been obtained, have been
declared or filed or have occurred, as the case may be, and all such
Required Regulatory Approvals shall be in full force and effect;
provided, however, that a Required Regulatory Approval shall not be
deemed to have been obtained if in connection with the grant thereof
there shall have been an imposition by any Governmental Entity of any
condition, requirement, restriction or change of regulation, or any
other action directly or indirectly related to such grant taken by
such Governmental Entity (including with respect to divestitures of
assets or Subsidiaries), which would either (i) have a Material
Adverse Effect on MCI (an "MCI Burdensome Condition") or (ii) have a
Material Adverse Effect on BT including MCI as a Subsidiary after the
Merger (a "Combined Company Burdensome Condition").
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(f) Burdensome Condition. There shall not have been any
action taken or overtly threatened, or any statute, rule, regulation,
order or decree enacted, entered, enforced or deemed applicable to the
Merger by any Governmental Entity which imposes or seeks to impose any
MCI Burdensome Condition or Combined Company Burdensome Condition.
6.3. Additional Conditions to Obligations of MCI. The
obligations of MCI to effect the Merger are subject to the satisfaction of, or
waiver by MCI, on or prior to the Closing Date of the following additional
conditions:
(a) Representations and Warranties. Each of the
representations and warranties of BT and Merger Sub set forth in this
Agreement that is qualified as to materiality shall have been true and
correct when made and shall be true and correct on and as of the
Closing Date as if made on and as of such date (other than
representations and warranties which address matters only as of a
certain date which shall be true and correct as of such certain date),
and each of the representations and warranties of each of BT and
Merger Sub that is not so qualified shall have been true and correct
in all material respects when made and shall be true and correct in
all material respects on and as of the Closing Date as if made on and
as of such date (other than representations and warranties which
address matters only as of a certain date which shall be true and
correct in all material respects as of such certain date), and MCI
shall have received a certificate of the chief executive officer and
the chief financial officer of BT to such effect.
(b) Performance of Obligations of BT. BT shall have
performed or complied with all agreements and covenants required to be
performed by it under this Agreement at or prior to the Closing Date
that are qualified as to materiality and shall have performed or
complied in all material respects with all agreements and covenants
required to be performed by it under this Agreement at or prior to the
Closing Date that are not so qualified as to materiality, and MCI
shall have received a certificate of the chief executive officer and
the chief financial officer of BT to such effect.
(c) Tax Opinion. MCI shall have received the opinion of
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, counsel to MCI, to the effect that, on the
basis of the facts, representations and assumptions set forth in such
opinion, (i) the Merger will be treated for Federal income tax
purposes as a reorganization within the meaning of Section 368(a) of
the Code, (ii) each of MCI, BT and Merger Sub will be a party to that
reorganization within the meaning of Section 368(b) of the Code and
(iii) no gain or loss will be recognized on the exchange of shares of
MCI Common Stock for the Merger Consideration, except that gain, if
any, shall be recognized to the extent of the Cash Consideration
received, which opinion shall be dated on or about the date that is
two Business Days prior to the date the Proxy Statement/Prospectus is
first mailed to stockholders of MCI and which shall not have been
withdrawn or modified in any material respect as of the Closing Date.
The issuance of such opinion shall be
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conditioned on receipt of representation letters from each of MCI and
BT. The specific provisions of each such representation letter shall
be in form and substance satisfactory to Shearman & Sterling and
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, and each such representation letter shall
be dated on or before the date of such opinion and shall not have been
withdrawn or modified in any material respect as of the Closing Date.
(d) Required Regulatory Approvals. All Required Consents
and all other authorizations, consents, orders and approvals of, and
declarations and filings with, and all expirations of waiting periods
imposed by, any Governmental Entity which, if not obtained in
connection with the consummation of the transactions contemplated
hereby, would have a Material Adverse Effect on BT after the Merger,
including MCI as a Subsidiary (collectively, "Regulatory Approvals
Required"), shall have been obtained, have been declared or filed or
have occurred, as the case may be, and all such Regulatory Approvals
Required shall be in full force and effect; provided, however, that a
Regulatory Approval Required shall not be deemed to have been obtained
if in connection with the grant thereof there shall have been an
imposition by any Governmental Entity of any condition, requirement,
restriction or change of regulation, or any other action directly or
indirectly related to such grant taken by such Governmental Entity
(including with respect to divestitures of assets or Subsidiaries),
which would either (i) have a Material Adverse Effect on BT (a "BT
Burdensome Condition") or (ii) constitute a Combined Company
Burdensome Condition.
(e) Burdensome Condition. There shall not have been any
action taken or overtly threatened, or any statute, rule, regulation,
order or decree enacted, entered, enforced or deemed applicable to the
Merger by any Governmental Entity which imposes or seeks to impose any
BT Burdensome Condition or Combined Company Burdensome Condition.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1. Termination. This Agreement may be terminated at any
time prior to the Effective Time, by action taken or authorized by the Board of
Directors of the terminating party or parties, whether before or after approval
of the matters presented in connection with the Merger by the stockholders of
MCI and by the shareholders of BT:
(a) By mutual written consent of BT and MCI, by action of
their respective Boards of Directors;
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(b) By either MCI or BT if the Effective Time shall not
have occurred on or before October 31, 1997 (the "Termination Date");
provided, however, that the right to terminate this Agreement under
this Section 7.1(b) shall not be available to any party whose failure
to fulfill any obligation under this Agreement has been the cause of,
or resulted in, the failure of the Effective Time to occur on or
before the Termination Date; and provided, further, that if on the
Termination Date any conditions to the Closing set forth in Sections
6.1(c), (d), (e), (i) and (j), Section 6.2(e) and (f) and Section
6.3(d) and (e) shall not have been fulfilled, but all other conditions
to the Closing shall be fulfilled or shall be capable of being
fulfilled, then the Termination Date shall be extended to April 30,
1998;
(c) By either MCI or BT if any Governmental Entity (i)
shall have issued an order, decree or ruling or taken any other action
(which order, decree, ruling or other action the parties shall have
used all reasonable best efforts to resist, resolve or lift, as
applicable, subject to the provisions of Section 5.4) permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such order, decree, ruling or
other action shall have become final and nonappealable or (ii) shall
have failed to issue an order, decree or ruling or to take any other
action (which order, decree or ruling or other action the parties
shall have used all reasonable best efforts to obtain, subject to the
provisions of Section 5.4), in each case necessary to fulfill the
conditions to the Closing set forth in Sections 6.1(c), (d), (e), (i)
and (j), Section 6.2(e) and (f) and Section 6.3(d) and (e), as
applicable, and such denial of a request to issue such order, decree,
ruling or take such other action shall have become final and
nonappealable;
(d) By either BT or MCI if the approval by the
stockholders of MCI or of BT required for the consummation of the
Merger or the other transactions contemplated hereby shall not have
been obtained by reason of the failure to obtain the required vote at
a duly held meeting of stockholders or at any adjournment thereof;
(e) By either MCI or BT if the Board of Directors of the
other party (i) shall withdraw or modify in any adverse manner its
approval or recommendation of this Agreement or the Merger, (ii) shall
fail to reaffirm such approval or recommendation upon such party's
request, (iii) shall approve or recommend any acquisition of such
other party or a material portion of its assets or any tender offer
for shares of its capital stock, in each case, other than by a party
hereto or an affiliate thereof, or (iv) shall resolve to take any of
the actions specified in clauses (i) through (iii) above;
(f) By either MCI or BT, upon five Business Days' prior
notice to the other, if, as a result of a Superior Proposal received
by such party from a Person other than a party to this Agreement or
any of its affiliates, the Board of Directors of such party determines
in good faith that their fiduciary obligations under applicable
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law require that such Superior Proposal be accepted; provided,
however, that (i) the Board of Directors of such party shall have
concluded in good faith, after considering applicable provisions of
law and after giving effect to all concessions which may be offered by
the other party pursuant to clause (ii) below, on the basis of advice
of counsel, that such action is necessary for such Board of Directors
to act in a manner consistent with its fiduciary duties under
applicable laws and (ii) prior to any such termination, such party
shall, and shall cause its respective financial and legal advisors to,
negotiate with the other party to this Agreement to make such
adjustments in the terms and conditions of this Agreement as would
enable such party to proceed with the transactions contemplated
hereby; provided, however, that it shall be a condition to termination
by BT pursuant to this Section 7.1(f) that BT shall have made the
payment of the Alternative Transaction Fee to MCI required by Section
7.2(b), and it shall be a condition to termination by MCI pursuant to
this Section 7.1(f) that MCI shall have made the payment of the
Alternative Transaction Fee to BT required by Section 7.2(c);
(g) By BT, upon a breach of any representation, warranty,
covenant or agreement on the part of MCI set forth in this Agreement,
or if any representation or warranty of MCI shall have become untrue,
in either case such that the conditions set forth in Section 6.2(a) or
Section 6.2(b) would not be satisfied (a "Terminating MCI Breach");
provided, however, that, if such Terminating MCI Breach is capable of
being cured by MCI prior to October 31, 1997 through the exercise of
its best efforts and for so long as MCI continues to exercise such
best efforts, BT may not terminate this Agreement under this Section
7.1(g); or
(h) By MCI, upon breach of any material representation,
warranty, covenant or agreement on the part of BT and Merger Sub set
forth in this Agreement, or if any representation or warranty of BT
and Merger Sub shall have become untrue, in either case such that the
conditions set forth in Section 6.3(a) or Section 6.3(b) would not be
satisfied ("Terminating BT Breach"); provided, however, that, if such
Terminating BT Breach is capable of being cured by BT prior to October
31, 1997 through the exercise of best efforts, so long as BT continues
to exercise such best efforts, MCI may not terminate this Agreement
under this Section 7.1(h).
7.2. Effect of Termination.
(a) In the event of termination of this Agreement by
either MCI or BT as provided in Section 7.1, this Agreement shall
forthwith become void and there shall be no liability or obligation on
the part of BT or MCI or their respective officers or directors except
(i) with respect to Sections 3.1(p), 3.2(n), the second sentence of
Section 5.3, Section 5.10, this Section 7.2 and Article VIII and (ii)
with respect to any liabilities or damages incurred or suffered by a
party as a result of the willful breach by the other party of any of
its representations, warranties, covenants or other agreements set
forth in this Agreement.
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(b) BT and MCI agree that (i) if MCI shall terminate this
Agreement pursuant to Section 7.1(e) and, at the time of the
occurrence of the circumstance permitting termination pursuant to such
Section, there shall exist an Acquisition Proposal with respect to BT
or (ii) if BT shall terminate this Agreement pursuant to Section
7.1(f) or (iii) if (A) BT or MCI shall terminate this Agreement
pursuant to Section 7.1(d) due to the failure of BT's shareholders to
approve and adopt this Agreement and (B) at the time of such failure
to so approve and adopt this Agreement there shall exist an
Acquisition Proposal with respect to BT and, within 12 months of the
termination of this Agreement, BT enters into a definitive agreement
with any third party with respect to an Acquisition Proposal, then BT
shall pay to MCI an amount equal to the sum of (w) $450,000,000 (the
"Alternative Transaction Fee") and (x) all of MCI's Expenses up to an
amount equal to $15,000,000 (the "Expense Amount"). BT and MCI agree
that, if MCI shall terminate this Agreement pursuant to Section 7.1(e)
in circumstances in which the Alternative Transaction Fee is not
payable, then BT shall pay to MCI an amount equal to the sum of (y)
$150,000,000 (the "Termination Fee") and (z) all of MCI's Expenses up
to an amount equal to the Expense Amount.
(c) BT and MCI agree that (i) if BT shall terminate this
Agreement pursuant to Section 7.1(e) and, at the time of the
occurrence of the circumstance permitting termination pursuant to such
Section, there shall exist an Acquisition Proposal with respect to MCI
or (ii) if MCI shall terminate this Agreement pursuant to Section
7.1(f) or (iii) if (A) MCI or BT shall terminate this Agreement
pursuant to Section 7.1(d) due to the failure of MCI's stockholders to
approve and adopt this Agreement and (B) at the time of such failure
to so approve and adopt this Agreement there shall exist an
Acquisition Proposal with respect to MCI and, within 12 months of the
termination of this Agreement, MCI enters into a definitive agreement
with any third party with respect to an Acquisition Proposal, then MCI
shall pay to BT an amount equal to the sum of (w) the Alternative
Transaction Fee and (x) all of BT's Expenses up to an amount equal to
the Expense Amount. BT and MCI agree that, if BT shall terminate this
Agreement pursuant to Section 7.1(e) in circumstances in which the
Alternative Transaction Fee is not payable, then MCI shall pay to BT
an amount equal to the sum of (y) the Termination Fee and (z) all of
BT's Expenses up to an amount equal to the Expense Amount.
(d) The Alternative Transaction Fee required to be paid
pursuant to Section 7.2(b)(ii) or 7.2(c)(ii), as applicable, shall be
made prior to, and shall be a pre-condition to effectiveness of
termination of this Agreement pursuant such Sections and the
Alternative Transaction Fee required to be paid pursuant to Section
7.2(b)(iii) or 7.2(c)(iii), as applicable, shall be made to the party
entitled to receive such payment on the next Business Day after a
definitive agreement is entered into with a third party with respect
to an Acquisition Proposal. Any payment of an Alternative Transaction
Fee or a Termination Fee otherwise required to be made pursuant to
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Section 7.2(b) or 7.2(c) shall be made to the party entitled to
receive such payment not later than two Business Days after
termination of this Agreement. Payment of Expenses pursuant to
Section 7.2(b) or 7.2(c) shall be made not later than two Business
Days after delivery to the other party of notice of demand for payment
and an itemization setting forth in reasonable detail all Expenses of
the party entitled to receive payment (which itemization may be
supplemented and updated from time to time by such party until the
60th day after such party delivers such notice of demand for payment).
All payments under this Section 7.2 shall be made by wire transfer of
immediately available funds to an account designated by the party
entitled to receive payment.
7.3. Amendment. This Agreement may be amended by the
parties hereto, by action taken or authorized by their respective Boards of
Directors, at any time before or after approval of the matters presented in
connection with the Merger by the stockholders of MCI or of BT, but, after any
such approval, no amendment shall be made which by law or in accordance with
the rules of any relevant stock exchange requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
7.4. Extension; Waiver. At any time prior to the
Effective Time, the parties hereto, by action taken or authorized by their
respective Boards of Directors, may, to the extent legally allowed, (i) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument 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 shall not constitute a waiver
of those rights.
ARTICLE VIII
GENERAL PROVISIONS
8.1. Non-Survival of Representations, Warranties and
Agreements. None of the representations, warranties, covenants and other
agreements in this Agreement or in any instrument delivered pursuant to this
Agreement, including any rights arising out of any breach of such
representations, warranties, covenants and other agreements, shall survive the
Effective Time, except for those covenants and agreements contained herein and
therein that by their terms apply or are to be performed in whole or in part
after the Effective Time and this Article VIII. Nothing in this Section 8.1
shall relieve any party for any breach of any
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representation, warranty, covenant or other agreement in this Agreement
occurring prior to termination.
8.2. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed duly given (a) on the date of
delivery if delivered personally, or by telecopy or telefacsimile, upon
confirmation of receipt, (b) on the first Business Day following the date of
dispatch if delivered by a recognized next-day courier service, or (c) on the
tenth Business Day following the date of mailing if delivered by registered or
certified mail, return receipt requested, postage prepaid. All notices
hereunder shall be delivered as set forth below, or pursuant to such other
instructions as may be designated in writing by the party to receive such
notice:
(a) if to BT or Merger Sub, to
British Telecommunications plc
BT Centre
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Secretary and
Chief Legal Adviser
Facsimile No.: 011-44-171-356-6135
with copies to
Shearman & Sterling
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇ O'▇. ▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
and
Shearman & Sterling
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇
Attention: W. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile No.: 011-44-171-920-9020
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(b) if to MCI, to
MCI Communications Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Executive Vice President
and General Counsel
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
8.3. Interpretation. When a reference is made in this
Agreement to Sections, Exhibits or Schedules, such reference shall be to a
Section of or Exhibit or Schedule to this Agreement unless otherwise indicated.
The table of contents, glossary of defined terms and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation". The phrases "the date of this
Agreement" and "the date hereof" shall be deemed to refer to November 3, 1996.
The parties agree that the Closing conditions set forth in Section 6.2(a) and
6.2(b), respectively, shall be deemed not to be satisfied in the event the
aggregate number of outstanding shares of MCI Common Stock and shares of MCI
Common Stock subject to outstanding options, warrants and rights (i) as of the
date of execution of this Agreement, or (ii) issued between the date of this
Agreement and the Effective Time, in either case aggregates 500,000 or more
shares than as represented by MCI under Section 3.1(b) or as permitted
pursuant Section 4.1(c), respectively.
8.4. Counterparts. This Agreement may be executed in one
or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other party, it being
understood that both parties need not sign the same counterpart.
8.5. Entire Agreement; No Third Party Beneficiaries. (a)
This Agreement constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, other than the Confidentiality Agreement,
which shall survive the execution and delivery of this Agreement.
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(b) This Agreement shall be binding upon and inure solely
to the benefit of each party hereto, and nothing in this Agreement, express or
implied, is intended to or shall confer upon any other Person any right,
benefit or remedy of any nature whatsoever under or by reason of this
Agreement, other than Section 5.11 (which is intended to be for the benefit of
the Persons covered thereby and may be enforced by such Persons).
8.6. Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York.
8.7. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner in order that the transactions contemplated hereby are consummated as
originally contemplated to the greatest extent possible.
8.8. Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto, in whole or in part (whether by operation of law or otherwise),
without the prior written consent of the other party, and any attempt to make
any such assignment without such consent shall be null and void, except that
Merger Sub may assign, in its sole discretion, any or all of its rights,
interests and obligations under this Agreement to any direct or indirect wholly
owned Subsidiary of BT without the consent of MCI, but no such assignment shall
relieve Merger Sub of any of its obligations under this Agreement. 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.
8.9. Restrictive Trade Practices. Notwithstanding any
other provisions of this Agreement, each party declares that it shall not give
effect, and shall procure that none of its Subsidiaries shall give effect, to
any restriction or restrictions contained in this Agreement which cause this
Agreement to be registrable under the Restrictive Trade Practices Act 1976
until one day after particulars of this Agreement shall have been furnished to
the Director General of Fair Trading. For the purposes of this Section 8.9,
"Agreement" shall include any other agreement which, together with this
Agreement, may form part of an agreement for the purposes of the Restrictive
Trade Practices ▇▇▇ ▇▇▇▇.
8.10. Submission to Jurisdiction; Waivers. Each of BT and
MCI irrevocably agrees that any legal action or proceeding with respect to this
Agreement or for recognition and enforcement of any judgment in respect hereof
brought by the other party hereto or its successors or assigns may be brought
and determined in the Supreme Court of the State of New York in New York County
or in the United States District Court for the Southern
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District of New York, and each of BT and MCI hereby irrevocably submits with
regard to any such action or proceeding for itself and in respect to its
property, generally and unconditionally, to the nonexclusive jurisdiction of
the aforesaid courts. Each of BT and MCI hereby irrevocably waives, and agrees
not to assert, by way of motion, as a defense, counterclaim or otherwise, in
any action or proceeding with respect to this Agreement, (a) the defense of
sovereign immunity, (b) any claim that it is not personally subject to the
jurisdiction of the above-named courts for any reason other than the failure to
serve process in accordance with this Section 8.10, (c) that it or its property
is exempt or immune from jurisdiction of any such court or from any legal
process commenced in such courts (whether through service of notice, attachment
prior to judgment, attachment in aid of execution of judgment, execution of
judgment or otherwise), and (d) to the fullest extent permitted by applicable
law, that (i) the suit, action or proceeding in any such court is brought in an
inconvenient forum, (ii) the venue of such suit, action or proceeding is
improper and (iii) this Agreement, or the subject matter hereof, may not be
enforced in or by such courts.
8.11. Enforcement. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms. It is accordingly
agreed that the parties shall be entitled to specific performance of the terms
hereof, this being in addition to any other remedy to which they are entitled
at law or in equity.
8.12. Definitions. As used in this Agreement:
(a) "Board of Directors" means the Board of Directors of
any specified Person and any committees thereof.
(b) "Business Day" means any day on which banks are not
required or authorized to close in either the City of New York or the
City of London.
(c) "FCC Order" means either:
(i) A written order or other determination from
the staff of the FCC (either in the first instance or upon
review, reconsideration or other action subsequent to an order
or other determination of the staff) either approving the
consummation of the transactions contemplated by this
Agreement or stating that no such approval is required (or, in
the case of such review, reconsideration or other subsequent
action, a written order or other determination to the effect
set forth above or affirming or upholding, or having the
effect of affirming or upholding, whether by dismissing or
denying a petition for reconsideration or terminating the
consideration thereof or otherwise, a previous order or
determination to the effect set forth in this paragraph (i)),
which order or determination shall no longer be subject to
further administrative review by the FCC; or
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(ii) A written or other determination from the FCC
itself (either in the first instance or upon review,
reconsideration or other action subsequent to an order or
other determination of the staff of the FCC) either approving
the consummation of the transactions contemplated by this
Agreement or stating that no such approval is required (or, in
the case of such review, reconsideration or other action
subsequent to an order or determination of the staff of the
FCC, a written order or other determination from the FCC
itself to the effect set forth above or affirming, upholding
or having the effect of affirming or upholding, whether by
dismissing or denying a petition for reconsideration or
application for review or terminating the consideration
thereof or otherwise, an order or other determination of the
staff of the FCC to the effect set forth in paragraph (i)).
For purposes of this definition, an order or other determination of
the staff shall be deemed no longer subject to further administrative
review by the FCC:
(x) If no petition for reconsideration or
application for review by the FCC of the order or
determination of the staff has been filed within 30 days after
the date of public notice of the order or determination, as
such 30-day period is computed and as such date is defined in
sections 1.104 and 1.4, as applicable, of the FCC's rules, and
the FCC has not initiated review of the order or determination
of the staff on its own motion within 40 days after the date
of public notice of the order or determination, as such 40-day
period is computed and as such date is defined in sections
1.117 and 1.4 of the FCC's rules, or
(y) If any such petition for reconsideration or
application for review has been filed, or, if the FCC has
initiated review of the order or determination of the staff on
its own motion, the FCC itself has issued a written order or
other determination or taken other action to the effect set
forth in paragraph (ii) above.
(d) "Material Adverse Effect" means, with respect to any
entity, any adverse change, circumstance or effect that, individually
or in the aggregate with all other adverse changes, circumstances and
effects, is or is reasonably likely to be materially adverse to the
business, operations, assets, liabilities (including, without
limitation, contingent liabilities), financial condition or results of
operations of such entity and its Subsidiaries taken as a whole.
(e) "the other party" means, with respect to MCI, BT and
means, with respect to BT, MCI.
(f) "Person" means an individual, corporation,
partnership, association, trust, unincorporated organization, entity
or group (as defined in the Exchange Act).
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(g) "Subsidiary" when used with respect to any party
means any corporation or other organization, whether incorporated or
unincorporated, (i) of which such party or any other Subsidiary of
such party is a general partner (excluding partnerships, the general
partnership interests of which held by such party or any Subsidiary of
such party do not have a majority of the voting interests in such
partnership) or (ii) at least a majority of the securities or other
interests of which having by their terms ordinary voting power to
elect a majority of the Board of Directors or others performing
similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such
party or by any one or more of its Subsidiaries, or by such party and
one or more of its Subsidiaries.
(h) (i) "Tax" (including, with correlative meaning, the
terms "Taxes" and "Taxable") means all federal, state, local and
foreign income, profits, franchise, gross receipts, environmental,
customs duty, capital stock, severance, stamp, payroll, sales,
employment, unemployment disability, use, property, withholding,
excise, production, value added, occupancy and other taxes, duties or
assessments of any nature whatsoever, together with all interest,
penalties, fines and additions to tax imposed with respect to such
amounts and any interest in respect of such penalties and additions to
tax, and (ii) "Tax Return" means all returns and reports (including
elections, claims, declarations, disclosures, schedules, estimates,
computations and information returns) required to be supplied to a Tax
authority in any jurisdiction relating to Taxes.
8.13. Other Agreements. The parties hereto acknowledge and
agree that, except as otherwise expressly set forth in this Agreement, the
rights and obligations of MCI and BT under the Investment Agreement, the
Modified Joint Venture Agreement made the 14th day of June, 1994 between BT,
Moorgate (Twelve) Limited, MCI, MCI Ventures Corporation, Shepperton
Communications Company and any other agreement between the parties shall not be
affected by any provision of this Agreement.
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8.14. Waiver of Jury Trial. Each of the parties hereto
irrevocably and unconditionally waives trial by jury in any legal action or
proceeding relating to this Agreement or the transactions contemplated hereby
and for any counterclaim therein.
IN WITNESS WHEREOF, BT, MCI and Merger Sub have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of November 3, 1996.
BRITISH TELECOMMUNICATIONS plc
ATTEST BY:
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------ Title: Secretary
MCI COMMUNICATIONS CORPORATION
ATTEST BY:
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
--------------------------------
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
------------------------ Title: Chairman and
Chief Executive Officer
TADWORTH CORPORATION
ATTEST BY:
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
------------------------ Title: President
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EXHIBIT 5.2(A) TO
THE MERGER AGREEMENT
RECONSTITUTION OF THE BOARD OF DIRECTORS OF BT
The Board of Directors of BT, as of the Effective Time, shall consist of the
following persons:
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Sir ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. Maine
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
and eight other members, four of whom shall be designated by BT from among the
directors of BT and four of whom shall be designated by MCI from among the
directors of MCI; provided that the persons designated by each party shall be
reasonably acceptable to the other party.
If prior to the Effective Time, any of Messrs. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ or Maine or any
other person designated by MCI shall decline or be unable to serve as a
director of BT, MCI shall designate another person who is a then current
director of MCI; provided that such designated person shall be reasonably
acceptable to BT. If prior to the Effective Time, any of Messrs. Vallance,
Bonfield, ▇▇▇▇▇▇▇▇ or Brace or any other person designated by BT shall decline
or be unable to serve as a director of BT, BT shall designate another person
who is a then current director of BT; provided that such designated person
shall be reasonably acceptable to MCI.
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ANNEX A
EMPLOYEE BENEFITS MATTERS
MCI and BT agree to the following with respect to the compensation and
benefits programs of MCI and its Subsidiaries:
1. Executive Severance Program. Effective as of the
date of this Agreement, MCI shall establish an executive severance
program (the "Executive Severance Program") for the benefit of
approximately 20 of its senior executive officers (other than those
eight individuals who are entering into Employment Agreements) (the
"Covered Executives"). The Executive Severance Program shall have the
terms and conditions set forth in Exhibit A to this Annex A.
2. Retention Bonuses for Senior Executives. Effective
as of the date of this Agreement, MCI shall establish a retention
bonus program (the "Executive Retention Program") for the benefit of
up to 80 key executives (including those 8 executives who are entering
into Employment Agreements and each of the Covered Executives). The
Executive Retention Program shall provide for the granting of
retention bonuses in the form of incentive stock units of MCI ("Senior
Retention ISUs") entitling the holders to receive up to 3,035,000
shares of MCI Common Stock in the aggregate. The Senior Retention
ISUs shall otherwise have the terms and conditions specified in Annex
B to this Agreement.
3. Retention Bonuses for Management Employees.
Effective as of the date of this Agreement, MCI shall establish a
retention bonus program (the "Management Employee Bonus Program") for
the benefit of up to 150 of its management employees who do not
participate in the Executive Retention Program. The Management
Employee Bonus Program shall provide for the payment of cash bonuses,
as follows: each participant shall receive, as promptly as
practicable after the Effective Time, a cash bonus in an amount equal
to 50% of such management employee's base salary as of the Effective
Time. Each such participant shall receive a second cash bonus as of
the first anniversary of the Effective Time in an amount equal to 50%
of such employee's base salary. Such bonuses will not be payable to
any participant whose employment terminates for any reason other than
a termination by MCI without "cause" (as defined in Exhibit B to this
Annex A ("Exhibit B")) on or prior to the applicable payment date.
4. Retention Bonuses for Other Employees. Effective as
of the date of this Agreement, MCI shall establish a retention bonus
program (the "Other Employee Bonus Program") for the benefit of up to
200 of its management employees who do not participate in the
Executive Retention Program or the Management Employee Bonus Program.
The Other Employee Bonus Program shall provide for the payment
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A-2
of cash bonuses as follows: each participant shall receive, as
promptly as practicable after the Effective Time, a cash bonus in an
amount equal to 25% of such participant's base salary as of the
Effective Time. Each such participant shall receive a second cash
bonus as of the first anniversary of the Effective Time in an amount
equal to 25% of such employee's base salary. Such bonuses will not be
payable to any participant whose employment terminates for any reason
other than a termination by MCI without "cause" (as defined in Exhibit
B) on or prior to the applicable payment date.
5. Discretionary Retention Bonus Pool. Effective as of
the date of this Agreement, MCI shall establish, in consultation with
BT, a discretionary retention bonus pool (the "Retention Bonus Pool")
in a budgeted amount of up to $100 million, to be utilized for
purposes of retaining and incentivizing key employees (other than
those 8 individuals who are entering into Employment Agreements, and
it being understood that it is intended that the Covered Executives
generally will not be eligible to participate). The Retention Bonus
Pool shall be awarded to participating key employees as follows: (i)
up to 1/3 shall be awarded during the period commencing as of the
date of this Agreement and ending as of the Effective Time, (ii) up to
1/3 shall be awarded during the one-year period commencing as of the
Effective Time and (iii) up to 1/3 shall be awarded during the
one-year period commencing as of the first anniversary of the
Effective Time; provided, however, that the allocation of the
Retention Bonus Pool among such periods may be altered if necessary to
reflect MCI's business needs.
6. 1997 and 1998 ISUs. During 1997, MCI shall grant
incentive stock units of MCI (the "1997 ISUs") in accordance with the
incentive program in effect prior to the date of this Agreement (the
"1996 Program"), and with an aggregate value (determined as of the
date of grant) of approximately $30 million. The 1997 ISUs shall have
the terms and conditions specified in Annex B to this Agreement. It
is understood that it is the intention of MCI to put into effect a
short-term incentive compensation program in 1997 comparable to the
1996 Program, under which awards may be payable in the form of
incentive stock units of MCI. Any such incentive stock units shall
have terms consistent with the 1997 ISUs, and shall be awarded by MCI
in consultation with BT.
7. 1997 Options. During 1997, MCI shall grant, pursuant
to MCI's Stock Option Plan, options to purchase up to an aggregate of
14 million shares of MCI Common Stock (the "1997 Options") to
approximately 7,000 employees of MCI. The 1997 Options shall vest in
equal annual installments on each of the first three anniversaries of
the date of grant; provided, however, that the unvested portion of an
optionee's 1997 Options shall become fully vested in the event that
the employment of such optionee is terminated without "cause" (as
defined in Exhibit B). All 1997 Options that are outstanding as of
the Effective Time shall be treated in the manner specified in Section
5.8(b) of the Agreement.
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8. MCI 1990 Stock Purchase Plan. MCI shall take such
actions as are necessary to cause any Offer (as such term is used in
the MCI 1990 Stock Purchase Plan (the "ESPP")) to expire as of the
last trading day on which the MCI Common Stock is quoted on the NASDAQ
National Market immediately prior to the Effective Time (the Purchase
Date"); provided, however, that such change shall be conditioned upon
the consummation of the Merger. On the Purchase Date, MCI shall apply
the funds credited as of such date under the ESPP within each
participant's payroll withholdings account to the purchase of whole
shares of MCI Common Stock in accordance with the terms of the ESPP,
and shall return any residual cash.
9. Establishment of Compensation and Benefits Programs.
Following the date of this Agreement, BT and MCI shall undertake a
review of the compensation and benefits programs for employees of MCI
and its Subsidiaries, and shall cooperate to determine the
compensation and benefits programs that will be implemented for
employees of MCI and its Subsidiaries as of and following the
Effective Time. It is the intention of the parties to work together
to establish new long and short-term incentive compensation and other
employee benefit programs for employees of MCI and its Subsidiaries as
of the Effective Time. Such programs are intended to be competitive
within the industry and the locales in which MCI conducts its
business, and, with respect to long and short-term incentive
compensation programs, to reflect (subject to applicable requirements)
the important role that equity-based compensation arrangements have
played in the overall compensation philosophy of MCI. Such programs
shall provide, through the second anniversary of the date of this
Agreement, a level of benefits that is comparable in the aggregate to
that provided under the MCI Benefit Plans as in effect immediately
prior to the date of this Agreement. BT and MCI will discuss in
general terms the approach that will be taken with respect to MCI's
compensation and benefits programs (including any compensation and
benefits programs to be adopted prior to the Effective Time), and the
manner in which such programs will be implemented in practice.
Notwithstanding the foregoing, to the extent that the existing MCI
Benefit Plans, including the ESPP, have not been replaced by new
compensation and benefits programs as of the Effective Time, such MCI
Benefit Plans will continue in effect until such replacement programs
have been finalized or, if earlier, the second anniversary of the date
of this Agreement; provided, however, that changes may be made to any
such MCI Benefit Plans that continue in effect to reflect applicable
requirements.
10. Employment Agreements and Retention Arrangements.
From and after the Effective Time, BT shall honor, and shall cause the
Surviving Corporation to honor in accordance with their terms, all
employment agreements and retention arrangements with current and
former employees of MCI and its Subsidiaries, to the extent such
agreements and arrangements are to be entered into or adopted by MCI
pursuant to Section 5.9(a) of the Agreement or this Annex A.
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EXHIBIT A TO ANNEX A
84
EXECUTIVE SEVERANCE POLICY
INTRODUCTION
MCI Communication Corporation (the "Company"), a Delaware
corporation, and British Telecommunications plc intend to effect a merger (the
"Merger") pursuant to the Agreement and Plan of Merger dated as of November 2,
1996. In order to induce Executive to continue to serve as an executive
officer of the Company during the period prior to the Merger and thereafter,
the Company desires to provide Executive with certain protections on the terms
and conditions set forth in this Executive Severance Policy (the "Policy");
1. Term. The term of this Policy shall commence on
November 2, 1996 and shall terminate on December 31, 1999. (the "Termination
Date").
2. Termination of Employment.
2.1 Compensation Upon Termination of Employment. (a) If,
prior to the Termination Date, the Executive's employment shall be terminated
by the Company for any reason other than (i) the Executive's Disability or (ii)
for Cause, or if during the term hereof, the Executive terminates Executive's
employment for Good Reason, the Company shall pay or cause to be paid to the
Executive an amount equal to two times the sum of (x) Executive's annual base
salary as in effect on the date of termination (without regard to any decrease
in Base Salary which could constitute Good Reason under this Policy) ("Base
Salary") and (y) the greater of (A) the average annual bonus paid to or accrued
for the Executive by the Company in respect of the three calendar years
preceding the termination of employment and (B) the annual bonus paid to or
accrued in respect of 1995. Such cash amounts shall be paid as follows: the
amount attributable to Base Salary shall be paid in a lump sum within 10
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business days following the termination of Executive's employment; provided,
however, that if Executive terminates his or her employment for Good Reason
such amount shall be payable over a six-month period in equal installments in
accordance with the ordinary payroll practices of the Company, but no less
frequently than monthly, and the amount attributable to the annual bonus shall
be paid in a lump sum within 10 business days following the termination of
Executive's employment.
In addition, Executive shall receive (i) the unpaid portion of
Executive's Base Salary accrued to the date of termination, and any accrued
vacation as of the date of termination; (ii) the unpaid portion of Executive's
annual bonus accrued with respect to the last full fiscal year of the Company
ended prior to the date of termination, at such time as such bonus would
otherwise be payable; (iii) continued medical, dental and life insurance
coverage for Executive and Executive's eligible dependents on the same basis as
in effect immediately prior to Executive's termination of employment (without
regard to any decreases in such benefits which would constitute "Good Reason"
under this Policy) until the earlier of (A) 24 months after the Executive's
termination of employment or (B) the commencement of coverage with a subsequent
employer, but only to the extent such coverage duplicates or exceeds the
coverage provided by the Company; provided, however, that with respect to any
such continued coverage, the Consolidated Omnibus Budget and Reconciliation Act
of 1985 coverage period shall not run during the period of continued coverage;
(iv) unless otherwise expressly elected by Executive prior to such termination
and as provided in (vi) below, payment, in a cash lump sum, of all amounts
deferred by Executive under any non-qualified plan of deferred compensation
maintained by the Company (notwithstanding the payment provisions of any such
plan to the contrary); (v) full acceleration of vesting and exercisability
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of any equity-based awards granted to the Executive prior to Executive's
termination of employment and (vi) 24 months of age and service credit for all
purposes under all defined benefit plans of the Company; provided, however,
that to the extent any increase in benefits which would result from such
additional age and service credits cannot be paid under the terms of any plan,
the amount of such increase shall be calculated under the terms of each such
plan and paid directly by the Company in the same form and at the same time
that the benefits under each such plan would otherwise be paid. Payments
required hereunder shall be made within 10 business days following the
termination of the Executive's employment except as otherwise provided in this
Section 2.1.
(b) In the event of the termination of the Executive's
employment prior to the Termination Date due to executive's death or
Disability, the Company shall pay to the Executive (or Executive's
beneficiaries, if applicable) a lump sum cash amount equal to (i) the annual
rate of Executive's Base Salary as in effect on the date of termination and
(ii) the highest bonus paid to Executive under the Company's annual bonus plan
during the three fiscal years preceding the termination of employment. In
addition, Executive shall receive (i) the unpaid portion of Executive's Base
Salary accrued to the date of termination, and any accrued vacation as of the
date of termination; (ii) the unpaid portion of Executive's annual bonus
accrued with respect to the last full fiscal year of the Company ended prior to
the date of termination, at such time as bonus would otherwise be payable; and
(iii) unless otherwise expressly elected by Executive prior to such
termination, payment, in a cash lump sum, of all amounts deferred by Executive
under any non-qualified plan of deferred compensation (other than a defined
benefit plan) maintained by the Company (notwithstanding the payment provisions
of any such plans to the contrary). Payments required hereunder shall be made
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within 10 business days following the termination of the Executive's employment
except as otherwise provided in this Section 2.1.
(c) If the Executive's employment is terminated by the
Company for Cause or if the Executive resigns from Executive's employment
without Good Reason, the Executive shall be entitled to receive: (i) any Base
Salary accrued through the date of such resignation or termination and any
accrued vacation as of the date of termination; and (ii) the unpaid portion of
any annual bonus accrued in respect of any fiscal year of the Company preceding
the year of termination or resignation when such bonus would otherwise be
payable.
(d) In the event of any termination of employment
hereunder, the Executive shall also receive, when due, any other compensation
or benefit payable to the Executive under any plan, program or arrangement
maintained by the Company, other than a severance plan or arrangement.
2.2 Definitions. For purposes of this Policy, the
following definitions shall apply:
(a) Disability. "Disability" shall mean the Executive's
absence from the full-time performance of the Executive's duties for a period
of 180 consecutive days as a result of Executive's incapacity due to physical
or mental illness.
(b) Cause. For purposes of this Policy, "Cause" shall
mean:
(1) a deliberate and material act or omission by the
Executive with respect to Executive's duties and responsibilities with
the Company that results in material harm to the Company (provided,
that a financial harm of $500,000 shall be deemed to be "material"),
which act or omission is (A) either the product of willful malfeasance
or gross neglect, (B) committed in bad faith or without reasonable
belief that such act
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or omission is in, or not contrary to, the best interests of the
Company and (C) not remedied within 30 days after receipt of written
notice from the Company specifying such breach,
(2) Executive's willful and material breach of the
provisions of Section 8 of this Policy which is not remedied within 30
days after receipt of written notice from the Company specifying such
breach; or
(3) Executive's plea of guilty or nolo contendere to, or
nonappealable conviction of, a felony, which conviction or plea causes
material damage to the reputation or financial position of the
Company.
(c) Good Reason. For purposes of this Policy, "Good
Reason" shall mean the occurrence of any of the following without the
Executive's express written consent:
(1) The assignment to the Executive, after the Merger, of
any duties inconsistent with the Executive's positions, duties,
responsibilities and status with the Company and its subsidiaries
immediately prior to the Merger; a change in the Executive's reporting
responsibilities, title or offices that is adverse to the Executive or
any removal of the Executive from or failure to re- elect the
Executive to any position with the Company or its subsidiaries except
in connection with the Executive's promotion or a termination of
employment for Cause; provided, that no change in Executive's
responsibilities that occurs as a result of the Company no longer
being a public company or becoming a subsidiary after the Merger shall
constitute Good Reason hereunder.
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(2) A reduction in the Executive's Base Salary, target
annual bonus or long-term incentive compensation in effect at the time
of the Merger, as such salary, bonus or compensation may be increased
from time to time thereafter;
(3) The failure to continue in effect any employee
benefit plan or compensation plan in which the Executive participates
prior to the Merger unless the Executive is provided with
participation in other plans that provide substantially comparable
benefits in the aggregate to the Executive; or the taking of any
action that would substantially reduce the Executive's benefits in the
aggregate; and
(4) After the Merger, any relocation of Executive's
principal place of business on the effective date of the Policy to a
location in excess of 20 miles from such work location immediately
prior to the Merger;
provided, however, that an event specified in (1), (2) or (3) shall not
constitute "Good Reason" if it is remedied within 30 days after receipt of
written notice from Executive specifying such event.
2.3 Gross Up. (a) In the event it shall be determined
that any payment, benefit or distribution (or combination thereof) by the
Company or one or more trusts established by the Company for the benefit of its
employees, to or for the benefit of Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Policy, or under the
terms of any other plan, program agreement or arrangement) (a "Payment") would
be subject to the excise tax imposed by Section 4999 of the Code or any
interest or penalties are incurred by Executive with respect to such excise tax
(such excise tax, together with any such interest and penalties, hereinafter
collectively referred to as the "Excise Tax"), Executive shall be entitled to
receive an additional payment (a "Gross-Up
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Payment") in an amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and the Excise Tax imposed upon the Gross-Up
Payment, Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 2.3(c), all
determinations required to be made under this Section 2.3, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by a nationally recognized certified public accounting firm as may be
designated by the Company (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and Executive within fifteen (15)
business days of the receipt of notice from Executive that there has been a
Payment, or such earlier time as is requested by the Company. All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment shall be paid by the Company to Executive within five (5) days
after the receipt of the Accounting Firm's determination.
(c) As soon as practicable, Executive shall notify the
Company in writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of the Gross-Up Payment.
If the Company notifies Executive in writing that it desires to contest such
claim, Executive shall cooperate in all reasonable ways with the Company in
such contest and the Company shall be entitled to participate in all
proceedings relating to such claim; provided, however, that the Company shall
bear and pay directly all costs and expenses (including additional interest and
penalties) incurred in connection with
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such contest and shall indemnify and hold Executive harmless, on an after-tax
basis, for any Excise Tax or income tax (including interest and penalties with
respect thereto) imposed as a result of such representation and payment of
costs and expenses. Without limitation on the foregoing provisions of this
Section 2.3, the Company shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
Executive to pay the tax claimed and ▇▇▇ for a refund or contest the claim in
any permissible manner, and Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs Executive to pay such
claim and ▇▇▇ for a refund, the Company shall advance the amount of such
payment to Executive, on an interest-free basis, and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such
advance; and provided, further, that if Executive is required to extend the
statute of limitations to enable the Company to contest such claim, Executive
may limit this extension solely to such contested amount. The Company's
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and Executive
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shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.
3. Obligations Absolute; No Mitigation. (a) Except as
provided in Section 8(d), the obligations of the Company to make the payments
to, or other arrangements with respect to, the Executive provided for herein
shall be absolute and unconditional and shall not be reduced by any
circumstances, including without limitation any setoff, counterclaim,
recoupment, defense or other right which the Company may have against the
Executive or any third party at any time.
(b) Executive shall not be required to mitigate damages
or the amount of any payment provided for under this Policy by seeking other
employment or otherwise. No amounts paid to or earned by the Executive
following his termination of employment with the Company shall reduce or be set
off against any amounts payable to the Executive under this Policy.
4. No Effect On Other Rights. The provisions of this
Policy, and any payment provided for herein, shall not supersede or in any way
limit the rights, benefits, duties or obligations which the Executive may now
or in the future have under any benefit, incentive or other plan or arrangement
of the Company or any other agreement with the Company; provided, however, that
the Executive shall not be eligible to receive severance benefits under the
Company's regular severance plan during the term of this Policy.
5. Dispute Resolution. Any dispute or controversy arising
under or in connection with this Policy shall be resolved exclusively by
arbitration in Washington D.C. in accordance with the Rules of the American
Arbitration Association then in effect. Judgment
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may be entered on an arbitrator's award relating to this Policy in any court
having jurisdiction.
6. Legal Fees. The Company shall pay all costs and expenses,
including attorney's fees and disbursements of Executive in connection with any
arbitration whether or not instituted by the Company or Executive, relating to
the interpretation or enforcement of any provision of this Policy, if Executive
prevails in such arbitration on any substantive issue.
7. Assignment. Neither this Policy nor any rights or
obligations hereunder shall be assignable or otherwise subject to hypothecation
by Executive (except by will or by operation of the laws of intestate
succession) or by the Company, except that the Company must assign this Policy
to any successor (whether by merger, purchase or otherwise) to all or
substantially all of the assets or businesses of the Company, and shall require
such successor to assume expressly the obligations of the Company hereunder.
8. Nondisclosure of Confidential Information;
Non-Competition. (a) Executive may not, without the prior written consent of
the Company, use, divulge, disclose or make accessible to any other person,
firm, partnership, corporation or other entity any Confidential Information
pertaining to the business of the Company or any of its affiliates, except (i)
while employed by the Company, in the business of and for the benefit of the
Company, (ii) when required to do so by a court of competent jurisdiction, by
any governmental agency having supervisory authority over the business of the
Company, or by any administrative body or legislative body (including a
committee thereof) with jurisdiction to order Executive to divulge, disclose or
make accessible such information or (iii) to Executive's counsel. For purposes
of this Section 8(a), "Confidential Information" shall mean non-public
information concerning the financial data, strategic business plans, product
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development (or other proprietary product data), customer lists, marketing
plans and other non-public, proprietary and confidential information of the
Company and its affiliates (the "Restricted Group") or customers, that, in any
case, is not otherwise available to the public (other than by Executive's
breach of the terms hereof).
(b) During the period of Executive's employment
hereunder, and in the event the Executive terminates his or her employment for
Good Reason, for six months thereafter, Executive may not (A) directly or
indirectly, either as principal, manager, agent, consultant, officer,
stockholder, partner, investor, lender or employee or in any other capacity,
carry on, be engaged in or have any financial interest in, any business which
is in competition with the business of the Company or any other member of the
Restricted Group with which Executive has been principally employed during the
term of this Policy (an "Applicable Group Member") and (B) on Executive's own
behalf or on behalf of any person, firm or company, other than the Restricted
Group, solicit or offer employment to any person who has been employed by the
Restricted Group at any time during the 12 months immediately preceding such
solicitation.
(c) For purposes of this Section 8, a business shall be
deemed to be in competition with the Company or Applicable Group Member if it
is principally involved in the purchase, sale or other dealing in any property
or the rendering of any service purchased, sold, dealt in or rendered by the
Company or Applicable Group Member as a material part of the business of the
Company or Applicable Group Member within the same geographic area in which the
Company or Applicable Group Member makes such purchases, sales or dealings or
renders such services. Nothing in this Section 8 shall be construed so as to
preclude Executive from investing in any publicly or privately held company,
provided Executive's
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beneficial ownership of any class of such company's securities does not exceed
1% of the outstanding securities of such class.
(d) In the event the Executive engages in conduct which
is proscribed by the terms of Section 8(a) or (b) of this Policy, the Company
may, in addition to pursuing any other remedies it may have in law or in
equity, cease providing any severance payments or benefits otherwise due under
the terms of this Policy.
9. Beneficiaries; References. Executive shall be
entitled to select (and change, to the extent permitted under any applicable
law) a beneficiary or beneficiaries to receive any compensation or benefit
payable hereunder following Executive's death, and may change such election, in
either case by giving the Company written notice thereof. In the event of
Executive's death or a judicial determination of Executive's incompetence,
reference in this Policy to Executive shall be deemed, where appropriate, to
refer to Executive's beneficiary, estate or other legal representative. Any
reference to the masculine gender in this Policy shall include, where
appropriate, the feminine.
10. Separability. If any provision of this Policy shall
be declared to be invalid or unenforceable, in whole or in part, such
invalidity or unenforceability shall not affect the remaining provisions hereof
which shall remain in full force and effect.
11. Governing Law. This Policy shall be construed,
interpreted and governed in accordance with the laws of the State of New York,
without reference to rules relating to conflicts of law.
12. Withholding. The Company shall be entitled to
withhold from payment any amount of withholding required by law.
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13. Amendment. This Policy may not be amended or in any
way modified or terminated on or after the date of the Merger.
November 2, 1996
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EXHIBIT B TO ANNEX A
For purposes of Annexes A and B to the Merger Agreement, the following
terms are defined as set forth below:
ISU Holders.
Cause. For purposes of the Converted ISUs and the 1997 ISUs,
"Cause" shall mean (i) "Cause" as defined in the
participant's employment agreement, or if applicable
to such participant, the Executive Severance Program,
and (ii) with respect to any other participant,:
(a) a deliberate and material act or omission by
the participant with respect to the
participant's duties and responsibilities
with MCI that results in demonstrable harm to
MCI, which act or omission is (A) either the
product of willful malfeasance or gross
neglect, (B) committed in bad faith or
without reasonable belief that such act or
omission is in, or not contrary to, the best
interests of MCI and (C) not remedied within
30 days after receipt of written notice from
MCI specifying such breach, or
(b) the participant's plea of guilty or nolo
contendere to, or nonappealable conviction
of, a felony, which conviction or plea causes
material damage to the reputation or
financial position of MCI.
Constructive Discharge. For purposes of the Converted ISUs and the 1997 ISUs,
"Constructive Discharge" shall mean (i) "good reason"
as defined in the participant's employment agreement
or, if applicable to such participant, the Executive
Severance Program, and (ii) with respect to any other
participant, the occurrence of any of the following
without the participant's express written consent:
(a) The assignment to the participant of any
duties materially inconsistent with the
participant's current position, duties or
responsibilities with MCI and its
subsidiaries to the detriment of the
participant, provided that no change in the
participant's position, duties or
responsibilities that occurs as a result of
MCI no longer being a public company or
becoming a subsidiary after the Merger shall
constitute Constructive Discharge hereunder;
or
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(b) A material reduction in the sum of the
participant's base salary, target annual
bonus and long-term incentive, as such salary
and incentive may be increased from time to
time;
provided, however, that an event specified in (a) or
(b) above shall not constitute "Constructive
Discharge" if it is remedied within 30 days after
receipt of written notice from the participant
specifying such event.
Optionholders; Management Employee Bonus Program and Other Employee Bonus
Program.
With respect to options held by employees of MCI not holding
Converted ISUs or 1997 ISUs (and bonuses to be paid to employees of MCI under
the Management Employee Bonus Program and Other Employee Bonus Program), the
concept of Constructive Discharge shall not apply and the definition of "Cause"
set forth below shall apply.
Cause. "Cause" shall mean:
(1) a failure by the employee to perform his or
her employment duties and responsibilities
with MCI; or
(2) the employee's plea of guilty or nolo
contendere to, or nonappealable conviction
of, a felony.
99
ANNEX B
SUMMARY OF TERMS AND CONDITIONS OF SENIOR RETENTION ISUs,
1997 ISUs AND CONVERTED ISUs TO BE GRANTED
PURSUANT TO THIS AGREEMENT AND ANNEX A HERETO
1. In General
o All MCI ISUs will be granted pursuant to the MCI 1989 Stock
Option Plan.
o Each MCI ISU will entitle the holder to receive an
unrestricted, fully transferable share of MCI Common Stock as
of the applicable payment date specified in the award
agreement, or cash in the event the ISU is deferred by the
holder and diversified into fixed income or equity investments
offered by MCI.
o MCI ISU's will vest on the terms and conditions described
below.
o In the event of a termination of the holder's employment for
any reason, any MCI ISUs that have not previously vested (and
which do not vest by reason of such termination, as described
below) will be forfeited and cancelled.
o MCI ISUs will not be transferable other than by will or the
laws of descent and distribution.
o The Cash Consideration that would have been paid to a holder
of an MCI ISU pursuant to Section 5.8(e) of this Agreement
shall, at the election of the holder, be credited to an
account providing for deferral into certain equity or fixed
income investments offered by MCI.
o Payment in respect of an MCI ISU will be subject to applicable
withholding taxes.
o All MCI ISUs that remain outstanding as of the Effective Time
will be treated in the manner specified in Section 5.8(e) of
this Agreement.
2. Converted ISUs
o Each Converted ISU will vest in accordance with the original
vesting schedule for the related MCI Restricted Share;
provided, however, that each such Converted ISU will become
100% vested on the third anniversary of the date of this
Agreement.
100
B-2
o Upon a termination of the holder's employment, the unvested
portion of such holder's Converted ISUs will only be forfeited
in the event that such termination is for "cause," or such
holder's resignation is not due to "constructive discharge"
(as such terms are defined in Exhibit B); each such Converted
ISU would fully vest upon any other termination of employment
(including death or disability).
o Each Converted ISU will provide for the payment, deferral or
reinvestment, at the holder's election pursuant to a program
established by MCI prior to the Effective Time, of dividend
equivalents equal to the amount of any dividends that would
have been paid to the holder thereof following the Effective
Time had the BT ADSs underlying such Converted ISUs been
issued and outstanding on the applicable dividend record date.
3. Senior Retention ISUs
o Each Senior Retention ISU will vest over three years: 1/3 as
of the Effective Time, 1/3 on the first anniversary of the
Effective Time and 1/3 on the second anniversary of the
Effective Time.
4. 1997 ISUs
o Each 1997 ISU will vest in equal annual installments on each
of the first three anniversaries of the date of grant.
o Upon a termination of the holder's employment, the unvested
portion of such holder's 1997 ISUs will only be forfeited in
the event that such termination is for "cause," or if such
holder's resignation is not due to "constructive discharge"
(as such terms are defined in Exhibit B); each such 1997 ISU
would fully vest upon any other termination of employment
(including death or disability).
o Each 1997 ISU will provide for the payment, deferral or
reinvestment, at the holder's election pursuant to a program
established by MCI prior to the Effective Time, of dividend
equivalents equal to the amount of any dividends that would
have been paid to the holder thereof following the Effective
Time had the BT ADSs underlying such 1997 ISUs been issued and
outstanding on the applicable dividend record date.