EXHIBIT 1
DATAKEY, INC.
AND
XXXXX FARGO BANK MINNESOTA, N.A.
AS RIGHTS AGENT
RIGHTS AGREEMENT
Dated as of October 26, 2001
RIGHTS AGREEMENT
This Agreement, dated as of October 26, 2001, by and between DATAKEY,
INC., a Minnesota corporation (the "COMPANY"), and XXXXX FARGO BANK MINNESOTA,
N.A. (the "RIGHTS AGENT"),
WITNESSETH:
WHEREAS, on October 19, 2001, the Board of Directors of the
Company (the "BOARD") authorized the issuance of, and declared a dividend
payable in, one right (a "RIGHT") for each share of Common Stock, $.05 par value
per share, of the Company outstanding as of the close of business on November 9,
2001 (the "RECORD Date"), each such Right representing the right to purchase
one-hundredth (1/100) of a share of Series B Preferred Stock of the Company
("PREFERRED STOCK") authorized by the Board on October 19, 2001, upon the terms
and subject to the conditions hereinafter set forth; and
WHEREAS, the Board further authorized the issuance of one
Right (subject to adjustment) with respect to each share of Common Stock which
may be issued between the Record Date and the earlier to occur of the Expiration
Date or the Final Expiration Date (as such terms are hereinafter defined);
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as follows:
Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the meanings indicated:
(a) "ACQUIRING PERSON" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and Associates
(as such terms are hereinafter defined) of such Person, shall be the Beneficial
Owner (as such term is hereinafter defined) of 15% or more of the shares of
Voting Stock (as such term is hereinafter defined) of the Company then
outstanding; PROVIDED, THAT, an Acquiring Person shall not include an (i) Exempt
Person (as such term is hereinafter defined), or (ii) any Person, together with
all Affiliates and Associates of such Person, who or which would be an Acquiring
Person solely by reason of (A) being the Beneficial Owner of shares of Voting
Stock of the Company, the Beneficial Ownership of which was acquired by such
Person pursuant to any action or transaction or series of related actions or
transactions approved by a majority of the Board before such Person otherwise
became an Acquiring Person or (B) a reduction in the number of issued and
outstanding shares of Voting Stock of the Company pursuant to a transaction or a
series of related transactions approved by a majority of the Board.
Notwithstanding the foregoing, if, as of the date of this Agreement or prior to
the first public announcement of the adoption of this Agreement, any Person is
the Beneficial Owner of 15% or more of the shares of Voting Stock of the Company
then outstanding, such Person shall not be deemed to be an "Acquiring Person,"
but such Person shall become an "Acquiring Person" if at any time after the
first public announcement of this Agreement, he, she or it becomes the
Beneficial Owner of additional shares of Voting Stock of
1
the Company equal to three percent (3%) or more the number of shares of Voting
Stock then outstanding (other than pursuant to a dividend or distribution paid
or made by the Company on the outstanding shares of Common Stock or pursuant to
a dividend or distribution paid or made by the Company on the outstanding Shares
of Voting Stock or pursuant to a split or subdivision of the outstanding Common
Shares), unless, (i) upon becoming the Beneficial Owner of such additional
shares of Voting Stock, such Person is not then the Beneficial Owner of 15% or
more of the shares of Voting Stock of the Company then outstanding, or (ii) such
acquisition of shares is pursuant to a transaction or series of related
transactions approved by a majority of the Board before such Person otherwise
became an Acquiring Person; and provided that such Person described in this
subclause or otherwise shall become an Acquiring Person immediately upon the
date such Person becomes the Beneficial Owner of greater than 29.99% of the
shares of Voting Stock of the Company then outstanding without first obtaining
approval from a majority of the Board. Notwithstanding anything previously
stated in this Section 1(a), if the Board determines in good faith that a Person
who would otherwise be an "Acquiring Person" as defined pursuant to the
foregoing provisions of this paragraph (a) has become such inadvertently, and
such Person divests as promptly as practicable a sufficient number of shares of
Common Stock so that such Person would no longer be an "Acquiring Person" as
defined pursuant to the foregoing provisions of this paragraph (a), then such
Person shall not be deemed an "Acquiring Person" for any purposes of this Rights
Agreement.
(b) "AFFILIATE" and "ASSOCIATE" shall have the meanings ascribed to
such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), as in effect
on the date of this Rights Agreement.
(c) A Person shall be deemed the "BENEFICIAL OWNER" of, to
"BENEFICIALLY OWN," or to have "BENEFICIAL OWNERSHIP" of, any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly, for purposes of
Section 13(d) of the Exchange Act and Regulations 13D and 13G
thereunder as in effect on the date of this Rights Agreement; or
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time or the
fulfillment of a condition or both) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and
between underwriters and selling group members with respect to a bona
fide public offering of securities), or upon the exercise of conversion
rights, exchange rights, other rights (other than these Rights),
warrants or options, or otherwise; PROVIDED, HOWEVER, that a Person
shall not be deemed the Beneficial Owner of, or to Beneficially Own
securities tendered pursuant to a tender or exchange offer made by such
Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange or (B) the
right to vote, alone or in concert with others, pursuant to any
agreement, arrangement or understanding (whether or not in writing);
PROVIDED, HOWEVER, that a Person shall not be deemed the Beneficial
Owner of, or to Beneficially Own, any
2
securities if the agreement, arrangement or understanding to vote such
security (1) arises solely from a revocable proxy or consent given in
response to a public proxy or consent solicitation made pursuant to,
and in accordance with, the applicable rules and regulations under the
Exchange Act and (2) is not then reportable by such Person on
Schedule 13D under the Exchange Act (or any comparable or successor
report) as being beneficially owned by such Person; or
(iii) which are Beneficially Owned, directly or indirectly, by
any other Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or
understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide
public offering of securities), whether or not in writing, for the
purpose of acquiring, holding, and voting (except as described in
clause (B) of subparagraph (ii) of this paragraph (c)) or disposing of
any securities of the Company; PROVIDED, HOWEVER, that for purposes of
determining Beneficial Ownership of securities under this Rights
Agreement, officers and directors of the Company, solely by reason of
their status as such, shall not constitute a group (notwithstanding
that they may be Associates of one another or may be deemed to
constitute a group for purposes of Section 13(d) of the Exchange Act)
and shall not be deemed to own shares owned by another officer or
director of the Company.
Notwithstanding anything in this paragraph (c) to the contrary, the
phrase "then outstanding," when used with reference to a Person's Beneficial
Ownership of securities of the Company, shall mean the number of such securities
then issued and outstanding together with the number of such securities not then
actually issued and outstanding which such Person would be deemed to
Beneficially Own under this Rights Agreement. Further, notwithstanding anything
in this paragraph (c) to the contrary, a Person engaged in the business of
underwriting securities shall not be deemed to be Beneficial Owner of, to
Beneficially Own, or to have Beneficial Ownership of, any securities acquired in
good faith in a firm commitment underwriting until the expiration of forty days
after the date of such acquisition.
(d) "BUSINESS DAY" shall mean any day other than a Saturday, Sunday, or
a day on which banking institutions in the State of Minnesota are authorized or
obligated by law or executive order to close.
(e) "CLOSE OF BUSINESS" on any given date shall mean 5:00 P.M.,
Minneapolis time, on such date; PROVIDED, HOWEVER, that if such date is not a
Business Day it shall mean 5:00 P.M., Minneapolis time, on the next succeeding
Business Day.
(f) "COMMON STOCK" when used with reference to the Company shall mean
the common stock, par value $.05 per share of the Company. "Common Stock" when
used with reference to any Person other than the Company which shall be
organized in corporate form shall mean the capital stock or other equity
security with the greatest per share voting power of such Person. "COMMON STOCK"
when used with reference to any Person other than the Company which shall not be
organized in corporate form shall mean units of beneficial interest which shall
3
represent the right to participate in profits, losses, deductions and credits of
such Person and which shall be entitled to exercise the greatest voting power
per unit of such Person.
(g) "DISTRIBUTION DATE" shall have the meaning set forth in Section
3(a) hereof.
(h) "EXCHANGE ACT" shall have the meaning set forth in Section 1(b)
hereof.
(i) "EXEMPT PERSON" shall mean (i) the Company, (ii) any Subsidiary of
the Company or (iii) any employee benefit plan or employee stock plan of the
Company or any Subsidiary of the Company, or any trust or other entity
organized, appointed, established or holding Common Stock for or pursuant to the
terms of any such plan.
(j) "EXERCISE PRICE" shall have the meaning set forth in Sections 4 and
7(b) hereof.
(k) "EXPIRATION DATE" shall have the meaning set forth in Section 7(a)
hereof.
(l) "FAIR MARKET VALUE" of any security or other property shall mean
the fair market value of such property as determined in accordance with Section
11(d) hereof.
(m) "FINAL EXPIRATION DATE" shall have the meaning set forth in Section
7(a) hereof.
(n) "PERSON" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such entity.
(o) "PRINCIPAL PARTY" shall have the meaning set forth in Section 13(b)
hereof.
(p) "PREFERRED STOCK" shall mean shares of Series B Preferred Stock,
par value $.05 per share, of the Company, having the rights and preferences set
forth in Exhibit A hereto.
(q) "QUALIFYING TENDER OFFER" shall mean a tender or exchange offer for
all outstanding shares of Common Stock of the Company approved by a majority of
the Board, after taking into account the potential long-term value of the
Company and all other factors that they consider relevant.
(r) "REDEMPTION PRICE" shall have the meaning set forth in Section
23(a) hereof.
(s) "RIGHT CERTIFICATE" shall have the meaning set forth in Section
3(d) hereof.
(t) "STOCK ACQUISITION DATE" shall mean the first date on which there
shall be a public announcement by the Company or an Acquiring Person that an
Acquiring Person has become such (which, for purposes of this definition, shall
include, without limitation, a report filed pursuant to Section 13(d) of the
Exchange Act) or such earlier date as a majority of the Board shall become aware
of the existence of an Acquiring Person.
4
(u) "SUBSIDIARY" of a Person shall mean any corporation or other entity
of which securities or other ownership interests having voting power sufficient
to elect a majority of the board of directors or other persons performing
similar functions are Beneficially Owned, directly or indirectly, by such Person
or by any corporation or other entity that is otherwise controlled by such
Person.
(v) "SUMMARY OF RIGHTS" shall have the meaning set forth in Section
3(b) hereof.
(w) "TRADING DAY" shall have the meaning set forth in Section 11(d)
hereof.
(x) "VOTING STOCK" shall mean (i) the Common Stock of the Company and
(ii) any other shares of capital stock of the Company entitled to vote generally
in the election of directors or entitled to vote together with the Common Stock
in respect of any merger, consolidation, sale of all or substantially all of the
Company's assets, liquidation, dissolution or winding up.
Any determination required to be made by the Board for purposes of
applying the definitions contained in this Section 1 shall be made in good faith
by a majority of the Board, which determination shall be binding on the Rights
Agent and the holders of the Rights.
Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of Rights (who in
accordance with Section 3 hereof, shall, prior to the Distribution Date, also be
the holders of Common Stock) in accordance with the terms and conditions hereof,
and the Rights Agent hereby accepts such appointment. The Company may from time
to time appoint such Co-Rights Agents as it may deem necessary or desirable,
upon ten (10) days prior written notice to the Rights Agent. The Rights Agent
shall have no duty to supervise, and shall in no event be liable for, the acts
or omissions of any Co-Rights Agent.
Section 3. ISSUANCE OF RIGHT CERTIFICATES.
(a) Until the earlier of (i) the tenth day after the Stock Acquisition
Date or (ii) the tenth Business Day (or such later date as may be determined by
action of the Board, prior to such time as any Person becomes an Acquiring
Person) after the date of the commencement by any Person (other than an Exempt
Person) of, or the first public announcement of the intent of any Person (other
than an Exempt Person) to commence, a tender or exchange offer upon the
successful consummation of which such Person, together with its Affiliates and
Associates, would become the Beneficial Owner of 15% or more of the then
outstanding shares of Voting Stock of the Company (irrespective of whether any
shares are actually purchased pursuant to any such offer) (the earlier of such
dates being herein referred to as the "DISTRIBUTION DATE"), (1) the Rights shall
be evidenced by the certificates for Common Stock registered in the name of the
holders thereof (together with, in the case of certificates for Common Stock
outstanding as of the Record Date, the Summary of Rights) and not by separate
Right certificates (and the record holders of such certificates for Common Stock
shall be the record holders of the Rights represented thereby), and (2) the
right to receive a Right Certificate shall be transferable only simultaneously
and together with the transfer of a share of Common Stock (subject to adjustment
5
as hereinafter provided). Until the Distribution Date (or, if earlier, the
Expiration Date or Final Expiration Date), the surrender for transfer of any
certificate for Common Stock shall constitute the surrender for transfer of the
Right or Rights associated with the Common Stock evidenced thereby, whether or
not accompanied by a copy of the Summary of Rights.
(b) On the Record Date, or as soon as practicable thereafter, the
Company shall send a copy of a Summary of Rights to Purchase Shares of Series B
Preferred Stock, in substantially the form of Exhibit B attached hereto (the
"SUMMARY OF RIGHTS"), by first class mail, postage prepaid, to each record
holder of the Common Stock as of the close of business on the Record Date, at
the address of such holder shown on the records of the Company.
(c) Rights shall be issued in respect of all shares of Common Stock
that become outstanding after the Record Date but prior to the earlier of the
Distribution Date, the Expiration Date or the Final Expiration Date.
Certificates for Common Stock issued (including, without limitation,
certificates issued upon original issuance, transfer or exchange of Common
Stock) after the Record Date but prior to the earliest of the Distribution Date,
the Expiration Date, or the Final Expiration Date shall have impressed, printed,
written or stamped thereon or otherwise affixed thereto the following legend:
This certificate also evidences and entitles the holder hereof
to the same number of Rights (subject to adjustment) as the number of
shares of Common Stock represented by this certificate, such Rights
being on the terms provided in the Rights Agreement between DATAKEY,
INC. and XXXXX FARGO BANK MINNESOTA, N.A., dated as of October 26,
2001, as it may be amended from time to time (the "RIGHTS AGREEMENT"),
the terms of which are incorporated herein by reference and a copy of
which is on file at the principal executive offices of DATAKEY, INC.
Under certain circumstances, as set forth in the Rights Agreement, such
Rights shall be evidenced by separate certificates and shall no longer
be evidenced by this certificate. DATAKEY, INC. shall mail to the
registered holder of this certificate a copy of the Rights Agreement
without charge after receipt of a written request therefor. UNDER
CERTAIN CIRCUMSTANCES AS PROVIDED IN SECTION 7(e) OF THE RIGHTS
AGREEMENT, RIGHTS ISSUED TO OR BENEFICIALLY OWNED BY ACQUIRING PERSONS
OR THEIR AFFILIATES OR ASSOCIATES (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT) OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS SHALL BE NULL
AND VOID AND MAY NOT BE TRANSFERRED TO ANY PERSON.
(d) As soon as practicable after the Distribution Date, the Company
will prepare and execute, the Rights Agent will countersign, and the Company
will send or cause to be sent and the Rights Agent will, if requested, send by
first class mail, postage prepaid, to each record holder of the Common Stock as
of the close of business on the Distribution Date, as shown by the records of
the Company, at the address of such holder shown on such records, a certificate
in the form provided by Section 4 hereof (a "RIGHT CERTIFICATE"), evidencing one
Right (subject to adjustment as provided herein) for each share of Common Stock
so held. As of and after the Distribution Date, the Rights shall be evidenced
solely by Right Certificates and may be transferred by the transfer of the Right
Certificate as permitted hereby, separately and apart from any transfer of one
or more shares of Common Stock.
6
Section 4. FORM OF RIGHT CERTIFICATES. The Right Certificates and the
forms of election to purchase and assignment to be printed on the reverse
thereof, shall be substantially in the form set forth in Exhibit C hereto and
may have such marks of identification or designation and such legends, summaries
or endorsements printed thereon as the Company may deem appropriate, or as may
be required to comply with any applicable law, rule, or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Common
Stock or the Rights may from time to time be listed or conform to usage or
otherwise and as are not inconsistent with the provisions of this Rights
Agreement. Subject to the provisions of Section 22 hereof, the Right
Certificates evidencing Rights whenever issued, (i) shall be dated as of the
date of issuance of the Rights they represent; (ii) shall be subject to
adjustment from time to time as provided herein; and (iii) on their face shall
entitle the holders thereof to purchase such number of shares (including
fractional shares which are integral multiples of one-hundredth of a share) of
Preferred Stock as shall be set forth therein at the price payable upon exercise
of a Right provided by Section 7(b) hereof as the same may from time to time be
adjusted as provided herein (the "EXERCISE PRICE").
Section 5. COUNTERSIGNATURE AND REGISTRATION.
(a) Each Right Certificate shall be executed on behalf of the Company
by its Chairman, Chief Executive Officer, President or any Vice President,
either manually or by facsimile signature, and attested by the Chief Financial
Officer, the Secretary or an Assistant Secretary of the Company, either manually
or by facsimile signature. Each Right Certificate shall be countersigned by the
Rights Agent either manually or by facsimile signature and shall not be valid
for any purpose unless so countersigned. If any officer of the Company who
signed any Right Certificate ceases to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery of the
certificate by the Company, such Right Certificate, nevertheless, may be
countersigned by the Rights Agent and issued and delivered with the same force
and effect as though the person who signed such Right Certificates had not
ceased to be such officer of the Company. Any Right Certificate may be signed on
behalf of the Company by any person who, on the date of the execution of such
Right Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at an office designated for such purpose, books for
registration and transfer of the Right Certificates issued hereunder. Such books
shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the Right
Certificates and the date of each of the Right Certificates.
Section 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES.
(a) Subject to the provisions of Sections 7(e), 7(f) and 14 hereof, at
any time after the Close of Business on the Distribution Date, and at or prior
to the Close of Business on the earlier
7
of the Expiration Date or the Final Expiration Date, any Right Certificate may
be transferred, or split up, combined or exchanged for one or more other Right
Certificates, entitling the registered holder to purchase a like number of
shares of Preferred Stock as the Right Certificate or Right Certificates
surrendered then entitled such holder to purchase. Any registered holder
desiring to transfer any Right Certificate shall surrender the Right Certificate
at the office of the Rights Agent designated for that purpose with the form of
certificate and assignment on the reverse side thereof duly endorsed (or
enclosed with such Right Certificate a written instrument of transfer in a form
satisfactory to the Company and the Rights Agent), duly executed by the
registered holder thereof or his attorney duly authorized in writing, and with
such signature duly guaranteed. Any registered holder desiring to split up,
combine or exchange any Right Certificate shall make such request in writing
delivered to the Rights Agent, and shall surrender the Right Certificate to be
split up, combined or exchanged at the office of the Rights Agent designated
therefor. Thereupon, the Rights Agent shall countersign and deliver to the
person entitled thereto a Right Certificate or Right Certificates, as the case
may be, as so requested. The Company may require payment of a sum sufficient to
cover any transfer tax that may be imposed in connection with any transfer,
split up, combination or exchange of any Right Certificates.
(b) Subject to the provisions of Sections 7(e), 7(f) and 14 hereof,
upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them and, if requested by the Company,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, or upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company shall issue and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered owner in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7. EXERCISE OF RIGHTS; EXERCISE PRICE; EXPIRATION DATE OF
RIGHTS.
(a) The Rights shall not be exercisable until, and shall become
exercisable on, the Distribution Date (unless otherwise provided herein,
including, without limitation, the restrictions on exercisability set forth in
Sections 7(e) and 23(a) hereof). Except as otherwise provided herein, the Rights
may be exercised, in whole or in part, at any time commencing with the
Distribution Date upon surrender of the Right Certificate, with the form of
election to purchase and the certificate on the reverse side thereof duly
executed (with signatures duly guaranteed), to the Rights Agent at the principal
office of the Rights Agent in South St. Xxxx, Minnesota, together with payment
of the Exercise Price with respect to the total number of one-hundredths (1/100)
of a share of Preferred Stock (or other securities, cash or other assets, as the
case may be) as to which such surrendered Rights are then exercisable, subject
to adjustment as hereinafter provided, at or prior to the Close of Business on
the earlier of (i) November 9, 2011 (the "FINAL EXPIRATION DATE") or (ii) the
date on which the Rights are redeemed as provided in Section 23 hereof (such
earlier date herein referred to as the "EXPIRATION DATE").
(b) The Exercise Price for each one-hundredth (1/100) of a share of
Preferred Stock pursuant to the exercise of a Right shall initially be Sixty
Dollars ($60). The Exercise Price and
8
the number of shares of Preferred Stock or other securities to be acquired upon
exercise of a Right shall be subject to adjustment from time to time as provided
in Sections 11 and 13 hereof and shall be payable in accordance with paragraph
(c) below.
(c) Except as otherwise provided herein, upon receipt of a Right
Certificate with the form of election to purchase duly executed, accompanied by
payment by certified check, cashier's check, bank draft or money order payable
to the Company or the Rights Agent on behalf of the Company of the Exercise
Price for the shares to be purchased and an amount equal to any applicable
transfer tax required to be paid by the holder of the Right Certificate in
accordance with Section 9(e) hereof, the Rights Agent shall thereupon promptly
(i) requisition from any transfer agent of the Preferred Stock of the Company
one or more certificates representing the number of shares of Preferred Stock to
be so purchased, and the Company hereby authorizes and directs such transfer
agent to comply with all such requests; (ii) as provided in Section 14(b), at
the election of the Company, cause depository receipts to be issued in lieu of
fractional shares of Preferred Stock; (iii) if the election provided for in the
immediately preceding clause (ii) has not been made, requisition from the
Company the amount of cash to be paid in lieu of the issuance of fractional
shares in accordance with Section 14(b) hereof; (iv) after receipt of such
Preferred Stock certificates, and if applicable, depository receipts, cause the
same to be delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder; and (v) when appropriate, after receipt, promptly deliver such cash to
or upon the order of the registered holder of such Right Certificate; PROVIDED,
HOWEVER, that in the case of a purchase of securities, other than Preferred
Stock, pursuant to Section 13 hereof, the Rights Agent shall promptly take the
appropriate actions corresponding in such case to that referred to in the
foregoing clauses (i) through (v) of this Section 7(c). Notwithstanding the
foregoing provisions of this Section 7(c), the Company may suspend the issuance
of shares of Preferred Stock upon exercise of a Right for a reasonable period,
not in excess of ninety (90) days, during which time the Company seeks to
register under the Securities Act of 1933, as amended (the "ACT"), and any
applicable securities law of any other jurisdiction, the shares of Preferred
Stock to be issued pursuant to the Rights; PROVIDED, HOWEVER, that nothing
contained in this Section 7(c) shall relieve the Company of its obligations
under Section 9(c) hereof.
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the remaining unexercised Rights shall be issued
by the Rights Agent to the registered holder of such Right Certificate or his
assign, subject to the provisions of Section 14(b) hereof.
(e) Notwithstanding any provision of this Rights Agreement to the
contrary, from and after the first occurrence of an event described in
Section 11(a)(ii) herein, any Rights Beneficially Owned by (i) an Acquiring
Person, or any Associate or Affiliate of such Acquiring Person, which a
majority of the Board, in their sole discretion, determines is or was
involved in or caused or facilitated, directly or indirectly (including
through any change in the Board), such event, (ii) a transferee of any Rights
Beneficially Owned by such Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee after such Acquiring Person becomes such,
or (iii) a transferee of any Rights Beneficially owned by such Acquiring
Person (or any such Associate or
9
Affiliate) who becomes a transferee prior to or concurrently with such
Acquiring Person becoming such and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from such Acquiring Person
to holders of equity interests in such Acquiring Person or to any Person with
whom such Acquiring Person has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer which a
majority of the Board has determined is part of a plan, arrangement or
understanding which has a primary purpose or effect of avoiding the
provisions of this Section 7(e), shall become null and void without any
further action and any holder of such Rights shall thereafter have no rights
whatsoever with respect to such Rights, whether under any provision of this
Rights Agreement or otherwise. The Company shall use all reasonable efforts
to ensure that the provisions of this Section 7(e) are complied with, but
shall have no liability to any holder of Right Certificates or any other
Person as a result of its failure to make any determination with respect to
an Acquiring Person or its Affiliates, Associates or transferees hereunder.
No Right Certificate shall be issued pursuant to Section 3 hereof that
represents Rights Beneficially Owned by an Acquiring Person whose Rights
would be void pursuant to the provisions of this Section 7(e) or any
Associate or Affiliate thereof; no Right Certificate shall be issued at any
time upon the transfer of any Rights to an Acquiring Person whose Rights
would be void pursuant to the provisions of this Section 7(e) or any
Associate or Affiliate thereof or to any nominee of such Acquiring Person,
Associate or Affiliate; and any Right Certificate delivered to the Rights
Agent for transfer to an Acquiring Person whose Rights would be void pursuant
to the provisions of this Section 7(e) shall be cancelled.
(f) Notwithstanding anything in this Agreement to the contrary, neither
the Rights Agent nor the Company shall be obligated to undertake any action with
respect to a registered holder upon the occurrence of any purported exercise as
set forth in this Section 7 unless such registered holder shall have (i)
completed and signed the certificate following the form of election to purchase
set forth on the reverse side of the Right Certificate surrendered for such
exercise and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
Section 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Rights Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall cancel
and retire, any Right Certificate purchased or acquired by the Company otherwise
than upon the exercise thereof. The Rights Agent shall deliver all cancelled
Right Certificates to the Company approximately one and one-half years after the
cancellation date. The Company will destroy the certificates after any
Securities and Exchange Commission required retention periods.
10
Section 9. RESERVATION AND AVAILABILITY OF SHARES OF PREFERRED STOCK.
(a) The Company covenants and agrees that it will cause to be reserved
and kept available out of its authorized and unissued shares of Preferred Stock
(and, following the occurrence of an event described in Section 11(a)(ii) or 13,
out of its authorized and unissued shares of Common Stock and/or other
securities), the number of shares of Preferred Stock (and, following the
occurrence of an event described in Section 11(a)(ii) or 13, Common Stock and/or
other securities) that, as provided in this Agreement including Section
11(a)(iii) hereof, will be sufficient to permit exercise in full of all
outstanding Rights.
(b) The Company shall use its best efforts to cause, from and after
such time as the Rights become exercisable, all shares of Preferred Stock issued
or reserved for issuance in accordance with this Rights Agreement to be listed,
upon official notice of issuance, upon the principal national securities
exchange, if any, upon which the Common Stock is listed or, if the principal
market for the Common Stock is not on any national securities exchange, to be
eligible for quotation on Nasdaq or any successor thereto or other comparable
quotation system, or such other system on which the Common Stock may be quoted.
(c) The Company covenants and agrees that it will take all such action
as may be necessary to insure that all shares delivered upon the exercise of
Rights shall, at the time of delivery of the certificates for such shares
(subject to payment of the Exercise Price in respect thereof), be duly and
validly authorized and issued and fully paid and nonassessable shares.
(d) The Company shall use its best efforts to (i) file, as soon as
practicable following the occurrence of the event described in Section 11(a)(ii)
or 13, or as soon as is required by law following the Distribution Date, as the
case may be, a registration statement under the Act, with respect to the
securities purchasable upon exercise of the Rights on an appropriate form; (ii)
cause such registration statement to become effective as soon as practicable
after such filing; and (iii) cause such registration statement to remain
effective (with a prospectus at all times meeting the requirements of the Act)
until the earlier of (A) the date as of which the Rights are no longer
exercisable for such securities, and (B) the date of the expiration of the
Rights. The Company may temporarily suspend, for a period not to exceed ninety
(90) days, the issuance of securities upon exercise of a Right in order to
prepare and file a registration statement under the Act and permit it to become
effective. Upon any such suspension, the Company shall issue a public
announcement that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement at such time as the suspension is no
longer in effect. The Company will also take such action as may be appropriate
under, or to ensure compliance with, the securities or "Blue Sky" laws of the
various states in connection with the exercisability of the Rights.
Notwithstanding any provision of this Rights Agreement to the contrary, the
Rights shall not be exercisable in any jurisdiction unless the requisite
qualification in such jurisdiction shall have been obtained and until a
registration statement under the Act if required, shall have been declared
effective.
(e) The Company covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or
11
delivery of the Right Certificates or of any securities upon the exercise of
Rights. The Company shall not, however, be required to pay any transfer tax
which may be payable in respect of any transfer or delivery of a Right
Certificate to a Person other than, or the issuance or delivery of certificates
for securities upon exercise of Rights in a name other than that of, the
registered holder of the Right Certificate, and the Company shall not be
required to issue or deliver a Right Certificate or certificate for such
securities to a Person other than such registered holder until any such transfer
tax shall have been paid (any such transfer tax being payable by the holder of
such Right Certificate at the time of surrender) or until it has been
established to the Company's reasonable satisfaction that no such transfer tax
is due.
Section 10. PREFERRED STOCK RECORD DATE. Each Person in whose name any
certificate for shares of Preferred Stock (or Common Stock and/or other
securities, as the case may be) is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the Preferred
Stock (or Common Stock and/or other securities, as the case may be) represented
thereby, and such certificate shall be dated as of the date upon which the Right
Certificate evidencing such Rights was duly surrendered and payment of the
Exercise Price (and any applicable transfer taxes) was made; PROVIDED, HOWEVER,
that, if the date of such surrender and payment is a date upon which the
Preferred Stock (or Common Stock and/or other securities, as the case may be)
transfer books of the Company are closed, such Person shall be deemed to have
become the record holder of such shares on, and such certificate shall be dated
as of, the next succeeding Business Day on which the Preferred Stock (or Common
Stock and/or other securities, as the case may be) transfer books of the Company
are open. Prior to the exercise of the Rights evidenced thereby, the holder of a
Right Certificate, as such, shall not be entitled to any rights of a stockholder
of the Company with respect to shares for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. ADJUSTMENT OF EXERCISE PRICE OR NUMBER OF SHARES. The
Exercise Price and the number and kind of shares which may be purchased upon
exercise of a Right are subject to adjustment from time to time as provided in
this Section 11.
(a) (i) In the event the Company shall at any time after the date of
this Rights Agreement (A) declare or pay any dividend on Common Stock
payable in shares of Common Stock, (B) subdivide or split the
outstanding shares of Common Stock into a greater number of shares or
(C) combine or consolidate the outstanding shares of Common Stock into
a smaller number of shares or effect a reverse split of the outstanding
shares of Common Stock, then and in each such event the number and kind
of shares of Preferred Stock or capital stock issuable upon the
exercise of a Right after the Record Date for such event (if one shall
have been established or, if not, after the date of such event) shall
be the number of shares of Preferred Stock or capital stock issuable
pursuant to such right immediately prior to such event multiplied by a
fraction, the numerator of which is the number of Rights outstanding
immediately prior to such event, and the denominator of which is the
number of Rights outstanding immediately after such event and the
Exercise Price after such event shall be the Exercise Price in effect
immediately
12
prior to such event multiplied by such fraction. If an event occurs
which would require an adjustment under both this Section 11(a)(i) and
Section 11(a)(ii) hereof, the adjustment provided for in this Section
11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii).
(ii) Subject to Sections 23(a) and 24 herein, in the event
that any Person (other than an Exempt Person), alone or together with
its Affiliates and Associates, shall become an Acquiring Person, except
pursuant to a Qualifying Tender Offer and except as otherwise provided
in this Section 11, each holder of a Right, except as provided in
Section 7(e) hereof, shall thereafter have the right to receive upon
exercise of such Right in accordance with the terms of this Rights
Agreement and payment of the Exercise Price, the greater of (A) the
amount of Preferred Stock for which such Right was exercisable
immediately prior to the first occurrence of the event described in
this Section 11(a)(ii) or (B) the amount of Preferred Stock, based on
the per share Fair Market Value of the Preferred Stock (determined
pursuant to Section 11(d) hereof) on the date of such first occurrence,
having a value equal to twice the Exercise Price; PROVIDED, HOWEVER,
that if the transaction that would otherwise give rise to the foregoing
adjustment is also subject to the provisions of Section 13 hereof, then
only the provisions of Section 13 hereof shall apply and no adjustment
shall be made pursuant to this Section 11(a)(ii); FURTHER PROVIDED,
HOWEVER, in lieu of Preferred Stock, each holder of a Right, except as
provided in Section 7(e) hereof, may thereafter elect to receive upon
and at the time of exercise of such Right, such number of shares of
Common Stock as, based upon the per share Fair Market Value of the
Common Stock (determined pursuant to Section 11(d) hereof) on the date
of such first occurrence, have a value equal to twice the Exercise
Price. From and after the occurrence of an event described above, any
Rights that are or were acquired or Beneficially Owned by any Acquiring
Person (or any Associate or Affiliate of any Acquiring Person) or any
transferee of any of the foregoing shall be void and any holder of such
Rights shall thereafter have no right to exercise such Rights under any
provision of this Agreement. No Right Certificate shall be issued
pursuant to Section 3 that represents Rights Beneficially Owned by an
Acquiring Person whose rights would be void pursuant to the preceding
sentence or any Associate or Affiliate thereof, and no Right
Certificate shall be issued pursuant to Section 3 upon the transfer of
any Rights to an Acquiring Person whose Rights would be void pursuant
to the preceding sentence or any Associate or Affiliate thereof, or to
any transferee or nominee of such an Acquiring Person, Associate or
Affiliate, and any Right Certificate delivered to the Rights Agent for
transfer to an Acquiring Person whose rights would be void pursuant to
the preceding sentence or any Associate or Affiliate thereof shall be
cancelled. In the event that any Person shall become an Acquiring
Person and any Rights shall be outstanding, the Company shall not take
any action that would eliminate or diminish the benefits intended to be
afforded by the Rights.
(iii) In the event that the Company does not have available
sufficient authorized but unissued Preferred Stock and Common Stock to
permit the adjustments required pursuant to the foregoing subparagraph
(i) or the exercise in full of the Rights in accordance with the
foregoing subparagraph (ii), the Company shall take all such action
13
as may be necessary to authorize and reserve for issuance such number
of additional shares of Preferred Stock and Common Stock as may from
time to time be required to be issued upon the exercise in full of all
Rights from time to time outstanding and, if necessary, shall use its
best efforts to obtain stockholder approval thereof. In lieu of issuing
shares of Preferred Stock in accordance with the foregoing
subparagraphs (i) and (ii), the Company may, subject to approval by a
majority of the Board, if it determines that such action is necessary
or appropriate and not contrary to the interests of holders of the
Rights, elect to issue or pay, upon the exercise of the Rights, cash,
property, or shares of Preferred Stock or Common Stock, or any
combination thereof. Such cash, property or shares of Preferred Stock
or Common Stock shall have a value equal to the Fair Market Value of
the shares of Preferred Stock that otherwise would have been required
to be issued upon such exercise of the Rights. The Fair Market Value of
the Preferred Stock shall be determined pursuant to Section 11(d).
Subject to Section 23 hereof, any such election by the Board must be
made and publicly announced within thirty (30) days after the date on
which the event described in Section 11(a)(ii) occurs.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Stock (or shares having the same rights,
privileges and preferences as the Preferred Stock ("EQUIVALENT PREFERENCE
SHARES")) or securities convertible into Preferred Stock or equivalent
preference shares at a price per share of Preferred Stock or equivalent
preference share (or having a conversion price per share, if a security
convertible into Preferred Stock or equivalent preference shares) less than the
then current Fair Market Value of a share of Preferred Stock (determined
pursuant to Section 11(d) hereof) on such record date, the Exercise Price to be
in effect after such record date shall be determined by multiplying the Exercise
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of shares of Preferred Stock and
equivalent preference shares outstanding on such record date plus the number of
shares of Preferred Stock and equivalent preference shares which the aggregate
offering price of the total number of shares of Preferred Stock and/or
equivalent preference shares so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such current Fair Market Value and the denominator of which shall be the
number of shares of Preferred Stock and equivalent preference shares outstanding
on such record date plus the number of additional shares of Preferred Stock
and/or equivalent preference shares to be offered for subscription or purchase
(or into which the convertible securities so to be offered are initially
convertible); PROVIDED, HOWEVER, that in no event shall the consideration to be
paid upon the exercise of one Right be less than the aggregate par value of the
shares of capital stock of the Company issuable upon exercise of one Right. In
case such subscription price may be paid in a consideration part or all of which
shall be in a form other than cash, the value of such consideration shall be as
determined in good faith by a majority of the Board, whose determination shall
be described in a statement filed with the Rights Agent. Shares of Preferred
Stock and equivalent preference shares owned by or held for the account of the
Company shall not be deemed outstanding for the purpose of any such computation.
Such adjustment shall be made successively whenever such a record date is fixed;
and in the event that such rights, options
14
or warrants are not so issued, the Exercise Price shall be adjusted to be the
Exercise Price which would then be in effect if such record date had not been
fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Stock) or subscription rights or warrants (excluding those referred to
in Section 11(b) hereof), the Exercise Price to be in effect after such record
date shall be determined by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
then current Fair Market Value of a share of the Preferred Stock (determined
pursuant to Section 11(d) hereof) on such record date, less the Fair Market
Value (as determined in good faith by a majority of the Board of Directors of
the Company, whose determination shall be described in a statement filed with
the Rights Agent) of the portion of the assets or evidences of indebtedness so
to be distributed or of such subscription rights or warrants applicable to one
share of Preferred Stock and the denominator of which shall be such current Fair
Market Value (determined pursuant to Section 11(d) hereof) of a share of
Preferred Stock; PROVIDED, HOWEVER, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company to be issued upon exercise of one
Right. Such adjustments shall be made successively whenever such a record date
is fixed; and in the event that such distribution is not so made, the Exercise
Price shall again be adjusted to be the Exercise Price which would then be in
effect if such record date had not been fixed.
(d) For the purpose of this Rights Agreement, the "FAIR MARKET VALUE"
of any share of Preferred Stock, Common Stock or any other stock or any Right or
other security or any other property on any date shall be determined as provided
in this Section 11(d). In the case of a publicly traded stock or other security,
the Fair Market Value on any date shall be deemed to be the average of the daily
closing prices per share of such stock or per unit of such other security for
the 30 consecutive Trading Days (as such term is hereinafter defined)
immediately prior to such date; PROVIDED, HOWEVER, that in the event that the
Fair Market Value per share of any share of Common Stock is determined during a
period which includes any date that is within 30 Trading Days after (i) the
ex-dividend date for a dividend or distribution on such stock payable in shares
of Common Stock or securities convertible into shares of Common Stock, or (ii)
effective date of any subdivision, split, combination, consolidation, reverse
stock split or reclassification of such stock, then, and in each such case, the
Fair Market Value shall be appropriately adjusted by a majority of the Board, to
take into account ex-dividend or post-effective date trading. The closing price
for any day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way (in either case, as reported in the applicable transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange), or, if the securities are not listed or admitted to trading on
the New York Stock Exchange, as reported in the applicable transaction reporting
system with respect to securities listed on the principal national securities
exchange on which such security is listed or admitted to trading; or, if not
listed or admitted to trading on any national securities exchange, the last
quoted price (or, if not so quoted, the average of the high
15
bid and low asked prices) in the over-the-counter market, as reported by Nasdaq
or such other system then in use; or, if no bids for such security are quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in such security
selected by the Board. The term "TRADING DAY" shall mean a day on which the
principal national securities exchange on which such security is listed or
admitted to trading is open for the transaction of business or, if such security
is not listed or admitted to trading on any national securities exchange, a
Business Day. If a security is not publicly held or not so listed or traded,
"FAIR MARKET VALUE" shall mean the fair value per share of stock or per other
unit of such other security, as determined by an independent investment banking
firm experienced in the valuation of securities selected in good faith by a
majority of the Board, or, if no such investment banking firm is, in the good
faith judgment of a majority of the Board, as applicable, available to make such
determination, in good faith by a majority of the Board; PROVIDED, HOWEVER, that
for purposes of making the adjustment provided for by Section 11(a)(ii)(B)
hereof, the Fair Market Value of a share of Preferred Stock shall not be less
than 100% of the product of the Fair Market Value of a share of Common Stock
multiplied by the higher of the then Dividend Multiple or Vote Multiple
applicable to the Preferred Stock (as defined in the Certificate of Designation
relating to the Preferred Stock) and shall not exceed 105% of the product of the
then Fair Market Value of a share of Common Stock multiplied by the higher of
the then Dividend Multiple or Vote Multiple applicable to the Preferred Stock.
In the case of property other than securities, the "FAIR MARKET VALUE" thereof
shall be determined in good faith by a majority of the Board, based upon such
appraisals or valuation reports of such independent experts as a majority of the
Board shall in good faith determine to be appropriate in accordance with good
business practices and the interests of the holders of Rights. Any such
determination of Fair Market Value shall be described in a statement filed with
the Rights Agent and shall be binding upon the Rights Agent.
(e) All calculations under this Section 11 shall be made to the nearest
cent or to the nearest one-hundredth (1/100) of a share, as the case may be.
(f) Irrespective of any adjustment or change in the Exercise Price or
the securities issuable upon the exercise of the Rights, the Right Certificates
theretofore and thereafter issued may continue to express the Exercise Price and
the number of shares to be issued upon exercise of the Rights as in the initial
Right Certificates issued hereunder but, nevertheless, shall represent the
Rights as so adjusted.
(g) Before taking any action that would cause an adjustment reducing
the purchase price per whole share purchasable upon exercise of the Rights below
the then per share par value, the Company shall use its best efforts to take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and non-assessable
shares at such adjusted purchase price per share.
(h) Notwithstanding anything in this Section 11 to the contrary, in the
event of any reclassification of stock of the Company or any recapitalization,
reorganization or partial liquidation of the Company or similar transaction, the
Company shall make such further adjustments in the number and kind of shares
which may be acquired upon exercise of the
16
Rights, and such adjustments in the Exercise Price therefor, in addition to
those adjustments expressly required by the other paragraphs of this Section 11,
as a majority of the Board shall in good faith determine to be necessary or
appropriate in order for the holders of the Rights in such event to be treated
equitably and in accordance with the purpose and intent of this Rights Agreement
or in order that any such event shall not, but for such adjustment, in the
opinion of counsel to the Company, result in the stockholders of the Company
being subject to any United States federal income tax liability by reason
thereof.
(i) In the event the Company shall at any time after the Record Date
make any distribution on the shares of Common Stock of the Company, whether by
way of a dividend or a reclassification of stock, a recapitalization,
reorganization or partial liquidation of the Company or otherwise, in cash or
any security, debt security, debt instrument, subscription right, warrant, real
or personal property or any other property or security (other than any shares of
Common Stock) and the amount of such cash dividend or the Fair Market Value of
such security, right, warrant, debt security, debt instrument or property
exceeds 150% of the aggregate amount of the cash dividends declared or paid on
the Common Stock of the Company in the 15-month period immediately preceding
such distribution, then and in each such event, unless such distribution is part
of or is made in connection with a transaction to which Section 11(a)(ii) or
Section 13 hereof applies, the Exercise Price shall be reduced by an amount
equal to the cash or the Fair Market Value of such distribution, as the case may
be, per share of Common Stock. For purposes hereof, the Fair Market Value of any
property distributed to the holders of shares of Common Stock shall be the Fair
Market Value of such property as determined by an independent investment banking
firm experienced in the valuation of securities or the other property so
distributed, as the case may be, selected in good faith by the Board, or, if no
such investment banking firm is in the good faith judgment of a majority of the
Board available to make such determination, in good faith by a majority of the
Board, whose determination shall be final and binding on the Company, the Rights
Agent and the holders of Rights.
Section 12. CERTIFICATION OF ADJUSTED EXERCISE PRICE OR NUMBER OF
SHARES. Whenever an adjustment is made as provided in Section 11, 13 or 23(c) of
this Rights Agreement, the Company shall (a) promptly prepare a certificate
setting forth such adjustment, and a brief statement of the facts giving rise to
such adjustment, (b) promptly file with the Rights Agent and with each transfer
agent for the Preferred Stock a copy of such certificate and (c) mail a brief
summary thereof to each holder of a Right Certificate in accordance with Section
25 of this Rights Agreement. Notwithstanding the foregoing sentence, the failure
of the Company, to make such certification or give such notice shall not affect
the validity of or the force or effect of the requirement for such adjustment.
Any adjustment to be made pursuant to Section 11, 13 or 23(c) of this Rights
Agreement shall be effective as of the date of the event giving rise to such
adjustment. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein contained and shall not be deemed to
have knowledge of any adjustment unless and until it shall have received such
certificate.
Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER.
17
(a) In the event that, following the Stock Acquisition Date, directly
or indirectly, (w) the Company shall consolidate with, or merge with and into,
any other Person (other than an Exempt Person), and the Company shall not be the
surviving or continuing corporation of such consolidation or merger, or (x) any
Person (other than an Exempt Person) shall consolidate with, or merge with and
into, the Company, and the Company shall be the continuing or surviving
corporation of such consolidation or merger and, in connection with such
consolidation or merger, all or part of the outstanding shares of Common Stock
shall be changed into or exchanged for stock or other securities of any other
Person (or the Company) or cash or other property, or (y) the Company shall
effect a statutory share exchange with the outstanding shares of Common Stock
being exchanged for stock or other securities of any other Person or cash or
other property, or (z) the Company or one or more of its Subsidiaries shall,
directly or indirectly, sell or otherwise transfer to any other Person, or any
Affiliate or Associate of such Person, in one or more transactions, or the
Company or one or more of its Subsidiaries shall sell or otherwise transfer to
any Persons in one or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any Person or Persons (other than the Company
or any Subsidiary of the Company in one or more transactions) then, on the first
occurrence of any such event, proper provision shall be made so that (i) each
holder of record of a Right, except as provided in Section 7(e) hereof, shall
thereafter have the right to receive, upon the exercise thereof and payment of
the Exercise Price in accordance with the terms of this Rights Agreement, such
number of shares of validly issued, fully paid, nonassessable and freely
tradable Common Stock of the Principal Party (as defined herein), not subject to
any liens, encumbrances, rights of first refusal or other adverse claims, as
shall, based on the Fair Market Value of the Common Stock of the Principal Party
on the date of the consummation of such consolidation, merger, sale or transfer,
equal twice the Exercise Price; (ii) such Principal Party shall thereafter be
liable for, and shall assume, by virtue of such consolidation, merger, sale or
transfer, all the obligations and duties of the Company pursuant to this Rights
Agreement; (iii) the term "COMPANY" for all purposes of this Rights Agreement
shall thereafter be deemed to refer to such Principal Party; (iv) such Principal
Party shall take such steps (including, but not limited to, the reservation of a
sufficient number of shares of its Common Stock in accordance with the
provisions of Section 9 hereof) in connection with such consummation as may be
necessary to assure that the provisions hereof shall thereafter be applicable,
as nearly as reasonably may be, in relation to its shares of Common Stock
thereafter deliverable upon the exercise of the Rights; PROVIDED, HOWEVER, that
upon the subsequent occurrence of any merger, consolidation, sale of all or
substantially all of the assets, recapitalization, reclassification of shares,
reorganization or other extraordinary transaction in respect of such Principal
Party, each holder of a Right shall thereupon be entitled to receive, upon
exercise of a Right and payment of the Exercise Price, such cash, shares,
rights, warrants and other property which such holder would have been entitled
to receive had it, at the time of such transaction, owned the shares of Common
Stock of the Principal Party purchasable upon the exercise of a Right, and such
Principal Party shall take such steps (including, but not limited to,
reservation of shares of stock) as may be necessary to permit the subsequent
exercise of the Rights in accordance with the terms hereof for such cash,
shares, rights, warrants and other property; and (v) the provisions of Section
11(a)(ii) hereof shall be of no effect following the occurrence of any event
described in clause (w), (x), (y) or (z) above of this Section 13(a).
18
(b) "PRINCIPAL PARTY" shall mean
(i) in the case of any transaction described in (w), (x) or
(y) of the first sentence of Section 13(a) hereof: (A) the Person that
is the issuer of the securities into which shares of Common Stock of
the Company are changed or otherwise exchanged or converted in such
merger, consolidation or exchange, or, if there is more than one such
issuer, the issuer of the Common Stock of which has the greatest
aggregate market value of shares outstanding or (B) if no such
securities are so issued, (x) the Person that is the other party to the
merger, consolidation or exchange and that survives such merger,
consolidation or exchange, or, if there is more than one such Person,
the Person the Common Stock of which has the greatest aggregate market
value of shares outstanding or (y) if the Person that is the other
party to the merger, consolidation or exchange does not survive the
merger, consolidation or exchange, the Person that does survive the
merger, consolidation, or exchange (including the Company if it
survives); and
(ii) in the case of any transaction described in (z) of the
first sentence in Section 13(a), the Person that is the party receiving
the greatest portion of the assets or earning power transferred
pursuant to such transaction or transactions, or, if each Person that
is a party to such transaction or transactions receives the same
portion of the assets or earning power so transferred or if the Person
receiving the greatest portion of the assets or earning power cannot be
determined, whichever of such Persons as is the issuer of Common Stock
having the greatest aggregate market value of shares outstanding;
PROVIDED, HOWEVER, that in any such case, if the Common Stock of such
Person is not at such time and has not been continuously over the
preceding 12-month period registered under Section 12 of the Exchange
Act, and such Person is a direct or indirect Subsidiary of another
Person the Common Stock of which is and has been so registered, the
term "PRINCIPAL PARTY" shall refer to such other Person, or if such
Person is a Subsidiary, directly or indirectly, of more than one
Person, the Common Stocks of all of which are and have been so
registered, the term "PRINCIPAL PARTY" shall refer to whichever of such
Persons is the issuer of the Common Stock having the greatest aggregate
market value of shares outstanding.
(c) The Company shall not consummate any consolidation, merger or sale
or transfer of assets or earning power referred to in Section 13(a) unless the
Principal Party shall have a sufficient number of authorized shares of its
Common Stock that have not been issued or reserved for issuance to permit
exercise in full of all Rights in accordance with this Section 13 and unless
prior thereto the Company and the Principal Party involved therein shall have
executed and delivered to the Rights Agent an agreement confirming that the
Principal Party shall, upon consummation of such consolidation, merger, exchange
or sale or transfer of assets or earning power, assume this Rights Agreement in
accordance with Section 13(a) hereof and that all rights of first refusal or
preemptive rights in respect of the issuance of shares of Common Stock of the
Principal Party upon exercise of outstanding Rights have been waived and that
such transaction shall not result in a default by the Principal Party under this
Rights Agreement, and further providing that, as soon as practicable after the
date of any consolidation, merger,
19
exchange or sale or transfer of assets or earning power referred to in Section
13(a) hereof, the Principal Party will:
(i) prepare and file a registration statement under the Act
with respect to the Rights and the securities purchasable upon exercise
of the Rights on an appropriate form, use its best efforts to cause
such registration statement to become effective as soon as practicable
after such filing and use its best efforts to cause such registration
statement to remain effective (with a prospectus at all times meeting
the requirements of the Act) until the date of expiration of the
Rights, and similarly comply with applicable state securities laws;
(ii) use its best efforts to list (or continue the listing of)
the Rights and the securities purchasable upon exercise of the Rights
on a national securities exchange or to meet the eligibility
requirements for quotation on Nasdaq or such other system on which the
Common Stock may be quoted; and
(iii) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all respects with
the requirements for registration on Form 10 (or any successor form)
under the Exchange Act.
In the event that any of the transactions described in Section 13(a) hereof
shall occur at any time after the occurrence of a transaction described in
Section 11(a)(ii) hereof, the Rights which have not theretofore been exercised
shall, subject to the provisions of Section 7(e) hereof, thereafter be
exercisable in the manner described in Section 13(a) hereof.
(d) The Company shall not enter into any transaction referred to in
this Section 13 if at the time of such transaction there are any rights,
warrants, instruments or securities outstanding or any agreements or
arrangements or other provisions which, as a result of the consummation of such
transaction, would eliminate or substantially diminish the benefits intended to
be afforded by the Rights. In that regard, and without limiting the foregoing,
in case the Principal Party which is to be a party to a transaction referred to
in this Section 13 has any provision in any of its authorized securities or in
its Articles of Incorporation or Bylaws or other instrument governing its
corporate affairs, which provision would have the effect of (i) causing such
Principal Party to issue, in connection with, or as a consequence of the
consummation of a transaction referred to in this Section 13, shares of Common
Stock of such Principal Party at less than the then Fair Market Value per share
(determined pursuant to Section 11(d) hereof) or securities exercisable for, or
convertible into, Common Stock of such Principal Party at less than such then
Fair Market Value (other than to holders of Rights pursuant to this Section 13)
or (ii) providing for any special tax or similar payment in connection with the
issuance to any holder of a Right of Common Stock of such Principal Party
pursuant to the provisions of this Section 13, then, in such event, the Company
shall not consummate any such transaction unless prior thereto the Company and
such Principal Party shall have executed and delivered to the Rights Agent a
supplemental agreement providing that the provision in question of such
Principal Party shall have been cancelled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision
20
will have no effect in connection with, or as a consequence of, the consummation
of the proposed transaction.
Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of Rights or
to distribute Right Certificates which evidence fractional Rights. In lieu of
such fractional Rights, there shall be paid to the registered holders of the
Right Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the Fair Market
Value of the whole Right.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are integral multiples of
one-hundredth of a share or, if a Right shall then be exercisable for a fraction
other than one-hundredth of a share, integral multiples of that fraction) upon
exercise of the Rights or to distribute certificates which evidence fractional
shares (other than fractions which are integral multiples of one-hundredth of a
share or, if a Right shall then be exercisable for a fraction other than
one-hundredth of a share, integral multiples of that fraction). In lieu of
issuing fractions of shares of Preferred Stock, the Company may, at its
election, issue depositary receipts evidencing fractions of shares pursuant to
an appropriate agreement between the Company and a depositary selected by it,
provided that such agreement shall provide that the holders of such depositary
receipts shall have all of the rights, privileges and preferences to which they
would be entitled as owners of the Preferred Stock. With respect to fractional
shares that are not integral multiples of one-hundredth of a share or, if a
Right shall then be exercisable for a fraction other than one-hundredth of a
share, are not integral multiples of that fraction, if the Company does not
issue such fractional shares or depositary receipts in lieu thereof, there shall
be paid to the holders of record of Right Certificates at the time such Right
Certificates are exercised as herein provided an amount in cash equal to the
same fraction of the Fair Market Value of a share of Preferred Stock.
(c) The holder of a Right by the acceptance of a Right expressly waives
his right to receive any fractional Rights or any fractional shares of Preferred
Stock (other than fractions which are integral multiples of one-hundredth of a
share or, if a Right shall then be exercisable for a fraction other than
one-hundredth of a share, integral multiples of that fraction) upon exercise of
a Right.
Section 15. RIGHTS OF ACTION. All rights of action in respect of this
Rights Agreement, except the rights of action given to the Rights Agent in
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in his own behalf and for his own
benefit, enforce, institute, and maintain any suit, action or proceeding against
the Company to enforce, or otherwise act in respect of, his right to exercise
the Rights evidenced by such Right Certificate in the manner provided in such
Right Certificate and in this Rights Agreement. Without limiting the foregoing
or any remedies
21
available to the holders of Rights, it is specifically acknowledged that the
holders of Rights would not have an adequate remedy at law for any breach of
this Rights Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of the obligations of any Person subject to this Agreement.
Section 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office of the Rights Agent designated for such purpose, duly endorsed or
accompanied by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the Person in
whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Stock certificate) is registered as the absolute owner thereof
and of the Rights evidenced thereby (notwithstanding any notations of ownership
or writing on the Right Certificates or the associated Common Stock certificate
made by anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent shall be affected by
any notice to the contrary.
Section 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of Preferred Stock or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. CONCERNING THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this Rights
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability, or expense, incurred without negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the Rights Agent in connection with the
22
acceptance and administration of this Rights Agreement, including the costs and
expenses of defending against any claim of liability relating to the Rights or
this Rights Agreement.
(b) The Rights Agent shall be protected against, and shall incur no
liability for or in respect of, any action taken, suffered or omitted by it in
connection with its administration of this Rights Agreement in reliance upon any
Right Certificate or certificate for Preferred Stock or for other securities of
the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
Person or Persons, or otherwise upon the advice of counsel as set forth in
Section 20 hereof.
Section 19. MERGER OR CONSOLIDATION OF, OR CHANGE IN NAME OF, THE
RIGHTS AGENT.
(a) Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or consolidated, or any corporation resulting from any
merger or consolidation to which the Rights Agent or any successor Rights Agent
shall be a party, or any corporation succeeding to the corporate trust or stock
transfer business of the Rights Agent or any successor Rights Agent, shall be
the successor to the Rights Agent under this Rights Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto; PROVIDED THAT such corporation would be eligible for appointment
as a successor Rights Agent under the provisions of Section 21 hereof. In case
at the time such successor Rights Agent shall succeed to the agency created by
this Rights Agreement, any of the Rights Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Rights Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; in case at that time any
of the Right Certificates shall not have been countersigned, the Rights Agent
may countersign such Right Certificates either in its prior name or in its
changed name; in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Rights Agreement.
Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the
duties and obligations imposed by this Rights Agreement upon the following terms
and conditions, by all of which the Company and the holders of Right
Certificates by their acceptance thereof, shall be bound:
23
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Rights
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect thereof
be herein specifically prescribed) may be defined to be conclusively proved and
established by a certificate signed by the Chairman of the Board, the Chief
Executive Officer, the President or any Vice President and attested to by the
Chief Financial Officer, the Secretary or an Assistant Secretary of the Company
and delivered to the Rights Agent. Any such certificate shall be full
authorization to the Rights Agent for any action taken or suffered in good faith
by it under the provisions of this Rights Agreement in reliance upon such
certificate.
(c) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Rights Agreement or in the
Right Certificates (except its countersignature thereof), or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(d) The Rights Agent shall not be under any responsibility in respect
of the validity of this Rights Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Rights Agreement or in any Right
Certificate; nor shall it be responsible for any adjustment in the terms of the
Rights (including the manner, method or amount required under the provisions of
Section 11 or 13 hereof) or for ascertaining the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights
evidenced by Right Certificates after receipt of a certificate furnished
pursuant to Section 12 describing such adjustment); nor shall it by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Preferred Stock to be issued
pursuant to this Rights Agreement or any Right Certificate or as to whether any
shares of Preferred Stock will, when issued, be validly authorized and issued,
fully paid and nonassessable.
(e) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments, and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Rights Agreement.
(f) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the Chief Executive Officer, the President or any Vice
President and confirmed by the Chief Financial Officer, the Secretary or an
Assistant Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties. The Rights Agent shall not be liable
for any
24
action taken or suffered by it in good faith in accordance with instructions of
any such officer or for any delay in acting while waiting for those
instructions.
(g) The Rights Agent and any shareholder, director, officer or employee
of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not the Rights
Agent under this Rights Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other legal
entity.
(h) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Rights
Agreement upon thirty (30) days written notice mailed to the Company and to each
transfer agent of the Common Stock and the Preferred Stock by registered or
certified mail. The Company may remove the Rights Agent or any successor Rights
Agent (with or without cause) upon thirty (30) days written notice, mailed to
the Rights Agent or successor Rights Agent, as the case may be, and to each
transfer agent of the Common Stock and Preferred Stock by registered or
certified mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. Notwithstanding the foregoing provisions of this Section 21,
in no event will the resignation or removal of a Rights Agent be effective until
a successor Rights Agent has been appointed and has accepted such appointment.
If the Company shall fail to make such appointment within a period of thirty
(30) days after such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of a Right Certificate (who shall, with such notice, submit his Right
Certificate for inspection by the Company), then the incumbent Rights Agent or
the holder of record of any Right Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be (a)
a corporation organized and doing business under the laws of the United States
or of any state thereof, in good standing, which is authorized under such laws
to exercise corporate trust or stock transfer powers and is subject to
supervision or examination in the conduct of its corporate trust or stock
transfer business by federal or state authorities and which has at the time of
its appointment as Rights Agent a combined capital and surplus of at least
$100,000,000 or (b) an Affiliate controlled by a corporation described in clause
(a) of this sentence. After appointment, the successor Rights Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Rights Agent without further act or deed, but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective
25
date of any such appointment, the Company shall file written notice thereof with
the predecessor Rights Agent and each transfer agent of the Common Stock and
Preferred Stock, and mail a written notice thereof to the registered holders of
the Right Certificates. Failure to give any notice provided for in this Section
21, however, or any defect therein, shall not affect the legality or validity of
the resignation or removal of the Rights Agent or the appointment of the
successor Rights Agent, as the case may be. Notwithstanding the foregoing
provisions, in the event of resignation, removal or incapacity of the Rights
Agent, the Company shall have the authority to act as the Rights Agent until a
successor Rights Agent shall have assumed the duties of the Rights Agent
hereunder.
Section 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any of
the provisions of this Rights Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in
such form as may be approved by its Board of Directors to reflect any adjustment
or change in the Exercise Price per share and the number or kind or class of
shares or other securities or property purchasable under the Right Certificates
made in accordance with the provisions of this Rights Agreement.
Section 23. REDEMPTION.
(a) The Board may, at its option by majority vote, redeem all but not
less than all of the then outstanding Rights, at any time prior to the Close of
Business on the earlier of (i) the tenth day following the Stock Acquisition
Date (subject to extension by the Company as provided in Section 27 hereof) or
(ii) the Final Expiration Date, at a redemption price of $.001 per Right,
subject to adjustments to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof as provided in subsection (c) below
(the "REDEMPTION PRICE"). Notwithstanding anything contained in this Agreement
to the contrary, the Rights shall not be exercisable pursuant to Section
11(a)(ii) prior to the expiration of the Company's right of redemption
hereunder.
(b) Immediately upon the Board's action ordering the redemption of
rights pursuant to paragraph (a) of this Section 23, and without any further
action and without any notice, the right to exercise the Rights will terminate
and the only right thereafter of the holders of Rights shall be to receive the
Redemption Price. Within ten (10) days after the effective time of the action of
the Board ordering the redemption of the Rights, the Company shall give notice
of such redemption to the holders of the then outstanding Rights by mailing such
notice to all such holders at their last addresses as they appear upon the
registry books of the Rights Agent, or prior to the Distribution Date, on the
registry books of the transfer agent for the Common Stock. Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not the
holder receives such notice. Each notice of redemption will state the method by
which payment of the Redemption Price will be made. At the option of the Board,
the Redemption Price may be paid in cash to each Rights holder or by the
issuance of shares (and, at the Company's election pursuant to Section 14(b)
hereof, cash or depositary receipts in lieu of fractions of shares other than
fractions which are integral multiples of one-hundredth (1/100) of a share or,
if a Right shall then be exercisable for a fraction other than one-hundredth of
a share, integral multiples of that fraction) of Preferred Stock having a Fair
Market Value equal to such cash payment.
26
(c) In the event the Company shall at any time after the date of this
Rights Agreement (A) pay any dividend on Common Stock in shares of Common Stock,
(B) subdivide or split the outstanding shares of Common Stock into a greater
number of shares or (C) combine or consolidate the outstanding shares of Common
Stock into a smaller number of shares or effect a reverse split of the
outstanding shares of Common Stock, then, and in each such event, the Redemption
Price shall be adjusted so that the Redemption Price after such event shall
equal the Redemption Price immediately prior to such event multiplied by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately prior to such event and the denominator of which is the
number of shares of Common Stock outstanding immediately after such event.
Section 24. EXCHANGE.
(a) The Board may, at its option, at any time after any Person becomes
an Acquiring Person, exchange all or part of the then outstanding and
exercisable Rights (excluding Rights that have become void pursuant to the
provisions of Section 11(a)(ii) hereof) for shares of Common Stock, with each
Right to be exchanged for one share of Common Stock, appropriately adjusted to
reflect any stock split, stock dividend or a similar transaction occurring
thereafter (such exchange ratio is hereinafter referred to as the "EXCHANGE
Ratio"). Notwithstanding the foregoing, the Board shall not be empowered to
effect such exchange at any time after any Person (other than an Exempt Person),
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of shares of Common Stock aggregating fifty percent (50%) or
more of the shares of Common Stock then outstanding.
(b) Immediately upon the Board's action ordering the exchange of any
Rights pursuant to paragraph (a) of this Section 24 and without any further
action and without any notice, the right to exercise such Rights shall terminate
and the only right of a holder of such rights thereafter shall be to receive
that number of shares of Common Stock equal to the number of such Rights held by
such holder multiplied by the Exchange Ratio. The Company shall promptly give
public notice of any such exchange; PROVIDED, HOWEVER, that the failure to give,
or any defect in, such notice shall not affect the validity of such an exchange.
The Company promptly shall mail a notice of any such exchange to all of the
registered holders of the Rights at their last addresses as they appear upon the
registry books of the Rights Agent. Any notice mailed in accordance herewith
shall be deemed given, whether or not the holder receives the notice. Each
notice of exchange will state the method by which the exchange of the Common
Stock for Rights will be effected and, in the event of any partial exchange, the
number of Rights which will be exchanged. Any partial exchange shall be effected
pro rata based on the number of Rights (other than Rights that have become void
pursuant to the provisions of Section 11(a)(ii) hereof) held by each registered
Rights holder.
(c) In the event that there are insufficient shares of Common Stock
authorized but unissued to permit any exchange of Rights as contemplated in
accordance with this Section 24, the Company shall take all such action as may
be necessary to authorize additional shares of Common Stock for issuance upon
exchange of the Rights. In the event the Company shall, after
27
good faith effort, be unable to take such action to authorize such additional
number of shares of Common Stock, the Company shall substitute, for each share
of Common Stock that would otherwise be issuable upon the exchange of Rights, a
number of shares of Preferred Stock or a fraction thereof so that the Fair
Market Value of one share of Preferred Stock multiplied by such number or
fraction is equal to the Fair Market Value of one share of Common Stock as of
the date of issuance of such shares of Preferred Stock or fraction thereof.
(d) The Company shall not be required to issue fractions of shares of
Common Stock or to distribute certificates which evidence fractional shares of
Common Stock. In lieu of fractional shares of Common Stock, the Company shall
pay to the registered holders of the Right certificates, with regard to which
such fractional shares of Common Stock would otherwise be issuable, an amount in
cash equal to the same fraction of the Fair Market Value of a whole share of
Common Stock. For purposes of this paragraph (d), the Fair Market Value of a
whole share of Common Stock shall be the closing price (as defined in Section
11(d)) of a share of Common Stock for the Trading Day immediately prior to the
date of exchange pursuant to this Section 24.
Section 25. NOTICE OF PROPOSED ACTIONS.
(a) In case the Company, after the Distribution Date, shall propose to
(i) effect any of the transactions referred to in Section 11(a)(i) or 11(i), or
(ii) offer to the holders of record of its Common Stock options, warrants, or
other rights to subscribe for or to purchase shares of Common Stock (including
any security convertible into or exchangeable for Common Stock) or shares of
stock of any class or any other securities, options, warrants, convertible or
exchangeable securities or other rights, or (iii) effect any reclassification of
its Preferred Stock or Common Stock or any recapitalization or reorganization of
the Company, or (iv) effect any consolidation, merger with or into, exchange or
any sale or other transfer (or to permit one or more of its Subsidiaries to
effect any sale or other transfer), in one or more transactions, of more than
fifty percent (50%) of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to, any other Person or Persons, or (v) effect
the liquidation, dissolution or winding up of the Company, then, in each such
case, the Company shall give to each holder of record of a Right Certificate, in
accordance with Section 26 hereof, notice of such proposed action, which shall
specify the record date for the purposes of such transaction referred to in
Section 11(a)(i) or 11(i) or such dividend or distribution, or the date on which
such reclassification, recapitalization, reorganization, consolidation, merger,
sale or transfer of assets, liquidation, dissolution, or winding up is to take
place and the record date for determining participation therein by the holders
of record of Common Stock or Preferred Stock, if any such date is to be fixed,
and such notice shall be so given in the case of any action covered by clause
(i) or (ii) above at least ten (10) days prior to the Record Date for
determining holders of record of the Preferred Stock for purposes of such
action, and in the case of any such other action, at least ten (10) days prior
to the date of the taking of such proposed action or the date of participation
therein by the holders of record of Common Stock or Preferred Stock, whichever
shall be the earlier. The failure to give notice required by this Section 25 or
any defect therein shall not affect the legality or validity of the action taken
by the Company or the vote upon any such action.
28
(b) In case any of the transactions referred to in Section 11(a)(i),
11(i) or 13 of this Rights Agreement are proposed, then, in any such case, the
Company shall give to each holder of Rights, in accordance with Section 26
hereof, notice of the proposal of such transaction at least ten (10) days prior
to consummating such transaction. Such notice shall specify the proposed event
and the consequences of the event to holders of Rights under Section 11(a)(i),
11(i) or 13 hereof, as the case may be, and upon consummating such transaction,
shall similarly give notice thereof to each holder of Rights.
Section 26. NOTICES. Notices or demands authorized by this Rights
Agreement to be given or made by the Rights Agent or by the holder of record of
any Right Certificate to or on the Company shall be sufficiently given or made
if sent by first class mail, postage prepaid, addressed (until another address
is filed in writing with the Rights Agent) as follows:
DATAKEY, INC.
000 Xxxx Xxxxxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxxx 00000
Attention: Chief Executive Officer
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Rights Agreement to be given or made by the Company or by the
holder of record of any Right Certificate to or on the Rights Agent shall be
sufficiently given or made if sent by first class mail, postage prepaid,
addressed (until another address is filed in writing with the Company) as
follows:
XXXXX FARGO BANK MINNESOTA, N.A.
000 Xxxxx Xxxxxxx Xxxxxxxx
Xxxxx Xx. Xxxx, Xxxxxxxxx 00000
Notices or demands authorized by this Rights Agreement to be given or
made by the Company or the Rights Agent to the holder of record of any Right
Certificate shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed to such holder at the address of such holder as shown
on the registry books of the Company.
Section 27. SUPPLEMENTS AND AMENDMENTS. For as long as the Rights are
then redeemable and except as provided in the last sentence of this Section 27,
the Company may, in its sole and absolute discretion, and the Rights Agent shall
if the Company so directs, supplement or amend any provision of this Rights
Agreement without the approval of any holders of the Rights. At any time when
the Rights are then redeemable and except as provided in the last sentence of
this Section 27, the Company may upon approval by the Board, and the Rights
Agent shall if the Company so directs, supplement or amend this Rights Agreement
without the approval of any holders of the Right Certificates (i) to cure any
ambiguity, (ii) to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provisions herein, (iii) to
extend the Final Expiration Date or the period in which the Company may redeem
the Rights, or (iv) to change or supplement the provisions hereunder in any
manner which the Company may deem necessary or desirable, provided that no such
supplement or
29
amendment pursuant to this clause shall materially adversely affect the interest
of the holders of the Right Certificates. Upon the delivery of a certificate
from an appropriate officer of the Company which states that the proposed
supplement or amendment is in compliance with the terms of this Section 27, the
Rights Agent shall execute such supplement or amendment. Notwithstanding
anything contained in this Rights Agreement to the contrary, no supplement or
amendment shall be made which changes the Redemption Price, and no supplements
or amendments may be made after the time that any Person becomes an Acquiring
Person (other than pursuant to a Qualifying Tender Offer).
Section 28. SUCCESSORS. All the covenants and provisions of this Rights
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. BENEFITS OF THIS RIGHTS AGREEMENT. Nothing in this Rights
Agreement shall be construed to give to any Person other than the Company, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the holders of Common Stock in their capacity as holders
of the Rights) any legal or equitable right, remedy or claim under this Rights
Agreement; but this Rights Agreement shall be for the sole and exclusive benefit
of the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the holders of Common Stock).
Section 30. SEVERABILITY. If any term, provision, covenant or
restriction of this Rights Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Rights
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
Section 31. GOVERNING LAW. This Rights Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Minnesota and for all purposes shall be governed by and
construed and enforced in accordance with the laws of such state applicable to
contracts to be made and performed entirely within such state.
Section 32. COUNTERPARTS. This Rights Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Rights Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
30
IN WITNESS WHEREOF, the parties hereto have caused this Rights
Agreement to be duly executed, all as of the day and year first above written.
DATAKEY, INC.
By: /s/ Xxxx X. Xxxxxxx
Its: Chief Executive Officer
XXXXX FARGO BANK MINNESOTA, N.A.
By: /s/ Xxxxxxxx Xxxxxxxx
Its: Account Manager
Exhibits:
A - Statement of Designation of Series B Preferred Stock
B - Summary of Rights to Purchase Shares of Series B Preferred Stock
C - Form of Right Certificate
31
EXHIBIT A
STATEMENT OF DESIGNATION
OF
SERIES B PREFERRED STOCK
OF
DATAKEY, INC.
(Pursuant to Chapter 302A of the
Minnesota Business Corporation Act)
---------------------------------
Datakey, Inc., a corporation organized and existing under the Minnesota
Business Corporation Act (hereinafter called the "Company"), hereby certifies
that the following resolution was adopted by the Board of Directors of the
Company at a meeting duly called and held on October 19, 2001:
RESOLVED, that, pursuant to the authority granted to and vested in the
Board of Directors of the Company (hereinafter called the "Board of Directors"
or the "Board") in accordance with the provisions of Section 3.01 of the
Articles of Incorporation, as amended to date (hereinafter called the "Articles
of Incorporation"), the Board of Directors hereby creates a series of preferred
stock, par value $.05 per share, of the Company and hereby states the
designation and number of shares, and fixes the relative rights, preferences,
and limitations thereof as follows:
Series B Preferred Stock:
Section 1. DESIGNATION AND AMOUNT. The shares of such preferred stock
series shall be designated as "Series B Preferred Stock" (the "Series B
Preferred Stock"), and the number of shares constituting the Series B Preferred
Stock shall be One Hundred and Twenty-Thousand (120,000). Such number of shares
may be increased or decreased by resolution of the Board of Directors; PROVIDED,
that, no decrease shall reduce the number of shares of Series B Preferred Stock
to a number less than the number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Company convertible into Series B Preferred Stock.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the rights of the holders of any shares of any series of
preferred stock of the Company or preferred stock (or any similar stock) ranking
prior and superior to the Series B Preferred Stock with respect to dividends,
the holders of shares of Series B Preferred Stock, in preference to the holders
of Common Stock, par value $.05 per share (the "Common Stock"), of
-1-
the Company, and of any other junior stock, shall be entitled to receive, when,
as and if declared by the Board of Directors out of funds legally available for
the purpose, quarterly dividends payable in cash on the first day of March,
June, September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series B Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for
adjustment hereinafter set forth, 100 times (as adjusted, the "Dividend
Multiple") the aggregate per share amount of all cash dividends, and 100 times
the aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions, other than a dividend payable in shares of Common Stock or
a subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Series B Preferred Stock. In the event the Company shall at any time declare or
pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise) into a greater or lesser
number of shares of Common Stock, then in each such case the Dividend Multiple
shall be adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(B) The Company shall declare a dividend or distribution on the Series
B Preferred Stock as provided in paragraph (A) of this Section immediately after
it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); PROVIDED, that, in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $1 per share on the Series B
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series B Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series B Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series B Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series B Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be not more
than sixty (60) days prior to the date fixed for the payment thereof.
Section 3. VOTING RIGHTS. The holders of shares of Series B Preferred
Stock shall have the following voting rights:
-2-
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series B Preferred Stock shall entitle the holder
thereof to 100 votes (as adjusted, the "Vote Multiple") on all matters
submitted to a vote of the stockholders of the Company. In the event
the Company shall at any time declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock
(by reclassification or otherwise) into a greater or lesser number of
shares of Common Stock, then in each such case the Vote Multiple shall
be adjusted by multiplying such number by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided in Section 10 hereof, in any
other Statement of Designation creating a series of preferred stock or
any similar stock, or by law, the holders of shares of Series B
Preferred Stock and the holders of shares of Common Stock, the holders
of Convertible Preferred Stock and any other capital stock of the
Company having general voting rights shall vote together as one class
on all matters submitted to a vote of stockholders of the Company.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series B Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series B Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Series B Preferred Stock outstanding shall have been paid in full, the
Company shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series B Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series B Preferred Stock, except
dividends paid ratably on the Series B Preferred Stock and all
such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series B Preferred Stock, provided that the Company may at
any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the
Company ranking junior (as to dividends
-3-
and upon dissolution, liquidation and winding up) to the
Series B Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series B Preferred Stock, or any
shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series B
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board)
to all holders of such shares upon such terms as the Board,
after consideration of the respective annual dividend rates
and other relative rights and preferences of the respective
series or classes, shall determine in good faith will result
in fair and equitable treatment among the respective series or
classes.
(B) The Company shall not permit any subsidiary of the Company
to purchase or otherwise acquire for consideration any shares of stock
of the Company unless the Company could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and
in such manner.
Section 5. REACQUIRED SHARES. Any shares of Series B Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued undesignated shares
and may be reissued as part of a new series of stock subject to the conditions
and restrictions on issuance set forth herein, in the Articles of Incorporation,
or in any other Statement of Designation creating a series of preferred stock or
any similar stock or as otherwise required by law.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Company, no distribution shall be
made (A) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series B
Preferred Stock unless, prior thereto, the holders of shares of Series B
Preferred Stock shall have received the greater of (i) $100 per share, plus an
amount equal to accrued and unpaid dividends and distributions thereon, whether
or not declared, to the date of such payment, or (ii) subject to the provision
for adjustment hereinafter set forth, 100 times (as adjusted, the "Liquidation
Preference Multiple") the aggregate amount to be distributed per share to
holders of shares of Common Stock, or (B) to the holders of shares of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series B Preferred Stock, except distributions made ratably
on the Series B Preferred Stock and all such parity stock in proportion to the
total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Company shall at any
time declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise) into a
greater or lesser number of shares of Common Stock, then in each such case the
Liquidation Preference Multiple shall be adjusted by multiplying such amount by
a fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 7. CONSOLIDATION, MERGER, ETC. In case the Company shall enter
into any consolidation, merger, statutory exchange combination or other
transaction in which the shares
-4-
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case each share of Series B
Preferred Stock shall at the same time be similarly exchanged or changed into an
amount per share, subject to the provision for adjustment hereinafter set forth,
equal to 100 times (as adjusted, the "Exchange Multiple") the aggregate amount
of stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Company shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise) into a greater or lesser number of
shares of Common Stock, then in each such case the Exchange Multiple shall be
adjusted by multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. NO REDEMPTION. The shares of Series B Preferred Stock shall
not be redeemable.
Section 9. RANK. The Series B Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to the
Company's Convertible Preferred Shares outstanding and junior to any other class
of the corporation's preferred stock hereafter issued.
Section 10. AMENDMENT. If any proposed amendment to the Articles of
Incorporation or this Statement of Designation would alter or change the
preferences, special rights or powers given to the Series B Preferred Stock so
as to affect the Series B Preferred Stock adversely, except as otherwise
provided in this Statement of Designation, then the holders of the Series B
Preferred Stock shall be entitled to vote as a series upon such amendment, and
the affirmative vote of two-thirds of the outstanding shares of Series B
Preferred Stock shall be necessary to the adoption thereof, in addition to such
other vote as may be required by the Minnesota Business Corporation Act.
Section 11. FRACTIONAL SHARES. Series B Preferred Stock may be issued
in fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series B Preferred Stock.
I certify that I am authorized to execute this Statement of
Designation, and I further certify that I understand that by signing this
Statement of Designation I am subject to the penalties of perjury as set forth
in Minnesota Statutes, Section 609.48, as if I had signed this Statement of
Designation under oath.
Dated: October 26, 2001
/s/ Xxxx X. Xxxxxx
------------------------------------
Xxxx X. Xxxxxx, Vice President and
Chief Financial Officer
-5-
EXHIBIT B
SUMMARY OF RIGHTS TO PURCHASE
SHARES OF SERIES B PREFERRED STOCK
On October 19, 2001, the Board of Directors of Datakey, Inc. (the
"Company") declared a dividend of one preferred stock purchase right (a "Right")
for each outstanding share of common stock, par value $.05 per share (the
"Common Stock"), and each outstanding share of Convertible Preferred Stock of
the Company. The dividend is payable on November 9, 2001 (the "Record Date") to
the stockholders of record on that date. Each Right entitles the registered
holder to purchase from the Company one-hundredth of one share of Series B
Preferred Stock, par value $.05 per share (the "Series B Preferred Stock"), of
the Company at a price of $60 per one-hundredth of a Preferred Share (the
"Exercise Price"), subject to adjustment. The description and terms of the
Rights are set forth in the Rights Agreement dated as of October 26, 2001 (the
"Rights Agreement") between the Company and Xxxxx Fargo Bank Minnesota, N.A., as
Rights Agent (the "Rights Agent").
Until the earlier of (i) 10 days following a public announcement by the
Company or a person or group of affiliated or associated persons (an "Acquiring
Person") that such an Acquiring Person has acquired beneficial ownership of
fifteen percent (15%) or more of the outstanding Common Stock or (ii) 10
business days (or such later date as may be determined by action of the Board of
Directors prior to such time as any person or group of affiliated persons
becomes an Acquiring Person) following the commencement of, or announcement of
an intention to make, a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of fifteen percent
(15%) or more of the outstanding Common Stock (the earlier of such dates being
called the "Distribution Date"), the Rights will be evidenced, with respect to
any of the Common Stock certificates outstanding as of the Record Date, by such
Common Stock certificate with a copy of this Summary of Rights attached thereto.
The Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferable
with and only with the Common Stock and Convertible Preferred Stock. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Stock certificates issued after the Record Date upon transfer or new
issuance of shares of Common Stock will contain a notation incorporating the
Rights Agreement by reference. Until the Distribution Date (or earlier
redemption or expiration of the Rights), the surrender for transfer of any
certificates for shares of Common Stock outstanding as of the Record Date, even
without such notation or a copy of this Summary of Rights being attached
thereto, will also constitute the transfer of the Rights associated with the
shares of Common Stock represented by such certificate. As soon as practicable
following the Distribution Date, separate certificates evidencing the Rights
("Right Certificates") will be mailed to holders of record of the Common Stock
as of the close of business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.
-1-
The Rights are not exercisable until the Distribution Date. The Rights
will expire on November 9, 2011 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed by the
Company, as described below.
The Exercise Price payable, and/or the number of shares of Series B
Preferred Stock or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, or certain distributions on, the Common Stock, (ii) the
issuance to holders of Series B Preferred Stock of certain rights or warrants to
subscribe for or purchase Series B Preferred Stock at a price, or securities
convertible into Series B Preferred Stock with a conversion price, less than the
then current market price of the Series B Preferred Stock or (iii) upon the
distribution to holders of the Series B Preferred Stock of evidences of
indebtedness or assets (other than regular periodic cash dividends) or of
subscription rights or warrants.
Series B Preferred Stock purchasable upon exercise of the Rights will
not be redeemable. Each share of Series B Preferred Stock will be entitled to a
minimum preferential quarterly dividend payment of $1 per share but will be
entitled to an aggregate dividend of 100 times the dividend declared per share
of Common Stock. In the event of liquidation, the holders of the Series B
Preferred Stock will be entitled to a minimum preferential liquidation payment
of $100 per share but will be entitled to an aggregate payment of 100 times the
payment made per share of Common Stock. Each share of Series B Preferred Stock
will have 100 votes, voting together with the Common Stock. Finally, in the
event of any merger, consolidation or other transaction in which Common Stock is
exchanged, each share of Series B Preferred Stock will be entitled to receive
100 times the amount received per share of Common Stock. These rights are
protected by customary anti-dilution provisions.
Because of the nature of the Series B Preferred Stock's dividend,
liquidation and voting rights, the value of one-hundredth of a share of Series B
Preferred Stock purchasable upon exercise of each Right should approximate the
value of one share of Common Stock.
Unless the board takes other action allowed under the Rights Plan, in
the event that any person or group of affiliated or associated persons becomes
an Acquiring Person, proper provision shall be made so that each holder of a
Right, other than Rights beneficially owned by the Acquiring Person (which will
thereafter be void), will thereafter have the right to receive upon exercise
that number of shares of Series B Preferred Stock (or fractions thereof in a
multiple of one-hundredth) having a market value of two (2) times the Exercise
Price of the Right. In the event that, after a person or group has become an
Acquiring Person, the Company is acquired in a merger or other business
combination transaction or fifty percent (50%) or more of its consolidated
assets or earning power are sold, proper provision will be made so that each
registered holder of a Right will thereafter have the right to receive, upon the
exercise thereof at the then current Exercise Price of the Right, that number of
shares of common stock of the acquiring company which at the time of such
transaction will have a market value of two (2) times the Exercise Price of the
Right.
-2-
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of fifty percent (50%) or more
of the outstanding shares of Common Stock, the Board of Directors of the Company
may exchange the Rights (except the Rights owned by such person or group which
will have become void), in whole or in part, with each Right to be exchanged for
one share of Common Stock. This exchange ratio is subject to further adjustment
to reflect any stock splits, stock dividends or similar transactions occurring
thereafter. If there are insufficient shares of Common Stock authorized but
unissued to permit the Company to complete any exchange of the Rights, the
Company may, under certain circumstances, substitute for each share of Common
Stock that would otherwise be issued upon such exchange of the Rights, shares of
Series B Preferred Stock with market value equal to the market value of the
shares of Common Stock that would otherwise be issuable upon such exchange of
the Rights.
No fractional shares of Series B Preferred Stock will be issued (other
than fractions which are integral multiples of one-hundredth of a share of
Series B Preferred Stock or, if a Right shall then be exercisable for a fraction
other than one-hundredth of a share, integral multiples of that fraction, which
in either case may, at the election of the Company, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
fair market value of the shares of Series B Preferred Stock on the date of
exercise.
At any time prior to ten days (subject to extension by the Board of
Directors of the Company) after the time an Acquiring Person becomes such, the
Board of Directors may redeem the Rights in whole, but not in part, at a price
of $.001 per Right, subject to adjustment for stock splits, stock dividends or
similar transactions, (the "Redemption Price"). The redemption of the Rights may
be made effective at such time, on such basis and with such conditions as the
Board of Directors in its sole discretion may establish. The right to exercise
the Rights will terminate immediately upon any redemption of the Rights, and the
only right of the holders of Rights will be to receive the Redemption Price.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an exhibit to a Registration Statement on Form 8-A dated
October 26, 2001. A copy of the Rights Agreement is available free of charge
from the Company. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
which is hereby incorporated herein by reference.
-3-
EXHIBIT C
[Form of Right Certificate]
Certificate No. R-_______ _______ Rights
NOT EXERCISABLE AFTER NOVEMBER 9, 2011 OR EARLIER IF REDEEMED BY THE
COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT
$.001 PER RIGHT (SUBJECT TO ADJUSTMENT) ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT. UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS
THAT ARE BENEFICIALLY OWNED BY, OR WERE ACQUIRED FROM, AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT) SHALL BECOME NULL AND VOID.
RIGHT CERTIFICATE
DATAKEY, INC.
This certifies that , or registered assigns, is the registered owner of
the number of Rights set forth above, each of which entitle the holder to
thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of October 26, 2001 (the "Rights Agreement"), between
DATAKEY, INC., a Minnesota corporation (the "Company"), and XXXXX FARGO BANK
MINNESOTA, N.A. (the "Rights Agent"), to purchase from the Company at any time
after the Distribution Date (as defined in the Rights Agreement) and prior to
5:00 P.M. (Minneapolis time) on November 9, 2011 at the office or offices of the
Rights Agent designated for such purpose, or its successors as Rights Agent,
one-hundredth (1/100) of a fully paid, non-assessable share of Series B
Preferred Stock (the "Series B Preferred Stock") of the Company, at a purchase
price of $60 per one-hundredth (1/100) of a share (the "Exercise Price"), upon
presentation and surrender of this Right Certificate with the Form of Election
to Purchase and related Certificate duly executed.
The number of Rights evidenced by this Right Certificate (and the
number of shares which may be purchased upon exercise thereof) set forth above,
and the Exercise Price set forth above, are the number and Exercise Price as of
November 9, 2001, based on the Series B Preferred Stock as constituted at such
date. As provided in the Rights Agreement, the Exercise Price and the number and
kind of shares of Series B Preferred Stock or other securities which may be
purchased upon the exercise of the Rights evidenced by this Right Certificate
are subject to adjustment upon the occurrence of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a
-1-
full description of the rights, limitations of rights, obligations, duties and
immunities hereunder of the Rights Agent, the Company and the holders of the
Right Certificates, which limitations of rights include the temporary suspension
of the exercisability of such Rights under the specific circumstances set forth
in the Rights Agreement. Copies of the Rights Agreement are on file at the
above-mentioned office of the Rights Agent and are also available upon written
request to the Rights Agent.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office or offices of the Rights Agent designated for
such purpose, may be exchanged for another Right Certificate or Right
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of one-hundredths of a share of Series B
Preferred Stock as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights unexercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate (i) may be redeemed by the Company at its option at a
redemption price of $.001 per Right, subject to adjustment as provided in the
Rights Agreement, at any time prior to the earlier of the close of business on
(A) the tenth day following the Stock Acquisition Date (such time period may be
extended pursuant to the Rights Agreement) or (B) the Final Expiration Date (as
defined in the Rights Agreement), and (ii) may, at the option of the Company, be
exchanged in whole or in part for Series B Preferred Stock or shares of the
Company's Common Stock, par value $.05 per share.
No fractional shares of Series B Preferred Stock will be issued upon
the exercise of any Right or Rights evidenced hereby (other than fractions which
are integral multiples of one-hundredth of a share of Series B Preferred Stock
or, if a Right shall then be exercisable for a fraction other than one-hundredth
of a share, integral multiples of that fraction, which in either case may, at
the election of the Company, be evidenced by depositary receipts), but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of shares of Series
B Preferred Stock or of any other securities of the Company which may at any
time be issuable on the exercise hereof, nor shall anything contained in the
Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or, to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
From and after the first occurrence of an event described in Section
11(a)(ii) of the Rights Agreement, any Rights evidenced by this Right
Certificate that are Beneficially Owned by an
-2-
Acquiring Person, any Associate or
Affiliate of such Acquiring Person or certain transferees of any such Acquiring
Person (or of any such Associate or Affiliate) (as such terms are defined in the
Rights Agreement) shall be null and void without further action and any holder
of such Rights shall thereafter have no rights whatsoever with respect to such
Rights.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Dated as of
------------------, ------.
ATTEST: DATAKEY, INC.
By: By:
------------------------- ------------------------
Its: Its:
--------------------- --------------------
Countersigned:
XXXXX FARGO BANK MINNESOTA, N.A.
as Rights Agent
By:
-------------------------
Authorized Signature
-3-
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED
-------------------------------------------------------------
hereby sells, assigns and transfers unto
--------------------------------------------------------------------------------
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ____________________________
Attorney, to transfer the within Right Certificate on the books of the
within-named Company, with full power of substitution.
THE UNDERSIGNED HEREBY CERTIFIES that the Rights evidenced by this Right
Certificate are not beneficially owned by, and were not acquired from, an
Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights
Agreement).
Dated:
-------------------, -------. ------------------------
Signature
-------------------------------
Signature Medallion Guaranteed
THE SIGNATURES TO THIS FORM OF ASSIGNMENT MUST CORRESPOND TO THE NAME AS WRITTEN
UPON THE FACE OF THIS RIGHT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE MEDALLION GUARANTEED BY AN
ELIGIBLE INSTITUTION AS DEFINED IN SECTION 240.17 Ad-15 OF THE SECURITIES
EXCHANGE ACT OF 1934.
[Form of Reverse Side of Right Certificate -- continued]
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights represented by the Right
Certificate)
To: DATAKEY, INC.
The undersigned hereby irrevocably elects to exercise________________ Rights
represented by this Right Certificate to purchase the Series B Preferred Stock
issuable upon exercise of such Rights and requests that certificates for such
Series B Preferred Stock be issued in the name of:
-----------------------------------------------------------------
-----------------------------------------------------------------
(Please print name and address)
---------------------
Please insert social security or other identifying number
---------------------
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
-----------------------------------------------------------------
-----------------------------------------------------------------
(Please print name and address)
THE UNDERSIGNED HEREBY CERTIFIES that the Rights evidenced by this Right
Certificate are not beneficially owned by, and were not acquired from, an
Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights
Agreement).
Please list all Beneficial Owners:
---------------------------------------------
-------------------------------------------------------------------------------
Dated:
-------------------, -------. ------------------------
Signature
-------------------------------
Signature Medallion Guaranteed
THE SIGNATURES TO THIS FORM OF ELECTION TO PURCHASE MUST CORRESPOND TO THE NAME
AS WRITTEN UPON THE FACE OF THIS RIGHT CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE MEDALLION
GUARANTEED BY AN ELIGIBLE INSTITUTION AS DEFINED IN SECTION 240.17 Ad-15 OF THE
SECURITIES EXCHANGE ACT OF 1934.
